UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934

Filed by the Registrant þ
Filed by a Party other than the Registrant o
Check the appropriate box:

þ		Preliminary Proxy Statement
o		Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
o		Definitive Proxy Statement
o		Definitive Additional Materials
o		Soliciting Material Pursuant to §240.14a-12

L-1 IDENTITY SOLUTIONS, INC.

(Name of Registrant as Specified In Its Charter)

N/A

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

o		No fee required.
þ		Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

	(1)		Title of each class of securities to which transaction applies: Common Stock of L-1 Identity Solutions, Inc., par value $0.001 per share.
	(2)		Aggregate number of securities to which transaction applies: 96,094,930 shares of Common Stock, including 2,419,005 options to purchase Common Stock with a per share exercise price less than the per share merger consideration of $12.00 per share, 1,516,564 shares of restricted stock and 104,034 deferred stock units.
	(3)		Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): The maximum aggregate value was determined based upon the sum of (A) 92,055,327 shares of Common Stock multiplied by the merger consideration of $12.00 per share, (B) stock options to purchase 2,419,005 shares of Common Stock multiplied by $4.3362 (which is the difference between $12.00 and the weighted average exercise price of $7.6638 per share for the options having an exercise price of less than the $12.00 per share merger consideration), (C) 1,516,564 restricted stock awards multiplied by the merger consideration of $12.00 per award and (D) 104,034 deferred stock units multiplied by the merger consideration of $12.00 per unit. In accordance with Section 14(g) of the Securities Exchange Act of 1934, as amended, the filing fee was determined by multiplying 0.00007130 by the sum of the preceding sentence.
	(4)		Proposed maximum aggregate value of transaction: $1,134,600,389.48
	(5)		Total fee paid: $80,897.01

o		Fee paid previously with preliminary materials.
o		Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

	(1)		Amount Previously Paid:
	(2)		Form, Schedule or Registration Statement No.:
	(3)		Filing Party:
	(4)		Date Filed:

PRELIMINARY PROXY STATEMENT — SUBJECT TO COMPLETION, DATED NOVEMBER 22, 2010

 

 

L-1 IDENTITY SOLUTIONS, INC.

177 Broad Street

Stamford, Connecticut 06901

 

Dear Stockholder:

 

We cordially invite you to attend the special meeting of stockholders of L-1 Identity Solutions, Inc. at • on • , 2011, at • , local time.

 

At the special meeting, you will be asked to consider and vote upon a proposal to adopt the Agreement and Plan of Merger, dated as of September 19, 2010 (as may be amended from time to time), by and among L-1, Safran SA, a French société anonyme, and Laser Acquisition Sub Inc., a Delaware corporation and a wholly owned subsidiary of Safran, and to approve the merger contemplated by the merger agreement. Pursuant to the merger agreement, Laser Acquisition Sub will merge with and into L-1, with L-1 surviving the merger and becoming a wholly owned subsidiary of Safran. Further information about the merger and the merger agreement is provided in the proxy statement accompanying this letter.

 

If the merger is completed, you will be entitled to receive $12.00 in cash, without interest and less any applicable withholding taxes, for each share of L-1 common stock you own as of the date of the merger (unless you have properly exercised your appraisal rights with respect to the merger).

 

After careful consideration, our board of directors, by unanimous vote, approved and declared advisable the execution, delivery and performance of the merger agreement and the transactions contemplated by the merger agreement, including the merger, and determined that the merger agreement and the transactions contemplated by the merger agreement, including the merger, are advisable and in the best interests of L-1’s stockholders. Accordingly, our board of directors recommends that you vote “FOR” the adoption of the merger agreement and approval of the merger.

 

The proxy statement accompanying this letter provides you with detailed information about the proposed merger and the special meeting of stockholders to vote on the adoption of the merger agreement and approval of the merger. We encourage you to read the entire proxy statement and the merger agreement carefully. A copy of the merger agreement is attached as Annex A to the accompanying proxy statement. You may also obtain more information about L-1 from documents we have filed with the Securities and Exchange Commission.

 

Your vote is very important, regardless of the number of shares of stock that you own. The merger cannot be completed unless the merger agreement is adopted and the merger is approved by the affirmative vote (in person or by proxy) of holders of at least a majority of the outstanding shares of our common stock entitled to vote at the special meeting. If you fail to vote on the proposal to adopt the merger agreement and approve the merger, the effect will be the same as a vote “AGAINST” the adoption of the merger agreement and approval of the merger.

 

IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED, EVEN IF YOU DO NOT PLAN ON ATTENDING THE SPECIAL MEETING IN PERSON. ACCORDINGLY, WE URGE YOU TO VOTE BY COMPLETING, SIGNING, DATING AND PROMPTLY RETURNING THE ENCLOSED PROXY CARD IN THE ENVELOPE PROVIDED, OR YOU MAY VOTE THROUGH THE INTERNET OR BY TELEPHONE AS DIRECTED ON THE ENCLOSED PROXY CARD. IF YOU RECEIVE MORE THAN ONE PROXY CARD BECAUSE YOU OWN SHARES THAT ARE REGISTERED DIFFERENTLY, PLEASE VOTE ALL OF YOUR SHARES SHOWN ON ALL OF YOUR PROXY CARDS.

 

On behalf of your board of directors, thank you for your continued support.

 

Sincerely,

 

Robert V. LaPenta

Chairman of the Board, President and

Chief Executive Officer

PRELIMINARY PROXY STATEMENT — SUBJECT TO COMPLETION, DATED NOVEMBER 22, 2010

 

 

L-1 IDENTITY SOLUTIONS, INC.

177 Broad Street

Stamford, Connecticut 06901

 

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

TO BE HELD ON •, 2011

 

To Stockholders of L-1 Identity Solutions, Inc.:

 

Notice is hereby given that a special meeting of stockholders of L-1 Identity Solutions, Inc., a Delaware corporation, will be held at • on • , 2011, at • , local time, for the following purposes:

 

1. to consider and vote upon a proposal to adopt the Agreement and Plan of Merger, dated as of September 19, 2010 (as may be amended from time to time), by and among L-1, Safran SA, a French société anonyme, and Laser Acquisition Sub Inc., a Delaware corporation and a wholly owned subsidiary of Safran, and to approve the merger contemplated by the merger agreement. A copy of the merger agreement is attached as Annex A to the accompanying proxy statement; and

 

2. to consider and vote upon a proposal to adjourn or postpone the special meeting, if necessary or appropriate, to solicit additional proxies if there are insufficient votes at the time of the special meeting to adopt the merger agreement and approve the merger.

 

Only stockholders of record of our common stock at the close of business on • , the record date for the special meeting, are entitled to notice of and to vote at the special meeting and at any adjournment or postponement of the special meeting. A list of stockholders entitled to vote at the special meeting will be available for inspection by stockholders of record during business hours at L-1’s executive offices at 177 Broad Street, Stamford, CT 06901 for ten days prior to the date of the special meeting and will also be available at the special meeting.

 

Your vote is very important, regardless of the number of shares of stock that you own. The adoption of the merger agreement and approval of the merger requires the affirmative vote (in person or by proxy) of holders of at least a majority of the outstanding shares of our common stock entitled to vote at the special meeting. The proposal to adjourn or postpone the meeting, if necessary or appropriate, to solicit additional proxies requires the affirmative vote of the holders of a majority of the voting power present and entitled to vote at the special meeting, whether or not a quorum is present.

 

Whether or not you plan to attend the special meeting, we urge you to vote your shares by completing, signing, dating and returning the accompanying proxy card as promptly as possible in the postage-paid envelope or to submit your proxy by telephone or the Internet prior to the special meeting to ensure that your shares will be represented at the special meeting. If you sign and return your proxy card without indicating how you wish to vote, your proxy will be voted “FOR” the adoption of the merger agreement and approval of the merger and “FOR” the proposal to adjourn or postpone the special meeting, if necessary or appropriate, to solicit additional proxies if there are insufficient votes to adopt the merger agreement and approve the merger at the time of the special meeting. If you fail to return your proxy card or fail to submit your proxy by telephone or the Internet and do not vote in person at the special meeting, it will have the same effect as a vote “AGAINST” the adoption of the merger agreement and approval of the merger, but will not affect the outcome of the vote regarding any adjournment or postponement proposal. Any stockholder attending the special meeting may vote in person even if he or she has already voted by proxy card, telephone or Internet; such vote by ballot will revoke any proxy previously submitted. If you hold your shares through a bank, broker or other custodian, you must provide a legal proxy issued from such bank, broker or other custodian in order to vote your shares in person at the special meeting.

 

The Company’s stockholders who do not vote in favor of the adoption of the merger agreement and approval of the merger will have the right to seek appraisal of the fair value of their shares of the Company’s common stock if the merger contemplated by the merger agreement is completed, but only if they submit a written demand for appraisal of their shares before the taking of the vote on the merger agreement at the special meeting and they comply with all requirements of Delaware law, which are summarized in greater detail in the accompanying proxy statement.

 

After careful consideration, our board of directors, by unanimous vote, has approved and declared advisable the execution, delivery and performance of the merger agreement and the transactions contemplated by the merger agreement, including the merger, and has determined that the merger agreement and the transactions contemplated by the merger agreement, including the merger, are advisable and in the best interests of the Company’s stockholders.

 

OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THE ADOPTION OF THE MERGER AGREEMENT AND APPROVAL OF THE MERGER AND “FOR” THE PROPOSAL TO ADJOURN OR POSTPONE THE SPECIAL MEETING, IF NECESSARY OR APPROPRIATE, TO SOLICIT ADDITIONAL PROXIES IF THERE ARE INSUFFICIENT VOTES AT THE TIME OF THE SPECIAL MEETING TO ADOPT THE MERGER AGREEMENT AND APPROVE THE MERGER.

 

The accompanying proxy statement is first being mailed to stockholders of the Company on or about • , 2010.

 

By Order of the Board of Directors,

 

Mark S. Molina

Executive Vice President, Chief Legal Officer and

Secretary

 

 • , 2010

 

PLEASE DO NOT SEND YOUR STOCK CERTIFICATES AT THIS TIME. IF THE MERGER IS COMPLETED, YOU WILL BE SENT INSTRUCTIONS REGARDING THE SURRENDER OF YOUR STOCK CERTIFICATES.

 

TABLE OF CONTENTS

 

 

PROXY STATEMENT
SUMMARY

	•	delivering to our Corporate Secretary, at 177 Broad Street, Stamford, Connecticut 06901, a signed written notice of revocation, bearing a date later than the date of the proxy, stating that the proxy is revoked;
	•	attending the special meeting and voting in person (your attendance at the meeting will not, by itself, change or revoke your proxy — you must vote in person at the meeting to revoke a prior proxy);
	•	completing, executing and delivering a later dated proxy card; or
	•	voting again at a later time by telephone or the Internet prior to the time at which the telephone and Internet voting facilities close by following the procedures applicable to those methods of voting.

	•	initiate, solicit, knowingly encourage, knowingly induce or knowingly take any other action designed to, or which would reasonably be expected to lead to, the making of any Acquisition Proposal (as defined in the Merger Agreement and described in the section of this proxy statement entitled “The Merger Agreement — Restrictions on Solicitations of Other Offers”); or
	•	participate or engage in any negotiations or discussions with, or furnish any material nonpublic information to, any person or take action to knowingly facilitate any inquiries relating to, or making of any proposal that constitutes, or would reasonably be expected to lead to, any Acquisition Proposal.

	•	such Acquisition Proposal constitutes or could reasonably be expected to result in a Superior Proposal (as defined in the Merger Agreement and described in the section of this proxy statement entitled “The Merger Agreement — Restrictions on Solicitations of Other Offers”); and
	•	the failure to take such action would be reasonably likely to be inconsistent with the directors’ fiduciary duties to the stockholders of the Company under applicable law.

	•	approval of the Merger Agreement by the holders of a majority of the outstanding shares of our common stock;
	•	absence of any injunction, law, judgment, order, decree or ruling in effect which seeks to or has the effect of enjoining or otherwise prohibiting the consummation of the Merger (unless vacated, terminated or withdrawn) or making the consummation of the Merger illegal;
	•	expiration or termination of any waiting period (including any extension) applicable to the consummation of the Merger under the HSR Act;
	•	receipt by Safran and the Company of written confirmation by CFIUS of the completion of the review, and if applicable, investigation process, under Exon-Florio and CFIUS’s determination that there are no unresolved national security concerns with respect to the transactions contemplated by the Merger Agreement and the BAE Agreement; and
	•	the expiration of a 35 trading day notice period under the terms governing the Company’s convertible notes.

	•	the representations and warranties made by the Company contained in the Merger Agreement being true and correct as of the date of the Merger Agreement and the closing of the Merger, subject to certain materiality thresholds;
	•	the Company’s performance in all material respects of all of its material obligations under the Merger Agreement to be performed by it at or prior to the closing of the Merger;

	•	the absence of a Company Material Adverse Effect (as defined in the Merger Agreement and described in the section of this proxy statement entitled “The Merger Agreement — Company Material Adverse Effect Definition”) since the date of the Merger Agreement;
	•	the receipt by the Company of the purchase price to be paid by BAE to the Company in connection with the closing of the BAE Transaction (for a discussion of the BAE Agreement and the BAE Transaction, see the section of this proxy statement entitled “The Merger — BAE Agreement”);
	•	completion of the novation, assignment, termination or expiration of certain of the Company’s contracts involving classified information; and
	•	subject to certain exceptions, no contracts, assets or liabilities from the Intel Companies (as defined below) having been assigned or novated to the Company or its subsidiaries (other than the Intel Companies).

	•	the representations and warranties made by Safran and Merger Sub contained in the Merger Agreement being true and correct as of the date of the Merger Agreement and the closing of the Merger, subject to certain materiality thresholds; and
	•	Safran’s and Merger Sub’s performance in all material respects of all material obligations required to be performed by each of them under the Merger Agreement at or prior to the closing of the Merger.

	•	by either the Company or Safran if:

	•	the Merger has not been consummated on or prior to June 19, 2011 (or, at the parties’ election under certain circumstances, September 19, 2011);
	•	any injunction, law, judgment, order, decree or ruling permanently enjoining or otherwise prohibiting the consummation of the Merger has become final and non-appealable;
	•	the BAE Agreement has been terminated in accordance with its terms, subject to the Company’s ability to exercise certain substitution rights relating to the sale of the Company’s intelligence services business, which rights are described in the section of this proxy statement entitled “The Merger Agreement — Certain Substitution Rights in Connection with the Sale of the Transferred Intel Companies;”
	•	the Company’s stockholders do not approve the Merger Agreement at the special meeting; or
	•	the other party has breached any of its representations, warranties, covenants or agreements contained in the Merger Agreement, which breach would result in a failure of a closing condition to the obligations of the terminating party and which breach has not been waived and is incapable of being cured, or is not cured, within 45 days following receipt of written notice of such breach by the party seeking to terminate (so long as the party seeking to terminate the agreement has not materially breached any of its material obligations under the Merger Agreement); or

	•	by Safran if:

	•	the Company’s board of directors has changed its recommendation of the Merger or the Merger Agreement, or has recommended, adopted or approved, or publicly proposed to recommend, adopt or approve, any Acquisition Proposal;
	•	the Company has breached its obligations under the Merger Agreement by failing to (i) call the stockholders meeting, (ii) mail this proxy statement in accordance with the terms of the Merger

		Agreement or (iii) include in this proxy statement the board of directors’ recommendation that the stockholders adopt and approve the Merger Agreement and the Merger; or

	•	the Company has violated or breached in any material respect any of its material obligations described in the sections of this proxy statement entitled “The Merger Agreement — Restrictions on Solicitations of Other Offers” or “The Merger Agreement — Change of Recommendation.”

	•	prior to the special meeting, the Merger Agreement is terminated by Safran pursuant to its termination rights related to the board of directors’ change of recommendation or breach of the Company’s obligations regarding the stockholders special meeting, the proxy statement or the non-solicitation obligations described above; or
	•	each of the following has occurred:

	•	(a) Safran terminates the Merger Agreement pursuant to its termination rights related to the Company’s breach of its representations, warranties, covenants or agreements contained in the Merger Agreement, which breach would result in a failure of a condition to Safran’s and Merger Sub’s obligations to consummate the Merger; (b) either Safran or the Company terminates the Merger Agreement as a result of the Merger failing to be consummated on or prior to June 19, 2011 (or, under certain circumstances, September 19, 2011) or (c) the stockholders do not approve the Merger at the special meeting;
	•	an Acquisition Proposal is publicly announced (prior to the special meeting, in the case of clause (c) above); and
	•	within nine months after termination of the Merger Agreement, the Company enters into (and subsequently consummates) an agreement providing for a qualifying Acquisition Proposal.

	•	either Safran or the Company terminates the Merger Agreement as a result of the Merger failing to be consummated on or prior to June 19, 2011 (or, under certain circumstances, September 19, 2011), and at the time of termination all conditions related to regulatory approvals have been satisfied; or
	•	the BAE Agreement is terminated (subject to the Company’s substitution rights relating to the sale of the Company’s intelligence services business, which are discussed in the section of this proxy statement entitled “The Merger Agreement — Certain Substitution Rights in Connection with the Sale of the Transferred Intel Companies”).

 

The following questions and answers are intended to briefly address some commonly asked questions you may have regarding the special meeting, the Merger Agreement and the proposed Merger. These questions and answers may not address all questions that may be important to you as a stockholder of the Company. Please refer to the more detailed information contained elsewhere in this proxy statement, the annexes to this proxy statement and the documents referred to or incorporated by reference in this proxy statement, which you should read carefully. See the section of this proxy statement entitled “Where You Can Find More Information” beginning on page • .

