|
Item 1.01.
|
Entry into a Material Definitive Agreement.
|
On February 19, 2018,
the Board of Directors (the “
Board
”) of Safeguard Scientifics, Inc., a Pennsylvania corporation (the “
Company
”),
approved and adopted a Section 382 Tax Benefits Preservation Plan, dated as of February 19, 2018 (the “
Section 382 Tax
Benefits Preservation Plan
”), by and among the Company, Computershare, Inc., a Delaware corporation (“
Computershare
”),
and Computershare Trust Company, N.A., a wholly-owned subsidiary of Computershare and a federally-chartered trust company (together,
with Computershare, the “
Rights Agent
”). Pursuant to the Section 382 Tax Benefits Preservation Plan, the Board
declared a dividend of one preferred share purchase right (each, a “
Right
”) for each outstanding share of common
stock, par value $0.10, of the Company (the “
Common Stock
”). The dividend is distributable to shareholders of
record as of the close of business on March 2, 2018.
The following is a
summary description of the Rights and the other material terms and conditions of the Section 382 Tax Benefits Preservation Plan.
This summary is intended to provide a general description only, does not purport to be complete and is qualified in its entirety
by reference to the complete text of the Section 382 Tax Benefits Preservation Plan, a copy of which is filed as Exhibit 4.1 to
this Current Report on Form 8-K and is incorporated herein by reference. All capitalized terms used herein but not defined herein
shall have the meanings ascribed to such terms in the Section 382 Tax Benefits Preservation Plan.
The Board adopted the
Section 382 Tax Benefits Preservation Plan in an effort to diminish the risk that the Company’s ability to utilize its net
operating loss carryovers (collectively, the “
NOLs
”) to reduce potential future federal income tax obligations
may become substantially limited. Under the Internal Revenue Code of 1986, as amended (the “
Code
”), and the
regulations promulgated thereunder by the U.S. Treasury Department, these NOLs may be “carried forward” in certain
circumstances to offset any current and future taxable income and thus reduce federal income tax liability, subject to certain
requirements and restrictions. While the amount and timing of the Company’s future taxable income cannot be predicted with
any certainty and, accordingly, the Company cannot predict the amount of these NOLs that will ultimately be used to reduce its
income tax liability, to the extent that the NOLs do not otherwise become limited, these NOLs could be a potentially valuable asset
to the Company. However, if the Company experiences an “ownership change,” within the meaning of Section 382 of
the Code (“
Section 382
”), its ability to utilize the NOLs may be substantially limited, and the timing of the
usage of the NOLs could be substantially delayed, which could therefore significantly impair the value of those assets.
Under Section 382,
an “ownership change” occurs if a shareholder or a group of shareholders that is deemed to own at least 5% of the Common
Stock increases their ownership (individually, or collectively with other such “5-percent shareholders”) by more than
50 percentage points over their lowest ownership percentage within a rolling three-year period. If an ownership change occurs,
Section 382 would impose an annual limit on the amount of the Company’s NOLs that can be used to offset the Company’s
income taxes equal to the product of the total value of the Company’s outstanding equity immediately prior to the ownership
change (reduced by certain items specified in Section 382) and the federal long-term tax-exempt interest rate in effect for the
month of the ownership change. A number of complex rules apply to calculating this annual limit. If an ownership change were to
occur, the limitations imposed by Section 382 could result in a substantial delay in the timing of the usage of the Company’s
NOLs or in a material amount of the Company’s NOLs expiring unused and, therefore, significantly impair the value of such
NOLs. While the Company periodically monitors its NOLs and currently believes that an ownership change that would impair the value
of its NOLs has not occurred, the complexity of Section 382’s provisions and the limited knowledge any public company has
about the ownership of its publicly-traded stock make it difficult to determine whether an ownership change has in fact occurred.
