EXHIBIT 10.2
------------
May 10, 2007
To: L-1 Identity Solutions, Inc.
000 Xxxxx Xxxxxx
Xxxxxxxx
Xxxxxxxxxxx 00000
Telephone No.:(000) 000 0000
Facsimile No.: (000) 000 0000
RE: PREPAID FORWARD
The purpose of this letter agreement is to confirm the terms and
conditions of the forward share agreement entered into by and between L-1
Identity Solutions, Inc. (the "COMPANY") and Bear, Xxxxxxx International Limited
("BEAR XXXXXXX") on the Trade Date specified below (the "Transaction"). This
letter agreement constitutes a "CONFIRMATION" as referred to in the ISDA Master
Agreement specified below. This Confirmation shall replace any previous
agreements and serve as the final documentation for this Transaction.
The definitions and provisions contained in the 2002 ISDA Equity
Derivatives Definitions (the "EQUITY DEFINITIONS"), as published by the
International Swaps and Derivatives Association, Inc. ("ISDA"), are incorporated
into this Confirmation. In the event of any inconsistency between the Equity
Definitions and this Confirmation, this Confirmation shall govern. This
Transaction constitutes a Share Forward Transaction for purposes of the Equity
Definitions.
Bear Xxxxxxx is not registered as a broker-dealer under the U.S.
Securities Exchange Act of 1934, as amended. Bear, Xxxxxxx & Co. (the
"DESIGNATED AGENT") has acted as the Company's agent in connection with this
transaction. The Designated Agent has no obligation, by way of issuance,
endorsement, guarantee or otherwise with respect to the performance of Bear
Xxxxxxx under the Transaction, and each party agrees that it will look only to
the other party for performance of such other party's obligations under this
Transaction.
Each party is hereby advised, and each such party acknowledges, that the
other party has engaged in, or refrained from engaging in, substantial financial
transactions and has taken other material actions in reliance upon the parties'
entry into the Transaction to which this Confirmation relates on the terms and
conditions set forth below.
1. This Confirmation evidences a complete and binding agreement between Bear
Xxxxxxx and the Company as to the terms of the Transaction to which this
Confirmation relates. This Confirmation shall supplement, form a part of,
and be subject to an agreement in the form of the 2002 ISDA Master
Agreement (the "AGREEMENT") as if Bear Xxxxxxx and the Company had
executed an agreement in such form (but without any Schedule except for
(i) the election of the laws of the State of New York as the governing
law, (ii) the election of US Dollars ("USD") as the Termination Currency),
(iii) the inclusion, from and after its date of delivery, of the guaranty
of the obligations of Bear Xxxxxxx hereunder by The Bear Xxxxxxx Companies
Inc. (the "PARENT") as a Credit Support Document with respect to Bear
Xxxxxxx and the treatment of the Parent as a Credit Support Provider with
respect to Bear Xxxxxxx, and (iv) a covenant by Bear Xxxxxxx to deliver
1
such guaranty promptly after the Trade Date. In the event of any
inconsistency between provisions of that Agreement and this Confirmation,
this Confirmation will prevail for the purpose of the Transaction to which
this Confirmation relates. The parties hereby agree that no Transaction
other than the Transaction to which this Confirmation relates shall be
governed by the Agreement.
2. Set forth below are the terms and conditions that shall govern the
Transaction.
General Terms:
Trade Date: May 10, 2007
Buyer: Company
Seller: Bear Xxxxxxx
Shares: The shares of common stock, par value $0.001 per
share, of the Company
Number of Shares: 3,490,400
Forward Price: USD 20
Daily Number of Shares: Initially, with respect to each Settlement Date,
the Number of Shares divided by 25, provided that
if the Settlement Period is extended in the case
of an Illiquidity Event, then the Daily Number of
Shares with respect to each remaining Settlement
Date shall be equal to the quotient obtained by
dividing (a) the Number of Shares minus the sum of
the Daily Number of Shares for each Settlement
Date relating to a previously occurring Exchange
Business Day in the Settlement Period by (b) the
number of Exchange Business Days remaining in the
Settlement Period.
Exchange: New York Stock Exchange
Prepayment: Applicable
Prepayment Amount: USD 69,808,000
Prepayment Date: Five (5) Exchange Business Days following the
Trade Date.
Variable Obligation: Inapplicable
Settlement Terms:
Physical Settlement: Applicable; provided that in lieu of amounts
otherwise deliverable or payable under Section
9.2(a)(iii) of the Equity Definitions, Bear Xxxxxxx
will delivery to Company the Daily Number of Shares
on each Settlement Date.
