Paul R. Berger Partner Debevoise & Plimpton LLP Alice Eldridge VP, Ethics and Business Conduct Lockheed Martin Corpo

1. Paul R. Berger Partner Debevoise & Plimpton LLP Alice Eldridge VP, Ethics and Business Conduct Lockheed Martin Corporation Complying with the Foreign Corrupt Practices Act February 13, 2009 40107353v4

2. What is the FCPA? • Federal statute passed by post-Watergate Congress in 1977 • Generally prohibits bribery of foreign government officials for the purpose of obtaining or retaining business • Two provisions: • Anti-bribery provision • “Books and records” provision • Enforceable by Department of Justice and SEC • Enforcement activity has dramatically increased in recent years 40107353v4 40107353 2

3. FCPA’sBooks and Records Provisions • Applicable to any issuer under the federal securities laws • Any entity (whether U.S. or non-U.S.) that has a class of securities (including ADRs) registered pursuant to Section 12 of the 1934 Act or is required to file periodic reports pursuant to Section 15(d) thereof • Issuer must “[m]ake and keep books, records, and accounts, which, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the issuer” • Issuer must also “devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances” that • Transactions are executed and access to assets is permitted only in accordance with management authorization and that • Transactions are recorded in a way to permit financial statements to be prepared in accordance with GAAP 40107353v4 40107353 3

4. Books and Records (cont.) • No “scienter” requirement • Issuer is subject to penalties even if issuer’s officers do not know of the inaccuracies • Strict liability for inaccurate books of all subsidiaries whose books roll up into issuer’s financials • Requires issuer to exercise control over books and records of foreign subs and other controlled entities • No “materiality” requirement • Issuer liable for books and records violation for inaccurately recorded bribe that occurs entirely outside U.S. • A bribe to a foreign official must be recorded as a bribe – not as a “fee” or other seemingly innocuous transaction • Books and records violations can occur in non-bribery contexts 40107353v4 40107353 4

5. FCPA’s Anti-Bribery Provisions • Applicable to: • U.S. citizens, nationals and residents, U.S.-based corporations/partnerships, wherever conduct occurs • Anyissuer under the federal securities laws • Issuer can be liable for anysubsidiary’s or controlled entity’s bribery if issuer authorized, directed or was “willfully blind” to the activities of the entity • Any person or entity committing a proscribed act in the U.S. 40107353v4 40107353 5

6. FCPA’s Anti-Bribery Provisions (cont.) • Make it unlawful to: • Corruptly make (or offer or promise to make) a payment or gift of money or anything of value • Directly to a “foreign official” • Or indirectly to a “foreign official” through an intermediary while “knowing” the payment or gift will be passed on • If purpose is to obtain a quid pro quo, i.e., • To influence official act or decision • To induce official to act or not act • In order to “secure an improper advantage” (obtain, retain or direct business) • Bottom line: avoid giving benefits that may have appearance of impropriety 40107353v4 40107353 6

7. FCPA: Who is a Foreign Official? • Foreign government officials • Very broadly defined, not limited to senior or “federal” officials • Employees of government-owned or -controlled entities • Persons acting officially on behalf of government entity • Can include private persons who are “advisors” • Can include, as a practical matter, relatives of officials • Includes foreign political parties, party officials and candidates • Includes employees of 75+ international organizations, including UN entities, Asian and African Development Banks • Examples from DOJ and SEC cases: • President of Kazakhstan • Director of a regional health fund in Poland • Officials at a government-owned bank in Argentina • Airport employees in Thailand 40107353v4 40107353 7

8. Areas of Potential Interaction with Foreign Gov’t Officials • The potential for interactions with foreign officials is limitless. Some examples: • Approvals by governmental entities for acquisitions and other transactions • Marketing of products or services to government agencies or employees • Participation in a bidding process for the award of government projects • Renegotiation of government contract terms • Hiring a foreign official or seating a foreign official on board of directors • Lobbying government officials for favorable legislation • Inspections of manufacturing facilities by governmental authorities • Interactions with officials regarding customs duties and sales taxes on imports/exports • Sponsoring events, retreats, conferences for clients • Charitable contributions 40107353v4 40107353 8

9. Payments Not Barred by the FCPA • Payments to government agencies and municipalities • Reasonable payments to officials for legitimate services • E.g., officials who may have law practices or other businesses providing goods or services to issuer at fair market value • Payments must be carefully scrutinized, documented and executed • Facilitating payments • To secure or expedite “routine governmental action” to which the issuer is entitled • E.g., obtaining permits, processing visas, providing utility services, customs clearance, police protection • NOT government decisions to award or continue business • Facilitating payments may be barred by local law • Issuer should adopt appropriate policies and control and reporting procedures if it expects to make any facilitating payments 40107353v4 40107353 9

