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This excerpt taken from the DPL 10-Q filed Nov 1, 2006. Legal Matters In the normal course of business, we have been named a defendant in various legal actions, including arbitrations, class actions and other litigation. Certain of the legal actions include claims for substantial compensatory and/or punitive damages or claims for indeterminate amounts of damages. We are also involved in other reviews, investigations and proceedings by governmental and self-regulatory organizations regarding our business. Certain of the foregoing could result in adverse judgments, settlements, fines, penalties or other relief. Because litigation is inherently unpredictable, particularly in cases where claimants seek substantial or indeterminate damages or where investigations and proceedings are in the early stages, we cannot predict with certainty the loss or range of loss related to such matters, how such matters will be resolved, when they will be ultimately resolved, or what the eventual settlement, fine, penalty or other relief might be. Consequently, we cannot estimate losses or ranges of losses for matters where there is only a reasonable possibility that a loss may have been incurred. Although the ultimate outcome of these matters cannot be ascertained at this time, it is the opinion of management, that the resolution of the foregoing matters will not have a material adverse effect on our financial condition, taken as a whole; such resolution may, however, have a material effect on the operating results in any future period, depending on the level of income for such period. We have provided reserves for such matters in accordance with SFAS 5, “Accounting for Contingencies.” The ultimate resolution may differ from the amounts reserved. Certain legal proceedings in which we are involved are discussed in Note 14 to the Consolidated Financial Statements and, Part I, Item 3, of our Annual Report on Form 10-K for the fiscal year ended December 31, 2005; and Note 8 to the Consolidated Financial Statements and Part II, Item 1, included in our Form 10-Q for the quarterly period ended March 31, 2006 and June 30, 2006. The following discussion is limited to recent developments concerning our legal proceedings and should be read in conjunction with those earlier reports. On January 13, 2006, we filed a claim against one of our insurers, Associated Electric & Gas Insurance Services Limited (AEGIS), under a fiduciary liability policy to recoup legal fees associated with our litigation against three former executives. An arbitration of this matter was held on August 4, 2006. The arbitration panel ruled on or about September 12, 2006 that the AEGIS policy does not require an advance of defense expenses to us. Rather, the arbitration panel stated that we are required to file a written undertaking as a condition precedent to repay expenses finally established not to be insured. We have filed a written undertaking with AEGIS and will continue to pursue resolution of the claim through mediation and arbitration in 2007. On February 13, 2006, we received correspondence from the Ohio Department of Taxation (ODT) notifying us that ODT has completed their examination and review of our Ohio Corporation Franchise Tax Returns for tax years 2002 through 2004 and that the final proposed audit adjustments result in a balance due of $90.8 million before interest and penalties. We have reviewed the proposed audit adjustments and are vigorously contesting the ODT findings and notice of assessment through all administrative and judicial means available. On March 29, 2006, we filed 19 petitions for reassessment with the ODT to protest each assessment as well as request corrected assessments for each tax year. On October 12, 2006, we signed a Memorandum of Understanding with the ODT that stated if the ODT’s positions are ultimately sustained in judicial proceedings, the total additional tax liability that we would be subject to for tax years 2002 through 2004 would be no more than $50.7 million before interest as opposed to the $90.8 million stated in the ODT’s correspondence of February 13, 2006. We believe we have recorded adequate tax reserves related to the proposed adjustments; however, we cannot predict the outcome, which could be material to our results of operations and cash flows. We are also under audit review by various state agencies for tax years 2002 through 2004. We have also filed an appeal to the Ohio Board of Tax Appeals for tax years 1998 through 2001. Depending upon the outcome of these audits and the appeal, we may be required to increase our tax provision if actual amounts ultimately determined exceed recorded reserves. We believe we have adequate reserves in each tax jurisdiction but cannot predict the outcome of these audits. In September 2006, we became aware of unasserted claims under the Fair Labor Standards Act concerning the calculation of overtime rates for our unionized workforce. We will vigorously oppose these claims, if asserted against us. However, if we do not prevail, the cost to us would be in the range of $0-$3.5 million. This excerpt taken from the DPL 10-Q filed Aug 2, 2006. Legal Matters In the normal course of business, we have been named a defendant in various legal actions, including arbitrations, class actions and other litigation. Certain of the legal actions include claims for substantial compensatory and/or punitive damages or claims for indeterminate amounts of damages. We are also involved in other reviews, investigations and proceedings by governmental and self-regulatory organizations regarding our business. Certain of the foregoing could result in adverse judgments, settlements, fines, penalties or other relief. Because litigation is inherently unpredictable, particularly in cases where claimants seek substantial or indeterminate damages or where investigations and proceedings are in the early stages, we cannot predict with certainty the loss or range of loss related to such matters, how such matters will be resolved, when they will be ultimately resolved, or what the eventual settlement, fine, penalty or other relief might be. Consequently, we cannot estimate losses or ranges of losses for matters where there is only a reasonable possibility that a loss may have been incurred. Although the ultimate outcome of these matters cannot be ascertained at this time, it is the opinion of management, that the resolution of the foregoing matters will not have a material adverse effect on our financial condition, taken as a whole; such resolution may, however, have a material effect on the operating results in any future period, depending on the level of income for such period. We have provided reserves for such matters in accordance with SFAS 5, “Accounting for Contingencies.” The ultimate resolution may differ from the amounts reserved. Certain legal proceedings in which we are involved are discussed in Note 14 to the consolidated financial statements and, Part I, Item 3, of our Annual Report on Form 10-K for the fiscal year ended December 31, 2005; and Note 8 to the consolidated financial statements and Part II, Item 1, included in our Form 10-Q for the quarterly 18 period ended March 31, 2006. The following discussion is limited to recent developments concerning our legal proceedings and should be read in conjunction with those earlier reports. Regarding our litigation with three former executives of the