Rights Plan

SWK Holdings’s Stockholder Rights Plan Structured to Preserve Net Operating Losses by Limiting Ownership in SWK Holdings Common Stock

On April 8, 2016, SWK Holdings announced that its Board of Directors adopted a Stockholder Rights Plan. The primary purpose of the plan is to preserve SWK Holdings’s net operating losses, or “NOLs,” for tax purposes as the company believes that its NOLs constitute a substantial asset. Under the Internal Revenue Code and rules promulgated by the Internal Revenue Service, SWK Holdings can carry forward its NOLs to offset current and future earnings, and thus reduce its federal income tax liability (subject to certain requirements and restrictions). However, SWK Holdings’s future use of these NOLs could be substantially limited in the event of an “ownership change,” as defined under Section 382 of the Internal Revenue Code. In general, a company would experience an ownership change for this purpose if holders of at least 5% of the outstanding shares of common stock, or “5% holders,” increase their aggregate ownership interest in the company over a three-year testing period by more than 50%, measured in terms of the market value of the company’s capital stock.

The new Rights Plan is designed to reduce the likelihood of an ownership change for federal income tax purposes, by discouraging these shareholders of 4.9% or more of common stock from acquiring additional shares. After giving careful consideration to SWK Holdings’s NOLs and past transactions in the company’s common stock, the Board of Directors concluded that, because the plan would serve to protect the NOLs and therefore stockholder value, the plan would be in the best interest of SWK Holdings and its stockholders.

For more information regarding the Rights Plan, please refer to the company’s SEC filings: Rights Plan and Amendment effective April 8, 2019.