Item 8.01. Other Events.
SUPPLEMENTAL PROXY MATERIALS
On November 5, 2007, EDO Corporation (the "Company" or "EDO") filed with
the Securities and Exchange Commission a definitive proxy statement (the
"Definitive Proxy Statement") in connection with the proposed acquisition of the
Company by ITT Corporation, an Indiana corporation ("ITT"), pursuant to the
previously announced Agreement and Plan of Merger, dated as of September 16,
2007, among the Company, ITT and Donatello Acquisition Corp., a New York
corporation and a wholly-owned subsidiary of ITT ("Merger Sub").
As disclosed in the Definitive Proxy Statement, on October 15, 2007, one of
our shareholders, the City of Bethlehem Aggregated Pension Fund, filed in the
Supreme Court of the State of New York, New York County, a putative shareholder
class action against the Company and the individual members of the Board of
Directors. The complaint alleges, among other things, that the proposed
acquisition of the Company by ITT substantially undervalues our common shares
and unfairly benefits the Company's insiders. The plaintiff seeks injunctive
relief with regard to the proposed acquisition. On November 1, 2007, plaintiff
filed an amended complaint, adding allegations that the preliminary proxy
statement filed by the Company on October 23, 2007 failed to disclose material
non-public information concerning the financial position and prospects of the
Company.
On October 26, 2007, one of our shareholders, Mr. Samuel Pill, filed in the
Supreme Court of the State of New York, New York County, a substantially similar
putative shareholder class action against the individual members of our Board of
Directors, the Company, ITT and Merger Sub. The complaint alleges, among other
things, that the $56.00 per share merger consideration is inadequate and unfair
to the public shareholders of the Company and that the preliminary proxy
statement filed by the Company on October 23, 2007 failed to disclose material
non-public information concerning the financial position and prospects of the
Company. The plaintiff seeks injunctive relief with regard to the proposed
transaction.
On November 29, 2007, the two actions were consolidated in the Supreme
Court of the State of New York, New York County, under the caption In re EDO
Corporation Shareholders Litigation (Index No. 603400/07) (the "Action"). Also
on November 29, 2007, the Company made supplemental disclosure in the form of
additional proxy soliciting materials filed on Form DEFA14A containing
additional financial information, which were updated on December 4, 2007.
A consolidated complaint was filed in the Action on December 5, 2007. A
hearing on plaintiffs' motion for a preliminary injunction has been scheduled
for December 12, 2007.
EDO has elected to make the following supplemental disclosures in an effort
to provide you with additional information as you consider your vote on the
proposed merger, as part of its settlement of the Action (the "Settlement")
pursuant to a Memorandum of Understanding entered into among the parties on
December 7, 2007, which Memorandum of Understanding provides that the parties
will enter into a definitive settlement and release agreement and that any such
settlement and release agreement is subject to court approval and to the
completion of the transaction. Upon approval, the Settlement will be binding on
all shareholders.
Also pursuant to the Settlement, ITT agreed that the amount of the Company
Termination Fee payable by the Company under certain circumstances would be $40
million, rather than $47 million. The amount of the Parent Expenses payable by
the Company under certain circumstances was not modified.
THE MERGER
Supplemental Disclosure Regarding the Background of the Merger
The following supplemental disclosure should be read in conjunction with
the "Background of the Merger" section of the Definitive Proxy Statement
beginning on page 22 of the Definitive Proxy Statement.
The sixth paragraph on page 22 of the Definitive Proxy Statement is amended as
follows:
2
On January 16, 2007, the Company and Party A entered into a confidentiality and
non-disclosure agreement. The confidentiality and non-disclosure agreement
contained a "standstill provision" that, among other things, prevented Party A
from acquiring any securities or property of the Company or any of its
subsidiaries (other than purchases of products in the ordinary course of
business), proposing to enter into any merger or business combination involving
the Company or any of its subsidiaries or otherwise seeking to control or
influence the management, Board of Directors or policies of the Company, in each
case, for a period of eighteen months from the date of the confidentiality
agreement unless terminated earlier by its terms. By its terms, the standstill
provision terminated when the Company entered into the merger agreement with ITT
on September 16, 2007.
