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Item 1.01
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Entry into a Material Definitive Agreement.
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On October 15,
2018, the Board of Directors (the “Board”) of Hudson Global, Inc. (the “Company”) declared a dividend
to the Company’s stockholders of record as of the close of business on October 25, 2018 (the “Record Date”),
for each outstanding share of the Company’s common stock, par value $0.001 per share (“Common Stock”), of one
right (a “Right”) to purchase one one-hundredth of a share of a new series of participating preferred stock of the
Company. The terms of the Rights are set forth in the Rights Agreement, dated as of October 15, 2018 (the “Rights Agreement”),
by and between the Company and Computershare Trust Company, N.A., as rights agent.
The Board entered
into the Rights Agreement in an effort to preserve the value of the Company’s significant U.S. net operating loss carryforwards
(“NOLs”) and other tax benefits. The Company’s ability to utilize its NOLs may be substantially limited if the
Company experiences an “ownership change” within the meaning of Section 382 of the Internal Revenue Code of 1986,
as amended (the “Code”). In general, an “ownership change” would occur if the percentage of the Company’s
ownership by one or more “5-percent shareholders” (as defined in the Code) increases by more than 50 percent over
the lowest percentage owned by such stockholders at any time during the prior three years. The Rights Agreement is designed to
preserve the Company’s tax benefits by deterring transfers of Common Stock that could result in an “ownership change”
under Section 382.
The Rights Agreement
replaces the Company’s prior rights agreement designed to preserve the value of the Company’s NOLs, which was approved
by stockholders in 2015 and expired in accordance with its terms in January 2018. The Company also has a provision in its Amended
and Restated Certificate of Incorporation (the “Charter Provision”) which generally prohibits transfers of its common
stock that could result in an ownership change. The Company believes that in light of the significant amount of the NOLs, it is
advisable to adopt the Rights Agreement in addition to the Charter Provision.
In general terms,
the Rights Agreement imposes a significant penalty upon any person or group that acquires beneficial ownership (as defined under
the Rights Agreement) of 4.99% or more of the outstanding Common Stock without the prior approval of the Board (an “Acquiring
Person”). Any Rights held by an Acquiring Person are void and may not be exercised.
The Company intends
to seek stockholder approval of the Rights Agreement at the Company’s 2019 annual meeting of stockholders.
The following summary description of
the Rights Agreement is not complete and is qualified in its entirety by reference to the full text of the Rights Agreement, a
copy of which is attached as Exhibit 4.1 to this Current Report on Form 8-K and is incorporated herein by reference.
The Rights
. If the Rights
become exercisable, each Right would allow its holder to purchase from the Company one one-hundredth of a share of the Company’s
Series B Junior Participating Preferred Stock (“Series B Preferred Stock”) for a purchase price of $3.50. Each fractional
share of Series B Preferred Stock would give the stockholder approximately the same dividend, voting and liquidation rights as
does one share of Common Stock. Prior to exercise, however, a Right does not give its holder any dividend, voting or liquidation
rights.
Exercisability
. The Rights
will not be exercisable until the earlier of:
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10 days after a public announcement by the Company that a person or group has become an Acquiring Person; and
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10 business days (or a later date determined by the Board) after a person or group begins a tender or an exchange offer that,
if completed, would result in that person or group becoming an Acquiring Person.
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Until the date that the Rights become
exercisable (the “Distribution Date”), Common Stock certificates will also evidence the Rights and will contain a notation
to that effect. Any transfer of shares of Common Stock prior to the Distribution Date will constitute a transfer of the associated
Rights. After the Distribution Date, the Rights will separate from the Common Stock and be evidenced by Right certificates, which
the Company will mail to all holders of Rights that have not become void.
After the Distribution Date, if a person
or group already is or becomes an Acquiring Person, all holders of Rights, except the Acquiring Person, may exercise their Rights
upon payment of the purchase price to purchase shares of Common Stock (or other securities or assets as determined by the Board)
with a market value of two times the purchase price (a “Flip-in Event”).
