| Item 1.01 | Entry into a Material Definitive Agreement. |
Agreement and Plan of Merger.
On December 20, 2020, Aerojet Rocketdyne Holdings, Inc., a Delaware corporation (the “Company”), entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Lockheed Martin Corporation, a Maryland corporation (“Parent”), and Mizar Sub, Inc., a Delaware corporation and a wholly owned subsidiary of Parent (“Merger Sub”), pursuant to which, subject to the terms and conditions thereof, Merger Sub will merge with and into the Company (the “Merger”) with the Company being the surviving corporation and a wholly owned subsidiary of Parent. Capitalized terms used herein and not otherwise defined have the meaning set forth in the Merger Agreement.
The Company is primarily a technology-based engineering and manufacturing company that develops and produces specialized power and propulsion systems, as well as armament systems. It develops and manufactures liquid and solid rocket propulsion, air-breathing hypersonic engines, and electric power and propulsion for space, defense, civil and commercial applications. The Company is a supplier of propulsion systems on multiple of Parent’s missile defense, strategic deterrence, strike, hypersonics and orbital access programs including significantly, Patriot Advanced Capability-3 (PAC-3), Terminal High Altitude Area Defense (THAAD), Army Tactical Missile System (ATACMS) and Orion and is providing propulsion for Parent’s Next Generation Interceptor offering. As disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, sales to Parent made up approximately 33% of the Company’s 2019 net sales.
Merger Consideration. Subject to the terms and conditions set forth in the Merger Agreement, each share of the Company’s common stock, par value $0.10 per share (a “Share”), outstanding as of immediately prior to the effective time of the Merger (the “Effective Time”) (other than Shares held by the Company, any wholly owned Subsidiary of the Company, or by Parent, Merger Sub or any other wholly owned Subsidiary of Parent and Shares as to which the holder has validly exercised and perfected and not effectively withdrawn or lost their rights to dissent under Delaware law) will be automatically converted into the right to receive cash in an amount equal to $56.00 per Share, without interest, less, to the extent paid or payable as outlined below, the amount per Share of the Pre-Closing Dividend (defined below).
Cash Dividend. On December 19, 2020, the Company’s board of directors (the “Board”) declared a one-time cash dividend of $5.00 per Share (including Shares underlying 2.25% Convertible Senior Notes due 2023 on an as-converted basis) (the “Pre-Closing Dividend”). The Pre-Closing Dividend is payable on March 24, 2021 to the holders of the Company’s Shares and convertible senior notes as of the close of business on March 10, 2021. The $56.00 per Share price under the Merger Agreement is expected to be reduced to $51.00 after the pre-closing payment of the Pre-Closing Dividend to the Company’s stockholders and holders of its 2.25% Convertible Senior Notes due 2023 on an as-converted basis (or, in the event that closing occurs after March 10, 2021 but before March 24, 2021, to the extent the Pre-Closing Dividend is payable after the closing).
The Board believes that the Pre-Closing Dividend is in the best interests of the Company and its stockholders, in part, because: (i) the Company has accumulated approximately $1 billion in cash on its balance sheet as of December 18, 2020; (ii) there is potential for a lengthy period between the date hereof and the consummation of the Merger due to certain regulatory approvals and other closing conditions; and (iii) the Pre-Closing Dividend allows the Company to return value to its stockholders in the short-term. The Board may modify or revoke the Pre-Closing Dividend in its discretion, including if, for example, the Board determines that the Company can no longer lawfully pay the Pre-Closing Dividend under Delaware law.
Treatment of Company Equity Awards. At the Effective Time of the Merger, unvested shares of Company Restricted Stock (as defined in the Merger Agreement) will (i) automatically become fully vested (for shares subject to performance vesting criteria, based on deemed achievement of maximum performance) and (ii) be automatically converted into the right to receive cash in an amount equal to the Price Per Share (as defined in the Merger Agreement), plus, to the extent paid or payable to holders of Company common stock but unpaid on such share of Company Restricted Stock, the amount per Share of the Pre-Closing Dividend, less applicable withholding taxes. At the Effective Time of the Merger, each outstanding stock option and SAR with respect to Shares that have an exercise price or grant price that is less than the Price Per Share will be automatically cancelled and converted into the right to receive cash in an amount equal to the total number of Shares subject to the award multiplied by the excess of the Price Per Share over the per Share exercise or grant price (as applicable), less applicable withholding taxes. Options and SARs with exercise or grant prices equal to or greater than the Price Per Share will be cancelled for no consideration at the Effective Time of the Merger. At the Effective Time of the Merger, each outstanding restricted stock unit with respect to Shares, to the extent granted prior to the execution of the Merger Agreement, will be automatically cancelled and converted into the right to receive cash in an amount equal to the total number of Shares subject to the award (for units subject to performance vesting criteria, based on deemed achievement of maximum performance) multiplied by the sum of the Price Per Share, plus, to the extent paid or payable to holders of Company common stock and payable but unpaid on such Company restricted stock units, the amount per Share of the Pre-Closing Dividend, less applicable withholding taxes. At the Effective Time of the Merger, each outstanding restricted stock unit with respect to Shares that was granted after the execution of the Merger Agreement will be automatically cancelled and converted into the right to receive (i) for individuals who remain employed by Parent and its affiliates following the Effective Time, an award of Parent restricted stock units with respect to a number of shares of Parent stock equal to the total number of Shares subject to the award (for units subject to performance vesting criteria, based on deemed achievement of maximum performance) multiplied by the Equity Award Exchange Ratio (as defined in the Merger Agreement) or (ii) for individuals who do not remain employed by Parent and its affiliates following the Effective Time, a payment in cash in an amount equal to the total number of Shares subject to the award (for units subject to performance vesting criteria, based on deemed achievement of maximum performance) multiplied by the sum of the Price Per Share, plus, to the extent paid to holders of Company common stock and payable but unpaid on such Company restricted stock units, the amount per Share of the Pre-Closing Dividend, less applicable withholding taxes.
