Autobytel Explains Benefits of Tax Benefit Preservation Plan
IRVINE, Calif. — Autobytel's board of directors has instituted a Tax Benefit Preservation Plan that officials said would help the company maintain its use of net operating losses, which can be beneficial when it comes to federal taxes.
Specifically, Autobytel claims this plan aims "to reduce the likelihood that Autobytel's use of its net operating losses, loss carryforwards and other tax assets (NOLs) would be substantially limited under Section 382 of the Internal Revenue Code."
Officials explained that using NOLs, in general, can lead to lower federal income tax obligations. That said, a change in ownership in the company could substantially change that.
"NOLs can generally be used to offset future taxable income and therefore reduce federal income tax obligations. However, Autobytel's ability to use its NOLs may be substantially limited if there occurs an 'ownership change' of Autobytel as defined under Section 382," the company noted.
"In general, an ownership change will occur if Autobytel's '5-percent stockholders,' as defined under Section 382, collectively increase their ownership in Autobytel by more than 50 percentage points over a rolling three-year period," officials continued.
Autobytel argues that its plan protects "valuable corporate assets," which in turn safeguards the interests of the company's stockholders. Essentially, the tax benefits that net operating loss carryforwards and built-in losses provide would be protected by this plan.
Under the plan, Autobytel said that the board "declared a dividend of one preferred share purchase right (a Right) for each outstanding share of its common stock."
The company explained that the dividend will be payable to holders of record when the business day ends on June 11.
"Any shares of Autobytel's common stock issued after the record date will be issued together with the Rights," officials noted.
"The Rights are not currently exercisable and initially will trade only with the common stock. However, if any person or group acquires 4.9 percent or more of the outstanding shares of Autobytel's common stock (subject to certain exceptions), there will be a triggering event under the Tax Benefit Plan, which would cause the Rights to become exercisable and would be expected to result in significant dilution in the ownership interest of such a person or group," they added.
Autobytel continued: "Existing stockholders who currently own more than 4.90 percent of the company's outstanding shares will not trigger the Tax Benefit Plan so long as they do not acquire additional shares.
"At its discretion, Autobytel's Board of Directors may exempt certain persons and certain transactions under the Tax Benefit Plan if the board of directors determines that such persons or transactions would not be likely to limit Autobytel's NOLs or is otherwise in the best interests of Autobytel," the company explained further. "The Tax Benefit Plan may be terminated by the board of directors at any time before the Rights are triggered."
Autobytel contends that this plan is comparable to what other public companies with substantial NOLs have done.
The company explained that the expiration of the Rights is when the first of the following occurs:
—May 26, 2014.
—The time at which the Rights are redeemed or exchanged under the Tax Benefit Plan.
—The end of the month in which Autobytel's 2011 annual meeting of stockholders is held if stockholder approval of the Tax Benefit Plan has not been received before that time.
—The repeal of Section 382 or any successor statute, if Autobytel's Board of Directors determines that the Tax Benefit Plan is no longer necessary for the preservation of its NOLs.
—The beginning of a taxable year of Autobytel to which the board of directors determines that no NOLs may be carried forward.
—The time when the board of directors determines that a limitation on the use of the NOLs under Section 382 would no longer be material to Autobytel.
The company also emphasized reported earnings per share are not affected by the issuing of the Rights. Moreover, the issuance is not taxable to the company or its shareholders.
For more information about the plan, those interested can see more details in the Form 8-K and in a Registration Statement on Form 8-A, which the company is filing with the Securities and Exchange Commission.
Autobytel is sending its stockholders (as of June 11, 2010) a comprehensive summary of the plan.
"Also, in connection with the adoption of the Tax Benefit Plan, Autobytel today also announced that its board of directors has amended its existing Amended and Restated Rights Agreement (Rights Agreement) to provide for expiration of the Rights Agreement upon the effectiveness of the Tax Benefit Plan," officials added.