Extreme Networks, Inc. recently joined the growing list of public companies that have adopted Tax Benefit Preservation Plans. On July 1, the company's Board of Directors adopted a plan to protect its $260M of net operating losses. Similar to other plans, the Extreme Networks plan prevents certain shareholders ("Acquiring Persons") from acquiring 4.95% of the company's outstanding stock.
Why? Management must have reason to believe the company is within a gnat's eyelash of triggering Section 382. Stated another way, future acquisitions, when combined with market activity and other equity transactions, would likely result in an ownership change, which would limit the company's use of its tax assets.
Thus, a Tax Benefit Preservation Plan puts an end to the Section 382 anxiety -- at least temporarily. The plan of Extreme Networks expires on April 27, 2011.
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