Star Equity Holdings, Inc. Implements Rights Agreement to Safeguard Net Operating Losses
Star Equity Holdings, Inc. (NASDAQ: STRR; STRRP) has made a crucial move to protect its financial stability. The company has announced that its Board of Directors has put in place a Rights Agreement with Equiniti Trust Company, LLC, acting as the rights agent. This agreement is intended to maintain the value of the company's substantial U.S. net operating loss carryforwards (NOLs) and other tax benefits.
Objective of the Rights Agreement
The Rights Agreement is specifically crafted to safeguard the Company’s valuable U.S. federal income tax NOLs, which were approximately $43.2 million at the close of the last fiscal year. Management believes that, given the significant amount of its NOLs, it is wise to adopt this Rights Agreement.
What are NOLs and Section 382?
NOLs enable a company to offset future taxable income, which can greatly lower federal income tax liabilities. However, under Section 382 of the Internal Revenue Code, the Company’s ability to use these NOLs may face serious limitations if an “ownership change” occurs. An ownership change is generally recognized when shareholders, as defined by Section 382, collectively increase their ownership by more than 50 percentage points within a specified timeframe.
How the Rights Agreement Works
Similar to tax benefit protection strategies used by various public companies, the Rights Agreement is designed to protect Star Equity’s tax advantages. It does this by discouraging transfers of the Company’s common stock that could lead to an ownership change. The Board has announced a share dividend for stockholders, allowing them to purchase one one-thousandth of a share of a new series of preferred stock at a specified exercise price for each share of common stock they own.
Key Provisions of the Rights Agreement
The Rights Agreement stipulates that if any individual or group acquires 4.99% or more of the Company’s common stock without prior approval from the Board, or if someone already owning 4.99% or more acquires additional shares without the Board's consent, a triggering event will occur. This will allow existing stockholders, excluding the acquiring entity, to purchase additional shares at a substantial discount, thereby diluting the economic interest of the acquiring party. Additionally, the Board has the discretion to exempt certain transactions from this rule if they believe it will not jeopardize the Company’s tax benefits or serve the Company’s best interests.
Duration and Additional Information
The Rights Agreement is set to expire on August 8, 2027, unless specific events outlined in the agreement occur beforehand. Further information regarding this Rights Agreement will be provided in a Current Report on Form 8-K and a Registration Statement on Form 8-A that the Company will file with the U.S. Securities and Exchange Commission.
About Star Equity Holdings, Inc.
Star Equity Holdings, Inc. operates as a diversified holding company with two primary divisions: Building Solutions and Investments.
Building Solutions Division
The Building Solutions division is involved in three main areas: manufacturing modular buildings, producing structural wall panels and wood foundations, and manufacturing glue-laminated timber, which also includes the distribution of building supplies.
Investments Division
The Investments division focuses on managing and financing the Company’s real estate assets and investment stakes in various private and public companies.
Frequently Asked Questions
What is the purpose of the Rights Agreement?
The Rights Agreement is designed 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?
As of December 31, 2023, Star Equity Holdings had approximately $43.2 million in U.S. federal income tax net operating losses.
What are the implications of an ownership change?
An ownership change under Section 382 can restrict the Company's ability to effectively utilize its NOLs, impacting its future tax obligations.
Who can acquire shares under the Rights Agreement?
Any individual or group looking to acquire 5% or more of Star Equity's shares must first obtain approval from the Board of Directors.
What happens if shares are acquired without approval?
If shares are acquired without the Board's approval, a triggering event occurs, allowing 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