 

 

Morrow & Co., LLC
470 West Avenue
Stamford, CT 06902
Stockholders Call: (877) 366-1578
Banks and Brokers Call: (203) 658-9400

 

This proxy statement, and the documents to which we refer you in this proxy statement, contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act. Forward-looking statements include, among others, information concerning the possible or assumed future results of operations of the Company, the expected completion and timing of the Merger and the BAE Transaction and other information relating to the Merger and the BAE Transaction. There are forward-looking statements throughout this proxy statement, including, without limitation, under the headings “Proxy Statement Summary,” “Questions and Answers about the Special Meeting and the Merger,” “The Merger,” “The Merger — Certain Forecasts,” “The Merger — Governmental and Regulatory Approvals,” “The Merger — Opinion of Goldman, Sachs & Co.,” and “The Merger — Opinion of Stone Key Partners LLC.” Forward-looking statements can be identified by words such as “believes,” “expects,” “predicts,” “estimates,” “anticipates,” “continues,” “contemplates,” “projects,” “intends,” “may,” “will,” “could,” “should” or “would” or similar expressions, or by discussion of competitive strengths or strategy that involve risks and uncertainties. These statements, which are based on information currently available to us, are not guarantees of future performance, actual outcomes or developments and may involve risks and uncertainties that could cause our actual outcomes, developments, growth, results of operations, performance and business prospects and opportunities to materially differ from those expressed in, or implied by, these statements. In addition to other factors and matters contained or incorporated in this document, these statements are subject to risks, uncertainties, and other factors, including, among others:

 

 

The forward-looking statements contained in this proxy statement speak only as of the date on which such statements were made and we undertake no obligation, other than as may be required under the federal securities laws, to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. We do not assume responsibility for the accuracy and completeness of forward-looking statements. Any or all of the forward-looking statements contained in this proxy statement and in any other public statements that are made may prove to be incorrect. This may occur as a result of inaccurate assumptions or as a consequence of known or unknown risks and uncertainties. All of the forward-looking statements are qualified in their entirety by reference to the factors discussed above and under the caption “Risk Factors” of our most recent filings on Forms 10-Q and 10-K. We caution that these risk factors may not be exhaustive. We operate in a continually changing business environment, and new risk factors emerge from time to time. We cannot predict these new risk factors, nor can we assess the impact, if any, of the new risk factors on our business or the extent to which any factor or combination of factors may cause actual results or outcomes to differ materially from those expressed or implied by any forward-looking statement. In light of these risks, uncertainties and assumptions, the forward-looking events discussed in this proxy statement might not occur.

 

L-1 Identity Solutions, Inc.

 

177 Broad Street

Stamford, Connecticut 06901

(203) 504-1109

 

L-1 Identity Solutions, Inc. protects and secures personal identities and assets. Its identity solutions business group is comprised of the Biometric / Enterprise Access, Secure Credentialing and Enrollment Services divisions. Its intelligence services business group is comprised of McClendon, LLC, SpecTal, LLC and Advanced Concepts, Inc. L-1 has more than 2,200 employees worldwide and is headquartered in Stamford, Connecticut.

 

For more information about us, please visit our website http://www.L1id.com. Our website address is provided as an inactive textual reference only. The information provided on our website is not part of this proxy statement, and therefore is not incorporated by reference. See also the section of this proxy statement entitled “Where You Can Find More Information” beginning on page • . Our common stock is publicly traded on the New York Stock Exchange under the trading symbol “ID”.

 

Safran SA

 

2, boulevard du Général Martial Valin

75724 Paris Cedex 15

France

+33 14 0 60 84 28

 

Safran is a France-based international high-technology group with three core businesses: Aerospace (propulsion and equipment), Defense and Security. Operating worldwide, Safran has 55,000 employees. Safran is listed on the NYSE Euronext Paris under the symbol “SAF”.

 

Laser Acquisition Sub Inc.

 

c/o Safran USA, Inc.

2850 Safran Drive

Grand Prairie, Texas 75052

(972) 606-7108

 

Merger Sub is a wholly owned subsidiary of Safran and is a Delaware corporation. It was formed solely for the purpose of effecting the Merger and the other transactions contemplated by the Merger Agreement and has not engaged in any business except in furtherance of this purpose and activities incident to its formation.

 

This proxy statement is being furnished to our stockholders as part of the solicitation of proxies by our board of directors for use at the special meeting to be held on • , 2011 at • local time, at • , or at any postponement or adjournment thereof. The purpose of the special meeting is for our stockholders to consider and vote upon a proposal to adopt the Merger Agreement and approve the Merger (and to approve the adjournment or postponement of the special meeting, if necessary or appropriate, to solicit additional proxies if there are insufficient votes at the time of the special meeting to adopt the Merger Agreement and approve the Merger). Stockholders holding a majority of our issued and outstanding common stock at the close of business on the record date must vote to adopt the Merger Agreement and approve the Merger in order for the Merger to occur. A copy of the Merger Agreement is attached as Annex A to this proxy statement.

 

After careful consideration, our board of directors, by unanimous vote, approved and declared advisable the execution, delivery and performance of the Merger Agreement and the transactions contemplated by the Merger Agreement, including the Merger, and has determined that the Merger Agreement and the transactions contemplated by the Merger Agreement, including the Merger, are advisable and in the best interests of the Company’s stockholders. Our board of directors recommends that you vote “FOR” the proposal to adopt the Merger Agreement and approve the Merger and “FOR” the proposal to adjourn or postpone the special meeting, if necessary or appropriate, to solicit additional proxies. For a discussion of the material factors considered by our board of directors in reaching its conclusions, see the section of this proxy statement entitled “The Merger — Reasons for the Merger; Recommendation of Our Board of Directors.”

 

We have fixed the close of business on • as the record date for the special meeting, and only holders of record of our common stock on the record date are entitled to vote at the special meeting. On • , there were • shares of our common stock entitled to be voted at the special meeting. Each share of common stock outstanding on the record date entitles its holder to one vote on all matters properly coming before the special meeting.

 

The presence at the special meeting in person or by proxy of the holders of a majority of the issued and outstanding shares of our capital stock entitled to vote at the special meeting as of the close of business on the record date will constitute a quorum for purposes of considering the proposals at the special meeting. Shares of common stock represented at the special meeting but not voted, including shares of common stock for which we have received proxies indicating that the submitting stockholders have abstained and broker non-votes will be treated as present at the special meeting for purposes of determining the presence or absence of a quorum for the transaction of all business. A broker non-vote occurs on an item when a broker is not permitted to vote on that item without instructions from the beneficial owner of the shares and no instructions are given.

 

The adoption of the Merger Agreement and approval of the Merger requires the affirmative vote (in person or by proxy) of the holders of a majority of the outstanding shares of our common stock at the close of business on the record date. For the proposal to adopt the Merger Agreement and approve the Merger, you may vote “FOR,” “AGAINST” or “ABSTAIN.” Abstentions will not be counted as votes cast or shares voting on the proposal to adopt the Merger Agreement and approve the Merger, but will count for the purpose of determining whether a quorum is present. If you abstain, it will have the same effect as a vote “AGAINST” the adoption of the Merger Agreement and approval of the Merger.

 

Brokers, banks or other nominees who hold shares of our common stock in “street name” for customers who are the beneficial owners of such shares may not give a proxy to vote those customers’ shares in the absence of specific instructions from those customers. These non-voted shares of our common stock will not be counted as votes cast or shares voting and will have the same effect as votes “AGAINST” approval and adoption of the Merger Agreement.

Contemporaneously with the execution of the Merger Agreement, on September 19, 2010, Mr. LaPenta and Aston entered into a voting and support agreement with Safran and Merger Sub, which is described in more detail below. Pursuant to the voting and support agreement, Mr. LaPenta and Aston agreed, among other things, to vote their shares of our common stock in favor of the adoption of the Merger Agreement and approval of the Merger, unless our board of directors changes its recommendation of the Merger to stockholders (in which case, Mr. LaPenta and Aston may vote for or against the Merger). As of November 18, 2010, Mr. LaPenta and Aston together beneficially owned approximately 14.58% of our outstanding common stock. See the section of this proxy statement entitled “The Merger — Interests of Certain Persons in the Merger — Relationships with Aston and Stone Key” for a discussion regarding certain other relationships with Aston.

 

Approval of any proposal to adjourn or postpone the special meeting, if necessary or appropriate, for the purpose of soliciting additional proxies requires the affirmative vote of a majority of the shares of our common stock present in person or represented by proxy at the special meeting and entitled to vote on the matter, whether or not a quorum is present. A failure to vote your shares of common stock or a broker non-vote will have no effect on the outcome of any vote to adjourn or postpone the special meeting. An abstention will have the same effect as voting “AGAINST” any proposal to adjourn or postpone the special meeting.

 

As of • , the record date for the special meeting, our current directors and executive officers beneficially owned, and had the right to vote, in the aggregate, • shares of our common stock (which excludes shares that may be acquired by such persons pursuant to stock option grants but includes shares held by Aston that are deemed to be held beneficially by certain directors and executive officers), which represented approximately • % of the outstanding shares of our common stock. Our current directors and executive officers have informed us that they intend to vote all of their shares of common stock “FOR” the adoption of the Merger Agreement and approval of the Merger and “FOR” the adjournment or postponement of the special meeting, if necessary or appropriate, to solicit additional proxies.

 

In order for your shares of common stock to be included in the vote, if you are a stockholder of record, you must either have your shares voted by returning the enclosed proxy card or by authorizing your proxy or voting instructions by telephone or Internet or voting in person at the special meeting.

 

Record holders may vote or cause their shares of common stock to be voted by proxy using one of the following methods:

 

 

If you hold your shares in “street name,” you may vote or cause shares of common stock to be voted by proxy by following the instructions and procedures provided by your broker, bank or other nominee.

 

WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE COMPLETE, DATE, SIGN AND RETURN, AS PROMPTLY AS POSSIBLE, THE ENCLOSED PROXY CARD IN THE ACCOMPANYING REPLY ENVELOPE, OR SUBMIT YOUR PROXY BY TELEPHONE OR THE INTERNET. STOCKHOLDERS WHO ATTEND THE MEETING MAY REVOKE THEIR PROXIES AND VOTE IN PERSON.

 

If you submit a proxy by telephone or the Internet or by returning a signed proxy card by mail, your shares will be voted at the special meeting as you indicate on your proxy card or by such other method. If you sign your proxy card without indicating your vote, your shares will be voted “FOR” the adoption of the Merger Agreement and approval of the Merger and “FOR” the adjournment or postponement of the special meeting, if necessary or appropriate, to solicit additional proxies.

If you abstain, your shares of common stock will be treated as present at the special meeting for purposes of determining the presence or absence of a quorum for the transaction of business; however, your shares will not be counted as votes cast or shares voting on the proposals. If you abstain, it will have the same effect as a vote “AGAINST” the proposals.

 

If your shares of common stock are held in “street name,” you will receive instructions from your broker, bank or other nominee that you must follow in order to have your shares voted. If you do not instruct your broker, bank or other nominee to vote your shares, it has the same effect as a vote “AGAINST” the proposal to adopt the Merger Agreement and approve the Merger but will have no effect on the proposal to adjourn or postpone the special meeting, if necessary or appropriate, to solicit additional proxies.

 

Proxies received at any time before the special meeting, and not revoked or superseded before being voted, will be voted at the special meeting. If you hold your shares in your name as a stockholder of record, you have the right to change or revoke your proxy at any time before the vote taken at the special meeting by:

 

 

If you hold your shares through a broker, bank, or other nominee, you have the right to change or revoke your proxy at any time before the vote taken at the special meeting by following the directions received from your broker, bank or other nominee to change or revoke those instructions.

 

PLEASE DO NOT SEND IN YOUR STOCK CERTIFICATES WITH YOUR PROXY CARD. IF THE MERGER IS COMPLETED, A SEPARATE LETTER OF TRANSMITTAL WILL BE MAILED TO YOU THAT WILL ENABLE YOU TO RECEIVE THE MERGER CONSIDERATION IN EXCHANGE FOR YOUR L-1 STOCK CERTIFICATES.

 

Although it is not currently expected, the special meeting may be adjourned or postponed for the purpose of soliciting additional proxies. Any adjournment may be made without notice, other than by an announcement made at the special meeting of the time, date and place of the adjourned meeting, provided that if the adjournment is for 30 days or more, or if after the adjournment a new record date is fixed for the adjourned meeting, notice of the adjourned meeting in accordance with the by-laws of the Company will be given to each stockholder of record entitled to notice of and to vote at the meeting. Whether or not a quorum exists, holders of a majority of the common stock present in person or represented by proxy at the special meeting and entitled to vote may adjourn or postpone the special meeting at any time. Any signed proxies received by us in which no voting instructions are provided on the matter will be voted “FOR” an adjournment or postponement of the special meeting, if necessary or appropriate, to solicit additional proxies. Any adjournment or postponement of the special meeting for the purpose of soliciting additional proxies will allow our stockholders who have already sent in their proxies to revoke them at any time prior to their use at the special meeting as adjourned or postponed.

 

Stockholders are entitled to statutory appraisal rights under Delaware law in connection with the Merger. This means that you are entitled to have the value of your shares of our common stock determined by the Delaware Court of Chancery and to receive payment based on that valuation. The ultimate amount you receive as a dissenting stockholder in an appraisal proceeding may be more than, the same as or less than the amount you would have received under the Merger Agreement.

To exercise your appraisal rights, you must submit a written demand for appraisal to us before the vote is taken on the Merger Agreement and you must not vote in favor of the adoption of the Merger Agreement. Your failure to follow exactly the procedures specified under Delaware law will result in the loss of your appraisal rights. See the section of this proxy statement entitled “Appraisal Rights” and the text of the Delaware appraisal rights statute, Section 262 of the DGCL, reproduced in its entirety as Annex E to this proxy statement. This proxy statement constitutes our notice to our stockholders of the availability of appraisal rights in connection with the Merger in compliance with the requirements of Section 262 of the DGCL.

 

This proxy solicitation is being made and paid for by us on behalf of our board of directors. In addition, we have engaged Morrow & Co., LLC to assist in the solicitation of proxies for the special meeting and we estimate that we will pay Morrow & Co., LLC a fee of approximately $25,000. We also have agreed to reimburse Morrow & Co., LLC for out of pocket expenses and to indemnify them against certain losses arising out of their proxy soliciting services. Our directors, officers and employees may also solicit proxies by personal interview, mail, e-mail, telephone, facsimile or other means of communication. These persons will not be paid additional compensation for their efforts. We will also request brokers, banks and other nominees to forward proxy solicitation material to the beneficial owners of our shares of common stock that the brokers, banks and nominees hold of record. Upon request, we will reimburse them for their reasonable out-of-pocket expenses related to forwarding the material.

 

If you have more questions about the Merger, need assistance in submitting your proxy or voting your shares, or need additional copies of the proxy statement or the enclosed proxy card, you should contact our proxy solicitor:

 

Morrow & Co., LLC

470 West Avenue

Stamford, CT 06902

Stockholders Call: (877) 366-1578

Banks and Brokers Call: (203) 658-9400

 

As part of the ongoing evaluation of business and strategic planning, the Company’s board of directors, from time to time has discussed and reviewed strategic goals and alternatives. These reviews have included consideration of potential transactions and business combinations, as well as the Company’s standalone business plans and prospects. The Company also has made several acquisitions in recent years, including the acquisition of the assets of Retica Systems, Inc. in 2010, the acquisition of Bioscrypt Inc. and the ID Systems business of Digimarc Corporation in 2008 and the acquisition of Advanced Concepts, Inc., McClendon Corporation and ComnetiX Inc. in 2007.

 

On January 6, 2010, as part of the Company’s press release announcing preliminary results for the fourth quarter and full year ended December 31, 2009, the Company announced that one of its strategic goals and objectives for 2010 was to explore strategic alternatives to enhance stockholder value.

 

On February 9, 2010, the board of directors met with representatives of various investment banks, including representatives of Goldman, Sachs & Co. (which we refer to in this proxy statement as Goldman Sachs) and Stone Key Partners LLC and the Stone Key Securities division of Hudson Partners Securities LLC (which together we refer to in this proxy statement as Stone Key) to identify financial advisors to assist in the strategic alternatives process. During these meetings, representatives of the financial advisors each separately discussed with the board of directors certain market trends and certain strategic alternatives potentially available to the Company to enhance stockholder value. Representatives of Goldman Sachs and Stone Key also discussed potential processes to ascertain third party interest in an acquisition of the Company, including a publicly announced auction process, noting that certain potential buyers may not be interested in acquiring the Company in its entirety, and, accordingly, a sale of the

Company in two or more parts might need to be considered. The financial advisors and the board of directors also discussed preliminary lists of potential buyers of the whole Company, as well as potential buyers of selected parts of the Company.

 

The board of directors discussed the presentations made by the various investment banks at a telephonic meeting on February 10, 2010. Also on February 10, 2010, as part of the Company’s 2009 earnings release and conference call, the Company reported, among other things, that the Company was in the process of exploring strategic alternatives, including the potential sale of the Company.

 

At a telephonic meeting on February 24, 2010, the board of directors approved the engagement of each of Goldman Sachs and Stone Key (which together we refer to in this proxy statement as the financial advisors) as the Company’s financial advisors in connection with the Company’s exploration of strategic alternatives to enhance stockholder value, including the possible sale of all or a portion of the common stock or assets of the Company. Prior to approving the engagement of Stone Key, the board of directors considered and evaluated certain relationships among officers of Stone Key, the Company and Aston (see the section of this proxy statement entitled “— Interests of Certain Persons in the Merger — Relationships with Aston and Stone Key”).

 

Following the Company’s public announcements regarding its exploration of strategic alternatives, representatives of Safran contacted the Company to request that Safran be included in such process. From time to time in prior years, representatives of Safran and the Company had discussed in general terms potential transactions involving the Company and Safran, but had not discussed any particular terms or transactions. On February 25, 2010, representatives of the Company (including Robert V. LaPenta, Chairman of the Board, President and Chief Executive Officer) met with representatives of Safran and its representatives to discuss Safran’s request to be included in the Company’s strategic alternatives process.

 

On February 26, 2010, the Company entered into an engagement letter with Goldman Sachs and, on February 28, 2010, the Company entered into an engagement letter with Stone Key, to act as financial advisors to the Company in connection with the strategic alternatives process (including a potential sale of the Company). On March 1, 2010, the Company publicly announced that it had retained Goldman Sachs and Stone Key in such capacity.

 

During March 2010, representatives of the financial advisors discussed with members of management the potential process for an auction of the Company and / or its business divisions. During this time, representatives of the financial advisors met with members of the Company’s management to discuss and commence the process of gathering due diligence materials to be made available to potential buyers. The financial advisors also assisted the Company’s management in preparing confidential marketing materials that would be provided to potential buyers.

 

On March 24, 2010, following approval by the board of directors, the Company engaged Skadden, Arps, Slate, Meagher & Flom LLP (which we refer to in this proxy statement as Skadden) as legal counsel to the Company in connection with its exploration of strategic alternatives.

 

On April 6, 2010, representatives of the financial advisors and Skadden discussed with members of Company management the potential process and timeline for an auction of the Company, including the potential buyers identified by management and the financial advisors that might be contacted in connection with such process. The working group acknowledged that, for a variety of reasons, certain potential buyers may only be interested in an acquisition of the Company’s intelligence services business group, while others may only be interested in the Company’s identity solutions business group. In this regard, representatives of the financial advisors also discussed with members of management various structures and the process for a potential sale of the Company, including the sale of the whole Company to a single party and a “multi-buyer” transaction structure whereby the Company’s intelligence services business group would be sold to one party simultaneously with or preceding a sale of the Company’s identity solutions business group to another party. In addition, representatives of the financial advisors identified approximately 100 potential strategic and financial buyers that may be interested in an acquisition of all or a portion of the Company.

