SunLink Adopts Shareholder Rights Plan to Protect Tax Benefits

SunLink Health Systems, Inc. (NYSE MKT: SSY) (the “Company”) today announced that its Board of Directors has acted to protect the Company’s valuable income tax net operating loss carryforwards (“NOLs”) by adopting a new tax benefits protection rights plan.
The purpose of the rights plan is to protect shareholder value by
preserving the Company’s ability to use its NOLs in the future. The
rights plan is similar to plans adopted by other public companies with
significant net operating losses. As part of the rights plan, SunLink’s
Board declared a dividend of one preferred share-purchase right for each
common share of SunLink outstanding on October 10, 2016. The rights
plan, which takes effect immediately, will continue in effect until
September 29, 2019, subject to earlier expiration in specific
circumstances. The full text of the rights plan will be filed with the
Securities and Exchange Commission.
The Company estimates that it has approximately $13,000,000 in NOLs as
of June 30, 2016, which may be used in certain circumstances to offset
future taxable income and reduce federal income tax liability. The
Company’s ability to use its NOLs would be substantially limited if an
“ownership change” under Section 382 of the Internal Revenue Code were
to occur. Ownership changes under Section 382 generally relate to the
cumulative change in ownership among shareholders with an ownership
interest of 5% or more (as determined under Section 382’s rules) over a
rolling three year period. The rights plan was adopted by the Board to
reduce the likelihood of an “ownership change” occurring.
Under the rights plan, if any person or group acquires 4.9% or more of
the outstanding common shares of the Company without the approval of the
Board of Directors, there would be a triggering event causing
significant dilution in the ownership interest of such person or group.
However, existing shareholders who currently own 4.9% or more of the
outstanding common shares of the Company will trigger a dilutive event
only if they acquire additional shares, subject to specified exceptions.
In connection with the preservation of SunLink’s tax benefits, the Board
of Directors also has adopted certain amendments to the Company’s
articles of incorporation which are also designed to preserve the
Company’s ability to use its NOLs. The charter amendments would
generally void transfers of shares that would result in the creation of
a new 4.9% shareholder or an existing 4.9% shareholder acquiring
additional shares. The Company intends to submit the charter amendments
to a shareholder vote at the 2016 annual meeting. If shareholders do not
approve the charter amendments, they will not become effective.
SunLink Health Systems, Inc. is the parent company of subsidiaries that
operate one hospital, two nursing homes and related businesses in the
Southeast, and a specialty pharmacy company in Louisiana. For additional
information on SunLink Health Systems, Inc., please visit the Company’s
website at www.sunlinkhealth.com.
This press release contains certain forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995
including, without limitation, statements regarding the Company’s
business strategy. These forward-looking statements are subject to
certain risks, uncertainties and other factors, which could cause actual
results, performance and achievements to differ materially from those
anticipated. Certain of those risks, uncertainties and other factors are
disclosed in more detail in the Company’s Annual Report on Form 10-K for
the year ended June 30, 2016 and other filings with the Securities and
Exchange Commission which can be located at www.sec.gov.