Ocean Power board approves adoption of tax benefits preservation plan

Ocean Power announced that its board of directors has approved the adoption of a tax benefits preservation plan in the form of a Section 382 Rights Agreement. The plan is designed to protect and preserve OPT’s tax assets primarily associated with net operating loss carryforwards or NOLs that could potentially be utilized in certain circumstances to offset OPT’s future taxable income and reduce its federal income tax liability. Section 382 of the Internal Revenue Code imposes limitations on the future use of a company’s NOLs if it undergoes an “ownership change.” OPT’s ability to benefit from its tax assets would be substantially limited by Section 382 if an “ownership change” occurred. A company experiences an “ownership change” for tax purposes if the percentage of stock owned by one or a group of its 5% stockholders increases by more than 50 percentage points over a rolling three-year period over the lowest percentage of stock of such corporation owned by such stockholders at any time during that period. In order to protect OPT’s NOLs from being limited or permanently lost under Section 382, the tax benefits preservation plan is intended to reduce the likelihood of an unintended “ownership change” occurring through the buying and selling of OPT’s common stock, $0.001 par value per share. OPT’s tax benefits preservation plan is intended to deter any person or group from acquiring beneficial ownership of 4.99% or more of OPT’s outstanding common stock without the approval of the Board. OPT’s tax benefits preservation plan does not, however, block anyone from buying or selling OPT’s common stock. Accordingly, there can be no assurance that the tax benefits preservation plan will prevent an “ownership change.” Under the terms of the tax benefits preservation plan, OPT will distribute to its stockholders one preferred stock purchase right for each share of OPT’s common stock held as of the close of business on July 11. Any shares of common stock issued after the July 11 record date will be issued together with associated preferred stock purchase rights. Under the tax benefits preservation plan, the rights will initially trade with OPT’s common stock. The rights will generally become exercisable only if a person acquires beneficial ownership of 4.99% or more of OPT’s outstanding common stock, without the approval of the Board, after the first public announcement by OPT of the adoption of the tax benefits preservation plan. A person or group who acquires, without the approval of the board, beneficial ownership of 4.99% or more of OPT’s outstanding common stock could be subject to significant dilution. If the preferred stock purchase rights become exercisable, all holders of rights, other than the person or group triggering the rights, will be entitled to purchase OPT’s common stock at a 50% discount. The board also has the option to cause the exchange of one share of common stock for each preferred stock purchase right held. Preferred stock purchase rights held by the person or group triggering the rights will become null and void and will not be exercisable, exchangeable, or transferable. Stockholders who beneficially owned 4.99% or more of OPT’s outstanding common stock prior to the first public announcement by OPT of the adoption of the tax benefits preservation plan will not trigger any penalties under the tax benefits preservation plan so long as they do not acquire beneficial ownership of any additional shares of common stock at a time when they still beneficially own 4.99% or more of such common stock. The board also has the discretion to exempt any acquisition of OPT’s common stock from the provisions of the tax benefits preservation plan. The preferred stock purchase rights and the tax benefits preservation plan will expire no later than June 29, 2026. The preferred stock purchase rights and the tax benefits preservation plan may also expire on an earlier date upon the occurrence of other events, including a determination by OPT’s board that the tax benefits preservation plan is no longer necessary for the preservation of OPT’s tax attributes. The preferred stock purchase rights may also be redeemed, exchanged, or terminated prior to their expiration.