 

Beginning on April 8, 2010, at the direction of the Company’s management, representatives of the financial advisors contacted the approximately 100 potential strategic and financial buyers and subsequently distributed a form of confidentiality agreement, together with certain publicly available information about the Company, to

approximately 70 parties that indicated potential interest in acquiring the Company or one of its business groups. Over the next several weeks, confidentiality agreements were negotiated with the various potential buyers and, ultimately, over 50 potential buyers executed confidentiality agreements with the Company, including Safran (confidentiality agreement executed on May 19, 2010) and BAE (confidentiality agreement executed on May 21, 2010). Upon executing a confidentiality agreement, each potential buyer was provided with confidential marketing materials regarding the Company, including certain financial projections prepared by the management of the Company with respect to the Company and each of the identity solutions and intelligence services business groups.

 

On April 9, 2010 and April 19, 2010, at telephonic meetings of the board of directors, Mr. LaPenta provided updates to the board of directors regarding the Company’s strategic alternatives process.

 

On May 5, 2010, the board of directors held a regularly scheduled meeting with representatives of the financial advisors and Skadden attending. Representatives of the financial advisors and Skadden reviewed the current status of the Company’s exploration of strategic alternatives, including the various parties that had expressed interest in a potential transaction involving all or a portion of the Company and the status of the confidentiality agreements that were being negotiated with potential buyers. Representatives of Skadden also addressed various regulatory considerations in connection with a potential sale of the Company. At the conclusion of this meeting, the board of directors determined to establish a special committee of the board of directors (which we refer to in this proxy statement as the special committee) to oversee the strategic alternatives process and to report to the board of directors with respect thereto. The special committee was initially comprised Messrs. Nessen, Lawler and Gudis and, on May 13, 2010, Mr. Rose was added as a member of the committee (each of Messrs. Nessen, Lawler, Gudis and Rose are “independent” under the NYSE’s listing standards). Each member of the special committee is entitled to a fee of $2,000 per meeting of the special committee, which is in addition to the other board of director fees such members are entitled to receive. As of the date of this proxy statement, the special committee has held approximately fifty meetings.

 

Beginning in May 2010, the special committee met regularly in respect of the strategic alternatives process. On May 24, 2010, the special committee engaged Steptoe & Johnson LLP (which we refer to in this proxy statement as Steptoe) as legal counsel to the special committee.

 

From May 18, 2010 through June 3, 2010, 15 potential buyers (each of which had executed a confidentiality agreement with the Company) attended summary presentations by Mr. LaPenta and other members of senior management regarding the Company’s businesses.

 

On May 19, 2010, at a telephonic meeting of the board of directors, Mr. LaPenta provided an update on the Company’s exploration of strategic alternatives, including the number and identity of parties that had entered into, or were in discussions to enter into, a confidentiality agreement with the Company.

 

Beginning on May 28, 2010, at the direction of the Company’s management and following review and comment by management and the Company’s advisors, a bid instruction letter was distributed by the financial advisors to 44 potential strategic and financial buyers. The bid instruction letter requested preliminary, non-binding indications of interest regarding the potential acquisition of 100% of the Company in a single transaction, or the acquisition of either of the Company’s identity solutions business group or intelligence services business group, by June 8, 2010.

 

On June 1, 2010, at a telephonic meeting of the board of directors, Mr. LaPenta provided an update on the strategic alternatives review process. In addition, throughout the month of June, the special committee continued to hold regular meetings with representatives of Steptoe regarding the strategic alternatives review process. Beginning in June 2010, representatives of Skadden and Steptoe were also in frequent contact regarding the process, which matters were reported to the special committee by Steptoe.

 

On June 8 and 9, 2010, the Company received initial indications of interest from thirteen companies pursuant to the May 28, 2010 bid instruction letter. The responses included one indication of interest which contemplated the acquisition of the entire Company, seven of which contemplated an acquisition of the Company’s intelligence services business group and four of which (including an indication of interest from Safran) contemplated an acquisition of the Company’s identity solutions business group. An additional indication of interest in respect of the intelligence services business group was also received the following week. BAE did not submit an initial indication of interest during this time.

On June 10, 2010, the board of directors held a telephonic meeting with representatives of the financial advisors and Skadden at which, among other things, representatives of the financial advisors reviewed the terms of the initial indications of interest that had been received. At this meeting, the board of directors also adopted resolutions specifying the authority and duties of the special committee, which included evaluating and recommending or rejecting potential transactions resulting from the Company’s exploration of strategic alternatives (including a potential sale of the Company) and updating the board of directors with respect to the strategic alternatives process.

 

During mid to late June 2010, representatives of the financial advisors engaged with the parties that had submitted initial indications of interest to clarify the terms of the submissions. At the direction of the Company’s board of directors, the representatives of the financial advisors also contacted a number of other potential buyers that had not submitted initial indications of interest to assess interest in a potential transaction involving the Company. During this time, Company management and the financial advisors discussed which of the potential buyers might be invited to conduct a due diligence review of the Company and attend presentations by management based on the terms of the initial indications of interest and the subsequent discussions between the Company’s financial advisors and the applicable potential buyers. Also during this time, representatives of Skadden engaged in a number of discussions with the financial advisors regarding key considerations implicated by a “multi-buyer” transaction structure providing for a sale of the entire Company in two separate transactions, including, among other things, conditionality, the process and documentation for concurrent auctions of the two business groups and the key transaction terms expected to require negotiation between a buyer of the identity solutions business group and a buyer of the intelligence services business group in such a multi-buyer transaction structure. Representatives of Skadden also worked with management and the financial advisors to prepare auction drafts of the alternative versions of the transaction agreements that would be delivered to the potential buyers, consisting of: (i) a draft merger agreement providing for a sale of the entire company, (ii) a draft purchase agreement providing for a sale of the stock and membership interests of McClendon, LLC, SpecTal, LLC and Advanced Concepts, Inc. (the Company’s subsidiaries comprising the intelligence services business group) and (iii) a draft merger agreement providing for a sale of the Company following the consummation of the sale of the intelligence services business group (with the closing of the sale of “remainco” conditioned on the prior or concurrent closing of the sale of the intelligence services business group). The Skadden team also prepared a term sheet for distribution to potential buyers of the identity solutions or intelligence services business groups outlining the key terms of the relationship between such buyers in a multi-buyer transaction structure.

 

On June 21, 2010, at a telephonic meeting of the board of directors, members of the board of directors, management and representatives of the Company’s advisors discussed the status of the strategic alternatives process, the management presentations being prepared and the scope of the due diligence review to be undertaken as part of the potential buyers’ evaluation of a possible transaction involving the Company. The group also discussed each of the potential buyers and potential multi-buyer transaction structures for a sale of the intelligence services business group to one party simultaneously with, or preceding, the sale of the Company’s identity solutions business group to another party.

 

From June 28, 2010 through July 9, 2010, management presentations were conducted for nine of the parties that had submitted initial indications of interest for all or a portion of the Company (including Safran). During this period, these potential buyers (each of which had previously executed a confidentiality agreement) were also granted access to an online data room containing non-public information about the Company. Subsequent to the management presentations, the potential buyer that had previously expressed an interest in an acquisition of the entire Company communicated to the financial advisors that it no longer wished to pursue a whole-company transaction, but that it was interested in a potential acquisition of only the identity solutions business group.

 

On July 1, 2010, at a telephonic meeting, the board of directors received an update from Mr. LaPenta on the strategic alternatives process and the management presentations that had taken place to date.

 

On July 2, 2010, the special committee held a telephonic meeting to discuss, among other things, recent developments with respect to the strategic alternatives process and certain amounts that would become payable to executive officers of the Company upon a change of control of the Company under pre-existing contracts with such executives. Representatives of Steptoe advised the special committee.

On July 3, 2010, at the direction of the Company’s management and following discussions with representatives of Steptoe, representatives of the financial advisors distributed the applicable forms of the auction draft transaction agreements and multi-buyer term sheets to the four potential buyers interested in the Company’s identity solutions business group (including Safran) and the five potential buyers interested in the Company’s intelligence services business group.

 

On July 6, 2010, the board of directors held a telephonic meeting, with representatives of the financial advisors and Skadden attending. The board of directors received an update on the current status of the process, including the management presentations conducted to date and the draft transaction agreements that had been distributed to the potential buyers. Representatives of Skadden also reviewed with the board of directors their fiduciary duties in connection with the strategic alternatives process.

 

During early July 2010, at the direction of the Company’s management, representatives of Skadden and the financial advisors held calls with certain potential buyers, including Safran, to discuss the proposed multi-buyer transaction structure (including the matters addressed by the term sheet that had previously been distributed) and to answer questions from the potential buyers. In addition, throughout July and early August 2010, the potential buyers continued their due diligence review of the Company, and certain potential buyers were given access to hard copy data rooms containing additional due diligence information. During this time, certain of the potential buyers communicated to the financial advisors that they were no longer interested in pursuing a possible transaction.

 

On July 26, 2010, following review and comment by management, Skadden, Steptoe and the financial advisors, and at the direction of the Company’s management, a final bid instruction letter was distributed to (i) the three potential buyers that continued to be interested in an acquisition of the Company’s identity solutions business group (including Safran) and (ii) the three potential buyers that continued to be interested in an acquisition of the Company’s intelligence services business group. The final bid instruction letter requested that each potential buyer submit, by August 10, 2010, a final written proposal for the potential acquisition of the applicable business group, together with a markup of the relevant transaction documents that had previously been delivered to the parties. Representatives of the financial advisors also communicated to the potential buyers that they were invited to submit markups of the applicable transaction documents prior to the final bid deadline with a view to receiving (and revising their markups in response to) feedback from the Company and Skadden regarding such markup. Subsequent to the distribution of the final bid instruction letter, two of the potential buyers that had previously expressed an interest in an acquisition of the Company’s identity solutions business group, and one of the potential buyers that had previously expressed an interest in an acquisition of the Company’s intelligence services business group, indicated that they were no longer interested in a potential transaction.

 

On July 27, 2010, the board of directors held a meeting at the Company’s corporate headquarters in Stamford, Connecticut. During this meeting, members of management reviewed with the board of directors several ordinary course business matters, including the Company’s second quarter financial results. Mr. LaPenta also provided an update to the board of directors as to the strategic alternatives review process and the current status of discussions with the potential buyers.

 

On July 28, 2010, the special committee held a meeting at the offices of Steptoe in New York City, with representatives of Steptoe, the financial advisors and Skadden in attendance. The group discussed, among other things, the current status of discussions with potential buyers, as well as the proposed structures for the sale of the Company’s intelligence services business group and identity solutions business group in a multi-buyer transaction. The financial advisors also discussed their preliminary financial analyses of certain strategic alternatives potentially available to the Company.

 

On July 29, 2010, the Company engaged McDermott, Will & Emery (which we refer to in this proxy statement as McDermott) as outside antitrust counsel to the Company in connection with the strategic alternatives review process.

 

On July 30, 2010, representatives of Safran delivered a markup of the merger agreement providing for the sale of the Company’s identity solutions business group that had previously been distributed to potential buyers of that business group.

On August 3 and 5, 2010, the Company provided revised projections prepared by the Company’s management to the potential buyers, which projections included revised earnings before interest, taxes, depreciation and amortization, or EBITDA, figures for 2010. The 2010 EBITDA figures were revised to reflect the Company’s actual results for the six-month period ended June 30, 2010, which were contained in the financial statements included in the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2010 that was filed with the SEC on July 27, 2010.

 

On August 5, 2010, representatives of Skadden discussed the terms of the markup submitted by Safran with representatives of Weil, Gotshal & Manges LLP (which we refer to in this proxy statement as Weil) and Kaye Scholer LLP, outside counsel to Safran. The Skadden team clarified certain aspects of the proposed multi-buyer transaction structure and identified certain aspects of Safran’s markup that should be improved in order to make Safran’s markup (and, accordingly, Safran’s forthcoming acquisition proposal) more attractive to the Company, including, among other things, matters relating to termination fees and efforts to obtain regulatory approvals.

 

On August 6, 2010, a potential financial buyer that had expressed interest in the intelligence services business group (which we refer to in this proxy statement as Bidder X) submitted a markup of the purchase agreement for the acquisition of the intelligence services business group. On August 9, 2010, representatives of Skadden discussed the terms of this markup with Bidder X and its outside counsel.

 

On August 10, 2010, Safran submitted a final bid for the acquisition of the identity solutions business group, together with a markup of the merger agreement that had been revised from the markup previously submitted on July 30, 2010, including to incorporate certain of the August 5th discussions among the parties’ respective outside counsel. Safran’s final bid contemplated an acquisition of the identity solutions business group at an enterprise value of $1.225 billion. Among other things, Safran’s final bid indicated that Safran would require Mr. LaPenta and Aston Capital Partners L.P. (which we refer to in this proxy statement as Aston) sign a voting and support agreement with respect to the transaction with Safran (see the section of this proxy statement entitled “— Interests of Certain Persons in the Merger — Relationships with Aston and Stone Key” for information regarding Aston). Safran’s final bid also included a request that the Company enter into an exclusivity agreement with respect to the identity solutions business group. Also on August 10, 2010, Bidder X and another potential financial buyer for the intelligence services business group (which we refer to in this proxy statement as Bidder Y) submitted final bids for the acquisition of the intelligence services business group, together with markups of the auction draft purchase agreement for that business group. Bidder X’s markup had been revised from the August 9th markup previously submitted, including to incorporate certain of the August 9th discussions between Bidder X’s counsel and representatives of Skadden.

 

On August 11, 2010, the special committee held a meeting at the offices of Steptoe in New York City, with representatives of Steptoe, the financial advisors and Skadden in attendance. The group reviewed and discussed the final bids that had been received the prior evening. Following the special committee meeting, the board of directors held a telephonic meeting, including representatives of the financial advisors, Skadden and Steptoe. Representatives of the financial advisors provided an update to the board of directors regarding the final bids received the prior evening. The financial advisors discussed their preliminary financial analyses of a potential sale of the Company assuming separate sales of the intelligence services business group and of the identity solutions business group. At the conclusion of the meeting, the board of directors authorized the financial advisors and Skadden to revert to Safran and the potential buyers of the intelligence services business group to work to improve the terms of the bids submitted.

 

On August 12, 2010, the special committee held another meeting at the offices of Steptoe, with representatives of Steptoe in attendance. The special committee continued discussions of the final bids that were submitted and also reviewed other potential strategic alternatives, including (i) continuing to operate the Company on a standalone basis, (ii) selling only the intelligence services business group and using the proceeds to reduce the Company’s outstanding indebtedness and (iii) refinancing the Company’s existing debt. The special committee continued to hold regular meetings in respect of the strategic alternatives process throughout August.

 

From August 12, 2010 through August 20, 2010, representatives of Skadden exchanged draft term sheets with Safran, Bidder X and Bidder Y regarding certain key issues raised by each potential buyer’s markup of the applicable transaction agreement. Principal issues under discussion included financial terms, whether the closing of

the sale of the intelligence services group would be conditioned on the closing of the identity solutions business group, the extent of efforts required by the parties to obtain regulatory approvals, termination rights, termination fees and, in the case of Bidder X and Bidder Y, provisions related to buyer financing. During this period, at the direction of the Company’s board of directors, representatives of the Company’s financial advisors also contacted other parties that were believed to be potentially interested in the identity solutions business group or intelligence services business group, including BAE and an additional potential financial buyer that had not previously submitted an indication of interest (which we refer to in this proxy statement as Bidder Z). Also, during this time, each of Safran, Bidder X, Bidder Y and their respective advisors continued their due diligence efforts, which included, from time to time, discussions with representatives of the Company and its financial and legal advisors.

 

On August 17, 2010, Safran submitted a revised final bid which, among other things, provided for an increase in Safran’s proposed purchase price to an enterprise valuation for the identity solutions business group of $1.275 billion and certain improved terms (including in respect of regulatory approvals and termination fees). The revised proposal letter reiterated Safran’s exclusivity and voting and support agreement requests.

 

On August 18, 2010, the special committee held a telephonic meeting, with representatives of Steptoe, Skadden and the financial advisors in attendance. The group reviewed the terms of Safran’s revised final bid and the ongoing discussions with Safran. Representatives of the financial advisors also updated the special committee on ongoing discussions with potential buyers of the intelligence services business group and noted that Bidders X and Y had not submitted revised financial terms from the bids that they had previously submitted.

 

On the morning of August 19, 2010, the Company issued a press release providing an update on the strategic alternatives process. The press release disclosed that the Company had received bids from several interested parties and that the Company continued to evaluate the various proposals. Later that morning, the board of directors held a telephonic meeting with representatives of the financial advisors, Skadden and Steptoe in attendance. Representatives of the financial advisors provided an update to the board of directors regarding Safran (including the terms of its revised August 17th bid), as well as discussions with the potential buyers for the intelligence services business group. Among other things, the board of directors discussed entering into an exclusivity agreement with Safran with respect to the identity solutions business group and, after weighing the advantages and disadvantages of such an agreement and discussing other parties that may potentially be interested in the identity solutions business group, the board of directors authorized management to enter into an exclusivity agreement with Safran.

 

Also on August 19, 2010, following a series of discussions with representatives of Stone Key, BAE communicated an interest in a potential acquisition of the Company’s intelligence services business group and was given access to the online data room to conduct due diligence in respect of the intelligence services business group. Representatives of BAE communicated to representatives of Stone Key that, subject to due diligence, BAE may be willing to consider a purchase price for the intelligence services business group of at least $300,000,000. A draft purchase agreement for the acquisition of the intelligence services business group was sent to BAE on August 20, 2010. Also on August 20, 2010, following discussions between representatives of Bidder Z and representatives of Stone Key, Bidder Z was given access to the online data room and a draft purchase agreement for the intelligence services business group was delivered to Bidder Z. In addition, representatives of Skadden sent a draft exclusivity agreement with respect to the Company’s identity solutions business group to Weil as counsel to Safran.

 

On August 21, 2010, representatives of Skadden delivered a revised draft merger agreement to Weil incorporating certain terms that had been addressed by the parties during the exchange of term sheets. Representatives of Skadden and Weil also exchanged drafts of the proposed exclusivity agreement. An exclusivity agreement providing for a period of exclusive negotiations through September 3, 2010 was executed by the Company and Safran later that day.

 

From August 21, 2010 through August 23, 2010, representatives of Skadden and the financial advisors continued to exchange term sheets with Bidder Y in respect of Bidder Y’s previously submitted bid for the intelligence services group and continued ongoing discussions with BAE, Bidder X and Bidder Z. In addition, during this time the Company’s management, with the assistance of the Company’s financial and legal advisors, began exploring the possibility of spinning-off the Company’s intelligence services business group in conjunction with a sale of the remaining Company to Safran.

