UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
SCHEDULE
14A
Proxy
Statement Pursuant to Section 14(a)
of
the Securities Exchange Act of 1934
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by the Registrant x
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by a Party other than the Registrant o
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Preliminary
Proxy Statement
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Confidential,
for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
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Definitive
Proxy Statement
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Definitive
Additional Materials
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Soliciting
Material Pursuant to §240.14a-12
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CHESAPEAKE
ENERGY CORPORATION
(Name
of Registrant as Specified in its Charter)
(Name
of Person(s) Filing Proxy Statement
if
Other Than the Registrant)
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Fee
computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
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of each class of securities to which transaction
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Aggregate
number of securities to which transaction
applies:
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Per
unit price or other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined):
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Proposed
maximum aggregate value of transaction:
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paid previously with preliminary materials.
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6100
North Western Avenue
Oklahoma
City, Oklahoma 73118
We have
received a number of inquiries related to recent reporting about matters that
are discussed in the proxy statement for our 2009 annual meeting of shareholders
to be held on June 12, 2009. The attached letter from our general
counsel responding to a press inquiry may answer questions or concerns you
have.
We filed
the definitive proxy statement with the Securities and Exchange Commission on
April 30, 2009, and it is available free of charge at the SEC's website at www.sec.gov. The
Company will mail the proxy statement, its 2008 annual report and proxies to
shareholders on May 13, 2009, and such information will be available at that
time on the Company's website at www.chk.com. Shareholders
are strongly advised to read the Company’s definitive proxy statement because it
contains important information. Additional
information may also be found in the Company’s Current Report on Form 8-K filed
with the SEC on January 7, 2009. This Form 8-K is available on the
SEC’s website at www.sec.gov.
The
Company and our directors and executive officers and other members of management
and employees are potential participants in the Company's solicitation of
proxies from shareholders in respect of the 2009 annual
meeting. Information regarding our directors and executive officers
is available in our proxy statement for the annual meeting of shareholders,
filed with the SEC on April 30, 2009.
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Henry
J. Hood
Senior Vice President - Land and Legal
and
General Counsel
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April 30,
2009
VIA
EMAIL: Rellis@opubco.com
Mr. Randy
Ellis
The Daily
Oklahoman
P. O. Box
25125
Oklahoma
City, Oklahoma 73125
Dear Mr.
Ellis:
We
understand that you are writing a story about the incentive bonus awarded to
Aubrey McClendon late last year by the Chesapeake Energy Corporation Board of
Directors and that you would like comment from the Company on the
subject. This letter will provide you that
comment. Further, there have been criticisms reported in other
newspapers and media sources recently of other Chesapeake Board and Company
actions which we feel merit responses. Accordingly, I will address
those issues briefly in this letter as well.
With
respect to Aubrey’s bonus, Chesapeake’s Board explained in detail its rationale
for the bonus, and the accompanying revisions to his employment agreement, in a
publicly filed document in January 2009 which was shared with analysts and major
stock holders. Months after the fact, the Board’s decision has come under fire
in the national news media. Not coincidentally, this barrage of press followed
the news accounts and public criticism of AIG’s effort to award large bonuses to
its executives and the very public filing of a lawsuit against Chesapeake’s
Board seeking to compel the inspection of Company records relating to the
Board’s decision to award Aubrey this bonus. Though we feel we have
already adequately explained the Board’s decisions, we wanted to provide you
with additional information to assist you in writing a balanced story on the
subject.
Late last
year, after weeks of careful consideration and deliberation, Chesapeake’s Board
amended Aubrey’s employment agreement and provided a carefully tailored
incentive award with the understanding it was an unusual action during a period
when collapsing natural gas prices forced Chesapeake’s stock price to decline,
liquidity challenges were negatively impacting the industry and the country
faced the worst economic crisis in at least 50 years. A copy of the Form 8-K and
a chart comparing Chesapeake’s stock price with natural gas prices during the
last half of 2008 are attached. As you can see, the chart
confirms a direct correlation between gas prices and Chesapeake’s stock
price.
