EX-99.1 4 d474037dex991.htm EX-99.1 EX-99.1
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Exhibit 99.1

 

Information contained herein is subject to completion or amendment. A Registration Statement on Form 10 relating to these securities has been filed with the U.S. Securities and Exchange Commission under the U.S. Securities Exchange Act of 1934, as amended.

 

Preliminary and Subject to Completion, dated February 8, 2018

INFORMATION STATEMENT

Ultra SC Inc.

13600 EDS Drive

Herndon, VA 20171

Common Stock

(par value $0.01)

 

 

We are providing you this Information Statement in connection with the spin-off by DXC Technology Company (“DXC”) of its U.S. public sector (“USPS”) business and the combination of USPS with Vencore Holding Corp. and KGS Holding Corp. (the “Mergers”).

To effect the spin-off, DXC will distribute all of the shares of Ultra SC Inc. (“Ultra”) common stock on a pro rata basis to the record holders of DXC common stock (the “Distribution”).

Prior to the Distribution, Ultra will pay to DXC a cash distribution and/or will distribute debt securities of Ultra to DXC in an aggregate amount of $984 million. Ultra currently expects to make such payment through a cash distribution financed through borrowings under a new senior secured term loan facility. In addition, a subsidiary of Ultra will retain capitalized leases with an aggregate outstanding balance up to $300 million, net of cash payments from DXC, and such subsidiary will also retain approximately $79 million of indebtedness.

Pursuant to the Agreement and Plan of Merger dated as of October 11, 2017, following the Mergers, Vencore Holding Corp. and KGS Holding Corp., current portfolio companies of Veritas Capital, will become wholly owned subsidiaries of Ultra, subject to the terms and conditions in the Agreement and Plan of Merger. Affiliates of Veritas Capital will receive $400 million in cash and approximately 14% of the total number of shares of Ultra common stock outstanding immediately after the Mergers (on a fully diluted basis, excluding certain unvested equity incentive awards).

If you are a record holder of DXC common stock as of the close of business on                 , 2018, which is the record date for the Distribution, you will be entitled to receive one share of Ultra common stock for every two shares of DXC common stock you hold on that date. DXC will distribute the shares of Ultra common stock in book-entry form, which means that we will not issue physical stock certificates. As discussed under “The Transactions—Trading Prior to the Distribution Date,” if you sell your DXC common stock in the “regular-way” market after the record date and before the Distribution, you also will be selling your right to receive shares of Ultra common stock in connection with the Distribution.

It is intended that the Distribution will be tax-free to DXC stockholders (except for any gain or loss attributable to the receipt of cash in lieu of fractional shares of Ultra common stock) for U.S. federal income tax purposes. The Distribution will be effective by 11:59 p.m., New York City time, on                 , 2018. Immediately after the Distribution, Ultra will be an independent company.

DXC’s stockholders are not required to vote on or take any other action in connection with the spin-off. We are not asking you for a proxy, and request that you do not send us a proxy. DXC stockholders will not be required to pay or otherwise provide any consideration for the shares of Ultra common stock they receive in the spin-off, and they will not be required to surrender or exchange their shares of DXC common stock or take any other action in connection with the spin-off.

DXC currently owns all of the outstanding shares of Ultra common stock. Accordingly, no trading market for Ultra common stock currently exists. We expect, however, that a limited trading market for Ultra common stock, commonly known as a “when-issued” trading market, will develop on or shortly before the record date for the Distribution, and we expect “regular-way” trading of Ultra common stock will begin on the first trading day after the Distribution Date. We intend to list Ultra common stock on                     under the symbol “              .”

 

 

You should carefully consider the matters described in the section titled “Risk Factors” beginning on page 36 of this Information Statement for a discussion of factors that should be considered by recipients of Ultra common stock.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved these securities or determined if this Information Statement is truthful or complete. Any representation to the contrary is a criminal offense.

This Information Statement is not an offer to sell, or a solicitation of an offer to buy, any securities.

DXC first mailed this Information Statement to its stockholders on or about                 , 2018.

The date of this Information Statement is                 , 2018.


Table of Contents

TABLE OF CONTENTS

 

DEFINED TERMS

     ii  

TRADEMARKS AND COPYRIGHTS

     iv  

INDUSTRY AND MARKET DATA

     v  

NON-GAAP FINANCIAL INFORMATION

     vi  

BASIS OF PRESENTATION

     vii  

INTRODUCTION

     viii  

SUMMARY

     1  

SUMMARY HISTORICAL COMBINED FINANCIAL DATA OF USPS

     25  

SUMMARY HISTORICAL COMBINED FINANCIAL DATA OF VENCORE

     29  

SUMMARY PRO FORMA CONDENSED COMBINED FINANCIAL AND OTHER DATA OF ULTRA

     30  

RISK FACTORS

     36  

CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

     62  

THE TRANSACTIONS

     64  

THE MERGER AGREEMENT

     73  

THE SEPARATION AND DISTRIBUTION AGREEMENT AND ANCILLARY AGREEMENTS

     87  

MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE DISTRIBUTION

     96  

DIVIDEND POLICY

     99  

CAPITALIZATION

     100  

SELECTED HISTORICAL COMBINED FINANCIAL DATA FOR USPS

     101  

SELECTED HISTORICAL COMBINED FINANCIAL DATA FOR VENCORE

     105  

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS OF ULTRA

     107  

BUSINESS OF USPS

     125  

BUSINESS OF VENCORE

     138  

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF USPS

     150  

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF VENCORE

     168  

LIQUIDITY AND CAPITAL RESOURCES FOLLOWING THE TRANSACTIONS

     190  

DESCRIPTION OF MATERIAL INDEBTEDNESS

     191  

MANAGEMENT OF ULTRA FOLLOWING THE TRANSACTIONS

     194  

EXECUTIVE COMPENSATION

     199  

DIRECTOR COMPENSATION

     215  

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

     216  

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS, DIRECTORS AND EXECUTIVE OFFICERS OF ULTRA

     217  

DESCRIPTION OF OUR CAPITAL STOCK

     219  

INDEX TO FINANCIAL STATEMENTS

     F-1  


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DEFINED TERMS

 

ACS

   Applied Communication Sciences

Antitrust Division

   Antitrust Division of the Department of Justice

ASC

   Accounting Standards Codification

AWS

   Amazon Web Services

CD&A

   Compensation Discussion and Analysis

CDCR

   California Department of Corrections and Rehabilitation

CHRO

  

Chief Human Resources Officer

CMS

  

Centers for Medicare and Medicaid Services

CSC

   Computer Sciences Corporation

DARPA

   Defense Advanced Research Projects Agency

DCAA

   Defense Contract Audit Agency

DCMA

   Defense Contract Management Agency

DGCL

   Delaware General Corporation Law

DHS

   Department of Homeland Security

DISA

   Defense Information Systems Agency

DoD

   Department of Defense

DoJ

   Department of Justice

DSO

   Days Sales Outstanding

EBITDA

   Earnings Before Interest, Taxes, Depreciation and Amortization

EDS

   Electronic Data Systems Company

ESP

   Estimated Selling Price

ETR

   Effective Tax Rate

Everett

   Everett SpinCo, Inc.

FAA

   Federal Aviation Administration

FAR

   Federal Acquisition Regulation

FASB

   Financial Accounting Standards Board

FCF

   Free Cash Flow

FCPA

   Foreign Corrupt Practices Act of 1977

FedRAMP

   Federal Risk and Authorization Management Program

FFP

   Firm-Fixed Price

FTC

   Federal Trade Commission

GAAP

   Generally Accepted Accounting Principles in the United States

GSA

   General Services Administration

HPE

   Hewlett Packard Enterprise Company

HSR Act

   Hart-Scott-Rodino Antitrust Improvements Act of 1976

IARPA

   Intelligence Advanced Research Projects Activity

ID/IQ

   Indefinite Delivery/Indefinite Quantity

IP

   Intellectual Property

IRS

   Internal Revenue Service

IT

   Information Technology

ITO

   Infrastructure Technology

LTI

   Long-Term Incentive

NASA

   National Aeronautics and Space Administration

NBIB

   National Background Investigation Bureau

NGA

   National Geospatial-Intelligence Agency

NIP

   National Intelligence Program

NOAA

   National Oceanic and Atmospheric Administration

 

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NRO

   National Reconnaissance Office

NSA

   National Security Agency

NYSE

   New York Stock Exchange

MIP

   Military Intelligence Program

OFCCP

   Office of Federal Contract Compliance Programs

OPEB

   Other Post-Employment Benefits

PBGC

   Pension Benefit Guaranty Corporation

PSUs

   Performance-Vested Restricted Stock Units

PUMA

   Probation Utility and Mobile Applications

QNA SSG

   QinetiQ North America Services and Solutions Group

R&D

   Research & Development

RSUs

   Restricted Stock Units

SARs

   Stock Appreciation Rights

SE&I

   Systems Engineering and Integration

SEC

   Securities and Exchange Commission

SETA

   Systems Engineering and Technical Assistance

SOMS

   Strategic Offender Management System

TPE

   Third-Party Evidence

USCIS

   U.S. Citizenship and Immigration Services

USCYBERCOM

   U.S. Cyber Command

VIE

   Variable Interest Entity

VSOE

   Vendor Specific Objective Evidence

 

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TRADEMARKS AND COPYRIGHTS

We own or have rights to various trademarks, logos, service marks and trade names that we use in connection with the operation of our business. We also own or have the rights to copyrights that protect the content of our products, including those which will be retained by DXC and governed by the Intellectual Property Matters Agreement. This Information Statement also refers to the trademarks, logos, service marks and trade names of other companies, including those of Vencore Holding Corp., KGS Holding Corp. and their respective subsidiaries. In addition, names, logos and website names and addresses are our, or such other companies’, service marks or trademarks. Solely for convenience, the trademarks, service marks, trade names and copyrights referred to in this Information Statement are listed without the ™, ® and © symbols, but such references do not constitute a waiver of any rights that might be associated with the respective trademarks, service marks, trade names and copyrights included or referred to in this Information Statement.

 

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INDUSTRY AND MARKET DATA

Unless otherwise indicated, information contained in this Information Statement concerning our industry and the markets in which we operate is based on information from independent industry and research organizations, other third-party sources and management estimates. Management estimates are derived from publicly available information released by independent industry analysts and third-party sources, as well as data from our internal research, and are based on assumptions made by us upon reviewing such data and our knowledge of such industry and markets, which we believe to be reasonable. Such data involve uncertainties and risk and are subject to change due to a variety of factors, including those described under “Risk Factors.”

 

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NON-GAAP FINANCIAL INFORMATION

We have included certain supplemental financial measures in this Information Statement that are not recognized under generally accepted accounting principles in the United States (“GAAP”). These non-GAAP financial measures include earnings before interest, taxes, depreciation and amortization (“EBITDA”) and Adjusted EBITDA. For additional information on why we present these non-GAAP financial measures, the limitations associated with using these non-GAAP financial measures and a reconciliation of these non-GAAP financial measures to the most comparable GAAP measures, see “Summary Historical Combined Financial Data of USPS—Non-GAAP Measures—Adjusted EBITDA,” “Summary Pro Forma Condensed Combined Financial and Other Data of Ultra—Non-GAAP Financial Measures,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations of USPS—Non-GAAP Financial Measures” and “Liquidity and Capital Resources Following the Transactions.”

 

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BASIS OF PRESENTATION

Vencore Holding Corp., KGS Holding Corp. and their respective subsidiaries are, and for the presented periods have been, related businesses under common control by Veritas Capital. In addition, the acquisition of each of Vencore Holding Corp. and KGS Holding Corp. and their respective subsidiaries by Ultra is conditioned on the acquisition by Ultra of the other, as well as other common events, under the Merger Agreement. Accordingly, all financial statements and financial information and all information with respect to the business and operations of Vencore Holding Corp., KGS Holding Corp. and their respective subsidiaries, including under “Summary Historical Combined Financial Data of Vencore,” “Selected Historical Combined Financial Data of Vencore,” “Business of Vencore” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations of Vencore” are presented on a combined basis for Vencore Holding Corp., KGS Holding Corp. and their respective subsidiaries. All references to “Vencore” are to Vencore Holding Corp., KGS Holding Corp. and their respective subsidiaries on a combined basis.

 

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INTRODUCTION

On October 11, 2017, DXC announced plans to separate its USPS business from DXC and to combine the USPS business with Vencore Holding Corp., KGS Holding Corp. and their respective subsidiaries pursuant to an agreement and plan of merger dated October 11, 2017 (the “Merger Agreement”). Prior to DXC’s distribution of the shares of Ultra common stock to DXC stockholders, DXC is undertaking a series of internal transactions, following which Ultra will own the assets and liabilities of the USPS business. We refer to this series of internal transactions as the “Internal Reorganization,” which is described in more detail under “The Separation and Distribution Agreement and Ancillary Agreements.”

We refer to the Internal Reorganization and the Distribution collectively as the “Spin-Off.” We refer to the payment by Ultra to DXC of a cash distribution, and/or the distribution by Ultra of debt securities of Ultra to DXC, in an aggregate amount of $984 million prior to the Distribution as the “Ultra Payment.” Ultra currently expects to make such payment through a cash distribution financed through borrowings under a new senior secured term loan facility. In addition, Enterprise Services LLC (“Enterprise Services”), a subsidiary of Ultra following the Internal Reorganization, will retain capitalized leases with an aggregate outstanding balance of up to $300 million, net of cash payments from DXC, and it will also retain approximately $79 million of indebtedness following the partial exchange of its 7.45% senior notes due 2029 for new notes to be issued by DXC.

In this Information Statement, unless otherwise noted or the context otherwise requires:

 

    “DXC” refers to DXC Technology Company and its consolidated subsidiaries other than, for all periods following the Spin-Off, Ultra and its combined subsidiaries;

 

    “KeyPoint Merger Sub” refers to Ultra KMS Inc., a wholly owned subsidiary of Ultra;

 

    “KeyPoint Stockholder” refers to KGS Holding LLC, the sole stockholder of KGS Holding Corp. prior to the Mergers;

 

    “USPS” refers to the U.S. Public Sector business of DXC and its combined subsidiaries after giving retroactive effect to Internal Reorganization;

 

    “Ultra”, “we”, “our” and “us” refers to Ultra SC Inc. and its combined subsidiaries, and including Vencore Holding Corp., KGS Holding Corp. and their respective subsidiaries, after giving effect to the Spin-Off and the Mergers for periods following the consummation of the Spin-Off and the Mergers;

 

    “Vencore Merger Corp” refers to Ultra First VMS Inc., a wholly owned subsidiary of Ultra;

 

    “Vencore Merger LLC” refers to Ultra Second VMS LLC, a wholly owned subsidiary of Ultra;

 

    “Vencore Stockholder” refers to The SI Organization Holdings LLC, the sole stockholder of Vencore Holding Corp. prior to the Mergers;

 

    “Veritas Capital Management” refers to Veritas Capital Fund Management, L.L.C.; and

 

    “Veritas Capital” refers to The Veritas Capital Fund III, L.P., The Veritas Capital Fund IV, L.P. and their affiliates, including Veritas Capital Management.

The Merger Agreement provides that, at closing, the following transactions will occur (in each case subject to the terms and conditions in the Merger Agreement):

 

  (1) KeyPoint Merger Sub will merge with and into KGS Holding Corp. (the “KeyPoint Merger”), with KGS Holding Corp. surviving the KeyPoint Merger;

 

  (2) concurrently, Vencore Merger Corp will merge with and into Vencore Holding Corp. (the “First Vencore Merger”), with Vencore Holding Corp. surviving the First Vencore Merger, and

 

  (3) immediately after the KeyPoint Merger and First Vencore Merger, Vencore Holding Corp. will merge with and into Vencore Merger LLC (the “Second Vencore Merger”), with Vencore Merger LLC surviving the Second Vencore Merger.

 

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The KeyPoint Merger, First Vencore Merger and Second Vencore Merger together are referred to as the “Mergers.” As a result of the Mergers, Vencore and KGS Holding Corp. will become wholly owned subsidiaries of Ultra.

Pursuant to and subject to the conditions in the Merger Agreement, the Mergers will occur following the consummation by DXC of the Internal Reorganization, the Distribution and the payment of the Ultra Payment.

The consummation of the Mergers is subject to, among other conditions:

 

    the completion of the Spin-Off and payment of the Ultra Payment;

 

    the expiration of the applicable waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the “HSR Act”);

 

    the effectiveness of the registration statement of which this Information Statement forms a part in connection with the Distribution and the approval for listing on the New York Stock Exchange (“NYSE”) or the NASDAQ Global Market (“NASDAQ”) of Ultra common stock;

 

    receipt of an opinion from DXC’s tax counsel regarding the qualification of the Spin-Off as tax-free for U.S. federal income tax purposes;

 

    the accuracy of the parties’ representations and warranties and the performance of their respective covenants contained in the Merger Agreement; and

 

    certain other customary conditions.

The Merger Agreement contains customary representations, warranties and covenants, including a requirement to use commercially reasonable efforts to consummate the Spin-Off, the Ultra Payment and the Mergers prior to October 1, 2018.

 

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SUMMARY

This summary highlights certain significant aspects of our business and is a summary of information contained elsewhere in this Information Statement. This summary is not complete and you should carefully read this entire Information Statement, including the information presented under the sections titled “Risk Factors,” “Cautionary Statement Regarding Forward-Looking Statements,” “Unaudited Pro Forma Condensed Combined Financial Statements of Ultra,” “Selected Historical Combined Financial Data of USPS,” “Selected Historical Combined Financial Data of Vencore,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations of USPS,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations of Vencore,” and the combined financial statements and the related notes thereto included elsewhere in this Information Statement. This summary contains forward-looking statements that involve risks and uncertainties. Our actual results may differ significantly from results contemplated in the forward-looking statements as a result of various factors such as those set forth in the sections titled “Risk Factors” and “Cautionary Statement Regarding Forward-Looking Statements.” When making an investment decision, you should also read the discussion under “Basis of Presentation,” “Defined Terms” and “Introduction” for the definition of some of the terms used in this Information Statement and other matters described in this Information Statement. As used in this Information Statement, references to “pro forma” or “on a pro forma basis” mean giving pro forma effect to the Spin-Off and Mergers as described in “Unaudited Pro Forma Condensed Combined Financial Statements of Ultra.”

Overview

After completing the Spin-Off and the Mergers, Ultra will be a mission-enabled, end-to-end information technology (“IT”) services and mission solutions provider to government customers at the U.S. federal, state and local level. We will provide highly differentiated, innovative offerings and expertise while operating at the core of our customers’ missions, with a deep understanding of their systems and objectives to solve their toughest national security and information-related challenges. The complementary capabilities derived from USPS and Vencore will combine to create a compelling industry platform at scale, leveraging a strong track record of performance and innovation, and access to a diverse and highly skilled employee base. With minimal revenue overlap across USPS and Vencore, and a well-diversified customer base, we believe we will be an innovative leader in the public sector with greater capabilities to address our clients’ evolving needs, including the shift to digital across our customers’ mission enterprises.

The combination of Ultra with Vencore will create a leading U.S. government services provider able to support the breadth and depth of the government’s mission and business requirements. From analyzing weather satellite data for the National Oceanic and Atmospheric Administration (“NOAA”), operating and maintaining the Navy’s IT network, processing claims and protecting against fraud, waste and abuse, investigating the suitability of people seeking a security clearance, or providing a modern system for processing tens of thousands of immigrant benefit applications per day, we will support each customer’s unique information and systems mission. Further, as a “pure play” with a tailored strategy and focus on the U.S. government market, we will apply our decades-long experience with core customers to move into adjacent markets, increase speed and innovation, improve mission performance, provide more comprehensive citizen services, improve flexibility in how citizens consume IT, and drive cost-effectiveness through efficient delivery of next-generation solutions.

With approximately $4.1 billion in pro forma combined revenues for the twelve months ended October 31, 2016 and a highly skilled workforce of more than 14,000, Ultra will serve a robust base of established and diverse customers, including longstanding relationships with the Intelligence Community, National Aeronautics and Space Administration (“NASA”), National Background Investigations Bureau, multiple federal healthcare agencies, state government agencies and local municipalities. We will apply our extensive intellectual property (“IP”) portfolio of patents and differentiated offerings at the forefront of technical advancements in



 

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cybersecurity, mobility, advanced networking, cloud engineering, machine learning and agile software development to grow existing programs and win new business.

Ultra anticipates it will provide meaningful scale and end-to-end, technology-focused solutions, leveraging the full spectrum of its offerings and industry expertise to ensure broader access to customers, capabilities and contract vehicles. Our services and solutions will span the entire lifecycle of programs, encompassing applied research, systems definition, architecture, agile solutions development, test and integration, deployment, and operations underpinned by strong technology, analytics and cybersecurity. The combined company expects to have a compelling industry platform at scale, robust profit margins and a large qualified and diverse pipeline with attractive expansion opportunities.

Our Key Market

We believe significant change is coming to the government sector, prompted largely by the availability of new technologies, and further driven by demands for innovation, improved national security, reduced costs, and empowered citizens and employees. Instead of delivering services through traditional channels, government agencies are expected to provide new services that inspire public trust by creating outcomes that meet rapidly changing citizen needs, while also conforming to applicable regulations and government policies. Key attributes of the public sector market include:

 

    Increasing demand for technology-based enterprise solutions;

 

    Increasing focus on national security and cybersecurity demands and focus;

 

    Aging critical systems requiring modernization;

 

    Government-wide mandate to improve efficiency and reduce cost; and

 

    Government cloud-first policy creating demand for complex cloud-based solutions.

Overall spending within the public sector market is now trending upward with growth expected to be between 1.5% and 2.0% per annum, with pockets of growth within Ultra’s capabilities such as Information Security, Big Data Analytics, and Cloud Services. We believe Ultra will have a significant and advantageous presence within the Intelligence Community, Department of Defense, Federal Healthcare, Space and state and local governments, each of which represent some of the most well-funded and growing markets in our industry. Additionally in the markets we serve, we believe the demand for application and platform modernization and digital transformation will accelerate as agency CIOs embrace modern architectures. The state and local government markets are anticipated to grow between 3.5% and 4.0% per annum, largely driven by demand for complex multi-year IT programs that require high levels of subject matter and regulatory expertise. We believe these requirements combined with historically high renewal rates and a need for large scale distributed operations will create high barriers to entry and an increased opportunity to leverage Ultra’s strength to become a long term transformation partner.

Our Strategy

To address the market trends within our competitive environment, we have developed a strategy comprised of the following elements:

 

    Increase our penetration with existing, well-funded customers in the Intelligence Community and federal civilian agencies, where our current contracts and relationships provide a stable base for growth. We will focus on client needs and delivery excellence, and provide differentiated offerings and approaches compared to industry peers;


 

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    Tap into a larger addressable market by leveraging innovation backed by highly-skilled talent, mission expertise, advanced IP, and a deep partnership ecosystem to enhance the technological sophistication and capabilities of our customers. We will continue to expand and apply our suite of IP, with more than 260 issued/licensed/pending patents leveraging our internal and customer-funded research and development (“R&D”) investment, as a core competitive advantage vital to our growth strategy. In particular, our capabilities and IP position us to capture the growing demand within government markets for information systems that are highly secure, scalable, reliable, interoperable, and mobile. We will apply these capabilities to achieve better mission outcomes, drive efficiencies and automation, and address emerging threats;

 

    Bring transformative digital skills and mission-enabled offerings in advanced analytics, cybersecurity, and agile software development, with more than 1,000 agile-certified staff, to position ourselves as the U.S. government’s digital transformation partner of choice to help customers overcome mission-critical challenges and combine disparate systems into a modern cohesive, cloud-enabled IT infrastructure and reliable digital workplace;

 

    Solve our nation’s most complex mission challenges with our broad scale and reach, combined with deep subject matter expertise across all levels of government including key capabilities in investigative, risk management, and cyber; and

 

    Leverage our client intimacy and the combined core competencies of USPS and Vencore to target and win large programs. The development and support of large, complex programs is the foundation upon which our companies were built and remains central to our strategy, particularly in adjacent and underpenetrated markets in the federal civilian and Department of Defense (“DOD”) market. We will focus on targeting and winning large and complex programs by leveraging our exceptional contract performance, proprietary technology-enabled solutions, skilled and cleared workforce and large indefinite delivery/indefinite quantity (“ID/IQ”) portfolio.

Our Key Capabilities

Ultra will provide various complementary capabilities to its customers derived from clear strengths in the respective markets of USPS and Vencore, in areas including:

 

    Next-generation capabilities such as digital transformation, cybersecurity, cloud engineering, machine learning and predictive analytics;

 

    Application development, modernization, transformation and management;

 

    Digital workplace, mobility and end-to-end Enterprise IT solutions, engineering and support;

 

    Systems Engineering & Integration (SE&I);

 

    Digital Strategy and Transformation consulting;

 

    Applied Research; and

 

    Investigative services and identity authentication services at scale.

Our Customers

Ultra will primarily serve the following markets: intelligence, defense, space, federal civilian, federal healthcare and state and local governments. The U.S. federal government represents an approximate $120 billion annual market opportunity and is the largest consumer of information and technology services in the United States. The state and local market represents an approximate $43 billion annual market opportunity. Because Ultra’s core government markets remain well funded in the areas we serve as noted above, we believe our capabilities are directly positioned for growth, given the differentiated service offerings we provide.



 

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Our Competitors

The market for providing services to the U.S. public sector is highly competitive and favors participants with competitive cost structures and experience procuring and delivering on bids. Ultra believes it is well suited to compete in this market given its strong IP portfolio, mission experience, and the breadth of professional IT services it has historically provided to the U.S. public sector. Ultra’s breadth of capabilities places the company against a broad range of competitors including:

 

    Government Pure Plays: Leidos, Science Applications International Corporation, Booz Allen Hamilton, CACI International, CSRA, Engility and ManTech International

 

    Services Divisions of Large Defense Contractors: General Dynamics, Northrop Grumman, Raytheon, Boeing and BAE Systems

 

    Commercial consulting, technology and outsourcing service providers: IBM, Accenture, Deloitte, AT&T, Amazon Web Services (AWS), Microsoft Azure and ServiceNow

 

    Small Businesses: Diverse small businesses typically aligned to specific customers, capabilities and geographies

Ultra believes it is well positioned to compete in our market as we possess longstanding experience in bringing leading solutions to clients through our balance of organically developed IP and innovation from our Labs, commercial practices, go to market strategies aligned with commercial (AWS, Microsoft, Oracle) and industry partners and deep subject matter expertise under one of the most competitive cost structures in the industry. These innovation levers are further enhanced by a diverse and skilled talent base that possesses differentiated skills across offerings ranging from cybersecurity, big data analytics, cloud and mobility, Enterprise IT services and systems engineering. These attributes form a cornerstone of scale, combined capabilities, and expertise that will allow Ultra to compete for larger programs and unlock access to additional topline opportunities while staying agile to the public sector’s changing needs.

The Transactions

Overview

On October 11, 2017, DXC announced plans for the complete legal and structural separation of its USPS business and the subsequent combination of the USPS and Vencore businesses.

To effect the separation, DXC is undertaking the Internal Reorganization described under “The Separation and Distribution Agreement and Ancillary Agreements.” After giving effect to the Internal Reorganization, Ultra, DXC’s wholly owned subsidiary, will hold the shares of the legal entities operating the USPS business.

Following the Internal Reorganization but prior to the Distribution, Ultra will pay a cash distribution and/or distribute debt securities of Ultra to DXC, in an aggregate amount of $984 million. Ultra currently expects to make such payment to DXC through a cash distribution financed through borrowings under a new senior secured term loan facility.

Following the Internal Reorganization and Ultra Payment, DXC will distribute all of its equity interest in us, consisting of all of the outstanding shares of our common stock, to DXC’s stockholders on a pro rata basis.

Following the Spin-Off, under the Merger Agreement and in accordance with Delaware law, KeyPoint Merger Sub will merge with and into KGS Holding Corp., with KGS Holding Corp. surviving the KeyPoint Merger. Concurrently Vencore Merger Corp. will merge with and into Vencore Holding Corp., with Vencore Holding Corp. surviving the First Vencore Merger. Immediately after the KeyPoint Merger and First Vencore



 

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Merger, Vencore Holding Corp. will merge with and into Vencore Merger LLC, with Vencore Merger LLC surviving the Second Vencore Merger. As a result of the Mergers, Vencore and KGS Holding Corp. will become wholly owned subsidiaries of Ultra. For details of the structure of the transaction, see “The Merger Agreement.”

Transaction Rationale

The board of directors of DXC considered the following potential benefits in deciding to pursue the Spin-Off and Mergers:

 

    Strategic Focus and Flexibility. Following the Spin-Off, DXC and Ultra will each have a more focused business and be better able to dedicate financial and human capital resources to pursue appropriate growth opportunities and execute strategic plans best suited to its respective business. The Spin-Off will also allow each of DXC and Ultra to enhance its strategic flexibility to respond to industry-unique dynamics. In the U.S. public sector, technology demands are increasing, and customers seek service providers with specific experience in government-focused systems and innovation. By separating, our business will have the scale as well as the market focus to meet unique customer needs and industry requirements. Further, the Spin-Off will allow the management of each of DXC and Ultra to devote its time and attention to the development and implementation of corporate strategies and policies that are based primarily on the specific business characteristics of their respective companies

 

    Expanded Expertise. DXC highlighted the opportunity for USPS and Vencore, on a combined basis, to become a leading services provider to the U.S. government sector, with pro forma combined revenues of approximately $4.1 billion in the twelve months ended October 31, 2016 and a highly skilled workforce of more than 14,000. USPS and Vencore bring complementary capabilities in mission solutions and enterprise IT services, within an established and complementary client portfolio with minimal overlap. Further, Vencore is a clear market leader in the Investigative Services space, holding over 50% of the market. Our employees operate at the core of our clients’ missions, with deep understanding of systems and missions.

 

    Strategic Positioning in Consolidating Industry. The combination of USPS and Vencore is a strategic move to position the combined company as the government IT services industry consolidates. The combination of USPS and Vencore is expected to provide opportunities for the combined company to leverage its scope and scale to capitalize on future growth opportunities.

 

    Management Incentives. The Spin-Off will enable Ultra to create incentives for its management and employees that are more closely tied to its business performance and stockholder expectations. Ultra’s equity-based compensation arrangements will more closely align the interests of Ultra’s management and employees with the interests of its stockholders and should increase Ultra’s ability to attract and retain personnel.

 

    Capital Structure and Stockholder Flexibility. The segments in which DXC and Ultra expect to operate have historically had different growth profiles and cash flow dynamics. The Spin-Off will allow DXC and Ultra to separately manage their capital strategies and cost structures and will allow investors to make independent investment decisions with respect to DXC and Ultra, including the ability for Ultra to achieve alignment with a more natural stockholder base. Investment in one or the other company may appeal to investors with different goals, strategies, interests and concerns.

 

    Focused Investments. While operating as part of DXC, internal investments were often directed according to DXC’s strategic interests as a whole. The Spin-Off will allow Ultra to focus our investments on projects that optimize returns for our own businesses supporting U.S. federal, state and local markets.

 

   

Synergies. We expect the combination of USPS and Vencore to provide opportunities for cost savings and other operating synergies, which we currently estimate at $58 million in annual cost savings within



 

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36 months following the Mergers through the consolidation and integration of management systems, corporate overhead costs, improved facility efficiencies, lower vendor costs, and harmonization of benefits and human resource systems. We expect up to $43 million in run-rate cost synergies to be implemented within the first 12-18 months upon completion of the Mergers. We believe our one-time costs to realize these recurring annual cost savings will be approximately $36 million. The size of these expected cost synergies is partly a function of the significant steps DXC has already taken since the DXC Merger. Given the nature of the federal government contracting arrangements, and whereas a significant portion of our contracts portfolio are under cost-plus and time-and-material contract vehicles where our indirect cost factors are adjusted periodically, a portion of the realized cost synergy savings will be “given-back” over time in the form of lower prices to our customers. We believe these cost reductions and operating efficiencies will better position us to compete for federal government contracts as it will reduce costs for our customers and improve our competitiveness.

The Companies

USPS

USPS is a leading provider of end-to-end enterprise IT services to government customers across U.S. federal, state and local markets. Using its market-leading enterprise offerings and solutions, USPS helps its government customers implement modern collaborative workplaces, hybrid cloud platforms and integrated digital systems of engagement with their enterprise management systems. By delivering these modern enterprise solutions, while ensuring interoperability with mission critical legacy systems, USPS has helped its government customers better realize the benefits of technology, which will ultimately enable them to fulfill their mission objectives and achieve business outcomes.

In addition to providing substantial benefits through increased efficiencies and capabilities, USPS believes demand for its services is also driven by the technological advances that have already reinvented commercial industries, which are now exerting a similar evolutionary effect on government customers. In response to these pressures, USPS believes modern governments customers are increasingly turning to outside partners, such as USPS, to help guide them through this digital transformation.

We are a Nevada corporation. Our principal executive offices are located at 13600 EDS Drive, Herndon, Virginia 20171. Our telephone number is (703) 245-9675. Following the Distribution, our website address will be              . Information contained on, or connected to, our website or DXC’s website does not and will not constitute part of this Information Statement or the registration statement on Form 10 of which this Information Statement is a part.

Vencore

Vencore is a leading provider of mission-critical, innovation-driven services and solutions to U.S. government customers. The foundation of Vencore’s business is the application of SE&I, cybersecurity, big data analytics and applied research on an enterprise-wide scale to assist Vencore’s customers in solving their most complex information-related challenges. Vencore is a leader in the architecture and integration of highly-engineered, mission-critical information solutions across the U.S. government, and provides enterprise-level support to multiple governmental programs that manage, collect, analyze and disseminate critical mission data to national security agencies and their customers. Vencore maintains industry-leading expertise in providing comprehensive solutions throughout the life of multi-billion dollar systems that support the core missions of the Intelligence Community and other U.S. government agency customers.

Vencore applies next-generation cybersecurity, analytical, and engineering expertise to anticipate, identify, and resolve customers’ most demanding information-related challenges, including the effective management and



 

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integration of large and complex government systems, the efficient collection and analysis of large quantities of critical data, the migration of applications and data to the cloud, and the implementation of effective cybersecurity measures to successfully detect, prevent and mitigate cyber-attacks.

Vencore is a mission-critical provider of specialized investigative services to a broad range of organizations spanning the federal, defense, intelligence and civilian sectors. Leveraging proprietary algorithmic workflow systems and a nationwide footprint of highly experienced investigators and subject matter experts, Vencore provides critical information to support sensitive decisions.



 

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Questions and Answers about the Transactions

The following provides only a summary of the terms of the Spin-Off, the Mergers and the transactions contemplated thereby. You should read the sections titled “The Transactions,” “The Merger Agreement” and “The Separation and Distribution Agreement and Ancillary Agreements” below in this Information Statement for a more detailed description of the matters described below.

 

Q: What is the Spin-Off?

 

A: The Spin-Off is the method by which we will separate from DXC. As part of the Spin-Off, DXC will undertake the Internal Reorganization so that we hold the USPS business. Thereafter, in the Distribution, DXC will distribute to its stockholders all the outstanding shares of our common stock. Following the Spin-Off, we will be an independent, publicly-traded company, and DXC will not retain any ownership interest in us.

 

Q: What are the Mergers?

 

A: Under the terms of the Merger Agreement, after the Distribution KeyPoint Merger Sub will merge with and into KGS Holding Corp., with KGS Holding Corp. surviving the KeyPoint Merger. Concurrently, Vencore Merger Corp will merge with and into Vencore Holding Corp., with Vencore Holding Corp. surviving the First Vencore Merger. Immediately after the KeyPoint Merger and First Vencore Merger, Vencore Holding Corp. will merge with and into Vencore Merger LLC, with Vencore Merger LLC surviving the Second Vencore Merger. As a result of the Mergers, Vencore Merger LLC and KGS Holding Corp. will become wholly owned subsidiaries of Ultra. The Mergers will result in the Vencore Stockholder and the KeyPoint Stockholder owning approximately 14% of the common stock of Ultra immediately following the effective time of the Mergers (on a fully diluted basis, excluding certain unvested equity incentive awards). Shares issued to DXC stockholders in the Distribution will constitute approximately 86% of the common stock of Ultra outstanding after the effective time of the Mergers (on a fully diluted basis, excluding certain unvested equity incentive awards).

 

Q: Will the number of DXC shares I own change as a result of the Spin-Off and the Mergers?

 

A: No, the number of shares of DXC common stock you own will not change as a result of the Spin-Off and the Mergers.

 

Q: What are the reasons for the Spin-Off and Mergers?

 

A: The board of directors of DXC considered the following potential benefits in deciding to pursue the Spin-Off and Mergers:

Strategic Focus and Flexibility. Following the Spin-Off, DXC and Ultra will each have a more focused business and be better able to dedicate financial and human capital resources to pursue appropriate growth opportunities and execute strategic plans best suited to its respective business. The Spin-Off will also allow each of DXC and Ultra to enhance its strategic flexibility to respond to industry-unique dynamics. In the U.S. public sector, technology demands are increasing, and customers seek service providers with specific experience in government-focused systems and innovation. By separating, our business will have the scale as well as the market focus to meet unique customer needs and industry requirements. Further, the Spin-Off will allow the management of each of DXC and Ultra to devote its time and attention to the development and implementation of corporate strategies and policies that are based primarily on the specific business characteristics of their respective companies.



