COURT OF CHANCERY OF THE STATE OF DELAWARE L ORI W. W ILL V ICE C HANCELLOR L EONARD L. W ILLIAMS J USTICE C ENTER 500 N. K ING S TREET , S UITE 11400 W ILMINGTON , D ELAWARE 19801

- 3734 Date Submitted: February 18 , 2022 Date Decided: Febru ary 23 , 2022
A. Thom pso n Bayliss , Esquire Michael A. Barlow, E squire Eliezer Y. Feinstein, Esquire Samuel D. Cordle, Esquire Abrams & Bayliss LLP 20 Montchanin Road, Suite 200 Wilmington, Delaware 19807 Peter J. Walsh, Jr. , Esquire Matthew F. Davis , Esquire Patrick A . Lockwoo d , E squire Potter Anderson & Corroon LLP Hercules Plaza, 6th Floor Wilmington , Delawa re 19 801 Raymond J. DiCamillo , Esquire Kevin M. Gallagher , Esquire Daniel E. Kaprow , E squire Caroline M. McDonough , E squire Richards, Layton & Finge r, P.A. 920 North King S tr eet Wilmington, Delaware 19801

RE: In re Aerojet Rocketdyne Holdings, Inc. , C.A. No. 2022

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- LWW
Dear Counsel : I write regarding the p arties ’ competing forms of order and related
submissions in connection with the plaintiffs’ Motion for Temporary Re stra i ning Order (the “Motion”). 1 As the parties are aware, I granted the Motion on February 15 , 2022

. 2 In brief, I conclud ed that the plaintiffs h ad satisfied th e standard for a temporary

1 Dkt. 3.C.A. No. 2022

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res tr aining order and ordered that nominal party Aerojet Rocketdy ne Holdings, Inc. (the “Company”) remain neutral in the ongoing dispute about the nomination
of a Company

- ba cked slate of directors for an upcoming e lection

. The Company ’ s eigh t

- member board o f directors (the “ Board ” ) is evenly
divided on that issue. On e faction of the Boar d includes the Company’s Chief Executive Officer, Eileen Drake. The other faction includes Warren Lichtenstein, the Company’s e xecutive chair and founder of Steel Partners Ho ldings L. P. (“Steel”), a significant stockholder of the Comp a ny. On January 28, 2022, Steel delivered a letter to the Company nom inating a slate of seven director candidates for election, including four incu mbent Board
members. Ms. Drake and the other t hree defendants (none of whom were nominated by Steel) issue d a press release

— purportedly on behalf of the Company

— that questioned Mr. Lichtenstein’s decision to launch a p roxy contest. 3

2 Dkt. 33.
3 The press release stated that “ the Company believes that Mr. Lichtenstein ’ s decision to caus e [Stee l] to launc h a disruptive proxy contes t at this time may ultimately be driven by his personal c oncerns and desir e to secure his board position ” and that “ the Com pany is disappoint ed that, a t this critical time for the C ompany, Mr. Lic htenstein has dec ided to take these actions to launch a proxy fight. ” Verified Compl. f or Declaratory J. ( “ Compl. ” ) ¶¶ 32

- 33 (Dkt. 1)

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The se defendants also brought litigation

— naming t he Company as both a plaintiff
and a nom inal defendant

— see ki ng to, among other things, disqualify Steel’s slate. 4
As I explained in my oral ruling on the Motion, the plaintiffs stated a
colorable claim that neither faction of the Board presently has the authority to unilaterally act on the Company ’s behalf or use its resources in the context of the upcoming director election

. 5 I emphasized that my ruling was intended to maintain the Company’s neutrality regarding the co ntested director election

. I provide d specific guidance to th e parties on the fo rm of order that I would be willing to

ente r
. For example, I directed that the form of order should prevent persons or

en t ities p urporting to act on behalf of the Company from issuing public statements in the Company’s name or using Company resources i n support of th e election efforts of any candid ate for election at the Company ’s a nnual meeting, absent Board approval

. 6 I re quested that the parties sub mit an impl ementing order . They were unable to agree and competing proposed orders were filed. The form of order proposed by the plaintiffs is approp riately tailored to the

court ’s guidance

. 7 It temporarily prevents th e us e of the Company’s name or

4 See C.A. No. 2022

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. 5 See Mot

. for Temporary Restraining Order Hr ’ g Tr. Feb. 15, 2022 (Dkt

. 3 8 )