Company, on July 24, 2006, the trial court set a new trial date commencing April 30, 2007. On June 24, 2004, the Internal Revenue Service (IRS) began an audit of tax years 1998 through 2003 and issued a series of data requests to us including issues raised in the Memorandum. The staff of the IRS requested that we provide certain documents, including but not limited to, matters concerning executive/director deferred compensation plans, management stock incentive plans and MVE financial statements. On September 1, 2005, the IRS issued an audit report for tax years 1998 through 2003 that showed proposed changes to our federal income tax liability for each of those years. The proposed changes resulted in a total tax deficiency, penalties and interest of approximately $23.9 million as of December 31, 2005. On November 4, 2005, we filed a written protest to one of the proposed changes. On April 3, 2006, the IRS conceded the proposed changes that we filed a written protest to and issued a revised audit report for tax years 1998 through 2003. The revised audit report resulted in a total tax deficiency, penalties and interest of approximately $1.2 million. We had previously made a deposit with the IRS of approximately $1.3 million that we requested on April 14, 2006 be applied to offset the $1.2 million tax deficiency, penalties and interest for tax years 1998 through 2003. The Joint Committee on Taxation completed its review of the revised audit report for tax years 1998 through 2003 and sent us a letter dated June 16, 2006 stating that it took no exception to the revised audit report. In November 2005, AMP-Ohio, a wholesale supplier of electricity to its thirteen member municipalities, requested arbitration of its power supply agreement with DP&L. AMP-Ohio alleged it had a right to receive certain capacity credits. DP&L disagreed with this position and agreed to arbitrate the dispute. The arbitration was concluded in May 2006, thus ending any potential negative exposure to our results of operations, cash flows and financial position. On January 13, 2006, we filed a claim against one of its insurers, AEGIS, under a fiduciary policy to recoup legal fees associated with our litigation against three former executives. An arbitration of this matter is set to begin on August 4, 2006. We cannot predict the timing or outcome of this arbitration. This excerpt taken from the DPL 10-Q filed May 4, 2006. Legal Matters
On August 24, 2004, we, and our subsidiaries DP&L and MVE, filed a Complaint against Peter H. Forster, formerly DPL’s Chairman; Caroline E. Muhlenkamp, formerly DPL’s Group Vice President and interim Chief Financial Officer; and Stephen F. Koziar, formerly DPL’s Chief Executive Officer and President (collectively, the Defendants) in the Court of Common Pleas of Montgomery County, Ohio asserting legal claims against them relating to the termination of the Valley Partners Agreements, challenging the validity of the purported amendments to the deferred compensation plans and to the employment and consulting agreements with the Defendants, and the propriety of the distributions from the plans to the Defendants, and alleging that the Defendants breached their fiduciary duties and breached their consulting and employment contracts. We, DP&L and MVE seek, among other things, damages in excess of $25,000, disgorgement of all amounts improperly withdrawn by the Defendants from the plans and a court order declaring that we, DP&L and MVE have no further obligations under the consulting and employment contracts due to those breaches.
The Defendants filed motions to dismiss the Complaint, which the Court subsequently denied. On June 15, 2005, Defendants filed their answers denying liability and filed counterclaims against us, DP&L, MVE, various compensation plans (the Plans), and against the then-current members of our Board of Directors and two of our former Board members. These counterclaims allege generally that DPL, DP&L, MVE, the Plans and the individual defendants breached the terms of the employment and consulting contracts of the Defendants, and the terms of the Plans. They further allege theories of breach of fiduciary duty, breach of contract, promissory estoppel, tortious interference, conversion, replevin and violations of ERISA under which they seek distribution of deferred compensation balances, conversion of stock incentive units, exercise of options and payment of amounts allegedly owed under the contracts and the Plans. Defendants’ counterclaims also demand payment of attorneys’ fees.
On March 15, 2005, Mr. Forster and Ms. Muhlenkamp filed a lawsuit in New York state court against the purchasers of the private equity investments in the financial asset portfolio and against outside counsel to us and DP&L concerning purported entitlements in connection with the purchase of those investments. We, DP&L and MVE are not defendants in that case; however, the three of us are parties to an indemnification agreement with respect to the purchaser defendants. We, DP&L and MVE filed a Motion for Preliminary Injunction in the Ohio case, requesting that the court issue a preliminary injunction against Mr. Forster and Ms. Muhlenkamp regarding the New York lawsuit. On August 18, 2005, the Ohio court issued a preliminary injunction against Mr. Forster and Ms. Muhlenkamp that precludes them from pursuing certain key issues raised by Mr. Forster and Ms. Muhlenkamp in their New York lawsuit that are identical to the issues raised in the pending Ohio lawsuit in the New York court or any other forum other than the Ohio litigation. In addition, the New York court has stayed the New York litigation pending the outcome of the Ohio litigation. Mr. Forster and Ms. Muhlenkamp have appealed the preliminary injunction and the appeal is pending at the Ohio Supreme Court. The parties continue to proceed with the discovery phase of the litigation, and a number of motions have been filed and briefed with respect to document discovery and depositions.
We continue to evaluate all of the matters relevant to this litigation and are considering other claims against Defendants Forster, Muhlenkamp and Koziar that include, but are not limited to, breach of fiduciary duty or other claims relating to personal and DPL investments, the calculation of benefits under the Supplemental Executive Retirement Program (SERP) and financial reporting with respect to such benefits, and with respect to Mr. Koziar, the fulfillment of duties owed to us as our legal counsel. Cumulatively through March 31, 2006, we have accrued for accounting purposes, obligations of approximately $54 million to reflect claims regarding deferred compensation, estimated MVE incentives and/or legal fees that Defendants assert are payable per contracts. We dispute Defendants’ entitlement to any of those sums and, as noted above, we are pursuing litigation against them contesting all such claims.
On or about June 24, 2004, the SEC commenced a formal investigation into issues raised as a result of previously disclosed matters brought up by one of our executives during the 2003 year-end financial closing process (the Memorandum). We are cooperating with the investigation.
On May 28, 2004, the U.S. Attorney’s Office for the Southern District of Ohio, assisted by the Federal Bureau of Investigation, notified us that it has initiated an inquiry involving the subject matters covered by our internal investigation. We are cooperating with this investigation.