 

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Expanded Expertise. DXC highlighted the opportunity for USPS and Vencore, on a combined basis, to become a leading services provider to the U.S. government sector, with pro forma combined revenues of approximately $4.1 billion in the twelve months ended October 31, 2016 and a highly skilled workforce of more than 14,000. USPS and Vencore bring complementary capabilities in mission solutions and enterprise IT services, within an established and complementary client portfolio. Our employees operate at the core of our clients’ missions, with deep understanding of systems and missions.

Strategic Positioning in Consolidating Industry. The combination of USPS and Vencore is a strategic move to position the combined company as the government IT Services industry consolidates. The combination of USPS and Vencore is expected to provide opportunities for the combined company to leverage its scope and scale to capitalize on future growth opportunities.

Management Incentives. The Spin-Off will enable Ultra to create incentives for its management and employees that are more closely tied to its business performance and stockholder expectations. Ultra equity-based compensation arrangements will more closely align the interests of Ultra’s management and employees with the interests of its stockholders and should increase Ultra’s ability to attract and retain personnel.

Capital Structure and Stockholder Flexibility. The segments in which DXC and Ultra expect to operate have historically had different growth profiles and cash flow dynamics. The Spin-Off will allow DXC and Ultra to separately manage their capital strategies and cost structures and will allow investors to make independent investment decisions with respect to DXC and Ultra, including the ability for Ultra to achieve alignment with a more natural stockholder base. Investment in one or the other company may appeal to investors with different goals, interests and concerns.

Focused Investments. While operating as part of DXC, internal investments were often directed according to DXC’s strategic interests as a whole. The Spin-Off will allow us to focus our investments on projects that optimize returns for our own businesses supporting U.S. federal, state and local markets.

Synergies. We expect the combination of USPS and Vencore to provide opportunities for cost savings and other operating synergies, which we currently estimate at $58 million in annual cost savings within 36 months following the Mergers through the consolidation and integration of management systems, corporate overhead costs, improved facility efficiencies, lower vendor costs, and harmonization of benefits and human resource systems. We expect up to $43 million in run-rate cost synergies to be implemented within the first 12-18 months upon completion of the Mergers. We believe our one-time costs to realize these recurring annual cost savings will be approximately $36 million. The size of these expected cost synergies is partly a function of the significant steps DXC has already taken since the DXC Merger. Given the nature of the federal government contracting arrangements, and whereas a significant portion of our contracts portfolio are under cost-plus and time-and-material contract vehicles where our indirect cost factors are adjusted periodically, a portion of the realized cost synergy savings will be “given-back” over time in the form of lower prices to our customers. We believe these cost reductions and operating efficiencies will better position us to compete for federal government contracts as it will reduce costs for our customers and improve our competitiveness.

 

Q: Why is the separation of Ultra structured as a Spin-Off?

 

A: DXC believes that a tax-free distribution of our shares is the most efficient way to separate our business from DXC in a manner that will achieve the benefits described above.

 

Q: What will I receive in the Distribution?

 

A:

As a holder of DXC common stock, you will receive a dividend of one share of our common stock for every two shares of DXC common stock you hold on the Record Date (as defined below). The distribution agent



 

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  will distribute only whole shares of our common stock in the Distribution. No fractional shares of our common stock will be issued pursuant to the dividend. Instead, the transfer agent will aggregate fractional shares into whole shares, sell the whole shares in the open market at prevailing rates and distribute the net cash proceeds pro rata to each holder who would otherwise have been entitled to receive fractional shares in the Distribution. Your proportionate interest in DXC will not change as a result of the Distribution. For a more detailed description, see “The Transactions.”

 

Q: How will fractional shares be treated in the Spin-Off?

 

A: Any fractional shares of Ultra common stock otherwise issuable to you will be sold on your behalf, and you will receive a cash payment with respect to that fractional share. For an explanation of how the cash payments for fractional shares will be determined, see “The Transactions—Treatment of Fractional Shares.”

 

Q: What is being distributed in the Distribution?

 

A: DXC will distribute approximately              million shares of our common stock in the Distribution, based on the approximately              million shares of DXC common stock outstanding as of                 , 2018. The actual number of shares of our common stock that DXC will distribute in the Distribution will depend on the actual number of shares of DXC common stock outstanding on the Record Date, which will reflect any issuance of new shares or exercises of outstanding options pursuant to DXC’s equity plans, and any repurchase of DXC shares by DXC under its common stock repurchase program, on or prior to the Record Date. The shares of our common stock that DXC distributes will constitute all of the issued and outstanding shares of our common stock immediately prior to the Distribution. For more information on the shares being distributed in the Spin-Off, see “Description of Our Capital Stock—Common Stock.”

 

     DXC stockholders will not receive any new shares of common stock of Ultra in the Mergers and will continue to hold the Ultra shares they received in the Distribution. The Mergers will result in the Vencore Stockholder and the KeyPoint Stockholder owning approximately 14% of the common stock of Ultra outstanding immediately after the effective time of the Mergers (on a fully diluted basis, excluding certain unvested equity incentive awards). Shares issued to DXC stockholders in the Distribution will constitute approximately 86% of the common stock of Ultra outstanding after the effective time of the Mergers (on a fully diluted basis, excluding certain unvested equity incentive awards).

 

Q: What is the record date for the Distribution?

 

A: DXC will determine record ownership as of the close of business on                 , 2018 which we refer to as the “Record Date.”

 

Q: When will the Distribution occur?

 

A: The Distribution will be effective by 11:59 p.m., New York City time, on                 , 2018, which we refer to as the “Distribution Date.” On or shortly after the Distribution Date, shares of our common stock will be credited in book-entry accounts for DXC stockholders entitled to receive the shares in the Distribution. See “How will DXC distribute shares of our common stock?” for more information on how to access your book-entry account or your bank, brokerage or other account holding the Ultra common stock you receive in the Distribution on and following the Distribution Date.

 

Q: What do I have to do to participate in the Distribution?

 

A:

You are not required to take any action, but we urge you to read this Information Statement carefully. Holders of DXC common stock will not need to pay any cash or provide any other consideration, including



 

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  any shares of DXC common stock, in order to receive shares of our common stock in the Distribution. In addition, no stockholder approval of the Distribution is required. We are not asking you for a vote and request that you do not send us a proxy. Neither the Distribution nor the Mergers will result in any changes in DXC stockholders’ ownership of DXC common stock. No vote of DXC stockholders is required or sought in connection with the Distribution or the Mergers.

 

Q: If I sell my shares of DXC common stock on or before the Distribution Date, will I still be entitled to receive shares of Ultra common stock in the Distribution?

 

A: If you hold shares of DXC common stock on the Record Date and sell them on or before the Distribution Date in the “regular-way” market, you also will be selling your right to receive shares of Ultra common stock in connection with the Distribution. If you wish to sell your DXC common stock with or without your entitlement to our common stock, you should discuss these alternatives with your bank, broker or other nominee. See “The Transactions—Trading Prior to the Distribution Date” for more information.

 

Q: What is “regular-way” and “ex dividend” trading of DXC common stock?

 

A: We anticipate that, on or shortly before the Record Date, there will be two markets in DXC common stock: (1) a “regular-way” market on which shares of DXC common stock will trade with the entitlement for the purchaser of DXC common stock to receive shares of our common stock to be distributed in the Distribution, and (2) a “ex dividend” market on which shares of DXC common stock will trade without the entitlement for the purchaser of DXC common stock to receive shares of our common stock. If you hold shares of DXC common stock on the Record Date and then sell those shares before the Distribution Date, you should make sure your stockbroker, bank or other nominee understands whether you want to sell your shares of DXC common stock with or without your entitlement to Ultra common stock pursuant to the Distribution.

 

Q: How will DXC distribute shares of our common stock?

 

A: Registered stockholders. If you own your shares of DXC common stock directly through DXC’s transfer agent, Wells Fargo Shareowner Services, you are a registered stockholder. In this case, the distribution agent will credit the shares of our common stock you receive in the Distribution by way of direct registration in book-entry form to a new account with our transfer agent. Registration in book-entry form refers to a method of recording share ownership where no physical stock certificates are issued to stockholders, as is the case in the Distribution. You will be able to access information regarding your book-entry account holding the Ultra shares at shareowneronline.com or by calling Wells Fargo Shareowner Services at 800-468-9716.

 

     “Street name” or beneficial stockholders. If you own your shares of DXC common stock through a bank, broker or other nominee, your bank, broker or other nominee will credit your account with the shares of our common stock that you receive in the Distribution on or shortly after the Distribution Date. We encourage you to contact your bank, broker or other nominee if you have any questions concerning the mechanics of having shares held in “street name.”

 

     We will not issue any physical stock certificates to any stockholders, even if requested. See “The Transactions—When and How You Will Receive Ultra Shares” for a more detailed explanation.

 

Q: What are the U.S. federal income tax consequences to me of the Distribution?

 

A:

It is a condition to the Distribution that DXC receive a written opinion of its tax counsel, Skadden, Arps, Slate, Meagher & Flom LLP (“Skadden Arps”), in form and substance reasonably acceptable to DXC, to the



 

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  effect that, on the basis of the facts and customary representations and assumptions set forth or referred to in such opinion, for U.S. federal income tax purposes, (i) the Spin-Off should qualify as a “reorganization” within the meaning of Section 368(a)(1)(D) of the Internal Revenue Code of 1986, as amended (the “Code”), (ii) DXC should recognize no gain or loss under Section 361(c) of the Code upon the Distribution, and (iii) DXC’s stockholders should recognize no gain or loss under Section 355(a) of the Code upon the receipt of Ultra common stock in the Distribution. Assuming that the Spin-Off so qualifies, for U.S. federal income tax purposes, no gain or loss should be recognized by, or be includible in the income of, a U.S. holder (as defined in “Material U.S. Federal Income Tax Consequences of the Distribution”) as a result of the Distribution, except for any gain or loss attributable to the receipt of cash in lieu of fractional shares of Ultra common stock. In addition, the aggregate tax basis of the DXC common stock and our common stock (including any fractional share interest in our common stock for which cash is received) held by each U.S. holder immediately after the Distribution should be the same as the aggregate tax basis of the DXC common stock held by the U.S. holder immediately before the Distribution, allocated between the DXC common stock and our common stock in proportion to their relative fair market values on the date of the Distribution (subject to certain adjustments). See “Material U.S. Federal Income Tax Consequences of the Distribution” for more information regarding the potential tax consequences to you of the Spin-Off. STOCKHOLDERS ARE ENCOURAGED TO CONSULT THEIR OWN TAX ADVISORS REGARDING THE PARTICULAR TAX CONSEQUENCES OF THE SPIN-OFF TO THEM, INCLUDING THE APPLICABILITY AND EFFECT OF ANY U.S. FEDERAL, STATE AND LOCAL TAX LAWS, AS WELL AS FOREIGN TAX LAWS.

 

Q: Does Ultra intend to pay cash dividends?

 

A: We currently anticipate paying quarterly cash dividends following the Spin-Off, subject to our Board of Directors’ approval. The timing, declaration, amount and payment of any future dividends to our stockholders will fall within the discretion of our Board of Directors and will depend on many factors, including our financial condition, results of operations and capital requirements, legal requirements, regulatory constraints, industry practice and other business considerations that our Board of Directors deems relevant from time to time. In addition, the terms of the agreements governing our debt or debt that we may incur in the future may restrict the payments of dividends. See “Dividend Policy” for more information.

 

Q: What are the financing plans for Ultra, and what will be the indebtedness of Ultra and its subsidiaries following the completion of the Transactions?

 

A: Ultra intends to obtain financing in connection with the Spin-Off and Mergers under various facilities as follows: senior secured term loan credit facilities in an aggregate principal amount of up to $2,235 million (the “New Term Facility”), a portion of which will be used to fund the Ultra Payment, and a senior secured revolving credit facility in an aggregate principal amount of up to $600 million (the “New Revolving Credit Facility”). In addition, Enterprise Services, a subsidiary of Ultra following the Internal Reorganization, will retain capitalized leases with an aggregate outstanding balance of up to $300 million, net of cash payments from DXC, and it will also retain approximately $79 million of indebtedness following the partial exchange of its 7.45% senior notes due 2029 (the “EDS Notes”) for new notes to be issued by DXC (the “DXC Notes”). See “Management’s Discussion and Analysis of Financial Condition and Results of Operations of USPS—Liquidity and Capital Resources” for more information.

 

Q: How will Ultra common stock trade?

 

A:

Currently, there is no public market for our common stock. We intend to list our common stock on the                      under the symbol “              .” We anticipate that trading in our common stock will begin on a “when-issued” basis on or shortly before the Record Date for the Distribution and will continue up to and



 

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  including the Distribution Date. “When-issued” trading in this context refers to a sale or purchase of our common stock and made conditionally on or before the Distribution Date, because the securities of the spun-off entity have not yet been distributed. On the first trading day following the Distribution Date, any “when-issued” trading of our common stock will end and “regular-way” trading of our common stock will begin. In this context, “regular-way” trading refers to trading after our common stock has been distributed and typically involves a trade that settles on the second full trading day following the date of the trade. See “The Transactions—Trading Prior to the Distribution Date” for more information. We cannot predict the trading prices for our common stock before, on or after the Distribution Date.

 

Q: What will be the relationship between DXC and Ultra following the Distribution?

 

A: Following the Distribution, DXC will not own any of our shares and we will operate independently of DXC. Apart from our Chairman, who will remain Chief Executive Officer (“CEO”) of DXC after the Distribution, we currently do not expect other members of our Board of Directors to be officers or directors of DXC. In addition, we do not expect to depend on DXC to conduct our business following the Distribution apart from certain limited transitional support services, as well as IP licenses and non-U.S. agency services. In order to govern the ongoing relationships between us and DXC after the Spin-Off and to facilitate an orderly transition, we and DXC intend to enter into agreements providing for various services and rights following the Spin-Off and under which we and DXC will agree to indemnify each other against certain liabilities arising from our respective businesses. These agreements will, among other things, provide arrangements for employee and pension-related matters, tax matters, IP matters as well as transitional services and non-U.S. agency services. See “Risk Factors—Risks Relating to the Spin-Off and the Mergers,” “The Separation and Distribution Agreement and Ancillary Agreements” and “Certain Relationships and Related Party Transactions—Agreements with DXC” for details.

 

Q: Will the Spin-Off affect the trading price of my DXC common stock?

 

A: Yes. We expect the trading price of shares of DXC common stock immediately following the Distribution to be lower than the “regular-way” trading price of such shares immediately prior to the Distribution because the trading price will no longer reflect the value of the USPS business. Furthermore, until the market has fully analyzed the value of DXC without the USPS business, the trading price of shares of DXC common stock may fluctuate. There can be no assurance that, following the Distribution, the combined trading prices of DXC common stock and our common stock will equal or exceed what the trading price of DXC common stock would have been in the absence of the Spin-Off.

 

     It is possible that after the Spin-Off, the combined market value of the equity of DXC and Ultra will be less than DXC’s equity value before the Spin-Off.

 

Q: Do I have appraisal rights in connection with the Spin-Off?

 

A: No. Holders of DXC common stock are not entitled to appraisal rights in connection with the Spin-Off.

 

Q: Are there risks associated with owning shares of Ultra common stock?

 

A: Yes. Our business faces both general and specific risks and uncertainties relating to the USPS business and the Vencore business. Our business also faces risks relating to the Spin-Off and Mergers. Following the Spin-Off, we will also face risks associated with being an independent, publicly-traded company. Accordingly, you should read carefully the information set forth in the section titled “Risk Factors” in this Information Statement.


 

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Q: Who is the distribution agent, transfer agent and registrar for Ultra common stock?

 

A: Wells Fargo Shareowner Services

 

Q: Where can I get more information?

 

A: If you have any questions relating to the mechanics of the Distribution, you should contact Wells Fargo Shareowner Services at:

Wells Fargo Shareowner Services

P.O. Box 64874

St. Paul, MN 55164-0874

Phone: 800-468-9716

Before the Spin-Off, if you have any questions relating to the Spin-Off, you should contact DXC at:

Jonathan Ford

Director of Investor Relations

DXC Technology Company

1775 Tysons Boulevard

Tysons, VA 22102

Phone: 703-245-9700

After the Spin-Off, if you have any questions relating to Ultra, you should contact us at:

Investor Relations

Ultra SC Inc.

13600 EDS Drive

Herndon, VA 20171

Phone: 703-245-9675

Summary of the Spin-Off

 

Distributing Company

DXC Technology Company, a Nevada corporation that holds all of our common stock issued and outstanding prior to the Distribution. After the Distribution, DXC will not own any shares of our common stock.

 

Distributed Company

Ultra SC Inc., a Nevada corporation and a wholly owned subsidiary of DXC. At the time of the Distribution, we will hold through our subsidiaries assets and liabilities relating to Ultra as well as certain other assets and liabilities allocated to us by DXC. After the Spin-Off, we will be an independent publicly-traded company.

 

Distributed Securities

100% of our common stock issued and outstanding immediately prior to the Distribution. Based on the approximately                  shares of DXC common stock outstanding on                 , and applying the distribution ratio of one of Ultra common stock for every two shares of DXC common stock, approximately                  shares of Ultra common stock will be distributed in the Spin-Off. The actual number of shares of our common stock DXC will distribute in the Spin-Off will depend on the actual number of shares of DXC common stock outstanding on the Record Date, which will reflect any issuance of



 

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new shares or exercises of outstanding options pursuant to DXC’s equity plans, and any repurchase of DXC shares by DXC under its common stock repurchase program, on or prior to the Record Date.

 

Record Date

The Record Date is the close of business on                 , 2018.

 

Distribution Date

The Distribution Date is                 , 2018.

 

Internal Reorganization

In connection with the Spin-Off, DXC will undertake the Internal Reorganization so that we hold the USPS business. See “The Separation and Distribution Agreement and Ancillary Agreements” for a description of the Internal Reorganization.

 

Distribution Ratio

Each holder of DXC common stock will receive a dividend of one share of our common stock for every two shares of DXC common stock it holds on the Record Date. The distribution agent will distribute only whole shares of our common stock in the Spin-Off. No fractional shares of our common stock will be issued pursuant to this dividend. Any fractional shares of Ultra common stock otherwise issuable to you will be sold on your behalf, and you will receive a cash payment with respect to that fractional share. For an explanation of how the cash payments for fractional shares will be determined, see “The Transactions—Treatment of Fractional Shares.”

 

  Please note that if you sell your shares of DXC common stock on or before the Distribution Date in the “regular-way” market, the buyer of those shares may in some circumstances be entitled to receive the shares of our common stock to be distributed in respect of the DXC shares that you sold. See “The Transactions—Trading Prior to the Distribution Date” for more detail.

 

The Distribution

On the Distribution Date, DXC will release the shares of our common stock to the distribution agent to distribute to DXC stockholders. DXC will distribute our shares in book-entry form and thus we will not issue any physical stock certificates. We expect that it will take the distribution agent up to two weeks to electronically issue shares of our common stock to you or your bank or brokerage firm on your behalf by way of direct registration in book-entry form. The ability to trade our shares will not be affected during that time. You will not be required to make any payment, surrender or exchange your shares of DXC common stock or take any other action to receive your shares of our common stock.

 

Incurrence of Debt

Ultra intends to obtain financing in connection with the Spin-Off and Mergers under various facilities as follows: the New Term Facility in an aggregate principal amount of up to $2,235 million, a portion of which will be used to fund the Ultra Payment, and the New Revolving Credit Facility in an aggregate principal amount of up to $600 million. In addition, Enterprise Services, a subsidiary of Ultra following the Internal Reorganization, will retain capitalized leases



 

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with an aggregate balance of up to $300 million, net of cash payments to DXC, and it will also retain approximately $79 million of Indebtedness following the partial exchange of the EDS Notes for the DXC Notes. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations of USPS—Liquidity and Capital Resources” for more information.

 

Conditions to the Spin-Off

The Spin-Off is subject to the satisfaction, or the waiver of DXC’s board of directors, of the following conditions:

 

    the board of directors of DXC shall have approved the Internal Reorganization and the Distribution and shall have declared the distribution of Ultra common stock to DXC stockholders;

 

    the ancillary agreements contemplated by the Separation and Distribution Agreement shall have been executed by each party to those agreements;

 

    the Securities and Exchange Commission (“SEC”) shall have declared effective our Registration Statement on Form 10, of which this Information Statement is a part, under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and no stop order suspending the effectiveness of the Registration Statement shall be in effect and no proceedings for that purpose shall be pending before or threatened by the SEC;

 

    our common stock shall have been accepted for listing on the NYSE or another national securities exchange approved by DXC, subject to official notice of issuance;

 

    DXC shall have received a written opinion of Skadden Arps that is in form and substance reasonably acceptable to DXC, and which shall remain in full force and effect, regarding the qualification of the Spin-Off as tax-free for U.S. federal income tax purposes under Sections 355, 361 and 368(a)(1)(D) of the Code;

 

    the Internal Reorganization shall have been completed;

 

    the Ultra Payment shall have been made to DXC;

 

    no order, injunction or decree issued by any governmental authority of competent jurisdiction or other legal restraint or prohibition preventing consummation of the Distribution shall be in effect, and no other event outside the control of DXC shall have occurred or failed to occur that prevents the consummation of the Distribution;

 

    prior to the Distribution Date, this Information Statement shall have been mailed to the holders of DXC common stock as of the Record Date;


 

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    DXC shall have duly elected the individuals to be listed as members of our post-Distribution Board of Directors in this Information Statement, and such individuals shall be the members of our Board of Directors immediately after the Distribution; and

 

    prior to the Distribution Date, the board of directors of DXC shall have obtained opinions from a nationally recognized valuation firm, in form and substance satisfactory to DXC, with respect to the capital adequacy and solvency of each of DXC and Ultra after giving pro forma effect to the Distribution and the Ultra Payment and the Mergers.

 

  We are not aware of any material federal, foreign or state regulatory requirements with which we must comply, other than SEC rules and regulations, or any material approvals that we must obtain, other than the approval for listing of our common stock and the SEC’s declaration of the effectiveness of the Registration Statement, in connection with the Distribution.

 

Trading Market and Symbol

We intend to file an application to list our common stock on the                      under the symbol “              .” We anticipate that, on or shortly before the Record Date, trading of shares of our common stock will begin on a “when-issued” basis and will continue up to and including the Distribution Date, and we expect that “regular-way” trading of our common stock will begin the first trading day after the Distribution Date.

 

  We anticipate that, beginning on or shortly before the Record Date, there will be two markets in DXC common stock: (1) a “regular-way” market on which shares of DXC common stock will trade with the entitlement for the purchaser of DXC common stock to receive shares of our common stock to be distributed in the Distribution, and (2) an “ex-dividend” market on which shares of DXC common stock will trade without the entitlement for the purchaser of DXC common stock to receive shares of our common stock. If you hold shares of DXC common stock on the Record Date and then decide to sell any shares of DXC common stock before the Distribution Date, you should make sure your stockbroker, bank or other nominee understands whether you want to sell your shares of DXC common stock with or without your entitlement to Ultra common stock pursuant to the Distribution.

 

Tax Consequences to DXC Stockholders

It is a condition to the Distribution that DXC receive a written opinion of Skadden Arps, in form and substance reasonably acceptable to DXC, to the effect that, on the basis of the facts and customary representations and assumptions set forth or referred to in such opinion, for U.S. federal income tax purposes, (i) the Spin-Off should qualify as a “reorganization” within the meaning of Section 368(a)(1)(D) of the Code, (ii) DXC should recognize no gain or loss under Section 361(c) of the Code upon the Distribution, and



 

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(iii) DXC’s stockholders should recognize no gain or loss under Section 355(a) of the Code upon the receipt of Ultra common stock in the Distribution. Assuming that the Spin-Off so qualifies, for U.S. federal income tax purposes, no gain or loss should be recognized by, or be includible in the income of, a U.S. holder (as defined in “Material U.S. Federal Income Tax Consequences of the Distribution”) as a result of the Distribution, except for any gain or loss attributable to the receipt of cash in lieu of fractional shares of Ultra common stock. In addition, the aggregate tax basis of the DXC common stock and our common stock (including any fractional share interest in our common stock for which cash is received) held by each U.S. holder immediately after the Distribution should be the same as the aggregate tax basis of the DXC common stock held by the U.S. holder immediately before the Distribution, allocated between the DXC common stock and our common stock in proportion to their relative fair market values on the date of the Distribution (subject to certain adjustments). See “Material U.S. Federal Income Tax Consequences of the Distribution.”

 

  We urge you to consult your tax advisor as to the specific tax consequences of the Distribution to you, including the effect of any U.S. federal, state, local or foreign tax laws and of changes in applicable tax laws.

 

Relationship with DXC after the Spin-Off

Following the Distribution, DXC will not own any of our shares and we will operate independently of DXC. In addition, we do not expect to depend on DXC to conduct our business following the Distribution apart from certain limited transitional support services as well as IP licenses and non-U.S. agency services. In order to govern the ongoing relationships between us and DXC after the Spin-Off and to facilitate an orderly transition, we and DXC intend to enter into agreements providing for various services and rights following the Spin-Off and under which we and DXC will agree to indemnify each other against certain liabilities arising from our respective businesses. These agreements include:

 

    the Separation and Distribution Agreement that will set forth DXC’s and our agreements regarding the principal actions that both parties will take in connection with the Spin-Off and aspects of our relationship following the Spin-Off;

 

    a Transition Services Agreement pursuant to which DXC and we will provide each other specified services on a transitional basis to help ensure an orderly transition following the Spin-Off;

 

    a Tax Matters Agreement that will govern the respective rights, responsibilities and obligations of DXC and us after the Spin-Off with respect to all tax matters and will include restrictions to preserve the tax-free status of the Distribution;

 

   

an Employee Matters Agreement that will address employment, compensation and benefits matters, including the allocation and



 

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treatment of assets and liabilities arising out of employee compensation and benefits programs in which our employees participated prior to the Distribution;

 

    a Real Estate Matters Agreement that will address the sharing and leasing of facilities owned by DXC and/or us following the Distribution Date;

 

    an Intellectual Property Matters Agreement that will govern our rights to IP developed by DXC and us including limitations on our ability to use IP for certain purposes and on behalf of certain customers other than the U.S. federal and certain state and local governments; and

 

    a Non-U.S. Agency Agreement that will appoint DXC as our exclusive agent outside the U.S. for certain non-U.S. customers.

 

  We describe these arrangements in greater detail under “The Separation and Distribution Agreement and Ancillary Agreements” and “Certain Relationships and Related Party Transactions—Agreements with DXC,” and describe some of the risks of these arrangements under “Risk Factors—Risks Relating to the Spin-Off and the Mergers.”

 

Dividend Policy

We currently anticipate paying quarterly cash dividends following the Spin-Off. The timing, declaration, amount and payment of any future dividends to our stockholders will fall within the discretion of our Board of Directors and will depend on many factors, including our financial condition, results of operations and capital requirements, legal requirements, regulatory constraints, industry practice and other business considerations that our Board of Directors deems relevant from time to time. In addition, the terms of the agreements governing our debt or debt that we may incur in the future may restrict or limit the payments of dividends. See “Dividend Policy.”

 

Transfer Agent

Wells Fargo Shareowner Services.

 

Risk Factors

We face both general and specific risks and uncertainties relating to the USPS business and the Vencore business. We also face risks relating to the Spin-Off and Mergers. Following the Spin-Off, we will also face risks associated with being an independent, publicly-traded company. Accordingly, you should read carefully the information set forth under “Risk Factors.”

 

Summary of the Mergers

 

 

Structure of the Mergers

Under the Merger Agreement and in accordance with Delaware law, KeyPoint Merger Sub will merge with and into KGS Holding Corp., with KGS Holding Corp. surviving the KeyPoint Merger, and concurrently Vencore Merger Corp will merge with and into Vencore Holding Corp., with Vencore Holding Corp. surviving the First



 

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Vencore Merger, and immediately after the KeyPoint Merger and First Vencore Merger, Vencore Holding Corp. will merge with and into Vencore Merger LLC, with Vencore Merger LLC surviving the Second Vencore Merger. As a result of the Mergers, Vencore Merger LLC and KGS Holding Corp. will become wholly owned subsidiaries of Ultra. For details of the structure of the transaction, see “The Merger Agreement.”

 

Consideration for the Mergers

At the effective time of the First Vencore Merger, all of the outstanding shares of Vencore Holding Corp. common stock will be automatically converted into the right to receive, in the aggregate, merger consideration consisting of (1) $400 million in cash (the “Cash Merger Consideration”) and (2) shares of Ultra common stock representing in the aggregate approximately 11.38% of the total number of shares of Ultra common stock outstanding immediately after the effective time of the First Vencore Merger (on a fully diluted basis, excluding certain unvested equity incentive awards) (the “Vencore Stock Merger Consideration”).

 

  At the effective time of the KeyPoint Merger, all of the outstanding shares of KGS Holding Corp. common stock will be automatically converted into the right to receive, in the aggregate, merger consideration consisting of shares of Ultra common stock representing in the aggregate approximately 2.65% of the total number of shares of Ultra common stock outstanding immediately after the effective time of the KeyPoint Merger (on a fully diluted basis, excluding certain unvested equity incentive awards) (the “KeyPoint Stock Merger Consideration”, and together with the Vencore Stock Merger Consideration, the “Stock Merger Consideration”) and giving effect to the Vencore Merger.

 

  Following the effective time of the Mergers, all shares of Vencore Holding Corp. common stock and KGS Holding Corp. common stock will be automatically cancelled and cease to exist.

 

Approval of the Mergers

No vote by DXC stockholders is required or is being sought in connection with the Mergers. DXC, as the sole stockholder of Ultra, has already approved the Mergers. The respective boards of directors of each of Vencore Holding Corp. and KGS Holding Corp. have approved the Merger Agreement, the Mergers and all other actions necessary to consummate the Mergers. Each of the Vencore Stockholder and the KeyPoint Stockholder also has delivered written consents approving the Merger Agreement, the Mergers and all other actions necessary to consummate the Mergers, in accordance with the Delaware General Corporation Law (“DGCL”).

 

Conditions to the Mergers

The obligations of each party to consummate the Mergers are subject to the satisfaction or waiver (to the extent permitted by applicable



 

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law) of closing conditions that are contained in the Merger Agreement, including:

 

    the Spin-Off having occurred and the Ultra Payment having been paid pursuant to the terms of the Separation and Distribution Agreement;

 

    the receipt of all consents, approvals and authorizations by governmental authorities;

 

    the expiration or termination of any required waiting period under the HSR Act, which condition was satisfied on December 22, 2017;

 

    the effectiveness of the registration statement of which this Information Statement forms a part in connection with the Distribution, and the approval for listing on the NYSE or NASDAQ of the shares of Ultra common stock to be issued in the Distribution and the Mergers, subject to official notice of issuance;

 

    the absence of any order issued by any governmental authority of competent jurisdiction or other legal impediment preventing or making illegal the consummation of the Mergers; and

 

    DXC shall have received a written opinion of Skadden Arps, that is in form and substance reasonably acceptable to DXC, and which shall remain in full force and effect, regarding the qualification of the Spin-Off as tax-free for U.S. federal income tax purposes under Sections 355, 361 and 368(a)(1)(D) of the Code.

 

  In addition, DXC, Ultra, Vencore Merger Corp, Vencore Merger LLC and KeyPoint Merger Sub’s obligations to consummate the Mergers are subject to the satisfaction or waiver (to the extent permitted by applicable law) of the following conditions:

 

    certain fundamental representations and warranties of Vencore Holding Corp. and KGS Holding Corp., disregarding all materiality or material adverse effect qualifications, being true and correct in all respects in each case as of the effective time of the Mergers as if made as of the effective time of the Mergers;

 

   

the representations and warranties of Vencore Holding Corp., KGS Holding Corp., the Vencore Stockholder and the KeyPoint Stockholder, disregarding all materiality or material adverse effect qualifications, being true and correct in all respects in each case as of the effective time of the Mergers as if made as of the effective time of the Mergers (except to the extent such representations and warranties address matters as of a particular date, in which case as of such date), except where the failure to be true and correct has not had or would not, individually or in the aggregate, reasonably be expected to be a Vencore/KeyPoint Material Adverse Effect (as defined below—see “The Merger



 

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Agreement”) (other than the certain fundamental representations and warranties which must be true and correct in all respects);

 

    the covenants and agreements being performed by the stockholders of Vencore Holding Corp., KGS Holding Corp., the Vencore Stockholder and the KeyPoint Stockholder in all material respects at or prior to the effective time of the Mergers (other than certain covenants and agreements which must be performed in all respects, subject to de minimis exceptions);

 

    the delivery by Vencore Holding Corp. and KGS Holding Corp. of an officer’s certificate certifying the satisfaction of the above conditions, and the delivery by the Vencore Stockholder and KeyPoint Stockholder of a certificate certifying the satisfaction of the above conditions;

 

    the absence of a Vencore/KeyPoint Material Adverse Effect since June 30, 2017; and

 

    the termination of certain stockholder agreements between Vencore Holding Corp. and the Vencore Stockholder and KGS Holding Corp. and the KeyPoint Stockholder, without liability to Ultra or its subsidiaries following the effective time of the Mergers.

 

  Furthermore, the obligations of Vencore Holding Corp. and KGS Holding Corp. to consummate the Mergers are subject to the satisfaction or waiver (to the extent permitted by applicable law) of the following conditions:

 

    certain representations and warranties of DXC, Ultra, Vencore Merger Corp, Vencore Merger LLC and KeyPoint Merger Sub, disregarding all materiality or material adverse effect qualifications, being true and correct in all respects in each case as of the effective time of the Mergers as if made as of the effective time of the Mergers (except to the extent such representations and warranties address matters as of a particular date, which must be true and correct as of the specified date);

 

    the representations and warranties of DXC, Ultra, Vencore Merger Corp., Vencore Merger LLC and KeyPoint Merger Sub, disregarding all materiality or material adverse effect qualifications, being true and correct in all respects in each case as of the effective time of the Mergers as if made as of the effective time of the Mergers (except to the extent such representations and warranties address matters as of a particular date, in which case as of such date), except where the failure to be true and correct has not had or would not, individually or in the aggregate, reasonably be expected to be an Ultra Material Adverse Effect (as defined—see “The Merger Agreement”) (other than the certain representations and warranties which must be true and correct in all respects);


 

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    the covenants and agreements being performed by DXC, Ultra, Vencore Merger Corp, Vencore Merger LLC and KeyPoint Merger Sub in all material respects at or prior to the effective time of the Mergers;

 

    the delivery by Ultra of an officer’s certificate certifying the satisfaction of the above conditions;

 

    the absence of any Ultra Material Adverse Effect since June 30, 2017; and

 

    the entrance into and delivery of the applicable Transaction Agreements by DXC and Ultra, which are in full force and effect.

 

  To the extent permitted by applicable law, each party to the Merger Agreement may waive, at its sole discretion, any of the conditions to its respective obligations to complete the Mergers.

 

Termination of the Merger Agreement

The Merger Agreement may be terminated at any time before the effective time of the Mergers by the mutual written consent of DXC, Vencore Holding Corp. and KGS Holding Corp. It may also be terminated by either DXC or Vencore Holding Corp. and KGS Holding Corp. if:

 

    the effective time of the Mergers has not occurred on or before October 1, 2018 unless the failure to effect the Merger by that date is due to the failure of the party seeking to terminate the Merger Agreement to perform its obligations set forth in the Merger Agreement;

 

    if any law or order of any governmental authority preventing or prohibiting the completion of the Mergers has become final and nonappealable; or

 

    if the Ultra Payment or Spin-Off are incapable of occurring because the conditions set forth in the Separation and Distribution Agreement are incapable of being satisfied prior to October 1, 2018.

 

  The Merger Agreement may also be terminated by:

 

   

the Vencore Stockholder and the KeyPoint Stockholder at any time before the effective time of the Mergers if there has been a material breach by DXC or Ultra of any of its representations, warranties or covenants or agreements contained in the Merger Agreement, or any such representation and warranty has become untrue in any material respect, and such breach or inaccuracy has not been cured within 30 business days following notice of such breach or there has been a material breach by DXC or Ultra of their obligations to consummate the Spin-Off and pay the Ultra Payment (so long as Vencore Stockholder and KeyPoint Stockholder is not then in material breach of any covenant,



 

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representation or warranty or other agreement contained in the Merger Agreement which breach would cause the closing conditions of DXC or Ultra not to be satisfied if the closing were to occur at the time of termination); or

 

    DXC at any time before the effective time of the Mergers if there has been a material breach by Vencore Stockholder and KeyPoint Stockholder of any of its representations, warranties or covenants or agreements contained in the Merger Agreement, or any such representation and warranty has become untrue in any material respect, and such breach or inaccuracy has not been cured within 30 business days following notice of such breach (so long as DXC is not then in material breach of any covenant, representation or warranty or other agreement contained in the Merger Agreement which breach would cause the closing conditions of Vencore Stockholder and KeyPoint Stockholder or the stockholder of Vencore Stockholder and KeyPoint Stockholder that are party to the Merger Agreement not to be satisfied if the closing were to occur at the time of termination).

