First Security Group, Inc., parent firm of FSG Bank, Tuesday 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 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 percent 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 Nov. 12. 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.
The rights will expire upon the earlier of (i) Oct. 30, 2022, (ii) the beginning of a taxable year with respect to which the board of directors determines that no tax benefits may be carried forward, (iii) the repeal or amendment of Section 382 or any successor statute, if the board of directors determines that the plan is no longer needed to preserve the tax benefits, (iv) the final adjournment of the company’s 2013 annual meeting of stockholders if stockholder approval of the plan has not been received before such time, (iv) the final adjournment of the third annual meeting of stockholders following the last annual meeting of stockholders at which the plan was most recently approved by stockholders, unless the plan receives stockholder re-approval at such third annual meeting, and (v) certain other events as described in the plan.
Additional information regarding the plan will be provided in a Current Report on Form 8-K and in a Registration Statement on Form 8-A which the company intends to file with the Securities and Exchange Commission. In addition, the company’s stockholders of record as of Nov. 12 will be mailed a detailed summary of the plan.