On Jan 5, 2017 the Board of Directors of Forestar, a residential and mixed-use real estate development company adopted a tax benefits preservation plan. The Plan is designed to preserve Forestar’s ability to utilize its tax attributes, such as built in losses and other tax attributes (collectively, “Tax Benefits”). The Plan is similar to plans adopted by other public companies with significant Tax Benefits.
The purpose of the Plan is to preserve Forestar’s ability to use its Tax Benefits, under certain circumstances, to reduce its future tax liability, which would be substantially limited if the Company experienced an “ownership change” as defined under Section 382 of the Internal Revenue Code. In general, an ownership change would occur if the Company’s “5-percent shareholders,” as defined under Section 382, collectively increase their ownership in the Company by more than 50 percentage points over the lowest ownership percentage within a rolling three-year period.
Under the Plan, Forestar is issuing one Right for each share of its common stock outstanding at the close of business on January 17, 2017. The distribution of the Rights is not taxable to stockholders. Stockholders are not required to take any action to receive the Rights. The rights will trade with Forestar’s common shares and will expire on January 5, 2018 unless the plan is extended by the Board for up to two additional years with prior stockholder approval. The rights will also expire if the Board determines that the plan is no longer necessary or desirable for the preservation of Forestar’s Tax Benefits or on the close of business on the first day of a taxable year of Forestar to which the Board determines that no Tax Benefits, once realized, as applicable, may be carried forward.
Pursuant to the Plan, if a shareholder (or group) becomes a 5-percent shareholder after adoption of the Plan without meeting certain customary exceptions, the Rights would become exercisable and entitle stockholders (other than the 5-percent shareholder or group causing the rights to become exercisable) to purchase additional shares of Forestar at a significant discount, resulting in significant dilution in the economic interest and voting power of the 5-percent shareholder or group causing the Rights to become exercisable. Shareholders owning 5% or more of the Company’s outstanding shares at the time of adoption of the Plan are grandfathered and will only cause the Rights to distribute and become exercisable if they acquire an additional 1% of the Company’s outstanding shares. Under the Plan, the Board has the discretion to exempt certain transactions and persons whose acquisitions of the Company’s common stock is determined by the Board not to impair the availability of the Company’s Tax Benefits.
Additional details of the Plan will be communicated in a current report on Form 8-K to be filed with the U.S. Securities and Exchange Commission.