2
Settlement Date(s): One Settlement Cycle following each of the 25
consecutive Exchange Business Days (other than
Disrupted Days) beginning on the 28th Exchange
Business Day immediately prior to May 21, 2012
(the "SETTLEMENT PERIOD") provided that upon the
occurrence of an Illiquidity Event Seller, by
prior written notice to the Company, may extend
the Settlement Period, provided that in no cases
shall the Settlement Period be greater than five
Exchange Business Days longer than the original
Settlement Period.
Settlement Currency: USD
Illiquidity Event: If, at any time and from time to time prior to the
final Exchange Business Day in the Settlement
Period, Bear Xxxxxxx determines in its
commercially reasonable discretion that in the
light of the then-current average daily trading
volume of Shares or such other factors as Bear
Xxxxxxx may deem relevant, it would be advisable
or necessary to extend the Settlement Period.
Share Adjustments:
Method of Adjustment: Calculation Agent Adjustment
Extraordinary Dividend: Any dividend in excess of USD 0.00
Excess Dividend Amount: Ex Amount multiplied by the Number of Shares
Dividend Period: The period from but excluding the Trade Date to
and including the Settlement Date.
Dividend Payment: Notwithstanding anything to the contrary contained
in the Equity Definitions, Seller will pay to the
Buyer any Excess Dividend Amount that is or will be
paid during the Dividend Period on the date the
related dividend is paid to holders of record of
the Shares.
Merger Events: Alternative Obligation
Tender Offer: Not applicable
Non-Reliance/Agreements
and Acknowledgements
Regarding Hedging
Activities/Additional
Acknowledgements: Applicable
Payment Instructions: Bear Xxxxxxx:
Citibank, N.A., New York
ABA Number: 000-0000-00, for the account of
3
Bear, Xxxxxxx Securities Corp.
Account Number: 0925-3186, for further credit to
Bear, Xxxxxxx International Limited
Sub-account Number: 000-00000-00
3. Calculation Agent. Bear, Xxxxxxx International Limited
4. Additional Mutual Representations, Warranties and Covenants. In addition
to the representations and warranties in the Agreement, each party
represents, warranties and covenants to the other party that;
(a) Eligible Contract Participant. It is an "eligible contract
participant", as defined in the U.S. Commodity Exchange Act (as
amended), and is entering into this Transaction hereunder as
principal and not for the benefit of any third party; and
(b) Accredited Investor. Each party acknowledges that the offer and sale
of this Transaction and the Shares to it is intended to be exempt
from registration under the Securities Act of 1933, as amended (the
"SECURITIES ACT"). Accordingly, each party represents and warrants
to the other that (i) it has the financial ability to bear the
economic risk of its investment in each Transaction and is able to
bear a total loss of its investment, (ii) it is an "accredited
investor" as that term is defined under Regulation D under the
Securities Act, (iii) it will purchase each Transaction for
investment and not with a view to the distribution or resale
thereof, and (iv) the disposition of each Transaction is restricted
under this Confirmation, the Securities Act and state securities
laws.
5. Additional Representations, Warranties and Covenants.
(A) Each party represents and agrees that
(a) in connection with this Transaction and all related or
contemporaneous sales and purchases of Shares by either party, the
Company, or in the case of Bear Xxxxxxx , the person(s) that
directly influences the specific trading decisions of Bear Xxxxxxx,
has complied and will comply with the applicable provisions of the
Securities Act of 1933, as amended (the "SECURITIES ACT"), and the
Exchange Act, and the rules and regulations thereunder, including,
without limitation, Rules 10b-5 and 13e and Regulation M under the
Exchange Act; provided that each party shall be entitled to rely
conclusively on any written information communicated by the other
party concerning such other party's market activities; and
(b) it is an "eligible contract participant" (as such term is defined in
Section 1a(12) of the Commodity Exchange Act, as amended (the
"CEA")).