 

Termination Fees and Expenses

In the event the Merger Agreement is terminated because the Spin-Off is not completed in accordance with the terms and conditions of the Separation Agreements on or before October 1, 2018, a termination fee of $50 million may be payable by DXC to Vencore Holding Corp. and KGS Holding Corp. upon termination of the Merger Agreement under specified circumstances.

 

Accounting Treatment of the Mergers

The combined financial information presented in the Information Statement was prepared using the purchase method of accounting, with Ultra treated as the “acquirer” of Vencore Holding Corp., KGS Holding Corp. and their respective subsidiaries for accounting purposes.


 

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SUMMARY HISTORICAL COMBINED FINANCIAL DATA OF USPS

The following tables summarize USPS’s historical combined financial and other data for the periods and as of the dates indicated.

The summary historical combined financial data for the years ended October 31, 2014, October 31, 2015 and October 31, 2016, for the five months ended March 31, 2017, and as of October 31, 2015, October 31, 2016 and March 31, 2017, was derived from USPS’s audited combined financial statements and notes thereto included elsewhere in this Information Statement. The summary historical condensed combined financial data for the six months ended July 31, 2016 and September 30, 2017, and as of September 30, 2017, was derived from USPS’s unaudited condensed combined interim financial statements and notes thereto included elsewhere in this Information Statement. USPS’s unaudited combined interim financial statements were prepared on a basis consistent with USPS’s audited combined financial statements and, in the opinion of management, reflect all adjustments, consisting only of normal and recurring adjustments, necessary for a fair statement of the financial information. Additionally, on April 1, 2017, CSC, HPE, Everett SpinCo, Inc. (“Everett”), and New Everett Merger Sub Inc., a wholly-owned subsidiary of Everett (“Merger Sub”), completed the strategic combination of CSC with HPES to form DXC (the “DXC Merger”). At the time of the DXC Merger, Everett was renamed DXC, and as a result of the DXC Merger, CSC became a direct wholly owned subsidiary of DXC. The transaction was determined to be a reverse merger and CSC was determined to be the accounting acquirer of DXC. Therefore, for accounting purposes DXC, and in turn USPS, was subject to purchase price allocation adjustments as of April 1, 2017. These adjustments are reflected in the post-DXC Merger period results for USPS, therefore, post- DXC Merger period results for USPS are not comparable to pre- DXC Merger results.

Summary historical financial data for USPS for the fiscal years ended October 31, 2013 and 2012 are not available for any combined balance sheet data or combined statement of operations data other than revenues because requisite stand-alone financial records for those periods for USPS were not maintained by the former parent companies of the enterprise services business, HPE (between November 12, 2015 and March 31, 2017) and The Hewlett-Packard Company (prior to November 1, 2015). Revenue information for USPS for those periods does not include information that would enable us to quantify the component of our revenues during the fiscal years ended October 31, 2013 and 2012 that consisted of certain consulting revenues as to which records were maintained outside of the enterprise services business. Due to the unavailability or lack of comparability of that information we have omitted USPS information prior to the periods presented.



 

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USPS’s historical results are not necessarily indicative of future operating results, and the results for any interim period are not necessarily indicative of the results that may be expected for a full fiscal year. Because the data in these tables is only a summary and does not provide all of the data contained in the USPS combined financial statements, the information should be read in conjunction with “Selected Historical Combined Financial Data of USPS,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations of USPS” and USPS’s combined financial statements and the related notes thereto included elsewhere in this Information Statement.

 

    Predecessor     Successor  
    As of or for the Twelve
Months Ended
    As of or for the Five
Months Ended
    As of or for the
Six Months Ended
    As of or for the
Six Months Ended
 
    October 31,
2014
    October 31,
2015
    October 31,
2016
    March 31,
2017
    July 31,
2016
    September 30,
2017
 
(in millions)   Historical     Historical     Historical
(Unaudited)
    Historical
(Unaudited)
 

Combined Statement of Operations data (1):

             

Revenue

  $ 2,955     $ 2,585     $ 2,732     $ 1,073     $ 1,307     $ 1,382  

Income (loss) before taxes

    221       (51     129       59       53       118  

Net income (loss)

  $ 138     $ (29   $ 80     $ 36     $ 33     $ 72  
   

Combined Balance Sheet data:

             

Total assets

  $ 1,416     $ 1,512     $ 1,234     $ 1,073     $ 1,463     $ 3,645  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Current capital lease liability

    111       127       145       139       175       135  

Non-current capital lease liability

    224       223       215       155       197       100  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total capital lease liability

  $ 335     $ 350     $ 360     $ 294     $ 372     $ 235  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Combined Statements of Cash Flows data:

           

Cash flows provided by operating activities

  $ 487     $ 100     $ 495     $ 52     $ 230     $ 274  

Cash flows used in investing activities

  $ (30   $ (18   $ (21   $ (10   $ (11   $ (11

Cash flows used in financing activities

  $ (457   $ (82   $ (474   $ (42   $ (219   $ (263

Non-GAAP Measures:

           

Adjusted EBITDA (2)

  $ 510     $ 265     $ 459     $ 183     $ 221     $ 222  


 

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(1) Certain USPS consulting activities were historically conducted pursuant to contracts with USPS’s former parent, HPE, rather than USPS or its subsidiaries. Because those contracts were not novated to USPS until after October 31, 2016, no information regarding USPS consulting activities performed pursuant to those contracts has been presented in USPS’s results of operations for the annual periods ending October 31, 2014, 2015 or 2016 and only a portion of the revenues associated with those contracts is presented in USPS’s results of operations above for the five month period ended March 31, 2017. Periods subsequent to March 31, 2017 reflect all of the USPS consulting activities performed pursuant to those contracts in USPS’s results of operations. For comparability purposes, the revenue and income before taxes related to these contracts not reflected in our results of operations for the periods referenced above are set forth below:

 

     Twelve Months Ended      Five Months
Ended
     Six Months
Ended
 
(in millions)    October 31,
2014
     October 31,
2015
     October 31,
2016
     March 31,
2017
     July 31,
2016
 

Revenue

   $ 154      $ 141      $ 136      $ 10      $ 70  

Income before taxes

   $ 31      $ 39      $ 42      $ 3      $ 23  

 

(2) Adjusted EBITDA is a non-GAAP measure and is subject to limitations described above in the section “Non-GAAP Financial Measures.”

Non-GAAP Measures—Adjusted EBITDA

The following table presents a reconciliation of net income (loss) to Adjusted EBITDA:

 

     Predecessor     Successor  
     Twelve Months Ended      Five Months
Ended
     Six Months
Ended
    Six Months
Ended
 
(in millions)    October 31,
2014
     October 31,
2015
    October 31,
2016
     March 31,
2017
     July 31,
2016
    September 30,
2017
 

Net income (loss)

   $ 138      $ (29   $ 80      $ 36      $ 33     $ 72  
 

Income tax expense (benefit)

     83        (22     49        23        20       46  

Interest expense, net

     33        29       31        10        15       7  

Depreciation and amortization

     227        214       225        73        117       70  

Restructuring costs

     12        22       20        —          15       7  

Transaction, integration and separation costs

     —          28       34        34        12       20  

Share-based compensation

     17        23       20        7        9       —    
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Adjusted EBITDA (a)

   $ 510      $ 265     $ 459      $ 183      $ 221     $ 222  
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

 

(a) Includes corporate allocations as set forth below:

 

     Predecessor     Successor  
     Twelve Months Ended      Five Months
Ended
     Six Months
Ended
    Six Months
Ended
 
(in millions)    October 31,
2014
     October 31,
2015
     October 31,
2016
     March 31,
2017
     July 31,
2016
    September 30,
2017
 

Corporate dedicated and corporate shared expenses (excluding share-based compensation)

   $ 140      $ 134      $ 120      $ 48      $ 61     $ 70  

Corporate global functions

   $ 15      $ 12      $ 12      $ 3      $ 7     $ 11  


 

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In addition to net income (loss) determined in accordance with U.S. generally accepted accounting principles (“GAAP”) USPS uses an Adjusted Earnings before Interest Taxes, Depreciation and Amortization (“Adjusted EBITDA”) measure.

Adjusted EBITDA is a non-GAAP measure that USPS uses to evaluate financial performance and is one of the measures used in assessing management performance. USPS believes that this non-GAAP financial measure provides useful information to investors regarding our results of operations as it provides another measure of our profitability, our ability to service our planned debt, and is considered an important measure by financial analysts covering USPS and peer companies in our industry. Additionally, Adjusted EBITDA is an important measure associated with the proposed credit facility. The USPS definition of Adjusted EBITDA is further described below, and may differ from other companies.

The reconciliation from net income (loss) to Adjusted EBITDA includes certain adjustments such as:

 

    Restructuring—reflects costs, net of reversals, related to workforce optimization and real estate charges.

 

    Transaction, separation and integration-related costs—reflects costs related to integration planning, financing, and advisory fees associated with the separation of HP into two separate companies in 2015 and merger of the newly separated HP enterprise services business with CSC in 2017, forming DXC.

 

    Share-based compensation—represents the share-based compensation attributable to USPS based on the awards and terms previously granted under the incentive compensation plan to USPS’s employees and an allocation of Parent’s corporate and shared functional employee expenses.


 

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SUMMARY HISTORICAL COMBINED FINANCIAL DATA OF VENCORE

The following tables summarize the historical combined financial and other data of Vencore for the periods and as of the dates indicated.

This summary historical combined financial data for the years ended December 31, 2014, December 31, 2015 and December 31, 2016, and as of December 31, 2015 and December 31, 2016, were derived from Vencore’s audited combined financial statements and notes thereto included elsewhere in this Information Statement. The summary historical combined financial data for the nine months ended September 30, 2016 and September 29, 2017, and as of September 29, 2017, were derived from Vencore’s unaudited combined interim financial statements and notes thereto included elsewhere in this Information Statement. These unaudited combined interim financial statements were prepared on a basis consistent with our audited combined financial statements and, in the opinion of Vencore’s management, reflect all adjustments, consisting only of normal and recurring adjustments, necessary for a fair statement of the financial information.

Historical results are not necessarily indicative of future operating results, and the results for any interim period are not necessarily indicative of the results that may be expected for a full fiscal year. Because the data in this table is only a summary and does not provide all of the data contained in our combined financial statements, the information should be read in conjunction with “Selected Historical Combined Financial Data of Vencore,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations of Vencore” and its combined financial statements and the related notes thereto included elsewhere in this Information Statement.

 

     As of or for the Twelve Months Ended     As of or for the Nine Months Ended  
     December 31,
2014
    December 31,
2015
    December 31,
2016
    September 30,
2016
    September 29,
2017
 
(in millions)    Historical     Historical
(Unaudited)
 

Combined Statement of Operations data:

          

Revenue

   $ 1,149     $ 1,399     $ 1,405     $ 1,067     $ 1,027  

Income before income taxes and equity in net earnings of affiliate

     (114     44       45       33       18  

Net (loss) income

     (114     23       20       17       6  

Combined Balance Sheet Data:

          

Total assets

     $ 1,069     $ 1,023       $ 1,022  

Short-term debt and current maturities of long-term debt

       27       18         17  

Long-term debt, net of current maturities

       745       860         956  
    

 

 

   

 

 

     

 

 

 

Total debt

       772       878         973  

Combined Statements of Cash Flows data:

          

Cash flows provided by operating activities

   $ 1     $ 65     $ 98     $ 73     $ 30  

Cash flows (used in) provided by investing activities

     (186     16       (15     (12     (4

Cash flows provided by (used in) financing activities

     164       (48     (93     (87     (20


 

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SUMMARY PRO FORMA CONDENSED COMBINED FINANCIAL AND OTHER DATA OF ULTRA

The following tables summarize our pro forma condensed combined financial and other data for the periods and as of the dates indicated.

We have derived the summary pro forma condensed combined financial and other data for the periods and as of the dates indicated from our pro forma condensed combined financial statements and the notes thereto included elsewhere in this Information Statement.

Our pro forma condensed combined financial and other data are not necessarily indicative of the results we would have realized had the Spin-Off and the Merger been consummated on those dates, or of future operating results, and the results for any interim period are not necessarily indicative of the results that may be expected for a full fiscal year. Because the data in this table is only a summary and does not provide all of the data contained in our pro forma condensed combined financial statements, the information should be read in conjunction with our pro forma condensed combined financial statements and the related notes thereto included elsewhere in this Information Statement.



 

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The following unaudited summary pro forma condensed combined financial information present the pro forma financial information of Ultra based upon the historical financial statements of each of USPS and Vencore, after giving effect to the Spin-off and Mergers as further described in the section of this document entitled “The Transactions.” The unaudited summary condensed combined pro forma financial information and other data are intended to reflect the impact of the Spin-Off and the Mergers on USPS’s historical combined financial statements as if the relevant transactions occurred on September 30, 2017 for purposes of the unaudited pro forma condensed combined balance sheet and November 1, 2015 for purposes of the unaudited pro forma condensed combined statements of operations data. The unaudited pro forma condensed combined financial information and other data of Ultra have been prepared using, and should be read in conjunction with (i) USPS’s audited historical combined financial statements and related notes as of and for the twelve months ended October 31, 2016, (ii) USPS’s audited historical combined financial statements and related notes as of and for the five months ended March 31, 2017, (iii) USPS’s unaudited historical combined financial statements and related notes as of and for the six months ended September 30, 2017, (iv) Vencore’s audited historical combined financial statements and related notes as of and for the year ended December 31, 2016, (v) Vencore’s unaudited historical combined financial statements and related notes as of and for the five months ended March 31, 2017, (vi) Vencore’s unaudited historical combined financial statements and related notes as of and for the three months ended March 31, 2017, and (vii) Vencore’s unaudited historical combined financial statements and related notes as of and for the nine months ended September 30, 2017. The unaudited pro forma condensed combined financial information is presented for informational purposes only and is not intended to represent or to be indicative of the actual results of operations or financial position that the combined company would have reported had the Spin-Off and Mergers been completed as of the dates set forth in the pro forma condensed combined financial statements, and should not be taken as being indicative of the combined company’s future consolidated results of operations or financial position. The actual results may differ significantly from those reflected in the pro forma condensed combined financial statements for a number of reasons, including differences between the assumptions used to prepare the pro forma condensed combined financial statements and actual amounts. This information is only a summary and has been derived from and should be read in conjunction with the more detailed unaudited pro forma condensed combined financial statements and the notes thereto, included elsewhere in this document, which have been prepared in accordance with Article 11 of Regulation S-X.

 

(in millions)    Historical
USPS as of and
for the Six
Months Ended
September 30,
2017
     Effect of
Spin-off
    Spin-off
adjusted
USPS as of
and for the
Six Months
Ended
September 30,
2017
     Historical Vencore as
of and for
the Six
Months
Ended
September 29,
2017
     Effect of
Mergers
    Pro Forma
Combined
 

Revenues

   $ 1,382      $ —       $ 1,382      $ 692      $ —       $ 2,074  

Income (loss) before income taxes

     118        (18     100        11        (18     93  

Income tax expense (benefit)

     46        (8     38        8        (8     38  

Net income (loss)

   $ 72      $ (10   $ 62      $ 2      $ (9   $ 55  

Total Assets

   $ 3,645      $ 16     $ 3,661      $ 1,022      $ 1,860     $ 6,543  

Total debt (including capital lease obligations)

   $ 235      $ 1,079     $ 1,314      $ 975      $ 482     $ 2,771  


 

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(in millions)    Historical
USPS for
the Five
Months
Ended
March 31,
2017
     USPS Purchase
Accounting
Adjustments
     Effect of
Spin-off
    Spin-off
adjusted USPS
for the Five
Months Ended
March 31,
2017
     Historical
Vencore for
the Five
Months Ended
March 31,
2017
     Effect of
Mergers
    Pro Forma
Combined
 

Revenues

   $ 1,073      $   —        $   —       $ 1,073      $ 562      $   —       $ 1,635  

Income (loss) before income taxes

     59        16        (17     58        17        (32     43  

Income tax expense (benefit)

     23        6        (7     22        11        (13     20  

Net income (loss)

     36        10        (10     36        6        (19     23  

 

(in millions)    Historical
USPS for
the Twelve
Months
Ended
October 31,
2016
     USPS Purchase
Accounting
Adjustments
     Effect of
Spin-off
    Spin-off
adjusted
USPS for
the Twelve
Months
Ended
October 31,
2016
     Historical
Vencore for
the Twelve
Months
Ended
December 31,
2016
     Effect of
Mergers
    Pro Forma
Combined
 

Revenues

   $ 2,732      $   —        $   —       $ 2,732      $ 1,405      $   —       $ 4,137  

Net income (loss) before income taxes

     129        37        (42     124        45        (43     126  

Income tax expense (benefit)

     49        14        (17     46        25        (17     54  

Net income (loss)

     80        23        (25     78        20        (26     72  

Non-GAAP Financial Measures

This Information Statement and the documents incorporated by reference herein contain financial measures that are not calculated in accordance with GAAP and which are derived from the condensed combined financial information of USPS and Vencore. These non-GAAP financial measures include earnings before interest, taxes, depreciation and amortization (“EBITDA”) and Adjusted EBITDA.

We present these non-GAAP financial measures to provide investors with meaningful supplemental financial information, in addition to the financial information presented on a GAAP or pro forma basis. These non-GAAP financial measures exclude certain items from GAAP or pro forma results that management believes are not indicative of core operating performance. Management believes these non-GAAP measures provide investors supplemental information about the financial performance of USPS and Vencore exclusive of the impacts of corporate wide strategic decisions. Management believes that adjusting for these items provides investors with additional measures to evaluate the financial performance of our core business operations on a comparable basis from period to period. Management believes the non-GAAP measures provided are also considered important measures by financial analysts covering the company as equity research analysts continue to publish estimates and research notes based on our non-GAAP commentary.

There are limitations to the use of the non-GAAP financial measures presented in this Information Statement. One of the limitations is that they do not reflect complete financial results. We compensate for this limitation by providing a reconciliation between our non-GAAP financial measures and the respective most directly comparable financial measure calculated and presented in accordance with GAAP or on a pro forma basis. Additionally, other companies, including companies in our industry, may calculate non-GAAP financial measures differently than we do, limiting the usefulness of those measures for comparative purposes between companies.



 

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Additionally, as discussed further in the “Summary Historical Combined Financial Data of USPS” section above, USPS was subject to purchase price allocation adjustments as of April 1, 2017. These adjustments are reflected in the post-acquisition period results for USPS as well as in the Non-GAAP information presented below for the same period.

Non-GAAP financial measures and the respective most directly comparable financial measures calculated and presented in accordance with GAAP include:

 

     Six Months
Ended
     Five
Months

Ended
     Twelve Months
Ended
 

Pro Forma Combined

(in millions)

   September 30,
2017
     March 31,
2017
     October 31,
2016
 

Net income

   $ 55      $ 23      $ 72  

EBITDA

   $ 267      $ 195      $ 545  

Adjusted EBITDA

   $ 322      $ 245      $ 637  

Reconciliation of Non-GAAP Financial Measures

Our non-GAAP adjustments include:

 

    Restructuring—reflects costs, net of reversals, related to workforce optimization and real estate charges.

 

    Debt extinguishment costs—reflects costs incurred to prepay certain historical indebtedness including debt repaid by Vencore.

 

    Transaction, separation, and integration-related costs—reflects costs related to separation, integration planning, financing, and advisory fees associated with the Spin-Off and the Mergers, and other mergers and acquisitions.

 

    Pension and other post-employment benefits (“OPEB”) actuarial and settlement losses—reflects pension and OPEB actuarial and settlement gains and losses from mark-to-market accounting.

 

    Share-based compensation—represents the share-based compensation expense recognized by USPS and Vencore.

 

    NBIB adjustment—represents costs associated with hiring, training and certain other activities pursuant to a services contract between Vencore and NBIB, in connection with accelerating the recruitment and training of investigators to support the expected increase in case work pursuant such contract. For purposes of calculating Consolidated EBITDA (as defined in the New Term Facility), an adjustment of up to $25 million for these costs, on a trailing twelve month basis, is allowed pursuant to the terms of the New Term Facility. See “Description of Material Indebtedness—Term Loan Facilities and Revolving Credit Facility.”

The Separation and Distribution Agreement provides for certain cost structure protection of activities identified as “corporate dedicated and corporate shared expenses” (the “Corporate Expenses”), which are further described in “The Separation and Distribution Agreement and Ancillary Agreements” section of this information statement. The accompanying pro forma combined non-GAAP financial measures currently do not reflect any adjustment for reduction in the Corporate Expenses to the agreed upon target of $116 million for the most recent three-month period for which financial information is reasonably available preceding the Distribution Date.

Additionally, the accompanying pro forma combined non-GAAP financial measures do not reflect the costs of integration activities or benefits that may result from the realization of anticipated first-year synergies which are discussed above in “Summary—The Transactions—Transaction Rationale—Synergies” and elsewhere in this Information Statement.



 

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A reconciliation of net income (loss) to EBITDA and Adjusted EBITDA on a historical and pro forma basis for the six months ended September 30, 2017 is as follows:

 

(in millions)    Historical USPS for
the Six Months
Ended
September 30, 2017
     Historical
Vencore for the Six
Months Ended
September 29, 2017
    Pro Forma
Adjustments
    Pro Forma
Combined
 

Net income (loss)

   $ 72      $ 2     $ (19   $ 55  

Income tax expense (benefit)

     46        8       (16     38  

Interest expense, net

     7        42       5       54  

Depreciation and Amortization

     70        15       35       120  
  

 

 

    

 

 

   

 

 

   

 

 

 

EBITDA

     195        67       5       267  

Restructuring

     7        3       —         10  

Debt extinguishment costs

     —          4       —         4  

Transaction, separation and integration-related costs

     20        5       (4     21  

Pension and OPEB Actuarial and Settlement Losses

     —          —         (1     (1

Share-based compensation

     —          (2     2       —    

NBIB

     —          21       —         21  
  

 

 

    

 

 

   

 

 

   

 

 

 

Adjusted EBITDA (1)

   $ 222      $ 98     $ 2     $ 322  
  

 

 

    

 

 

   

 

 

   

 

 

 

 

(1) Includes $70 million of Corporate Expenses (as defined above) and $11 million of corporate global function expense which is expected to be largely eliminated on a prospective basis.

A reconciliation of net income (loss) to EBITDA and Adjusted EBITDA on a historical and pro forma basis for the five months ended March 31, 2017 is as follows:

 

(in millions)    Historical USPS for
the Five Months
Ended March 31,
2017
     Historical
Vencore for the Five
Months Ended
March 31,

2017
    Pro Forma
Adjustments
    Pro Forma
Combined
 

Net income (loss)

   $ 36      $ 6     $ (19   $ 23  

Income tax expense (benefit)

     23        11       (14     20  

Interest expense, net

     10        30       5       45  

Depreciation and Amortization

     73        14       20       107  
  

 

 

    

 

 

   

 

 

   

 

 

 

EBITDA

     142        61       (8     195  

Restructuring

     —          2       —         2  

Transaction, separation and integration-related costs

     34        —         —         34  

Pension and OPEB Actuarial and Settlement Losses

     —          —         7       7  

Share-based compensation

     7        (2     2       7  
  

 

 

    

 

 

   

 

 

   

 

 

 

Adjusted EBITDA (1)

   $ 183      $ 61     $ 1     $ 245  
  

 

 

    

 

 

   

 

 

   

 

 

 

 

(1) Includes $48 million of Corporate Expenses (as defined above) and $3 million of corporate global function expense which is expected to be largely eliminated on a prospective basis.


 

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A reconciliation of net income (loss) to EBITDA and Adjusted EBITDA on a historical and pro forma basis for the twelve months ended October 31, 2016 is as follows:

 

(in millions)    Historical USPS for
the Twelve Months
Ended October 31,
2016
     Vencore for the
Twelve Months
Ended
December 31,
2016
     Pro Forma
Adjustments
    Pro Forma
Combined
 

Net income (loss)

   $ 80      $ 20      $ (28   $ 72  

Income tax expense (benefit)

     49        25        (20     54  

Interest expense, net

     31        77        5       113  

Depreciation and Amortization

     225        35        46       306  
  

 

 

    

 

 

    

 

 

   

 

 

 

EBITDA

     385        157        3       545  

Restructuring

     20        6        —         26  

Debt extinguishment costs

     —          7        —         7  

Transaction, separation and integration-related costs

     34        —          —         34  

Pension and OPEB Actuarial and Settlement Losses

     —          3        2       5  

Share-based compensation

     20        —          —         20  
  

 

 

    

 

 

    

 

 

   

 

 

 

Adjusted EBITDA (1)

   $ 459      $ 173      $ 5     $ 637  
  

 

 

    

 

 

    

 

 

   

 

 

 

 

(1) Includes $120 million of Corporate Expenses (as defined above) and $12 million of corporate global function expense which is expected to be largely eliminated on a prospective basis.


 

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RISK FACTORS

You should carefully consider all of the information in this Information Statement and each of the risks described below, which we believe are the principal risks that we face. Some of the risks relate to the businesses of Ultra and Vencore, others to the Spin-Off, and others to the Mergers. Some risks relate principally to the securities markets and ownership of our common stock.

Any of the following risks could materially and adversely affect our business, financial condition, results of operations and prospects and the actual outcome of matters as to which forward-looking statements are made in this Information Statement. In such case, the trading price of our common stock could decline, and you could lose all or part of your investment. While we believe we have identified and discussed below the material risks affecting our business, there may be additional risks and uncertainties that we do not presently know or that we do not currently believe to be material that may adversely affect our business, financial condition, results of operations and prospects in the future.

Past performance may not be a reliable indicator of future financial performance. Future performance and historical trends may be adversely affected by the following factors, as well as other variables, and should not be relied upon to project future period results.

Risks Relating to Ultra’s Business

We depend on contracts with the U.S. government and its contractors for most of our revenue. If our relationships with such agencies are harmed, our future revenue and operating profits could materially decline.

The government, at the U.S. federal, state and local levels, is our primary customer, with revenue from contracts ask orders, either as a prime contractor or a subcontractor, accounting for substantially all of our revenue on a pro forma basis for the year ended October 31, 2016. We believe the future growth of our business will continue to depend primarily on our ability to be awarded work under U.S. government contracts, as we expect this will be the primary source of substantially all of our revenue in the foreseeable future.

For this reason, any issue that compromises our relationship with the U.S. government generally or any U.S. government agency that we serve could cause our revenue to materially decline. Among the key factors in maintaining our relationship with U.S. government agencies are our performance on contracts and task orders, the strength of our professional reputation, compliance with applicable laws and regulations, and the strength of our relationships with customer personnel. In addition, the mishandling or the perception of mishandling of sensitive information, such as our failure to maintain the confidentiality of sensitive information associated with the work we perform for our customers, or even the existence of our business relationships with certain of our customers, including as a result of misconduct or other improper activities by our employees or subcontractors, or a failure to maintain adequate protection against security breaches, including those resulting from cyber-attack, could harm our relationship with U.S. government agencies. Our relationship with the U.S. government could also be damaged as a result of an agency’s dissatisfaction with work performed by us, a subcontractor, or other third parties who provide services or products for a specific project for any reason, including due to perceived or actual deficiencies in the performance or quality of our work, and we may incur additional costs to address any such situation and the profitability of that work might be impaired. In addition, to the extent our performance under a contract does not meet a U.S. government agency’s expectations, the customer may seek to terminate the contract prior to its scheduled expiration date, provide a negative assessment of our performance to government-maintained contractor past-performance repositories, fail to award us additional business under existing contracts or otherwise, and direct future business to our competitors. Further, negative publicity concerning government contractors in general or us in particular may harm our reputation with U.S. government contractors. To the extent our reputation or relationships with U.S. government agencies is impaired, our revenue and operating profits could materially decline.

 

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U.S. government spending and mission priorities could change in a manner that adversely affects our business, financial condition, results of operations or prospects.

Substantially all of our revenue is generated from contracts with the U.S. government and its agencies. Our business, financial condition, results of operations or prospects could be adversely affected by several causes, including:

 

    budgetary constraints, including Congressionally mandated automatic spending cuts, affecting U.S. federal government spending generally, or specific agencies in particular, and changes in available funding;

 

    a shift in expenditures away from agencies or programs that we support, including a shift in the focus of government research programs to short-term activities that are more urgent, thus reducing funding for forward-looking research;

 

    U.S. government shutdowns due to a failure by elected officials to fund the government (such as the federal government shutdown in 2014 and the recent shutdown in January 2018, which could occur again in 2018 following the expiration of any continuing resolutions) or weather-related closures in the Washington, D.C. area (such as that which occurred in the winter of 2016) and other potential delays in the appropriations process;

 

    reduced U.S. federal government outsourcing of functions that we are currently contracted to provide, including as a result of increased insourcing by various U.S. federal government agencies due to changes in the definition of “inherently governmental” work, including proposals to limit contractor access to sensitive or classified information and work assignments;

 

    further efforts to improve efficiency and reduce costs affecting government programs;

 

    changes in government programs that we support or related requirements;

 

    a continuation of recent efforts by the federal government to decrease spending for management support service contracts;

 

    government agencies awarding contracts on a technically acceptable/lowest-cost basis to reduce expenditures;

 

    delays in the payment of our invoices by government payment offices;

 

    an inability by the federal government to fund its operations as a result of a failure to increase the federal government’s debt ceiling, a credit downgrade of U.S. government obligations or for any other reason; and

 

    changes in the political climate and general economic conditions, including a slowdown of the economy or unstable economic conditions and responses to conditions, such as emergency spending, that reduce funds available for other government priorities.

In addition, any disruption in the functioning of U.S. government agencies, including as a result of U.S. government closures and shutdowns, terrorism, war, natural disasters, destruction of or damage to U.S. government facilities, and other potential calamities could have a negative impact on our operations and cause us to lose revenue or incur additional costs due to, among other things, our inability to deploy our staff to customer locations or facilities as a result of such disruptions.

Further, a significant portion of our business depends upon continued U.S. federal government expenditures on intelligence, defense, space and federal civilian programs for which we provide support. These expenditures have not remained constant over time, have been reduced in certain periods and, recently, have been affected by the U.S. federal government’s efforts to improve efficiency and reduce costs affecting U.S. federal government programs generally.

 

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The U.S. federal government budget deficits, the national debt, and the prevailing economic condition, and actions taken to address them, could continue to negatively affect U.S. federal government expenditures on intelligence, defense, space and federal civilian programs for which we provide support. In particular, the Budget Control Act of 2011 (as amended by the American Taxpayer Relief Act of 2012, the Bipartisan Budget Act of 2013 and the Bipartisan Budget Act of 2015) provides for automatic spending cuts (referred to as sequestration) totaling approximately $1.2 trillion between 2013 and 2021, including an estimated $500 billion in federal defense spending cuts over this time period. The Bipartisan Budget Act of 2015 set spending limits for the U.S. fiscal 2017 budget across the U.S. federal government and increased the prior discretionary spending caps in both defense and non-defense. While recent budget actions reflect a more measured and strategic approach to addressing the federal government’s fiscal challenges, there remains uncertainty as to how exactly budget cuts, including sequestration, could impact us, and we are therefore unable to predict the extent of the impact of such cuts on our business, results of operations and prospects. In addition, in response to an Office of Management and Budget mandate, U.S. federal government agencies have reduced management support services spending in recent years. If federal awards for management support services continue to decline, our revenue and operating profits may materially decline and further efforts by the Office of Management and Budget to decrease federal awards for management support services could have a material and adverse effect on our business, results of operations and prospects.

These or other factors could cause our intelligence, defense, space and federal civilian customers to decrease the number or value of new contracts awarded generally and fail to award us new contracts, reduce their purchases under our existing contracts, exercise their right to terminate our contracts, or not exercise options to renew our contracts, any of which could cause a material decline in our revenue.

A delay in the completion of the U.S. federal government’s budget process could have a material adverse effect on our revenue and operating results.

On an annual basis, the U.S. Congress must approve budgets that govern spending by each of the federal agencies we support. When the U.S. Congress is unable to agree on budget priorities, and thus is unable to pass the annual budget on a timely basis, the U.S. Congress typically enacts a continuing resolution. A continuing resolution allows U.S. federal government agencies to operate at spending levels approved in the previous budget cycle. Under a continuing resolution, funding may not be available for new projects. In addition, when U.S. federal government agencies operate on the basis of a continuing resolution, they may delay funding we expect to receive on contracts we are already performing. Any such delays would likely result in new business initiatives being delayed or canceled and could have a material adverse effect on our revenue and operating results. Furthermore, a failure to complete the budget process and fund government operations pursuant to a continuing resolution may result in a U.S. federal government shutdown, such as the recent shutdown in January 2018. Finally, while the U.S. Congress may pass a continuing resolution, similar to the continuing resolution passed in January 2018, it is possible no agreement on the annual budget may be reached and the U.S. government could shutdown again following the expiration of the continuing resolution that acted largely as a stopgap measure. A shutdown may result in us incurring substantial costs without reimbursement under our contracts and the delay or cancellation of key programs, which could have a material adverse effect on our revenue and operating results.

We are subject to a number of laws and regulations, including laws and regulations relating to procurement and anti-bribery laws. Our business and reputation could be adversely affected if we fail to comply with these laws.

We must comply with and are affected by laws and regulations relating to the award, administration and performance of U.S. government contracts. Government contract laws and regulations affect how we do business with our customers and impose certain risks and costs on our business. U.S. government contractors are subject to a greater risk of investigation, criminal prosecution, civil fraud, whistleblower lawsuits and other legal actions and liabilities than companies with solely commercial customers. A violation of specific laws and regulations, by us, our employees, others working on our behalf, a supplier or a venture partner, could harm our reputation and

 

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result in the imposition of fines and penalties, the termination of our contracts, suspension or debarment from bidding on or being awarded contracts, loss of our ability to export products or services and civil or criminal investigations or proceedings. In some instances, these laws and regulations impose terms or rights that are different from those typically found in commercial transactions. For example, the U.S. federal government may terminate any of our government contracts and subcontracts either at its convenience or for default based on our performance. Upon termination for convenience of a fixed-price type contract, we normally are entitled to receive the purchase price for delivered items, reimbursement for allowable costs for work-in-process and an allowance for profit on the contract or adjustment for loss if completion of performance would have resulted in a loss.

Upon termination for convenience of a cost-reimbursable contract, we normally are entitled to reimbursement of allowable costs plus a portion of the fee. Allowable costs would include our cost to terminate agreements with our suppliers and subcontractors. The amount of the fee recovered, if any, is related to the portion of the work accomplished prior to termination and is determined by negotiation. We attempt to ensure that adequate funds are available by notifying the customer when its estimated costs, including those associated with a possible termination for convenience, approach levels specified as being allotted to its programs. As funds are typically appropriated on a fiscal-year basis and as the costs of a termination for convenience may exceed the costs of continuing a program in a given fiscal year, occasionally programs do not have sufficient funds appropriated to cover the termination costs were the U.S. federal government to terminate them for convenience. Under such circumstances, the U.S. federal government could assert that it is not required to appropriate additional funding.

A termination arising out of our default may expose us to liability and have a material adverse effect on our ability to compete for future contracts and orders. In addition, on those contracts for which we are teamed with others and are not the prime contractor, the U.S. federal government could terminate a prime contract under which we are a subcontractor, notwithstanding the quality of our services as a subcontractor. In the case of termination for default, the U.S. federal government could make claims to reduce the contract value or recover its procurement costs and could assess other special penalties. However, under such circumstances we have rights and remedial actions under laws and the Federal Acquisition Regulation (“FAR”).

U.S. federal government agencies, including the Defense Contract Audit Agency, the Defense Contract Management Agency and various agency Inspectors General, routinely audit and investigate government contractors. These agencies review a contractor’s performance under its contracts, its cost structure, its business systems and compliance with applicable laws, regulations and standards. The U.S. federal government has the ability to decrease or withhold certain payments when it deems systems subject to its review to be inadequate. Additionally, any costs found to be misclassified may be subject to repayment. We have unaudited and/or unsettled incurred cost claims related to past years, which places risk on our ability to issue final billings on contracts for which authorized and appropriated funds may be expiring. If an audit or investigation uncovers improper or illegal activities, we may be subject to civil or criminal penalties and administrative sanctions, including reductions of the value of contracts, contract modifications or terminations, forfeiture of profits, suspension of payments, penalties, fines and suspension, or prohibition from doing business with the U.S. government. In addition, we could incur significant legal costs and suffer serious reputational harm if allegations of impropriety were made against us. Similar government oversight exists in most other countries where we conduct business.

We are also subject to the U.S. Foreign Corrupt Practices Act of 1977, as amended (“FCPA”), and similar anti-bribery laws in other jurisdictions. We pursue opportunities in certain parts of the world that experience government corruption and in certain circumstances, compliance with anti-bribery laws may conflict with local customs and practices. Our internal policies mandate compliance with all applicable anti-bribery laws. We require our employees, partners, subcontractors, agents, and others to comply with the FCPA and other anti-bribery laws. There is no assurance that our policies or procedures will protect us against liability under the FCPA or other laws for actions taken by our employees and intermediaries. If we are found to be liable for FCPA

 

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violations (either due to our own acts or our omissions, or due to the acts or omissions of others), we could suffer from severe criminal or civil penalties or other sanctions, which could have a material adverse effect on our reputation, business, results of operations or cash flows. In addition, detecting, investigating, and resolving actual or alleged violations of the FCPA or other anti-bribery violations is expensive and could consume significant time and attention of our senior management.