On August 23, 2010, the special committee held a telephonic meeting with representatives of Steptoe in attendance to review various matters related to the strategic alternatives process. That afternoon, the board of directors also held a telephonic meeting with representatives of the financial advisors, Skadden and Steptoe attending. The Company’s advisors provided an update to the board of directors regarding Safran and the potential intelligence services buyers. The board of directors discussed a request from Bidder Y for a period of exclusive negotiations in respect of the intelligence services business group. After weighing the advantages and disadvantages of exclusivity, including a discussion of the other parties that may potentially be interested in acquiring the intelligence services business group (including the status of BAE and Bidders X and Z), the board of directors determined not to enter into an exclusivity agreement with Bidder Y at that time. Also at the meeting, members of management discussed with the board of directors certain projections prepared by management that had previously been distributed to potential buyers and the possible need to deliver revised projections with respect to certain forecasted metrics for the 2013 and 2014 fiscal years reflecting management’s best estimates and current views concerning, among other things, growth rates in future years, competition in the industry, various contracts that were to come up for re-compete and other revised business expectations. After subsequent discussion among the board of directors and the special committee, the revised projections prepared by management were distributed to Safran on August 30, 2010. Following the meeting of the board of directors, the special committee held an additional telephonic meeting with representatives of Steptoe to review the various matters that had been discussed at the meeting of the board of directors.

 

On August 23 and 24, 2010, representatives of Skadden and Weil continued to discuss the terms of the draft merger agreement.

 

On August 24, 2010, the special committee held a telephonic meeting, with representatives of Steptoe and the financial advisors in attendance. The special committee discussed potential strategic alternatives available to the Company (including the potential sale transactions contemplated by ongoing discussions with bidders). The special committee reconvened with representatives of Steptoe later that evening and on August 25, 2010 to continue their discussions.

 

On August 25, 2010, representatives of Weil delivered a further revised draft of the merger agreement to Skadden. Also on August 25, 2010, representatives of the Company, Safran and their respective regulatory counsel had a meeting with the Defense Security Service to discuss matters regarding a potential acquisition of the Company by Safran, including the regulatory review process that would be implicated as a result of Safran being a non-U.S. entity.

 

Also on August 25, 2010, Bidder Y contacted the financial advisors to communicate Bidder Y’s intention to reduce its proposed purchase price on account of the absence of a working capital adjustment with respect to the intelligence services business group, as had been discussed during the exchange of term sheets with Bidder Y.

 

On August 26, 2010, representatives of Skadden discussed with representatives of Crowell & Moring LLP (which we refer to in this proxy statement as Crowell), outside counsel to BAE, aspects of the draft purchase agreement that had previously been provided to BAE.

 

Also on August 26, 2010, the special committee held a telephonic meeting, with representatives of Steptoe and the financial advisors in attendance. The special committee discussed potential strategic alternatives available to the Company. Representatives of the financial advisors also provided an update regarding Safran and the potential intelligence services buyers and discussed their preliminary financial analysis of a potential sale of the Company and a potential spin-off of the Company’s intelligence services business group.

 

On August 27, 2010, the special committee held a telephonic meeting, with representatives of Steptoe in attendance. Representatives of the financial advisors and Skadden were invited to join the latter portion of the meeting. The Company’s advisors updated the special committee as to the status of negotiations with Safran and the potential intelligence services buyers. Representatives of Skadden also reviewed with the special committee certain matters regarding the BAE purchase agreement that had been raised by Crowell on behalf of BAE. At the meeting, representatives of the financial advisors also reported that Bidder Y had resubmitted its prior request for an exclusivity agreement with respect to the intelligence services business group and that Bidder Y stated that it was not willing to engage in further discussions without exclusivity. Following an extended discussion (including a

review of the other parties that were potentially interested in the intelligence services business group, including BAE), the special committee determined to recommend that the Company not enter into an exclusivity agreement with Bidder Y at that time in order to give other potentially interested parties more time to submit their bids. After the meeting, at the direction of the special committee, representatives of Goldman Sachs relayed this determination to Bidder Y and, in response, Bidder Y subsequently notified the Company in writing that that it was no longer interested in pursuing a potential transaction involving the Company.

 

On August 29, 2010, representatives of Skadden sent a revised draft of the merger agreement to Weil and, on August 30, 2010, engaged in discussions with representatives of Weil regarding the draft.

 

On August 30, 2010, the special committee met telephonically, with representatives of Steptoe, the financial advisors and Skadden in attendance. Following an update regarding Safran and the potential intelligence services buyers, representatives of the financial advisors separately discussed with the special committee their preliminary financial analyses of a potential transaction with Safran (using illustrative purchase prices for the intelligence services business group) and a potential spin-off of the intelligence services business group in lieu of a sale to a third party, and the group discussed certain financial analyses in respect of this scenario.

 

On August 31, 2010, the board of directors held a telephonic meeting, with representatives of the financial advisors, Skadden and Steptoe in attendance. Representatives of the financial advisors reported on their discussions with Safran’s financial advisors, including the possibility of a spin-off of the intelligence services business group in lieu of a sale to a third party and the possibility of entering into and announcing an acquisition agreement with Safran without a definitive agreement for the disposition of the intelligence services business group in place at the time of such announcement. At this meeting, representatives of the financial advisors also reviewed with the full board of directors the preliminary financial analyses that had been discussed with the special committee the prior day. Following the board of directors meeting, the special committee held a telephonic meeting with representatives of Steptoe to review the current status of discussions with Safran and the potential intelligence services buyers.

 

Also on August 31, 2010, BAE submitted an indication of interest to Stone Key in respect of the intelligence services business group, with a proposed purchase price of $305,000,000 (on a cash and debt-free basis, subject to the inclusion of certain indemnification provisions in the draft purchase agreement and inclusive of certain assumed obligations). On September 1, 2010, representatives of the financial advisors and Skadden met with management of BAE at the offices of Stone Key in Greenwich, Connecticut. At this meeting, the group discussed BAE’s proposal, including the purchase price for the acquisition, the applicable adjustments to the purchase price and certain obligations to be assumed by BAE as part of the transaction. The parties also discussed certain aspects of the draft purchase agreement, including, among other things, indemnification rights, allocation of liabilities, conditionality and certain matters related to employees of the Transferred Intel Companies and, as a result of such discussions, representatives of BAE indicated a revised total purchase price of $303,000,000 (inclusive of certain assumed obligations). Following the meeting with BAE, the special committee and, thereafter, the board of directors, convened telephonic meetings to receive an update from the Company’s financial and legal advisors regarding the day’s meetings with BAE and the terms of BAE’s proposal.

 

Later in the evening of September 1, 2010, representatives of Weil sent a revised merger agreement to Skadden.

 

Throughout the first two weeks of September, the special committee met frequently (with representatives of Steptoe in attendance for all meetings and representatives of the financial advisors and Skadden in attendance for certain meetings) to discuss the status of discussions with Safran and BAE and related matters. During this period, the board of directors also held three meetings to discuss similar matters, with representatives of the financial advisors, Skadden and Steptoe in attendance.

 

On September 2, 2010, BAE submitted a markup of the draft purchase agreement for the acquisition of the intelligence services business group.

 

On September 3, 2010, following approval by the board of directors, the Company extended its exclusivity agreement with Safran through September 10, 2010. The exclusivity agreement was further extended on September 10, 2010 through September 17, 2010 following approval by the board of directors. On September 4, 2010, in connection with negotiations between Safran and the Company to finalize the price per share merger

consideration, Goldman delivered to Safran and its advisors an estimate provided by the Company of net debt of $464,800,000 as of December 31, 2010, before the payment of transaction costs, which assumed that the Merger and BAE Transaction would not have occurred prior to January 1, 2011, and included other assumptions regarding operating results and cash flows.

 

Throughout early September 2010, the Company, BAE and their respective counsel continued to negotiate the terms of the intelligence services business group purchase agreement, and the Company, Safran and their respective counsel continued to negotiate the merger agreement and the voting and support agreement in respect of the acquisition of the Company’s identity solutions business group. During this time, representatives of the Company’s financial advisors also engaged in discussions with representatives of Safran’s financial advisors concerning the price per share of Company common stock to be paid by Safran in the proposed merger (previously, Safran had proposed a purchase price for the identity solutions group on an enterprise value basis). Also during this time, each of BAE, Safran and their respective representatives and advisors continued their due diligence efforts, which included, from time to time, discussions with representatives of the Company and its financial and legal advisors.

 

During the first two weeks of September, the Company, BAE, certain members of senior management of the intelligence services business group and their respective counsel negotiated the terms of a retention and bonus plan for a group of certain intelligence services business group employees and severance arrangements and non-competition agreements for three senior members of the intelligence services business group.

 

On September 9, 2010, upon the approval of each of Safran and BAE, representatives of Skadden provided Weil with selected portions of the BAE purchase agreement and provided Crowell with certain portions of the Safran merger agreement (including, among others, closing conditions), in each case, on a “no-names” basis. On September 13, 2010, the Company, Safran and BAE entered into a Co-Buyer Disclosure Agreement, pursuant to which the identities of Safran and BAE were disclosed to one another and, in accordance with the terms of the Co-Buyer Disclosure Agreement, Skadden delivered to representatives of Weil the current draft of the BAE purchase agreement and delivered to representatives of Crowell the current draft of the Safran merger agreement.

 

From September 14 through September 16, 2010, the Company, BAE and their respective counsel continued to negotiate the terms of the intelligence services business group purchase agreement, and the Company, Safran and their respective counsel continued to negotiate the terms of the identity solutions merger agreement. During this time, the parties discussed various matters including, among other things, the allocation of liabilities between Safran and BAE. In addition, representatives of Safran, the Company and their respective financial advisors continued their discussions in respect of the “translation” of Safran’s proposed identity solutions enterprise value into a price per share of Company common stock.

 

During the same period, the special committee continued to hold regular telephonic meetings (with representatives of Steptoe and, in certain cases, the financial advisors and Skadden, in attendance), to discuss, among other things, the status of discussions with Safran and BAE. On September 15, 2010, the board of directors held a telephonic meeting with representatives of the financial advisors, Skadden and Steptoe. The group discussed the status of discussions with Safran and BAE and the price per share contemplated by a combined BAE and Safran transaction. The group also discussed potential alternatives that may be available to the Company if the Company were not able to reach final agreement on a transaction with either Safran or BAE on terms that the board of directors determined to be favorable to the Company’s stockholders.

 

As of the close of business on September 16, 2010, BAE and the Company had resolved the principal open items in the BAE purchase agreement, other than with respect to the allocation of certain liabilities between BAE and Safran. During the evening of September 16, 2010, representatives of Skadden and the financial advisors engaged with BAE management and representatives of Crowell and reached a proposed compromise position in respect of such liability allocation matters (subject to the agreement of Safran).

 

With respect to the Safran merger agreement, discussions regarding purchase price and certain open matters in the draft merger agreement continued among Safran, the Company and their respective financial and legal advisors through the evening of September 16, 2010. During the late morning of September 17, 2010, representatives of Safran delivered a package of compromise positions with respect to key open items in the draft merger agreement (including certain regulatory and employment matters), and a proposed per share price of $11.93. Also during the

morning of September 17, 2010, representatives of BAE confirmed a purchase price for the intelligence services business group of $303,000,000 (comprising $295,833,000 in cash and approximately $7,291,000 of certain assumed obligations related to payments to officers and employees of the Transferred Intel Companies under the Intel Companies Special Employee Plan to be adopted in connection with the BAE Transaction (see the section of this proxy statement entitled “— BAE Agreement — Representations and Warranties, Termination Rights, Covenants and Certain Employee Matters”)), on a cash and debt-free basis and subject to certain adjustments, and representatives of the Company’s financial advisors communicated this purchase price to representatives of Safran. Representatives of Skadden continued to engage with representatives of Weil throughout the day on September 17, 2010, during which time all remaining key open items in the Safran merger agreement (other than purchase price) were resolved, including matters relating to the allocation of liabilities between Safran and BAE. During this time, Company management and representatives of the Company’s financial advisors also had a number of discussions with Safran management and representatives of Safran’s financial advisors. At the conclusion of these discussions, Safran agreed to increase its proposed purchase price for the acquisition of the Company (following the sale of the intelligence services business group) to $11.97 per share of Company common stock and, during further discussions on the morning of September 18, 2010, Safran agreed to proposed merger consideration of $12.00 per share in cash, which price assumed the Company’s receipt of net proceeds to be paid by BAE for the intelligence services business group pursuant to BAE’s proposal.

 

On the afternoon of September 18, 2010, the special committee held a telephonic meeting, with representatives of Steptoe, the financial advisors and Skadden in attendance. The Company’s advisors updated the special committee as to the status of discussions with Safran and BAE and reviewed the proposed terms of the BAE purchase agreement and the Safran merger agreement. Representatives of Goldman Sachs and Stone Key made separate presentations with respect to their financial analyses of Safran’s proposed merger consideration of $12.00 per share in cash. Representatives of Skadden then addressed the status of negotiations and the key terms of the proposed agreements. Later that evening, the special committee held another telephonic meeting, with representatives of Steptoe in attendance, and unanimously resolved to recommend that the full board of directors consider and approve the execution, delivery, performance and consummation of the Safran merger agreement and BAE purchase agreement and the transactions contemplated thereby as advisable and in the best interests of the Company and its stockholders.

 

Following the special committee meeting, on the evening of September 18, 2010, the board of directors held a telephonic meeting. Representatives of the financial advisors, Skadden, McDermott and Steptoe were also in attendance. At the meeting, representatives of Goldman Sachs and Stone Key each made presentations as to their financial analyses with respect to Safran’s proposed merger consideration of $12.00 per share in cash (which presentations had been shared with the special committee earlier in the day and circulated to the full board of directors prior to the meeting). Each of Goldman Sachs and Stone Key then separately delivered to the board of directors its oral opinion, which was subsequently confirmed in writing, dated September 19, 2010, in the case of Goldman Sachs, and dated September 18, 2010, in the case of Stone Key, that, as of such date, and based on and subject to the various limitations and assumptions described in the applicable opinion, the $12.00 per share in cash to be paid to the holders (other than Safran and its affiliates) of the outstanding shares of common stock of the Company pursuant to the merger agreement was fair from a financial point of view to such holders (copies of the written opinions of Goldman Sachs and Stone Key are attached to this proxy statement as Annex C and Annex D, respectively). The board of directors then discussed with Company management and representatives of the financial advisors and legal counsel the proposed transactions with each of Safran and BAE, and representatives of Skadden reviewed the terms of the proposed Safran merger agreement and BAE purchase agreement (including the matters that had been reviewed with the special committee earlier in the day). In addition, representatives of Skadden again reviewed with the board of directors its fiduciary duties in connection with the review and, if applicable, approval of the proposed transactions. The group also discussed certain risks associated with the Safran merger and the BAE transaction and the rationale for entering into the proposed transactions, including a discussion of the factors described in the section of this proxy statement entitled “— Reasons for the Merger; Recommendation of Our Board of Directors.”

 

After careful consideration, the board of directors, upon the unanimous recommendation by the special committee, unanimously voted to adopt resolutions approving and declaring advisable the execution, delivery and

performance of the Safran merger agreement and the BAE purchase agreement and the transactions contemplated thereby (including the Safran merger), and determined that the merger agreement, the purchase agreement and the transactions contemplated thereby (including the Safran merger) were advisable and in the best interests of the Company’s stockholders.

 

Through the night of September 18, 2010 and into the morning of September 19, 2010, the parties worked to finalize the terms of the Safran merger agreement and the BAE purchase agreement in accordance with the terms discussed with the board of directors and, in the afternoon of September 19, 2010, the parties executed and delivered the Safran merger agreement, the voting and support agreement, the BAE purchase agreement and certain related documents. Prior to the open of trading in the European securities markets and the NYSE on September 20, 2010, each of the Company, Safran and BAE issued press releases announcing the transactions.

 

Our board of directors, with the advice and assistance of our management and legal and financial advisors, at a meeting on September 18, 2010, carefully evaluated the proposed Merger, including the terms and conditions of the Merger Agreement and the BAE Agreement. Our board of directors unanimously (i) determined that the Merger Agreement and the Merger are advisable and in the best interests of the Company and its stockholders, (ii) approved the Merger Agreement and the Merger and (iii) resolved to recommend the adoption of the Merger Agreement and approval of the Merger to our stockholders.

 

In the course of reaching its determination, our board of directors consulted with our management and its legal and financial advisors and considered a number of substantive factors and potential benefits of the Merger. Our board of directors believed that, taken as a whole, the following factors supported its decision to approve the proposed Merger:

 

 

 

 

 

 

 

In addition, the board of directors was aware of and considered the interests that certain individuals, including our directors and executive officers, may have with respect to the Merger that may differ from, or may be in addition to, their interests as stockholders of the Company, as described in the section of this proxy statement entitled “— Interests of Certain Persons in the Merger.”

 

Our board of directors also considered potential risks or negative factors relating to the Merger and the BAE Transaction, including but not limited to the following:

 

 

 

 

The foregoing discussion summarizes certain material factors considered by the board of directors in its consideration of the Merger. In view of the wide variety of factors considered by the board of directors, and the complexity of these matters, the board of directors did not find it practicable to quantify or otherwise assign relative weights to the foregoing factors. In addition, individual members of the board of directors may have assigned different weights to various factors. Our board of directors concluded that the potentially negative factors associated with the Merger Agreement and BAE Agreement were substantially outweighed by the opportunity for the Company’s stockholders to realize a premium on the value of their shares of common stock and to monetize their investment in the Company. Accordingly, our board of directors, by unanimous vote, approved and declared advisable the execution, delivery and performance of the Merger Agreement and the transactions contemplated by the Merger Agreement, including the Merger, and determined that the Merger Agreement and the transactions contemplated by the Merger Agreement, including the Merger, are advisable and in the best interests of the Company’s stockholders.

Our board of directors recommends that you vote “FOR” the proposal to adopt the Merger Agreement and approve the Merger and “FOR” the adjournment or postponement of the special meeting, if necessary or appropriate, to solicit additional proxies.

 

Goldman Sachs delivered its opinion to the Company’s board of directors that, as of September 19, 2010 and based upon and subject to the limitations and assumptions set forth therein, the $12.00 per share merger consideration to be paid in cash to the holders (other than Safran and its affiliates) of the outstanding shares of common stock of the Company pursuant to the Merger Agreement was fair from a financial point of view to such holders.

 

The full text of the written opinion of Goldman Sachs, dated September 19, 2010, which sets forth assumptions made, procedures followed, matters considered and limitations on the review undertaken in connection with the opinion, is attached as Annex C to this proxy statement. Goldman Sachs provided its opinion for the information and assistance of the Company’s board of directors in connection with its consideration of the Merger. The Goldman Sachs opinion is not a recommendation as to how any holder of the Company’s common stock should vote with respect to the Merger or any other matter.

