What is the primary purpose of the Section 382 Rights Agreement?

The primary purpose of the Section 382 Rights Agreement is to preserve Chesapeake Energy Corporation's ability to utilize its Tax Attributes, such as Net Operating Losses (NOLs), to offset future income taxes. An "ownership change" under Section 382 of the Internal Revenue Code could significantly limit the company's ability to use these valuable tax assets.

What actions would trigger the Rights and make them exercisable?

The Rights become exercisable if a "triggering event" occurs. This generally happens when a person or an affiliated group acquires beneficial ownership of 4.9% or more of the Company's outstanding common stock. The Rights will then separate from the common stock and become exercisable.

What happens if a "triggering event" occurs?

If a triggering event occurs, each Right will allow the holder to purchase one one-thousandth of a share of Series B Preferred Stock at a specified price ($90.00, subject to adjustment). This mechanism is intended to deter potential acquirers and protect the value of the Company's tax attributes by diluting the stake of the "Acquiring Person".

When will these Rights expire?

The Rights will expire on April 22, 2023. However, they may expire earlier under certain conditions, including if the Company's stockholders do not ratify the Rights Agreement at the 2021 annual meeting, or if the Board of Directors determines the agreement is no longer necessary to preserve Tax Attributes or that the Tax Attributes have been fully utilized.

EXE 8-K: Material Agreements, Shareholder Matters & More

Summary

On April 23, 2020, Chesapeake Energy Corporation (the Company) announced the adoption of a Section 382 Rights Agreement and the distribution of one preferred share purchase right (a "Right") for each outstanding common share, payable on May 4, 2020. This action is designed to preserve the Company's ability to utilize its Tax Attributes, which could be significantly limited by an "ownership change" as defined by Section 382 of the Internal Revenue Code. The Rights Agreement aims to deter any single party or affiliated group from acquiring beneficial ownership of 4.9% or more of the Company's common stock, thereby preventing such an ownership change. The Rights will become exercisable under specific "triggering events," such as a person or group acquiring 4.9% or more of the outstanding common stock. Upon a triggering event, the Rights would allow holders to purchase additional shares at a discount, effectively diluting the ownership stake of the "Acquiring Person" and protecting the Company's tax assets. The Rights are set to expire on April 22, 2023, or earlier under certain conditions, including a shareholder vote at the 2021 annual meeting or a determination by the Board that they are no longer necessary.

Key Highlights

1Chesapeake Energy adopted a Section 382 Rights Agreement and is distributing preferred share purchase rights to protect its Net Operating Losses (NOLs) and other tax attributes.
2The Rights are designed to prevent an "ownership change" under IRS Section 382, which could limit the company's ability to utilize its tax assets.
3A "triggering event" occurs if any person or group acquires 4.9% or more of the company's common stock.
4Upon a triggering event, each Right will entitle the holder to purchase preferred stock at a discount, potentially diluting the "Acquiring Person's" stake.
5The Rights will expire on April 22, 2023, unless redeemed earlier by the Board or if a shareholder vote to ratify the agreement fails at the 2021 annual meeting.
6The Board of Directors retains discretion to exempt certain parties or transactions from the terms of the Rights Agreement.
7The Company also filed a Certificate of Designations for Series B Preferred Stock in conjunction with this agreement.

EXPAND ENERGY Corp 8-K Report, Material Agreement (Apr 23, 2020)

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