The U.S. government’s organizational conflict of interest rules could limit our ability to successfully compete for new contracts or task orders, which would adversely affect our results of operations and prospects.

Past efforts by the U.S. government to reform its procurement practices have focused, among other areas, on the separation of certain types of work to facilitate objectivity and avoid or mitigate organizational conflicts of interest and the strengthening of regulations governing organizational conflicts of interest. Organizational conflicts of interest may arise from circumstances in which a contractor has:

 

    impaired objectivity during performance;

 

    unfair access to non-public information; or

 

    the ability to set the “ground rules” for another procurement for which the contractor competes.

A focus on organizational conflicts of interest issues has resulted in legislation and regulations aimed at increasing organizational conflicts of interest requirements, including, among other things, separating sellers of products and providers of advisory services in major defense acquisition programs. For example, our current launch services support contracts for the U.S. government may limit our ability to apply our expertise and solutions to capitalize on all potential opportunities within the commercial launch market. Future legislation and regulations may increase the restrictions in current organizational conflicts of interest regulations and rules. To the extent that organizational conflicts of interest laws, regulations and rules limit our ability to successfully compete for new contracts or task orders with the U.S. government and/or commercial entities, either because of organizational conflicts of interest issues arising from our business or because companies with which we are affiliated or with which we otherwise conduct business create organizational conflicts of interest issues for us, our results of operations and prospects could be materially and adversely affected.

We may fail to obtain and maintain necessary security clearances or certifications which may adversely affect our ability to perform on certain contracts.

Many U.S. government programs require contractor employees and facilities to have security clearances or certifications. Depending on the level of required clearance, security clearances and certifications can be difficult and time-consuming to obtain. If we, our employees or prospective employees or facilities are unable to obtain or retain necessary security clearances or certifications, we may not be able to bid on, win or perform on new contracts, or effectively compete for expiring contracts, and we may lose existing contracts, which may adversely affect our operating results and inhibit the execution of our growth strategy.

We derive a majority of our revenue from contracts awarded through a competitive bidding process, and our revenue and profitability may be materially adversely affected if we are unable to compete effectively in the process.

We derive a majority of our revenue from U.S. government contracts awarded through competitive bidding processes including through competitions for orders under multiple award contracts. We do not expect this to change for the foreseeable future. Our failure to compete effectively in this procurement environment would have a material adverse effect on our revenue and profitability. In addition, our current contracts are re-competed from time to time, and we are not assured of winning these re-competes. In circumstances where we do not win those re-competes, and those lost contracts are not replaced, our operating results may be materially and adversely affected.

 

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The competitive bidding process involves risk and significant costs to businesses operating in this environment, including:

 

    the necessity to expend resources, make financial commitments (such as procuring leased premises) and bid on engagements in advance of the completion of their design, which may result in unforeseen difficulties in execution and cost overruns;

 

    the substantial cost and managerial time and effort spent to prepare bids and proposals for contracts that may not be awarded to us;

 

    the ability to accurately estimate the resources and costs that will be required to service any contract we are awarded;

 

    the expense and delay that may arise if our competitors protest or challenge contract awards made to us pursuant to competitive bidding, and the risk that any such protest or challenge could result in the resubmission of bids on modified specifications, or in termination, reduction, or modification of the awarded contract; and

 

    any opportunity cost of bidding and winning other contracts we might otherwise pursue.

In circumstances where contracts are held by other companies and are scheduled to expire, we still may not be provided the opportunity to bid on those contracts if the government extends the existing contract. If we are unable to win particular contracts that are awarded through the competitive bidding process, we may not be able to operate in the market for services that are provided under those contracts for the duration of those contracts to the extent that there is no additional demand for such services. In addition, if the government elects to use a contract vehicle that we do not hold, we will not be able to compete for work under that contract vehicle as a prime contractor. An inability to consistently win new contract awards or compete for work as a prime contractor over any extended period could have a material adverse effect on our business, results of operations and prospects.

Our earnings and profitability may vary based on the mix of our contracts and may be adversely affected by our failure to accurately estimate or otherwise recover the expenses, time, and resources for our contracts.

We enter into several different types of contracts with our government customers for our services including cost-reimbursable, time-and-materials, and fixed-price. Each of these types of contracts, to varying degrees, involves the risk that we could underestimate our cost of fulfilling the contract, which may reduce the profit we earn or lead to a financial loss on the contract and adversely affect our operating results.

Under cost-reimbursable contracts, we are reimbursed for allowable costs up to a ceiling and paid a fee, which may be fixed or performance-based. If our actual costs exceed the contract ceiling or are not allowable under the terms of the contract or applicable regulations, we may not be able to recover those costs. In particular, there is increasing focus by the U.S. government on the extent to which government contractors, including us, are able to receive reimbursement for employee compensation, including rules under the Bipartisan Budget Act of 2013 that substantially decreased the level of allowable compensation cost for executive-level employees and further applied the newly reduced limitation to all employees. In addition, there is risk of compensation being deemed unallowable or payments being withheld as a result of government audit, review, or investigation.

Under time-and-materials contracts, we are reimbursed for the hours worked using predetermined hourly rates for each labor category and typically reimbursed for other direct contract costs and expenses at cost. We assume financial risk on time-and-materials contracts because our costs of performance may exceed these negotiated hourly rates.

Under fixed-price contracts, we perform specific tasks for a pre-determined price. Compared to time-and-materials and cost-reimbursable contracts, fixed-price contracts generally offer higher margin

 

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opportunities because we receive the benefits of any cost savings, but involve greater financial risk because we bear the impact of any cost overruns. Because we assume the risk for cost overruns and contingent losses on fixed-price contracts, an increase in the percentage of fixed-price contracts in our contract mix could increase our risk of suffering losses.

Additionally, our profits could be adversely affected if our costs under any of these contracts exceed the assumptions we used in bidding for the contract. For example, we may miscalculate the costs, resources, or time needed to complete projects or meet contractual milestones as a result of delays on a particular project, including delays in designs, engineering information, or materials provided by the customer or a third party, delays or difficulties in equipment and material delivery, schedule changes, and other factors, some of which are beyond our control.

We have recorded provisions in our consolidated financial statements for losses on our contracts, as required under GAAP, but our contract loss provisions may not be adequate to cover all actual losses that we may incur in the future. Actual losses could have an adverse effect on our business and financial results.

Many of our contracts contain performance obligations that require innovative design capabilities, are technologically complex or are dependent upon factors not wholly within our control. Failure to meet these obligations could adversely affect our revenue and profitability.

We design and develop technologically advanced and innovative products and services applied by our customers in a variety of environments. Problems and delays in development or delivery as a result of issues with respect to design, technology, licensing and patent rights, labor, learning curve assumptions or materials and components could prevent us from achieving contractual requirements.

In addition, our offerings cannot be tested and proven in all situations and are otherwise subject to unforeseen problems that could negatively affect revenue and profitability such as problems with quality and workmanship, country of origin, delivery of subcontractor components or services and unplanned degradation of product performance. Among the factors that may adversely affect revenue and profits could be unforeseen costs and expenses not covered by insurance or indemnification from the customer, diversion of management focus in responding to unforeseen problems, loss of follow-on work, and, in the case of certain contracts, repayment to the U.S. government customer of contract cost and fee payments we previously received.

Failure of third parties to deliver on commitments under contracts, and misconduct of employees, subcontractors, agents and business partners could cause us to lose existing contracts or customers and adversely affect our ability to obtain new contracts and customers and could have a significant adverse impact on our business and reputation.

Our contracts are expected to be complex and, in some instances, may require us to partner with other parties, including software and hardware vendors, to provide the complex solutions required by its customers. Our ability to deliver the solutions and provide the services required by our customers will be dependent on our abilities and our partners to meet customers’ delivery schedules. If we or our partners fail to deliver services or products on time, our ability to complete the contract may be adversely affected, which may have a material and adverse impact on our revenue and profitability.

Misconduct could include fraud or other improper activities such as falsifying time or other records and violations of laws and regulations, including the Procurement Integrity Act and anti-corruption laws. Other examples could include the failure to comply with our Code of Business Conduct, policies and procedures or with U.S. federal, state or local government procurement regulations, rules regarding the use and safeguarding of classified or other protected information, legislation regarding the pricing of labor and other costs in government contracts, laws and regulations relating to environmental, health or safety matters, international trade controls (particularly the International Traffic in Arms Regulations), lobbying or similar activities and any other

 

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applicable laws or regulations. Any data loss or information security lapses resulting in the compromise of personal information or the improper use or disclosure of sensitive or classified information could result in claims, remediation costs, regulatory sanctions against us, loss of current and future contracts and serious harm to our reputation. Although we have implemented policies, procedures and controls to prevent and detect these activities, these precautions may not prevent all misconduct and, as a result, we could face unknown risks or losses. Our failure to comply with applicable laws or regulations or misconduct by any of our employees, subcontractors, agents or business partners could damage our reputation and subject us to fines and penalties, restitution or other damages, loss of security clearance, loss of current and future customer contracts and suspension or debarment from contracting with U.S. federal, state or local government agencies, any of which would adversely affect our business and our future results.

Our business could be adversely affected if there are delays, terminations or cancellations caused by our competitors protesting major contract awards received by us or there are adverse protest decisions in contracts awarded to us.

U.S. government contracts are frequently subject to bid protests from unsuccessful bidders on new program awards. It can take many months for the relevant U.S. government agency to resolve protests by one or more of our competitors of contract awards we receive. Bid protests may result in significant expense to us, termination or cancellation of an awarded contract as a result of the award being overturned. Even if we do not lose the awarded contract, the resulting delay in the startup and funding of the work under these contracts may cause our revenue and profitability to be materially and adversely affected.

Following the Spin-Off and Mergers, if we do not adequately remediate existing material weaknesses, or if we experience material weaknesses in the future or otherwise fail to maintain an effective system of internal controls, we may not be able to accurately or timely report our financial condition or results of operations, or comply with the accounting and reporting requirements applicable to public companies, which may adversely affect investor confidence in us and, as a result, the value of our common stock.

Vencore has identified material weaknesses in its internal control over financial reporting. In connection with the audit of Vencore’s combined financial statements for the year ended December 31, 2016, material adjustments were identified related to years prior to 2016, which represented material weaknesses in its internal control over financial reporting as of December 31, 2016 and as of September 29, 2017. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our financial statements will not be prevented or detected on a timely basis.

Vencore’s material weaknesses related to the following:

Material adjustments were identified and recorded in the financial statements for the periods prior to 2016 related to the accounting for certain non-recurring or unique transactions involving a high level of complexity, subjectivity and judgment. During those periods Vencore did not retain a sufficient complement of personnel possessing the appropriate accounting knowledge and experience, which resulted in incorrect conclusions in the application of GAAP associated with non-recurring or unique transactions involving a high level of complexity, subjectivity and judgment. This material weakness contributed to additional material weaknesses in which, specifically, (1) Vencore did not design and maintain effective internal control over the accounting for business combinations including certain post-acquisition activities (including the assessment of appropriate reporting units) and (2) Vencore did not maintain effective controls over the period-end financial reporting process, specifically controls over the review by individuals with the appropriate accounting knowledge of certain significant account reconciliations that analyzed the accounting for business combinations and certain post-acquisition activities and the review of the consolidated financial statements.

 

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These material weaknesses resulted in adjustments to Vencore’s consolidated financial statements for the years ended December 31, 2014 and 2015 related to the accounting for:

 

    a contingent consideration liability related to Vencore’s acquisition of QNA SSG; and

 

    certain lease abandonment liabilities.

Following the Spin-Off and the Mergers, we will continue to implement measures designed to improve our internal controls over financial reporting, in an effort to remediate these material weaknesses going forward. In addition, following the Spin-Off and the Mergers we will continue to evaluate whether we have a sufficient number of appropriately trained and experienced technical accounting personnel and will add new personnel as we deem necessary.

Although Vencore is in the process of carrying out these remediation activities, and we will continue to carry out these remediation activities related to the Vencore material weaknesses following the Spin-Off and the Mergers, we cannot assure you that the measures taken to date, together with any measures we may take in the future, will be sufficient to remediate these material weaknesses in our internal control over financial reporting or to avoid potential future material weaknesses. If the steps we take do not correct the historic Vencore material weaknesses in a timely manner, we will be unable to conclude that we maintain effective internal control over financial reporting. Accordingly, this could result in additional misstatements of the accounts or disclosures that would result in a material misstatement of our financial statements that would not be prevented or detected on a timely basis. As we have not completed the design, evaluation and testing of our internal controls over financial reporting, we cannot be certain that these material weaknesses will be fully remediated or that other material weaknesses will not be discovered in the future.

If we are unable to successfully remediate the existing Vencore material weaknesses, or any future material weaknesses in our internal control over financial reporting, or if we identify any additional existing material weaknesses, the accuracy and timing of our financial reporting may be adversely affected, we may be unable to maintain compliance with securities law requirements regarding timely filing of periodic reports in addition to exchange listing requirements, our reported financial results may be materially misstated, investors may lose confidence in our financial reporting and our stock price may decline as a result. As a result of such failures, we could also become subject to investigations by the exchange our common stock will be listed on, the SEC or other regulatory authorities, and become subject to litigation from investors and stockholders, which could harm our reputation, business and financial condition and divert financial and management resources from our core business.

There can be no assurance that our internal controls over financial reporting will be able to detect fraud or other issues.

We will be required under the Sarbanes-Oxley Act of 2002 to include a report of management on our internal controls that contains an assessment by management of the effectiveness of our internal control over financial reporting. In addition, the public accounting firm auditing our financial statements will be required to report on the effectiveness of internal control over financial reporting. Effective internal controls are necessary for us to provide reliable financial reports and effectively prevent fraud. However, a control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. There can be no assurance that all control issues or fraud will be detected. In connection with the Mergers, and as we continue to grow our business, our internal controls continue to become more complex and require more resources.

We may earn less revenue than projected, or no revenue, under certain of our contracts.

Following the Spin-Off and Mergers, some of our contracts with our clients are ID/IQ contracts. ID/IQ contracts provide for the issuance by the client of orders for services or products under the contract, and often

 

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contain multi-year terms and unfunded ceiling amounts, which allow but do not commit our U.S. government customer to purchase products and services from contractors. Our ability to generate revenue under each of these types of contracts depends upon our ability to be awarded task orders for specific services by the client. ID/IQ contracts may be awarded to one contractor (single award) or several contractors (multiple award). Multiple contractors must compete under multiple award ID/IQ contracts for task orders to provide particular services, and contractors earn revenue only to the extent that they successfully compete for these task orders. A failure to be awarded task orders under such contracts would have a material adverse effect on our results of operations and financial condition. In addition, our ability to maintain our existing business and win new business depends on our ability to maintain our prime and subcontractor positions on our ID/IQ contracts.

A termination of our defined benefit pension plan would adversely affect our financial condition and results of operations.

As of September 30, 2017, on a pro forma basis giving effect to the Spin-Off and Mergers, we would have had $77 million of unfunded pension obligations under our U.S. defined benefit pension plan. The Pension Benefit Guaranty Corporation (the “PBGC”) has authority under the Employment Retirement Income Security Act of 1974, as amended, to terminate an underfunded defined benefit pension plan under certain circumstances, including when (1) the plan has not met the minimum funding requirements, (2) the plan cannot pay current benefits when due, or (3) the loss to the PBGC is reasonably expected to increase unreasonably over time if the plan is not terminated. If the PBGC were to terminate our U.S. defined benefit pension plan, our obligations with respect to such plan would become due and payable in full. Any such event or the failure by us to pay our pension plan insurance premiums with respect to its U.S. defined benefit pension plan could result in the PBGC obtaining a lien on our assets. Such an event materially and adversely affect our financial condition and results of operations.

The U.S. government may revise its procurement, contract or other practices in a manner materially adverse to us at any time.

Our industry continues to experience significant changes to business practices as a result of an increased focus on affordability, efficiencies and recovery of costs, among other items. Legislation, regulations and initiatives dealing with procurement reform, mitigation of potential organizational conflicts of interest, deterrence of fraud, and environmental responsibility or sustainability could have a material adverse effect on us. Moreover, shifts in the buying practices of government agencies (such as increased usage of fixed-price contracts with disclosure of cost and pricing data, multiple award contracts and small business set-aside contracts) could have material adverse effects on government contractors, including us. The government may:

 

    revise its procurement practices or adopt new contract laws, rules, and regulations, such as cost accounting standards, organizational conflicts of interest, and other rules governing inherently governmental functions at any time;

 

    reduce, delay, or cancel procurement programs resulting from government efforts to improve procurement practices and efficiency;

 

    limit the creation of new government-wide or agency-specific multiple award contracts;

 

    face restrictions or pressure from government employees and their unions regarding the amount of services the U.S. federal, state or local governments may obtain from private contractors;

 

    award contracts on a technically acceptable/lowest-cost basis to reduce expenditures, and we may not be the lowest-cost provider of services;

 

    adopt new socio-economic requirements, including setting aside procurement opportunities for small, disadvantaged, minority-, women- or veteran-owned businesses;

 

    change the basis upon which it reimburses our compensation and other expenses or otherwise limit such reimbursements; and

 

    at its option, terminate or decline to renew our contracts.

 

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In addition, any new contracting methods could be costly or administratively difficult for us to implement and could materially adversely affect our future revenue and profit margin. Furthermore, changes to the procurement system could cause delays in the procurement decision-making process. Any such changes to the government’s procurement practices or the adoption of new contracting rules or practices could impair our ability to obtain new or re-compete contracts and any such changes or increased associated costs could materially and adversely affect our results of operations. Moreover, cost-cutting initiatives recently announced by the Secretary of Defense may significantly change the way the U.S. federal government solicits, negotiates, and manages its contracts, which could result in an increase in competitive pressure and decreased profitability on contracts and have a material adverse effect on our results of operations.

The U.S. federal government may prefer small, disadvantaged, minority-, women- or veteran-owned businesses. As a result we may have fewer opportunities to bid on new or incumbent work.

As a result of Small Business Administration set-aside and preference programs, the U.S. federal government may decide to restrict certain procurements only to bidders that qualify as small, disadvantaged, minority-, women- or veteran-owned. As a result, we would not be eligible to perform as a prime contractor on those programs and would be restricted as to the work we could perform as a subcontractor on those programs. An increase in the amount of procurements under the Small Business Administration set-aside program may impact our ability to bid on new procurements as a prime contractor or restrict our ability to re-compete on incumbent work that is placed in the set-aside program.

Our business is subject to reviews, audits and cost adjustments by the U.S. federal government, which, if resolved unfavorably to us, could adversely affect our profitability, cash flows or growth prospects.

The Defense Contract Audit Agency (“DCAA”), Defense Contract Management Agency (“DCMA”) and others routinely audit and review a contractor’s performance on government contracts, indirect cost rates and pricing practices, and compliance with applicable contracting and procurement laws, regulations and standards. They also review the adequacy of the contractor’s compliance with government standards for its business systems, which are defined as the contractor’s accounting, earned value management, estimating, materials management, property management and purchasing systems. A finding of material weakness or significant control deficiencies in a contractor’s business systems or a finding of noncompliance with the FAR Cost Accounting Standards can result in reduced billing rates to U.S. government customers until the material weakness or control deficiencies are corrected and their remediation is accepted by the DCMA. The agencies conducting these audits and reviews have come under increased scrutiny. As a result, audits and reviews have become more rigorous and the standards to which we are held are being more strictly interpreted which has increased the likelihood of an audit or review resulting in an adverse outcome.

Government audits and reviews may conclude that our practices are not consistent with applicable laws and regulations and result in adjustments to contract costs and mandatory customer refunds. Further, we currently intend to integrate the USPS and Vencore business systems, and as a result, any finding of noncompliance in either USPS or Vencore could result in a negative impact for the combined entity. Such adjustments, whether to USPS, Vencore, or to the combined entity, can be applied retroactively, which could result in significant customer refunds. Receipt of adverse audit findings or the failure to obtain an “approved” determination on our various business systems could significantly and adversely affect our business by, among other things, restricting our ability to bid on new contracts and, for those proposals under evaluation, diminishing our competitive position. A determination of noncompliance, in either USPS, Vencore or Ultra’s business systems, could also result in the U.S. federal government imposing penalties and sanctions against us, including withholding of payments, suspension of payments and increased government scrutiny. Increased scrutiny could adversely impact our ability to perform on contracts, affect our ability to invoice for work performed, delay the receipt of timely payment on contracts, and weaken our ability to compete for new contracts with the U.S. federal government.

 

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If we cannot collect our receivables or if payment is delayed, our business and financial condition may be materially and adversely affected.

We depend on the timely collection of our receivables to generate cash flow, provide working capital, and continue our business operations. Over the course of a long-term contract, a customer’s financial condition may decline and lower its ability to pay its obligations. This would cause our cash collections to decrease and bad debt expense to increase. While we may resort to alternative methods to pursue claims or collect receivables, these methods are expensive and time consuming and successful collection is not guaranteed. Failure to collect our receivables or prevail on claims would have an adverse effect on our profitability and cash flows.

U.S. federal, state or local governments may delay or fail to pay invoices for a number of reasons, including lack of appropriated funds, lack of an approved budget, or as a result of audit findings by government regulatory agencies. Some prime contractors for whom we are a subcontractor have significantly fewer financial resources than we do, which may increase the risk that we may not be paid in full or that payment may be delayed.

Our U.S. federal, state and local government contracts may be terminated by such U.S. federal, state or local government customer at any time and may contain other provisions permitting such customer to discontinue contract performance, allow a contract to expire, or that are otherwise unfavorable to us (e.g., federal government’s decision not to renew an option), and if discontinued contracts are not replaced, our operating results may differ materially and adversely from those anticipated.

U.S. federal, state and local government contracts contain provisions and are subject to laws and regulations that provide U.S. federal, state and local government customers with rights and remedies not typically found in commercial contracts. These rights and remedies allow such U.S. federal, state or local government customer to, among other things:

 

    terminate existing contracts, with short notice, for convenience as well as for default;

 

    reduce orders under or otherwise modify contracts;

 

    for contracts subject to the Truth in Negotiations Act, reduce the contract price or cost where it was increased because a contractor or subcontractor furnished cost or pricing data during negotiations that was not complete, accurate, and current;

 

    for some contracts, demand a refund, make a forward price adjustment, or terminate a contract for default if a contractor provided inaccurate or incomplete data during the contract negotiation process and/or reduce the contract price under certain triggering circumstances, including the revision of price lists or other documents upon which the contract award was predicated;

 

    terminate our facility security clearances and thereby prevent us from receiving classified contracts;

 

    cancel multi-year contracts and related orders if funds for contract performance for any subsequent year become unavailable;

 

    decline to exercise an option to renew a multi-year contract or issue task orders in connection with ID/IQ contracts;

 

    assert rights in solutions, systems, and technology produced by us during contract performance, and continue to use that work product without continuing to contract for our services, and/or disclose or permit such work product to be used by third parties, including other U.S. government agencies and our competitors, which could harm our competitive position;

 

    prohibit future procurement awards with a particular U.S. federal government agency due to a finding of organizational conflicts of interest based upon prior related work performed for the U.S. federal government agency that would give a contractor an unfair advantage over competing contractors, or the existence of conflicting roles that might bias a contractor’s judgment;

 

    suspend or debar us from doing business with the U.S. federal government;

 

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    impose fines and penalties on us, and subject us to criminal prosecution;

 

    repurpose funds to address rated orders;

 

    control or prohibit the export of our services; and

 

    impose special handling and control requirements for controlled information.

Recent and potential future budget cuts, the impact of sequestration and recent efforts by the Office of Management and Budget to decrease federal awards for management support services may cause U.S. federal government agencies with which we currently have contracts to terminate, reduce the number of task orders under or fail to renew such contracts. If a U.S. federal, state or local government customer were to unexpectedly terminate, cancel, or decline to exercise an option to renew with respect to one or more of our significant contracts, or suspend or debar us from doing business with such U.S. federal, state or local government customer, our revenue and operating results could be materially harmed.

Our business is subject to fluctuations that may cause our operating results to decline.

The U.S. fiscal year ends on September 30th of each year. While not certain, it is not uncommon for U.S. government agencies to award extra tasks or complete other contract actions in the weeks before the end of the U.S. fiscal year in order to avoid the loss of unexpended fiscal year funds. In addition, we have also historically experienced higher bid and proposal costs in the months leading up to the U.S. fiscal year end as we pursue new contract opportunities expected to be awarded early in the following U.S. fiscal year as a result of funding appropriated for that U.S. fiscal year. We may continue to experience this seasonality in future periods, and our results of operations may be affected by it. While not certain, changes in the U.S. federal government’s funding and spending patterns have altered historical seasonality trends, supporting our approach to managing the business on an annual basis. Seasonality is just one of a number of factors, many of which are outside of our control, which may negatively affect our operating results in any period.

Our ability to provide customers with competitive services is dependent on our ability to attract and retain qualified personnel, including our senior management team.

Our ability to grow and provide our customers with competitive services is partially dependent on our ability to attract and retain highly motivated people with the skills necessary to serve our customers. The markets we serve are highly competitive and competition for skilled employees in the technology outsourcing, consulting, and systems integration and enterprise services markets is intense for both onshore and offshore locales. Personnel with the requisite skills, qualifications, or security clearance may be in short supply or generally unavailable. The loss of personnel could impair our ability to perform under certain contracts, which could have a material adverse effect on our consolidated financial position, results of operations, prospects and cash flows.

In addition, due to the Mergers, uncertainty around future employment opportunities, facility locations, organizational and reporting structures, and other related concerns may impair our ability to attract and retain qualified personnel. If employee attrition is higher than expected due to difficulties encountered in the integration process it may adversely impact our ability to realize the anticipated benefits of the Mergers.

If we do not hire, train, motivate, and effectively utilize employees with the right mix of skills and experience in the right geographic regions and for the right offerings to meet the needs of our customers, our financial performance could suffer. For example, if our employee utilization rate is too low, our profitability, and the level of engagement of our employees could decrease. If that utilization rate is too high, it could have an adverse effect on employee engagement and attrition and the quality of the work performed, as well as our ability to staff projects. If we are unable to hire and retain enough employees with the skills or backgrounds needed to meet current demand, we may need to redeploy existing personnel, increase our reliance on subcontractors or increase employee compensation levels, all of which could also negatively affect our profitability. We may also incur increased costs if we have more employees than necessary with certain skill sets or in certain geographies as we will need to rebalance our supply of skills and resources with customer demand in those geographies.

 

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In addition to attracting and retaining qualified technical personnel, we believe that our success will depend on the continued employment of our senior management team and its ability to generate new business and execute projects successfully. Our senior management team is very important to our business because personal reputations and individual business relationships are a critical element of obtaining and maintaining customer engagements in our industry, particularly with agencies performing classified operations. The loss of any of our senior executives could cause us to lose customer relationships or new business opportunities, which could cause actual results to differ materially and adversely from those anticipated.

Our business and financial results could be negatively affected by cyber-attack, service interruptions or other security threats.

As a provider of IT services to U.S. public sector customers, we store and process large amounts of sensitive information which includes personally identifiable information, protected health information, personnel information, classified information, financial information and other confidential information concerning our business and employees and those of our customers (collectively referred to below as “sensitive information”). We are continuously exposed to risk from cyber-attack and other security threats, including computer viruses and attacks by hackers. Any electronic or other security breach or compromise may jeopardize security of sensitive or other information stored or transmitted through our IT systems and networks, and could expose us to regulatory scrutiny, actions and penalties, extensive contractual liability litigation, reputational harm, and a loss of customer confidence, which could potentially have an adverse impact on future business with current and potential customers.

Experienced computer programmers and hackers may be able to penetrate our network security and misappropriate or compromise our confidential information or that of third parties, create system disruptions or cause shutdowns. Computer programmers and hackers also may be able to develop and deploy viruses, worms, and other malicious software programs that attack our products or otherwise exploit any security vulnerabilities of these products. In addition, sophisticated hardware and operating system software and applications produced or procured from third parties may contain defects in design or manufacture, including “bugs” and other problems that could unexpectedly interfere with the operation of the system. The costs to eliminate or alleviate cyber or other security problems, including bugs, viruses, worms, malicious software programs, and other security vulnerabilities, could be significant, and our efforts to address these problems may not be successful and could result in interruptions, delays, cessation of service, and loss of existing or potential customers, which may impede our sales, manufacturing, distribution or other critical functions.

We work with other companies in the industry and government participants to share threat intelligence and promote increased awareness and enhanced protections against cybersecurity threats, and we seek to detect and investigate all security events and to prevent their occurrence or recurrence. We continue to improve our threat protection, detection and mitigation policies, procedures and controls. Our security measures are designed to identify and protect against security breaches and cyber-attack and no threat incident identified to date has resulted in a material adverse effect on us or our customers. However, our failure to detect, prevent or adequately respond to a future threat incident could subject us to liability and reputational damage and have a material adverse effect on our business.

Increasing data privacy and information security obligations could also impose additional regulatory pressures on our customers’ businesses and, indirectly, on our operations. In response, some of our customers have sought and may continue to seek, to contractually impose certain strict data privacy and information security obligations on us. Under certain of our customer contracts we are specifically tasked with cybersecurity measures and thus are affirmatively responsible for implementing cybersecurity measures to protect against, detect and mitigate these threats. Some of our customer contracts may not limit our liability for the loss of confidential information. If we are unable to adequately address these concerns, our business, results of operations and prospects could suffer. Compliance with new privacy and security laws, requirements and regulations, where required or undertaken by us, may result in cost increases due to potential systems changes,

 

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the development of additional administrative processes and increased enforcement actions, fines and penalties. While we strive to comply with all applicable data protection laws and regulations as well as internal privacy policies, any failure or perceived failure to comply or any misappropriation, loss or other unauthorized disclosure of sensitive or confidential information may result in proceedings or actions against us by government or other entities, private lawsuits against us (including class actions) or the loss of customers, which could potentially have an adverse effect on our business, reputation, results of operations and prospects.

The Separation and Distribution Agreement limits both our and DXC’s ability to engage in certain competitive activities.

The Separation Agreement and Distribution includes non-compete provisions pursuant to which we and DXC generally agree to not compete in certain product and service categories for two years following the Distribution, subject to certain exceptions set forth in the Separation and Distribution Agreement. See “The Transaction Agreements—The Separation and Distribution Agreement—Non-Competition.” The foregoing restrictions may limit our ability to engage in certain activities, may potentially lead to disputes and may materially and adversely affect our business, financial condition, results of operations and prospects.

We are defendants in pending litigation that may have a material and adverse impact on our profitability and liquidity.

We are party to a number of disputes that involve or may involve litigation. We also may become a party to a variety of lawsuits or claims and suits that arise from time to time in the ordinary course of our business. We are not able to predict the ultimate outcome of these disputes or the actual impact of these matters on our profitability. If we agree to settle these matters or judgments are secured against us, we may incur liabilities that may have a material and adverse impact on our liquidity and earnings. See Note 10 to the combined financial statements of USPS and Note 20 to the combined financial statements of Vencore.

Our business and operations expose us to numerous legal and regulatory requirements, and any violation of these requirements could harm our business.

We are subject to numerous federal, state and foreign legal requirements on matters as diverse as data privacy and protection, employment and labor relations, environmental, health and safety, immigration, taxation, anti-corruption, import/export controls, trade restrictions, internal and disclosure control obligations, securities regulation and anti-competition. Compliance with diverse and changing legal requirements is costly, time-consuming and requires significant resources. We also conduct business in certain identified growth areas, such as national security, national intelligence, health IT and energy, which are highly regulated and may expose us to increased compliance risk. Violations of one or more of these diverse legal requirements in the conduct of our business could result in significant fines and other damages, criminal sanctions against us or our officers, prohibitions on doing business (including suspension or disbarment from government contracts or grants) and damage to our reputation. Violations of these regulations or contractual obligations related to regulatory compliance in connection with the performance of customer contracts could also result in liability for significant monetary damages, fines and/or criminal prosecution, unfavorable publicity and other reputational damage, restrictions on our ability to compete for certain work and allegations by our customers that we have not performed our contractual obligations.

In the course of providing services to customers, we may inadvertently infringe on the IP rights of others and be exposed to claims for damages.

In recent years, there has been significant litigation involving IP rights in technology industries. The solutions we provide to our customers may inadvertently infringe on the IP rights of third parties resulting in claims for damages against us or our customers.

 

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Any infringement, misappropriation or related claims, whether or not meritorious, are time consuming, divert technical and management personnel and are costly to resolve. As a result of any such dispute, we may have to develop non-infringing technology, pay damages, enter into royalty or licensing agreements, cease utilizing certain products or services or take other actions to resolve the claims. These actions, if required, may be costly or unavailable on terms acceptable to us. If we are unable to prevail in the litigation or retain or obtain sufficient rights or develop non-infringing IP or otherwise alter our business practices on a timely or cost-efficient basis, our business and operating results may be adversely affected. Additionally, the publicity resulting from infringing IP rights may damage our reputation and adversely impact our ability to develop new business.

In addition, U.S. government contracts typically contain provisions that allow it to claim rights, including IP rights, in products and data developed and/or delivered under such agreements. We may not have the right to prohibit the U.S. government from using or disclosing certain technologies developed by us, and we may not be able to prohibit third party companies, including our competitors, from using those technologies commercially or in providing products and services to the U.S. government. The U.S. government generally takes the position that it has an unlimited right to royalty-free use of technologies that are developed under U.S. government contracts.

We will have substantial indebtedness after the Spin-Off and Ultra Payment, as well as after the Mergers, and we will have the ability to incur significant additional indebtedness, which could adversely affect our business, financial condition and results of operations.

On a pro forma basis, we will have substantial indebtedness and we may increase our indebtedness in the future. As of September 30, 2017, on a pro forma basis, our total outstanding indebtedness, including capital leases, would have been approximately $2.8 billion. In addition, Enterprise Services, a subsidiary of Ultra following the Internal Reorganization, will retain capitalized leases with an aggregate outstanding balance of up to $300 million, net of cash payments from DXC, and it will also retain approximately $79 million of indebtedness following the partial exchange of the EDS Notes for the DXC Notes.

Our level of indebtedness could have important consequences. For example, it could:

 

    increase our vulnerability to general adverse economic and industry conditions;

 

    limit our ability to obtain additional financing to fund future working capital, capital expenditures and other general corporate requirements or to carry out other aspects of our business;

 

    increase our cost of borrowing;

 

    require us to dedicate a substantial portion of our cash flow from operations to payments on indebtedness, thereby reducing the availability of such cash flow to fund working capital, capital expenditures and other general corporate requirements or to carry out other aspects of our business;

 

    limit our ability to make material acquisitions or take advantage of business opportunities that may arise;

 

    expose us to fluctuations in interest rates, to the extent our borrowings bear variable rates of interest;

 

    limit our flexibility in planning for, or reacting to, changes in our business and industry; and

 

    place us at a potential disadvantage compared to our competitors that have less debt.

Our ability to make scheduled payments on and to refinance our indebtedness will depend on and be subject to our future financial and operating performance, which in turn is affected by general economic, financial, competitive, business and other factors beyond our control, including the availability of financing in the banking and capital markets. Our business may fail to generate sufficient cash flow from operations or to borrow funds in an amount sufficient to enable us to make payments on our debt, to refinance our debt or to fund our other liquidity needs. If we were unable to make payments on or refinance our debt or obtain new financing under these circumstances, we would have to consider other options, such as asset sales, equity issuances or

 

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negotiations with our lenders to restructure the applicable debt. The terms of debt agreements that we enter into in connection with the Spin-Off and Mergers and market or business conditions may limit our ability to take some or all of these actions. In addition, if we incur additional debt, the related risks described above could be exacerbated.

The agreements governing our indebtedness will contain restrictive covenants, which will restrict our operational flexibility.

The agreements governing our indebtedness will contain restrictions and limitations on our ability to engage in activities that may be in our long-term best interests, including covenants that place limitations on the incurrence of additional indebtedness; the creation of liens; the payment of dividends; sales of assets; fundamental changes, including mergers and acquisitions; loans and investments; negative pledges; transactions with affiliates; restrictions affecting subsidiaries; modification to charter documents in a manner materially adverse to the lenders; and changes in fiscal year and limitations on conduct of business.

In addition, certain agreements governing our indebtedness will contain financial covenants, including covenants requiring, as at the end of, and for, each fiscal quarter of Ultra ending after the Distribution Date, (a) a ratio of consolidated total net debt to consolidated EBITDA (as defined in the debt agreement) not in excess of 4.50:1.00, stepping down to 3.75:1.00 no later than the end of the first full fiscal quarter ending at least 18 months after the Distribution Date; and (b) a consolidated EBITDA to interest expense ratio of not less than 3.00:1.00. The agreements governing our indebtedness will also contain affirmative covenants and representations and warranties customary for financings of this type.

Events beyond our control could affect our ability to meet these covenants. Our failure to comply with obligations under the agreements governing our indebtedness may result in an event of default under those agreements. A default, if not cured or waived, may permit acceleration of our indebtedness. If our indebtedness is accelerated, we cannot be certain that we will have sufficient funds available to pay the accelerated indebtedness or that we will have the ability to refinance the accelerated indebtedness on terms favorable to us or at all. This could have serious consequences to our financial condition, operating results and business and could cause us to become insolvent or enter bankruptcy proceedings.

We may need to raise additional capital, and we cannot be sure that additional financing will be available.

