Star Equity Holdings Implements Rights Agreement for Tax Benefits
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Star Equity Holdings, Inc. Adopts Rights Agreement to Protect its Net Operating Losses
Star Equity Holdings, Inc. (NASDAQ: STRR; STRRP) has taken a significant step to safeguard its financial future. The company announced that its Board of Directors has adopted a Rights Agreement with Equiniti Trust Company, LLC, as rights agent. This agreement aims to preserve the value of the Company’s significant U.S. net operating loss carryforwards (NOLs) and other tax benefits.
Purpose of the Rights Agreement
The Rights Agreement is designed with the intention of protecting the Company’s valuable U.S. federal income tax NOLs, which amounted to approximately $43.2 million as of the end of the previous fiscal year. The management believes that due to the considerable amount of its NOLs, it is prudent to adopt this Rights Agreement.
Understanding NOLs and Section 382
NOLs allow a company to offset future taxable income, which can significantly reduce federal income tax obligations. However, under Section 382 of the Internal Revenue Code, the Company’s ability to utilize these NOLs may be severely restricted if an “ownership change” occurs. An ownership change is generally recognized when stockholders, viewed through the lens of Section 382, collectively increase their ownership by more than 50 percentage points over a defined time frame.
Mechanism of the Rights Agreement
Similar to tax benefit protection plans employed by various public companies, the Rights Agreement serves to uphold Star Equity’s tax advantages. It does this by deterring transfers of the Company’s common stock that could trigger an ownership change. The Board has declared a share dividend to stockholders, allowing them to purchase one one-thousandth of a share of a new series of preferred stock at a designated exercise price for each share of common stock they hold.
Key Conditions Under the Rights Agreement
According to the Rights Agreement, if any person or group acquires 4.99% or more of the Company’s common stock without prior approval from the Board, or if a person or group already owning 4.99% or more acquires additional shares without the Board’s consent, a triggering event will occur. This will enable stockholders, excluding the acquiring entity, to buy additional shares at a significant discount, diluting the economic interest of the acquiring party. Moreover, the Board retains discretion to exempt certain transactions from this provision if they believe it will not jeopardize the Company’s tax benefits or serve the Company’s interests.
Validity and Further Information
The Rights Agreement is set to expire on August 8, 2027, unless certain events occur beforehand as detailed in the agreement. Further details regarding this Rights Agreement will be disclosed in a Current Report on Form 8-K and a Registration Statement on Form 8-A that the Company will submit to the U.S. Securities and Exchange Commission.
About Star Equity Holdings, Inc.
Star Equity Holdings, Inc. is a diversified holding company with two main divisions: Building Solutions and Investments.
Building Solutions Division
The Building Solutions division engages in three primary businesses: modular building manufacturing, structural wall panel and wood foundation manufacturing, and glue-laminated timber manufacturing, which includes the distribution of building supplies.
Investments Division
The Investments division oversees the management and financing of the Company’s real estate assets and investment positions in various private and public companies.
Frequently Asked Questions
What is the purpose of the Rights Agreement?
The Rights Agreement aims to protect the value of Star Equity's significant net operating loss carryforwards and other tax benefits.
How much were the company's net operating losses?
Star Equity Holdings had approximately $43.2 million in U.S. federal income tax net operating losses as of December 31, 2023.
What are the implications of an ownership change?
An ownership change under Section 382 can limit the Company's ability to utilize its NOLs effectively, impacting its future tax obligations.
Who can acquire shares under the Rights Agreement?
Any person or group wishing to acquire 5% or more of Star Equity's shares must obtain prior approval from the Board of Directors.
What happens if shares are acquired without approval?
If shares are acquired without Board approval, a triggering event occurs, enabling existing stockholders to purchase additional shares at a significant discount.
For further inquiries, please reach out to:
Contact Information
Star Equity Holdings, Inc.
Richard Coleman, CEO
203-489-9502
admin@starequity.com
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