. 6 See id. a t 66

- 85

. 7 See Dkt. 34.C.A. No. 2022

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resources to support one slate over another without the approval of the Board while ensuring that no individual is restrained from speak ing on his or her own behalf. That proposed ord er also memorializes the pla intiffs ’ offe r to waive the Company’s advance notice bylaw deadline , allow ing th e defendants to run their
own slate if they choose

. 8 T he plaintiffs’ order further provides that the Company will be represented in the related law su its by independent co uns el approved by a majority of the Board. T h e s e additions advance the court’s goal of ensuring corporat e neutrality. 9
The defendants ’ proposed form of order, on the other hand, include s provisions that a re far afield from matter s r aised at the hea ring on the Motion

. To start, it would require the Company to es tablish a $2 0 millio n “ common fun d ” to

8 The parties have agreed on the extension of the nomination deadline . They disagree on wh ether the order s hould exempt the defen dants from the r equirements of the advance notice bylaw e ntirely , as the defendants’ proposal contemplates. The Board has not granted any such exemption and I decline to determine on the limited record before me whet her cert ain of th e bylaw s ’ requirements are inequ itable

. See Def s. ’ Letter Regarding Competing Forms of Order ( “ D efs

. ’ Letter ” ) at 5 (Dkt. 35)

. 9 See P earl C ity Elevator, Inc. v. Gieseke , C.A. No. 2020

- 0419

- JRS, at 93 ( Del. Ch. Sept

. 11, 2020 (TRAN SCRIPT ) (“The company or entity is the neutral res in the proceeding. Its inter est is and should be that the entity be mana ged by those who are authorized to serve in that role

. ” ); In re Howard Midstream Ener gy P’rs, LLC , C.A . No. 2021

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- LWW, at 6 8 (Del. Ch. July 22, 2021) (TRANSCRIPT) (ordering t hat t he c ompany “remain neutral th roughout the remainder of the action as to the outcome of th[at] case” in a corpo r ate control dispute)

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cover each of the compet ing s lates ’ proxy solicitation expen ses up to $1 0 million

. It is not clear why these amount s w ere ch osen. The defendants contend that this provision is necessary to level the playing
field because the Steel slate is supported by vast resources that the defendants say they lack. The y assert that the defendants shou ld not be required to expend their

own funds “ for the stockh olders to have a choice among competing slates.” 10 In support of their position, they submit an expert report by Professor Gu han
Subraman ian , which describes bo t h the market standards for and socially optimal approach to p roxy solicitation reimbursement

. On the subject of market s tandards , Professor Su bramanian states that
Delaware cor

porations larger than $50 million in market capitalization routinely pay the proxy so licitation costs of an incumbent slate, “win or lose.” 11 He observes
that he is not aware of any instance where the company did no t pay the proxy
solicitation costs for an incumbent slate of director s in a proxy contest

. 12 The

10 Def s. ’ Letter at 5

. 11 Defs.’ Letter Ex. C at 9

- 10 (quoting Willia m T. Allen , Rei nier Kraakman , & Guhan Subr amanian, Co mmentaries & Cases on the Law of Bu s iness Organization 16 4 (4 th ed. 20 12) )

. 12 Id. at 10.C.A. No. 2022

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defendants add that i t is “customary ” for the company t o provide resources to directors for a proxy contest. 13 That assumes, howeve r, a traditional proxy contest , which “involve [s] a fight between management and insurgent shar eholders over the control of the corporation in th e annual election of directors. ” 14 In that scenario, i ncumbent directors may access the corporate treasury to fund their proxy solicitation expenses in a contested election

. 15 “ [I] nsurgent shareholders ” will generally

“ finance their own bid and can hope f or r eimb ursement only if that bid is
successful. ” 16
But t ha t is not the situation here

— at least based on the preliminary record
before me. The re is no t a single slate of incumbent directors seeking reelection over insurgent candidates

. Half of the Board support s one slate and half support s

an other (yet to be nominated) slate

. What the defendants descri be as the

13 See Defs. ’ Letter at 2.
14 Jana Master Fund, Ltd. v. CNET Networks, Ind. , 954 A.2d 335, 341 (Del. Ch. 2008) ( quoting Ha rold D

. B loomenthal & S amuel W olff, S ecurities & F ederal C orporate L aw § 24:39 (2d ed. 2007 ) ).
15 S ee Hall v. Trans

- Lux Day light Picture Screen Corp ., 171 A. 226, 227, 230 (Del. Ch. 1934)