Subsequent to the Spin-Off, we will need to fund our ongoing working capital, capital expenditure and financing requirements through cash flows from operations and new sources of capital, including additional financing. Our ability to obtain future financing will depend, among other things, on our financial condition and results of operations as well as on the condition of the capital markets or other credit markets at the time we seek financing. Increased volatility and disruptions in the financial markets could make it more difficult and more expensive for us to obtain financing. In addition, the adoption of new statutes and regulations, the implementation of recently enacted laws or new interpretations or the enforcement of older laws and regulations applicable to the financial markets or the financial services industry could result in a reduction in the amount of available credit or an increase in the cost of credit. Historically, we have relied on DXC and its credit facilities and its access to capital for our financing needs but, after the Spin-Off, we will not have access to DXC’s credit for our future financings. There can be no assurance that, as a new independent public company, we will have sufficient access to the capital markets on terms that we will we find acceptable.

Changes in accounting standards and subjective assumptions, estimates and judgments by management related to complex accounting matters could significantly affect our financial results or financial condition.

GAAP and related accounting pronouncements, implementation guidelines and interpretations with regard to a wide range of matters that are relevant to our business, including but not limited to revenue recognition, business combinations, impairment of goodwill, indefinite-lived intangible assets and long-lived assets, inventory

 

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and equity-based compensation, are highly complex and involve many subjective assumptions, estimates and judgments. Changes in these rules or their interpretation or changes in underlying assumptions, estimates or judgments could significantly change our reported or expected financial performance or financial condition.

Recent U.S. tax legislation may materially adversely affect our financial condition, results of operations and cash flows.

Recently enacted U.S. tax legislation has significantly changed the U.S. federal income taxation of U.S. corporations, including by reducing the U.S. corporate income tax rate, limiting interest deductions, permitting immediate expensing of certain capital expenditures, adopting elements of a territorial tax system, and revising the rules governing net operating losses. Many of these changes are effective immediately, without any transition periods or grandfathering for existing transactions. The legislation is unclear in many respects and could be subject to potential amendments and technical corrections, as well as interpretations and implementing regulations by the Treasury and Internal Revenue Service (“IRS”), any of which could lessen or increase certain adverse impacts of the legislation. In addition, it is unclear how these U.S. federal income tax changes will affect state and local taxation, which often uses federal taxable income as a starting point for computing state and local tax liabilities.

While our analysis and interpretation of this legislation is preliminary and ongoing, based on our current evaluation, we expect that the reduction of the U.S. corporate income tax rate will require a write-down of our deferred income tax liabilities resulting in a material noncash benefit against earnings in the third quarter of fiscal year 2018, the period in which the tax legislation was enacted, which may be subject to further adjustment in subsequent periods throughout fiscal years 2018 and 2019 in accordance with recent interpretive guidance issued by the SEC. Further, there may be other material adverse effects resulting from the legislation that we have not yet identified.

Our ability to pursue strategic acquisitions and partnerships may impact our ability to compete in the markets we serve.

Besides pursuing organic growth, we may explore potential strategic acquisitions that could allow us to expand our operations. However, we may be unable to identify attractive candidates or complete acquisitions on terms favorable to us. In addition, our ability to successfully integrate the operations we acquire and leverage these operations to generate revenue and earnings growth may significantly impact future revenue and earnings as well as investor returns. Integrating acquired operations is a significant challenge and there is no assurance that we will be able to manage such integrations successfully. Failure to successfully integrate acquired operations may adversely affect our cost structure, thereby reducing our margins and return on investment.

We have also entered into, and expect to seek to enter into, additional strategic partnerships with other industry participants as part of an effort to expand our business. However, we may be unable to identify attractive strategic partnership candidates or complete such partnerships on terms favorable to us. In addition, if we are unable to successfully implement our partnership strategies or our strategic partners do not fulfill their obligations or otherwise do not prove advantageous to our business, our investments in such partnerships and our anticipated business expansion could be adversely affected.

Achieving our growth objectives may prove unsuccessful. We may be unable to identify future attractive acquisitions and strategic partnerships, which may adversely affect our growth. In addition, our ability to consummate or integrate acquisitions or to consummate or implement our strategic partnerships may be materially and adversely affected.

 

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Risks Relating to the Spin-Off and Mergers

The proposed Spin-Off and Mergers are contingent upon the satisfaction of a number of conditions, and the Spin-Off and Mergers may not be consummated on the terms or timeline currently contemplated.

On October 11, 2017, DXC’s board of directors unanimously approved a plan to combine the USPS business with Vencore’s business to form a separate, independent publicly traded company to serve U.S. public sector customers. For further discussion regarding aspects of the Spin-Off and Mergers see “Summary—Questions and Answers about the Transaction”.

The consummation of the Mergers is subject to certain conditions, including (i) the completion of the Internal Reorganization, the payment of the Ultra Payment, and the completion of the Distribution, (ii) the expiration of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, (iii) the effectiveness of the registration statement to be filed with the SEC and the approval for listing on the NYSE or the NASDAQ Global Market of the shares of Ultra common stock to be issued in the Distribution, (iv) the accuracy of the parties’ representations and warranties and the performance of their respective covenants contained in the Merger Agreement, and (v) DXC’s receipt of an opinion of Skadden Arps to the effect that the Spin-Off should qualify as a tax-free transaction for U.S. federal income tax purposes. For these and other reasons, the Spin-Off and Mergers may not be completed on the terms or timeline contemplated, if at all.

The proposed Spin-Off and Mergers may result in disruptions to relationships with customers and other business partners or may not achieve the intended results.

If we complete the Spin-Off and Mergers, there can be no assurance that we will be able to realize the intended benefits of the transactions or that the combined company will perform as anticipated. Specifically, the proposed transactions could cause disruptions in the USPS business and the Vencore business, including by disrupting operations or causing customers to delay or to defer decisions or to end their relationships, or otherwise limiting the ability to compete for or perform certain contracts or services or other potential effects relating to organizational conflict of interest issues, including action to mitigate or avoid OCIs or lost business opportunity. If the USPS business and the Vencore business face difficulties in integrating their businesses, or the Vencore business face difficulties in their businesses generally, the Spin-Off and Mergers, if completed, may not achieve the intended results.

Further, it is possible that current or prospective employees of the USPS business or the Vencore business could experience uncertainty about their future roles with the combined company, which could harm the ability of the USPS business or the Vencore business to attract and retain key personnel. Any of the foregoing could adversely affect our remaining businesses, the USPS business or the Vencore business, the financial condition of such businesses and their results of operations and prospects.

The actions required to implement the Spin-Off and Mergers will take significant management time and attention and may require us to incur significant costs.

The Spin-Off and Mergers will require significant amounts of management’s time and resources, which will be in addition to and may divert management’s time and attention from the operation of our remaining businesses and the execution of our other strategic initiatives. Additionally, we may incur significant costs in connection with the Spin-Off and Mergers. The Merger Agreement contains certain termination rights for DXC, Vencore Holding Corp. and KGS Holding Corp. The Merger Agreement further provides that, if the Distribution is not completed in accordance with the terms and conditions of the Separation Agreements on or before October 1, 2018, a termination fee of $50 million may be payable by DXC to Vencore Holding Corp. and KGS Holding Corp. upon termination of the Merger Agreement under specified circumstances.

 

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The Spin-Off could result in substantial tax liability to DXC and its stockholders that receive Ultra common stock in the Distribution.

Among the conditions to completing the Spin-Off and Mergers will be DXC’s receipt of a written opinion of Skadden Arps substantially to the effect that, for U.S. federal income tax purposes, (i) the Spin-Off should qualify as a “reorganization” within the meaning of Section 368(a)(1)(D) of the Code, (ii) DXC should recognize no gain or loss under Section 361(c) of the Code upon the Distribution, and (iii) DXC’s stockholders should recognize no gain or loss under Section 355(a) of the Code upon the receipt of Ultra common stock in the Distribution.

This opinion will be based on, among other things, various factual representations and assumptions, as well as certain undertakings made by DXC and Ultra. If any of those representations or assumptions is untrue or incomplete in any material respect or any of those undertakings is not complied with, the conclusions reached in the opinion could be adversely affected and the Spin-Off may not qualify for tax-free treatment. Furthermore, an opinion of counsel is not binding on the Internal Revenue Service (“IRS”) or the courts. Accordingly, no assurance can be given that the IRS will not challenge the conclusions set forth in the opinion or that a court would not sustain such a challenge. If, notwithstanding DXC’s receipt of the opinion, the Spin-Off is determined to be taxable, DXC would recognize taxable gain as if it had sold the shares of Ultra in a taxable sale for their fair market value, which could result in a substantial tax liability. In addition, if the Spin-Off is determined to be taxable, each holder of DXC common stock who receives shares of Ultra would generally be treated as receiving a taxable distribution in an amount equal to the fair market value of the shares received, which could materially increase such holder’s tax liability.

Even if the Spin-Off otherwise qualifies as a tax-free transaction, the Distribution could be taxable to DXC (but not to its stockholders) under Section 355(e) of the Code if 50% or more of the stock of either DXC or Ultra is acquired, directly or indirectly, as part of a plan or series of related transactions that includes the Distribution. In this event, the resulting tax liability could be substantial. In connection with the Spin-Off, DXC will enter into a Tax Matters Agreement with Ultra, under which Ultra will agree not to undertake any transaction without DXC’s consent that could reasonably be expected to cause the Spin-Off to be taxable to DXC and to indemnify DXC for any tax liabilities resulting from such transactions (excluding the Mergers). These obligations and potential tax liabilities could be substantial.

Under the Tax Matters Agreement, Ultra will be restricted from taking certain actions that could adversely affect the intended U.S. federal income tax treatment of the Spin-Off and such restrictions could significantly impair Ultra’s ability to implement strategic initiatives that otherwise would be beneficial.

The Tax Matters Agreement will generally restrict us from taking certain actions after the Spin-Off that could adversely affect the intended U.S. federal income tax treatment of the Spin-Off. Failure to adhere to these restrictions, including in certain circumstances that may be outside of our control, could result in tax being imposed on DXC for which we could bear responsibility and for which we could be obligated to indemnify DXC. In addition, even if we are not responsible for tax liabilities of DXC under the Tax Matters Agreement, we nonetheless could be liable under applicable tax law for such liabilities if DXC were to fail to pay such taxes. Because of these provisions in the Tax Matters Agreement, we will be restricted from taking certain actions, particularly for the two years following the Spin-Off, including (among other things) the ability to freely issue stock, to make acquisitions and to raise additional equity capital. These restrictions could have a material adverse effect on our liquidity and financial condition, and otherwise could impair our ability to implement strategic initiatives. Also, our indemnity obligation to DXC might discourage, delay or prevent a change of control that our stockholders may consider favorable.

After the Spin-Off, certain of our directors and officers may have actual or potential conflicts of interest because of their previous or continuing positions at DXC.

Because of their current or former positions with DXC, certain of our expected directors and officers own DXC common stock and equity awards. Following the Spin-Off, even though our Board of Directors will consist

 

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of a majority of directors who are independent, some of our directors and officers will continue to have a financial interest in DXC common stock and equity awards. In addition, it is expected that one or more of the members on our Board of Directors may be employed by or otherwise associated with DXC. Continuing ownership of DXC common stock and equity awards, or service as a director at both companies could create, or appear to create, potential conflicts of interest if we have disagreements with DXC about the contracts between us that continue or face decisions that could have different implications for us and DXC.

We intend to enter into certain agreements with DXC that may constrain our ability to expand, and agree to numerous restrictions to preserve the tax-free treatment of the Distribution, which may reduce our strategic and operating flexibility.

We intend to enter into agreements with DXC prior to the Distribution that will restrict our ability to use certain IP to sell our services to customers other than U.S. federal government customers and our existing state and local customer base for a period after the Distribution. In addition, we expect to appoint DXC as our exclusive agent outside the U.S. with regard to certain non-U.S. customers, subject to some exceptions, for a period after the Distribution. While we have no current plans to expand our existing business in ways that would require us to engage in business beyond the scope of the rights to IP we expect to have at the time of Distribution, we would be unable to engage in business activities outside the scope of that license after the Distribution until the expiration of those restrictions unless we develop or acquire new IP.

We may be unable to achieve some or all of the benefits that we expect to achieve from the Spin-Off.

We believe that, as an independent publicly-traded company, we will be able to, among other things, better focus our financial and operational resources on our specific business, implement and maintain a capital structure designed to meet our specific needs, design and implement corporate strategies and policies that are targeted to our business, more effectively respond to industry dynamics and create effective incentives for our management and employees that are more closely tied to our business performance. However, by separating from DXC, we may be more susceptible to market fluctuations and other adverse events. In addition, we may be unable to achieve some or all of the benefits that we expect to achieve as an independent company in the time we expect, if at all. If we fail to achieve some or all of the benefits that we expect to achieve as an independent company, or do not achieve them in the time we expect, our business, financial condition, results of operations and prospects could be adversely affected.

We may be unable to make, on a timely or cost-effective basis, the changes necessary to operate as an independent publicly-traded company, and we may experience increased costs after the Spin-Off.

We have historically operated as part of DXC’s corporate organization, and DXC has provided us with various corporate functions. Following the Spin-Off, DXC will have no obligation to provide us with assistance other than the transition services described under “The Separation and Distribution Agreements and Ancillary Agreements” and “Certain Relationships and Related Party Transactions—Agreements with DXC.” These services do not include every service that we have received from DXC in the past, and DXC is only obligated to provide these services for limited periods following completion of the Spin-Off. Accordingly, following the Spin-Off, we will need to provide internally or obtain from unaffiliated third parties the services we currently receive from DXC. These services include IT, tax administration, treasury activities, technical accounting, benefits administration, procurement, legal and ethics and compliance program administration, the effective and appropriate performance of which are critical to our operations. We may be unable to replace these services in a timely manner or on terms and conditions as favorable as those we receive from DXC. Because our business has historically operated as part of the wider DXC organization, we may be unable to successfully establish the infrastructure or implement the changes necessary to operate independently, or may incur additional costs that could adversely affect our business. As part of DXC, we have benefited from DXC’s size and purchasing power in procuring certain goods and services such as insurance and health care benefits, and technology such as computer software licenses. If we fail to obtain the quality of services necessary to operate effectively or incur

 

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greater costs in obtaining goods and services, our business, financial condition, results of operations and prospects may be adversely affected.

We have no recent operating history as an independent publicly-traded company, and our historical financial information is not necessarily representative of the results we would have achieved as an independent publicly traded company and may not be a reliable indicator of our future results.

We derived the USPS historical financial information included in this Information Statement from DXC’s combined and consolidated financial statements, and this information does not necessarily reflect the results of operations and financial positions we would have achieved as an independent publicly-traded company during the periods presented, or those that we will achieve in the future. This is primarily because of the following factors:

 

    Prior to the Spin-Off, we operated as part of DXC’s broader corporate organization and DXC performed various corporate functions for us, including IT, tax administration, treasury activities, technical accounting, benefits administration, procurement, legal and ethics and compliance program administration. Our historical financial information reflects allocations of corporate expenses from DXC for these and similar functions. These allocations may not reflect the costs we will incur for similar services in the future as an independent publicly-traded company.

 

    We will enter into transactions with DXC that did not exist prior to the Spin-Off, such as DXC’s provision of transition services, which will cause us to incur new costs.

 

    Our historical financial information does not reflect changes that we expect to experience in the future as a result of our separation from DXC, including changes in our cost structure, personnel needs, tax profile, financing and business operations. As part of DXC, we enjoyed certain benefits from DXC’s operating diversity, size, purchasing power, borrowing leverage and available capital for investments, and we will lose these benefits after the Spin-Off. As an independent entity, we may be unable to purchase goods, services and technologies, such as insurance and health care benefits and computer software licenses, or access capital markets on terms as favorable to us as those we obtained as part of DXC prior to the Spin-Off.

 

    The Mergers will result in our consolidated operations and the results therefrom being substantially different than USPS’s operations and the results therefrom and a result, our historical information will not necessarily reflect our results of operations going forward.

Following the Spin-Off, we will also be responsible for the additional costs associated with being an independent publicly-traded company, including costs related to corporate governance, investor and public relations and public reporting. Therefore, our financial statements may not be indicative of our future performance as an independent publicly-traded company. While we have been profitable as part of DXC, we cannot assure you that our profits will continue at a similar level when we are an independent publicly-traded company. For additional information about our past financial performance and the basis of presentation of our financial statements, see “Selected Historical Combined Financial Data for USPS,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations of USPS” and our historical financial statements and the notes thereto included elsewhere in this Information Statement.

Our and Vencore’s historical and pro forma financial data are not necessarily representative of the results the combined company would have achieved and may not be a reliable indicator of the combined company’s future results.

Our and Vencore’s historical and pro forma financial data included in this Information Statement may not reflect what our or Vencore’s results of operations and financial position would have been had we been a combined company, and publicly traded, during the periods presented, or what the combined company’s results of operations, financial condition and cash flows will be in the future. In addition, the pro forma financial data we

 

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have included in this Information Statement are based in part upon a number of estimates and assumptions. These estimates and assumptions may prove not to be accurate, and accordingly, our pro forma financial data should not be assumed to be indicative of what our financial condition or results of operations actually would have been as a combined company and may not be a reliable indicator of what our financial condition or results of operations actually may be in the future.

Some of the contracts to be transferred or assigned to us contain provisions requiring the consent of third parties in connection with the transactions contemplated by the Internal Reorganization and Distribution. If these consents are not obtained, we may be unable to enjoy the benefit of these contracts in the future.

Some of the contracts to be transferred or assigned to us in connection with the Internal Reorganization and Distribution contain provisions that require the consent of third parties to the Internal Reorganization, the Distribution or both. Failure to obtain such consents on commercially reasonable and satisfactory terms may impair our entitlement to the benefit of these contracts in the future.

Certain of the USPS legal entities, including Enterprise Services, will be required to change their names within six months of the Distribution. We expect to enter into a Change of Name agreement with the U.S. federal government to effect this name change, and will be required to complete various administrative tasks relating to completion of the change of name process for those contracts and contract vehicles held by those legal entities. While we do not expect the completion of the process to delay payments to us in any material respect on contracts affected by the name change, we may experience protest by competitors of new awards of contracts to us on grounds relating to the Spin-Off.

We may have been able to receive better terms from unaffiliated third parties than the terms we receive in our agreements with DXC that are based on the costs historically allocated to us by DXC.

We will enter into agreements with DXC related to our separation from DXC, including the Separation and Distribution Agreement, Transition Services Agreement, Tax Matters Agreement, Employee Matters Agreement, Intellectual Property Matters Agreement, Real Estate Matters Agreement and Non-U.S. Agency Agreement and any other agreements, while we are still part of DXC, that are based on the costs historically allocated to us by DXC. Accordingly, these agreements may not reflect terms that would have resulted from arms-length negotiations among unaffiliated third parties. Among other things, pursuant to the Intellectual Property Matters Agreement, DXC will retain ownership of all proprietary IP (other than certain restricted IP developed by us, which DXC will assign to us) and license certain rights we require for use solely in connection with U.S. federal and certain U.S. state and local government customers, on a perpetual, royalty-free, non-assignable basis. The terms of these agreements will relate to, among other things, allocations of assets, liabilities, rights, indemnifications and other obligations between DXC and us. We may have received better terms from third parties because third parties may have competed with each other to win our business. See “The Separation and Distribution Agreement and Ancillary Agreements” and “Certain Relationships and Related Party Transactions.”

Our potential indemnification liabilities pursuant to the Separation and Distribution Agreement could materially and adversely affect us.

The Separation and Distribution Agreement between us and DXC will provide for, among other things, the principal corporate transactions required to effect the Spin-Off, certain conditions to the Spin-Off and provisions governing the relationship between us and DXC after the Spin-Off. For a description of the Separation and Distribution Agreement, see “The Separation and Distribution Agreement and Ancillary Agreements—Separation Agreement.” Among other things, the Separation and Distribution Agreement will provide for indemnification obligations designed to make us financially responsible for substantially all liabilities that may exist relating to or arising out of our business. If we are required to indemnify DXC under the circumstances set forth in the Separation and Distribution Agreement, we may be subject to substantial liabilities.

 

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In connection with the Spin-Off, DXC will indemnify us for certain liabilities. However, there can be no assurance that these indemnities will be sufficient to insure us against the full amount of such liabilities, or that DXC’s ability to satisfy its indemnification obligation will not be impaired in the future.

Pursuant to the Separation and Distribution Agreement and other agreements we will enter into in connection with the Spin-Off, DXC will agree to indemnify us for certain liabilities. However, third parties could seek to hold us responsible for any of the liabilities that DXC will agree to retain pursuant to these agreements, and there can be no assurance that DXC will be able to fully satisfy its indemnification obligations under these agreements. Moreover, even if we ultimately succeed in recovering from DXC any amounts for which we are held liable, we may be temporarily required to bear these losses while seeking recovery from DXC.

Risks Relating to our Common Stock and Capital Structure

No market for our common stock currently exists and an active trading market may not develop or be sustained after the Spin-Off. Following the Spin-Off our stock price may fluctuate significantly.

There is currently no public market for our common stock. We intend to apply to list our common stock on the                     . We anticipate that before the Distribution Date, trading of shares of our common stock will begin on a “when-issued” basis and this trading will continue up to and including the Distribution Date. However, an active trading market for our common stock may not develop as a result of the Spin-Off or may not be sustained in the future. The lack of an active market may make it more difficult for stockholders to sell our shares and could lead to our share price being depressed or volatile.

We cannot predict the prices at which our common stock may trade after the Spin-Off. The market price of our common stock may fluctuate widely, depending on many factors, some of which may be beyond our control, including:

 

    actual or anticipated fluctuations in our operating results due to factors related to our business;

 

    success or failure of our business strategies;

 

    our quarterly or annual earnings, or those of other companies in our industry;

 

    our ability to obtain financing as needed;

 

    announcements by us or our competitors of significant acquisitions or dispositions;

 

    changes in accounting standards, policies, guidance, interpretations or principles;

 

    the failure of securities analysts to cover our common stock after the Spin-Off;

 

    changes in earnings estimates by securities analysts or our ability to meet those estimates;

 

    the operating and stock price performance of other comparable companies;

 

    investor perception of our company and the IT services industry;

 

    overall market fluctuations;

 

    results from any material litigation or government investigation;

 

    changes in laws and regulations (including tax laws and regulations) affecting our business;

 

    changes in capital gains taxes and taxes on dividends affecting stockholders; and

 

    general economic conditions and other external factors.

Furthermore, our business profile and market capitalization may not fit the investment objectives of some DXC stockholders and, as a result, these DXC stockholders may sell their shares of our common stock after the Distribution. See “—Substantial sales of our common stock may occur in connection with the Spin-Off, which

 

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could cause our stock price to decline.” Low trading volume for our stock, which may occur if an active trading market does not develop, among other reasons, would amplify the effect of the above factors on our stock price volatility.

Stock markets in general have experienced volatility that has often been unrelated to the operating performance of a particular company. These broad market fluctuations could adversely affect the trading price of our common stock.

Substantial sales of our common stock may occur in connection with the Spin-Off, which could cause our stock price to decline.

DXC stockholders receiving shares of our common stock in the Distribution generally may sell those shares immediately in the public market. Although we have no actual knowledge of any plan or intention of any significant DXC stockholder to sell our common stock following the Spin-Off, it is likely that some DXC stockholders, possibly including some of its larger stockholders, will sell their shares of our common stock received in the Distribution if, for reasons such as our business profile or market capitalization as an independent company, we do not fit their investment objectives or, in the case of index funds, we are not a participant in the index in which they are investing. Following the Mergers, approximately 14% of our outstanding shares of common stock (on a fully diluted basis, excluding certain unvested equity incentive awards) will be owned by Veritas Capital. Pursuant to the Sponsor Side Letter, all of these shares will be eligible to be registered, subject to certain limitations, following the consummation of the Mergers. See “The Separation and Distribution Agreement and Ancillary Agreements—Sponsor Side Letter”. These shares will also be eligible for resale in the public market without registration subject to volume, manner of sale and holding period limitations under Rule 144 under the Securities Act. The sales of significant amounts of our common stock or the perception in the market that this will occur may decrease the market price of our common stock.

The combined post-Spin-Off value of DXC common stock and our common stock may not equal or exceed the pre-Spin-Off value of DXC common stock.

We cannot assure you that the combined trading prices of DXC common stock and our common stock after the Spin-Off will be equal to or greater than the trading price of DXC common stock prior to the Spin-Off. Until the market has fully evaluated the business of DXC without our business, the price at which DXC common stock trades may fluctuate more significantly than might otherwise be typical. Similarly, until the market has fully evaluated the stand-alone business of our company, the price at which shares of our common stock trades may fluctuate more significantly than might otherwise be typical, including volatility caused by general market conditions.

We cannot assure you that we will pay dividends on our common stock, and our indebtedness may limit our ability to pay dividends on our common stock.

Following the Spin-Off, the timing, declaration, amount and payment of future dividends to stockholders will fall within the discretion of our Board of Directors. Our Board of Directors’ decisions regarding the payment of future dividends will depend on many factors, including our financial condition, earnings, capital requirements of our business and covenants associated with debt obligations, as well as legal requirements, regulatory constraints, industry practice and other factors that our Board of Directors deems relevant. For more information, see “Dividend Policy.” There can be no assurance that we will pay a dividend in the future or continue to pay any dividend if we do commence paying dividends, and there can be no assurance that, in the future, the combined annual dividends paid on DXC common stock, if any, and our common stock, if any, after the Spin-Off will equal the annual dividends on DXC common stock prior to the Spin-Off.

Your percentage ownership in Ultra may be diluted in the future.

Your percentage ownership in Ultra may be diluted in the future because of equity awards that we expect to grant to our directors, officers and other employees. Prior to completion of the Spin-Off, we expect to approve an

 

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incentive plan that will provide for the grant of common share-based equity awards to our directors, officers and other employees. In addition, we may issue equity as all or part of the consideration paid for acquisitions and strategic investments that we may make in the future or as necessary to finance our ongoing operations.

We have contracts with the U.S. federal government that are classified which may limit investor insight into portions of our business.

Over the last three fiscal years of USPS and Vencore, an average of 4% of the revenues of USPS and 52% of the revenues of Vencore were derived from classified programs with the U.S. federal government that are subject to security restrictions which preclude the dissemination of information that is classified for national security purposes. We are limited in our ability to provide information about these classified programs, their risks or any disputes or claims relating to such programs. As a result, investors may have less insight into our classified programs than our other programs and therefore less ability to fully evaluate the risks related to our classified business.

Provisions in our Amended and Restated Articles of Incorporation and Amended and Restated Bylaws and of Nevada law may prevent or delay an acquisition of our company, which could decrease the trading price of our common stock.

Several provisions of our Amended and Restated Articles of Incorporation, Amended and Restated Bylaws and Nevada law may discourage, delay or prevent a merger or acquisition that stockholders may consider favorable. These include provisions that:

 

    permit us to issue blank check preferred stock as more fully described under “Description of Our Capital Stock Anti-takeover Effects of Various Provisions of Nevada Law and Our Amended and Restated Articles of Incorporation and Amended and Restated Bylaws”;

 

    preclude stockholders from calling special meetings except where such special meetings are requested by stockholders representing 75% of the capital stock entitled to vote. Our Amended and Restated Bylaws prevent stockholder action by written consent for the election of directors and require the written consent of 90% of the capital stock entitled to vote for any other stockholder actions by written consent; and

 

    limit our ability to enter into business combination transactions with certain stockholders.

These and other provisions of our Amended and Restated Articles of Incorporation, Amended and Restated Bylaws and Nevada law may discourage, delay or prevent certain types of transactions involving an actual or a threatened acquisition or change in control of Ultra, including unsolicited takeover attempts, even though the transaction may offer our stockholders the opportunity to sell their shares of our common stock at a price above the prevailing market price. See “Description of Our Capital Stock Anti-Takeover Effects of Various Provisions of Nevada Law and Our Amended and Restated Articles of Incorporation and Amended and Restated Bylaws” for more information.

 

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CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

All statements and assumptions contained in this Information Statement and in the documents incorporated by reference that do not directly and exclusively relate to historical facts constitute “forward-looking statements.” Forward-looking statements often include words such as “anticipates,” “believes,” “estimates,” “expects,” “forecast,” “goal,” “intends,” “objective,” “plans,” “projects,” “strategy,” “target,” and “will” and words and terms of similar substance in discussions of future operating or financial performance. These statements represent current expectations and beliefs, and no assurance can be given that the results described in such statements will be achieved

Forward-looking statements include, among other things, statements with respect to our financial condition, results of operations, cash flows, business strategies, prospects, operating efficiencies or synergies, competitive position, growth opportunities, plans and objectives of management and other matters. Such statements are subject to numerous assumptions, risks, uncertainties and other factors that could cause actual results to differ materially from those described in such statements, many of which are outside of our control. Important factors that could cause actual results to differ materially from those described in forward-looking statements include, but are not limited to:

 

    the inability or failure to perform under the various transaction agreements effecting Spin-Off or the Mergers;

 

    the ability to realize the synergies and benefits expected to result from the Mergers within the anticipated time frame or in the anticipated amounts;

 

    other risks related to the Spin-Off and the Mergers including anticipated tax treatment, unforeseen liabilities, and future capital expenditures;

 

    any issue that compromises our relationships with the U.S. federal government, or any state or local governments, or damages our professional reputation;

 

    changes in the U.S. federal government, state and local governments’ spending and mission priorities that shift expenditures away from agencies or programs that we support;

 

    the size of our addressable markets and the amount of U.S. federal government, state and local governments’ spending on private contractors;

 

    failure by us or our employees to obtain and maintain necessary security clearances or certifications;

 

    failure to comply with numerous laws and regulations;

 

    changes in government procurement, contract or other practices or the adoption by the government of new laws, rules and regulations in a manner adverse to us;

 

    the termination or nonrenewal of our contracts;

 

    our ability to compete effectively in the competitive bidding process and delays, contract terminations or cancellations caused by competitors’ protests of major contract awards received by us;

 

    increased competition from other companies in our industry;

 

    changes in senior management, the loss of key employees or the ability to retain and hire key personnel and maintain relationships with key business partners;

 

    business interruptions in connection with our technology systems;

 

    the competitive pressures faced by our business;

 

    the effects of macroeconomic and geopolitical trends and events;

 

    misconduct or other improper activities from our employees or subcontractors;

 

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    our ability to accurately estimate or otherwise recover expenses, time and resources for our contracts;

 

    the protection of our IP assets, including IP licensed from third parties;

 

    the development and transition of new products and services and the enhancement of existing products and services to meet customer needs and respond to emerging technological trends;

 

    the execution and performance of contracts by us and our suppliers, customers and partners; and

 

    the resolution of pending investigations, claims and disputes.

There may be other factors that may cause our actual results to differ materially from the forward-looking statements, including factors disclosed under the sections titled “Risk Factors”, “Management’s Discussion and Analysis of Financial Condition and Results of Operations of USPS” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations of Vencore” in this Information Statement. You should evaluate all forward-looking statements made in this Information Statement in the context of these risks and uncertainties.

No assurance can be given that any goal or plan set forth in any forward-looking statement can or will be achieved, and readers are cautioned not to place undue reliance on such statements which speak only as of the date they are made. We do not undertake any obligation to update or release any revisions to any forward-looking statement or to report any events or circumstances after the date of this Information Statement or to reflect the occurrence of unanticipated events, except as required by law.

 

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THE TRANSACTIONS

Background

On October 11, 2017, DXC announced plans for the complete legal and structural separation of its USPS business and the subsequent combination of the USPS and Vencore businesses. In connection with this announcement, DXC highlighted that customers and investors in both the commercial and public sectors are recognizing the higher value of IT service providers with scale and differentiation. DXC indicated that separating its global commercial and USPS businesses, and combining the USPS business with the Vencore business, will accelerate transformation with two strategically focused companies, each uniquely positioned to lead its market by prioritizing the needs of its customers. This pure-play strategy is aimed at enhancing innovation and improving delivery in ways that are consistent with the rate and pace of the markets in which we and DXC operate.

With its combination with the enterprise services business of Hewlett Packard Enterprise Company (“HPE”) successfully completed over the last year, DXC has improved its market position. At the same time, markets have evolved rapidly, with diverging opportunities and challenges. On the commercial side, customers seek partners with a deep understanding of their business who can help lead their digital transformations. In the U.S. public sector, technology demands are increasing, and customers want providers with specific experience in government-focused innovation. DXC is now well positioned at this particular time to take advantage of this confluence of factors to maximize benefits to our stockholders, customers and employees. By separating, each business will have the scale as well as the focus to meet unique customer needs and market requirements. Furthermore, the combination of the USPS and Vencore businesses will create a top five services provider to the U.S. government, offering differentiated, mission-driven solutions in cybersecurity, big data analytics, cloud engineering, enterprise IT services, and systems engineering—all enabled by a portfolio of cutting-edge IP.

Ultra will be a strategic partner to the U.S. government in solving the most demanding informational and national security challenges and driving technology modernization. With approximately $4.1 billion in pro forma combined revenues for the twelve months ended October 31, 2016, and a highly skilled workforce of more than 14,000, Ultra will serve a robust base of established and non-overlapping customers based on long-standing relationships.

Ultra will provide meaningful scale and end-to-end technology solutions, leveraging a full spectrum of offering families and industry expertise to ensure broader access to customers, capabilities and contract vehicles. We believe that the Spin-Off will allow us to focus on, and more effectively pursue, our own distinct operating priorities and strategies, and will enable our management to concentrate efforts on the unique needs of our business. We also believe that the number of successful, stand-alone U.S. government focused IT service providers has reduced the benefits perceived by U.S. government customers of IT service providers operating as part of a larger organization. See also “Reasons for the Spin-Off and Mergers—Spin-Off”.

To effect the separation, DXC is undertaking the Internal Reorganization described under “The Separation and Distribution Agreement and Ancillary Agreements.” After giving effect to the Internal Reorganization, Ultra, DXC’s wholly owned subsidiary, will hold the shares of the legal entities operating the USPS business.

Following the Internal Reorganization but prior to the Distribution, Ultra will pay to DXC a cash distribution and/or will distribute debt securities of Ultra to DXC, in an aggregate amount of $984 million. We refer to this payment as the “Ultra Payment.” Ultra currently expects to make such payment through a cash distribution financed through borrowings under a new senior secured term loan facility.

In addition, Enterprise Services, a subsidiary of Ultra following the Internal Reorganization, will retain capitalized leases with an aggregate outstanding balance of up to $300 million, net of cash payments from DXC, and it will also retain approximately $79 million of indebtedness following the partial exchange of the EDS Notes for the DXC Notes.

 

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Following the Internal Reorganization and Ultra Payment, DXC will distribute all of its equity interest in us, consisting of all of the outstanding shares of our common stock, to DXC’s stockholders on a pro rata basis.

Following the Spin-Off, DXC will not own any equity interest in us, and we will operate independently from DXC. No approval of DXC’s stockholders is required in connection with the Spin-Off, and DXC’s stockholders will not have any appraisal rights in connection with the Spin-Off.

Completion of the Spin-Off is subject to the satisfaction, or the waiver of the board of directors of DXC, of a number of conditions. For a more detailed description, see “Conditions to the Spin-Off.”

Following the Spin-Off, under the Merger Agreement and in accordance with Delaware law, KeyPoint Merger Sub will merge with and into KGS Holding Corp., with KGS Holding Corp. surviving the KeyPoint Merger. Concurrently Vencore Merger Corp. will merge with and into Vencore Holding Corp., with Vencore Holding Corp. surviving the First Vencore Merger. Immediately after the KeyPoint Merger and First Vencore Merger, Vencore Holding Corp. will merge with and into Vencore Merger LLC, with Vencore Merger LLC surviving the Second Vencore Merger. As a result of the Mergers, Vencore and KGS Holding Corp. will become wholly owned subsidiaries of Ultra. For details of the structure of the transaction, see “The Merger Agreement.”

Reasons for the Spin-Off and Mergers

The board of directors of DXC regularly conducts strategic reviews of its businesses. In reaching the decision to pursue the Spin-Off and Mergers, the board of directors of DXC considered a range of potential strategic alternatives for DXC, including the continuation of DXC’s current operating strategy as well as potential acquisition and divestiture transactions. In evaluating these alternatives, the board of directors of DXC considered a number of factors, including the strategic focus and flexibility for DXC and Ultra after the Spin-Off and Mergers, the ability of DXC and Ultra to operate efficiently and effectively (including Ultra’s ability to retain and attract management talent) after the Spin-Off and Mergers, the financial profile of DXC, Ultra and Vencore, the potential reaction of customers, employees and investors and the probability of successful execution of the various strategic alternatives and the risks associated with those alternatives.

