ITEM 3.03. Material Modification to Rights of Security Holders.
On November 25, 2019, the Board of Directors of Limestone Bancorp, Inc. (the “Company”), approved Amendment No. 3 to the Limestone Bancorp, Inc. Tax Benefits Preservation Plan (the “Plan”) between the Company and
American Stock Transfer & Trust Company, LLC, as rights agent. The Plan was originally entered into on June 25, 2015, and, as amended by Amendments No. 1 and 2 thereto, is scheduled to expire at the close of business on June 30, 2021.
The purpose of the Plan is to help preserve the value of the Company’s deferred tax assets, such as its net operating loss carryforwards (“Tax Benefits”), for U.S. federal income tax purposes. In addition to the Plan, the Company also has in place restrictions on share transfers in Article VIII of its Articles of Incorporation (“Article VIII”) to help preserve the deferred tax assets of the Company.
Both the Plan and Article VIII are designed to protect the Company’s deferred tax benefits by restricting acquisitions of shares of the Company by persons who are or, with the acquisition, will become a “5 percent
shareholder” of the Company, when measured in accordance with Section 382 of the Internal Revenue Code of 1986, as amended, and the Treasury Regulations promulgated thereunder ("Section
382"). If the Company experiences an "ownership change," as defined in Section 382, its ability to use the Tax Benefits could be substantially limited and/or delayed, which would significantly impair the value of the Tax Benefits. Generally, the
Company would experience an "ownership change" under Section 382 if one or more "5 percent shareholders" increase their aggregate percentage ownership by more than 50 percentage points over the lowest percentage of stock owned by such stockholders
over the preceding three-year period. As a result, the Company has utilized a 5% "trigger" threshold in the Plan that is intended to act as a deterrent to any person or entity seeking to acquire 5% or more of the outstanding Common Stock without
the prior approval of the Board. Article VIII similarly uses a 5% threshold for restrictions on transfers and ownership of the Company’s Common Stock.
Article VIII allows the Board of Directors to approve (prospectively or retrospectively) and permit a share acquisition by a 5% shareholder, and except it from the restrictions on transfer and ownership contained in
Article VIII, while the Plan previously did not specifically allow that flexibility.
The Board of Directors deemed it advisable and in the best interests of the Company and its shareholders to amend the Plan, through Amendment No. 3, in a manner consistent with Article VIII, to allow the Board, in its
discretion, to permit share acquisitions that do not adversely affect the Corporation’s deferred tax benefits or when determined to be in the best interests of the Corporation notwithstanding the effect on the deferred tax benefits. As amended, the
Plan, like Article VIII, allows the Board of Directors, in its sole discretion, to approve an acquisition of Common Stock by a person who is or with the acquisition will become a 5 percent shareholder, and thereby exempt that person from becoming an
“acquiring person” under the Plan by virtue of the approved acquisition.
Amendment No. 3 to the Plan, dated November 25, 2019, is filed as Exhibit 4.4 to this Report and is incorporated herein by reference. The foregoing description of the amendment to the Plan and its effect is qualified
in its entirety by reference to Exhibit 4.4.
The original Plan is described in and included as Exhibit 4.1 to the Company’s Current Report on Form 8-K filed June 29, 2015 and is incorporated herein by reference. Amendment No. 1 to the Tax Preservation Plan is
described in and included as Exhibit 4.2 to the Company’s Quarterly Report on Form 10-Q filed August 5, 2015 and is incorporated herein by reference. Amendment No. 2 to the Tax Preservation Plan is filed as Exhibit 4 to the Company’s Report on Form
8-K dated May 23, 2018 and is incorporated by reference herein.