. 16 Jana Master Fund , 954 A.2d at 341. Of course , a board could po ten tially choose to reimburse the expenses of an insurgent slate. And S ect ion 113 of the Delaware General Corporation Law expressly permits Delaware corporations to adopt proxy ex pense reimbursement bylaw s
. 8 Del. C. § 11 3(a).C.A. No. 2022

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“insu rgent” slate includes four incumbent directors

. Th e defe ndant ’ s slate would

not automatically become the “ Company ’ s ” simply because t he CEO is in that
group. Professor Subramanian ’ s second opinion addresses whether corporate reimbursement of proxy so licit ation co sts for i ncum bent and dissident slates is socially opti mal

. He states that although “ there is no unambiguously optimal rule for proxy contests overall . . . the tension between facilitating value

- creating proxy contests and deterring frivolous proxy contests can be ev aluated in a particular

context. ” 17 Regard ing the present dispute , Professor Subr amanian opines that
reimbursi ng the expenses of both groups is “ extremely likely ” to be socially optimal given the Company ’ s market cap and the proposed $10 million limit on

e ach side ’ s proxy soli citation costs

. 18
Th at may be true from a social wel fare perspective

. But it prompts a critical questio n : where does the power to direct the use of the company’s resour ces for a contested director election lie? In my view, t hat powe r does not lie with the court

. It is a co re tenet of Delaware c orporat e law that “ t he board of directors has the

17 Defs.’ Letter Ex. C at 1 5

. 18 Id. at 1 7.C.A. No. 2022

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ultimate responsibility f

or managing th e business and a ffairs of a corporation

. ” 19 I f
the board is deadlock ed , the court does not act as a tiebreaker that choose s whether

to ope n the c orporate purse strin gs to fund the proxy contests of competing
incumbent slates

. 20
Wit h the extension of the advance notice bylaw deadline, each side is free to
pu t forward a slate of candidates . The stockhold ers will be free to decide which
individ ua ls to elect

. 21 The board th at stockholders elect can then decide whether
proxy e xpenses should be reimbursed

. The court, however, will not order the Company to fund $ 1 0 million worth of proxy solicitatio n costs per side

.

19 Quickturn Design Sys., Inc. v. Shap iro , 721 A.2d 1281, 12 91 (Del. 1998) ; see also 8 Del. C. § 141(a) ; Aronson v. Lewis , 473 A.2d 805, 811 (Del. 1 98 4) (noting that a

“ cardinal precept ” of Delaware law is that directors mana ge the corporatio n ); Hack v. BMG Equit ies Corp. , 1991 WL 101848 , at *1 (Del. Ch. June 12, 1991) (g ranting preliminary injunction to preserve status quo where one of two directors sought to act on the corporation ’ s beha lf , and n otin g that “an im portant and fundamental decis ion of c orporate governance [ ] must be made by the Board of Directors” )

. 20 In t he related litigation filed by the defendants, alternative rel ief of a custodian to brea k the deadl ock is sought. C.A. No. 2022

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- LWW, Dkt. 1 ¶ 115 ; see 8 Del. C. § 226. T he plaintiffs assert that there is no authority for th e relief th e defendants seek. That question is no t presently before me.
21 See In re Gulla , 115 A. 317 , 318 (Del. Ch. 1921) (“The fitness or unfitness of individuals to become directors of the corporati on was a matter for the stockholders to pass upon at the meeting, and it would be highly improper, in th is proceeding, for th e court to pay any heed whateve r to charges and countercharges conc erning the fitness of either one group or the o ther of the two f actions.” )

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I reach a similar co nclusion reg ardin g the use of Company resource s to
reimburse the parties ’ litigation costs

. 22 The defendants’ proposed form of order
would require the Com pany to “ pay all fees and expenses ” of both parties, including f

or each side ’ s offensive litigation

. 23 The Company’ s ce rti ficate of incorporation and bylaws addre ss when directors are entitled to ad vancement. The
court will not mandate that Company resources be used to fund offe nsive l itigation
related to the elect ion ( including a claim to d isqualify a com peting slate ) br ought by dueling factions of a divided board

. For th ese reasons, I will enter the form of order proposed by the plaintiffs

. While the Board remains split on the question of who should serve on the Company ’ s slate of directo r nominees , the Company mus t c ontinue to stand
neutral

. The parties are invited to seek modif ications of the ord er should

ne cessitating circumstances arise. Their debates on the merits will be taken up at a
later st age of this proceeding

.
Sincere l y yours , /s/ Lori W. Will Lori W. Will Vice Chancellor

22 See Defs.’ Letter Ex. A ¶ 8.
23 Id.