As a result of this evaluation, the board of directors of DXC determined that proceeding with the Spin-Off and Mergers would be in the best interests of DXC and its stockholders. The board of directors of DXC considered the following potential benefits of this approach:

 

    Strategic Focus and Flexibility. Following the Spin-Off, DXC and Ultra will each have a more focused business and be better able to dedicate financial and human capital resources to pursue appropriate growth opportunities and execute strategic plans best suited to its respective business. The Spin-Off will also allow each of DXC and Ultra to enhance its strategic flexibility to respond to industry-unique dynamics. In the U.S. public sector, technology demands are increasing, and customers seek service providers with specific experience in government-focused systems and innovation. By separating, our business will have the scale as well as the market focus to meet unique customer needs and industry requirements. Further, the Spin-Off will allow the management of each of DXC and Ultra to devote its time and attention to the development and implementation of corporate strategies and policies that are based primarily on the specific business characteristics of their respective companies

 

    Expanded Expertise. DXC highlighted the opportunity for USPS and Vencore, on a combined basis, to become a leading services provider to the U.S. government sector, with pro forma combined revenues of approximately $4.1 billion in the twelve months ended October 31, 2016 and a highly skilled workforce of more than 14,000. USPS and Vencore bring complementary capabilities in mission solutions and enterprise IT services, within an established and complementary client portfolio with minimal overlap. Further, Vencore is a clear market leader in the Investigative Services space, holding over 50% of the market. Our employees operate at the core of our clients’ missions, with deep understanding of systems and missions.

 

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    Strategic Positioning in Consolidating Industry. The combination of USPS and Vencore is a strategic move to position the combined company as the government IT Services industry consolidates. The combination of USPS and Vencore is expected to provide opportunities for the combined company to leverage its scope and scale to capitalize on future growth opportunities.

 

    Management Incentives. The Spin-Off will enable Ultra to create incentives for its management and employees that are more closely tied to its business performance and stockholder expectations. Ultra’s equity-based compensation arrangements will more closely align the interests of Ultra’s management and employees with the interests of its stockholders and should increase Ultra’s ability to attract and retain personnel.

 

    Capital Structure and Stockholder Flexibility. The segments in which DXC and Ultra expect to operate have historically had different growth profiles and cash flow dynamics. The Spin-Off will allow DXC and Ultra to separately manage their capital strategies and cost structures and will allow investors to make independent investment decisions with respect to DXC and Ultra, including the ability for Ultra to achieve alignment with a more natural stockholder base. Investment in one or the other company may appeal to investors with different goals, strategies, interests and concerns.

 

    Focused Investments. While operating as part of DXC, internal investments were often directed according to DXC’s strategic interests as a whole. The Spin-Off will allow Ultra to focus our investments on projects that optimize returns for our own businesses supporting U.S. federal, state and local markets.

 

    Synergies. We expect the combination of USPS and Vencore to provide opportunities for cost savings and other operating synergies, which we currently estimate at $58 million in annual cost savings within 36 months following the Mergers through the consolidation and integration of management systems, corporate overhead costs, improved facility efficiencies, lower vendor costs, and harmonization of benefits and human resource systems. We expect up to $43 million in run-rate cost synergies to be implemented within the first 12-18 months upon completion of the Mergers. We believe our one-time costs to realize these recurring annual cost savings will be approximately $36 million. The size of these expected cost synergies is partly a function of the significant steps DXC has already taken since the DXC Merger. Given the nature of the federal government contracting arrangements, and whereas a significant portion of our contracts portfolio are under cost-plus and time-and-material contract vehicles where our indirect cost factors are adjusted periodically, a portion of the realized cost synergy savings will be “given-back” over time in the form of lower prices to our customers. We believe these cost reductions and operating efficiencies will better position us to compete for federal government contracts as it will reduce costs for our customers and improve our competitiveness.

In determining whether to effect the Spin-Off, the board of directors of DXC considered the costs and risks associated with the Spin-Off, including the costs associated with preparing Ultra to become an independent, publicly-traded company, the risk of volatility in our stock price immediately following the Spin-Off due to sales by DXC’s stockholders whose investment objectives may not be met by our common stock, the time it may take for us to attract our optimal stockholder base, the possibility of disruptions in our business as a result of the Spin-Off, the risk that the combined trading prices of our common stock and DXC’s common stock after the Spin-Off may drop below the trading price of DXC’s common stock before the Spin-Off and the loss of synergies and scale from operating as one company. Notwithstanding these costs and risks, taking into account the factors discussed above, the board of directors of DXC determined that the Spin-Off was the best alternative to achieve the above benefits and enhance stockholder value.

In assessing and approving the Mergers, DXC considered that the expected value to DXC and its stockholders from pursuing the Mergers was greater than the value to DXC and its stockholders of the stand-alone Spin-Off. In addition to the factors noted above, DXC considered Vencore’s business and prospects, after giving effect to the proposed acquisition by USPS, including expected synergies to be realized as a result of the Mergers. The board of directors of DXC also considered the potential risks and countervailing factors associated

 

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with the Mergers, including that the anticipated benefits of the Mergers might not be realized. After consideration of the above factors and based on information furnished by Vencore to DXC and the terms of the Merger Agreement and related agreements as finally negotiated by DXC, DXC concluded that the expected value to DXC and its stockholders from pursuing the Transactions was greater than the value to DXC and its stockholders of the stand-alone Spin-Off.

When and How You Will Receive Ultra Shares

DXC will distribute to its stockholders, as a pro rata dividend, one share of our common stock for every two shares of DXC common stock outstanding as of                 , 2018, the Record Date of the Distribution.

Prior to the Spin-Off, DXC will deliver all of the issued and outstanding shares of our common stock to the distribution agent. Wells Fargo Shareowner Services will serve as distribution agent in connection with the Distribution and as transfer agent and registrar for our common stock.

If you own DXC common stock as of the close of business on                 , 2018, the shares of our common stock that you are entitled to receive in the Distribution will be issued to your account as follows:

 

    Registered stockholders. If you own your shares of DXC common stock directly through DXC’s transfer agent, Wells Fargo Shareowner Services, you are a registered stockholder. In this case, the distribution agent will credit the shares of our common stock you receive in the Distribution by way of direct registration in book-entry form to a new account with our transfer agent. Registration in book-entry form refers to a method of recording share ownership where no physical stock certificates are issued to stockholders, as is the case in the Distribution. You will be able to access information regarding your book-entry account holding the Ultra shares at shareowneronline.com or by calling Wells Fargo Shareowner Services at 800-468-9716.

 

    Commencing on or shortly after the Distribution Date, the distribution agent will mail to you an account statement that indicates the number of shares of our common stock that have been registered in book-entry form in your name. We expect it will take the distribution agent up to two weeks after the Distribution Date to complete the distribution of the shares of our common stock and mail statements of holding to all registered stockholders. Trading of our common stock will not be affected by this delay in issuance by the distribution agent.

 

    “Street name” or beneficial stockholders. Most DXC stockholders own their shares of DXC common stock beneficially through a bank, broker or other nominee. In these cases, the bank, broker or other nominee holds the shares in “street name” and records your ownership on its books. If you own your shares of DXC common stock through a bank, broker or other nominee, your bank, broker or other nominee will credit your account with the shares of our common stock that you receive in the Distribution on or shortly after the Distribution Date. We encourage you to contact your bank, broker or other nominee if you have any questions concerning the mechanics of having shares held in “street name.”

If you sell any of your shares of DXC common stock on or before the Distribution Date, the buyer of those shares may in some circumstances be entitled to receive the shares of our common stock to be distributed in respect of the DXC shares you sold. See “Trading Prior to the Distribution Date” for more information.

We are not asking DXC stockholders to take any action in connection with the Spin-Off. No stockholder approval of the Spin-Off is required. We are not asking you for a proxy and request that you not send us a proxy. We are also not asking you to make any payment or surrender or exchange any of your shares of DXC common stock for shares of our common stock. The number of outstanding shares of DXC common stock will not change as a result of the Spin-Off.

 

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Number of Shares You Will Receive

On the Distribution Date, we will distribute one share of our common stock for every two shares of DXC common stock.

Treatment of Fractional Shares

The distribution agent will not distribute any fractional shares of our common stock in connection with the Distribution. Instead, the distribution agent will aggregate all fractional shares into whole shares and sell the whole shares in the open market at prevailing market prices on behalf of DXC stockholders entitled to receive a fractional share. The distribution agent will then distribute the aggregate cash proceeds of the sales, net of brokerage fees and other costs, pro rata to these holders (net of any required withholding for taxes applicable to each holder). The distribution agent will, in its sole discretion, without any influence by DXC or us, determine when, how, through which broker-dealer and at what price to sell the whole shares. The distribution agent is not, and any broker-dealer used by the distribution agent will not be, an affiliate of either DXC or us.

The distribution agent will send to each registered holder of DXC common stock entitled to a fractional share a check in the cash amount deliverable in lieu of that holder’s fractional share as soon as practicable following the Distribution. We expect the distribution agent to take about two weeks after the Distribution to complete the distribution of cash in lieu of fractional shares to DXC stockholders. If you hold your shares through a bank, broker or other nominee, your bank, broker or nominee will receive, on your behalf, your pro rata share of the aggregate net cash proceeds of the sales. No interest will be paid on any cash you receive in lieu of a fractional share. The cash you receive in lieu of a fractional share will generally be taxable to you for U.S. federal income tax purposes. See “Material U.S. Federal Income Tax Consequences of the Distribution” below for more information.

Results of the Spin-Off

After the Spin-Off, we will be an independent publicly-traded company. Immediately following the Spin-Off, we expect to have approximately              registered holders of shares of our common stock and approximately                  shares of our common stock outstanding, based on the number of DXC stockholders and shares of DXC common stock outstanding on                 , 2018. The actual number of shares of our common stock DXC will distribute in the Spin-Off will depend on the actual number of shares of DXC common stock outstanding on the Record Date, which will reflect any issuance of new shares or exercises of outstanding options pursuant to DXC’s equity plans, and any repurchase of DXC shares by DXC under its common stock repurchase program, on or prior to the Record Date. The Spin-Off will not affect the number of outstanding shares of DXC common stock or any rights of DXC stockholders, although we expect the trading price of shares of DXC common stock immediately following the Distribution to be lower than immediately prior to the Distribution because the trading price of DXC common stock will no longer reflect the value of the USPS business. Furthermore, until the market has fully analyzed the value of DXC without the USPS business, the trading price of shares of DXC common stock may fluctuate.

Before our separation from DXC, we intend to enter into a Separation and Distribution Agreement and several other agreements with DXC related to the Spin-Off. These agreements will govern the relationship between Ultra and DXC up to and after completion of the Spin-Off and allocate between Ultra and DXC various assets, liabilities, rights and obligations, including employee benefits, IP and tax-related assets and liabilities. We describe these arrangements in greater detail under “The Separation and Distribution Agreement and Ancillary Agreements” and “Certain Relationships and Related Party Transactions—Agreements with DXC.”

Listing and Trading of Our Common Stock

As of the date of this Information Statement, we are a wholly owned subsidiary of DXC. Accordingly, no public market for our common stock currently exists, although a “when-issued” market in our common stock

 

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may develop prior to the Distribution. See “Trading Prior to the Distribution Date” below for an explanation of a “when-issued” market. We intend to list our shares of common stock on the                      under the symbol “              .” Following the Spin-Off, DXC common stock will continue to trade on the NYSE under the symbol “DXC.”

Neither we nor DXC can assure you as to the trading price of DXC common stock or our common stock after the Spin-Off, or as to whether the combined trading prices of our common stock and DXC common stock after the Spin-Off will be less than, equal to or greater than the “regular-way” trading price of DXC common stock prior to the Spin-Off. The trading price of our common stock may fluctuate significantly following the Spin-Off. See “Risk Factors—Risks Relating to Our Common Stock and the Securities Market” for more detail.

The shares of our common stock distributed to DXC stockholders will be freely transferable, except for shares received by individuals who are our affiliates. Individuals who may be considered our affiliates after the Spin-Off include individuals who control, are controlled by or are under common control with us, as those terms generally are interpreted for federal securities law purposes. These individuals may include some or all of our directors and executive officers. Individuals who are our affiliates will be permitted to sell their shares of our common stock only pursuant to an effective registration statement under the Securities Act of 1933, as amended (“Securities Act”) or an exemption from the registration requirements of the Securities Act, such as those afforded by Section 4(a)(1) of the Securities Act or Rule 144 thereunder.

Trading Prior to the Distribution Date

We anticipate that trading in our common stock will begin on a “when-issued” basis on or prior to the Record Date for the Distribution and will continue up to and including the Distribution Date. “When-issued” trading in this context refers to a sale or purchase of our common stock made conditionally on or before the Distribution Date, because the securities of the spun-off entity have not yet been distributed. On the first trading day following the Distribution Date, any “when-issued” trading of our common stock will end and “regular-way” trading of our common stock will begin. In this context, “regular-way” trading refers to trading after our common stock has been distributed and typically involves a trade that settles on the second full trading day following the date of the trade. We cannot predict the trading prices for our common stock before, on or after the Distribution Date.

We also anticipate that, on or shortly before the Record Date and continuing up to and including the Distribution Date, there will be two markets in DXC common stock: a “regular-way” market and an “ex-dividend” market. Shares of DXC common stock that trade on the “regular-way market” will trade with the entitlement to receive shares of our common stock in the Distribution. Shares that trade on the ex-dividend market will trade without the entitlement to receive shares of our common stock in the Distribution. Therefore, if you sell shares of DXC common stock in the “regular-way” market up to and including the Distribution Date, you will be selling your right to receive shares of our common stock in the Distribution. If you hold shares of DXC common stock on the Record Date and then decide to sell any shares of DXC common stock before the Distribution Date, you should make sure your stockbroker, bank or other nominee understands whether you want to sell your shares of DXC common stock with or without your entitlement to our common stock pursuant to the Distribution.

Following the Distribution Date, we expect shares of our common stock to be listed on the                      under the trading symbol “              .” If “when-issued” trading occurs, the listing for our common stock is expected to be under a trading symbol different from our regular-way trading symbol. We will announce our “when-issued” trading symbol when and if it becomes available. If the Spin-Off does not occur, all “when-issued” trading will be null and void.

 

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Conditions to the Spin-Off

We expect that the separation will be effective on the Distribution Date, provided that the following conditions shall have been satisfied or waived by DXC:

 

    the board of directors of DXC shall have approved the Internal Reorganization and the Distribution and shall have declared the distribution of Ultra common stock to DXC stockholders;

 

    the ancillary agreements contemplated by the Separation and Distribution Agreement shall have been executed by each party to those agreements;

 

    the SEC shall have declared effective our Registration Statement on Form 10, of which this Information Statement is a part, under the Exchange Act, and no stop order suspending the effectiveness of the Registration Statement shall be in effect and no proceedings for that purpose shall be pending before or threatened by the SEC;

 

    our common stock shall have been accepted for listing on the NYSE or another national securities exchange approved by DXC, subject to official notice of issuance;

 

    DXC shall have received a written opinion of its outside tax advisor that is in form and substance reasonably acceptable to DXC, and which shall remain in full force and effect, regarding the qualification of the Distribution as tax-free for U.S. federal income tax purposes under Sections 355 and 368(a)(1)(D) of the Code;

 

    the Internal Reorganization shall have been completed;

 

    the Ultra Payment shall have been made to DXC;

 

    no order, injunction or decree issued by any governmental authority of competent jurisdiction or other legal restraint or prohibition preventing consummation of the Distribution shall be in effect, and no other event outside the control of DXC shall have occurred or failed to occur that prevents the consummation of the Distribution;

 

    prior to the Distribution Date, this Information Statement shall have been mailed to the holders of DXC common stock as of the Record Date;

 

    DXC shall have duly elected the individuals to be listed as members of our post-Distribution Board of Directors in this Information Statement, and such individuals shall be the members of our Board of Directors immediately after the Distribution; and

 

    prior to the Distribution Date, the board of directors of DXC shall have obtained opinions from a nationally recognized valuation firm, in form and substance satisfactory to DXC, with respect to the capital adequacy and solvency of each of DXC and Ultra after giving pro forma effect to the Spin-Off and the Ultra Payment.

The fulfillment of the above conditions will not create any obligation on DXC’s part to effect the Spin-Off. We are not aware of any material federal, foreign or state regulatory requirements with which we must comply, other than SEC rules and regulations, or any material approvals that we must obtain, other than the approval for listing of our common stock and the SEC’s declaration of the effectiveness of the Registration Statement, in connection with the Distribution.

Conditions to Consummation of the Mergers

The obligations of each party to consummate the Mergers are subject to the satisfaction or waiver (to the extent permitted by applicable law) of closing conditions that are contained in the Merger Agreement, including:

 

    the Spin-Off having occurred and the Ultra Payment having been paid pursuant to the terms of the Separation and Distribution Agreement;

 

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    the receipt of all consents, approvals and authorizations by governmental authorities;

 

    the expiration or termination of any required waiting period under the HSR Act, which condition was satisfied on December 22, 2017;

 

    the effectiveness of the registration statement of which this Information Statement forms a part in connection with the Distribution, and the approval for listing on the NYSE or NASDAQ of the shares of Ultra common stock to be issued in the Distribution and the Mergers, subject to official notice of issuance;

 

    the absence of any order issued by any governmental authority of competent jurisdiction or other legal impediment preventing or making illegal the consummation of the Mergers; and

 

    DXC shall have received a written opinion of its outside tax advisor that is in form and substance reasonably acceptable to DXC, and which shall remain in full force and effect, regarding the qualification of the Distribution as tax-free for U.S. federal income tax purposes under Sections 355 and 368(a)(1)(D) of the Code.

In addition, DXC, Ultra, Vencore Merger Corp, Vencore Merger LLC and KeyPoint Merger Sub’s obligations to consummate the Mergers are subject to the satisfaction or waiver (to the extent permitted by applicable law) of the following conditions:

 

    certain fundamental representations and warranties of Vencore Holding Corp. and KGS Holding Corp., disregarding all materiality or material adverse effect qualifications, being true and correct in all respects in each case as of the effective time of the Mergers as if made as of the effective time of the Mergers;

 

    the representations and warranties of Vencore Holding Corp., KGS Holding Corp., the Vencore Stockholder and the KeyPoint Stockholder, disregarding all materiality or material adverse effect qualifications, being true and correct in all respects in each case as of the effective time of the Mergers as if made as of the effective time of the Mergers (except to the extent such representations and warranties address matters as of a particular date, in which case as of such date), except where the failure to be true and correct has not had or would not, individually or in the aggregate, reasonably be expected to be a Vencore/KeyPoint Material Adverse Effect (as defined below—see “The Merger Agreement”) (other than the certain fundamental representations and warranties which must be true and correct in all respects);

 

    the covenants and agreements being performed by the stockholders of Vencore Holding Corp., KGS Holding Corp., the Vencore Stockholder and the KeyPoint Stockholder in all material respects at or prior to the effective time of the Mergers (other than certain covenants and agreements which must be performed in all respects, subject to de minimis exceptions);

 

    the delivery by Vencore Holding Corp. and KGS Holding Corp. of an officer’s certificate certifying the satisfaction of the above conditions, and the delivery by the Vencore Stockholder and KeyPoint Stockholder of a certificate certifying the satisfaction of the above conditions;

 

    the absence of a Vencore/KeyPoint Material Adverse Effect since June 30, 2017; and

 

    the termination of certain stockholder agreements between Vencore Holding Corp. and the Vencore Stockholder and KGS Holding Corp. and the KeyPoint Stockholder, without liability to Ultra or its subsidiaries following the effective time of the Mergers.

Furthermore, the obligations of Vencore Holding Corp. and KGS Holding Corp. to consummate the Mergers are subject to the satisfaction or waiver (to the extent permitted by applicable law) of the following conditions:

 

   

certain representations and warranties of DXC, Ultra, Vencore Merger Corp, Vencore Merger LLC and KeyPoint Merger Sub, disregarding all materiality or material adverse effect qualifications, being true

 

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and correct in all respects in each case as of the effective time of the Mergers as if made as of the effective time of the Mergers (except to the extent such representations and warranties address matters as of a particular date, which must be true and correct as of the specified date);

 

    the representations and warranties of DXC, Ultra, Vencore Merger Corp, Vencore Merger LLC and KeyPoint Merger Sub, disregarding all materiality or material adverse effect qualifications, being true and correct in all respects in each case as of the effective time of the Mergers as if made as of the effective time of the Mergers (except to the extent such representations and warranties address matters as of a particular date, in which case as of such date), except where the failure to be true and correct has not had or would not, individually or in the aggregate, reasonably be expected to be an Ultra Material Adverse Effect (as defined—see “The Merger Agreement”) (other than the certain representations and warranties which must be true and correct in all respects);

 

    the covenants and agreements being performed by DXC, Ultra, Vencore Merger Corp, Vencore Merger LLC and KeyPoint Merger Sub in all material respects at or prior to the effective time of the Mergers;

 

    the delivery by Ultra of an officer’s certificate certifying the satisfaction of the above conditions;

 

    the absence of any Ultra Material Adverse Effect since June 30, 2017; and

 

    the entrance into and delivery of the applicable Transaction Agreements by DXC and Ultra, which are in full force and effect.

To the extent permitted by applicable law, each party to the Merger Agreement may waive, at its sole discretion, any of the conditions to its respective obligations to complete the Mergers.

Regulatory Approvals

Under the HSR Act, and the rules promulgated under the HSR Act by the U.S. Federal Trade Commission (the “FTC”), the parties must file notification and report forms with the FTC and the Antitrust Division of the Department of Justice (the “Antitrust Division”) and observe specified waiting period requirements before consummating the Mergers. Ultra filed the requisite notification and report forms with the FTC and the Antitrust Division on October 25, 2017. The waiting period in respect of those notifications expired on December 22, 2017.

Accounting Treatment

The combined financial information presented in the Information Statement was prepared using the purchase method of accounting, with Ultra treated as the “acquirer” of Vencore Holding Corp., KGS Holding Corp. and their respective subsidiaries for accounting purposes.

Reasons for Furnishing this Information Statement

We are furnishing this Information Statement solely to provide information to DXC’s stockholders who will receive shares of our common stock in the Distribution. You should not construe this Information Statement as an inducement or encouragement to buy, hold or sell any of our securities or any securities of DXC. We believe that the information contained in this Information Statement is accurate as of the date set forth on the cover. Changes to the information contained in this Information Statement may occur after that date, and neither we nor DXC undertake any obligation to update the information except in the normal course of our and DXC’s public disclosure obligations and practices.

 

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THE MERGER AGREEMENT

The following is a summary of material provisions of the Merger Agreement, which we entered into on October 11, 2017. This summary is qualified in its entirety by reference to the full text of the Merger Agreement which is filed as an exhibit to the Registration Statement of which this Information Statement forms a part.

The Merger

Under the Merger Agreement and in accordance with Delaware law, KeyPoint Merger Sub will merge with and into KGS Holding Corp., with KGS Holding Corp. surviving the KeyPoint Merger, and concurrently Vencore Merger Corp will merge with and into Vencore Holding Corp., with Vencore Holding Corp. surviving the First Vencore Merger, and immediately after the KeyPoint Merger and First Vencore Merger, Vencore Holding Corp. will merge with and into Vencore Merger LLC, with Vencore Merger LLC surviving the Second Vencore Merger. As a result of the Mergers, Vencore Merger LLC and KGS Holding Corp. will become wholly owned subsidiaries of Ultra.

Closing and Effective Time

The Mergers will occur following the consummation by DXC of the Ultra Payment and Spin-Off pursuant to the Separation and Distribution Agreement between DXC and Ultra and all other Separation Agreements (as defined below).

Under the terms of the Merger Agreement, the closing of the Mergers will take place on a date and at a time to be specified by the parties to the Merger Agreement (the “Closing Date”), which will be no later than the third business day after the satisfaction or, to the extent permitted by applicable law, waiver of the conditions set forth in the Merger Agreement and discussed below in “Conditions to Consummation of the Mergers”; provided, however, that if such date is not the business day nearest in time to the first financial month end of Ultra following such date (the “Next Month End”), then DXC may elect to have the closing will take place on the Next Month End, unless another date is agreed to in writing by the parties, provided that DXC shall not have the right to make such an election if it would result in the Closing Date on or after the Termination Date.

On the Closing Date, Vencore Merger Corp., Vencore Merger LLC, Vencore Holding Corp., KGS Holding Corp. and KeyPoint Merger Sub will execute and file with the office of the Secretary of State of the State of Delaware the necessary certificates of merger executed in accordance with the DGCL and the Delaware Limited Liability Company Act. The Mergers will become effective at the time of filing of the necessary certificates of merger, or at such later time as is agreed upon by the parties and set forth in such certificate of merger.

Merger Consideration

At the effective time of the First Vencore Merger, all of the outstanding shares of Vencore Holding Corp. common stock will be automatically converted into the right to receive, in the aggregate, merger consideration consisting of (1) $400 million in cash (the “Cash Merger Consideration”); and (2) shares of Ultra common stock representing in the aggregate approximately 11.38% of the total number of shares of Ultra common stock outstanding immediately after the effective time of the First Vencore Merger (on a fully diluted basis, excluding certain unvested equity incentive awards) (the “Vencore Stock Merger Consideration”).

At the effective time of the KeyPoint Merger, all of the outstanding shares of KGS Holding Corp. common stock will be automatically converted into the right to receive, in the aggregate, merger consideration consisting of shares of Ultra common stock representing in the aggregate approximately 2.65% of the total number of shares of Ultra common stock outstanding immediately after the effective time of the KeyPoint Merger (on a fully diluted basis, excluding certain unvested equity incentive awards) (the “KeyPoint Stock Merger Consideration; and together with the Vencore Stock Merger Consideration, the “Stock Merger Consideration”).

 

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Following the effective time of the Mergers, all shares of Vencore Holding Corp. common stock and KGS Holding Corp. common stock will be automatically cancelled and cease to exist.

Transaction Agreements

Forms of the agreements that will govern the terms of the Spin-Off are attached as exhibits to the Merger Agreement, including the Separation and Distribution Agreement, an Employee Matters Agreement, an Intellectual Property Matters Agreement, a Non-U.S. Agency Agreement, a Real Estate Matters Agreement, a Tax Matters Agreement, and a Transition Services Agreement (the “Separation Agreements”). Additionally, Ultra and Veritas Capital Management entered into a Letter Agreement that will require Ultra to grant certain registration rights to stockholders of Vencore Holding Corp. and KGS Holding Corp. after the Mergers. See “The Separation and Distribution Agreement and Ancillary Agreements.”

Conditions to Consummation of the Mergers

The obligations of each party to consummate the Mergers are subject to the satisfaction or waiver (to the extent permitted by applicable law) of closing conditions that are contained in the Merger Agreement, including:

 

    the Spin-Off having occurred and the Ultra Payment having been paid pursuant to the terms of the Separation and Distribution Agreement;

 

    the receipt of all consents, approvals and authorizations by governmental authorities;

 

    the expiration or termination of any required waiting period under the HSR Act, which condition was satisfied on December 22, 2017;

 

    the effectiveness of the registration statement of which this Information Statement forms a part in connection with the Distribution, and the approval for listing on the NYSE or NASDAQ of the shares of Ultra common stock to be issued in the Distribution and the Mergers, subject to official notice of issuance;

 

    the absence of any order issued by any governmental authority of competent jurisdiction or other legal impediment preventing or making illegal the consummation of the Mergers; and

 

    DXC shall have received an opinion of Skadden Arps reaching at least a should level conclusion, in form and substance reasonably acceptable to DXC, dated as of the Closing Date, to the effect that, on the basis of the facts and customary representations and assumptions set forth or referred to in such opinion and in certain tax representation letters, for U.S. federal income tax purposes (i) the Spin-Off should qualify as a “reorganization” within the meaning of Section 368(a)(1)(D) of the Code; (ii) each of DXC and Ultra should be a “party to a reorganization” within the meaning of Section 368(b) of the Code with respect to the Spin-Off, (iii) the Distribution should qualify as (1) a tax-free spin-off, resulting in nonrecognition under Sections 355(a), 361 and 368(a) of the Code, and (2) a transaction in which the stock distributed thereby should constitute “qualified property” for purposes of Sections 355(d), 355(e) and 361(c) of the Code, and (iv) none of the Mergers should cause Section 355(e) of the Code to apply to the Distribution.

In addition, DXC, Ultra, Vencore Merger Corp, Vencore Merger LLC and KeyPoint Merger Sub’s obligations to consummate the Mergers are subject to the satisfaction or waiver (to the extent permitted by applicable law) of the following conditions:

 

    certain fundamental representations and warranties of Vencore Holding Corp. and KGS Holding Corp. being true and correct in all respects in each case as of the effective time of the Mergers as if made as of the effective time of the Mergers (except to the extent such representations and warranties address matters as of a particular date, in which case as of such date);

 

   

the representations and warranties of Vencore Holding Corp., KGS Holding Corp., the Vencore Stockholder and the KeyPoint Stockholder, disregarding all materiality or material adverse effect

 

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qualifications, being true and correct in all respects in each case as of the effective time of the Mergers as if made as of the effective time of the Mergers (except to the extent such representations and warranties address matters as of a particular date, in which case as of such date), except where the failure to be true and correct has not had or would not, individually or in the aggregate, reasonably be expected to be a Vencore/KeyPoint Material Adverse Effect or a Vencore Stockholder and KeyPoint Stockholder MAE (as defined below—see “The Merger Agreement”) (other than the certain fundamental representations and warranties which must be true and correct in all respects);

 

    the covenants and agreements being performed by the stockholders of Vencore Holding Corp., KGS Holding Corp., the Vencore Stockholder and the KeyPoint Stockholder in all material respects at or prior to the effective time of the Mergers (other than certain covenants and agreements which must be performed in all respects, subject to de minimis exceptions);

 

    the delivery by Vencore Holding Corp. and KGS Holding Corp. of an officer’s certificate certifying the satisfaction of the above conditions, and the delivery by the Vencore Stockholder and KeyPoint Stockholder of a certificate certifying the satisfaction of the above conditions;

 

    the absence of a Vencore/KeyPoint Material Adverse Effect since June 30, 2017; and

 

    the termination of certain stockholder agreements between Vencore Holding Corp. and the Vencore Stockholder and KGS Holding Corp. and the KeyPoint Stockholder, without liability to Ultra or its subsidiaries following the effective time of the Mergers.

Furthermore, the obligations of Vencore Holding Corp. and KGS Holding Corp. to consummate the Mergers are subject to the satisfaction or waiver (to the extent permitted by applicable law) of the following conditions:

 

    certain representations and warranties of DXC, Ultra, Vencore Merger Corp, Vencore Merger LLC and KeyPoint Merger Sub, disregarding all materiality or material adverse effect qualifications, being true and correct in all respects in each case as of the effective time of the Mergers as if made as of the effective time of the Mergers (except to the extent such representations and warranties address matters as of a particular date, which must be true and correct as of the specified date);

 

    the representations and warranties of DXC, Ultra, Vencore Merger Corp, Vencore Merger LLC and KeyPoint Merger Sub, disregarding all materiality or material adverse effect qualifications, being true and correct in all respects in each case as of the effective time of the Mergers as if made as of the effective time of the Mergers (except to the extent such representations and warranties address matters as of a particular date, in which case as of such date), except where the failure to be true and correct has not had or would not, individually or in the aggregate, reasonably be expected to be an Ultra Material Adverse Effect (as defined—see “The Merger Agreement”) (other than the certain representations and warranties which must be true and correct in all respects);

 

    the covenants and agreements being performed by DXC, Ultra, Vencore Merger Corp, Vencore Merger LLC and KeyPoint Merger Sub in all material respects at or prior to the effective time of the Mergers;

 

    the delivery by Ultra of an officer’s certificate certifying the satisfaction of the above conditions;

 

    the absence of any Ultra Material Adverse Effect since June 30, 2017;

 

    the entrance into and delivery of the applicable Transaction Agreements by DXC and Ultra, which are in full force and effect.

To the extent permitted by applicable law, each party to the Merger Agreement may waive, at its sole discretion, any of the conditions to its respective obligations to complete the Mergers.

Regulatory Approvals

Under the HSR Act, and the rules promulgated under the HSR Act by the U.S. Federal Trade Commission (the “FTC”), the parties must file notification and report forms with the FTC and the Antitrust Division of the

 

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Department of Justice (the “Antitrust Division”) and observe specified waiting period requirements before consummating the Mergers. Ultra filed the requisite notification and report forms with the FTC and the Antitrust Division on October 25, 2017. The waiting period in respect of those notifications expired on December 22, 2017.

Representations and Warranties

The Merger Agreement contains substantially reciprocal customary representations and warranties that DXC, Ultra, Vencore Holding Corp., KGS Holding Corp., Vencore Merger Corp., Vencore Merger LLC and KeyPoint Merger Sub made to each other as of specific dates. The Vencore Stockholder and the KeyPoint Stockholder also made representations and warranties with respect to, among other things, its capital structure and status as an investor.

The representations and warranties by each of DXC, Ultra, Vencore Holding Corp., KGS Holding Corp., Vencore Merger Corp., Vencore Merger LLC, KeyPoint Merger Sub in the Merger Agreement relate to, among other things:

 

    due organization, good standing, corporate power;

 

    capitalization;

 

    authority to enter into the Merger Agreement (and other transaction-related agreements);

 

    no conflicts with or violations of governance documents, other obligations or laws;

 

    financial statements;

 

    absence of undisclosed liabilities;

 

    absence of certain changes or events;

 

    litigation and similar actions;

 

    employee benefit matters;

 

    compliance with applicable laws and ownership of certain licenses;

 

    environmental matters;

 

    tax matters;

 

    IP matters;

 

    ownership of real and personal property;

 

    existence and enforceability of material contracts;

 

    labor and employment matters;

 

    insurance;

 

    payment of fees to brokers or finders in connection with the Merger Agreement;

 

    existence and enforceability of government contracts;

 

    compliance with export controls; and

 

    affiliate transactions.

In addition, DXC and Ultra made representations and warranties that relate to:

 

    sufficiency of funds necessary to make the Ultra Payment and consummate the Mergers;

 

    DXC’s guarantee of Ultra’s obligation to make the Ultra Payment being in full force and effect;

 

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    sufficiency of Ultra’s assets; and

 

    accuracy and completeness of this Registration Statement on Form 10.

In addition to making representations and warranties related to corporate power, authority to enter into the Merger Agreement (and additional agreements) and no conflicts with, or violation of, governance documents, or other obligations or laws, the Vencore Stockholder and the KeyPoint Stockholder also made representations to DXC and Ultra relating to no public sale or distribution of Ultra common stock, accredited investor status, reliance on exemptions from the U.S. securities laws, access to information, absence of governmental review of the investment in and offering of Ultra common stock and the transfer or resale of Ultra common stock.

Many of the representations and warranties contained in the Merger Agreement are subject to a “material” or “material adverse effect” standard and none survive the closing.

Under the Merger Agreement, an “Ultra Material Adverse Effect” means any effect, change or circumstance, individually or in the aggregate, that is, or would reasonably be expected to be, materially adverse to (1) the USPS business, Ultra or any of its subsidiaries, or the operations, assets, prospects, financial condition or results of operations of the USPS business, taken as a whole, or (2) the ability of DXC, Ultra or any of their respective subsidiaries to consummate the Merger and to perform their obligations under the Merger Agreement and the Transaction Agreements. However, any adverse effect, change or circumstance, individually or in the aggregate, arising from or relating to the following will not be deemed either to constitute, or be taken into account in determining whether there has occurred an Ultra Material Adverse Effect (but only if the USPS business, Ultra or its subsidiaries are not disproportionately affected thereby):

 

    general business or economic conditions in the United States;

 

    conditions that generally affect the industry in which Ultra operates;

 

    national or international political or social conditions, including the engagement by the U.S. in hostilities, whether or not pursuant to the declaration of a national emergency or war, or the occurrence of any military or terrorist attack upon the U.S., or any of its territories, possessions or diplomatic or consular offices or upon any military installation, equipment or personnel of the U.S.;

 

    natural or man-made disasters or acts of God;

 

    financial, banking or securities markets;

 

    changes in GAAP; and

 

    any failure of any government bid to result in Ultra being granted a government contract; the existence of any protest initiated by any third party with respect to any government bid or government contract of Ultra, or the failure of any protest relating to a government bid or government contract initiated by Ultra;

 

    the credit ratings of Ultra or the failure of Ultra to meet projections or forecasts;

 

    any actions that are required to be taken by the Separation Agreements, or the pendency or announcement of the Spin-Off.

In addition, the term “Vencore/KeyPoint Material Adverse Effect” means any effect, change or circumstance, individually or in the aggregate, that is, or would reasonably be expected to be, materially adverse to (1) Vencore Holding Corp., KGS Holding Corp., their respective subsidiaries, their business, operations, assets, prospects, financial condition or results of operations of Vencore Holding Corp., KGS Holding Corp. and their respective subsidiaries, taken as a whole, or (2) the ability of Vencore Holding Corp. or KGS Holding Corp. to consummate the Merger and to perform its obligations under the Merger Agreement and the Transaction Agreements. However, any adverse effect, change or circumstance, individually or in the aggregate, arising from or relating to the following will not be deemed either to constitute, or be taken into account in determining

 

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whether there has occurred a Vencore/KeyPoint Material Adverse Effect (but only if Vencore Holding Corp. or KGS Holding Corp. and their respective subsidiaries are not disproportionately affected thereby):

 

    general business or economic conditions;

 

    conditions that generally affect the industry in which Vencore Holding Corp. and KGS Holding Corp. and their respective subsidiaries operate;

 

    national or international political or social conditions, including the engagement by the United States in hostilities, whether or not pursuant to the declaration of a national emergency or war, or the occurrence of any military or terrorist attack upon the United States, or any of its territories, possessions or diplomatic or consular offices or upon any military installation, equipment or personnel of the United States;

 

    natural or man-made disasters or acts of God;

 

    financial, banking or securities markets; and

 

    changes in GAAP;

 

    any failure of any government bid to result in Vencore Holding Corp. or KGS Holding Corp. or their respective subsidiaries being granted a government contract; the existence of any protest initiated by any third party with respect to any government bid or government contract of Vencore Holding Corp. or KGS Holding Corp. or their respective subsidiaries, or the failure of any protest relating to a government bid or government contract initiated by Vencore Holding Corp. or KGS Holding Corp. or their respective subsidiaries;

 

    the credit ratings of Vencore Holding Corp. or KGS Holding Corp. or their respective subsidiaries or the failure of Vencore Holding Corp. or KGS Holding Corp. or their respective subsidiaries to meet projections or forecasts; and

 

    any actions that are required to be taken by the Separation Agreements, or the pendency or announcement of the Spin-Off.

