Business Context and Reporting Period
Company: Century Aluminum Company
Filing Type: Form 8-K (Current Report)
Date of Report: September 29, 2009
Event: Entry into a Material Definitive Agreement and Material Modification to Rights of Security Holders.
On September 29, 2009, the Company entered into a Tax Benefit Preservation Plan (the "Plan") with Computershare Trust Company, N.A. The Board adopted the Plan to protect stockholder value by preventing a limitation on the Company's ability to utilize approximately $1.6 billion in net operating losses, tax credits, and other tax assets (Tax Attributes) to offset future federal income tax obligations.
Key Financial Metrics
This filing is a current report regarding a corporate governance action and does not contain standard financial performance data such as revenue, profit, cash flow, or liquidity metrics for the current period.
- Tax Attributes: As of December 31, 2008, the Company held Tax Attributes of approximately $1.6 billion (after adjusting for losses carried back).
- Ownership Change Threshold: An "ownership change" under Section 382 of the Internal Revenue Code occurs if 5-percent shareholders collectively increase ownership by more than 50 percentage points over a rolling three-year period.
- Current Ownership Status: In the past three years, the Company has experienced an increase in equity ownership by 5-percent shareholders in excess of 40 percentage points.
Material Changes and Plan Mechanics
The primary material change is the implementation of a "poison pill" defense mechanism to preserve tax assets. Key terms include:
- Trigger Threshold: The Plan is triggered if any person or group acquires 4.9% or more of the outstanding common stock after September 29, 2009, without Board approval. Existing 4.9% holders are grandfathered unless they acquire an additional 1.0%.
- Record Date: October 9, 2009.
- Right Structure: Each share of common stock carries one preferred share purchase right ("Right"). Each share of Series A Preferred Stock carries 100 Rights.
- Exercise Price: $80.00 per Right (subject to adjustment).
- Consequence of Trigger: Upon the "Distribution Date" (10 days after an Acquiring Person is identified), all Rights holders except the Acquiring Person may purchase common stock with a market value of twice the Exercise Price. Rights held by the Acquiring Person become void.
- Redemption: The Board may redeem Rights for $0.001 per Right at any time before an Acquiring Person emerges.
Guidance, Outlook, and Risks
Management Commentary: Management views the Tax Attributes as a substantial asset. The Plan is designed to ensure these assets are not substantially limited or delayed due to an ownership change, which would significantly impair their value.
Risks and Contingencies:
- Expiration: The Rights will expire on the earliest of: (i) August 1, 2011; (ii) redemption; (iii) exchange; (iv) repeal of Section 382; (v) September 29, 2010, if stockholder approval is not obtained; or (vi) Board determination that the Plan is no longer in the Company's best interests.
- Stockholder Approval: The Plan requires approval by a majority of stockholders by September 29, 2010, or it will expire.
- Board Discretion: The Board retains the right to exempt specific acquisitions if they determine the acquisition will not jeopardize tax benefits or is in the Company's best interests.
Investor Verification Checklist
- Verify the current aggregate ownership percentage of all "5-percent shareholders" to assess proximity to the 50 percentage point ownership change limit.
- Confirm the status of the $1.6 billion in Tax Attributes and any potential limitations already in place.
- Monitor the Company's announcement regarding stockholder approval of the Plan, which must occur by September 29, 2010.
- Review the full text of the Tax Benefit Preservation Plan (Exhibit 4.1) for specific anti-dilution adjustments and exemption criteria.
- Check for any subsequent filings indicating the redemption of Rights or the emergence of an "Acquiring Person."