On June 24, 2004, the Internal Revenue Service (IRS) began an audit of tax years 1998 through 2003 and issued a series of data requests to us including issues raised in the Memorandum. The staff of the IRS has requested that we provide certain documents, including but not limited to, matters concerning executive/director deferred compensation plans, management stock incentive plans and MVE financial statements. On September 1, 2005, the IRS issued an audit report for tax years 1998 through 2003 that shows proposed changes to our federal income tax liability for each of those years. The proposed changes result in a total tax deficiency, penalties and interest of approximately $23.9 million. On November 4, 2005, we filed a written protest to one of the proposed changes. On April 3, 2006, the IRS agreed to revise its audit
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report for tax years 1998 through 2003. The revised audit report resulted in a total tax deficiency, penalties and interest of approximately $1.2 million. We had previously made a deposit with the IRS of approximately $1.3 million that we requested on April 14, 2006 be applied to offset the $1.2 million tax deficiency, penalties and interest for tax years 1998 through 2003. We believe that once the Joint Committee completes its review of the revised audit report for tax years 1998 through 2003 that we will receive a Closing Agreement from the IRS and will have no further exposure for these tax years.
On February 13, 2006, we received correspondence from the Ohio Department of Taxation (ODT) notifying us that ODT has completed their examination and review of our Ohio Corporation Franchise Tax Returns for tax years 2002 through 2004 and that the final proposed audit adjustments result in a balance due of $90.8 million before interest and penalties. We have reviewed the proposed audit adjustments and are vigorously contesting the ODT findings and notice of assessment through all administrative and judicial means available. On March 29, 2006, we filed petitions for reassessment with the ODT to protest each assessment as well as request corrected assessments for each tax year. We believe we have recorded adequate tax reserves related to the proposed adjustments; however, we cannot predict the outcome, which could be material to our results of operations and cash flows.
We are also under audit review by various state agencies for tax years 2002 through 2004. We have also filed an appeal to the Ohio Board of Tax Appeals for tax years 1998 through 2001. Depending upon the outcome of these audits and the appeal, we may be required to increase our tax provision if actual amounts ultimately determined exceed recorded reserves. We believe we have adequate reserves in each tax jurisdiction but cannot predict the outcome of these audits.
This excerpt taken from the DPL 10-K filed Mar 1, 2006. Legal Matters On August 24, 2004, we, and our subsidiaries DP&L and MVE, filed a Complaint against Mr. Forster, Ms. Muhlenkamp and Mr. Koziar (the Defendants) in the Court of Common Pleas of Montgomery County, Ohio asserting legal claims against them relating to the termination of the Valley Partners Agreements, challenging the validity of the purported amendments to the deferred compensation plans and to the employment and consulting agreements with the Defendants, and the propriety of the distributions from the plans to the Defendants, and alleging that the Defendants breached their fiduciary duties and breached their consulting and employment contracts. We, DP&L and MVE seek, among other things, damages in excess of $25,000, disgorgement of all amounts improperly withdrawn by the Defendants from the plans and a court order declaring that we, DP&L and MVE have no further obligations under the consulting and employment contracts due to those breaches.
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The Defendants filed motions to dismiss the Complaint, which the Court subsequently denied. On June 15, 2005, Defendants filed their answers denying liability and filed counterclaims against us, DP&L, MVE, various compensation plans (the Plans), and against the then-current members of our Board of Directors and two of our former Board members. These counterclaims allege generally that DPL, DP&L, MVE, the Plans and the individual defendants breached the terms of the employment and consulting contracts of the Defendants, and the terms of the Plans. They further allege theories of breach of fiduciary duty, breach of contract, promissory estoppel, tortious interference, conversion, replevin and violations of ERISA under which they seek distribution of deferred compensation balances, conversion of stock incentive units, exercise of options and payment of amounts allegedly owed under the contracts and the Plans. Defendants’ counterclaims also demand payment of attorneys’ fees. Motions to dismiss certain of the counterclaims were denied on February 23, 2006.
On March 15, 2005, Mr. Forster and Ms. Muhlenkamp filed a lawsuit in New York state court against the purchasers of the private equity investments in the financial asset portfolio and against outside counsel to us and DP&L concerning purported entitlements in connection with the purchase of those investments. We, DP&L and MVE are not defendants in that case; however, the three of us are parties to an indemnification agreement with respect to the purchaser defendants. We, DP&L and MVE filed a Motion for Preliminary Injunction in the Ohio case, requesting that the court issue a preliminary injunction against Mr. Forster and Ms. Muhlenkamp regarding the New York lawsuit. On August 18, 2005, the Ohio court issued a preliminary injunction against Mr. Forster and Ms. Muhlenkamp that precludes them from pursuing certain key issues raised by Mr. Forster and Ms. Muhlenkamp in their New York lawsuit that are identical to the issues raised in the pending Ohio lawsuit in the New York court or any other forum other than the Ohio litigation. In addition, the New York court has stayed the New York litigation pending the outcome of the Ohio litigation. Mr. Forster and Ms. Muhlenkamp have appealed the preliminary injunction and the appeal is pending at the Ohio Supreme Court.
The parties continue to proceed with the discovery phase of the litigation, and a number of motions have been filed and briefed with respect to document discovery and depositions. The trial court granted some and overruled some of these pending motions on February 23, 2006.
We continue to evaluate all of the matters relevant to this litigation and are considering other claims against Defendants, Forster, Muhlenkamp and Koziar that include, but are not limited to, breach of fiduciary duty or other claims relating to personal and DPL investments, the calculation of benefits under the Supplemental Executive Retirement Program (SERP) and financial reporting with respect to such benefits, and with respect to Mr. Koziar, the fulfillment of duties owed to us as our legal counsel. Cumulatively through December 31, 2005, we have accrued for accounting purposes, obligations of approximately $52 million to reflect claims regarding deferred compensation, estimated MVE incentives and/or legal fees that Defendants assert are payable per contracts. We dispute Defendants’ entitlement to any of those sums and, as noted above, we are pursuing litigation against them contesting all such claims.
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On or about June 24, 2004, the SEC commenced a formal investigation into the issues raised by the Memorandum. We are cooperating with the investigation.
On April 7, 2004, the Company received notice that the staff of the PUCO is conducting an investigation into the financial condition of DP&L as a result of the issues raised by the Memorandum. On May 27, 2004, the PUCO ordered DP&L to file a plan of utility financial integrity that outlines the actions the Company has taken or will take to insulate DP&L utility operations and customers from its unregulated activities. DP&L was required to file this plan by March 2, 2005. On February 4, 2005, DP&L filed its protection plan with the PUCO. On June 29, 2005, the PUCO closed its investigation, citing significant positive actions we had taken including changes in the Board of Directors as well as the executive management of DP&L, and that no apparent diminution of service quality had occurred because of the events that initiated the investigation.
