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First Security Group Adopts Tax Benefits Preservation Plan To Preserve Use Of Net Operating Losses

Stocks in this article: FSGI

First Security Group, Inc. (NASDAQ: FSGI) (the “Company”) today announced that its board of directors adopted a tax benefits preservation plan designed to preserve the value of certain of the Company’s deferred tax assets primarily associated with net operating loss carryforwards (NOLs) under Section 382 of the Internal Revenue Code. The Company intends to seek stockholder approval of the plan at its 2013 Annual Meeting of Stockholders.

NOLs can generally be used to offset future taxable income and therefore reduce federal income tax obligations. However, the Company’s ability to use its NOLs would be limited if there was an “ownership change” under Section 382. This would occur if stockholders owning (or deemed to own under the tax rules) 5% or more of the Company’s stock increase their aggregate ownership of outstanding shares of the Company’s common stock by more than 50 percentage points over a defined period of time. The plan is intended to reduce the likelihood of an “ownership change” occurring as a result of the buying and selling of the Company’s common stock.

“The primary purpose of the tax preservation plan is to protect the value of our NOLs for our shareholders,” stated Michael Kramer, President and CEO of First Security Group. “As we continue to make progress towards our capital initiatives, minimizing any significant changes in our shareholder base becomes critically important to ensuring the success of our plan.”

In connection with the plan, the Company has declared a dividend of one preferred stock purchase right for each share of common stock outstanding as of the close of business on November 12, 2012. Effective today, any stockholder or group that acquires beneficial ownership of 5 percent or more of the Company’s outstanding stock (an “acquiring person”) could be subject to significant dilution in its holdings if the Company’s board of directors does not approve such acquisition. Existing stockholders holding 5 percent or more of the Company’s common stock will not be considered acquiring persons unless they acquire additional shares, subject to certain exceptions described in the plan. In addition, in its discretion, the board of directors may exempt certain transactions and certain persons whose acquisition of securities is determined by the board not to jeopardize the Company’s deferred tax assets.

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