 

In connection with rendering the opinion described above and performing its related financial analyses, Goldman Sachs reviewed, among other things:

 

 

Goldman Sachs also held discussions with members of the senior management of the Company regarding their assessment of the past and current business operations, financial condition and future prospects of the Company. In addition, Goldman Sachs reviewed the reported price and trading activity for the shares of common stock of the Company, compared certain financial and stock market information for the Company with similar information for certain other companies the securities of which are publicly traded, reviewed the financial terms of certain recent business combinations in the defense industry and in other industries, and performed such other studies and analyses, and considered such other factors, as Goldman Sachs deemed appropriate.

 

For purposes of rendering the opinion described above, Goldman Sachs relied upon and assumed, without assuming any responsibility for independent verification, the accuracy and completeness of all of the financial, legal, regulatory, tax, accounting and other information provided to, discussed with or reviewed by it, and Goldman Sachs does not assume any responsibility for any such information. In that regard, Goldman Sachs assumed with the Company’s board of directors’ consent that the Forecasts were reasonably prepared on a basis reflecting the best currently available estimates and judgments of the management of the Company. Goldman Sachs did not make an independent evaluation or appraisal of the assets and liabilities (including any contingent, derivative or other off-balance-sheet assets and liabilities) of the Company or any of its subsidiaries and was not furnished with any such evaluation or appraisal. Goldman Sachs assumed that all governmental, regulatory or other consents and approvals necessary for the consummation of the Merger and the BAE Transaction will be obtained without any adverse effect on the expected benefits of the Merger and the BAE Transaction in any way meaningful to Goldman Sachs’ analysis. Goldman Sachs also assumed that the Merger and the BAE Transaction will be consummated on the terms

set forth in the Merger Agreement and the BAE Agreement without the waiver or modification of any term or condition of the Merger Agreement or the BAE Agreement, the effect of which would be in any way meaningful to its analysis.

 

In addition, Goldman Sachs’ opinion did not address the underlying business decision of the Company to engage in the Merger or the BAE Transaction, or the relative merits of the Merger or the BAE Transaction as compared to any strategic alternatives that may be available to the Company, nor does it address any legal, regulatory, tax or accounting matters. Goldman Sachs’ opinion addresses only the fairness from a financial point of view, as of September 19, 2010, to the holders (other than Safran and its affiliates) of the outstanding shares of common stock of the Company of the $12.00 per share merger consideration to be paid in cash to such holders pursuant to the Merger Agreement. Goldman Sachs does not express any view on, and its opinion does not address, any other term or aspect of the Merger Agreement, the BAE Agreement, the Merger, the BAE Transaction, or any term or aspect of any other agreement or instrument contemplated by the Merger Agreement or the BAE Agreement or entered into or amended in connection with the Merger or the BAE Transaction, or the impact thereof on the Company, Safran or BAE or the fairness of the BAE Transaction, or the fairness of the Merger to, or any consideration received in connection therewith by, the holders of any other class of securities, creditors, or other constituencies of the Company; nor as to the fairness of the amount or nature of any compensation to be paid or payable to any of the officers, directors or employees of the Company, or class of such persons, in connection with the Merger or the BAE Transaction, whether relative to the $12.00 per share merger consideration to be paid to the holders (other than Safran and its affiliates) of the outstanding shares of common stock of the Company pursuant to the Merger Agreement or otherwise. Goldman Sachs did not express any opinion as to the impact of the Merger or the BAE Transaction or any transaction entered into in connection therewith on the solvency or viability of the Company, Safran or BAE or the ability of the Company, Safran or BAE to pay their respective obligations when they come due. Goldman Sachs’ opinion is necessarily based on economic, monetary, market and other conditions as in effect on, and the information made available to Goldman Sachs as of the date of the opinion and Goldman Sachs assumed no responsibility for updating, revising or reaffirming its opinion based on circumstances, developments or events occurring after the date of its opinion. Goldman Sachs’ advisory services and the opinion expressed herein were provided for the information and assistance of the board of directors of the Company in connection with its consideration of the Merger and such opinion does not constitute a recommendation as to how any holder of shares of common stock of the Company should vote with respect to the Merger or any other matter. Goldman Sachs’ opinion was approved by a fairness committee of Goldman Sachs.

 

The following is a summary of the material financial analyses delivered by Goldman Sachs to the board of directors in connection with rendering the opinion described above. The following summary, however, does not purport to be a complete description of the financial analyses performed by Goldman Sachs, nor does the order of analyses described represent relative importance or weight given to those analyses by Goldman Sachs. Some of the summaries of the financial analyses include information presented in tabular format. The tables must be read together with the full text of each summary and are alone not a complete description of Goldman Sachs’ financial analyses. Except as otherwise noted, the following quantitative information, to the extent that it is based on market data, is based on market data as it existed on or before September 17, 2010 and is not necessarily indicative of current market conditions.

 

Premia Paid Analysis

 

Goldman Sachs analyzed the $12.00 per share merger consideration to be paid in cash to the holders of the outstanding shares of common stock of the Company pursuant to the Merger Agreement in relation to the closing price of the shares of common stock of the Company on January 5, 2010, the day before the Company announced its intention to consider strategic alternatives, and the closing price of the shares on September 17, 2010, the last trading day prior to the delivery of Goldman Sachs’ opinion. This analysis was undertaken to assist the Company’s board of directors in understanding how the $12.00 per share merger consideration compared to recent historical market prices of the Company’s common stock. The $12.00 per share merger consideration reflected a premium of 24% over the September 17, 2010 market price of $9.70 per share of the common stock of the Company and a 66% premium over the January 4, 2010 market price of $7.23 per share of the common stock of the Company.

Selected Companies Analysis

 

Goldman Sachs reviewed and compared certain financial information, ratios and public market multiples for the Company to corresponding financial information, ratios and public market multiples for the following publicly traded corporations in the personal identity security and technology industry:

 

 

Although none of the Selected Companies is directly comparable to the Company, the companies included were chosen because they are publicly traded companies with operations that for the purposes of analysis may be considered similar to certain operations of the Company.

 

With respect to the Company, Goldman Sachs first calculated the following multiples:

 

 

With respect to the Selected Companies, Goldman Sachs calculated the following multiples:

 

 

The calculations for the Company were generated based on market data available as of January 5, 2010 and September 17, 2010, the $12.00 per share merger consideration to be paid pursuant to the Merger Agreement, the Forecasts and estimates from the Institutional Brokers’ Estimate System (which we refer to in this proxy statement as IBES). Calculations based on the January 5, 2010 and September 17, 2010 data used figures for net debt of the Company of $465,000,000 as of June 30, 2010 per the Company’s public filings. Calculations based on the $12.00 per share merger consideration to be paid pursuant to the Merger Agreement used figures for net debt of $479,000,000 as of June 30, 2010, gross of $11,200,000 of unamortized discount in respect of the Company’s $175,000,000 Convertible Notes and $2,600,000 of original issue discount in respect of the Company’s Senior Secured Term Loan. The calculations for each of the Selected Companies were generated based on market data available as of September 17, 2010 (and for Cogent Inc., as of August 27, 2010) and estimates from IBES. Goldman Sachs computed the current, one-year, two-year, three-year and five-year averages for the Selected Companies as a group.

 

The results of Goldman Sachs’ EV/LTM EBITDA analysis (for the Company and Selected Companies) are shown in the table below.

EV/LTM EBITDA

 

 

The results of Goldman Sachs’ EV / 2011E EBITDA analysis (for the Company and Selected Companies) are shown in the table below.

 

EV/2011E EBITDA

 

 

The results of Goldman Sachs’ EV / forward year EBITDA analysis (for the Selected Companies) are shown in the table below:

 

EV/FORWARD YEAR EBITDA

 

 

Illustrative Present Value of Future Share Price Analysis

 

Goldman Sachs performed an illustrative analysis of the implied present value of the future prices of the Company’s common stock using the Forecasts. The analysis was designed to provide an indication of the present value of a theoretical future price of the Company’s equity as a function of the Company’s estimated future EBITDA. For this analysis, Goldman Sachs used the Forecasts for each of the fiscal years 2010 to 2014.

 

Goldman Sachs first calculated the illustrative future values per share of the Company’s common stock by applying EV to EBITDA multiples of 8.0x to 11.0x to estimates of EBITDA for the applicable forward fiscal year for each of fiscal years 2010 through 2014. The illustrative future values per share of the Company’s common stock in each year were then discounted back to June 30, 2010, using a discount rate of 14.7%, including a size adjustment

of 1.7%, reflecting the Company’s estimated cost of equity. This resulted in illustrative ranges of present values per share of the Company’s common stock for each of fiscal years 2010 through 2014 as follows:

 

 

Illustrative Discounted Cash Flow Analysis

 

Goldman Sachs performed an illustrative discounted cash flow analysis on the Company using the Forecasts, information from the Company’s public filings as at June 30, 2010 and information relating to the Company’s net operating loss provided by the Company’s management. Goldman Sachs calculated indications of net present value of unlevered free cash flows for the Company for the years 2010 through 2014 using discount rates ranging from 11% to 13%, reflecting the Company’s estimated weighted average cost of capital. Goldman Sachs then calculated the illustrative present value of the terminal value using multiples of estimated 2014 EBITDA ranging from 8.0x to 11.0x. Goldman Sachs assumed a mid-year convention and a 39% marginal tax rate, and discounted the results to June 30, 2010. Using information provided by management, Goldman Sachs then calculated the illustrative present value of the Company’s net operating loss, using a discount rate of 9%. This calculation yielded a present value of the Company’s net operating loss of approximately $125 million, or $1.39 per share. This analysis yielded equity values in a range of $7.93 to $12.57 per share. Goldman Sachs also performed a similar illustrative discounted cash flow analysis but using implied perpetuity growth rates after 2014 ranging from 3.0% to 7.0% to calculate an illustrative terminal value. This analysis generated equity values in a range of $3.49 to $12.19 per share.

 

Selected Transactions Analysis

 

Goldman Sachs analyzed certain information relating to selected transactions with an EV over $500,000,000 in the defense industry during the period from 2000 to 2010:

 

 

 

While none of the businesses or companies that participated in these selected transactions are directly comparable to the Company’s current businesses and operations, the businesses and companies that participated in the selected transactions are businesses and companies with operations that, for the purposes of analysis, may be considered similar to certain of the Company’s results, market size, product profile and end market exposure.

 

For each of the selected transactions, Goldman Sachs calculated the EV of the transaction as a multiple of LTM revenue, a multiple of LTM EBITDA, a multiple of estimated forward revenue and a multiple of estimated forward EBITDA. Forward multiples were generated using estimates from IBES as of the date of the public announcement of the relevant transaction. Goldman Sachs then generated the high, mean, median and low of the EV and the

multiples for the selected transactions as a group. Using the $12.00 per share merger consideration to be paid in cash to holders of the outstanding shares of common stock of the Company pursuant to the Merger Agreement, Goldman Sachs calculated the same LTM and forward multiples for the Merger and compared these figures against the LTM and forward multiples for the selected transactions. The following table presents the results of this analysis:

 

 

The preparation of a fairness opinion is a complex process and is not necessarily susceptible to partial analysis or summary description. Selecting portions of the analyses or of the summary set forth above, without considering the analyses as a whole, could create an incomplete view of the processes underlying Goldman Sachs’ opinion. In arriving at its fairness determination, Goldman Sachs considered the results of all of its analyses and did not attribute any particular weight to any factor or analysis considered by it. Rather, Goldman Sachs made its determination as to fairness on the basis of its experience and professional judgment after considering the results of all of its analyses. No company or transaction used in the above analyses as a comparison is directly comparable to the Company or the contemplated Merger.

 

Goldman Sachs prepared these analyses for purposes of Goldman Sachs’ providing its opinion to the board of directors as to the fairness from a financial point of view of the $12.00 per share merger consideration to be paid in cash to the holders (other than Safran and its affiliates) of the outstanding shares of common stock of the Company pursuant to the Merger Agreement. These analyses do not purport to be appraisals nor do they necessarily reflect the prices at which businesses or securities actually may be sold. Analyses based upon forecasts of future results are not necessarily indicative of actual future results, which may be significantly more or less favorable than suggested by these analyses. Because these analyses are inherently subject to uncertainty, being based upon numerous factors or events beyond the control of the parties or their respective advisors, none of the Company, Goldman Sachs or any other person assumes responsibility if future results are materially different from those forecast.

 

The merger consideration was determined through arms’-length negotiations between the Company and Safran and was approved by the board of directors of the Company. Goldman Sachs provided advice to the Company during these negotiations. Goldman Sachs did not, however, recommend any specific amount of consideration to the Company or the board of directors or that any specific amount of consideration constituted the only appropriate consideration for the Merger.

 

As described above, Goldman Sachs’ opinion to the board of directors of the Company was one of many factors taken into consideration by the board of directors in making its determination to approve the Merger Agreement and the Merger. The foregoing summary does not purport to be a complete description of the analyses performed by Goldman Sachs in connection with the fairness opinion and is qualified in its entirety by reference to the written opinion of Goldman Sachs attached as Annex C to this proxy statement.

 

Goldman Sachs and its affiliates are engaged in investment banking and financial advisory services, commercial banking, securities trading, investment management, principal investment, financial planning, benefits counseling, risk management, hedging, financing, brokerage activities and other financial and non-financial activities and services for various persons and entities. In the ordinary course of these activities and services, Goldman Sachs and its affiliates may at any time make or hold long or short positions and investments, as well as actively trade or effect transactions, in the equity, debt and other securities (or related derivative securities) and financial instruments (including bank loans and other obligations) of the Company, Safran, any of their respective affiliates or third parties, including BAE Systems plc and its affiliates, or any currency or commodity that may be involved in the Merger or the BAE Transaction for their own account and for the accounts of their customers.

Goldman Sachs acted as financial advisor to the Company in connection with, and has participated in certain of the negotiations leading to, the Merger and the BAE Transaction. Goldman Sachs has provided certain investment banking services to BAE Systems plc and its affiliates from time to time for which Goldman Sachs’ Investment Banking Division has received, and may receive, compensation, including having acted as joint bookrunning manager with respect to the private placement of 4.95% Guaranteed Bonds due June 2014 (aggregate principal amount $500,000,000) and 6.375% Guaranteed Bonds due June 2019 (aggregate principal amount $1,000,000,000) issued by BAE Systems Holdings Inc., a subsidiary of BAE Systems plc, in June 2009. Goldman Sachs may in the future provide investment banking services to the Company, Safran, BAE and their respective affiliates for which our Investment Banking Division may receive compensation.

 

The board of directors selected Goldman Sachs as its financial advisor because it is an internationally recognized investment banking firm that has substantial experience in transactions similar to the Merger. Pursuant to a letter agreement, dated February 26, 2010, the Company engaged Goldman Sachs to act as its financial advisor in connection with the Company’s exploration of strategic alternatives to enhance stockholder value, including the possible sale of all or a portion of the common stock or assets of the Company. Pursuant to the terms of this engagement letter, the Company has agreed to pay Goldman Sachs a fee totaling approximately $11 million, of which approximately $9.4 million will be paid upon the consummation of the Merger. In addition, the Company has agreed to reimburse Goldman Sachs for certain expenses and to indemnify Goldman Sachs against certain liabilities arising out of Goldman Sachs’ engagement.

 

Overview

 

Pursuant to an engagement letter dated February 28, 2010, the Company retained Stone Key to act as its financial advisor in connection with the Company’s exploration of strategic alternatives to enhance stockholder value, including the possible sale of all or a portion of the Company common stock or the assets of the Company and / or its subsidiaries. In selecting Stone Key, the Company’s board of directors considered, among other things, the fact that Stone Key is an internationally recognized investment banking firm with substantial experience advising companies in the defense technology, homeland security and government services industries as well as substantial experience providing strategic advisory services. Stone Key, as part of its investment banking business, is continuously engaged in the evaluation of businesses and their debt and equity securities in connection with mergers and acquisitions, underwritings, private placements and other securities offerings, valuations and general corporate advisory services.

 

At the September 18, 2010 meeting of the Company’s board of directors, Stone Key delivered its oral opinion, which was subsequently confirmed in writing, that, as of September 18, 2010, and based upon and subject to the assumptions, qualifications and limitations set forth in the written opinion, the $12.00 per share merger consideration was fair, from a financial point of view, to the stockholders of the Company.

 

The full text of Stone Key’s written opinion is attached as Annex D to this proxy statement and you should read the opinion carefully and in its entirety. The opinion sets forth the assumptions made, certain of the matters considered and qualifications to and limitations of the review undertaken by Stone Key. The Stone Key opinion, which was authorized for issuance by the Fairness Opinion and Valuation Committee of Stone Key, is subject to the assumptions and conditions contained in the opinion and is necessarily based on economic, market and other conditions and the information made available to Stone Key as of the date of the Stone Key opinion. Stone Key has no responsibility for updating or revising its opinion based on circumstances or events occurring after the date of the rendering of the opinion.

 

In reading the discussion of the fairness opinion set forth below, you should be aware that Stone Key’s opinion:

 

 

 

The Company did not provide specific instructions to, or place any limitations on, Stone Key with respect to the procedures to be followed or factors to be considered by it in performing its analyses or providing its opinion.

 

In connection with rendering its opinion, Stone Key:

 

 

In connection with rendering its opinion, Stone Key further noted that:

 

 

 

Summary of Analyses

 

The following is a summary of the principal financial and valuation analyses performed by Stone Key and presented to the Company’s board of directors in connection with rendering its fairness opinion. Some of the financial and valuation analyses summarized below include summary data and information presented in tabular format. In order to understand fully the financial and valuation analyses, the summary data and tables must be read together with the full text of the summary. Considering the summary data and tables alone could create a misleading or incomplete view of Stone Key’s financial and valuation analyses.

 

Transaction Valuation Overview

 

Based on approximately 90 million shares of the Company common stock that are expected to be outstanding as of December 31, 2010 on a basic basis (i.e., assuming that options are net cash settled), Stone Key noted that the merger consideration of $12.00 per share implied an equity value of approximately $1.1 billion. Net of approximately $2.8 million of cash and cash equivalents and approximately $481.4 million of debt (as of June 30, 2010), Stone Key noted that the $12.00 per share merger consideration implied an enterprise value of approximately $1.6 billion.

 

Stone Key also reviewed the historical trading prices and volumes for the Company common stock for the 12-month periods ended September 17, 2010 (the last trading day before the announcement of the execution of the Merger Agreement) and January 5, 2010 (the last trading day prior to the public announcement that the Company was exploring strategic alternatives) (we refer to the price as of January 5, 2010 in this proxy statement as the Unaffected Price). In addition, Stone Key analyzed the consideration to be received by holders of the shares of the Company common stock pursuant to the Merger Agreement in relation to the share price on September 17, 2010; the share price on January 5, 2010; the average share prices for the 30 and 90 trading days and the 12 months ending on September 17, 2010 and January 5, 2010; and the high and low share prices for the 12 months ending

September 17, 2010 and January 5, 2010. The closing share prices and implied premiums to the merger consideration of $12.00 per share are detailed below.