Importantly,
the award was not paid in cash. It was part of an agreement that was
crafted to advance the interests of the Company and its
shareholders. Given the amount of the award and significance of the
revised employment agreement, we filed an extraordinary Form 8-K on January 7,
2009, in order to explain the reasons for the award and the revisions to
Aubrey’s employment agreement. The second page of the Form 8-K
summarizes the primary terms of the amendments to the employment agreement in
bullet points and the reasons for the amendments and incentive
award. The important points are:
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The
Board determined that in the face of declining gas prices, Aubrey was
personally responsible for the origination, negotiation and closing of
four transactions that delivered to the Company $10.3 billion in proceeds
and $8.7 billion in economic gain, while permitting us to retain
approximately 70% of the three biggest projects of the
four. The
award to Aubrey represented less than 0.75% of the initial benefits from
those transactions. Very few companies inside or outside
the energy industry realized that kind of economic gain during a difficult
2008. Moreover, because the revisions to Aubrey’s employment
agreement freeze his salary and cash bonuses for the next five years, the
incentive award is in effect distributed over a five-year
period.
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The
Board required Aubrey to invest the net award into the Founders Well
Participation Program (in place since 1993 and approved overwhelmingly by
shareholder vote in 2005) so that he was required to take drilling and gas
price risk alongside the Company. The award will fund less than 20% of
Aubrey’s anticipated costs of participating in the Company’s wells during
2009. We suspect if the executives on Wall Street had been required to
invest all of their net bonuses in a cross section of their Company’s
investments, our country would not find itself in the current financial
crisis. The alignment of risk between Aubrey and the Company is
unique and exemplary.
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The
revisions to Aubrey’s employment agreement require him to remain in his
leadership role for at least five years, and to refrain from outside
activities that might be inconsistent with the best interests of the
Company throughout that period. In crafting this contractual
commitment, the Board was no doubt mindful of the 2006 departure of
Chesapeake’s co-founder Tom Ward to build a new Company using funding
readily available from third parties to fund new companies for experienced
oil and gas executives. This is not unique in this industry,
especially when the executive has little personal investment in his
employer.
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A
five-year claw back was imposed so that if Aubrey resigns or is terminated
for cause he has to pay back a pro rata portion of the
award. Aubrey also agreed to freeze his salary and cash bonuses
for the next five-year period over which the Company will expense the
incentive award.
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In
retrospect, the transactions which Aubrey created provided significant liquidity
to the Company during a period of collapsing oil and natural gas prices, which
will permit development of what we believe are the best drilling prospects in
the industry. The transactions have been truly crucial to the success of the
Company and will continue to be important in the future.
Current
comments in the press have focused on the temporary one year reduction in
Aubrey’s targeted stock ownership levels. Each of our officers and
directors has written targeted stock ownership levels, which is also unique in
our industry we believe. The Company allows new employees and directors time to
build their holdings and the Board took the pragmatic approach of allowing
Aubrey a reasonable period of time to rebuild his required stock holdings,
especially since the short swing trading rules restricted his ability for six
months to purchase additional shares. The Board also believed that
Aubrey’s historical significant purchases of the Company’s stock warranted a
flexible approach.
In
summary, Chesapeake’s Board wanted to reward Aubrey for the extraordinary
transactions while obtaining a contractual commitment that he would forego other
opportunities and remain in his leadership role for at least five years,
freezing his salary and cash bonus awards for the same period, and providing an
incentive for Aubrey to work to develop the world class assets base he has
amassed at Chesapeake. Rather than just issue a large number of shares of
stock at historically low prices or a large cash payment, the Board tailored a
specific award that aligned Aubrey’s interests with the Company and put him at
risk if the Company drilled poor wells. Critics of this bonus choose not to read
or consider the Board’s careful analysis and explanation of these issues and
ignore the benefits that the revised employment agreement secured for the
Company and its shareholders. Rather than dealing with the facts,
they simply dismiss the Board’s action as outrageous or in one case
“obscene”. It is difficult to respond to such unconstructive
comments.
Recent
new reports have also taken issue with certain other Board and Company actions
involving Aubrey personal investments, i.e. the Company’s purchase of various
historic maps hanging in the Company’s headquarters’ offices, the Company’s
sponsorship support of the Oklahoma City Thunder professional basketball team
and the Company’s use of catering services of the Deep Fork restaurant for
Company functions. We believe these criticisms are both misconceived
and unfounded. The facts surrounding those transactions are detailed
below and also included in a proxy statement filed publicly today.