On May 20, 2004, the staff of the SEC notified us that it was conducting an inquiry covering our exempt status under the Public Utility Holding Company Act of 1935 (the ‘35 Act). The staff of the SEC requested we provide certain documents and information on a voluntary basis. On October 8, 2004, we received a notice from the SEC that a question exists as to whether such exemption from the Public Utility Holding Company Act may be detrimental to the public interest or the interests of investors or consumers. On November 5, 2004, we filed a good faith application seeking an order of exemption from the SEC. In light of the repeal of the ‘35 Act, effective February 8, 2006, and based upon the information previously provided to the staff of the SEC, this inquiry is moot.
On May 28, 2004, the U.S. Attorney’s Office for the Southern District of Ohio, assisted by the Federal Bureau of Investigation, notified us that it has initiated an inquiry involving the subject matters covered by our internal investigation. We are cooperating with this investigation.
On June 24, 2004, the Internal Revenue Service (IRS) began an audit of tax years 1998 through 2003 and issued a series of data requests to us including issues raised in the Memorandum. The staff of the IRS has requested that we provide certain documents, including but not limited to, matters concerning executive/director deferred compensation plans, management stock incentive plans and MVE financial statements. On September 1, 2005, the IRS issued an audit report for tax years 1998 through 2003 that shows proposed changes to our federal income tax liability for each of those years. The proposed changes result in a total tax deficiency, penalties and interest of approximately $23.9 million as of December 31, 2005. On November 4, 2005, we filed a written protest to one of the proposed changes. We believe we are adequately reserved for any tax deficiency, penalties and interest resulting from the proposed changes and as a result, the proposed changes did not adversely affect our results from operations.
We are also under audit review by various state agencies for tax years 2002 through 2004. We have also filed an appeal to the Ohio Board of Tax Appeals for tax years 1998 through 2001. Depending upon the outcome of these audits and the appeal, we may be required to increase our tax provision if actual amounts ultimately determined exceed recorded reserves. We believe we have adequate reserves in each tax jurisdiction but cannot predict the outcome of these audits.
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On February 13, 2006, we received correspondence from the Ohio Department of Taxation (ODT) notifying us that ODT has completed their examination and review of our Ohio Corporation Franchise Tax Returns for tax years 2002 through 2004 and that the final proposed audit adjustments result in a balance due of $90.8 million before interest and penalties. We have reviewed the proposed audit adjustments and plan to vigorously contest the ODT findings and forthcoming notice of assessment through all administrative and judicial means available. We believe we have recorded adequate tax reserves related to the proposed adjustments; however, we cannot predict the outcome, which could be material to our results of operations and cash flows.
On December 12, 2003, the Office of Federal Contract Compliance Programs (OFCCP) notified DP&L by letter, alleging it had discriminated in the hiring of meter readers during 2000-2001 by utilizing credit checks to determine if applicants had paid their electric bills. On February 12, 2004 DP&L and the OFCCP entered into a Conciliation Agreement whereby DP&L agreed to distribute approximately $0.2 million in compensation to certain affected applicants. DP&L has completed these payments to the affected applicants and supplied to the OFCCP all follow-up reports required under the Conciliation Agreement.
In June 2002, a contractor’s employee received a verdict against DP&L for injuries he sustained while working at a DP&L power station. The Adams County Court of Common Pleas awarded the contractor’s employee compensatory damages of approximately $0.8 million and prejudgment interest of approximately $0.6 million. On April 28, 2004, the 4th District Court of Appeals upheld this verdict except the award for prejudgment interest. On September 1, 2004, the Ohio Supreme Court refused to hear the case, so the matter was remanded to the Adams County Court of Common Pleas for a re-determination of the amount of prejudgment interest that should be awarded. The trial court heard this matter on October 15, 2004. On November 1, 2004, DP&L paid approximately $976 thousand to the contractor’s employee to satisfy the judgment and post-judgment interest. On December 6, 2004, the Adams County Court of Common Pleas ruled that prejudgment interest should be reduced to approximately $30 thousand. Both parties appealed this decision. On January 25, 2006, the Fourth District Court of Appeals ruled in DP&L’s favor, finding it owed no prejudgment interest to Plaintiff.
This excerpt taken from the DPL 10-Q filed Oct 28, 2005. Legal Matters
On August 24, 2004, DPL, DP&L and MVE filed a Complaint against Mr. Forster, Ms. Muhlenkamp and Mr. Koziar in the Court of Common Pleas of Montgomery County, Ohio asserting legal claims against them relating to the termination of the Valley Partners Agreements, challenging the validity of the purported amendments to the deferred compensation plans and to the employment and consulting agreements with Messrs. Forster and Koziar and Ms. Muhlenkamp, and the propriety of the distributions from the plans to Messrs. Forster and Koziar and Ms. Muhlenkamp, and alleging that Messrs. Forster and Koziar and Ms. Muhlenkamp breached their fiduciary duties and breached their consulting and employment contracts. DPL, DP&L and MVE seek, among other things, damages in excess of $25 thousand, disgorgement of all amounts improperly withdrawn by Messrs. Forster and Koziar and Ms. Muhlenkamp from the deferred compensation
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plans and a court order declaring that DPL, DP&L and MVE have no further obligations under the consulting and employment contracts due to those breaches.