(B) In addition to the representations, warranties and covenants in the
Agreement and those contained herein, as of the Trade Date, the Company
represents, warrants and covenants to Bear Xxxxxxx that:
4
(a) the purchase or writing of the Transaction will not violate Rule
13e-1 or Rule 13e-4 under the Securities Exchange Act of 1934, as
amended (the "EXCHANGE ACT"), provided that no representation,
warranty or covenant is made in this Section 5(B)(a) with respect to
activities of Bear Xxxxxxx or any of its affiliates that are related
to or are contemporaneous with the purchase and writing of the
Transaction;
(b) it is not entering into the Transaction on the basis of, and is not
aware of, any material non-public information with respect to the
Shares or in anticipation of, in connection with, or to facilitate,
a distribution of its securities, a self tender offer or a
third-party tender offer;
(c) prior to the Trade Date, neither the Company nor any of its
affiliates has taken any action which is designed to or which has
constituted or which might have been expected to cause or result in
stabilization or manipulation of the price of any security of the
Company in connection with the offering of the [ ]% Senior
Convertible Notes due 2027 (the "CONVERTIBLE NOTES");
(d) notwithstanding the generality of Section 13.1 of the Equity
Definitions, it acknowledges that Bear Xxxxxxx is not making any
representations or warranties with respect to the treatment of the
Transaction under FASB Statements 133, as amended, or 150, EITF
00-19 (or any successor issue statements) or under FASB's
Liabilities & Equity Project;
(e) the Company shall report the Transaction as required under
Regulation S-K and/or Regulation S-B under the Exchange Act, as
applicable;
(f) prior to the Trade Date, Company shall deliver to Bear Xxxxxxx a
resolution of Company's board of directors authorizing the
Transaction and such other certificate or certificates as Bear
Xxxxxxx shall reasonably request;
(g) on the Trade Date (A) the assets of Company at their fair valuation
exceed the liabilities of Company, including contingent liabilities,
(B) the capital of Company is adequate to conduct the business of
Company and (C) Company has the ability to pay its debts and
obligations as such debts mature and does not intend to, or does not
believe that it will, incur debt beyond its ability to pay as such
debts mature;
(h) the Company understands that no obligations of Bear Xxxxxxx to it
hereunder will be entitled to the benefit of deposit insurance or
SIPC and that such obligations will not be guaranteed by any
affiliate of Bear or any governmental agency;
(i) the Company shall, on any day on which the Company effects any
repurchase of Shares, give Bear Xxxxxxx a written notice of such
repurchase (a "REPURCHASE NOTICE") on such day, and, if such notice
relates to material non-public information at the time,
simultaneously publicly announce such information, if following such
repurchase, the Notice Percentage as determined on such day is (i)
5
greater than 4.5% and (ii) greater by 0.5% than the Notice
Percentage included in the immediately preceding Repurchase Notice
(or, in the case of the first such Repurchase Notice, greater than
the Notice Percentage as of the date hereof). The "NOTICE
PERCENTAGE" as of any day is the fraction, expressed as a
percentage, the numerator of which is the Number of Shares and the
denominator of which is the number of Shares outstanding on such
day;
(j) the Company is not on the date hereof engaged in a distribution, as
such term is used in Regulation M under the Securities Exchange Act
of 1934, as amended (the "EXCHANGE ACT"), of any securities of the
Company, other than a distribution meeting the requirements of the
exception set forth in Rules 101(b)(10) and 102(b)(7) of Regulation
M. The Company shall not, until the second Scheduled Exchange
Business Day immediately following the Trade Date, engage in any
such distribution;
(k) the Company is not entering into this Transaction to create actual
or apparent trading activity in the Shares (or any security
convertible into or exchangeable for the Shares) or to raise or
depress or otherwise manipulate the price of the Shares (or any
security convertible into or exchangeable for the Shares) or
otherwise in violation of the Exchange Act;
(l) the Company represents that it could have purchased Shares, in an
amount equal to the Number of Shares, on the Exchange or otherwise,
in compliance with applicable law, its organizational documents and
any orders, decrees, contractual agreements binding upon the
Company, on the Trade Date;
(m) In the event the sale of Convertible Notes is not consummated with
the initial purchasers for any reason by the close of business in
New York on May 17, 2007 (or such later date as agreed upon by the
parties) (May 17, 2007 or such later date as agreed upon being the
"EARLY UNWIND DATE"), this Transaction shall automatically terminate
(the "EARLY UNWIND"), on the Early Unwind Date and (i) the
Transaction and all of the respective rights and obligations of Bear
Xxxxxxx and the Company under the Transaction shall be cancelled and
terminated and (ii) each party shall be released and discharged by
the other party from and agrees not to make any claim against the
other party with respect to any obligations or liabilities of the
other party arising out of and to be performed in connection with
the Transaction either prior to or after the Early Unwind Date;
provided that, unless the sale of Convertible Notes is not
consummated with the initial purchasers for any reason other than as
a result of breach of the Purchase Agreement by the initial
purchasers, the Company shall purchase from Bear Xxxxxxx on the
Early Unwind Date all Shares, if any, purchased by Bear Xxxxxxx or
one or more of its affiliates and reimburse Bear Xxxxxxx for any
costs or expenses (including market losses) relating to the
unwinding of its Hedging Activities in connection with the
Transaction (including any loss or cost incurred as a result of its
terminating, liquidating, obtaining or reestablishing any hedge or
related trading position, all of which, for the avoidance of doubt
shall be subject to applicable principles of law relating to the
duty to mitigate damages). The amount of any such reimbursement
6
shall be determined by Bear Xxxxxxx in its sole good faith
discretion. Bear Xxxxxxx shall notify the Company of such amount and
the Company shall pay such amount in immediately available funds on
the Early Unwind Date. Bear Xxxxxxx and the Company represent and
acknowledge to the other that, subject to the proviso included in
this paragraph, upon an Early Unwind, all obligations with respect
to the Transaction shall be deemed fully and finally discharged; and
(n) The representations and warranties of Counterparty set forth in
Section 3 of the Agreement and Section 4 of the purchase agreement
of even date herewith among the Company, Bear, Xxxxxxx & Co. Inc.