The Section 382 Tax
Benefits Preservation Plan is intended to act as a deterrent to any person or group acquiring beneficial ownership of 4.99% or
more of the outstanding Common Stock without the approval of the Board. A person who acquires, without the approval of the Board,
beneficial ownership (other than as a result of repurchases of stock by the Company, dividends or distributions by the Company
or certain inadvertent actions by shareholders) of 4.99% or more of the outstanding Common Stock (including any ownership interest
held by that person’s Affiliates and Associates as defined under the Section 382 Tax Benefits Preservation Plan) could be
subject to significant dilution. Shareholders who beneficially own 4.99% or more of the outstanding Common Stock prior to the first
public announcement by the Company of the Board’s adoption of the Section 382 Tax Benefits Preservation Plan will not trigger
the Section 382 Tax Benefits Preservation Plan so long as they do not acquire beneficial ownership of additional shares of the
Common Stock (other than pursuant to a dividend or distribution paid or made by the Company on the outstanding shares of Common
Stock or pursuant to a split or subdivision of the outstanding shares of Common Stock) at a time when they still beneficially own
4.99% or more of such stock. In addition, the Board retains the sole discretion to exempt any person or group from the penalties
imposed by the Section 382 Tax Benefits Preservation Plan.
The Rights
.
The Board authorized the issuance of one Right per each outstanding share of the Common Stock distributable to the Company’s
shareholders of record as of the close of business on March 2, 2018. One Right will also be issued together with each share of
the Common Stock issued after March 2, 2018 but before the Distribution Date (as defined below) and, in certain circumstances,
after the Distribution Date. Subject to the terms, provisions and conditions of the Section 382 Tax Benefits Preservation Plan,
if the Rights become exercisable, each Right would initially represent the right to purchase from the Company one one-thousandth
of a share (a “
Unit
”) of a newly-designated series of preferred stock, Series B Junior Participating Preferred
Stock, par value $0.10 per share, of the Company (the “
Series B Preferred Stock
”) for a purchase price of $25.00
(the “
Purchase Price
”). If issued, each Unit of Series B Preferred Stock would give the shareholder approximately
the same dividend, voting and liquidation rights as does one share of the Common Stock. However, prior to exercise, a Right does
not give its holder any rights as a shareholder of the Company, including, without limitation, any dividend, voting or liquidation
rights. A copy of the Statement of Designation filed, or to be filed, by the Company with the Secretary of State of the Commonwealth
of Pennsylvania to designate the Series B Preferred Stock is filed as Exhibit 3.1 to this Current Report on Form 8-K and is incorporated
herein by reference.
Acquiring Person
.
Under the Section 382 Tax Benefits Preservation Plan, an “Acquiring Person” is any person who or which, together with
all Affiliates and Associates of such person, is or becomes the beneficial owner of 4.99% or more of the shares of Common Stock
outstanding other than as a result of repurchases of stock by the Company, dividends or distributions by the Company or certain
inadvertent actions by shareholders. Beneficial ownership is determined as provided in the Section 382 Tax Benefits Preservation
Plan and generally includes, without limitation, any ownership of securities a person would be deemed to actually or constructively
own for purposes of Section 382 of the Code or the Treasury Regulations promulgated thereunder. The Section 382 Tax Benefits Preservation
Plan provides that the following shall not be deemed an Acquiring Person thereunder: (i) the Company or any subsidiary of the Company;
(ii) any employee benefit plan or employee stock plan of the Company or any subsidiary of the Company, or any person organized,
appointed, established or holding shares of Common Stock of the Company for or pursuant to the terms of any such plan; (iii) any
person who would otherwise be an Acquiring Person upon the first public announcement by the Company of the adoption of the Section
382 Tax Benefits Preservation Plan, unless and until such person, or any Affiliate or Associate of such person, acquires beneficial
ownership of any additional shares of Common Stock of the Company after the first public announcement by the Company of the adoption
of the Plan (other than pursuant to a stock split, stock dividend or similar transaction) at a time when such person still beneficially
owns 4.99% or more of the Common Stock; (iv) any “direct public group” within the meaning of Treasury Regulations Section