Defendants Forster, Koziar and Muhlenkamp filed motions to dismiss the Complaint and motions to stay discovery pending a ruling on the motions to dismiss. In addition, pursuant to applicable statutes, regulations and agreements, DPL and DP&L had been advancing certain of Defendants’ attorneys’ fees and expenses with respect to various matters other than the litigation between Defendants and DPL and DP&L in Florida and Ohio, and believe that other requested advances are not required. On February 7, 2005, Mr. Forster and Ms. Muhlenkamp filed a motion in DP&L’s and DPL’s Ohio litigation seeking to compel DPL, MVE and DP&L to pay all attorneys’ fees and expenses that have not been advanced to them. On May 10, 2005, the Court denied the motions to dismiss filed by Defendants Forster, Koziar, and Muhlenkamp. On June 15, 2005, Defendants Forster and Muhlenkamp filed an answer and filed counterclaims against DPL, DP&L, MVE and individually against the current members of the Board of Directors of DPL Inc. as well as two former Board members and various compensation plans of DPL and DP&L. On June 15, 2005, Defendant Koziar filed his answer and filed counterclaims against DPL, DP&L and individually against the current members of the Board of Directors of DPL Inc. and two former Board members of DPL. On June 29, 2005, DPL, DP&L and MVE filed an amended complaint against the Defendants. On July 18, 2005, Defendants filed answers to that amended complaint and Defendant Koziar filed amended counterclaims that included claims against various compensation plans of DPL and DP&L that he had not named in his initial counterclaims. Defendants’ answers substantially denied the allegations made by DPL, DP&L and MVE and denied any liability. The counterclaims and amended counterclaims allege that DPL, DP&L, MVE, various compensation plans and the individual defendants breached the terms of the employment and consulting contracts of Defendants Forster, Muhlenkamp and Koziar, and the terms of the compensation plans. They further allege theories of breach of fiduciary duty, breach of contract, promissory estoppel, tortious interference, conversion, replevin and violations of ERISA under which they seek distribution of deferred compensation balances, conversion of stock incentive units, exercise of options and payment of amounts allegedly owed under the contracts and plans. Forster, Muhlenkamp and Koziar also seek payment of attorneys' fees and expenses on claims similar to those filed in the Forster and Muhlenkamp motion for attorneys fees and expenses. On August 18, 2005, the Court denied Defendants Forster’s and Muhlenkamp’s motion regarding advancement of fees. Mr. Forster and Ms. Muhlenkamp continue to litigate the issue of payment of attorneys’ fees as part of their counterclaims.
On March 15, 2005, Mr. Forster and Ms. Muhlenkamp filed a lawsuit in New York state court against the purchasers of the private equity investments in the financial asset portfolio and against outside counsel to DPL and DP&L concerning purported entitlements in connection with the purchase of those investments. They assert that DPL, DP&L and MVE had ongoing obligations to make certain payments to them based on the financial asset portfolio’s returns and that any purchaser of portfolio investments should have been obligated to assume those obligations. DPL, DP&L and MVE are not defendants in that case; however, they are parties to an indemnification agreement with respect to the purchaser defendants. Those defendants have requested that DPL, DP&L and MVE indemnify them in connection with that litigation, and DPL, DP&L and MVE have acknowledged indemnity obligations. On March 28, 2005, DPL, DP&L and MVE filed a Motion for Preliminary Injunction in the Ohio case, requesting that the court issue a preliminary injunction against Mr. Forster and Ms. Muhlenkamp regarding the New York lawsuit. Since certain key issues raised by Mr. Forster and Ms. Muhlenkamp in their New York lawsuit are identical to the issues raised in the pending Ohio lawsuit, DPL, DP&L and MVE believed that those issues should be heard and resolved in the pending Ohio lawsuit. Mr. Forster and Ms. Muhlenkamp filed a brief opposing the preliminary injunction on April 15, 2005. DPL, DP&L and MVE filed their reply brief on April 25, 2005. The court heard the motion on May 6, 2005 and on August 18, 2005 issued a preliminary injunction against Mr. Forster and Ms. Muhlenkamp that precludes them from pursuing these key issues in the New York court or any other forum other than the Ohio litigation. In addition, the purchaser defendants, our indemnitee in the New York action, filed a motion to stay or dismiss that case. The New York court heard this motion on June 23, 2005 and on July 5, 2005 entered an order severing the claims brought against the purchaser defendants and granting the purchaser defendants’ motion to stay those claims temporarily. On August 15, 2005, Mr. Forster and Ms. Muhlenkamp moved to vacate the stay. At a hearing on October 12, 2005, the New York court denied that motion and continued the stay.
On September 12, 2005, Mr. Forster and Ms. Muhlenkamp appealed the preliminary injunction entered by the Ohio court, for which they have sought expedited treatment. At a status hearing on September 14, the Ohio trial court requested that the parties brief the issue of whether the interlocutory appeal affected the court’s jurisdiction to proceed with the litigation. The Company, DP&L and MVE filed a brief discussing their position that the Ohio trial court continues to have jurisdiction to proceed with the merits of the case. Defendants Forster and Muhlenkamp did not address the jurisdictional issue, but filed a motion to stay the Ohio case pending the appeal or, alternatively, to modify the injunction to allow them to pursue discovery in the New York case. The Company, DP&L and MVE filed a brief opposing that motion and informed the Ohio court of the New York court’s decision to continue the stay. The Ohio court has not yet ruled on the jurisdictional issue or the motion filed by Mr. Forster and Ms. Muhlenkamp.
Counsel to Mr. Forster and Ms. Muhlenkamp are sending their attorneys’ invoices for the New York action to the Company for fee advancement and have continued to send monthly invoices for the Ohio action to the Company for fee advancement. The Company continues to maintain that it is not required to advance payment with respect to any of those charges.
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Cumulatively through September 30, 2005, the Company has accrued for accounting purposes, obligations of approximately $53 million to reflect claims regarding deferred compensation, estimated MVE incentives and/or legal fees that Defendants assert are payable per contracts. The Company disputes Defendants entitlement to any of those sums and, as noted above, is pursuing litigation against them contesting all such claims.
This excerpt taken from the DPL 10-Q filed Jul 29, 2005. Legal Matters
On August 24, 2004, DPL, DP&L and MVE filed a Complaint against Mr. Forster, Ms. Muhlenkamp and Mr. Koziar in the Court of Common Pleas of Montgomery County, Ohio asserting legal claims against them relating to the termination of the Valley Partners Agreements, challenging the validity of the purported amendments to the deferred compensation plans and to the employment and consulting agreements with Messrs. Forster and Koziar and Ms. Muhlenkamp, and the propriety of the distributions from the plans to Messrs. Forster and Koziar and Ms. Muhlenkamp, and alleging that Messrs. Forster and Koziar and Ms. Muhlenkamp breached their fiduciary duties and breached their consulting and employment contracts. DPL, DP&L and MVE seek, among other things, damages in excess of $25 thousand, disgorgement of all amounts improperly withdrawn by Messrs. Forster and Koziar and Ms. Muhlenkamp from the deferred compensation plans and a court order declaring that DPL, DP&L and MVE have no further obligations under the consulting and employment contracts due to those breaches.
