8-KMaterial AgreementsShareholder MattersCorporate Changes+2

HORTON D R INC /DE/ 8-K Report, Material Agreement (Aug 20, 2009)

Filed August 20, 2009For Securities:DHI

Summary

D.R. Horton, Inc. (DHI) filed an 8-K on August 20, 2009, reporting the adoption of a "Section 382 Rights Plan" and the declaration of a dividend of one preferred share purchase right (a "Right") for each outstanding share of common stock. This action was taken by the Board of Directors to protect stockholder value by mitigating the risk of substantial limitations on the company's ability to utilize its Net Operating Losses (NOLs) for future federal income tax reduction. The company has significant NOLs which are considered a substantial asset, but these can be severely restricted if DHI undergoes an "ownership change" as defined by Section 382 of the Internal Revenue Code, typically occurring if a 5% stockholder's ownership increases by over 50% within three years. The Rights Plan is designed to deter any single entity from acquiring beneficial ownership of 4.9% or more of DHI's common stock without Board approval, thereby preserving the company's tax asset. The plan includes provisions for redemption and exchange of the Rights under specific circumstances, and it will be submitted for stockholder approval. The Rights will expire on August 19, 2019, unless redeemed, exchanged, or otherwise terminated earlier.

Key Highlights

  • 1D.R. Horton adopted a Section 382 Rights Plan, effective August 19, 2009, to preserve its Net Operating Losses (NOLs) for future tax benefits.
  • 2A dividend of one preferred share purchase right (Right) was declared for each outstanding share of common stock, payable August 31, 2009.
  • 3The primary purpose is to prevent an "ownership change" under Section 382 of the Internal Revenue Code, which could limit the use of DHI's substantial NOLs.
  • 4The Rights Plan will be triggered if any person acquires beneficial ownership of 4.9% or more of DHI's common stock without Board approval.
  • 5The Rights are designed to deter hostile takeovers or significant stock accumulation that could jeopardize the company's tax asset.
  • 6The plan includes mechanisms for redemption and exchange of the Rights under specific conditions.
  • 7The Rights Agreement will be submitted to stockholders for approval and has an expiration date of August 19, 2019.

Frequently Asked Questions

The primary reason is to protect D.R. Horton's substantial Net Operating Losses (NOLs) from being significantly limited. An "ownership change," as defined by Section 382 of the Internal Revenue Code, could severely restrict the company's ability to use these NOLs to offset future federal income tax obligations. The Rights Plan is designed to prevent such an ownership change without the Board's approval.

The plan, also known as a "poison pill," issues a preferred share purchase right to each common stockholder. If any person or group acquires 4.9% or more of the company's stock without Board consent, these Rights become exercisable. This typically allows existing shareholders (excluding the acquirer) to purchase additional shares at a discount, effectively diluting the acquirer's stake and making the takeover prohibitively expensive.

The Rights will become exercisable ten business days after a public announcement that an "Acquiring Person" (someone who has acquired 4.9% or more of the common stock) has emerged. If triggered, holders of Rights (other than the Acquiring Person) will be able to purchase shares of Series A Junior Participating Preferred Stock at a discount, or in certain situations, common stock, which would significantly dilute the ownership of the Acquiring Person.

For current stockholders who do not accumulate 4.9% or more of the company's stock without Board approval, the Rights do not immediately change their ownership. The Rights are a dividend and do not confer voting or dividend rights until they become exercisable. However, if the Rights are triggered and a "flip-in" event occurs, the value of existing common stock could be affected due to the issuance of new shares. The plan is intended to preserve the value of the NOLs for all stockholders.