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Judge Considers Delaying Chesapeake Annual Meeting

Wed, 06/06/2012 - 6:05am
TIM TALLEY, Associated Press

OKLAHOMA CITY (AP) — A shareholders' group urged a federal judge Tuesday to postpone the annual meeting of the nation's second-largest natural gas producer until the company releases more information on the chief executive's compensation and loans he secured against his stake in company wells.

New York City-based attorney Matthew Houston told U.S. District Judge Vicki Miles-LaGrange that a shareholders' meeting scheduled for Friday should be put off to give Chesapeake Energy Corp. more time to provide shareholders with the information they need to determine whether the company's board of directors has been doing its job.

"They must be able to make an informed decision," Houston said. "The disclosure that has been given is inadequate."

An attorney for Chesapeake, Robert Varian of San Francisco, said postponing the meeting would not be in the best interest of the company or shareholders and information provided in the company's proxy was sufficient for shareholders to vote on the selection of two directors and approve employee incentive packages.

"These are all very, very important issues," Varian said. "The question of what the vote is on is critical. The proxy does a complete job and a thorough and adequate job."

Miles-LaGrange did not issue a ruling on the shareholders' request for a preliminary injunction to block the annual meeting and did not indicate when she will issue a decision.

Chesapeake's final proxy was released by the company May 11, but it has been amended four times since then following a series of developments involving the compensation of board members, investor Carl Icahn's complaints about the board and the company's decision to replace four of its nine board members, Houston said. He said the company has not shared information about the developments with shareholders.

"Shareholders should not be in an adversarial position with their board of directors," Houston said. "They have a right to know what the board was doing."

Icahn has acquired a 7.6 percent stake in Chesapeake. In a letter to Chesapeake's board made public last month, Icahn wrote that the board had failed its basic function of overseeing management in "dramatic fashion."

It's been disclosed over the past few weeks that CEO Aubrey McClendon was allowed to borrow money from a company that Chesapeake was doing business with and run a hedge fund that bet on oil and gas prices — commodities that Chesapeake produces. The borrowing was related to a program that entitled McClendon to buy personal stakes in company wells.

Chesapeake has said the Securities and Exchange Commission has opened an "informal inquiry" into whether the program created potential conflicts of interest for McClendon.

McClendon gave up his post as board chairman on May 1 after reports of his financial dealings were made public, and investors expressed concern the transactions could have influenced the company's business decisions. McClendon said he borrowed $846 million.

Varian said the developments have been widely reported by various media outlets and shareholders are well aware of them.

"There's real harm to Chesapeake Energy in enjoining this meeting," Varian told Miles-LaGrange.

Chesapeake, along with other natural gas companies, has been hit hard by falling natural gas prices. The Oklahoma City company's shares have lost 26 percent so far this year. They rose almost 3 percent Tuesday to close at $17.

"There is no reason to delay the annual meeting," Varian said. "It would add to market uncertainty."

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