Defendants Forster, Koziar and Muhlenkamp filed motions to dismiss the Complaint and motions to stay discovery pending a ruling on the motions to dismiss. DPL and DP&L filed briefs opposing those motions. In addition, pursuant to applicable statutes, regulations and agreements, DPL and DP&L have been advancing certain of Defendants’ attorneys’ fees and expenses with respect to various matters other than the litigation between Defendants and DPL and DP&L in Florida and Ohio, and believe that other requested advances are not required. On February 7, 2005, Mr. Forster and Ms. Muhlenkamp filed a motion in DP&L’s and DPL’s Ohio litigation seeking to compel DPL, MVE and DP&L to pay all attorneys’ fees and expenses that have not been advanced to them. DPL, DP&L and MVE have filed a brief opposing that motion. On May 10, 2005 the Court denied Defendants Forster, Koziar, and Muhlenkamp’s motions to dismiss. Defendants Forster and Muhlenkamp’s motion regarding fees remains pending. On June 15, 2005, Defendants Forster and Muhlenkamp filed an answer and filed counterclaims against DPL, DP&L, MVE and individually against the current members of the Board of Directors of DPL Inc. as well as a former Board member and various compensation plans of DPL and DP&L. On June 15, 2005, Defendant Koziar filed his answer and filed counterclaims against DPL, DP&L and individually against the current members of the Board of Directors of DPL Inc. and a former Board member of DPL. On June 29, 2005, DPL, DP&L and MVE filed an amended complaint against the Defendants. On July 18, 2005, Defendants filed answers to that amended complaint and Defendant Koziar filed amended counterclaims that included claims against various compensation plans of DPL and DP&L that he had not named in his initial counterclaims. Defendants’ answers substantially deny the allegations made by DPL DP&L and MVE and deny any liability. The counterclaims and amended counterclaims allege that DPL, DP&L, MVE, various compensation plans and the individual defendants breached the terms of the employment and consulting contracts of Defendants Forster, Muhlenkamp and Koziar, and the terms of the compensation plans. They further allege theories of breach of fiduciary duty, breach of contract, promissory estoppel, tortious interference, conversion, replevin and violations of ERISA under which they seek distribution of deferred compensation balances, conversion of stock incentive units, exercise of options and payment of amounts allegedly owed under the contracts and plans. Forster, Muhlenkamp and Koziar also seek payment of attorneys fees and expenses on claims similar to those filed in the Forster and Muhlenkamp motion for attorneys fees and expenses.
On March 15, 2005, Mr. Forster and Ms. Muhlenkamp filed a lawsuit in New York state court against the purchasers of the private equity investments in the financial asset portfolio and against outside counsel to DPL and DP&L concerning purported entitlements in connection with the purchase of those investments. They assert that DPL, DP&L and MVE had ongoing obligations to make certain payments to them based on the financial asset portfolio’s returns and that any purchaser of portfolio investments should have been obligated to assume those obligations. DPL, DP&L and MVE are not defendants in that case; however, they are parties to an indemnification agreement with respect to the purchaser defendants. Those defendants have requested that DPL, DP&L and MVE indemnify them in connection with that litigation, and DPL, DP&L and MVE have acknowledged indemnity obligations. On March 28, 2005, DPL, DP&L and MVE filed a Motion for Preliminary Injunction in the Ohio case, requesting that the court issue a preliminary injunction against Mr. Forster and Ms. Muhlenkamp regarding the lawsuit. Since certain key issues raised by Mr. Forster and Ms. Muhlenkamp in their New York lawsuit are identical to the issues raised in the pending Ohio lawsuit, DPL, DP&L and MVE believe that those issues should be heard and resolved in the pending Ohio lawsuit. Mr. Forster and Ms. Muhlenkamp filed a brief opposing the preliminary injunction on April 15, 2005. DPL, DP&L and MVE filed their reply brief on April 25, 2005. The court heard the motion on May 6, 2005 and has not yet issued a ruling. In addition, the defendants in the New York action filed motions to stay or dismiss that case. The New York court heard those motions on June 23, 2005 and on July 5, 2005 entered an order severing the claims brought against the purchaser defendants and granting the purchaser defendants’ motion to stay those claims temporarily. On July 14, 2005, the New York court held a telephonic conference with the parties. The court continued the stay of the New York case as to the purchaser defendants until further argument could be held on
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their motion to stay or dismiss. The New York court has not yet ruled on the motion filed by outside counsel to DPL. Counsel for Mr. Forster and Ms. Muhlenkamp have informed the New York court that they intend to file a motion seeking unspecified relief from the stay.
Counsel to Mr. Forster and Ms. Muhlenkamp have begun sending their attorneys’ invoices for the New York action to the Company for fee advancement and have continued to send monthly invoices for the Ohio action to the Company for fee advancement. The Company continues to maintain that it is not required to advance payment with respect to any of those charges.
Cumulatively through June 30, 2005, the Company has accrued for accounting purposes, obligations of approximately $50 million to reflect claims regarding deferred compensation, estimated MVE incentives and/or legal fees that Defendants assert are payable per contracts. The Company disputes Defendants entitlement to any of those sums and, as noted above is pursuing litigation against them contesting all such claims.
This excerpt taken from the DPL 10-Q filed May 4, 2005. Legal Matters
On August 24, 2004, DPL, DP&L and MVE filed a Complaint against Mr. Forster, Ms. Muhlenkamp and Mr. Koziar in the Court of Common Pleas of Montgomery County, Ohio asserting legal claims against them relating to the termination of the Valley Partners Agreements, challenging the validity of the purported amendments to the deferred compensation plans and to the employment and consulting agreements with Messrs. Forster and Koziar and Ms. Muhlenkamp, and the propriety of the distributions from the plans to Messrs. Forster and Koziar and Ms. Muhlenkamp, and alleging that Messrs. Forster and Koziar and Ms. Muhlenkamp breached their fiduciary duties and breached their consulting and employment contracts. DPL, DP&L and MVE seek, among other things, damages in excess of $25 thousand, disgorgement of all amounts improperly withdrawn by Messrs. Forster and Koziar and Ms. Muhlenkamp from the deferred compensation plans and a court order declaring that DPL, DP&L and MVE have no further obligations under the consulting and employment contracts due to those breaches.