After the Distribution Date, if a Flip-in
Event has already occurred and the Company is acquired in a merger or similar transaction, all holders of Rights, except the Acquiring
Person, may exercise their Rights upon payment of the purchase price, to purchase shares of the acquiring or other appropriate
entity with a market value of two times the purchase price of the Rights.
Rights may be exercised to purchase Series
B Preferred Stock only after the Distribution Date occurs and prior to the occurrence of a Flip-in Event as described above. A
Distribution Date resulting from the commencement of a tender offer or an exchange offer as described in the second bullet point
above could precede the occurrence of a Flip-in Event, in which case the Rights could be exercised to purchase Series B Preferred
Stock. A Distribution Date resulting from any occurrence described in the first bullet point above would necessarily follow the
occurrence of a Flip-in Event, in which case the Rights could be exercised to purchase shares of Common Stock (or other securities
or assets) as described above.
Exempted Persons and Exempted Transactions
.
The Board recognizes that there may be instances when an acquisition of Common Stock that would cause a stockholder to become an
Acquiring Person may not jeopardize the availability of the Company’s tax benefits. Accordingly, the Rights Agreement grants
discretion to the Board to designate a person as an “Exempt Person” or to designate a transaction involving Common
Stock as an “Exempt Transaction.” An “Exempt Person” cannot become an Acquiring Person under the Rights
Agreement. The Board can revoke an “Exempt Person” designation if it subsequently makes a contrary determination regarding
whether a transaction by such person may jeopardize the availability of the Company’s tax benefits.
Expiration
. The Rights
will expire on the earliest of (i) October 15, 2021, the third anniversary of the date on which the Board authorized and declared
a dividend of the Rights, or such earlier date as of which the Board determines that the Rights Agreement is no longer necessary
for the preservation of the Company’s tax benefits, (ii) the time at which the Rights are redeemed, (iii) the time at which
the Rights are exchanged, (iv) the effective time of the repeal of Section 382 of the Code if the Board determines that the Rights
Agreement is no longer necessary for the preservation of the Company’s tax benefits, (v) the first day of a taxable year
to which the Board determines that no NOLs or other tax benefits may be carried forward, and (vi) the day following the certification
of the voting results of the Company’s 2019 annual meeting of stockholders, if stockholder ratification of the adoption
of the Rights Agreement has not been obtained prior to that date.
Redemption
. The Board may
redeem all (but not less than all) of the Rights for a redemption price of $0.001 per Right at any time before the later of the
Distribution Date and the date of the first public announcement or disclosure by the Company that a person or group has become
an Acquiring Person. Once the Rights are redeemed, the right to exercise the Rights will terminate, and the only right of the holders
of such Rights will be to receive the redemption price. The redemption price will be adjusted if the Company declares a stock split
or issues a stock dividend on Common Stock.
Exchange
. After the later
of the Distribution Date and the date of the first public announcement by the Company that a person or group has become an Acquiring
Person, but before an Acquiring Person owns 50% or more of the outstanding Common Stock, the Board may exchange each Right (other
than Rights that have become void) for one share of Common Stock or an equivalent security.
Anti-Dilution Provisions
.
The Board may adjust the purchase price of the Series B Preferred Stock, the number of shares of Series B Preferred Stock 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 Common Stock. No adjustments to the purchase
price of less than one percent will be made.
Amendments
. Before the
time the Rights cease to be redeemable, the Board may amend or supplement the Rights Agreement without the consent of the holders
of the Rights, except that no amendment may decrease the redemption price below $0.001 per Right. At any time thereafter, the Board
may amend or supplement the Rights Agreement to cure an ambiguity, to alter time period provisions, to correct inconsistent provisions
or to make any additional changes to the Rights Agreement, but only to the extent that those changes do not impair or adversely
affect the interests of the holders of Rights and do not result in the Rights again becoming redeemable. The limitations on the
Board’s ability to amend the Rights Agreement does not affect the Board’s power or ability to take any other action
that is consistent with its fiduciary duties, including, without limitation, accelerating or extending the expiration date of the
Rights, or making any amendment to the Rights Agreement that is permitted by the Rights Agreement or adopting a new rights agreement
with such terms as the Board determines in its sole discretion to be appropriate.