and Banc of America Securities LLC as representatives of the Initial
Purchasers (the "Purchase Agreement") are true and correct as of the
Trade Date and, the Effective Date and are hereby deemed to be
repeated to Dealer as if set forth herein.
Neither party may transfer any of its rights or obligations under the
Transaction without the prior written consent of the non-transferring party;
provided that Bear Xxxxxxx may transfer or assign without any consent of the
Company its rights and obligations hereunder, in whole or in part, to any of its
affiliates that are not less creditworthy than Bear Xxxxxxx (or that benefit
from a guarantee issued by The Bear Xxxxxxx Companies Inc. ("BSC") or another
affiliate not less creditworthy than BSC); provided further at any time at which
the Delivery Equity Percentage exceeds 9.0%, if Bear Xxxxxxx, in its discretion,
is unable to effect a transfer or assignment to a third party after its
commercially reasonable efforts on pricing terms reasonably acceptable to Bear
Xxxxxxx such that the Delivery Equity Percentage is reduced to 9.0% or less,
Bear Xxxxxxx may designate any Scheduled Trading Day as an Early Termination
Date with respect to a portion (the "SECTION 13 TERMINATED PORTION") of the
Transaction, such that the Delivery Equity Percentage following such partial
termination will be equal to or less than 9.0%.
In the event that Bear Xxxxxxx so designates an Early Termination Date with
respect to a Section 13 Terminated Portion, a payment shall be made pursuant to
Section 6 of the Agreement as if (i) an Early Termination Date had been
designated in respect of a Transaction having terms identical to this
Transaction and a Number of Shares equal to the Section 13 Terminated Portion,
as the case may be, (ii) the Company shall be the Affected Party with respect to
such partial termination and (iii) such Transaction shall be the only Terminated
Transaction.
The "DELIVERY EQUITY PERCENTAGE" as of any day is the fraction, expressed as a
percentage, (A) the numerator of which is the sum of (i) the number of Shares
that Bear Xxxxxxx "beneficially owns" (within the meaning of Section 13 of the
Exchange Act) on such day, other than any Shares so owned as a hedge of the
Transaction, and (ii) the Number of Shares and (B) the denominator of which is
the number of Shares outstanding on such day.
If upon advice of outside counsel to comply with respect to applicable legal and
regulatory requirements, including any requirements relating to Bear Xxxxxxx'x
Hedging Activities hereunder, Bear Xxxxxxx reasonably determines that it would
not be practicable or advisable to deliver, or to acquire Shares to deliver, any
or all of the Shares to be delivered by Bear Xxxxxxx on a Settlement Date for
the Transaction, Bear Xxxxxxx may, by notice to the Company on or prior to any
7
Settlement Date (a "NOMINAL SETTLEMENT DATE"), elect to deliver the Shares on
two or more dates (each, a "STAGGERED SETTLEMENT DATE") as follows:
(i) in such notice, Bear Xxxxxxx will specify to the Company the
related Staggered Settlement Dates following the Nominal
Settlement Date) and the number of Shares that it will deliver
on each Staggered Settlement Date;
(ii) the aggregate number of Shares that Bear Xxxxxxx will deliver
to the Company hereunder on all such Staggered Settlement
Dates will equal the number of Shares that Bear Xxxxxxx would
otherwise be required to deliver on such Nominal Settlement
Date;
(iii) if the Settlement terms set forth above were to apply on the
Nominal Settlement Date, then the Settlement terms will apply
on each Staggered Settlement Date, except that the Shares to
be delivered will be allocated among such Staggered Settlement
Dates as specified by Bear Xxxxxxx in the notice referred to
in clause (i) above; and
(iv) if the Company declares a dividend or other distribution with
respect to Shares with an ex dividend date falling on or after
a Nominal Settlement Date and prior to a Staggered Settlement
Date, then in addition to any Shares it delivers on such a
Staggered Settlement Date, Bear Xxxxxxx shall deliver to the
Company the amount of such dividend or other distribution in
respect of such Shares on the Exchange Business Day next
following its receipt of such dividend or distribution.
