Schmitt Industries Adopts Stockholder Rights Plan to Protect the Value of Its Net Operating Losses
July 02 2019 - 8:27AM
Schmitt Industries, Inc. (NASDAQ: SMIT) announced today that the
Company’s Board of Directors (the “Board”) has adopted a
stockholder rights plan in an effort to protect its net operating
loss carryforwards (“NOLs”) under Section 382 of the Internal
Revenue Code.
As of May 31, 2018, Schmitt had federal and
state NOLs of approximately $4.2 million and $4.7 million,
respectively, which could be used in certain circumstances to
offset Schmitt’s future taxable income or otherwise payable taxes
and therefore reduce its federal and state income tax liabilities.
Schmitt’s plan is similar to plans adopted by numerous other public
companies with NOLs.
Schmitt’s ability to use NOLs would be limited
in the event of an “ownership change” under Section 382 of the
Internal Revenue Code and related U.S. Treasury regulations. In
general, an ownership change would occur if Schmitt’s stockholders
who own, or are deemed to own, 5% or more of Schmitt’s common
stock, increase their collective ownership in Schmitt by more than
50% over a rolling three-year period. The stockholder rights plan
is intended to reduce the likelihood of an unintended ownership
change occurring through the buying of Schmitt common stock
and is not meant to be an anti-takeover measure.
As part of the plan, on July 1, 2019, Schmitt’s
Board declared a dividend of one preferred-share-purchase-right for
each share of Schmitt common stock outstanding as of July 19, 2019.
Effective as of July 1, 2019, if any person or group acquires 4.9%
or more of the outstanding shares of Schmitt common stock, or if a
person or group that already owns 4.9% or more of Schmitt common
stock acquires additional shares representing 0.5% or more of the
outstanding shares of Schmitt common stock, then, subject to
certain exceptions, it would be a triggering event under the plan.
The rights would then separate from the Schmitt common stock and
would be adjusted to become exercisable to purchase shares of
Schmitt common stock having a market value equal to twice the
exercise price, resulting in significant dilution in the ownership
interest of the acquiring person or group.
Schmitt’s Board has the discretion to exempt any
acquisition of Schmitt common stock from the provisions of the plan
if it determines that doing so would not jeopardize or endanger
Schmitt’s use of its tax assets. Schmitt’s Board also has the
ability to terminate the plan prior to a triggering event,
including but not limited to in connection with a transaction, if
it determines that doing so would be in the best interests of
Schmitt’s stockholders.
The rights issued under the plan will expire on
July 1, 2022. The rights may also expire on an earlier date if
certain events occur, as described more fully in the Section 382
Rights Agreement that Schmitt will file with the Securities and
Exchange Commission.
The issuance of the rights is not a
taxable event and will not affect Schmitt’s reported financial
conditions or results of operations. Schmitt’s stockholders do not
have to take any action to receive their rights under
the plan, and no separate rights certificates will
be distributed until after the rights become
exercisable.
The foregoing description of the rights
agreement does not purport to be complete and is qualified in its
entirety by reference to the full text of the form of the rights
agreement filed as an exhibit to a Current Report on Form 8-K to be
filed with the Securities and Exchange Commission.
About Schmitt Industries
Schmitt Industries, Inc. (“Schmitt” or the
“Company”) designs, manufactures and sells high precision test and
measurement products, solutions and services through our SBS®,
Acuity® and Xact® product lines, which are reported in two business
segments. In the Balancer segment, our SBS product line provides
computer-controlled vibration detection, balancing and process
control systems for the worldwide machine tool industry. In the
Measurement segment, our Acuity line provides laser and white light
sensor distance measurement and dimensional sizing products, and
our Xact line provides ultrasonic-based remote tank monitoring
products and related monitoring revenues for markets in the
Internet of Things environment.
FORWARD-LOOKING STATEMENTS
This press release contains “forward-looking
statements” as defined under the U.S. federal securities laws,
including the Private Securities Litigation Reform Act of 1995, and
is subject to the safe harbors created by such laws.
Forward-looking statements contained in this press release may
relate to, but are not limited to, statements regarding our future
taxable income, our ability to utilize and realize the value of our
net operating loss carryforwards and how they could be
substantially limited if we experienced an ownership change as
defined in Section 382 of the Internal Revenue Code and whether the
tax benefits preservation plan will reduce the likelihood of such
an unintended ownership change from occurring. Such forward-looking
statements are based on current expectations that involve a number
of known and unknown risks, uncertainties and other factors which
may cause actual events to be materially different from those
expressed or implied by such forward-looking statements.
Information on factors that may impact these forward-looking
statements can be found in Schmitt’s SEC filings,
including, but not limited to, its Annual Reports on Form 10-K,
Quarterly Reports on Form 10-Q and Current Reports on Form 8-K. The
forward-looking statements in this press release speak only as of
the date on which they were made, and the Company does not
undertake any obligation to update any forward-looking statement to
reflect events or circumstances after the date of this press
release, except as may otherwise be required by the federal
securities laws.
For more information contact: Michael Zapata, Executive Chairman
and President (503) 227-7908 or visit www.schmitt-ind.com.
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