Defendants Forster, Koziar and Muhlenkamp have filed motions to dismiss the Complaint and motions to stay discovery. DPL and DP&L have filed briefs opposing those motions. In addition, pursuant to applicable statutes, regulations and agreements, DPL and DP&L have been advancing certain of Defendants’ attorneys’ fees and expenses with respect to various matters other than the litigation between Defendants and DPL and DP&L in Florida and Ohio, and believe that other requested advances are not required. On February 7, 2005, Mr. Forster and Ms. Muhlenkamp filed a motion in DP&L’s and DPL’s Ohio litigation seeking to compel DPL, MVE and DP&L to pay all attorneys’ fees and expenses that have not been advanced to them. DPL, DP&L and MVE have filed a brief opposing that motion. All of the foregoing motions are pending.
On March 15, 2005, Mr. Forster and Ms. Muhlenkamp filed a lawsuit in New York state court against the purchasers of the DPL private equity portfolio and against outside counsel to DPL and DP&L concerning purported entitlements in connection with the purchase of the portfolio. DPL, DP&L and MVE are not defendants in that case; however, they are parties to an indemnification agreement with respect to the purchaser defendants. Those defendants have requested that DPL, DP&L and MVE indemnify them in connection with that litigation, and DPL, DP&L and MVE have acknowledged indemnity obligations. On March 28, 2005, DPL, DP&L and MVE filed a Motion for Preliminary Injunction in the Ohio case, requesting that the court issue a preliminary injunction against Mr. Forster and Ms. Muhlenkamp regarding the lawsuit. Since certain key issues raised by Mr. Forster and Ms. Muhlenkamp in their New York lawsuit are identical to the issues raised in the pending Ohio lawsuit, DPL, DP&L and MVE believe that those issues should be heard and resolved in the pending Ohio lawsuit. Mr. Forster and Ms. Muhlenkamp filed a brief opposing the preliminary injunction on April 15, 2005. DPL, DP&L and MVE filed their reply brief on April 25, 2005. The motion is pending and has been set for hearing on May 6, 2005.
This excerpt taken from the DPL 10-K filed Mar 11, 2005. Legal Matters On November 6, 2003, the Company and certain of its present and former officers and directors reached an agreement in principle with plaintiffs to settle the DPL Inc. Securities Litigation, and the shareholder class and derivative actions filed against them in Federal and Ohio state courts (the Global Settlement). The Company agreed to pay $70.0 million and certain of the Company’s liability insurers (the Insurers) agreed to pay $65.5 million to settle the DPL Inc. Securities Litigation and the state shareholder class actions. The Insurers agreed to pay $4.5 million to settle the derivative actions. In addition, PwC agreed to pay $5.5 million to settle all claims against it on a global basis. The Global Settlement was subject to approval by the courts in which the actions were pending after notice to shareholders and class members and fairness hearings before the courts. On December 22, 2003, the Global Settlement was approved in total by the Court of Common Pleas, Hamilton County, Ohio. The U.S. District Court for the Southern District of Ohio approved the Global Settlement except for the petition for plaintiffs’ attorneys’ fees. As a result of the settlement, an after-tax charge of approximately $0.39 per share was recorded in the fourth quarter of 2003. On March 8, 2004, the U.S. District Court for the Southern District of Ohio approved in part the plaintiffs’ petition for plaintiffs’ attorneys’ fees. On May 24, 2004, in accordance with the terms of the Global Settlement, the amounts owed by the Company and the amounts owed by the Company’s liability insurers pursuant to Global Settlement were paid for ultimate distribution to the class. On August 13, 2004, as to state court and August 16, 2004, as to federal court, plaintiffs filed a motion seeking court approval of the distribution of the Global Settlement funds.
On June 7, 2004, the plaintiffs in the action in the Court of Common Pleas of Hamilton County, Ohio, filed a motion for an Order of Contempt, Disgorgement and Rescission against defendants Peter H. Forster, formerly DPL’s Chairman; Caroline E. Muhlenkamp, formerly DPL’s Group Vice President and interim Chief Financial Officer; and Stephen F. Koziar, Jr., formerly DPL’s Chief Executive Officer and President. In their motion, plaintiffs claimed that defendants Forster, Muhlenkamp and Koziar breached the Global Settlement and caused DPL and its board of directors to breach the Global Settlement, by causing the Company to distribute to defendants Forster, Muhlenkamp and Koziar approximately $33 million in deferred compensation in December 2003 without proper board approval. Plaintiffs sought, among other things, disgorgement of monies received by defendants Forster, Muhlenkamp and Koziar and rescission of the reinstatement of the stock incentive and benefits plans. On June 28, 2004, the Company filed a Motion to Strike the plaintiffs’ motion alleging, among other things, that the motion was procedurally defective. Further, on July 22, 2004, the Company filed a Motion for Preliminary Injunction in the U.S. District Court to enjoin the Motion for an Order of Contempt, Disgorgement and Rescission. On August 2, 2004, plaintiffs filed their opposition
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to defendants’ Motion to Strike and filed their opposition to the Motion for a Preliminary Injunction on August 13, 2004. On or about October 4, 2004 the U.S. District Court ruled the distribution of the federal class settlement fund to approved claimants would proceed immediately and that plaintiffs would withdraw their Motion for Contempt in state court. This withdrawal was completed on October 4, 2004 and the state court ordered the distribution of the state class settlement fund to approved claimants.
On July 9, 2004, Mr. Forster and Ms. Muhlenkamp filed a lawsuit against the Company, DP&L and MVE in the Circuit Court, Fourth Judicial Circuit, in and for Duval County, Florida. The complaint asserts that the Company, DP&L and MVE (i) wrongfully terminated Mr. Forster and Ms. Muhlenkamp by undermining their authority and responsibility to manage the companies and excluding them from discussions on corporate financial issues and strategic planning after the Thobe Memorandum was distributed and (ii) breached Mr. Forster’s consulting contract and Ms. Muhlenkamp’s employment agreement by denying them compensation and benefits allegedly provided by the terms of such contract and agreement upon their termination from the Company. Mr. Forster and Ms. Muhlenkamp seek damages of an undetermined amount. On August 9, 2004, the defendants removed the case to the U.S. District Court for the Middle District of Florida, Jacksonville Division. On August 16, 2004, the defendants moved to dismiss the litigation based on the Florida federal court’s lack of jurisdiction over the Company, DP&L and MVE, all of whom are companies based in Dayton, Ohio. In the alternative, the defendants requested that the court transfer the case to the U.S. District Court for the Southern District of Ohio, which has jurisdiction in Dayton, Ohio. On September 17, 2004, Mr. Forster and Ms. Muhlenkamp filed memoranda opposing these motions. On November 10, 2004, U.S. District Court for the Middle District of Florida, Jacksonville Division, granted defendants’ motion to dismiss this case.