 

 

Stone Key’s Valuation Analyses

 

Discounted Cash Flow Analyses.  Stone Key performed discounted cash flow analyses based on the Company’s projected unlevered after-tax free cash flows and an estimate of its terminal value at the end of the projection horizon.

 

In performing its discounted cash flow analyses:

 

 

Comparable Company Analysis.  Stone Key compared and analyzed the Company’s historical stock price performance, historical and projected financial performance and valuation metrics against other publicly traded companies in the biometrics, homeland security and government services sectors.

The following publicly traded comparable companies were used in the analysis of the Company and were selected on the basis of their financial and operating metrics, including product and service offerings, risk profile, size, end customers, geographic footprint and scale of operations:

 

 

Stone Key calculated the following trading multiples for the above comparable companies based on Wall Street consensus estimates and the most recent publicly available filings:

 

Selected Peer Group Trading Multiples

 

 

In performing its comparable company analysis:

 

 

 

Precedent Merger and Acquisition Transactions Analysis.  Stone Key reviewed and analyzed certain relevant precedent merger and acquisition transactions during the past several years involving the biometrics, homeland security and government services industries.

 

The following precedent merger and acquisition transactions were considered by Stone Key:

 

 

A summary of Stone Key’s analysis of the precedent merger and acquisition transactions is presented below:

 

In performing its precedent merger and acquisition transactions analysis:

 

 

Other Considerations

 

The preparation of a fairness opinion is a complex process and involves various judgments and determinations as to the most appropriate and relevant assumptions and financial and valuation analyses and the application of those methods to the particular circumstances involved. A fairness opinion is therefore not readily susceptible to partial analysis or summary description, and taking portions of the analyses set out above, without considering the

analysis as a whole, would in the view of Stone Key create an incomplete and misleading picture of the processes underlying the analyses considered in rendering the Stone Key opinion. In arriving at its opinion, Stone Key:

 

 

Stone Key also noted that:

 

 

The type and amount of consideration payable in the Merger were determined through negotiations between the Company and Safran and were approved by the Company board of directors. The decision to enter into the Merger Agreement and the BAE Agreement was solely that of the Company’s board of directors. The Stone Key opinion was just one of the many factors taken into consideration by the Company’s board of directors. Consequently, Stone Key’s analyses should not be viewed as determinative of the decision of the Company’s board of directors with respect to the fairness of the merger consideration, from a financial point of view, to the stockholders of the Company.

 

Pursuant to the engagement letter between Stone Key and the Company, the Company has agreed to pay Stone Key a fee totaling approximately $8 million, of which approximately $1.2 million was payable in connection with delivery of its opinion and the remaining portion of which will be paid upon the consummation of the transactions. In addition, the Company has agreed to reimburse Stone Key for certain expenses and to indemnify Stone Key against certain liabilities arising out of Stone Key’s engagement.

 

Stone Key may seek to provide Safran, BAE and their respective affiliates with certain investment banking and other services unrelated to the Merger and BAE Transaction in the future.

 

Michael J. Urfirer is a co-owner and co-founder of Stone Key Partners LLC’s parent company, Stone Key Group LLC (which we refer to in this proxy statement as SKG) and the husband of Ms. Fordyce, the Company’s Executive Vice President of Corporate Communications. Both Mr. Urfirer and Denis A. Bovin, each a Co-Chairman and Co-Chief Executive Officer of Stone Key Partners LLC, hold personal investments, as minority limited partners, in Aston. See the section of this proxy statement entitled “— Interests of Certain Persons in the Merger —

Relationships with Aston and Stone Key.” Mr. Urfirer has confirmed to the Company that he has no specific interest in any fees paid to Stone Key in connection with the Merger and BAE Transaction that are attributable to his status as co-owner of SKG and its affiliates or otherwise, and that he will not receive any commission, direct participation or similar payment in connection with Stone Key’s receipt of any such fees. In his capacity as an employee of SKG, Mr. Urfirer receives a salary from SKG which is not based on fees paid to SKG. In addition, in his capacity as the holder of an interest in SKG, Mr. Urfirer is entitled to a percentage of SKG’s profits. The profits interest in SKG held by Mr. Urfirer is not a fixed percentage and varies based on the revenues and expenses of SKG, the operation of payment priorities in SKG’s LLC Agreement and potential future dilution. Under certain scenarios, Mr. Urfirer’s interest in SKG’s 2010 profits could be equal to but will in no event exceed 50% and, therefore, Mr. Urfirer’s share of the fees payable to Stone Key in connection with the Merger and BAE Transaction could approximate $4.0 million, before considering related operating costs and expenses.

 

L-1 does not as a matter of general practice publicly disclose financial forecasts or internal projections as to future performance, earnings or other results, other than the Company’s publicly disclosed current year guidance. In the course of the process resulting in the Merger Agreement, management of the Company prepared certain non-public, internal financial forecasts, which in the view of management were prepared on a reasonable basis and at the time of their preparation reflected the best available estimates and judgments, and presented, to the best of management’s knowledge and belief, the expected courses of action and the expected future results of operations of the Company for the fiscal years 2010 through 2014. This information did not take into account the proposed Merger between the Company and Merger Sub as set forth in the Merger Agreement or the BAE Transaction between the Company and BAE as set forth in the BAE Agreement.

 

As described in the section of this proxy statement entitled “— Background of the Merger,” in late August 2010, management of the Company prepared a set of such internal financial forecasts that were shared with the board of directors, our financial advisors and Safran (in this proxy statement we refer to the financial forecasts prepared in late August 2010 as the Forecasts). The Company approved the use by the financial advisors of the Forecasts in connection with their respective financial analyses of the Merger and the separate opinions of each of Goldman Sachs and Stone Key, dated September 19, 2010 and September 18, 2010 respectively, that as of such date, and based on and subject to the various limitations and assumptions described in the applicable opinion, the $12.00 per share in cash to be paid to the holders (other than Safran and its affiliates) of the outstanding shares of common stock of the Company pursuant to the merger agreement was fair from a financial point of view to such holders. We have included below a subset of the Forecasts solely to give our stockholders access to certain non-public information that was furnished to our financial advisors and Safran. Neither the subset of Forecasts nor any other prospective financial information included in the proxy statement are being included in this proxy statement to influence your decision whether to vote for the Merger.

 

Neither the Forecasts nor any other prospective financial information included in the proxy statement were prepared with a view toward public disclosure, nor were they prepared with a view toward compliance with published guidelines of the SEC regarding forward-looking statements, the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of prospective financial information, or GAAP. The Forecasts and the other prospective financial information included in this proxy statement (which we refer to collectively in this proxy statement as the Company Forecasts) contain certain financial measures that were not calculated in accordance with GAAP. The Company Forecasts included in this proxy statement were prepared by, and are the responsibility of the Company’s senior management. Neither the Company’s independent registered public accounting firm, nor any other independent accountants, have compiled, examined or performed any procedures with respect to the prospective financial information contained herein, nor have they expressed any opinion or any other form of assurance on such information or its achievability, and assume no responsibility for, and disclaim any association with, the Company Forecasts. The Company Forecasts do not take into account any circumstances or events occurring after the Company Forecasts were prepared that were unforeseen by the Company’s senior management at the time of preparation.

 

The Company Forecasts reflect numerous estimates and assumptions with respect to industry performance and competition, general business, economic, regulatory, market and financial conditions and additional matters

specific to L-1’s business, all of which are difficult to predict and many of which are beyond the Company’s control, including the factors described under “Cautionary Statement Concerning Forward-Looking Information” beginning on page • . The Company Forecasts also reflect assumptions as to certain business decisions that are subject to change. As a result, there can be no assurance that the forecasted data contained therein will be realized or that actual results will not be materially different than estimated in the Company Forecasts. Since the Company Forecasts cover multiple years, such information by its nature becomes less predictive with each successive year. You are urged to review the Company’s most recent SEC filings for a description of risk factors with respect to the Company’s business. See the section of this proxy statement entitled “Where You Can Find More Information.” Furthermore, the Company Forecasts do not take into account any circumstance or event occurring after the date they were prepared. In particular, since the date of the Company Forecasts, the Company has made publicly available its actual results of operations for the nine-month period ended September 30, 2010. You should review the Company’s Quarterly Report on Form 10-Q for the nine-month period ended September 30, 2010 for this information.

 

The inclusion of prospective financial information in this document should not be regarded as an indication that our board of directors or any of L-1, Safran or their respective affiliates, financial and legal advisors or their respective representatives considered, or now considers, the Company Forecasts to be predictive of actual future results, and the Company Forecasts should not be relied upon as such. None of our board of directors, L-1, Safran or their respective affiliates, financial and legal advisors or their respective representatives can give you any assurance that actual results will not differ from the Company Forecasts. The Company Forecasts, including the subset of the Forecasts set forth below, speak only as of the time they were prepared in connection with our board of directors’ and financial advisors’ evaluation of the fairness of the merger consideration. L-1 has made no representation to Safran in the Merger Agreement or otherwise, concerning the Company Forecasts.

 

The Forecasts for fiscal years 2010 through 2014 as of August 2010 provided to our financial advisors and Safran included the following:

 

 

 

* Adjusted EBITDA represents EBITDA, adjusted to exclude stock-based compensation expense.

 

Readers of this proxy statement are cautioned not to place undue reliance on the Company Forecasts set forth in this proxy statement. No representation is made by L-1 or any other person to any stockholder of the Company regarding the ultimate performance of L-1 compared to the information included in the Company Forecasts set forth in this proxy statement.

 

THE COMPANY DOES NOT INTEND TO UPDATE OR OTHERWISE REVISE THE COMPANY FORECASTS SET FORTH IN THIS PROXY STATEMENT TO REFLECT CIRCUMSTANCES EXISTING AFTER THE DATE WHEN MADE OR TO REFLECT THE OCCURRENCE OF FUTURE EVENTS, EVEN IN THE EVENT THAT ANY OR ALL OF THE ASSUMPTIONS UNDERLYING SUCH COMPANY FORECASTS ARE NO LONGER APPROPRIATE.

 

If the Merger Agreement is not adopted and the Merger is not approved by our stockholders or if the Merger is not completed for any other reason, our stockholders will not receive any payment for their shares of our common stock in connection with the Merger. Instead, we will remain an independent public company, and our common stock will continue to be quoted on the New York Stock Exchange. Completion of the BAE Transaction and the sale

of the Company’s intelligence services business group to BAE is not conditioned on the Merger, and this transaction may be completed even if the Merger is not completed or the Merger Agreement is terminated.

 

If the Merger is not consummated, there can be no assurance as to the effect of these risks and opportunities on the future value of your shares of our common stock. In the event the Merger is not completed, our board of directors will continue to evaluate and review our business operations, projects and capitalization, make such changes as are deemed appropriate and seek to identify acquisitions, joint ventures or strategic alternatives to enhance stockholder value. If the Merger Agreement is not adopted and the Merger not approved by our stockholders or if the Merger is not consummated for any other reason, there can be no assurance that any other transaction acceptable to us will be offered or that our business, prospects or results of operations will not be adversely impacted.

 

If the Merger Agreement is terminated under certain circumstances, we will be obligated to pay Safran a termination fee or reimburse Safran for certain of its out-of-pocket expense. Safran may also be required to pay L-1 a termination fee under certain circumstances. See the section of this proxy statement entitled “The Merger Agreement — Termination Fees and Reimbursement of Expenses.”

 

The obligations of Safran and Merger Sub under the Merger Agreement are not subject to a condition regarding Safran’s or Merger Sub’s obtaining of funds to consummate the Merger and the other transactions contemplated by the Merger Agreement. Safran and Merger Sub have represented in the Merger Agreement that Safran has, and as of the closing of the Merger, Safran will have, sufficient funds available (through existing credit arrangements or otherwise) to fully fund all of its and Merger Sub’s obligations under the Merger Agreement, including payment of the aggregate merger consideration and other cash consideration in respect of equity awards pursuant to the Merger Agreement, and payment of all fees and expenses related to the transactions contemplated by the Merger Agreement, and any refinancing of indebtedness of Safran or the Company or their respective subsidiaries in connection with the transactions contemplated by the Merger Agreement.

 

BAE’s obligations under the BAE Agreement are not subject to a condition regarding BAE obtaining funds to consummate the BAE Transaction. BAE has represented in the BAE Agreement that it has, and as of the closing of the BAE Transaction, BAE will have, sufficient funds available (through existing credit arrangements or otherwise) to fully fund all of its obligations under the BAE Agreement.

 

The following is a general summary of material U.S. federal income tax consequences of the Merger to U.S. holders whose shares of our common stock are converted into the right to receive cash in the Merger. This summary does not purport to consider all aspects of U.S. federal income taxation that might be relevant to our stockholders. For purposes of this summary, the term “U.S. holder” means a beneficial owner of shares of our common stock that is, for U.S. federal income tax purposes:

 

 

If a partnership (including an entity treated as a partnership for U.S. federal income tax purposes) holds common stock, the tax treatment of a partner generally will depend on the status of the partners and the activities of the partnership. A partner of a partnership holding common stock should consult its independent tax advisor.

This summary is based on the Internal Revenue Code of 1986, as amended (which we refer to in this proxy statement as the Code), its legislative history, U.S. Treasury regulations promulgated thereunder, published rulings by the Internal Revenue Service, and judicial and administrative decisions in effect as of the date of this proxy statement, all of which are subject to change, possibly with retroactive effect. This summary applies only to beneficial owners who are U.S. holders and hold shares of our common stock as “capital assets” within the meaning of Section 1221 of the Code and does not apply to shares of our common stock received in connection with the exercise of employee stock options or otherwise as compensation for services or through a tax-qualified retirement plan, stockholders who hold an equity interest, directly or indirectly, in Safran after the Merger, shares held by holders who properly demand and perfect their appraisal rights under Delaware law or to certain types of beneficial owners who may be subject to special rules (such as insurance companies, banks, tax-exempt organizations, financial institutions, broker dealers, dealers in currencies, partnerships, S corporations or other pass-through entities (or investors in an S corporation or other pass-through entity), mutual funds, real estate investment trusts, traders in securities who elect the mark-to-market method of accounting for their securities, stockholders subject to the alternative minimum tax, stockholders that have a functional currency other than the U.S. dollar, or stockholders who hold common stock as part of a hedge, straddle, constructive sale, conversion transaction or other integrated transaction). This summary does not address any aspect of state, local, foreign or estate and gift tax laws.

 

Exchange of Shares of Common Stock for Cash Pursuant to the Merger Agreement

 

The receipt of cash in exchange for shares of our common stock pursuant to the Merger will be a taxable transaction for U.S. federal income tax purposes. In general, a U.S. holder whose shares of common stock are converted into the right to receive cash in the Merger will recognize capital gain or loss for U.S. federal income tax purposes equal to the difference, if any, between the amount of cash received in the Merger with respect to such shares and the holder’s adjusted tax basis in such shares. Gain or loss will be determined separately for each block of shares (i.e., shares acquired at the same cost in a single transaction). Such gain or loss will be long-term capital gain or loss, provided that a U.S. holder’s holding period is more than one year at the time of the consummation of the Merger. Certain limitations apply to the use of capital losses.

 

Backup Withholding and Information Reporting

 

The receipt of cash in exchange for shares of our common stock by a U.S. holder pursuant to the Merger may be subject to information reporting and backup withholding tax at the applicable rate, unless the U.S. holder (i) timely furnishes an accurate taxpayer identification number and otherwise complies with applicable U.S. information reporting or certification requirements (typically by completing and signing an Internal Revenue Service Form W-9, a copy of which will be included as part of the letter of transmittal to be timely returned to the paying agent) or (ii) is a corporation or other exempt recipient and, when required, establishes such fact. Backup withholding is not an additional tax and any amounts withheld under the backup withholding rules may be refunded or credited against a U.S. holder’s U.S. federal income tax liability, if any, provided that the required information is furnished to the Internal Revenue Service in a timely manner.

 

The U.S. federal income tax consequences described above are not intended to constitute tax advice nor a complete discussion of all tax consequences relating to the Merger. Because individual circumstances may differ, each stockholder should consult its independent tax advisor regarding the applicability of the rules discussed above and the particular tax effects to the stockholder of the Merger in light of such stockholder’s particular circumstances, the application of state, local and foreign tax laws, and, if applicable, the tax consequences of the receipt of cash in connection with the cancellation or exchange of options, warrants, restricted stock awards or deferred stock units to purchase shares of common stock, including the transactions described in this proxy statement relating to our other equity compensation and benefit plans.

 

Contemporaneously with the execution of the Merger Agreement, on September 19, 2010, Safran, Merger Sub, Mr. LaPenta and Aston entered into a voting and support agreement pursuant to which Mr. LaPenta and Aston have agreed, among other things, to vote their shares of Company common stock:

 

 

As of November 18, 2010, Mr. LaPenta and Aston together beneficially owned approximately 14.58% of our outstanding shares.

 

Each of Mr. LaPenta and Aston has appointed Safran’s designees, with full power of substitution, as such stockholder’s proxy and attorney-in-fact, for and in such stockholder’s name, to vote all shares of Company common stock owned by such stockholder in the manner described above.

 

Each of Mr. LaPenta and Aston also agreed that he or it will not (i) solicit, initiate, cause, facilitate or encourage any inquiries or proposals that constitute, or may reasonably be expected to lead to, an alternative acquisition or takeover proposal, (ii) participate in any discussions or negotiations with any third party regarding any alternative acquisition or takeover proposal or (iii) enter into any agreement related to any alternative acquisition or takeover proposal, in each case, except to the extent the Company is permitted to take such actions pursuant to the Merger Agreement. See the section of this proxy statement entitled “The Merger Agreement — Restrictions on Solicitations of Other Offers.”

 

The voting and support agreement will terminate upon the earliest of (i) the mutual agreement of Safran, Merger Sub, Mr. LaPenta and Aston, (ii) the termination of the Merger Agreement in accordance with its terms or (iii) the consummation of the Merger, provided, however, that Mr. LaPenta’s and Aston’s voting obligations and the appointment of proxies with respect to the subject shares will terminate upon our board of directors changing its recommendation that stockholders vote for the adoption of the Merger Agreement and approval of the Merger. See the section of this proxy statement entitled “The Merger Agreement — Change of Recommendation.”

 

In considering the recommendation of the board of directors with respect to the Merger Agreement, you should be aware that the Company’s directors and executive officers, including individuals who participated in meetings of the board of directors regarding the Merger Agreement and the Merger, and certain other individuals may have interests in the Merger that are different from, or in addition to, the interests of our stockholders generally, as more fully described below. Our board of directors was aware of these potentially differing interests and considered them, among other matters, in reaching its decision to approve the Merger Agreement and the Merger and to recommend that you vote in favor of adopting the Merger Agreement and approving the Merger.