1.382-2T(j)(2)(ii); (v) any person who as the result of an acquisition of shares of Common Stock by the Company (or any subsidiary
of the Company, or any person organized, appointed, established or holding shares of Common Stock of the Company for or pursuant
to the terms of any such plan) which, by reducing the number of shares of Common Stock of the Company outstanding, increases the
proportionate number of shares of Common Stock of the Company beneficially owned by such person to 4.99% or more of the shares
of Common Stock of the Company then outstanding; (vi) any person who or which, within ten (10) business days of being requested
by the Company to advise it regarding the same, certifies to the Company that such person acquired shares of Common Stock in excess
of 4.99% inadvertently or without knowledge of the terms of the Rights and who or which, together with all Affiliates and Associates,
thereafter within ten (10) business days following such certification reduces such person’s (together with its Affiliates’
and Associates’) beneficial ownership to less than 4.99% of the shares of Common Stock then outstanding;
provided,
however
, that (x) if the person requested to so certify fails to do so within ten (10) business days or breaches or violates
such certification, then such person shall become an Acquiring Person immediately after such ten (10) business day period or such
breach or violation or (y) if the person together with its Affiliates and Associates fails to reduce beneficial ownership to less
than 4.99% within ten (10) business days following such certification, then such person shall become an Acquiring Person immediately
after such ten (10) business day period; and (vii) any person who the Board determines, in its sole discretion, prior to the time
such person would otherwise be an Acquiring Person, should be permitted to become the beneficial owner of up to a number of the
shares of Common Stock determined by the Board (the “
Exempted Number
”) and be exempted from being an Acquiring
Person, unless and until such person acquires beneficial ownership of shares of Common Stock of the Company in excess of the Exempted
Number (other than pursuant to a stock split, stock dividend or similar transaction) in which case such person shall be an Acquiring
Person.
A person (other than
any “direct public group” within the meaning of Treasury Regulations Section 1.382-2T(j)(2)(ii)) will be treated as
the beneficial owner of 4.99% or more shares of the Common Stock if, in the determination of the Board, that person (individually,
or together with other persons) would be treated as a “5-percent shareholder” for purposes of Section 382 (substituting
“4.99” for “5” each time “five” or “5” is used in or for purposes of Section 382).
Initial Exercisability
.
The Rights will not be exercisable until the close of business on the earlier to occur of (i) the tenth (10th) calendar day after
the day on which a public announcement or filing that a person or group of Affiliated or Associated persons has become an “Acquiring
Person,” or (ii) the tenth (10th) calendar day (or such later date as may be specified by the Board prior to such time as
any person becomes an Acquiring Person) after the commencement of a tender or exchange offer by or on behalf of a person the consummation
of which would result in such person, together with its Affiliates and Associates, becoming an Acquiring Person, irrespective of
whether any shares are actually purchased pursuant to such offer (the earlier of these dates is called the “
Distribution
Date
”).
Until the Distribution
Date, the Common Stock certificates or the ownership statements issued with respect to uncertificated shares of Common Stock will
evidence the Rights. Any transfer of shares of Common Stock prior to the Distribution Date will also constitute a transfer of the
associated Rights. After the Distribution Date, separate rights certificates will be issued and the Rights may be transferred other
than in connection with the transfer of the underlying shares of Common Stock unless and until the Board has determined to effect
an exchange pursuant to the Section 382 Tax Benefits Preservation Plan (as described below).
Flip-In Event
.
In the event that a person becomes an Acquiring Person, each holder of a Right, other than Rights that are or, under certain circumstances,
were beneficially owned by the Acquiring Person (which will thereupon become void), will thereafter have the right to receive upon
exercise of a Right and payment of the Purchase Price, and subject to the terms, provisions and conditions of the Section 382 Tax
Benefits Preservation Plan, a number of shares of the Common Stock having a market value of two times the Purchase Price.
Redemption.
