Regis Corporation Implements Tax Benefits Preservation Strategy

Regis Corporation (NasdaqGM: RGS) has officially disclosed the adoption of a tax benefits preservation plan aimed at safeguarding the availability of its substantial net operating loss carryforwards (NOLs) and other vital tax attributes under the Internal Revenue Code (the “Code”). As of September 30, 2023, the company possesses approximately $646 million in U.S. federal NOLs, a valuable asset that can offset current or future taxable income.

The implementation of this plan is crucial to prevent a potential “ownership change” within the context of Section 382 of the Code, which would significantly curtail Regis’ ability to utilize its NOLs and certain tax attributes. An ownership change is generally triggered if the percentage of common shares owned by one or more “5-percent stockholders” (as determined under Section 382 of the Code) rises by more than 50% over a rolling three-year period.

The strategy is consistent with approaches adopted by other publicly traded companies with substantial NOLs and tax attributes susceptible to limitation under Section 382 of the Code. Importantly, the plan does not impede the Board’s ability to take actions deemed in the best interests of Regis and its shareholders, ensuring flexibility in decision-making.

Under the plan, a triggering event occurs if any person or group acquires 4.95% or more of Regis’ outstanding common shares, potentially leading to significant dilution in voting power and economic ownership for that entity. The Board has declared a dividend of one preferred stock purchase right, or “right,” for each common share outstanding as of the record date, which is February 9, 2024. These rights will trade with common shares and become exercisable if a person or group, without Board approval, acquires 4.95% or more of Regis’s outstanding common shares. Rights holders (excluding the triggering entity) will have the opportunity to purchase common shares at a 50% discount or exchange each right for one common share if the rights become exercisable. Rights held by the triggering entity become null and void.

The plan is set to remain in effect until January 29, 2025, unless terminated earlier or if the rights are exchanged or redeemed by the Board of Directors. This proactive measure aims to protect shareholder value and uphold the Board’s fiduciary duties in navigating potential changes in ownership.

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