 

Employment Agreements

 

Each of Robert V. LaPenta, our Chairman of the Board, President and Chief Executive Officer, James A. DePalma, our Executive Vice President, Chief Financial Officer and Treasurer, Joseph Atick, our Executive Vice President and Chief Strategic Officer, Mark S. Molina, our Executive Vice President, Chief Legal Officer and Secretary, Joseph S. Paresi, our Executive Vice President and Chief Marketing Officer and Doni L. Fordyce, our Executive Vice President of Corporate Communications, is party to an employment agreement with the Company (each of which we refer to in this proxy statement as an Employment Agreement). Each of the Employment Agreements was entered into as of August 29, 2006, and amended as of July 31, 2009. Each Employment Agreement provides that the executive officer is entitled to severance benefits if the executive officer is terminated by the Company “without cause” or if the executive officer terminates employment for “good reason.”

Upon the occurrence of one of such events, these executive officers will be entitled to the following payments and benefits:

 

 

Mr. Molina’s agreement also provides that following any termination of employment occurring after a change in control, the Company or its successor will pay all costs and expenses arising out of or related to the relocation of him and his family within the mainland United States (or, if elected by Mr. Molina, the lump sum cash value thereof) on terms no less favorable to Mr. Molina than those set forth in an identified company relocation policy. His agreement also requires thirty days prior notice of termination or payment in lieu thereof.

 

To receive such severance benefits, Messrs. LaPenta, DePalma and Paresi and Ms. Fordyce must execute a general release of claims in favor of the Company. Cash severance in respect of the salary and bonus components described above for Messrs. LaPenta, DePalma, Paresi, Atick and Molina will be paid in two equal lump sum payments — the first lump sum payment to be made within five business days after the termination date and the second lump sum payment to be made on the next business day after the six-month anniversary of the termination date. Cash severance in respect of the salary and bonus components described above for Ms. Fordyce will be paid in one lump sum payment within five days following the six-month anniversary of the date of termination. In addition, each such executive officer will be entitled to an additional payment to compensate the executive officer for any excise tax incurred by such executive officer under Section 4999 of the Code. Safran and the Company have agreed to cooperate, and the Company has agreed to take all actions reasonably requested by Safran, on or prior to December 31, 2010, as are necessary to reduce and/or avoid the application of Section 280G of the Code to the payments to be made to such executive officers.

 

Pursuant to their Employment Agreements, each of Messrs. LaPenta and DePalma have deferred annual bonuses in the form of deferred stock units, which will be paid upon a change in control or any termination of their employment.

 

Vincent D’Angelo, our Senior Vice President of Finance and Chief Accounting Officer, has an offer letter from the Company, dated September 21, 2006, which provides for the following severance benefits if he is terminated by the Company “without cause” or if he terminates for “good reason”:

 

 

Robert V. LaPenta, Jr., the son of the Company’s Chief Executive Officer and the Company’s Vice President, M&A/Corporate Development, is entitled to a cash severance payment equal to his annual base salary (currently $165,000) in the event of a qualifying termination of employment. Mr. LaPenta, Jr.’s entitlement to such cash severance payment was awarded pursuant to a severance program established in September 2010 for approximately 25 other Company headquarters non-executive officer employees, which provides for aggregate severance

payments of approximately $3,661,238, payable in the event these employees incur qualifying terminations of employment.

 

Transaction Bonuses

 

Mr. D’Angelo and Mr. LaPenta, Jr. will each be entitled to receive a cash transaction bonus equal to $150,000 and $175,000, respectively, upon closing of the Merger. These cash transaction bonuses are payable pursuant to an award of cash transaction bonuses made in September 2010 to Mr. D’Angelo and approximately 30 non-executive officer employees of the Company (including Mr. LaPenta, Jr.) in recognition of their efforts with respect to the Merger and BAE Transaction. The cash transaction bonuses, in the aggregate, total approximately $1,491,000.

 

Potential Cash Severance Payments to Executive Officers Upon Termination or Qualifying Termination After a Change in Control

 

Consummation of the Merger will constitute a change in control under the Employment Agreements. Pursuant to the Merger Agreement, Safran has agreed to cause the surviving corporation to terminate the employment of Messrs. DePalma, LaPenta and Molina and Ms. Fordyce immediately following the closing of the Merger and has agreed that such terminations of employment shall be treated as terminations “without cause” for purposes of the Employment Agreements.

 

The following table sets forth an estimate of the potential cash severance payments that would be paid to the Company’s executive officers pursuant to the Employment Agreements, assuming the Merger is consummated on February 2, 2011 and the employment of each of the executive officers is terminated immediately following the closing of the Merger in accordance with the terms of each such agreement and in a manner entitling them to severance benefits.

 

 

 

 

Treatment of Stock Options, Restricted Stock Awards and Long-Term Cash Awards

 

As of November 18, 2010, there were 7,195,598 shares of common stock subject to outstanding stock options granted under the Company’s L-1 Identity Solutions, Inc. 2010 Long-Term Incentive Plan, L-1 Identity Solutions, Inc. 2008 Long-Term Incentive Plan, Viisage Technology, Inc. 2005 Long-Term Incentive Plan, Viisage Technology, Inc. Second Amended and Restated 1996 Management Stock Option Plan, Viisage Technology, Inc. Amended and Restated 1996 Directors Stock Option Plan, 2002 Equity Incentive Plan of Identix Incorporated, Identix Incorporated New Employee Stock Incentive Plan, Identix Incorporated Nonemployee Directors Stock Option Plan, Identix Incorporated Equity Incentive Plan, Visionics Corporation 1990 Stock Option Plan, Visionics Corporation 1998 Stock Option Plan, Visionics Corporation Stock Incentive Plan, Bioscrypt Inc. Primary Stock Option Plan, ZN Employee Share Option Plan, Imaging Automation, Inc. 2003 Employee, Director and Consultant Stock Plan and Imaging Automation Inc. 1996 Stock Option Plan, each as amended from time to time (which we collectively refer to in this proxy statement as the Equity Plans).

Pursuant to the terms of the Merger Agreement, each stock option outstanding immediately prior to the effective time of the Merger that represents the right to acquire shares of our common stock and was issued under one of the Equity Plans will, to the extent not then vested and exercisable, become fully vested and exercisable as of immediately prior to the effective time and each stock option to acquire shares of our common stock that is then outstanding will, at the effective time of the Merger, be cancelled in exchange for the right to receive a cash payment equal to the excess, if any, of the $12.00 merger consideration per share of our common stock underlying the stock option over the exercise price payable in respect of such share of our common stock issuable under such stock option, less any applicable withholding taxes.

 

The table set forth below summarizes the outstanding vested and unvested options held, as of November 18, 2010, by our directors, executive officers and Mr. LaPenta, Jr., and the consideration that each of them will receive in consideration for the cancellation of their options in connection with the Merger:

 

 

 

 

Pursuant to the terms of the Merger Agreement, each restricted stock award outstanding immediately prior to the effective time of the Merger will, at the effective time of the Merger, be cancelled and holders thereof will only have the right to receive the per share consideration of $12.00, less any applicable withholding taxes. In addition, each deferred stock unit relating to a bonus previously earned but deferred that is outstanding immediately prior to the effective time of the Merger will be cancelled in exchange for the right to receive an amount equal to the merger consideration, less any applicable withholding taxes.

The table set forth below summarizes the unvested restricted stock awards as of November 18, 2010, held by our directors, executive officers and Mr. LaPenta, Jr., and the consideration that each of them will receive in connection with the Merger with respect to their restricted stock awards. For Messrs. LaPenta and DePalma, the table below also summarizes the number of deferred stock units credited to their deferred compensation accounts as of November 18, 2010, and the consideration that each of them will receive in connection with the Merger upon the payment of such vested deferred stock units.

 

 

In addition, under the Company’s compensation policy applicable to its non-employee directors, each non-employee member of the board of directors is entitled to receive, as one component of annual compensation, $100,000 in restricted shares of Company common stock on the first business day of each calendar year. The next regularly scheduled grant date for such shares of stock is January 3, 2011. The policy provides that the shares vest 25% per year over a four-year period and vesting of all unvested shares is accelerated in the event of a “change of control,” including the Merger. Under the terms of the Merger Agreement, subject to certain exceptions, the Company is restricted from issuing additional shares of stock. In light of these restrictions and subject to any required approvals, it is expected that the value of the shares of stock that would otherwise be granted to each non-employee director on January 3, 2011 will be paid in cash instead of stock, and that such cash amounts will be payable at the time such shares of stock would have vested as described above.

 

Pursuant to the terms of the Merger Agreement, each long-term cash award granted in February 2010 will become fully vested as of the effective time of the Merger and will be payable by the Company no less than 10 business days following the effective time of the Merger. Mr. D’Angelo and approximately forty-eight non-executive officer employees of the Company (including Mr. LaPenta, Jr.) were the recipients of such long-term cash awards, which were granted with a three-year vesting schedule and, in the aggregate, total approximately $4,050,000. Assuming that the Merger is consummated on February 2, 2011, Mr. D’Angelo and Mr. LaPenta, Jr. would be entitled to payments equal to $100,000 and $50,000, respectively.

The following table sets forth the cumulative estimated compensation, each component of which has been described and set forth in the preceding tables, that may be payable in connection with the Merger to the Company’s executive officers pursuant to the severance provisions, and, in the case of Mr. Molina, the provision relating to moving expenses, of their Employment Agreements (or, in the case of Mr. D’Angelo, his offer letter), the terms of the Merger Agreement that provide for the vesting and payment of their equity-based awards and long-term cash awards and, in the case of Mr. D’Angelo, pursuant to the Company’s cash transaction bonus award. As with the preceding tables, where relevant, values are based on the $12.00 per share merger consideration.

 

 

Director and Officer Indemnification and Insurance

 

The Merger Agreement provides that Safran and Merger Sub will (i) continue in full force and effect all rights to indemnification for acts and omissions occurring prior to the effective time of the Merger (including any matters arising in connection with the transactions contemplated by the Merger Agreement and the BAE Agreement), whether asserted or claimed prior to, at or after the effective time of the Merger, existing in favor of the current or former directors, officers and members of the boards of managers of the Company and its subsidiaries (other than the Intel Companies) and the current or former employees of the Company or its subsidiaries as provided in the organizational documents of the Company and its subsidiaries or any contract with the Company, in each case as in effect on the date of the Merger Agreement and (ii) indemnify, defend, hold harmless and advance expenses to the current and former directors and officers of the Company and its subsidiaries (other than the Intel Companies) with respect to all acts or omissions by them in their capacities as such at any time prior to the effective time of the Merger (including any matters arising in connection with the transactions contemplated by the Merger Agreement and the BAE Agreement), to the fullest extent that the Company or its subsidiaries would be permitted by applicable law. See the section of this proxy statement entitled “The Merger Agreement — Director and Officer Indemnification and Insurance.”

 

In addition, under the terms of the Merger Agreement, Safran will also provide, or cause the surviving corporation to provide, for a period of six years after the effective time of the Merger, insurance and indemnification policies, or “tail policies,” in each case, that provide coverage for events occurring at or prior to the effective time of the Merger for those individuals who were insured by the Company’s directors’ and officers’ insurance and indemnification policies, which coverage shall be on terms that are no less favorable than the existing policies of the Company as of the date of the Merger Agreement or, if substantially equivalent insurance coverage is unavailable, the best available coverage. Safran’s and the surviving corporation’s obligation to provide this insurance coverage is subject to a premium cap of 300% of the last annual premium paid by the Company for its policies prior to the date of the Merger Agreement. See the section of this proxy statement entitled “The Merger Agreement — Director and Officer Indemnification and Insurance.”

 

Under the terms of the Merger Agreement, following the closing of the Merger, Safran is also required to honor the Company’s director and officer litigation reimbursement policy, pursuant to which all current and former directors and officers of the Company are entitled to compensation for time and services related to appearances or attendance at any third party proceeding (including without limitation, depositions, court appearances and legal proceedings) in any case related to his or her current or past service as a director or officer, as the case may be. This compensation is in addition to reimbursement of all reasonable out-of-pocket costs and expenses associated with such appearance or attendance. See the section of this proxy statement entitled “The Merger Agreement — Director and Officer Indemnification and Insurance.”

 

Aston is a private investment fund organized as a limited partnership and managed by its general partner, Aston Capital Partners GP LLC, and L-1 Investment Partners LLC, its investment manger. Aston owns approximately 8.14% of the outstanding shares of the Company common stock as of November 18, 2010 and is controlled by certain of the Company’s executive officers, including Messrs. LaPenta, DePalma and Paresi and Ms. Fordyce. Messrs. LaPenta, DePalma and Paresi and Ms. Fordyce are also the managing members of Aston Capital Partners GP LLC and L-1 Investment Partners LLC and directly and indirectly hold all the beneficial ownership interests of Aston Capital Partners GP LLC and L-1 Investment Partners LLC.

 

Michael J. Urfirer is a co-owner and co-founder of Stone Key’s parent company, Stone Key Group LLC, and the husband of Ms. Fordyce, the Company’s Executive Vice President of Corporate Communications. Both Mr. Urfirer and Denis A. Bovin, each a Co-Chairman and Co-Chief Executive Officer of Stone Key Partners LLC, hold personal investments, as minority limited partners, in Aston. In connection with the Merger and BAE Transaction and pursuant to an engagement letter between Stone Key and the Company, the Company has agreed to pay Stone Key certain fees in connection with the transactions. See the section of this proxy statement entitled “— Opinion of Stone Key Partners LLC.”

 

Contemporaneously with the execution of the Merger Agreement, on September 19, 2010, Safran, Merger Sub, Mr. LaPenta and Aston entered into a voting and support agreement. See the section of this proxy statement entitled “— Voting and Support Agreement.”

 

Antitrust Clearance

 

Under the HSR Act, and the rules promulgated thereunder by the FTC, the Merger may not be completed until notification and report forms have been filed with the FTC and the Antitrust Division of the DOJ, and the applicable waiting period has expired or been terminated. L-1 and Safran filed the notification and report forms under the HSR Act with the FTC and the DOJ on • , which triggered an initial 30-day waiting period. The Antitrust Division of the DOJ, the FTC, state Attorneys General or private parties may also challenge the Merger on antitrust grounds either before or after the transaction has closed. Accordingly, while the parties believe that the transaction complies with the applicable antitrust laws, it is possible that at any time before or after expiration or termination of the HSR Act waiting period or even after the completion of the Merger, any of the Antitrust Division, the FTC, state Attorneys General or private parties could take action under the antitrust laws as deemed necessary or desirable in the public or other interest, including without limitation seeking to enjoin the completion of the Merger or permitting completion subject to regulatory concessions or conditions.

 

At any time before or after consummation of the Merger, notwithstanding early termination of the waiting period under the HSR Act, the Antitrust Division of the DOJ or the FTC could take such action under the antitrust laws as it deems necessary or desirable in the public interest, including seeking to enjoin the consummation of the Merger or seeking divestiture of substantial assets of L-1 or Safran. At any time before or after the consummation of the Merger, and notwithstanding the early termination of the waiting period under the HSR Act, any state could take such action under the antitrust laws as it deems necessary or desirable in the public interest. Such action could include seeking to enjoin the consummation of the Merger or seeking divestiture of substantial assets of L-1 or Safran. Under the Merger Agreement, Safran is not required to divest any assets in order to obtain antitrust clearance (see the section of this proxy statement entitled “The Merger Agreement — Agreement to Take Appropriate Actions”). Private parties may also seek to take legal action under the antitrust laws under certain circumstances. The term “antitrust laws” means the Sherman Act, as amended, the Clayton Act, as amended, the HSR Act, the Federal Trade Commission Act, as amended, all applicable foreign antitrust laws and all other applicable laws issued by any government, court, regulatory or administrative agency, commission or authority or other governmental instrumentality, whether federal, state or local, domestic, foreign or multinational, designed or intended to prohibit, restrict or regulate actions having the purpose or effect of monopolization or restraint of trade or lessening of competition through merger or acquisition.

CFIUS

 

The Merger Agreement provides for the parties to file a joint voluntary notice under Section 721 of the Defense Production Act of 1950, as amended by Section 5021 of the Omnibus Trade and Competitiveness Act of 1988 and subsequent amendments (which we refer to in this proxy statement as Exon-Florio). Exon-Florio provides for national security reviews and, where appropriate, investigations by the Committee on Foreign Investment in the United States (which we refer to in this proxy statement as CFIUS) when a foreign company acquires control of a U.S. company. CFIUS consists of representatives of various government agencies including, among others, the Departments of Treasury, State, Defense, Energy, Justice, Commerce and Homeland Security, the U.S. Trade Representative, and, as a non-voting member, the Director of National Intelligence. CFIUS is chaired by the Treasury Department. CFIUS conducts an initial 30-day review of transactions of which it is notified. For transactions involving entities controlled by a foreign government (within the meaning of “control” under the Exon-Florio regulations) and / or certain sensitive assets, CFIUS may conduct an additional investigation that must be completed within 45 days. Also, the CFIUS review period may be extended by mutual consent of the parties and CFIUS. In certain situations, a report may be sent to the President who then has 15 days to decide whether to block the transaction or to take other action. On • , the Company and Safran submitted a joint voluntary filing to CFIUS.

 

CFIUS considers many factors in determining whether a proposed transaction threatens to impair national security, including domestic production needed for national defense requirements, the capability of domestic industries to meet national defense requirements, and the potential effects on U.S. international technological leadership in areas affecting national security.

 

CFIUS reviews also provide an opportunity for U.S. government agencies to ensure compliance with various regulations relating to national security, such as the requirement to obtain export licenses for exports of controlled technical data. The parties are required to submit information about classified and other defense-related contracts of the acquired company. In addition, the National Industrial Security Program Operating Manual (which we refer to in this proxy statement as NISPOM), for which the Department of Defense is the executive agent, prohibits the performance of classified contracts by companies that are subject to foreign ownership, control or influences (which we refer to in this proxy statement as FOCI), unless steps are taken to mitigate FOCI.

 

It is expected that the Defense Security Service will carefully examine the parties’ proposed FOCI and other mitigation measures concurrently with the CFIUS review of the transaction. We expect that the Company will enter into a proxy agreement under NISPOM with the Defense Security Service that will cover certain operations of the Company. We believe that, with the proposed FOCI and other mitigation measures, the Merger will not give rise to national security concerns that would cause the transaction to be blocked under Exon-Florio.

 

With respect to the covered operations, a proxy agreement vests voting power in proxy holders and imposes various restrictions on directors as well as certain officers and personnel. With a proxy agreement, the proxy holders assume full responsibility for overseeing the exercise of all management prerogatives for the covered operations except for the following:

 

 

We cannot assure you that an antitrust, CFIUS or other regulatory challenge to the Merger will not be made. If a challenge is made, we cannot predict the result.