At
any time until the close of business on the tenth (10th) calendar day after the day a public announcement or a filing is made indicating
that a person has become an Acquiring Person (and prior to the giving of notice of the exchange or redemption, as applicable to
the holders of the Rights), or thereafter under certain circumstances, the Company may redeem the Rights in whole, but not in part,
at a price of $0.001 per Right (the “
Redemption Price
”). The redemption of the Rights may be made effective
at such time, on such basis and with such conditions as the Board in its sole discretion may establish. Immediately upon any redemption
of the Rights, the right to exercise the Rights will terminate and the only right of the holders of Rights will be to receive the
Redemption Price.
Exchange
. At
any time after a person becomes an Acquiring Person, the Board may exchange all or part of the outstanding Rights (other than those
held by an Acquiring Person) for shares of Common Stock at an exchange rate of one share of Common Stock, or a fractional share
of Series B Preferred Stock (or of a share of a similar class or series of the Company’s preferred stock having similar rights,
preferences and privileges) of equivalent value, per Right (subject to adjustment).
Expiration
.
The Rights and the Section 382 Tax Benefits Preservation Plan will expire upon the earliest of (i) the date on which all of the
Rights are redeemed pursuant to the Section 382 Tax Benefits Preservation Plan, (ii) the date on which the Rights are exchanged
pursuant to the Section 382 Tax Benefits Preservation Plan, (iii) the consummation of a reorganization transaction entered into
by the Company resulting in the imposition of stock transfer restrictions that the Board determines will provide protection for
the Company’s tax attributes similar to that provided by the Section 382 Tax Benefits Preservation Plan, (iv) the close of
business on the effective date of the repeal of Section 382, or any other change, if the Board determines that the Section 382
Tax Benefits Preservation Plan, is no longer necessary or desirable for the preservation of the Company’s tax attributes,
(v) the date on which the Board otherwise determines that the Section 382 Tax Benefits Preservation Plan is no longer necessary
to preserve the Company’s tax attributes, (vi) the beginning of a taxable year of the Company to which the Board determines
that none of the Company’s tax attributes may be carried forward, and (vii) the close of business on February 19, 2021.
Preferred
Stock Purchasable Upon Exercise of Rights
. After the Distribution Date, each Right will entitle the holder, subject to the
terms, provisions and conditions of the Section 382 Tax Benefits Preservation Plan, to purchase, for the Purchase Price, one one-thousandth
of a share of the Series B Preferred Stock having economic and other terms similar to that of one share of Common Stock. This portion
of a share of Series B Preferred Stock is intended to give a shareholder approximately the same dividend, voting and liquidation
rights as would one share of Common Stock, and should approximate the value of one share of Common Stock.
Anti-Dilution Provisions
.
The Board may adjust the Purchase Price, the number of shares of Series B Preferred Stock or other securities or assets issuable
and the number of outstanding Rights to prevent dilution that may occur as a result of certain events, including among others,
a stock dividend, a stock split or a reclassification of the Series B Preferred Stock or the Common Stock.
Amendments
.
Until the close of business on the tenth (10th) calendar day after the day a public announcement or a filing is made indicating
that a person has become an Acquiring Person, or thereafter under certain circumstances, the Company may amend the Rights in any
manner. The Company may also amend the Section 382 Tax Benefits Preservation Plan after the close of business on the tenth (10th)
calendar day after the day a public announcement or filing is made indicating that a person has become an Acquiring Person, to
cure ambiguities, to correct defective or inconsistent provisions or to otherwise change or supplement the Tax Benefits Preservation
Plan in any manner that does not adversely affect the interests of holders of the Rights.
Tax Consequences.
The issuance of the Rights should not be taxable to the Company or to shareholders under presently existing federal income
tax law. However, if the Rights become exercisable or if the Rights are redeemed, shareholders may recognize taxable income, depending
on the circumstances then existing.
Shareholder Ratification.
While the Section 382 Tax Benefits Preservation Plan was effective upon adoption by the Board, and while not required by the
Company’s governing documents or by applicable law, as a matter of good corporate governance, the Company intends to submit
the Section 382 Tax Benefits Preservation Plan for shareholder ratification at its 2018 Annual Meeting of Shareholders.