/PRNewswire-FirstCall/ -- Triad Guaranty Inc. (OTCBB: TGIC) (the "Company"), today announced that its board of directors has adopted a Tax Benefits Preservation Plan (the "Plan") to help protect the ability of the Company and its subsidiaries to recognize certain potential tax benefits in future periods from net unrealized built-in losses and tax credits (the "Tax Benefits"). This Plan is similar to tax benefits preservation plans adopted by other public companies with significant tax assets.
The ability to employ the Tax Benefits depends on future taxable income and limitations imposed by tax laws; however, ability of the Company and its subsidiaries to use their respective Tax Benefits would be substantially limited if there were an "ownership change" of the Company as defined under Section 382 of the Internal Revenue Code and related Internal Revenue Service pronouncements. In general, an ownership change would occur if the Company's "5% shareholders," as defined under Section 382, collectively increase their ownership in the Company by more than 50 percentage points over a rolling three-year period.
As part of the Plan, the Company's board of directors declared a dividend of one preferred share purchase right (a "Right") for each outstanding share of its common stock. The dividend will be payable to holders of record as of the close of business on
September 27, 2010
, but the Rights would only be activated if triggered by the Plan.
The Rights will be triggered in any instance of a person becoming a 5% shareholder or by an existing 5% shareholder increasing its ownership percentage (subject to certain exceptions). If triggered, each Right would become exercisable, which could result in significant economic dilution to such acquiring person.
The Rights will trade with, and be represented by, the existing common stock of the Company and no further action by stockholders is necessary unless and until a triggering event occurs and the Rights become exercisable. Should the Rights become exercisable, the Company will notify stockholders.