10. Affirmative Defenses • Payments clearly lawful under written local laws • “Custom” or “practice” not enough • Silence in local law not enough • Rarely applies • Get written opinion from local counsel • Even if permitted by local law, need to book payment properly • Reasonable and bona fide expenditures directly related to product/services education and/or performance of contract with government agency • Modest travel expenses are permitted • No sightseeing, lavish meals/hotels, entertainment or payments for official’s family members or friends • DOJ has recently issued more detailed guidance (FCPA Op. Proc. Rels. 2007-01 and 2007-02 ) 40107353v4 40107353 10

11. Penalties for FCPA Violation • Other civil remedies generally available to SEC (injunctions, cease and desist orders, accounting/disgorgement) • Alternative Fines Act • Allows a criminal fine to be up to twice the gross gain or gross loss associated with the conduct 40107353v4 40107353 11

12. Retention of Third Parties • Third party is any intermediary: agents, brokers, distributors, consultants, law firms • Liability if covered person/entity “knows” improper payments made by third party • to an official -- knowledge includes “willful blindness” • Companies need to perform and document due diligence on third parties • Written contracts with third parties should include: • Agreements to comply with FCPA and disclose government connections • Provision allowing for contract termination at will if FCPA violated • Prohibition on assignment of duties • Payments to third party: • Must be commensurate with services provided • Should be through normal mechanisms • Should be made through a US bank, at a local bank, or at least not through Swiss, Liechtenstein or similar country 40107353v4 40107353 12

13. Joint Ventures • Liability in majority ownership situations • Liability for bribery similar to the parent-sub scenario • Liability for books and records is triggered by 50+ percent “voting power” with respect to the venture • Possible liability if found to be in “control” even if no voting power • Non-majority ownership control • Veto rights and “negative control” • BellSouth case (ability to control Board decisions) • Even if minority interest, duty to take reasonable steps to prevent violations, such as by seeking to require: • Adequate systems, controls and compliance programs • Investigations of potentially improper payments • Essential to perform and document due diligence on partner, including beneficial owner • JV agreements should include FCPA provisions 40107353v4 40107353 13

14. “Red Flags” • Presence of “red flags” may be perceived by DOJ/SEC as showing willful blindness or deliberate ignorance by an issuer • Red flags include: • Country in question has reputation for bribery • Unusual or excessive payment requests • Up front payments • Payments to third country account • Payments to a third party • Cash payments • Large bonuses • Payments exceeding local law or custom • Refusal to promise in writing to abide by anti-bribery laws • Third party is related to an official • Retention of the particular third party or JV partner was recommended by a government official • Third party/partner lacks adequate staff to perform agreed upon functions • Third party is “close” to government officials but performs no actual services 40107353v4 40107353 14

15. M&A Considerations • Determine if target company is subject to FCPA, or if continuation of target’s business could violate FCPA post-acquisition • Necessity of including FCPA in due diligence review • Contractual protections • Representations and warranties • Audit rights • Suspension/termination rights • Government position that structuring transaction as an asset deal may not avoid historical FCPA liability (Sigma-Aldrich Business Holdings) • Titan disclaimers when filing merger agreement as part of merger proxy statement 40107353v4 40107353 15

16. M&A Guidance: Halliburton (Op. Proc. Rel. 2008-02) • DOJ recently issued an opinion providing guidance on M&A due diligence • Halliburton sought to acquire public U.K. company in bidding process • No ability to disclose violations pre-acquisition and limited due diligence • Raises the bar for expected due diligence and post-acquisition compliance • Requires Halliburton to perform extensive FCPA review immediately after closing and to report results to DOJ • Strongly encourages confidentiality agreement that allows pre-acquisition disclosure of discovered violations 40107353v4 40107353 16

17. M&A Due Diligence • Considerations in tailoring due diligence: • Assessment of the risk profile of countries where target operates • Analysis of the risk profile of the industry/business activity involved • Halliburton requirements: • Due diligence should address the use of • agents and other third parties • commercial dealings with state-owned customers • any joint venture, teaming or consortium arrangements • customs, immigration, tax, licensing and permit matters • Retain external counsel and accountants to conduct due diligence • Activities should include: • Review of the internal audit reports and internal investigations • Interviewing employees of target/seller who have contact with officials • Review of the records/reports prepared by target’s/seller’s auditors • Review JV agreements and material contracts that will continue post-acquisition • Sample past contracts and third-party agreements to identify red flags 40107353v4 40107353 17

18. Halliburton Opinion: M&A Post-Acquisition Compliance • Post-closing, immediately impose the acquirer’s Code of Conduct and anti-corruption policies on the target and communicate those polices to all employees • Within 60 days, provide FCPA-related training to all target employees in management, sales, accounting and financial control positions • Provide the same training to “all other appropriate target employees” within 90 days 40107353v4 40107353 18

19. Insights From Other Recent FCPA Cases • Must focus on anti-bribery and records/controls issues • Jurisdiction and scienterlimits on anti-bribery provisions are important but not very meaningful for complex multinationals • Government is seeking more intrusive remedies (monitors, approval of compliance personnel) • Fines and disgorgement payments are increasing • Foreign issuers/persons subject to enforcement actions • Prosecution of private companies as domestic concerns • Voluntary disclosure and non-prosecution agreements • Increasing focus on M&A deals 40107353v4 40107353 19