On August 24, 2004, the Company, DPL and MVE filed a Complaint against Mr. Forster, Ms. Muhlenkamp and Mr. Koziar in the Court of Common Pleas of Montgomery County, Ohio asserting legal claims against them relating to the termination of the Valley Partners Agreements, challenging the validity of the purported amendments and the propriety of the distributions and alleging that Messrs. Forster and Koziar and Ms. Muhlenkamp breached their fiduciary duties and breached their consulting and employment contracts. The Company, DPL and MVE seek, among other things, damages in excess of $25 thousand, disgorgement of all amounts improperly withdrawn by Messrs. Forster and Koziar and Ms. Muhlenkamp from the deferred compensation plans and a court order declaring that the Company, DPL and MVE have no further obligations under the consulting and employment contracts due to those breaches.
Defendants Forster, Koziar and Muhlenkamp filed motions to dismiss the Complaint and motions to stay discovery. The Company has filed briefs opposing those motions. In addition, pursuant to applicable statues, regulations and agreements, the Company has been advancing certain of Defendants’ attorney’s fees and expenses with respect to various matters other than the litigation between Defendants and the Company in Florida and Ohio, and believes that other requested advances are not required. On February 7, 2005, Forster and Muhlenkamp filed a motion in the Company’s Ohio litigation seeking to compel the Company to pay all attorneys’ fees and expenses that it has not advanced to them. The Company has filed a brief opposing that motion. All of the foregoing motions are pending.
The Company continues to evaluate all of these matters and is considering other claims against Defendants, Forster, Koziar and/or Muhlenkamp that include, but are not limited to, breach of fiduciary duty or other claims relating to personal and Company investments, the calculation of benefits under the SERP and financial reporting with respect to such benefits, and, with respect to Mr. Koziar, the fulfillment of duties owed to the Company as its legal counsel. Cumulatively through December 31, 2004 the Company has accrued for accounting purposes, obligations of approximately $40 million to reflect claims regarding deferred compensation, estimated MVE incentives and/or legal fees that Defendants assert are payable per contracts. The Company disputes Defendants’ entitlement to any
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of those sums and, as noted above, is pursuing litigation against them contesting all such claims. The Company cannot currently predict the outcome of that litigation.
On or about June 24, 2004, the SEC commenced a formal investigation into the issues raised by the Thobe Memorandum. The Company is cooperating with the investigation.
On April 7, 2004, the Company received notice that the staff of the PUCO is conducting an investigation into the financial condition of DP&L as a result of the issues raised by the Thobe Memorandum. On May 27, 2004, the PUCO ordered DP&L to file a plan of utility financial integrity that outlines the actions the Company has taken or will take to insulate DP&L utility operations and customers from its unregulated activities. DP&L was required to file this plan by March 2, 2005. On February 4, 2005, DP&L filed its protection plan with the PUCO and will continue to cooperate to resolve any outstanding issues in the investigation.
On May 20, 2004, the staff of the SEC notified the Company that it was conducting an inquiry covering the exempt status of the Company under the Public Utility Holding Company Act of 1935. The staff of the SEC has requested the Company provide certain documents and information on a voluntary basis. The Company is cooperating with the inquiry. On October 8, 2004, DPL received a notice from the SEC that a question exists as to whether such exemption from the Public Utility Holding Company Act may be detrimental to the public interest or the interests of investors or consumers. Under applicable rules, DPL would lose its exemption 30 days following this notice and be required to register as a holding company under the Public Utility Holding Company Act and become subject to additional regulation thereunder. However, on November 5, 2004, DPL delayed the requirement to become registered by filing a good faith application seeking an order of exemption from the Securities and Exchange Commission. DPL will remain exempt pending a decision from the Securities and Exchange Commission on that application. DPL cannot predict what action the Securities and Exchange Commission may take in connection with its application or whether it will be able to remain an exempt holding company.
On May 28, 2004, the U.S. Attorney’s Office for the Southern District of Ohio, assisted by the Federal Bureau of Investigation, notified the Company that it has initiated an inquiry involving matters connected to the Company’s internal investigation. The Company is cooperating with this investigation.
Commencing on or about June 24, 2004, the Internal Revenue Service (IRS) has issued a series of data requests to the Company regarding issues raised in the Thobe Memorandum. The staff of the IRS has requested that the Company provide certain documents, including but not limited to, matters concerning executive/director deferred compensation plans, management stock incentive plans and MVE financial statements. The Company is cooperating with these requests.
On December 12, 2003, the Office of Federal Contract Compliance Programs (OFCCP) notified DP&L by letter alleging it had discriminated in the hiring of meter readers during 2000-2001 by utilizing credit checks to determine if applicants had paid their electric bills. On February 12, 2004 DP&L and the OFCCP entered into a Conciliation Agreement whereby DP&L agreed to distribute approximately $0.2 million in compensation to certain affected applicants. DP&L has completed these payments to the affected applicants.
In June 2002, a contractor’s employee received a verdict against DP&L for injuries he sustained while working at a DP&L power station. The Court awarded the contractor’s employee compensatory damages of approximately $0.8 million and prejudgment interest of approximately $0.6 million. On April 28, 2004, the appellate court upheld this verdict except the award for prejudgment interest. On September 1, 2004, the Ohio Supreme Court refused to hear the case, so the matter was remanded to the trial court for a re-determination of whether prejudgment interest should be awarded. The trial court heard this matter on October 15, 2004. On November 1, 2004, DP&L paid approximately $976
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thousand to the contractor’s employee to satisfy the judgment and post-judgment interest. On December 6, 2004, the trial court ruled that prejudgment interest should be reduced to approximately $30 thousand. Both parties have appealed this decision. The appeal is pending.
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