6. Additional Provisions.
(a) Amendments to the Equity Definitions:
(i) Section 12.6(a)(ii) of the Equity Definitions is hereby
amended by (1) deleting from the fourth line thereof the word
"or" after the word "official" and inserting a comma therefor,
and (2) deleting the semi-colon at the end of subsection (B)
thereof and inserting the following words therefor "or (C) at
Bear Xxxxxxx'x option, the occurrence of any of the events
specified in Section 5(a)(vii) (1) through (9) of the ISDA
Master Agreement with respect to that Issuer."
(b) Notwithstanding anything to the contrary in this Confirmation, upon
the occurrence of one of the following events, with respect to this
Transaction, (1) Bear Xxxxxxx shall have the right to designate such
event an Additional Termination Event and designate an Early
Termination Date pursuant to Section 6(b) of the Agreement, and (2)
Company and Bear Xxxxxxx shall be the Affected Parties and the
Transaction shall be deemed the sole Affected Transaction (provided
that in no event shall Bear Xxxxxxx be liable to the Company for any
special or consequential damages):
8
(i) Company sells, leases or otherwise transfers in one
transaction or a series of transactions all or substantially
all of the assets of Company and its subsidiaries, taken as a
whole, to any person other than Company or any of its
subsidiaries;
(ii) A "person" or "group" within the meaning of Section 13(d) of
the Exchange Act other than L-1, its subsidiaries or their
employee benefit plans, files a Schedule TO or any schedule,
form or report under the Exchange Act disclosing that such
person or group has become the "beneficial owner," as defined
in Rule 13d-3 under the Exchange Act, of L-1's common equity
representing more than 50% of the ordinary voting power of its
common equity;
(iii) Consummation of any share exchange, consolidation or merger of
L-1 pursuant to which its common stock will be converted into
cash, securities or other property or any sale, lease or other
transfer in one transaction or a series of transactions of all
or substantially all of L 1's and L-1's subsidiaries' assets,
taken as a whole, to any person other than one of its
subsidiaries; or
(iv) Bear Xxxxxxx, despite using commercially reasonable efforts,
is unable or reasonably determines that it is impractical or
illegal, to hedge its obligations pursuant to this Transaction
in the public market without registration under the Securities
Act of 1933, as amended (the "SECURITIES ACT") or as a result
of any legal, regulatory or self-regulatory requirements or
related policies and procedures (whether or not such
requirements, policies or procedures are imposed by law or
have been voluntarily adopted by Bear Xxxxxxx).
(c) Notwithstanding Section 7 of the Agreement, the parties hereby agree
and acknowledge that concurrently with the consummation of the
Reorganization Transaction (as defined under the Purchase
Agreement), L-1 Holding Co. will change its name to "L-1 Identity
Solutions, Inc." and all rights and obligations of Company hereunder
shall be assigned thereto. The parties agree that no further action
hereunder will be required to effect such assignment.
The Agreement, this Confirmation, each Supplemental Confirmation and all matters
arising in connection with the Agreement, this Confirmation and each
Supplemental Confirmation shall be governed by, and construed and enforced in
accordance with, the laws of the State of New York (without reference to its
choice of laws doctrine).
The Company hereby agrees (a) to check this Confirmation carefully and
immediately upon receipt so that errors or discrepancies can be promptly
identified and rectified and (b) to confirm that the foregoing (in the exact
form provided by Bear Xxxxxxx correctly sets forth the terms of the agreement
between Bear Xxxxxxx and the Company with respect to the Transaction to which
this Confirmation relates, by manually signing this Confirmation or this page
hereof as evidence of agreement to such terms and providing the other
9
information requested herein and immediately returning an executed copy to
Equity Derivatives Documentation Department, Facsimile No. (000) 000 0000.
10
Yours faithfully
By: /s/ Xxxxx Xxxx
-------------------------------
Authorized Signatory
Agreed and Accepted By:
L-1 IDENTITY SOLUTIONS, INC.
By: /s/ Xxxxxxx X. X'Xxxxxx
-------------------------------
Name: Xxxxxxx X. X'Xxxxxx
Title: Senior Vice President, Finance
and Chief Accounting Officer
11
Acknowledged
L-1 HOLDING CO.
By: /s/ Xxxxxxx X. X'Xxxxxx
-------------------------------
Name: Xxxxxxx X. X'Xxxxxx
Title: Senior Vice President, Finance
and Chief Accounting Officer
12