 

If the Merger is completed, L-1’s common stock will no longer be traded on the New York Stock Exchange and will be deregistered under the Exchange Act, and we will no longer be required to file periodic reports with the SEC in respect of our common stock.

 

Explanatory Note Regarding the BAE Agreement and the Summary of the BAE Agreement: Representations, Warranties and Covenants in the BAE Agreement Are Not Intended to Function or Be Relied on as Public Disclosures

 

The following description of certain terms and conditions of the BAE Agreement does not purport to be complete and may not contain all the information about the BAE Agreement that is important to you. This description is qualified in its entirety by reference to the full text of the BAE Agreement attached as Annex B to, and incorporated by reference into, this proxy statement. You are encouraged to read the BAE Agreement in its entirety because it is the legal document that governs the BAE Transaction.

 

The BAE Agreement and the description of certain of its terms in this proxy statement have been included to provide information about the terms and conditions of the BAE Agreement. The terms and information in the BAE Agreement are not intended to provide any other public disclosure of factual information about L-1, BAE or any of their respective subsidiaries or affiliates. The representations, warranties and covenants contained in the BAE Agreement are made by L-1 and BAE only for the purposes of the BAE Agreement and were qualified by, and subject to, certain limitations and exceptions agreed to by L-1 and BAE in connection with negotiating the terms of the BAE Agreement. In particular, in your review of the representations and warranties contained in the BAE Agreement, it is important to bear in mind that the representations and warranties were made solely for the benefit of the parties to the BAE Agreement and were negotiated for the purpose of allocating contractual risk among the parties to the BAE Agreement rather than to establish matters as facts. The representations and warranties may also be subject to a contractual standard of materiality or material adverse effect different from those generally applicable to stockholders and reports and documents filed with the SEC and in some cases may be qualified by disclosures made by one party to the other, which are not necessarily reflected in the BAE Agreement. Moreover, information concerning the subject matter of the representations and warranties, which do not purport to be accurate as of the date of this proxy statement, may have changed since the date of the BAE Agreement, and subsequent developments or new information qualifying a representation or warranty may have been included in or incorporated by reference into this proxy statement.

 

For the foregoing reasons, the representations, warranties and covenants or any descriptions of those provisions should not be read alone or relied upon as characterizations of the actual state of facts or condition of L-1, BAE or any of their respective subsidiaries or affiliates. Instead, such provisions or descriptions should be read only in conjunction with the other information provided elsewhere in this document or incorporated by reference into this proxy statement.

 

On September 19, 2010, simultaneously with the execution of the Merger Agreement, the Company entered into the BAE Agreement, pursuant to which BAE will acquire the Company’s intelligence services business group through the acquisition of the outstanding capital stock and membership interests of the Transferred Intel Companies for a purchase price of $295,833,000 in cash and approximately $7,291,000 of certain assumed obligations related to the payments to officers and employees of the Transferred Intel Companies under the Intel Companies Special Employee Plan, as described below. A copy of the BAE Agreement is attached as Annex B to this proxy statement.

 

Conditions to Completion of the BAE Transaction

 

The obligations of the Company and BAE to consummate the BAE Transaction are subject to the satisfaction (or waiver, if permissible under applicable law) of the following conditions:

 

 

 

In addition, the obligations of BAE to consummate the BAE Transaction are subject to the satisfaction or waiver, prior to or at the closing under the BAE Agreement, of the following conditions, among other customary conditions:

 

 

In addition, the obligations of the Company to consummate the BAE Transaction are subject to the satisfaction or waiver, prior to or at the closing under the BAE Agreement, of the following conditions, among other customary conditions:

 

 

The closing of the Merger is conditioned on the prior consummation of the BAE Transaction; however, the BAE Transaction is not conditioned on the consummation of the Merger.

Business Material Adverse Effect Definition

 

Under the BAE Agreement, “Business Material Adverse Effect” means any change, effect or circumstance which, individually or in the aggregate, has or would reasonably be expected to result in a materially adverse effect on the business, financial condition or results of operations of the business of the Intel Companies or the Intel Companies, taken as a whole; however, changes, effects or circumstances relating to or resulting from the following shall be excluded from the determination of Business Material Adverse Effect:

 

 

The exclusions provided for in the first, second, third and fourth items in the preceding list will not apply to the extent the Intel Companies are materially disproportionately affected by any of the changes, effects or circumstances described in such items relative to other participants in the industries in which the Intel Companies participate. In addition, a Business Material Adverse Effect will be deemed to have occurred if any change, effect or circumstance that, individually or in the aggregate, has resulted, or would reasonably be expected to result, in a suspension or debarment of (i) the Company or L-1 Identity Solutions Operating Company, a wholly-owned subsidiary of the Company, or any of their directors, officers or senior management personnel (in their capacity as such) if arising from or relating to the business of the Transferred Intel Companies or the Transferred Intel Companies or (ii) the Transferred Intel Companies or any of their directors, officers or senior personnel (in their capacity as such).

 

Representations and Warranties, Termination Rights, Covenants and Certain Employee Matters

 

The BAE Agreement contains various representations and warranties that are subject, in some cases, to exceptions and qualifications (including exceptions and qualifications based on Business Material Adverse Effect).

 

The BAE Agreement contains certain termination rights for each of the parties, including the right to terminate the BAE Agreement if closing of the BAE Transaction has not occurred by January 19, 2011 (subject to extension at (i) the election of either the Company or BAE for an additional two months if the closing has not occurred solely as a result of failure to obtain regulatory approvals or (ii) the discretion of the Company for an additional two months if the closing has not occurred as a result of the conditions related to organizational conflicts of interest described above not having been satisfied).

 

The BAE Agreement also provides for various covenants, including, among others things, with respect to the conduct of the Company’s intelligence services business in the ordinary course of business during the period between execution of the BAE Agreement and the closing of the BAE Transaction, cooperation in obtaining regulatory approvals and the sale or disposal by Advanced Concepts, Inc. of its 49% interest in Patriot.

 

In connection with the negotiation and execution of the BAE Agreement, the parties agreed to the material terms of an Intel Companies Special Employee Plan to be adopted by Spectal, LLC and McClendon, LLC prior to the closing of the BAE Transaction. The plan provides for retention pay to approximately 30 employees of the

Transferred Intel Companies, transaction bonuses to approximately 14 of those 30 employees, and specifies the treatment of Company equity and long-term cash awards held by employees of the Transferred Intel Companies. In addition, as of execution of the BAE Agreement, three senior executives of the Transferred Intel Companies entered into new severance and non-compete arrangements with SpecTal, LLC in connection with the plan. The aggregate payments potentially payable under the Intel Companies Special Employee Plan total approximately $7,291,000.

 

The Company has been named as a defendant in five putative stockholder class actions filed in the Superior Court of Connecticut, Judicial District of Stamford-Norwalk at Stamford, arising out of the proposed transactions with Safran and BAE pursuant to the Merger Agreement and BAE Agreement. The actions are captioned: Michael Palma v. Robert LaPenta et al., CV-10-6006781-S (Conn. Super. Ct.), Barry P. Kranz, Jr. v. L-1 Identity Solutions et al., CV-10-6006760-S (Conn. Super. Ct.), Michael Matteo v. L-1 Identity Solutions et al., CV-10-6006759-S (Conn. Super. Ct.), Dart Seasonal Products Retirement Plan v. L-1 Identity Solutions et al., CV-10-6006835-S (Conn. Super. Ct.), and George F. Chrisman v. Robert LaPenta et al., CV-10-6006886-S (Conn. Super. Ct.).

 

The plaintiffs in these stockholder actions generally allege the members of the Company’s board of directors and certain officers of the Company breached their fiduciary duties to stockholders by, among other things, allegedly failing to receive maximum value for their shares, failing to conduct an appropriate sale process and agreeing to certain terms in the Merger Agreement that allegedly discourage competing offers from other potential bidders and / or benefit defendants. The stockholder actions generally allege that the Company aided and abetted these alleged breaches of fiduciary duty. Certain of the suits also allege claims against Safran, Merger Sub, BAE and BAE Systems, Inc. for aiding and abetting the foregoing alleged breaches of fiduciary duty. The stockholder actions generally seek preliminary and permanent relief, including, among other things, permission to proceed as a class action, declaratory relief declaring that defendants have breached their fiduciary duties, an injunction enjoining the transactions contemplated by the Merger Agreement and BAE Agreement, rescissionary damages in the event that the transactions are consummated, costs and attorneys’ and experts’ fees.

 

The Company believes the lawsuits are without merit and intends to vigorously defend against them. As of the date of this proxy statement, pursuant to a stipulation between the Company and plaintiffs, the Company’s time to respond to the complaints has not yet expired.

 

The following is a summary of the material terms and conditions of the Merger Agreement. This summary may not contain all the information about the Merger Agreement that is important to you. This summary is qualified in its entirety by reference to the full text of the Merger Agreement attached as Annex A to, and incorporated by reference into, this proxy statement. You are encouraged to read the Merger Agreement in its entirety because it is the legal document that governs the Merger.

 

Explanatory Note Regarding the Merger Agreement and the Summary of the Merger Agreement: Representations, Warranties and Covenants in the Merger Agreement Are Not Intended to Function or Be Relied on as Public Disclosures

 

The Merger Agreement and the summary of its terms in this proxy statement have been included to provide information about the terms and conditions of the Merger Agreement. The terms and information in the Merger Agreement are not intended to provide any other public disclosure of factual information about L-1, Safran or any of their respective subsidiaries or affiliates. The representations, warranties and covenants contained in the Merger Agreement are made by L-1, Safran and Merger Sub only for the purposes of the Merger Agreement and were qualified by, and subject to, certain limitations and exceptions agreed to by L-1, Safran and Merger Sub in connection with negotiating the terms of the Merger Agreement. In particular, in your review of the representations and warranties contained in the Merger Agreement and described in this summary, it is important to bear in mind that the representations and warranties were made solely for the benefit of the parties to the Merger Agreement and were negotiated for the purpose of allocating contractual risk among the parties to the Merger Agreement rather than to establish matters as facts. The representations and warranties may also be subject to a contractual standard of materiality or material adverse effect different from those generally applicable to stockholders and reports and documents filed with the SEC and in some cases may be qualified by disclosures made by one party to the other, which are not necessarily reflected in the Merger Agreement. Moreover, information concerning the subject matter of the representations and warranties, which do not purport to be accurate as of the date of this proxy statement, may have changed since the date of the Merger Agreement, and subsequent developments or new information qualifying a representation or warranty may have been included in or incorporated by reference into this proxy statement.

 

For the foregoing reasons, the representations, warranties and covenants or any descriptions of those provisions should not be read alone or relied upon as characterizations of the actual state of facts or condition of L-1, Safran or any of their respective subsidiaries or affiliates. Instead, such provisions or descriptions should be read only in conjunction with the other information provided elsewhere in this document or incorporated by reference into this proxy statement.

 

Upon the terms and subject to the conditions set forth in the Merger Agreement, Merger Sub, a wholly owned subsidiary of Safran, will merge with and into L-1. After the Merger, L-1 will continue as the surviving corporation and as a wholly owned subsidiary of Safran, and L-1’s common stock will cease to be listed on the New York Stock Exchange, will be deregistered under the Exchange Act and will no longer be publicly traded.

 

Upon consummation of the Merger, the directors of Merger Sub will be the initial directors of the surviving corporation, the officers of Merger Sub will be the initial officers of the surviving corporation and the certificate of incorporation and bylaws of the surviving corporation will be in the form attached as Exhibit B and Exhibit C to the Merger Agreement, respectively, until amended as provided by applicable law and in accordance with their respective terms. All directors and officers of the surviving corporation will hold their positions until their successors are duly elected or appointed or qualified or their earlier death, resignation or removal.

 

The Merger will be effective at the time the certificate of merger is filed with the Secretary of State of the State of Delaware (or at a later time, if agreed upon in writing by the parties and specified in the certificate of merger). Unless otherwise agreed in writing by the Company and Safran, the Company and Safran are required to close the

Merger no later than the second business day after the satisfaction or waiver of the conditions to closing contained in the Merger Agreement (other than those conditions that by their nature are to be satisfied at the closing, but subject to the satisfaction or waiver of those conditions). The conditions to the closing of the Merger are described in the section of this proxy statement entitled “— Conditions to the Completion of the Merger.”

 

Except as noted below, each share of our common stock issued and outstanding immediately prior to the effective time of the Merger will be automatically cancelled and converted into the right to receive $12.00 in cash, without interest and less any applicable withholding taxes. The following shares will not receive the $12.00 per share merger consideration:

 

 

Subject to the above exceptions, after the effective time of the Merger, each holder of a certificate representing any shares of common stock will no longer have any rights with respect to the shares, except for the right to receive the $12.00 per share merger consideration, without interest and less applicable withholding taxes.

 

Safran will appoint a paying agent reasonably satisfactory to us for the benefit of the holders of shares of our common stock. At or prior to the closing of the Merger, Safran will deposit with the paying agent sufficient funds in cash for payment of the aggregate merger consideration. At and after the effective time of the Merger, there will be no further transfers of shares of our common stock.

 

Promptly after the effective time of the Merger, Safran will cause the paying agent to mail to each holder of record of shares of our common stock whose shares were converted into the right to receive the merger consideration a letter of transmittal and instructions advising you how to exchange certificates for the $12.00 per share merger consideration. The paying agent will pay you your $12.00 per share merger consideration after you have (i) surrendered your certificates to the paying agent and (ii) provided to the paying agent your completed and signed letter of transmittal and any other items specified in the letter of transmittal or instructions thereto. Interest will not be paid or accrued in respect of the $12.00 per share merger consideration. The paying agent will reduce the amount of any merger consideration paid to you by any required withholding taxes. YOU SHOULD NOT FORWARD YOUR STOCK CERTIFICATES TO THE PAYING AGENT WITHOUT A LETTER OF TRANSMITTAL AND YOU SHOULD NOT RETURN YOUR STOCK CERTIFICATES WITH THE ENCLOSED PROXY CARD.

 

If any cash deposited with the paying agent is not claimed within nine months following the effective time of the Merger, such cash (including any interest from or the proceeds of any investments thereof) will be delivered to the surviving corporation. Holders of our common stock who have not complied with the above payment procedures may thereafter look only to the surviving corporation with respect to payment of any unpaid merger consideration.

 

If you have lost a certificate, or if it has been stolen or destroyed, then before you will be entitled to receive the merger consideration, you will be required to provide an affidavit of the loss, theft or destruction, and if required by Safran or the surviving corporation, post a bond in a reasonable and customary amount as indemnity against any claim that may be made with respect to such certificate. These procedures will be described in the letter of transmittal and related instructions that you will receive, which you should read carefully and in their entirety.

 

Immediately prior to the consummation of the Merger, all outstanding and unvested stock options and restricted stock awards will become vested. Upon the consummation of the Merger, (i) each outstanding stock option will be cancelled in exchange for the right to receive a cash payment equal to the excess, if any, of the $12.00 per share merger consideration per share of our common stock underlying the stock option over the per share exercise price of such stock option, less any applicable withholding taxes and paid without interest and (ii) holders of restricted stock awards and deferred stock units will be entitled to receive the $12.00 per share merger consideration per share of our common stock subject to a restricted stock award or per deferred stock unit, as applicable, in each case, paid without interest and subject to applicable tax withholding.

 

All outstanding long term cash awards will become vested immediately prior to the consummation of the Merger and payment will be made with respect to such awards no later than 10 business days following the consummation of the Merger.

 

For a further description of the vesting of the Company’s stock options and other equity-based awards, and long-term cash awards, see the section of this proxy statement entitled “The Merger — Interests of Certain Persons in the Merger.”

 

In accordance with the terms of the Merger Agreement, warrants to purchase Company stock will be converted into the right to receive a cash payment, subject to the same contractual terms and conditions (including vesting terms) as were in effect immediately prior to the effective time of the Merger. Each warrant that is vested and exercisable at the effective time of the Merger will be converted into the right to receive a payment in cash, paid without interest and subject to applicable tax withholding, equal to (i) the number of shares of Company stock subject to the warrant multiplied by the $12.00 per share merger consideration minus (ii) the number of shares of Company stock subject to such warrant multiplied by the per share exercise price of such warrant (provided, that if the foregoing calculation results in a negative number, the cash payment will be $0).

 

The Company makes various representations and warranties in the Merger Agreement that are subject, in some cases, to exceptions and qualifications (including exceptions and qualifications based on Company Material Adverse Effect). See the section of this proxy statement entitled “— Company Material Adverse Effect Definition” for the definition of “Company Material Adverse Effect.” Subject to certain exceptions, our representations and warranties relate to the Company after giving effect to the BAE Transaction. Our representations and warranties relate to, among other things:

 

 

 

The Merger Agreement also contains various representations and warranties made jointly and severally by Safran and Merger Sub that are subject, in some cases, to exceptions and qualifications. The representations and warranties of Safran and Merger Sub relate to, among other things:

 

 

 

The representations and warranties of the parties will expire upon completion of the Merger.

 

Many of our representations and warranties are qualified by a Company Material Adverse Effect standard. For the purposes of the Merger Agreement, “Company Material Adverse Effect” means any change, effect, event, development, state of facts, occurrence or circumstance which, individually or in the aggregate with all other changes, effects, events, developments, state of facts, occurrences or circumstances, is or would reasonably be expected to be materially adverse to the business, assets, financial condition or results of operations of the Company (after giving effect to the BAE Transaction), taken as a whole; however, changes, effects, events, developments, state of facts, occurrences or circumstances to the extent relating to or resulting from the following are excluded from the determination of Company Material Adverse Effect:

 

 

If the Company (after giving effect to the BAE Transaction) is materially disproportionately adversely affected by changes or events in the first, second, third or fourth items in the preceding list relative to other participants in the industry in which it participates, the extent of such materially disproportionate effect will be taken into account in determining whether a Company Material Adverse Effect has occurred, but only to the extent of the materially disproportionate effect.

 

We have agreed in the Merger Agreement that, until the consummation of the Merger or termination of the Merger Agreement pursuant to its terms (and subject to certain exceptions, including as (i) required by law, (ii) contemplated by the Merger Agreement or the BAE Agreement, or (iii) agreed to in writing by Safran):

 

 

We have also agreed in the Merger Agreement that, until the consummation of the Merger or termination of the Merger Agreement pursuant to its terms, except as (i) required by law, (ii) contemplated by the Merger Agreement or the BAE Agreement or (iii) agreed to in writing by Safran (which consent will not be unreasonably withheld, delayed or conditioned under certain circumstances), we will not, and we will not permit any of our subsidiaries to, to the extent relating to the Company (after giving effect to the BAE Transaction):