Investors go after Cheniere’s defense of stock grants

HOUSTON – Cheniere Energy investors say the company can’t use stock exchange rules to justify $1.86 billion in stock grants they claim were never legally approved by shareholders.

The shareholders, who sued the Houston firm in May, told a Delaware judge late Friday that Cheniere didn’t meet the legal requirements to approve grants that made CEO Charif Souki last year’s highest-paid U.S. CEO and put other senior executives “on par with CEOs at companies like American Express, CocaCola and Pfizer.”

It was the latest volley in a legal clash over 25 million shares the company set aside last year in its long-term compensation plan for executives and employees. Investors sued the company in May and said it had miscalculated a shareholder vote on the payouts last year by not counting abstentions as “no” votes, which they said was required by Delaware law and its bylaws.

The lawsuit came about a month after the company said it would ask shareholders to approve another 30 million shares for a long-term incentive plan tied to shareholder returns. Last month, it took those plans off the table and pushed its annual stockholder meeting back three months to Sept. 11.

The liquefied natural gas company had argued earlier this month it followed NYSE MKT rules in tallying shareholder votes from a February 2013 vote to nearly triple executive and employee stock awards in its long-term compensation plan.

The investors countered Friday that the stock exchange rules aren’t considered law and can’t be used to override the requirements set out in Delaware law and Cheniere’s bylaws. Further, they said, Cheniere’s bylaws didn’t reference the stock market rules until after last year’s vote.

“If the board intended to make the stock exchange standard the governing standard, it was required to do that clearly, unambiguously and explicitly,” the investors wrote. They claimed the bylaws were amended to refer to the stock exchange rules less than a month before proposing another 30 million shares because “the board knew this would meet with significant stockholder resistance,” as it would mean that insiders in the company would own 24 percent of Cheniere’s outstanding shares, from payouts in the 2011 compensation plan alone.

“Why would the board need to make this change if the NYSE MKT rules were the standard all along?” the investors wrote. “The answer is that the NYSE MKT standard was never the governing standard to the displacement of the” company’s bylaws and Delaware law.

A Cheniere spokeswoman declined to comment. Jeffrey Golan, an attorney with Barrack, Rodos & Bacine, a firm representing the investors, also declined to comment.

In regulatory filings Friday, Cheniere said feedback from shareholders led it to conclude “this is not the appropriate time to ask stockholders to approve a new pool of shares. The company will reassess its strategy in this context given the need to attract, retain and motivate employees with the talent and experience to effectively execute the company’s strategic business plan.”

The Delaware court granted Cheniere a review of its request for the court to validate the corporate action, which stayed the lawsuit. A hearing has been scheduled on the validation question August 26.

Cheniere shares fell $1.01 in mid-day trading Monday to $74.44 on the New York Stock Exchange.