Covenants

In the Merger Agreement, each of DXC and Ultra and each of their respective subsidiaries have made certain covenants relating to its conduct in respect of the USPS business, and the Vencore Stockholder and the KeyPoint Stockholder and its subsidiaries has made certain covenants relating to its conduct of its business, with certain exceptions specified in the Merger Agreement. Some of these covenants are not easily summarized. You are urged to read carefully the sections of the Merger Agreement entitled “Conduct of the Business Pending the Merger.” The following summarizes the more significant of these covenants:

Conduct of Business

Each of DXC and Ultra, with respect to the USPS business, and each of Vencore Holding Corp. and KGS Holding Corp., with respect to the Vencore business, agrees to and to cause its respective subsidiaries to carry on its respective business in the ordinary course consistent with past practice and to use commercially reasonable efforts to preserve intact its respective current business organization, maintain material rights and licenses, keep available the services of key employees and preserve relationships with customers, suppliers and others having business dealings.

Required Consent

Without the prior written consent of the other parties to the Merger Agreement, subject to certain exceptions and items disclosed in the schedules to the Merger Agreement, none of DXC (with respect to the USPS business

 

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only), Ultra or any of their respective subsidiaries may take any or all of the following actions or authorize, commit or agree to take any of the following actions, other than as contemplated by the Separation Agreements:

 

    issue, sell, pledge, dispose of or encumber any shares of capital stock of any class or any options, warrants, convertible securities or other rights of any kind to acquire any shares of capital stock, or any other ownership interest; or accelerate the timing of payments or vesting under, or otherwise materially amend or supplement, any existing benefit, stock option compensation plan or arrangement, except as otherwise provided for in the Merger Agreement;

 

    amend or propose to amend or otherwise change the certificate of incorporation or bylaws or similar governance documents;

 

    enter into a transaction, acquire by merging or consolidating with, or by purchasing any equity interest in or the assets of, or by any other manner, any business or any corporation, partnership, association or other business organization or division thereof with value in excess of $15 million;

 

    enter into a transaction, sell, lease, pledge, encumber, transfer, license or otherwise dispose of any of its assets, excluding the disposition for fair market value in the ordinary course of business of assets having a fair market value not exceeding $10 million in the aggregate;

 

    incur indebtedness (other than capital leases) that will exist after the Effective Time in an aggregate principal amount exceeding the amount of the Ultra Payment, the Cash Merger Consideration, the amount of indebtedness under existing credit facilities of Vencore Holding Corp., KGS Holding Corp. and their respective subsidiaries as of the Closing Date, and the total amount of transaction expenses payable or reimbursable by Ultra under the Merger Agreement;

 

    adopt a plan of complete or partial liquidation, dissolution, merger, consolidation, restructuring, recapitalization or other material reorganization or any other transaction that would preclude or be inconsistent in any material respect with, or hinder or delay in any material respect, the transactions contemplated by the Merger Agreement or the Transaction Agreements;

 

    except for arm’s length commercial arrangements entered into in the ordinary course of business consistent with past practice, enter into or amend any contract or arrangement with respect to the USPS business with any of their respective affiliates;

 

    make any material change in the methods of accounting or procedures of Ultra and its subsidiaries or the USPS business in effect as of June 30, 2017, except: (1) as required by changes in GAAP or as approved by the audit committee of the DXC board of directors; (2) as may be made in response to SEC guidance, in each case, as concurred with in writing by DXC’s or Ultra’s independent auditors; or (3) as may be required in connection with the transactions contemplated by the Merger Agreement or the Transaction Agreements, so long as any such changes are in accordance with GAAP and neither DXC nor Ultra shall change Ultra’s fiscal year;

 

    enter into any contract or arrangement that limits or restricts the entity from engaging in its business in any material respect; or

 

    agree or commit to do any of the actions inconsistent with the foregoing restrictions and limitations.

Without the prior written consent of the other parties to the Merger Agreement, subject to certain exceptions and items disclosed in the schedules to the Merger Agreement, none of Vencore Holding Corp. or KGS Holding Corp. or their respective subsidiaries may take any or all of the following actions or authorize, commit or agree to take any of the following actions:

 

    declare, set aside or pay dividends on or make other distributions in respect of any shares of the capital stock or partnership or equity interests of itself or any of its subsidiaries;

 

    split, combine or reclassify any of its capital stock or issue or propose to issue any other securities;

 

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    amend the terms or change the period of exercisability of, purchase, repurchase, redeem or otherwise acquire any securities of any of their respective subsidiaries or propose to do any of the foregoing;

 

    issue, sell, pledge, dispose of or encumber any shares of capital stock of any class or any options, warrants, convertible securities or other rights of any kind to acquire any shares of capital stock, or any other ownership interest; or accelerate the timing of payments or vesting under, or otherwise materially amend or supplement, any existing benefit, stock option compensation plan or arrangement, except as otherwise provided for in the Merger Agreement;

 

    amend or propose to amend or otherwise change the certificate of incorporation or bylaws or similar governance documents;

 

    enter into a transaction, acquire by merging or consolidating with, or by purchasing any equity interest in or the assets of, or by any other manner, any business or any corporation, partnership, association or other business organization or division thereof;

 

    enter into a transaction, sell, lease, pledge, encumber, transfer, license or otherwise dispose of any of its assets, excluding the disposition for fair market value in the ordinary course of business of assets having a fair market value not exceeding $1,000,000 in the aggregate;

 

    obligate the surviving LLC or its subsidiaries to pay any amounts or assume any obligations at or after the effective time of the Second Merger in any of the following ways:

 

    incur any indebtedness or otherwise become contingently liable for any such indebtedness or issue or sell any debt securities or warrants or rights to acquire any debt securities of the Vencore Stockholder and the KeyPoint Stockholder or any of its subsidiaries or guarantee any debt securities of others or enter into any material lease other than in connection with operating leases in the ordinary course of business;

 

    issue any debt securities or assume, guarantee or endorse, or otherwise as an accommodation become responsible for, the obligations of any person for borrowed money or otherwise;

 

    make any loans, advances, capital contributions to or investments in any other person other than as specified in the Merger Agreement;

 

    authorize capital expenditures or purchases of fixed assets in excess of $5,000,000 among Vencore Holding Corp. and its subsidiaries or in excess of $1,500,000 among KGS Holding Corp. and its subsidiaries;

 

    incur liabilities secured by an encumbrance on its assets other than in the ordinary course of business;

 

    except pursuant to the terms of any collective bargaining agreement or benefit plans in effect or as required by law, grant any material increase in compensation or fringe benefits to its employees (other than in the ordinary course of business or that would not reasonably be expected to become a liability of Ultra or its subsidiaries, or in the ordinary course of business of the base salaries to non-executive officers in connection with customary salary reviews and promotions);

 

    pay or agree to pay to any of its employees any pension, retirement allowance, severance benefit or other material employee benefit not required by any of the existing benefit plans of Vencore Holding Corp. or its subsidiaries, or KGS Holding Corp. or its subsidiaries, as in effect on the date of the Merger Agreement, except as would not reasonably be expected to result in a liability of Ultra or its subsidiaries;

 

   

except in the ordinary course of business, or as otherwise permitted by the Merger Agreement, enter into any new, or terminate or materially amend any existing collective bargaining agreement or relationship, employment, severance or termination contract or other arrangement with any of its employees or their representatives, provided that any such new collective bargaining agreement or any

 

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termination of or material amendment to any such existing collective bargaining agreement in the ordinary course of business shall be subject to review by Ultra senior management reasonably in advance of the conclusion of such negotiations, and Ultra senior management shall have been informed periodically of the status of negotiations with respect thereto;

 

    (A) become obligated under any new pension plan, welfare plan, employee benefit plan, severance plan, benefit arrangement or similar plan or arrangement, or (B) or amend any such existing plan or arrangement other than (I) in the ordinary course of business, (II) as would not result in a material increase in the annual aggregate cost of maintaining such plan, (III) as would not reasonably be expected to result in a liability of Ultra or its subsidiaries, or (IV); in connection with annual ordinary course of business renewals of health and welfare plans;

 

    except to the extent that it has obtained written consent from DXC or Ultra or as required by Law, grant any equity-based compensation to any of its employees, directors or independent contractors;

 

    make any offer for the employment or engagement of any of its employees or other individual on a full-time, part-time, or consulting basis providing for an annual compensation in excess of $300,000, other than hires in the ordinary course of business to fill vacancies in non-executive officer positions as of the date of the Merger Agreement or due to departures following the date of the Merger Agreement;

 

    implement any distribution center, facility, warehouse or business unit closing or mass layoff that could implicate the Worker Adjustment and Retraining Notification Act of 1988;

 

    make any loan to any director, officer or member of its senior management, or except in the ordinary course of business and in compliance with applicable law, to any of its other employees;

 

    adopt a plan of complete or partial liquidation, dissolution, merger, consolidation, restructuring, recapitalization or other material reorganization or any other transaction that would preclude or be inconsistent in any material respect with, or hinder or delay in any material respect, the transactions contemplated by the Merger Agreement or the Transaction Agreements;

 

    except in the ordinary course of business, or if such action would not be binding on Ultra or any of its subsidiaries or would not reasonably be expected to result in a material increase in tax liability or a material decrease in tax attributes for Ultra or any of its subsidiaries after the effective time of the Mergers, or as required by law: change or rescind any material tax election or tax accounting method; settle, compromise or abandon any material action or controversy relating to taxes; amend any material tax returns; adopt or change any material method of tax accounting or change any annual tax accounting period; or consent to any extension or waiver of the limitation period applicable to any material tax claim or assessment in filing tax returns;

 

    except as contemplated by the Transaction Agreements or for arm’s length commercial arrangements entered into in the ordinary course of business, enter into or amend any contract or arrangement with any of their respective affiliates other than with wholly owned subsidiaries of Vencore Stockholder and KeyPoint Stockholder;

 

    except in the ordinary course of business, modify, amend, terminate or enter into any material contract of Vencore Holding Corp. or KGS Holding Corp. or their respective subsidiaries with a third party, or waive, release or assign any material rights or claims of Vencore Holding Corp. or KGS Holding Corp. or their respective subsidiaries thereunder;

 

    enter into any contract or arrangement that limits or restricts the entity from engaging in its business;

 

    pay discharge, satisfy or settle any action, other than any action in respect of taxes, if such payment would (1) require any material payment prior to the effective time of the Second Merger, or (2) restrict operations in any material respect or require the taking of action that would, or would reasonably be expected to, materially and adversely, affect the operation of business;

 

    enter into any contract or arrangement that limits or restricts the entity from engaging in its business;

 

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    enter into any agreement between Vencore Holding Corp. and the Vencore Stockholder or KGS Holding Corp. and the KeyPoint Stockholder or Vencore Holding Corp., KGS Holding Corp. or their respective subsidiaries on the one hand and the Vencore Stockholder, the KeyPoint Stockholder or any affiliate of the Vencore Stockholder and KeyPoint Stockholder or incur any obligations to pay any amounts to the Vencore Stockholder and the KeyPoint Stockholder or stockholder or affiliate of the Vencore Stockholder and the KeyPoint Stockholder;

 

    sell, transfer, exclusively license, abandon, let lapse, encumber or otherwise dispose of any IP that is necessary to carry on the business substantially as currently conducted, except, in each case, in the ordinary course of business; or

 

    agree or commit to do any of the actions inconsistent with the foregoing restrictions and limitations.

Employee Matters

Ultra will cause any employee benefit plans of Ultra and its subsidiaries in which an individual who is a current employee of Vencore or one of its subsidiaries on the effective date of the Mergers (the “Affected Employees”) is entitled to participate after the Closing Date (such plans, the “New Plans”) to take into account for purposes of eligibility, vesting and, under any plan providing severance benefits or paid time off, level of benefits, service by Affected Employees credited by Vencore and its subsidiaries prior to the effective date of the Mergers as if such service were with Ultra or its subsidiaries (except for purposes of any defined benefit pension plans, if any, or to the extent it would result in a duplication of benefits) .

With respect to any New Plans, Ultra will take reasonable steps to cause the surviving entities and their respective subsidiaries to: (1) cause there to be waived any eligibility requirements or pre-existing condition limitations or waiting period requirements to the same extent waived under comparable plans prior to the time coverage under the New Plans commences; and (2) give effect, in determining any deductible, co-insurance and maximum out-of-pocket limitations, amounts paid by Affected Employees under comparable specified Vencore plans during the year in which coverage under the New Plans commences.

Prior to the Closing Date, each of Vencore Holding Corp. and KGS Holding Corp. will (i) use commercially reasonable efforts to obtain a written waiver from each individual who is, or could reasonably be expected to be as of the Closing, a “disqualified individual” (as defined in Section 280G(c) of the Code) of the portion of any and all payments and benefits that could reasonably be deemed a “parachute payment” (as defined in Section 280G(b)(2) of the Code) and could result in the imposition of an excise tax on such individual pursuant to Section 4999 of the Code and/or a loss of any tax deduction pursuant to Section 280G of the Code, and (ii) submit to the Vencore Stockholder and KeyPoint Stockholder, as applicable, for a shareholder vote on the right of any “disqualified individual” (as defined in Section 280G(c) of the Code) to receive any and all waived payments (or other benefits) contingent on the consummation of the transactions contemplated by the Merger Agreement to the extent necessary so that no payment received by such “disqualified individual” would be a “parachute payment” under Section 280G(b) of the Code. Prior to the Closing Date, each of Vencore Holding Corp. and KGS Holding Corp. will have delivered to DXC and Ultra evidence reasonably satisfactory to DXC and Ultra that the Vencore Stockholder and KeyPoint Stockholder, as applicable, approval, if necessary, was solicited in conformance with Section 280G and the regulations promulgated thereunder.

If requested by DXC no later than 30 days prior to the Closing Date, each of Vencore Holding Corp. and KGS Holding Corp. shall terminate any of their respective plans that are a defined contribution plan intended to be qualified under Section 401(a) of the Code prior to the Closing Date (each, a “Qualified Plan Termination”). If a Qualified Plan Termination is requested, Ultra shall maintain or establish (or cause the surviving entities and their respective subsidiaries to maintain or establish), as of the Closing Date, a New Plan that is a defined contribution plan intended to be qualified under Section 401(a) of the Code (a “New DC Plan”) in which the Affected Employees shall be eligible to participate as of the Closing Date. To the extent any Affected Employee is entitled to an “eligible rollover distribution” (as defined in Section 402(c)(4) of the Code) from an existing

 

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Vencore plan, as applicable, he or she will be permitted to transfer such eligible rollover distribution, including any participant loan, in a direct rollover to the New DC Plan and Ultra will use commercially reasonable efforts to enable such direct rollovers to occur before any such participant loans become defaulted.

Competition Approvals

Each party to the Merger Agreement agreed to use commercially reasonable efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary under applicable laws and regulations to consummate and make effective the Mergers and the Transaction Agreements, including providing information and using their commercially reasonable efforts to file or cause to be filed as promptly as practicable after the date of this Merger Agreement its respective filings under the HSR Act to obtain all necessary approvals, and to lift any injunction or other legal bar to the Mergers, as promptly as practicable, and to take all other actions necessary to consummate the Mergers contemplated hereby in a manner consistent with applicable law.

Directors and Officers Indemnification; Insurance

The Merger Agreement provides that for a period of at least six years after the effective time of the Second Merger, the combined company will indemnify and hold harmless, and provide advancement of expenses, subject to certain conditions, to all past and present directors or officers of Ultra, Vencore Holding Corp., KGS Holding Corp. and their respective subsidiaries and each individual who prior to the effective time of the Mergers becomes a director or officer of Ultra, Vencore Holding Corp., KGS Holding Corp. or their respective subsidiaries, to the maximum extent allowed under applicable law in respect of acts or omissions occurring at or prior to the effective time of the Second Merger. The Merger Agreement also provides that the combined company will maintain in effect for the benefit of such individuals directors’ and officers’ liability and fiduciary liability insurance for a period of six years following the Mergers, provided that in no event will Vencore Merger LLC be required to pay for such policies an annual premium in excess of 300% of the total premiums per annum paid by Vencore Holding Corp. or KGS Holding Corp., as applicable, in its last full fiscal year.

Non-Solicitation of Employees and Customers

Subject to certain exceptions set forth in the Merger Agreement, the Vencore Stockholder and the KeyPoint Stockholder agreed that for a period of one year from and after the Closing Date, it and its subsidiaries would not, without the prior written consent of the combined company, approach, solicit, induce or attempt to induce certain restricted employees from leaving the employ of the combined company or hire, employ or enter into a consulting agreement with certain restricted employees unless such employee ceased to be an employee or was terminated six months prior to his or her employment.

Spin-Off

DXC and Ultra agreed to use reasonable best efforts to complete the exhibits and schedules to the Separation Agreements as soon as reasonably practicable following the date of the Merger Agreement. In preparing such exhibits and schedules to be attached the Separation Agreements prior to the Distribution, DXC and Ultra agree that they will not include any item, term or provision in any such exhibit or schedule if the inclusion of such item, term or provision would result in the assets, liabilities, financial condition or results of operation of the USPS business deviating in a material respect from the financial presentation of the USPS business set forth in the disclosure schedule to the Merger Agreement. Unless the Merger Agreement is terminated pursuant to Section 9.1 thereof, DXC and Ultra also agreed that (A) they will not amend or modify any of the Separation Agreements to include any item, term or provision that would result in such Separation Agreement not being substantially in the form attached to the Merger Agreement, (B) Ultra will not grant or agree to any consent, agreement or waiver pursuant to the terms of such Separation Agreement that would result in such Separation Agreement not being performed substantially on the terms and conditions set forth in the form

 

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attached to the Merger Agreement, and (C) DXC will not waive any condition to the Spin-Off set forth in the Separation and Distribution Agreement, in each case, without the prior written consent of the Vencore Stockholder and the KeyPoint Stockholder (not to be unreasonably withheld).

Tax Matters

All parties shall cooperate and use their respective reasonable best efforts (including executing tax representation letters) in order for DXC to obtain the opinion of Skadden Arps reaching at least a should level conclusion, in form and substance reasonably acceptable to DXC, dated as of the Closing Date, to the effect that, on the basis of the facts and customary representations and assumptions set forth or referred to in such opinion and in certain tax representation letters, for U.S. federal income tax purposes (i) the Spin-Off should qualify as a “reorganization” within the meaning of Section 368(a)(1)(D) of the Code; (ii) each of DXC and Ultra should be a “party to a reorganization” within the meaning of Section 368(b) of the Code with respect to the Spin-Off, (iii) the Distribution should qualify as (1) a tax-free spin-off, resulting in nonrecognition under Sections 355(a), 361 and 368(a) of the Code, and (2) a transaction in which the stock distributed thereby should constitute “qualified property” for purposes of Sections 355(d), 355(e) and 361(c) of the Code, and (iv) none of the Mergers should cause Section 355(e) of the Code to apply to the Distribution.

If there is a “determination” within the meaning of Section 1313(a) of the Code that the First and Second Vencore Mergers, taken together, do not qualify as a reorganization described in Section 368(a) of the Code, Ultra agreed to take the position for U.S. federal income tax purposes that the First Vencore Merger was a “qualified stock purchase” within the meaning of Section 338 of the Code and the Second Vencore Merger qualified as a “complete liquidation” described in Section 332 of the Code or as a “reorganization” described in Section 368(a) of the Code.

The Merger Agreement is intended to constitute a “plan of reorganization” within the meaning of Treasury Regulations Sections 1.368-2(g) and 1.368-3(a). Each applicable party shall use its reasonable best efforts to ensure the intended tax-free status, and none of the parties shall take any action or fail to take any action, which action or failure to act could reasonably be expected to preclude the intended tax-free status. Each of the parties shall report, for income tax purposes, the Spin-Off and the Mergers in a manner consistent with the intended tax-free status. Ultra shall use its commercially reasonable efforts (including executing customary representation letters) to cooperate with Vencore to allow Vencore to receive an opinion from (i) Vencore Holding Corp.’s counsel that the First and Second Vencore Mergers, taken together, will qualify as a “reorganization” within the meaning of Section 368(a) of the Code, and (ii) KGS Holding Corp.’s counsel that the KeyPoint Merger will qualify as a “reorganization” within the meaning of Section 368(a) of the Code.

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:

 

    preparation of financial statements of Ultra and Vencore;

 

    an exchange offer by DXC for certain existing notes currently held by an Ultra subsidiary;

 

    an exchange offer by Ultra in connection with the Ultra Payment;

 

    cooperation among the parties relating to the prompt preparation and filing of the registration statement of which this Information Statement forms a part in connection with the Distribution;

 

    prior to the effective time of the Mergers, the approval of the listing on the NYSE or NASDAQ of the Ultra common stock issued pursuant to the Distribution and the Mergers;

 

    Ultra’s actions as may be required under state securities or blue sky laws in connection with the issuance of shares of Ultra common stock pursuant to the Distribution and the Mergers;

 

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    assistance as any party may reasonably request and as may be reasonably necessary or appropriate in effectuating the provisions of the Merger Agreement;

 

    cooperation of any third parties necessary for each party to fulfill its obligations under the Merger Agreement;

 

    confidentiality, reasonable access with respect to certain information relating to the parties and the preservation of records following the effective time of the Second Merger;

 

    the making of public announcements or press releases with respect to the Mergers;

 

    defense of litigation and other actions attempting to challenge, enjoin, restrain or prohibit the consummation of the Mergers;

 

    the notification of events, the occurrence or nonoccurrence of which could result in a closing condition to the Merger Agreement being incapable of being fulfilled;

 

    the termination of certain stockholders agreements between Vencore Holding Corp. and KGS Holding Corp. and their respective stockholders, without liability to Ultra or its subsidiaries following the effective time of the Mergers; and

 

    a guarantee by DXC of certain obligations of Ultra under the Merger Agreement.

Amendment; Extension; Waiver

The Merger Agreement may be amended by the parties at any time. Prior to the effective time of the Mergers, the parties may extend the time for the performance of any of the obligations or other acts of the parties or waive any inaccuracies in the representations and warranties or compliance with any of the agreements or conditions contained in the Merger Agreement.

Termination of the Merger Agreement; Termination Fees

The Merger Agreement may be terminated at any time before the effective time of the Mergers by the mutual written consent of DXC, Vencore Holding Corp. and KGS Holding Corp. It may also be terminated by either DXC or Vencore Holding Corp. and KGS Holding Corp. if:

 

    the effective time of the Mergers has not occurred on or before October 1, 2018 unless the failure to effect the Merger by that date is due to the failure of the party seeking to terminate the Merger Agreement to perform its obligations set forth in the Merger Agreement;

 

    if any law or order of any governmental authority preventing or prohibiting the completion of the Mergers has become final and nonappealable; or

 

    if the Ultra Payment or Spin-Off are incapable of occurring because the conditions set forth in the Separation and Distribution Agreement are incapable of being satisfied prior to October 1, 2018.

The Merger Agreement may also be terminated by:

 

    the Vencore Stockholder and the KeyPoint Stockholder at any time before the effective time of the Mergers if there has been a material breach by DXC or Ultra of any of its representations, warranties or covenants or agreements contained in the Merger Agreement, or any such representation and warranty has become untrue in any material respect, and such breach or inaccuracy has not been cured within 30 business days following notice of such breach or there has been a material breach by DXC or Ultra of their obligations to consummate the Spin-Off and pay the Ultra Payment (so long as the Vencore Stockholder and the KeyPoint Stockholder is not then in material breach of any covenant, representation or warranty or other agreement contained in the Merger Agreement which breach would cause the closing conditions of DXC or Ultra not to be satisfied if the closing were to occur at the time of termination); or

 

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    DXC at any time before the effective time of the Mergers if there has been a material breach by the Vencore Stockholder and the KeyPoint Stockholder of any of its representations, warranties or covenants or agreements contained in the Merger Agreement, or any such representation and warranty has become untrue in any material respect, and such breach or inaccuracy has not been cured within 30 business days following notice of such breach (so long as DXC is not then in material breach of any covenant, representation or warranty or other agreement contained in the Merger Agreement which breach would cause the closing conditions of the Vencore Stockholder and the KeyPoint Stockholder or the stockholder of the Vencore Stockholder and the KeyPoint Stockholder that are party to the Merger Agreement not to be satisfied if the closing were to occur at the time of termination).

In the event the Merger Agreement is terminated because DXC is unable to obtain the Spin-Off tax opinion on or before October 1, 2018, a termination fee of $50 million may be payable by DXC to Vencore Holding Corp. and KGS Holding Corp. upon termination of the Merger Agreement under specified circumstances.

Fees and Expenses

All transaction expenses (as defined in the Merger Agreement) will be paid by the party incurring such fees or expenses. Notwithstanding the foregoing, if the Mergers are consummated, all transaction expenses incurred by Vencore Holding Corp., KGS Holding Corp. or any of their respective subsidiaries, or the Vencore Stockholder and the KeyPoint Stockholder will be borne by Vencore Merger LLC and KeyPoint Merger Sub, respectively, and all transaction expenses incurred by DXC, Ultra or any of their subsidiaries will be borne by Ultra. All separation expenses (as defined in the Separation and Distribution Agreement) related to the Internal Reorganization and Distribution incurred by DXC, Ultra or any of their subsidiaries will be borne by DXC.

 

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THE SEPARATION AND DISTRIBUTION AGREEMENT AND ANCILLARY AGREEMENTS

The following are summaries of the material provisions of the Separation and Distribution Agreement and ancillary agreements that we intend to enter into before the Distribution. These summaries are qualified in their entirety by reference to the full text of the Separation and Distribution Agreement and ancillary agreements which are filed as an exhibit to this Registration Statement on Form 10 of which this Information Statement forms a part.

Separation and Distribution Agreement

We intend to enter into a Separation and Distribution Agreement with DXC before the Distribution. The Separation and Distribution Agreement will set forth our agreements with DXC regarding the principal actions to be taken in connection with the Spin-Off. It will also set forth other agreements that govern aspects of our relationship with DXC following the Spin-Off.

Internal Reorganization. The Separation and Distribution Agreement will provide for the transfers of assets and assumptions of liabilities that are necessary in advance of the Distribution so that Ultra or its wholly owned subsidiaries holds the assets of, and the liabilities associated with, the USPS business, and certain additional actions related to the Spin-Off that will occur prior to the Distribution.

Allocated Cost Protection. If the annualized cost of performing certain activities identified by the Separation Agreement as “corporate dedicated and corporate shared expenses,” (the “Corporate Expenses”) as calculated during the most recent three-month period for which financial information is reasonably available preceding the Distribution Date, exceeds $116 million, then DXC will pay Ultra within 120 days after the Distribution Date an amount not to exceed $25 million that consists of the excess of such Corporate Expenses over $116 million and Ultra’s reasonable expenses (including projected severance and other restructuring costs) in connection with reducing the total Corporate Expenses to $116 million. Additionally, DXC will work with Ultra management to prepare a budget for Corporate Expenses for the twelve months following the Distribution Date (the “FY 19 Corporate Expense Budget”). If Ultra’s pro rata share of the FY 19 Corporate Expense Budget exceeds $116 million, then DXC will pay Ultra within 120 days after the Distribution Date an amount not to exceed $25 million that consists of the excess of such Corporate Expenses over $116 million and Ultra’s reasonable expenses (including projected severance and other restructuring costs) in connection with reducing the total FY 19 Corporate Expense Budget to $116 million.

Capitalized Lease Obligations. If the aggregate outstanding balance of capitalized lease obligations that are liabilities of Ultra on the Distribution Date, other than capitalized lease obligations in respect of new contracts awarded after the date of the Merger Agreement, exceeds $300 million and, within 180 days of the Distribution Date, DXC has failed to take steps necessary to reduce the aggregate outstanding balance thereunder below $300 million, then DXC shall pay Ultra an amount equal to the excess over $300 million.

Intercompany Arrangements. All agreements, arrangements, commitments and understandings, including most intercompany accounts payable or accounts receivable, between us on the one hand, and DXC on the other hand, will terminate effective as of the Distribution, except specified agreements and arrangements that are intended to survive the Distribution.

Shared Contracts. We and DXC will use commercially reasonable efforts to work together in an effort to divide, partially assign, modify or replicate any contract or agreement of ours, DXC’s or any of our or their respective affiliates, if such contract or agreement relates in any material respect to both the USPS business and the businesses and operations conducted by DXC and its subsidiaries other than the USPS business. We expect that division, assignment, modification or replication to result in the assumption by USPS of certain related vendor and customer commitments.

 

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Credit Support. We will agree to arrange, prior to the Distribution, for the replacement of all guarantees, covenants, indemnities, surety bonds, letters of credit or similar assurances of credit support currently provided by or through DXC or any of its affiliates for the benefit of Ultra or any of its affiliates. Ultra will indemnify DXC or the applicable affiliate that is the guarantor or obligor thereunder from and against any losses incurred after the Distribution with respect to any such assurances of credit support that the parties are unable to replace prior to the Distribution.

Representations and Warranties. In general, neither we nor DXC will make any representations or warranties regarding any assets or liabilities transferred or assumed, any consents or approvals that may be required in connection with these transfers or assumptions, the value or freedom from any lien or other security interest of any assets transferred, the absence of any defenses relating to any claim of either party or the legal sufficiency of any conveyance documents. Except as expressly set forth in the Separation and Distribution Agreement or in the ancillary separation agreements, all assets will be transferred on an “as is,” “where is” basis.

Further Assurances. The parties will use commercially reasonable efforts to effect any transfers contemplated by the Separation and Distribution Agreement that have not been consummated prior to the Distribution as promptly as practicable following the Distribution Date. In addition, the parties will agree to effect any transfer or re-transfer of any asset or liability that was improperly transferred or retained as promptly as practicable following the Distribution.

The Distribution. The Separation and Distribution Agreement will govern DXC’s and our respective rights and obligations regarding the proposed Distribution. Prior to the Distribution, DXC will deliver all the issued and outstanding shares of our common stock to the distribution agent. Following the Distribution, the distribution agent will electronically deliver the shares of our common stock to DXC stockholders based on the distribution ratio.

Ultra Payment. The Separation and Distribution Agreement will require the Ultra Payment to be transferred to DXC prior to the Distribution.

Conditions. The Separation and Distribution Agreement will also provide that several conditions must be satisfied or waived by DXC in its sole and absolute discretion before the Distribution can occur. For further information about these conditions, see “The Transactions—Conditions to the Spin-Off.” The board of directors of DXC may, in its sole and absolute discretion, determine the Record Date, the Distribution Date and the terms of the Ultra Payment.

Non-competition. The Separation and Distribution Agreement will also provide that (1) DXC and we will be restricted from engaging in certain business activities in certain areas of the U.S. state and local government field, (2) DXC will be restricted from engaging in business activities in the U.S. federal government field and (3) we will be restricted from engaging in business activities in the commercial field, each for a period of two years after the Distribution.

Exchange of Information. We and DXC will agree to provide each other with information reasonably necessary to comply with reporting, disclosure, filing or other requirements of any national securities exchange or governmental authority, for use in judicial, regulatory, administrative and other proceedings and to satisfy audit, accounting, litigation and other similar requests. We and DXC will also agree to use reasonable best efforts to retain such information in accordance with our respective record retention policies as in effect on the date of the Separation and Distribution Agreement. Until the end of the first full fiscal year following the Distribution, each party will also agree to use its reasonable best efforts to assist the other with its financial reporting and audit obligations.

Indemnification. We and DXC will each agree to indemnify the other and certain affiliates and related persons against certain liabilities incurred in connection with the Spin-Off and our and DXC’s respective

 

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businesses. These indemnities are principally designed to place financial responsibility for the obligations and liabilities of our business with us and financial responsibility for the obligations and liabilities of DXC’s business with DXC. Specifically, each party will indemnify, defend and hold harmless the other party, its affiliates and subsidiaries and each of its officers, directors, employees and agents for any losses arising out of or due to (1) the failure to pay, perform or otherwise discharge any of the liabilities or alleged liabilities each such party assumed or retained pursuant to the Separation and Distribution Agreement and (2) any breach by such party of the Separation and Distribution Agreement or any ancillary agreement unless such ancillary agreement expressly provides for separate indemnification therein, in which case any such indemnification claims must be made thereunder. The amount of each party’s indemnification obligations will be subject to reduction by any insurance proceeds received by the party being indemnified. The Separation and Distribution Agreement will also specify procedures regarding claims subject to indemnification.

Transition Services Agreement

We intend to enter into a Transition Services Agreement pursuant to which DXC will provide us, and we will provide DXC, with specified services for a limited time to help ensure an orderly transition following the Distribution to the extent such functions cannot be independently established before the Distribution. The costs of services to be provided under the Transition Services Agreement will reflect the costs DXC has historically allocated to the Ultra business for such services multiplied by a markup plus any applicable expenses associated with the relevant service, which may not necessarily be reflective of prices that we could have obtained for similar services from an independent third party but will be consistent with our compliance requirements for allowable and allocable costs and purchasing. DXC and Ultra are continuing to discuss and assess the scope of services required under the Transition Services Agreement and the necessary duration of such services. The recipient of a service will have the right to terminate any service upon 30 days’ notice after any minimum service period. Each party will agree to provide transition services in a manner consistent with how such service was performed prior to the Distribution, subject to any modifications or upgrades required by the business operations of a party. The Transition Services Agreement contains typical provision disclaiming liability and warranties by each party, and a limited mutual indemnity providing that each party will indemnify the other for losses resulting from such party’s gross negligence or willful misconduct.

Tax Matters Agreement

We intend to enter into a Tax Matters Agreement with DXC that will govern the respective rights, responsibilities and obligations of DXC and us after the Spin-Off with respect to all tax matters and will include restrictions designed to preserve the tax-free status of the Distribution. As a subsidiary of DXC, we have (and will continue to have following the Spin-Off) several liability to the IRS for the full amount of the consolidated U.S. federal income taxes of the DXC consolidated group relating to the taxable periods in which we were part of that group. However, the Tax Matters Agreement will specify the portion, if any, of this tax liability for which we will bear responsibility, and we will agree to indemnify DXC against any amounts for which we are responsible and DXC will agree to indemnify us against any amounts for which we are not responsible. The Tax Matters Agreement will also provide special rules for allocating tax liabilities in the event that the Spin-Off is not tax-free. The Tax Matters Agreement will provide for certain covenants that may restrict our ability to pursue strategic or other transactions that otherwise could maximize the value of our business and may discourage or delay a change of control that you may consider favorable. For example, unless we (or DXC, as applicable) were to receive a private letter ruling from the IRS or an opinion from a nationally recognized tax advisor, or DXC were to grant us a waiver, we would be restricted until two years after the Spin-Off is consummated from entering into transactions that would result in an ownership shift in Ultra of 30% or more (measured by vote or value) or divestitures of certain businesses that could impact the tax-free nature of the Spin-Off. Pursuant to the Tax Matters Agreement, we intend to agree to indemnify DXC for any tax liabilities resulting from a breach of such covenants or certain other actions. Though valid as between the parties, the Tax Matters Agreement will not be binding on the IRS.

 

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Employee Matters Agreement

We intend to enter into an Employee Matters Agreement with DXC that will address employment, compensation and benefits matters, including treatment of equity incentive awards. In addition, the Employee Matters Agreement will set forth the general principles relating to employee matters, including with respect to the assignment of employees of employees to Ultra, the assumption, workers’ compensation, labor relations, and related matters. The Employee Matters Agreement will address the allocation and treatment of assets and liabilities arising out of employee compensation and benefits programs in which our employees participated prior to the Distribution.

Real Estate Matters Agreement

We entered into a Real Estate Matters Agreement with DXC that governs the respective rights and responsibilities between us and DXC following the Spin-Off with respect to real property used by us that is not owned by us or leased by us directly from a third party, including the allocation of space within shared facilities and the allocation of standalone facilities between us and DXC. Pursuant to the Real Estate Matters Agreement, we transferred ownership of certain real properties to DXC and assigned leases covering certain leased real properties to DXC. We also clarified which owned and leased real properties we retained. With regards to certain shared facilities, including in Plano, Texas, we entered into sublease agreements with DXC. See “Business of Ultra—Properties.”

