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Aerojet Chairman Wins Legal Fight With CEO in Funding Spat Over Proxy Campaign

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(Bloomberg) -- Aerojet Rocketdyne Holdings Inc. Chief Executive Officer Eileen Drake violated a court order by using company resources to back her slate of director candidates in a bitter proxy fight with the US rocket-engine maker’s board chairman, a judge ruled.

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Delaware Chancery Court Judge Lori Will issued her ruling Thursday in a lawsuit filed by Aerojet Chairman Warren Lichtenstein. Will had previously banned Lichtenstein and Drake from using Aerojet resources to help their candidates vie for board seats in the runup to a June 30 investor vote.

Lichtenstein claimed the CEO improperly relied on strategies devised by company lawyers and advisers to impugn him in the proxy contest and got help from Aerojet workers in her effort to create a board slate. Drake countered she honored the limits on her actions imposed earlier by Will and the allegations were an attempt by Lichtenstein to gain an unfair advantage for the vote.

In a 65-page ruling, the judge concluded some of Drake’s moves challenged by Lichtenstein were “unauthorized” and that the CEO and her team should not have deployed “the company’s resources in support of their slate or to discredit” the chairman’s slate of director candidates. Will also ordered the company to retract some earlier statements it had made.

Still, the judge refused to hold Drake in contempt or require she pay Lichtenstein’s legal bills. Will noted the CEO’s use of Aerojet employees to access to her personal shares so she could nominate board candidates amounted to a technical violation of her order and didn’t warrant a contempt finding.

It’s now up to Aerojet shareholders, “not this court or either subset of directors,” to decide “which faction’s vision will become that of the company,” the judge wrote. “To preserve the ultimate goal of a fair and balanced election, neither half of this divided board has a superior claim to the company’s resources in the interim.”

Representatives of Drake and Lichtenstein didn’t return emails seeking comment on the ruling.

Failed Deal

The battle over who should lead Aerojet has been brewing since February, when antitrust regulators sued to block the $4.4 billion sale of the company to missile-maker Lockheed Martin Corp. The chairman wants to replace Drake with Aerojet’s former chief operating officer, while the CEO’s faction claims Lichtenstein overstepped by making overtures to potential CEO candidates without consulting the full board.

Both sides have peppered Aerojet shareholders with proxy campaign letters in the run-up to the vote. In a missive earlier this month, Drake told shareholders that allowing Lichtenstein to get control “would have devastating effects” on the company. Lichtenstein said he’d come to the conclusion Drake was “unfit to continue to lead the company out of the hole she dug prior to the termination of the Lockheed Martin merger,” according to a May letter.

Will ordered Drake and other Aerojet executives to correct securities filings they made about a board probe earlier this year focused on Lichtenstein’s actions tied to the collapse of the Lockheed deal. The same day Lichtenstein launched the proxy fight over Aerojet’s board, the firm announced an internal investigation of the chairman’s actions without specifying what moves had drawn his board colleagues’ attention.

In the Feb. 1 release, the company said Lichtenstein’s decision to offer his own board slate “may ultimately be driven by his personal concerns and desire to secure his board position and gain leverage in the context of the company’s internal investigation.”

In May, a committee of independent board members formally reprimanded Lichtenstein for reaching out to potential CEO replacements for Drake if the Lockheed deal fell through. But it also rejected Drake’s claims Lichtenstein engaged in harassment or acted improperly by repeated requests for information and internal files.

In Thursday’s ruling, Will said the company should retract statements about what prompted Lichtenstein to offer his board slate, note the press release wasn’t authorized by the full board and clearly state Aerojet “takes no position on the outcome of the pending director election.”

The case is IN RE Aerojet Rocketdyne Holdings Inc., 2022-0127, Delaware Chancery Court (Wilmington).

(Updates with excerpt from judge’s opinion in fourth paragraph.)

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