Judge: Chesapeake Won't Have to Open Books in Case

Associated Press

OKLAHOMA CITY -- An Oklahoma judge ruled Thursday that Chesapeake Energy Corp. won't have to open its books to a shareholders' group, a victory for the company in its defense of a $75 million bonus awarded to CEO Aubrey McClendon last December.

Oklahoma County District Judge Daniel Owens denied the books-and-records request by the Louisiana Municipal Police Employees' Retirement System. The group wanted to examine Chesapeake's books to try to determine why the independent natural gas producer's board of directors awarded the bonus after a year in which Chesapeake's stock price plummeted and McClendon had to sell 31.5 million shares -- about 94 percent of his stake in the company -- because of a margin loan call in October.

Separate from the books-and-record demand is a consolidated lawsuit filed by several shareholders' groups -- including the Louisiana group -- concerning the bonus given to McClendon, one of Chesapeake's co-founders and one of nine members of its board of directors. Chesapeake has asked Owens to dismiss the case and a hearing is set for Oct. 9 to consider that request.

In his ruling from the bench Thursday, Owens said much of the information sought by the shareholders' group is available in public documents and forcing the company to open its books could put it at risk in the marketplace.

"You're telegraphing to the community that there is potential mismanagement and wrongdoing," he said, which "could result in a stock price drop."

Chesapeake's stock fell to $9.84 in December, its lowest since August 2003, after reaching a high of $74 last summer. It was trading Thursday at $22.89, down 8 cents.

Marc Gross, a New York-based attorney for the shareholders' group, told Owens the group specifically wanted to look at minutes from meetings of Chesapeake's board of directors and that board's compensation committee.

"From our perspective, this is nothing short of a bailout for Mr. McClendon" after Chesapeake's stock crashed, Gross said.

Robert Varian of San Francisco, an attorney for Chesapeake, argued a federal Securities and Exchange Commission filing explained that the company's compensation committee considered the role McClendon played in several major transactions in 2008, including deals with Plains Exploration, BP America and StatoilHydro. Company officials have said those deals provided $10.3 billion in proceeds and $8.7 billion in economic gain.

After the deduction of required federal and state tax withholdings, the bonus was worth about $43.5 million, according to the SEC filing. When he received the bonus, McClendon agreed to a five-year contract with Chesapeake that caps his annual salary at the 2008 level of $975,000 and limits his annual cash bonuses to $1.95 million.

"It was not like somebody wrote a check and said, 'Let's bail Mr. McClendon out,"' Varian said, calling the bonus "an award for extraordinary performance in that year."

The bonus raised McClendon's pay package for 2008 to $112.5 million, which an Associated Press calculation determined to be the highest for a CEO among Standard & Poor's 500 companies. It also was more than four times higher than his $25.5 million pay package in 2007.