Entertainment Distribution enters rights agreement to protect use of loss carryforwards

By Lisa Kerner

Charlotte, N.C., April 3 - Entertainment Distribution Co., Inc. entered into a preferred shares rights agreement with American Stock Transfer and Trust Co. to protect against a possible limitation on Entertainment Distribution's ability to use its net operating loss carryforwards (NOLs).

According to a company news release, the rights plan will impose "significant penalties" on any person or group that acquires 4.9% or more of Entertainment Distribution's common stock without prior approval from its board of directors.

Entertainment Distribution said it had unrestricted NOLs of approximately $290 million as of Dec. 31. The use of the NOLs would be restricted if the corporation has a change in ownership whereby one or more 5% shareholders have total increases in their ownership of more than 50 percentage points over the prior three-year period, the release said.

To accommodate routine trading, Entertainment Distribution said existing shareholders who own 4.9% or more of the company's stock will be allowed to purchase up to an additional 0.5% of Entertainment Distribution's outstanding shares in total without triggering the rights plan.

Entertainment Distribution also announced it will ask shareholders to approve certain transactions that will implement stock transfer restrictions, protecting the availability of the NOLs. If the transactions are approved, Entertainment Distribution said it intends to terminate the rights plan.

Protecting the NOLs is consistent with Entertainment Distribution's plan to consider possible acquisitions, the release said. Entertainment Distribution's board of directors established an acquisition committee that includes Robert L. Chapman Jr., Peter W. Gilson and Howard W. Speaks Jr. to assist management in the search for an acquisition.

Entertainment Distribution will hold its annual shareholder meeting later than its usual May timeframe as the company works to regain compliance with the $1 per minimum closing bid price required by Nasdaq. The New York-based pre-recorded multimedia company has until July 2 to meet the requirement, according to the release.

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