Surge Components adopts plan to preserve valuable tax assets
Surge Components announced that its Board of Directorshas acted to preserve and protect the company's valuable income tax net operating loss carryforwards by adopting a shareholder rights plan in the form of a Section 382 Rights Agreement. The company will seek shareholder approval of the NOL Rights Plan at its 2016 Annual Meeting. Surge estimates that its NOLs total over $10M as of August 31, 2016, which could be used to offset Surge's future taxable income and therefore reduce its federal and state income tax liabilities. Surge's NOL Rights Plan is similar to plans adopted by numerous other public companies with significant NOL tax assets. Surge's ability to use these tax assets and others which may be generated would be substantially limited in the event of an "ownership change" under Sections 382 and 383 of the Internal Revenue Code and related U.S. Treasury regulations. In general, an ownership change would occur if Surge's shareholders who own 5% or more of Surge's common stock increase their collective ownership by more than 50 percentage points within a rolling three-year period. The shareholder rights plan is intended to reduce the likelihood of an unintended impairment of Surge's valuable NOL tax assets. To implement the NOL Rights Plan, the Board declared a non-taxable dividend of one preferred share purchase right for each outstanding share of its common stock. The rights will be exercisable if a person or group acquires 4.99% or more of Surge common stock. Surge's existing shareholders that beneficially own in excess of 4.99% of the common stock will be "grandfathered in" at their current ownership level and the rights then become exercisable if those shareholders acquire any additional shares. If the rights become exercisable, all holders of rights, other than the person or group triggering the rights, will be entitled to purchase Surge common stock at a 50 percent discount. Rights held by the person or group triggering the rights will become void and will not be exercisable. The NOL Rights Plan will not prevent a takeover, but should encourage anyone seeking to acquire the Company to negotiate with the Board prior to attempting a takeover. The NOL Rights Plan contains an exception for offers that meet certain requirements that are made for all of the shares of common stock of the Company and that treat all stockholders equally. The rights issued under the NOL Rights Plan will expire on the close of business on the first day after Surge's 2016 Annual Meeting, if not approved by Surge's shareholders at the 2016 Annual Meeting, or October 7, 2019, if the plan is approved.