Exhibit 99.1
IMMEDIATE NEWS RELEASE
SCHMITT INDUSTRIES ADOPTS STOCKHOLDER RIGHTS PLAN
TO PROTECT THE VALUE OF ITS NET OPERATING LOSSES
PORTLAND, OR, July 2, 2019 – Schmitt Industries, Inc. (NASDAQ: SMIT) announced today that the Company’s Board of Directors (the “Board”) has adopted a stockholder rights plan in an effort to protect its net operating loss carryforwards (“NOLs”) under Section 382 of the Internal Revenue Code.
As of May 31, 2018, Schmitt had federal and state NOLs of approximately $4.2 million and $4.7 million, respectively, which could be used in certain circumstances to offset Schmitt’s future taxable income or otherwise payable taxes and therefore reduce its federal and state income tax liabilities. Schmitt’s plan is similar to plans adopted by numerous other public companies with NOLs.
Schmitt’s ability to use NOLs would be limited in the event of an “ownership change” under Section 382 of the Internal Revenue Code and related U.S. Treasury regulations. In general, an ownership change would occur if Schmitt’s stockholders who own, or are deemed to own, 5% or more of Schmitt’s common stock, increase their collective ownership in Schmitt by more than 50% over a rolling three-year period. The stockholder rights plan is intended to reduce the likelihood of an unintended ownership change occurring through the buying of Schmitt common stock and is not meant to be an anti-takeover measure.
As part of the plan, on July 1, 2019, Schmitt’s Board declared a dividend of one preferred-share-purchase-right for each share of Schmitt common stock outstanding as of July 19, 2019. Effective as of July 1, 2019, if any person or group acquires 4.9% or more of the outstanding shares of Schmitt common stock, or if a person or group that already owns 4.9% or more of Schmitt common stock acquires additional shares representing 0.5% or more of the outstanding shares of Schmitt common stock, then, subject to certain exceptions, it would be a triggering event under the plan. The rights would then separate from the Schmitt common stock and would be adjusted to become exercisable to purchase shares of Schmitt common stock having a market value equal to twice the exercise price, resulting in significant dilution in the ownership interest of the acquiring person or group.
Schmitt’s Board has the discretion to exempt any acquisition of Schmitt common stock from the provisions of the plan if it determines that doing so would not jeopardize or endanger Schmitt’s use of its tax assets. Schmitt’s Board also has the ability to terminate the plan prior to a triggering event, including but not limited to in connection with a transaction, if it determines that doing so would be in the best interests of Schmitt’s stockholders.
The rights issued under the plan will expire on July 1, 2022. The rights may also expire on an earlier date if certain events occur, as described more fully in the Section 382 Rights Agreement that Schmitt will file with the Securities and Exchange Commission.
The issuance of the rights is not a taxable event and will not affect Schmitt’s reported financial conditions or results of operations. Schmitt’s stockholders do not have to take any action to receive their rights under the plan, and no separate rights certificates will be distributed until after the rights become exercisable.
The foregoing description of the rights agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the form of the rights agreement filed as an exhibit toa Current Report on Form8-K to be filed with the Securities and Exchange Commission.