Intellectual Property Matters Agreement

Pursuant to the Separation and Distribution Agreement, and the Intellectual Property Matters Agreement to be entered into between us and DXC (the “Intellectual Property Matters Agreement”) we will retain ownership of any certain proprietary IP related to certain classified contracts and projects of the Ultra business and DXC will retain ownership of all other proprietary IP owned by DXC at the time of the Distribution and used by us. Pursuant to the Intellectual Property Matters Agreement, DXC will grant us a perpetual, royalty-free, non-assignable license to certain know-how owned by DXC that we use to run our business prior to the Spin-Off. In addition, DXC will grant us a perpetual, royalty-free, non-assignable license to certain software used in the conduct of the Ultra business (including binaries, APIs, libraries, scripts, patches, configuration files, examples and documentation). Upon termination or expiration of the Intellectual Property Matters Agreement, we will only be entitled to access and use the then-current versions of the licensed products in our possession. During the first five years following the Distribution, the foregoing licenses granted to us will be restricted to use solely in connection with U.S. government customers on an exclusive basis and certain U.S. state and local government customers on a non-exclusive basis. In addition, any improvements we make to such IP or derivative works of such IP that we develop will be assigned to DXC and licensed back to us subject to the same limitations on use. DXC will also grant a limited, non-exclusive, non-assignable, royalty-free license to use certain trademarks in connection with Ultra for six months to allow us to transition away from use of those that do incorporate “DXC,” “Electronic Services,” “Enterprise Data Systems” or “EDS.” Any additional rights to use other DXC products, improvements or proprietary rights will be negotiated by the parties in good faith on commercially reasonable arms’ length terms.

Pursuant to the Intellectual Property Matters Agreement, we will grant DXC a perpetual, royalty-free, transferrable, assignable license to know-how owned by us as of the Spin-Off. In addition, we will grant DXC a perpetual, royalty-free, transferrable, assignable license to all IP owned by us pursuant to the Separation and Distribution Agreement as well as certain software (including binaries, APIs, libraries, scripts, patches, configuration files, examples and documentation) specified under the agreement. Further, we will grant DXC a perpetual, royalty-free, fully paid-up, non-assignable license to any IP acquired or developed by us within six months following the Spin-Off (other than IP rights acquired from Vencore Holding Corp. or KGS Holding Corp. or their respective subsidiaries). During the first five years following the Distribution, the foregoing licenses granted by us will be restricted to use solely in connection with private sector customers on an exclusive basis and certain U.S. state and local government customers on a non-exclusive basis.

 

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In addition to the foregoing licenses, we will grant DXC a non-transferrable, non-assignable license for the five years following the Distribution to access, use, copy, make improvements and sublicense the IP we obtain from our acquisition of Vencore Holding Corp. or KGS Holding Corp. and their respective subsidiaries. The foregoing license will be exclusive with respect to DXC’s private sector business and non-exclusive for all other fields. Such license will be royalty-free to the extent DXC does not commercially exploit the IP of Vencore Holding Corp. or KGS Holding Corp. or their respective subsidiaries, and will otherwise be subject to a commercially reasonable royalty, to be negotiated in good faith, for commercial exploitation. Further, we will agree to negotiate in good faith the terms and conditions of a license or services agreement relating to or permitting use by DXC of Vencore Labs (as acquired from Vencore Holding Corp.) and our existing security and digital protection service offerings, in each case on commercially reasonable arms’ length terms in DXC’s private sector field. Further, during the five years following the Distribution, DXC will have the first right to participate in the event Vencore Labs wishes to pursue R&D which has potential applicability in the DXC private sector field; Vencore Labs must notify DXC of such opportunities and DXC has the right to elect to enter a collaborative development and commercialization effort with Vencore Labs.

All licenses granted to us by DXC will not extend to any acquiring party of our business, and will be limited to the Ultra entities that are subsidiaries prior to such acquisition. If either we or DXC divest any portion of our businesses or acquire a new business, the licenses granted under the Intellectual Property Matters Agreement may follow such divested business or extend to such newly acquired business, provided the licensed party adheres to all restrictions on the relevant license, notably the relevant licensed fields of each party.

DXC will indemnify Ultra from all losses incurred by Ultra as a direct result of any third-party claim that Ultra’s use of any improvements to the products licensed by DXC under the Intellectual Property Matters Agreement infringes or misappropriates any U.S. copyright, trademark or trade secret, except to the extent resulting from Ultra’s modification, adaptation, failure to update, or third-party components. Ultra will indemnify DXC from all losses incurred by DXC as a direct result of any third-party claim relating to Ultra’s use of the products licensed by DXC, or arising from DXC’s use of Ultra’s improvements to the licensed products, except to the extent resulting from DXC’s modification, adaptation, failure to update, or third-party components.

Non-U.S. Agency Agreement

We intend to enter into a Non-U.S. Agency Agreement with DXC pursuant to which we would appoint, for a period of five years, DXC as our exclusive agent outside the U.S. for certain non-U.S. government customers subject to certain exceptions for U.S. government contracts in support of non-U.S. government customers or U.S. government sponsored or financed military sales. Under the Non-U.S. Agency Agreement, DXC will agree to refer to us certain opportunities outside the U.S. that DXC determines, in its sole discretion, would be within our core competency and better handled by us than by DXC or anyone else.

Other Arrangements

Prior to the Spin-Off, we have had various other arrangements with DXC, including arrangements whereby DXC provides IT, tax administration, treasury activities, technical accounting, benefits administration, procurement, legal and ethics and compliance program administration services to us.

As described in more detail in “Separation and Distribution Agreement” above, these arrangements, other than those contemplated pursuant to the Transition Services Agreement, will generally be terminated in connection with the Spin-Off.

Side Letter Agreement

In connection with the Mergers, Ultra, Veritas Capital Management, the Vencore Stockholder and the KeyPoint Stockholder entered into a Letter Agreement granting Veritas Capital Management and its affiliates

 

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certain registration rights, establishing a lock-up arrangement relating to the Stock Merger Consideration, establishing a standstill obligation of Veritas Capital Management, its controlled Affiliates and its and their respective representatives and granting certain director nomination rights to Veritas Capital Management. The following is a summary of material provisions of the Letter Agreement. This summary is qualified in its entirety by reference to the full text of the Letter Agreement which is filed as an exhibit to the Registration Statement on Form 10 of which this Information Statement forms a part.

Registration Rights

The registration of shares of our common stock pursuant to the exercise of registration rights described below would enable the holders whose shares of our common stock are registered on the applicable registration statement to sell those shares pursuant to the registration statement after it becomes, and for so long as it is, effective. We will pay all reasonable fees and expenses incurred in the performance of or compliance with the Letter Agreement. Pursuant to the terms of the Letter Agreement, Veritas Capital Management and its affiliates, including the Vencore Stockholder and the KeyPoint Stockholder, may transfer shares of our common stock to one or more of its affiliates and may exercise registration rights on behalf of such transferees if such transferees become a party to the Letter Agreement.

The rights described below will commence immediately following the expiration of the lock-up period (described below). We are not required to effect more than one underwritten Shelf Takedown (as defined below) in any 90-day period or more than three underwritten Shelf Takedowns in any 365-day period. We will be entitled to require any holder of securities eligible for registration under the Letter Agreement (the “Registrable Securities”) to suspend the use of any prospectus for sales of Registrable Securities during a period that begins a specified number of days prior to the end of a fiscal quarter and ends on the day following the first public announcement of the results for such fiscal quarter. Additionally, if our Board of Directors determines in its good faith judgment that the registration or sale of Registrable Securities would reasonably be expected to materially adversely affect or materially interfere with any bona fide material financing of ours or any material transaction under consideration by us or would require us to disclose confidential information, the premature disclosure of which would materially adversely affect us, then we may delay a registration or sales of Registrable Securities for no more than 45 days in a 180-day period. We will not be obligated to effect any underwritten Shelf Takedown unless the reasonably anticipated gross proceeds from the sale of Registrable Securities in such underwritten Shelf Takedown are $100 million.

Shelf Registration Rights. Under the terms of the Letter Agreement, on or prior to the Initial Date (defined below), we will file a registration statement for a shelf registration on Form S-1 covering the resale of all Registrable Securities on a delayed or continuous basis (the “Form S-1 Shelf”). In the event that we become eligible to use Form S-3 under the Securities Act after 12 calendar months following the Closing Date, we will use our commercially reasonable efforts to convert the Form S-1 Shelf to a shelf registration on Form S-3 (a “Form S-3 Shelf” and together with the Form S-1 Shelf, the “Shelf Registration Statement”). We will use our commercially reasonable efforts to keep the Shelf Registration Statement continuously effective until the date that all Registrable Securities covered by such Shelf Registration Statement are no longer Registrable Securities (the “Shelf Period”). However, beginning 18 months after the Closing Date, we are not required to maintain a Shelf Registration Statement once the fair market value of all Registrable Securities is less than the lesser of (1) $100 million in the aggregate and (2) 1% of the outstanding shares of our common stock.

At any time during the Shelf Period, Veritas Capital Management and its affiliates may request to sell all or any portion of their Registrable Securities in an offering that is registered pursuant to the Shelf Registration Statement (each, a “Shelf Takedown”). Veritas Capital Management may request Ultra to initiate up to five underwritten Shelf Takedowns and an unlimited number of Shelf Takedowns that are not underwritten Shelf Takedowns. All requests for Shelf Takedowns must be made by Veritas Capital Management giving written notice to Ultra (a “Shelf Takedown Notice”).

 

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We will not include in any Shelf Takedown any securities that are not Registrable Securities without the prior written consent of Veritas Capital Management. If any managing underwriter of any underwritten offering of Registrable Securities advises Ultra in writing that in its opinion the number of Registrable Securities and, if permitted, other securities requested to be included in the underwritten offering exceeds the number that can be sold in that offering in an orderly manner at a price that is acceptable to Veritas Capital Management, then we are required to include in that offering only those securities that in the opinion of the managing underwriter can be so sold in in an orderly manner at a price that is acceptable to Veritas Capital Management and in the following order of priority: (1) first, any Registrable Securities for which registration was requested; (2) second, any securities proposed to be registered by us; and (3) third, any other securities proposed to be included in such registration which, in the opinion of the underwriters, can be sold without any such adverse effect.

Piggyback Registration Rights. If we propose to register any of our common stock (other than in connection with registration on Form S-4 and Form S-8 or any successor or similar forms, or relating solely to the sale of debt or convertible debt instruments) either on our behalf or on the behalf of other security holders, the holders of the Registrable Securities are entitled to include their Registrable Securities in the registration. If any managing underwriter of any underwritten offering of Registrable Securities advises Ultra that in its opinion the number of securities requested to be included in such registration exceeds the number that can be sold in that offering in an orderly manner at a price that is acceptable to Ultra, then we are required to include in that offering only those securities that in the opinion of the managing underwriter can be so sold in in an orderly manner at a price that is acceptable to Ultra and in the following order of priority: (1) first, the shares of our common stock that we propose to sell, (2) second, the Registrable Securities requested to be included in such registration, and (3) third, any other shares of common stock requested to be included.

Term. The registration rights granted pursuant to the Letter Agreement will continue in effect until the date on which Registrable Securities comprise fewer than two percent of the outstanding shares of Ultra common stock

Lock-Up

Pursuant to the terms of the Letter Agreement, Veritas Capital Management agrees that it will not, and will cause its controlled affiliates including the Vencore Stockholder and the KeyPoint Stockholder not to, for a period commencing on the Closing Date and ending on the earlier of (i) January 1, 2019, and (ii) the date that is nine months following the Closing Date (such date, the “Initial Date”):

 

    offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend or otherwise transfer or dispose of, directly or indirectly, any shares of common stock or any securities convertible into or exercisable or exchangeable for shares of common stock; or

 

    enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of our common stock;

(such actions, a “Transfer”) whether any such transaction described above is to be settled by delivery of shares of our common stock or such other securities, in cash or otherwise.

Additionally, Veritas Capital Management agrees that it will not, and will cause its controlled affiliates including the Vencore Stockholder and the KeyPoint Stockholder not to, for a period commencing on the Initial Date and ending on the earlier of (i) April 1, 2019 and (ii) the date that is twelve months following the Closing Date, effect any Transfer that would involve an aggregate amount (with all other Transfers) during such three-month period more than one-third of the total number of shares of Ultra common stock issued as merger consideration to the Vencore Stockholder and the KeyPoint Stockholder pursuant to the terms of the Merger Agreement.

 

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Standstill

Veritas Capital Management agrees that for a period commencing on the date of the Merger Agreement and ending on the earlier of (1) the first date that Veritas Capital Management and its controlled affiliates collectively no longer own more than 5% of the total outstanding shares of Ultra common stock, (2) a material breach of the director nomination rights described below if such material breach has not been or is incapable of being cured within ten days after receipt of written notice and (3) upon certain change of control type events, none of Veritas Capital Management, its controlled affiliates or any of their respective representatives acting on its behalf will in any manner, directly or indirectly or alone or in concert with any other person (in each case except as approved by Ultra or as contemplated by the Letter Agreement or any other transaction agreement):

 

    effect or consummate or seek, agree, offer or propose to effect or consummate, or announce any intention to effect or consummate or cause or participate in or in any way assist, facilitate or encourage any other person to effect or consummate or seek, agree, offer or propose to effect or consummate or participate in: (1) any acquisition of any economic interest in, or any direct or indirect right to direct the voting or disposition of, any securities of Ultra, or rights or options to acquire any securities of Ultra, or any assets, indebtedness or businesses of Ultra or any of its affiliates; (2) any tender or exchange offer, merger or other business combination involving Ultra or any of its affiliates or assets of Ultra or its affiliates constituting a significant portion of the consolidated assets of Ultra or any of its affiliates; or (3) any recapitalization, restructuring, liquidation, dissolution or other extraordinary transaction with respect to Ultra or any of its affiliates;

 

    make, or in any way participate in, any solicitation of proxies to vote, or seek to advise or influence any person or entity with respect to the voting of, any voting securities of Ultra;

 

    initiate, induce or attempt to induce, cooperate or collaborate with, any other person, entity or group in connection with, any stockholder proposal or withhold vote campaigns or tender offers for equity securities of Ultra, any change of control of Ultra or the convening of a meeting of Ultra’s stockholders;

 

    form, join or in any way participate in a group with respect to Ultra in respect of any securities of Ultra;

 

    except pursuant to the director nomination rights described below, otherwise act, alone or in concert with others, to seek representation on or to control or influence the management, board of directors or policies or to obtain representation on the board of directors of Ultra;

 

    bring any action or otherwise act to contest the validity of this covenant;

 

    advise, assist, encourage, act as a financing source for or otherwise invest in any other person in connection with, or enter into any discussions, negotiations, arrangements or understandings with any other person with respect to, any of the activities set forth in this covenant;

 

    publicly disclose any intention, plan or arrangement, or take any action, inconsistent with any of the foregoing; or

 

    take any action with respect to Ultra that would or would reasonably be expected to require Ultra to make a public announcement regarding (1) such action, (2) any of the types of matters set forth in this covenant, (3) the matters set forth in the Merger Agreement, or (4) the possibility of Veritas Capital Management or any other person acquiring control of Ultra, whether by means of a business combination or otherwise.

Director Nomination Right

Veritas Capital Management will have the right to nominate one individual, subject to review and approval of such individual’s nomination by Ultra’s nominating/corporate governance committee and subject to such individual meeting Ultra’s director qualification standards included in its corporate governance guidelines, to

 

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serve on the board of directors of Ultra. Additionally, at the effective time of the Mergers, Ultra has agreed to appoint the chief executive officer of Ultra to the Ultra board of directors.

This foregoing provisions shall continue in effect until Veritas Capital Management, together with its affiliates, ceases to hold a number of shares equal to at least 10% of the outstanding common stock of Ultra as of the Closing Date.

 

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MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE DISTRIBUTION

The following is a general discussion of the U.S. federal income tax consequences of the Spin-Off to holders of DXC common stock that receive Ultra common stock in the Distribution. The following discussion is based on the Code, the Treasury regulations promulgated under the Code, and interpretations of such authorities by the courts and the IRS, all as they exist as of the date of this Information Statement and all of which are subject to change, possibly with retroactive effect. Any such change could affect the accuracy of the statements and conclusions set forth in this discussion. This discussion is limited to holders of DXC common stock that are U.S. holders, as defined below, and hold their shares of DXC common stock as capital assets within the meaning of Section 1221 of the Code. Further, this discussion does not purport to consider all aspects of U.S. federal income taxation that may be relevant to stockholders in light of their particular circumstances, nor does it address any consequences to stockholders subject to special treatment under the U.S. federal income tax laws, such as tax-exempt entities, partnerships (including entities treated as partnerships for U.S. federal income tax purposes), persons who are subject to the alternative minimum tax, certain former citizens or long-term residents of the United States, persons who have acquired their shares of DXC common stock pursuant to the exercise of employee stock options or otherwise as compensation, financial institutions, insurance companies, dealers or traders in securities, and persons who hold their shares of DXC common stock as part of a straddle, hedge, conversion, constructive sale, synthetic security, integrated investment or other risk-reduction transaction for U.S. federal income tax purposes. This discussion does not address any U.S. federal estate, gift or other non-income tax consequences or any state, local or foreign tax consequences, or the consequences of the Medicare tax on net investment income.

Holders of DXC common stock should consult their tax advisors as to the particular tax consequences to them as a result of the Distribution.

For purposes of this discussion, a U.S. holder is a beneficial owner of DXC common stock that is, for U.S. federal income tax purposes:

 

    a citizen or individual resident of the United States;

 

    a corporation, or other entity taxable as a corporation for U.S. federal income tax purposes, created or organized under the laws of the United States or any state or political subdivision thereof;

 

    an estate, the income of which is subject to U.S. federal income taxation regardless of its source; or

 

    a trust, if (i) a court within the United States is able to exercise primary jurisdiction over its administration and one or more U.S. persons have the authority to control all of its substantial decisions, or (ii) the trust has a valid election in effect to be treated as a U.S. person for U.S. federal income tax purposes.

If a partnership (including any entity treated as a partnership for U.S. federal income tax purposes) holds shares of DXC common stock, the tax treatment of a partner in the partnership will generally depend upon the status of the partner and the activities of the partnership. A partner of a partnership holding shares of DXC common stock should consult its tax advisor regarding the tax consequences of the Distribution.

Treatment of the Distribution

It is a condition to the Distribution that DXC receive a written opinion of Skadden Arps, in form and substance reasonably acceptable to DXC, to the effect that, on the basis of the facts and customary representations and assumptions set forth or referred to in such opinion, for U.S. federal income tax purposes, (i) the Spin-Off should qualify as a “reorganization” within the meaning of Section 368(a)(1)(D) of the Code, (ii) DXC should recognize no gain or loss under Section 361(c) of the Code upon the Distribution, and (iii) DXC’s stockholders should recognize no gain or loss under Section 355(a) of the Code upon the receipt of Ultra common stock in the Distribution.

 

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The opinion of Skadden Arps will be based on the law in effect as of the time of the Spin-Off and will rely upon certain assumptions, as well as statements, representations and undertakings made by officers of DXC and Ultra. These assumptions, statements, representations and undertakings are expected to relate to, among other things, the parties’ business reasons for engaging in the Spin-Off, the conduct of certain business activities by DXC and Ultra, and the plans and intentions of DXC and Ultra to continue conducting those business activities and not to materially modify their ownership or capital structure following the Spin-Off. If any of those statements, representations or assumptions is incorrect or untrue in any material respect or any of those undertakings is not complied with, or if the facts upon which the opinion is based are materially different from the actual facts that exist at the time of the Spin-Off, the conclusions reached in such opinion could be adversely affected.

DXC does not intend to seek a ruling from the IRS as to the U.S. federal income tax treatment of the Spin-Off. The legal authorities upon which the opinion of Skadden Arps will be based are subject to change or differing interpretations at any time, possibly with retroactive effect. The opinion of Skadden Arps will not be binding on courts or the IRS, and there can be no assurance that the IRS will not challenge the conclusions reached in the opinion or that a court would not sustain such a challenge.

Assuming that the Spin-Off qualifies under Sections 355, 361 and 368(a)(1)(D) of the Code, then, for U.S. federal income tax purposes:

 

    DXC will not recognize income, gain or loss on the Distribution;

 

    except with respect to the receipt of cash in lieu of fractional shares of Ultra common stock, holders of DXC common stock will not recognize income, gain or loss on the receipt of Ultra common stock in the Distribution;

 

    a stockholder’s aggregate tax basis in its shares of DXC common stock and Ultra common stock (including any fractional shares deemed received, as described below) immediately after the Distribution will be the same as the aggregate tax basis of the shares of DXC common stock held by the stockholder immediately before the Distribution, allocated between such shares of DXC common stock and Ultra common stock in proportion to their relative fair market values; and

 

    a stockholder’s holding period in the Ultra common stock received in the Distribution (including any fractional shares deemed received, as described below) will include the holding period of the DXC common stock with respect to which such Ultra common stock was received.

Stockholders that have acquired different blocks of DXC common stock at different times or at different prices should consult their tax advisors regarding the allocation of their aggregate tax basis in, and the holding period of, the Ultra common stock distributed with respect to such blocks of DXC common stock.

A stockholder that receives cash in lieu of a fractional share of Ultra common stock in the Distribution will generally be treated as having received such fractional share pursuant to the Distribution and then as having sold such fractional share for cash. Taxable gain or loss will be recognized in an amount equal to the difference between (i) the amount of cash received in lieu of the fractional share and (ii) the stockholder’s tax basis in the fractional share, as described above. Such gain or loss will generally be long-term capital gain or loss if the stockholder’s holding period for its Ultra common stock, as described above, exceeds one year at the effective time of the Distribution. Long-term capital gains are generally subject to preferential U.S. federal income tax rates for certain non-corporate U.S. holders (including individuals). The deductibility of capital losses is subject to limitations under the Code.

If the Distribution were determined not to qualify for tax-free treatment under Section 355 of the Code, DXC would generally be subject to tax as if it sold the Ultra common stock in a taxable transaction. DXC would recognize taxable gain in an amount equal to the excess of (i) the total fair market value of the shares of Ultra common stock distributed in the Distribution over (ii) DXC’s aggregate tax basis in such shares of Ultra common

 

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stock. In addition, each stockholder who receives Ultra common stock in the Distribution would generally be treated as receiving a taxable distribution in an amount equal to the fair market value of the Ultra common stock received by the stockholder in the Distribution. In general, such distribution would be taxable as a dividend to the extent of DXC’s current and accumulated earnings and profits (as determined for U.S. federal income tax purposes). To the extent the distribution exceeds such earnings and profits, the distribution would generally constitute a non-taxable return of capital to the extent of the stockholder’s tax basis in its shares of DXC common stock, with any remaining amount of the distribution taxed as capital gain. A stockholder would have a tax basis in its shares of Ultra common stock equal to their fair market value. Certain stockholders may be subject to special rules governing taxable distributions, such as those that relate to the dividends received deduction and extraordinary dividends.

Even if the Distribution otherwise qualifies under Section 355 of the Code, the Distribution would be taxable to DXC (but not to its stockholders) pursuant to Section 355(e) of the Code if one or more persons acquire a 50% or greater interest (measured by vote or value) in the stock of DXC or Ultra, directly or indirectly (including through acquisitions of stock after the completion of the Spin-Off), as part of a plan or series of related transactions that includes the Distribution. Current law generally creates a presumption that any direct or indirect acquisition of stock of DXC or Ultra within two years before or after the Distribution is part of a plan that includes the Distribution, although the parties may be able to rebut that presumption in certain circumstances. The process for determining whether an acquisition is part of a plan under these rules is complex, inherently factual in nature and subject to a comprehensive analysis of the facts and circumstances of the particular case. Although it is expected that the Mergers will be treated as part of such a plan, the Mergers should not cause Section 355(e) of the Code to apply to the Distribution. However, if the IRS were to determine that other direct or indirect acquisitions of stock of DXC or Ultra, either before or after the Distribution, were part of a plan that includes the Distribution, such determination could cause Section 355(e) of the Code to apply to the Distribution, which could result in a material tax liability.

Information Reporting and Backup Withholding

Current Treasury regulations require certain U.S. holders of DXC common stock who are “significant distributees” (generally, a U.S. holder that owns at least 5% of the outstanding DXC common stock immediately before the Distribution) and who receive Ultra common stock pursuant to the Distribution to attach to their U.S. federal income tax returns for the taxable year in which the Distribution occurs a statement setting forth certain information with respect to the transaction. DXC will provide holders of DXC common stock with the information necessary to comply with this requirement. Stockholders should consult their tax advisors to determine whether they are significant distributees required to provide the foregoing statement.

In addition, payments of cash to a holder of DXC common stock in lieu of fractional shares of Ultra common stock in the Distribution may be subject to information reporting, unless the stockholder provides proof of an applicable exemption. Such payments that are subject to information reporting may also be subject to backup withholding (currently at a rate of 28%), unless such stockholder provides a correct taxpayer identification number (generally on an IRS Form W-9) and otherwise complies with the requirements of the backup withholding rules. Backup withholding is not an additional tax. Rather, the tax liability of persons subject to backup withholding is generally reduced by the amount of tax withheld. If withholding results in an overpayment of taxes, a refund may generally be obtained from the IRS, provided that the required information is properly furnished in a timely manner to the IRS.

 

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DIVIDEND POLICY

While we currently contemplate paying quarterly cash dividends following the Spin-Off, we have not yet determined the extent to which we will pay dividends on our common stock. The payment of any dividends in the future, and the timing and amount thereof, to our shareholders will fall within the sole discretion of our Board of Directors and will depend on many factors, such as our financial condition, results of operations and capital requirements, debt service obligations, restrictive covenants in the agreements governing our debt or debt we may incur in the future, industry practice, legal requirements, regulatory constraints and other factors that our Board of Directors deems relevant. Our ability to pay dividends will depend on our ongoing ability to generate cash from operations and on our access to the capital markets. We cannot guarantee that we will pay a dividend in the future or continue to pay any dividends if we commence paying dividends.

 

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CAPITALIZATION

The following table sets forth our cash and capitalization as of September 30, 2017, on a historical basis and on pro forma basis to give effect to the Spin-Off and the Mergers, as if they occurred on September 30, 2017. The historical combined balance sheet data presented in the capitalization table as of September 30, 2017 for USPS and September 29, 2017 for Vencore are derived from the unaudited combined financial statements for both, included in this Information Statement. The unaudited pro forma combined financial information was prepared using the purchase method of accounting, with USPS treated as the “acquirer” of Vencore for accounting purposes. The effect of the Mergers presented below includes the impact of preliminary purchase accounting adjustments. The pro forma information presented below is derived from the “Unaudited Pro Forma Combined Financial Statements” included elsewhere in this Information Statement. In addition, you should review the following table in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations of USPS” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations of Vencore” and the financial statements and accompanying notes included elsewhere in this Information Statement.

 

(in millions)   USPS as of
September 30,
2017
    Effect of Spin-
off
    Spin-off Adjusted
USPS as of
September 30,
2017
    Vencore as of
September 29,
2017
    Effect of
Mergers
    Pro Forma
Combined
 

Cash

  $ —       $ 16     $ 16     $ 72     $ (37   $ 51  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Short-term obligations:

           

Current maturities of long-term debt

  $ —       $ 51     $ 51     $ 17     $ 16     $ 84  

Current maturities of capitalized lease obligations

    135       —         135       1       —         136  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total short-term debt and current obligations of long-term debt

    135       51       186       18       16       220  

Long-term obligations:

           

New USPS Term Loan due 2021

    —         —         —         —         543       543  

New USPS Term Loan due 2023

    —         1,000       1,000       —         663       1,663  

New Revolving Credit Facility

    —         —         —         —         249       249  

7.45% Senior Notes due 2029(1)

    —         79       79       —         —         79  

UBS 1st and 2nd Lien

    —         —         —         768       (768     —    

Cortland 1st Lien

    —         —         —         205       (205     —    

Capitalized lease liabilities

    235       —         235       2       —         237  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total long-term debt

    235       1,079       1,314       975       482       2,771  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Less: current maturities of long-term debt

    (135     (51     (186     (18     (16     (220
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total long-term debt, net of current maturities

  $ 100     $ 1,028     $ 1,128     $ 957     $ 466     $ 2,551  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Stockholders’ equity:

           

Parent company investment

  $ 2,737     $ (2,737   $ —       $ —       $ —       $ —    

Preferred stock

    —         —         —         —         —         —    

Common stock

    —         —         —         —         —         —    

Additional paid in capital

    —         2,737       2,737       189       588       3,514  

Accumulated deficit

    —         (1,075     (1,075     (424     385       (1,114

Accumulated other comprehensive (loss) income

    —         —         —         (60     60       —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total equity

    2,737       (1,075     1,662       (295     1,033       2,400  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total capitalization

  $ 2,972     $ 4     $ 2,976     $ 680     $ 1,515     $ 5,171  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) Reflects the remaining $66 million outstanding principal of the EDS Notes issued by Enterprise Services, a subsidiary of Ultra following the Internal Reorganization, following the partial exchange of approximately $234 million of the EDS Notes for the DXC Notes, and $13 million of unamortized premiums resulting from the application of fair value accounting associated with the merger of HPES and CSC.

 

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SELECTED HISTORICAL COMBINED FINANCIAL DATA FOR USPS

The following tables present USPS’s selected historical combined financial and for the periods and as of the dates indicated.

The selected historical combined financial data for the years ended October 31, 2014, October 31, 2015 and October 31, 2016, for the five months ended March 31, 2017, and as of October 31, 2015, October 31, 2016 and March 31, 2017 was derived from USPS’s audited combined financial statements and notes thereto included elsewhere in this Information Statement. The selected historical condensed combined financial data for the six months ended July 31, 2016 and September 30, 2017, and as of September 30, 2017, was derived from USPS’s unaudited condensed combined interim financial statements and notes thereto included elsewhere in this Information Statement. USPS’s unaudited combined interim financial statements were prepared on a basis consistent with USPS’s audited combined financial statements and, in the opinion of management, reflect all adjustments, consisting only of normal and recurring adjustments, necessary for a fair statement of the financial information. Additionally, on April 1, 2017, CSC, HPE, Everett and Merger Sub, completed the strategic combination of CSC with HPES to form DXC (the “DXC Merger”). At the time of the DXC Merger, Everett was renamed DXC, and as a result of the DXC Merger, CSC became a direct wholly owned subsidiary of DXC. The transaction was determined to be a reverse merger and CSC was determined to be the accounting acquirer of DXC. Therefore, for accounting purposes DXC, and in turn USPS, was subject to purchase price allocation adjustments as of April 1, 2017. These adjustments are reflected in the post-DXC Merger period results for USPS, therefore, post- DXC Merger period results for USPS are not comparable to pre- DXC Merger results.

Selected historical financial data for USPS for the fiscal years ended October 31, 2013 and 2012 are not available for any combined balance sheet data or combined statement of operations data other than revenues because requisite stand-alone financial records for those periods for USPS were not maintained by the former parent companies of the enterprise services business, HPE (between November 1, 2015 and March 31, 2017) and The Hewlett-Packard Company (prior to November 1, 2015). Revenue information for USPS for those periods does not include information that would enable us to quantify the component of our revenues during the fiscal years ended October 31, 2013 and 2012 that consisted of certain consulting revenues as to which records were maintained outside of the enterprise services business. Due to the unavailability or lack of comparability of that information we have omitted USPS information prior to the periods presented.

USPS’s historical results are not necessarily indicative of future operating results, and the results for any interim period are not necessarily indicative to the results that may be expected for a full fiscal year.

 

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You should read this information in conjunction with the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations of USPS” and USPS’s combined financial statements and the related notes thereto included elsewhere in this Information Statement.

 

    Predecessor      Successor  
    Twelve Months Ended     Five
Months
Ended
    Six
Months
Ended
     Six Months
Ended
 
    October 31
2014
    October 31
2015
    October 31
2016
        
(in millions)         March 31,
2017
    July 31,
2016
     September 30,
2017
 

Combined Statement of Operations Data:

            

Revenues

  $ 2,955     $ 2,585     $ 2,732     $ 1,073     $ 1,307      $ 1,382  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Operating costs and expenses:

            

Costs of services (excludes depreciation and amortization and restructuring costs

    2,144       2,101       2,086       820       986        1,082  

Selling, general and administrative (excludes depreciation and amortization and restructuring costs)

    318       242       207       77       109        81  

Depreciation and amortization

    227       214       225       73       117        70  

Restructuring costs

    12       22       20       —         15        7  

Separation costs

    —         28       34       34       12        17  

Interest expense

    36       33       36       10       18        7  

Interest income

    (3     (4     (5     —         (3      —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Total costs and expenses

    2,734       2,636       2,603       1,014       1,254        1,264  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Income (loss) before taxes

    221       (51     129       59       53        118  

Income tax expense (benefit)

    83       (22     49       23       20        46  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Net income (loss)

  $ 138     $ (29   $ 80     $ 36     $ 33      $ 72  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

 

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    Predecessor     Successor  
    As of     As of
March 31,

2017
    As of
September 30,

2017
 
(in millions)   October 31
2014
    October 31
2015
    October 31
2016
     

Combined Balance Sheet Data:

         

ASSETS

         

Current assets:

         

Cash and cash equivalents

  $ —       $ —       $ —       $ —       $ —    

Receivables, net of allowance for doubtful
accounts

    545       602       423       391       365  

Prepaid expenses

    90       149       138       98       90  

Deferred contract costs

    62       97       11       22       25  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current assets

    697       848       572       511       480  

Intangible assets, net of accumulated amortization

    124       73       24       27       877  

Goodwill

    —         —         —         —         2,027  

Deferred income taxes, net

    28       64       78       40       —    

Property and equipment, net of accumulated depreciation

    540       508       523       469       234  

Other assets

    27       19       37       26       27  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

  $ 1,416     $ 1,512     $ 1,234     $ 1,073     $ 3,645  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

LIABILITIES and EQUITY

         

Current liabilities:

         

Current capital lease liability

  $ 111     $ 127     $ 145     $ 139     $ 135  

Accounts payable

    116       144       151       107       208  

Accrued payroll and related costs

    32       27       24       12       8  

Accrued expenses and other current liabilities

    284       216       211       132       151  

Deferred revenue and advance contract payments

    68       179       118       76       65  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current liabilities

    611       693       649       466       567  

Non-current capital lease liability

    224       223       215       155       100  

Non-current deferred revenue

    35       32       23       22       9  

Non-current deferred tax liabilities

    —         —         —         —         216  

Other long-term liabilities

    7       9       9       14       16  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities

    877       957       896       657       908  

Commitments and contingencies

         

Equity:

         

Parent company investment

    539       555       338       416       2,737  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total equity

    539       555       338       416       2,737  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities and equity

  $ 1,416     $ 1,512     $ 1,234     $ 1,073     $ 3,645  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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     Predecessor     Successor  
     Twelve Months Ended     Five
Months
Ended
    Six
Months
Ended
    Six
Months
Ended
 
(in millions)    October 31,
2014
    October 31,
2015
    October 31,
2016
    March 31,
2017
    July 31,
2016
    September 30,
2017
 

Combined Statements of Cash Flows data:

            

Cash flows provided by operating activities

   $ 487     $ 100     $ 495     $ 52     $ 230     $ 274  

Cash flows used in investing activities

   $ (30   $ (18   $ (21   $ (10   $ (11   $ (11

Cash flows used in financing activities

   $ (457   $ (82   $ (474   $ (42   $ (219   $ (263

 

     Predecessor     Successor  
     Twelve Months Ended      Five
Months
Ended
     Six
Months
Ended
    Six Months
Ended
 
(in millions)    October 31,
2014
     October 31,
2015
     October 31,
2016
     March 31,
2017
     July 31,
2016
    September 30,
2017
 

Other Financial Data

                

Adjusted EBITDA (1)

   $ 510      $ 265      $ 459      $ 183      $ 221     $ 222  

 

(1) Adjusted EBITDA is a non-GAAP measure and is subject to limitations described above in the section “Non-GAAP Financial Measures.”

 

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SELECTED HISTORICAL COMBINED FINANCIAL DATA FOR VENCORE

The following table sets forth Vencore’s selected historical combined financial for the periods and at the dates indicated. The selected historical combined financial data for the years ended December 31, 2014, December 31, 2015 and December 31, 2016 and as of December 31, 2015 and 2016 have been derived from Vencore’s historical audited combined financial statements and notes thereto included elsewhere in this Information Statement. Vencore has derived the selected historical combined financial data for the nine months ended September 30, 2016 and September 29, 2017, and as of September 29, 2017, from Vencore’s unaudited combined interim financial statements and notes thereto included elsewhere in this Information Statement. Vencore’s unaudited combined interim financial statements were prepared on a basis consistent with Vencore’s audited combined financial statements and, in the opinion of management, reflect all adjustments, consisting only of normal and recurring adjustments, necessary for a fair statement of the financial information.

Vencore’s historical results are not necessarily indicative of future operating results, and the results for any interim period are not necessarily indicative of the results that may be expected for a full fiscal year.

You should read this information in conjunction with the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations of Vencore” and Vencore’s combined financial statements and notes thereto, in each case, included elsewhere in this Information Statement.

 

     Years Ended December 31,     Nine Months
Ended
September 30,
    Nine Months
Ended
September 29,
 
     (Unaudited)                       (Unaudited)  
(in millions)    2012     2013     2014     2015     2016     2016     2017  

Combined Statements of Operations:

              

Revenue

   $ 825     $ 810     $ 1,149     $ 1,399     $ 1,405     $ 1,067     $ 1,027  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating costs and expenses

              

Cost of revenue (excluding depreciation and amortization)

     649       662       978       1,162       1,159       880       861  

General and administrative expenses

     83