The fourth full paragraph on page 24 of the Definitive Proxy is amended as
follows:
In late June 2007, Mr. Smith met with a representative of Party A. Mr. Smith
informed the representative of Party A of additional potential opportunities
that were being discussed with the DOD that would further substantially increase
the number of units to be manufactured and supported under one of the government
contracts previously awarded to one of the Company's subsidiaries, over and
above the anticipated exercise of options under that contract that DOD had
communicated it was considering in early June.
The last paragraph beginning on page 24 of the Definitive Proxy Statement is
amended as follows:
On July 30, 2007, at a special meeting, the Board of Directors reviewed Party
A's revised proposal. Based on the Board of Director's belief that the $45.00
per share price proposed by Party A did not reflect the full value of the
Company, including, among other things, certain forecasted potential increases
(of which Party A had previously been made aware) in quantities of products to
be ordered under previously awarded government contracts, the fact that Party A
had made it clear that it was not willing to increase its offer above that
price, and the fact that, due to certain business-related timing considerations,
an announcement date during the first week of September 2007 was not reasonably
practicable, the Board of Directors determined not to engage in further
discussions with Party A at that time. The Board of Directors directed
management to inform Party A of its decision, which was orally conveyed to Party
A by Mr. Smith on the same date. In addition, because the Board of Directors
believed that, if given an opportunity to conduct a due diligence investigation
of the Company, ITT would likely make an offer superior to that proposed by
Party A given the fact that, among other things, the high end of the range in
ITT's initial written proposal was only one dollar less than Party A's final
offer of $45.00 per share, the Board of Directors authorized the Company's
management to enter into a confidentiality and non-disclosure agreement with ITT
in connection with ITT's acquisition proposal.
The third full paragraph on page 25 of the Definitive Proxy is amended as
follows:
On August 7, 2007, representatives of the Company, together with representatives
of our financial advisor met with representatives of ITT and its advisors in
connection with the proposed transaction between ITT and the Company. At the
meeting, ITT and its financial advisors provided to representatives of the
Company an overview of ITT and its business and made a presentation regarding
the benefits of a business combination between the Company and ITT. Also at the
meeting, the Company provided to ITT two sets of the Company's internal
financial projections for fiscal years 2007 through 2011, one of which was based
on the Company's then current revenue growth rate, and the other on an
anticipated increased revenue growth rate during the period 2007-2011 resulting
from the two government contracts awarded to the Company in April 2007, the
recently announced increase in quantities ordered under one of those contracts
and potential further increases in quantities to be ordered under these
government contracts. Because, among other things, Party A had already made
clear that it was not willing to increase its offer above $45.00 per share,
these projections were not provided to Party A.
The last paragraph on page 25 of the Proxy Statement is amended as follows:
On August 30, 2007, to ensure continuity and to continue with the implementation
of the Company's existing plan of succession, the Company and Mr. Smith entered
into an agreement that modified and extended the provisions of Mr. Smith's
employment agreement or for up to an additional twelve month period. The
material terms of the modified agreement are substantially similar to Mr.
Smith's existing agreement. By its terms, the extension would not take effect
until June 1, 2008, and would expire on the earlier of May 31, 2009 or the date
of the Company's 2009 Annual Meeting.
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To be added:
At no time prior to the execution of the merger agreement with ITT did any
member of the Company's senior management discuss with representatives of ITT
his or her own post-transaction employment or that of any other member of senior
management of the Company.
Supplemental Disclosure Regarding the Opinion of Financial Advisor
The following supplemental disclosure should be read in conjunction with
the "Opinion of Financial Advisor" section of the Definitive Proxy Statement.
The second full paragraph on page 32 of the Definitive Proxy Statement is
amended as follows:
Using publicly available information, Citi reviewed transaction values in the
following five selected transactions, which transactions were selected because,
among other factors, they involve companies that participate or compete in the
defense industry (which is the industry in which the Company operates) or, in
Citi's view, were otherwise deemed relevant for purposes of comparison.
