Item 3.03. Material Modification to Rights of Security Holders.
On March 27, 2020,
the Board of Directors of AAR CORP., a Delaware corporation (the “Company”), declared a dividend of one preferred share
purchase right (a “Right”) for each outstanding share of common stock, $1.00 par value, of the Company to the stockholders
of record on April 9, 2020. The description and terms of the Rights are set forth in a Rights Agreement (the “Rights Agreement”)
between the Company and Computershare Trust Company, N.A., as rights agent.
The Rights Agreement
is similar to stockholder rights plans adopted by other public companies and is intended to protect the interests of the Company
and its stockholders by reducing the likelihood that any person or group gains control of the Company through open market accumulation
or other tactics (especially in recent volatile markets) without paying an appropriate control premium. In general terms, it works
by imposing a significant penalty upon any person or group that acquires 10% (or 20% in the case of a person or group that is entitled
to file, and does file, a Schedule 13G (a “13G Investor”)) or more of the outstanding common stock of the Company without
the approval of the Board of Directors. The Rights Agreement also provides that if a stockholder’s beneficial ownership of
the Company’s common stock as of the time of the first public announcement of the declaration of the Rights dividend is at
or above the applicable threshold (including through entry into certain derivative positions), the stockholder’s then-existing
ownership percentage would be grandfathered, but the rights would become exercisable if at any time after such date, the stockholder
increases its ownership percentage by 0.001% or more. The Rights Agreement should not interfere with any merger or other business
combination approved by the Board of Directors.
A summary of the terms
of the Rights Agreement follows. This description is only a summary, is not complete, and should be read together with the entire
Rights Agreement, a copy of which is filed as Exhibit 4.1 to this Current Report on Form 8-K and is incorporated herein by reference.
A copy of the Rights Agreement is available free of charge from the Company upon request.
The Rights. The
Rights will initially trade with, and will be inseparable from, the common stock. The Rights will be evidenced only by certificates
that represent shares of common stock (or in the case of uncertificated shares, by notations in the book-entry account system).
New Rights will accompany any new shares of common stock the Company issues after April 9, 2020 until the Distribution Date described
below.
Exercise Price. Each
Right will allow its holder to purchase from the Company one one-thousandth of a share of Series A Junior Participating Preferred
Stock (a “Preferred Share”) for $100.00 (the “Exercise Price”), once the Rights become exercisable. This
portion of a Preferred Share will give the stockholder approximately the same dividend and liquidation rights as would one share
of common stock. Prior to exercise, the Right will not give its holder any dividend, voting, or liquidation rights.
Exercisability. The
Rights will not be exercisable until 10 days after the public announcement that a person or group has become an “Acquiring
Person” by obtaining beneficial ownership of 10% (or 20% in the case of a 13G Investor) or more of the outstanding common
stock.
Certain synthetic interests
in securities created by derivative positions — whether or not such interests are considered to be ownership of the underlying
common stock or are reportable for purposes of Regulation 13D-G of the Securities Exchange Act — are treated as beneficial
ownership of the number of shares of the Company’s common stock equivalent to the economic exposure created by the derivative
position, to the extent actual shares of the Company’s common stock are directly or indirectly held by counterparties to
the derivatives contracts. Swaps dealers without any control intent or intent to evade the purposes of the rights plan are excepted
from such imputed beneficial ownership.
The date when the Rights
become exercisable is the “Distribution Date.” Until that date, the common stock certificates (or in the case of uncertificated
shares, by notations in the book-entry account system) will also evidence the Rights, and any transfer of shares of common stock
will constitute a transfer of Rights. After that date, the Rights will separate from the common stock and be evidenced by book-entry
credits or by Right certificates that the Company will mail to all eligible holders of common stock. Any Rights held by an Acquiring
Person are null and void and may not be exercised.
Consequences of a Person or Group Becoming an Acquiring Person.
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Flip In. If a person or group becomes an Acquiring Person, all holders of Rights except the Acquiring Person may, for $100.00, purchase shares of the Company’s common stock with a market value of $200.00, based on the market price of the common stock prior to such acquisition.
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Flip Over. If the Company is acquired in a merger or similar transaction after the Distribution Date, all holders of Rights except the Acquiring Person may, for $100.00, purchase shares of the acquiring corporation with a market value of $200.00, based on the market price of the acquiring corporation’s stock prior to such transaction.
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Notional Shares. Shares held by affiliates and associates of an Acquiring Person, and Notional Common Shares (as defined in the Rights Agreement) held by counterparties to a Derivatives Contract (as defined in the Rights Agreement) with an Acquiring Person, will be deemed to be beneficially owned by the Acquiring Person.
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Preferred Share Provisions.
Each Preferred Share, if issued:
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will not be redeemable,
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will entitle its holder to quarterly dividend payments of $1.00 per share, or an amount equal to 1,000 times the dividend paid on one share of common stock, whichever is greater,
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will entitle its holder upon liquidation to receive $10.00 per share, or an amount equal to 1,000 times the amount paid with respect to one share of common stock, whichever is greater, plus in each case any accrued and unpaid dividends,
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will entitle its holder to 1,000 votes on all matters submitted to a vote of the stockholders of the Company, and
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if shares of the Company common stock are exchanged via merger, consolidation, or a similar transaction, will entitle holders to a per share payment equal to 1,000 times the payment made on one share of common stock.
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The value of one one-thousandth interest in a Preferred Share
should approximate the value of one share of common stock.
Expiration. The Rights
will expire, without any further action required by the Board of Directors, on February 28, 2021.
Redemption. The
Board of Directors may redeem the Rights for $0.001 per Right at any time before any person or group becomes an Acquiring Person.
If the Board of Directors redeems any Rights, it must redeem all of the Rights. Once the Rights are redeemed, the only right of
the holders of Rights will be to receive the redemption price of $0.001 per Right. The redemption price will be adjusted if the
Company has a stock split or stock dividends of its common stock.
Exchange. After
a person or group becomes an Acquiring Person, but before an Acquiring Person owns 50% or more of the outstanding common stock
of the Company, the Board of Directors may extinguish the Rights by exchanging one share of common stock or an equivalent security
for each Right, other than Rights held by the Acquiring Person.
Anti-Dilution Provisions. The
Board of Directors may adjust the purchase price of the Preferred Shares, the number of Preferred Shares issuable and the number
of outstanding Rights to prevent dilution that may occur from a stock dividend, a stock split or a reclassification of the Preferred
Shares or common stock. No adjustments to the Exercise Price of less than 1% will be made.
Amendments. The
terms of the Rights Agreement may be amended by the Board of Directors without the consent of the holders of the Rights. After
a person or group becomes an Acquiring Person, the Board of Directors may not amend the Rights Agreement in a way that adversely
affects holders of the Rights.
The foregoing summary
does not purport to be complete and is qualified in its entirety by reference to the full text of the Certificate of Designations
for the Preferred Shares and the Rights Agreement, copies of which are attached as Exhibits 3.1 and 4.1, respectively, to this
Current Report on Form 8-K and are incorporated by reference herein.