CIMdata PLM Industry Summary Online Archive

3 February 2012

Financial News

SofTech Adopts Rights Agreement Designed to Preserve Use of NOLs

SofTech, Inc. announced that its Board of Directors has adopted a rights agreement (the "Rights Agreement") designed to preserve the value of its federal net operating loss carryforwards ("NOLs") from unintended limitation under Section 382 of the Internal Revenue Code ("Section 382").

As of May 31, 2011 SofTech had NOLs of approximately $18.3 million. NOLs can generally be used to offset future taxable income and, therefore, reduce federal income tax obligations. However, SofTech's ability to use its NOLs will be limited by Section 382 if an "ownership change" occurs. Generally, an "ownership change" under Section 382 occurs if, one or more shareholders owning 5% or more of a company's common stock increase their ownership to more than 50% over a rolling three-year period. The Rights Agreement was adopted to reduce the likelihood of an ownership change occurring that would result in an unintended triggering of Section 382 and the resulting restrictions on SofTech's use of its NOLs.

"The NOLs are important assets of SofTech. The Rights Agreement protects the interests of all shareholders by preserving our ability to use these assets," said Joseph P. Mullaney, chief executive officer of SofTech. "The Rights Agreement we are putting in place is similar to agreements adopted by many other companies like SofTech that have valuable tax assets. It is intended to maintain shareholder value and we believe that the Rights Agreement is in the best interests of SofTech's shareholders; it was not implemented in response to any known accumulation of shares of SofTech's common stock," Mr. Mullaney said. SofTech intends to submit the Rights Agreement to shareholders for approval at the Company's next annual meeting.

In connection with the Rights Agreement SofTech's Board of Directors declared a non-taxable dividend of one common stock purchase right (the "Rights") for each outstanding share of its common stock. The Rights will be distributed to shareholders of record as of February 15, 2012, but would only be activated if triggered by the Rights Agreement. Any shares of common stock issued after the record date will be issued together with the Rights. Effective today, if any person or group acquires 4.99 percent or more of the outstanding shares of common stock (other than certain persons exempted by the Board of Directors as described in the Rights Agreement), there would be a triggering event under the Rights Agreement resulting in significant dilution in the ownership interest of such person or group in SofTech stock. A shareholder who currently beneficially owns 4.99 percent or more of the outstanding shares of common stock will not trigger the Rights unless that shareholder thereafter becomes the beneficial owner of additional shares of common stock representing one half of one percent (0.5%) or more of common stock then outstanding.

The consequences to a person or group that caused a triggering event (the "Acquiring Person") would be that all other shareholders other than the Acquiring Person would be allowed to purchase additional shares at a significant discount thereby materially diluting the Acquiring Person's holdings. In this way the Rights Agreement acts as a deterrent.

The Rights will expire upon the earliest of the close of business on February 2, 2015 (unless that date is advanced or extended by the Board of Directors), the time at which the Rights are redeemed or exchanged, or the time at which the Board of Directors determines that the NOLs are no longer available under Section 382.

Additional information regarding the Rights Agreement will be contained in a Current Report on Form 8-K and in a Registration Statement on Form 8-A that SofTech will be filing with the Securities and Exchange Commission.

Become a member of the CIMdata PLM Community to receive your daily PLM news and much more.

Tell us what you think of the CIMdata Newsletter. Send your feedback.

CIMdata is committed to your privacy. Your personal information will never be sold or shared outside of CIMdata without your express permission.

Subscribe