The last paragraph on page 32 of the Definitive Proxy is amended as follows:
Citi reviewed, among other things, transaction values, calculated as the
purchase price paid for the target company's equity, plus debt, less cash, plus
other capital structure adjustments, if any, in the selected transactions as a
multiple of next 12 months estimated EBITDA. Citi then applied a range of
selected multiples of next 12 months estimated EBITDA of 10.0x to 11.5x derived
from the selected transactions to the Company's calendar year 2008 estimated
EBITDA, adjusted to exclude the potential financial impact of significant
incremental deliveries of one of the Company's products in connection with a
particular government contract. The potential financial impact of these
incremental product deliveries was excluded when applying the range of selected
multiples in order to reflect the expectation of the Company's management that,
following a rapid increase in fiscal years 2008 and 2009, the deliveries will
decline after fiscal year 2009. Citi calculated the projected incremental future
cash flows that the Company's management expected would be generated during
fiscal years 2008 through 2011 related to such incremental product deliveries
and derived a terminal value by applying an EBITDA terminal value multiple of
8.5x (the midpoint of the terminal value multiple range described in the
"Discounted Cash Flow Analysis" above) to the Company's fiscal year 2011
estimated incremental EBITDA attributable to such incremental product
deliveries. These cash flows and terminal value were then discounted to present
value by applying a discount rate of 8.9% (the midpoint of the discount rate
range described in the "Discounted Cash Flow Analysis" above). Financial data
for the selected transactions were based on public filings, publicly available
research analysts' estimates and other publicly available financial information
at the time of announcement of the relevant selected transaction. Financial data
for the Company were based on internal estimates provided by the Company's
management. Based on the sum of the implied value for the Company derived from
the Company's calendar year 2008 estimated EBITDA adjusted to exclude the
financial impact of such incremental product deliveries, and the implied value
derived from the Company's incremental cash flows from such incremental product
deliveries as described above, this analysis indicated the following selected
per share equity reference range for the Company, as compared to the per share
merger consideration.
The first full paragraph on page 33 of the Definitive Proxy Statement is amended
as follows:
Citi reviewed financial and stock market information of the Company and the
following eight selected publicly held companies, which companies were selected
because, among other factors, they participate or compete in the defense
industry (which is the industry in which the Company operates) or, in Citi's
view, were otherwise deemed relevant for purposes of comparison.
The second full paragraph on page 33 of the Definitive Proxy Statement is
amended as follows:
4
Citi reviewed, among other things, enterprise values of the selected companies,
calculated as fully diluted equity value based on closing stock prices on
September 14, 2007, plus straight debt, capitalized operating leases, minority
interest, straight preferred stock and out-of-the-money convertible debt, less
investments in unconsolidated affiliates, cash and options proceeds, as
multiples of calendar years 2007 and 2008 estimated EBITDA and earnings before
interest and taxes, referred to as EBIT. In addition, Citi reviewed equity
values of the selected companies based on closing stock prices on September 14,
2007 as a multiple of calendar years 2007 and 2008 estimated earnings per share,
referred to as EPS. In order to reflect the impact on the Company's long-term
earnings growth trajectory of the rapid increase and subsequent reduction in
incremental deliveries of one of the Company's products referred to above, Citi
also reviewed the ratios of (a) selected companies' closing stock prices as a
multiple of calendar years 2007 and 2008 EPS to (b) their estimated long-term
EPS growth rates, referred to as PEG ratios. Citi then applied a range of
selected multiples of calendar years 2007 and 2008 EBITDA of 10.0x to 11.0x and
9.0.x to 10.0x, respectively, calendar years 2007 and 2008 EBIT of 12.5x to
13.5x and 10.5x to 11.5x, respectively, and calendar years 2007 and 2008 EPS of
18.0x to 20.0x and 15.5x to 17.5x, respectively, derived from the selected
companies to corresponding data of the Company. Citi also applied a range of
selected calendar years 2007 and 2008 PEG ratios of 1.2x to 1.4x and 1.0x to
1.2x, respectively, derived from the selected companies to the Company's
calendar years 2007 and 2008 EPS and estimated long-term EPS growth rates.
Estimated financial data of the selected companies were based on publicly
available research analysts' estimates. Estimated financial data of the Company
were based on internal estimates provided by the Company's management. This
analysis indicated the following selected per share equity reference range for
the Company, as compared to the per share merger consideration.
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING INFORMATION
These supplemental proxy materials contain forward-looking statements,
including information relating to the merger, which are qualified in their
entirety by the "Cautionary Statement Concerning Forward-Looking Information"
section of the Definitive Proxy Statement.