In
December 2008, the Company purchased an extensive collection of antique
historical maps of the American Southwest from Aubrey for $12.1 million, which
represented his cost. The collection includes over 500 museum quality
pieces. A dealer who had assisted Aubrey in acquiring this collection
over a period of six years advised the Company that the replacement value of the
collection in December 2008 exceeded the purchase price by more than $8
million. The maps have been displayed at the Company's Oklahoma City
headquarters for a number of years, during which the Company has been insuring
the maps in exchange for their display.
Anyone
who has visited or driven by our corporate headquarters in Oklahoma City knows
that is comprised of numerous buildings in a campus-type setting. These
maps complement the interior design features of our campus buildings and
contribute to our workplace culture. Our employees and visitors appreciate
the maps’ depiction of the early years of the nation’s energy industry and the
discovery and expansion of Indian Territory (now, Oklahoma) and the surrounding
territories of the early United States. In addition, the collection
connects to our Company’s everyday use of mapping in our business of exploring
for and developing natural gas and oil. The Company was interested in
continuing to have use of the map collection permanently and believed it was not
appropriate to continue to rely on cost-free loans of artwork from
Aubrey. The Board of Directors authorized the purchase of Aubrey’s
collection following review and approval by the Audit Committee and required
that the Company’s purchase price be applied as a credit to Aubrey’s future FWPP
costs. Future purchases, if any, of historical maps or artwork for the
Company’s headquarters will be made directly by the Company.
In 2008,
the Company became a founding sponsor of the Oklahoma City Thunder, a National
Basketball Association franchise owned and operated by The Professional
Basketball Club, LLC ("PBC"). Aubrey has a 19.2% equity interest in and is
a non-management member of the PBC. The Company paid $3.5 million in 2008
and $1.2 million in 2009 pursuant to its sponsorship agreement for the Thunder’s
2008-2009 season. As a founding sponsor, the Company received valuable
television and radio advertising for local broadcasts of Thunder games, arena
advertising space, advertising in game-day programs and on the team website,
team participation in a Company-sponsored community event, game tickets and use
of an arena suite. Our sponsorship level is consistent with that of other
major employers in Oklahoma City, some of which also have ownership ties to the
franchise. In addition to the advertising and promotional activities
related to its sponsorship of the Thunder, the Company believes the sponsorship
provides valuable support to the local community and contributes to employee
morale.
The
Thunder is the first major-league professional sports franchise to permanently
reside in Oklahoma, and the Company recognizes our CEO’s efforts, through PBC,
to bring the team to Oklahoma City. However, Aubrey’s ownership was not a
determining factor in the Company’s decision to sponsor the team. After
Hurricane Katrina caused significant damage to the Superdome in New Orleans, the
New Orleans Hornets (another National Basketball Association franchise) was
temporarily relocated to Oklahoma City for two consecutive seasons, during which
the Company sponsored the Hornets in a manner similar to its current sponsorship
of the Thunder. The Company values the cohesiveness that professional
sports teams have brought to the central Oklahoma community and would sponsor
the team in the same manner if Aubrey did not own an equity interest in the
franchise. We strive to be the premier employer and most community-minded
company in Oklahoma City and, therefore, believe our sponsorship of the Thunder
along with our many partnerships and gifts that benefit community development,
education, health and medical and social services all contribute to this
goal.
In 2008,
the Company paid Deep Fork Catering approximately $177,000 for food and beverage
catering services, primarily for two large events sponsored by the
Company. Deep Fork Catering is an affiliate of the Deep Fork Grill,
an Oklahoma City restaurant in which Aubrey is a 49.7% owner. Aubrey
is not involved in decisions to hire Deep Fork Catering and has requested that
the Company’s future use of Deep Fork Catering be limited.
We
appreciate the opportunity to provide additional
information. Finally, I would ask you to inform me of any negative
comments from others you intend to include in your article or any negative
characterizations you plan to make so the Company may have an opportunity to
respond. We hope this letter helps put Aubrey’s incentive award and
these other matters involving his personal investments in
perspective.
Best regards,
/s/ Henry J. Hood
Henry J. Hood