Company Name: DPL Inc.
Public Availability Date: January 11, 2002
Document Sections:
INQUIRY LETTER
INQUIRY LETTER
STAFF REPLY LETTER
[INQUIRY LETTER]
December 3, 2001
via Federal Express
Securities and Exchange Commission
Office of Chief Counsel
Division of Corporation Finance
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: DPL Inc.
Shareholder Proposal Submitted by David C. Look
File No. 1-9052
Sir or Madam:
On behalf of DPL Inc. ("DPL") and pursuant to Rule 14a-8(j) under the Securities
Exchange Act of 1934, we request confirmation that the staff of the Office of
Chief Counsel will not recommend any enforcement action if, in reliance on
certain provisions of Rule 14a-8, DPL excludes a proposal submitted by David C.
Look from the proxy statement and form of proxy for DPL's 2002 annual meeting of
shareholders. DPL plans to mail its proxy materials for the meeting on or about
March 1, 2002.
In accordance with Rule 14a-8(j), we are furnishing the staff with six copies of
this letter which sets forth the reasons DPL believes it may exclude the
proposal and six copies of the proposal and supporting statement. To the extent
such reasons are based on matters of law, this letter constitutes the supporting
opinion of counsel. A copy of this letter is being simultaneously provided to
Mr. Look.
Proposal
The proposal reads as follows:
For the five most highly compensated executive officers of DPL Inc., the total
bonus and long-term compensation awards cannot exceed 10% of the total base
salaries unless the excess above 10% is matched by increased dividends on the
common stock.
Reasons for Exclusion
DPL intends to exclude the proposal for the following reasons, which are
discussed more fully below:
The proposal relates to specific amounts of cash or stock dividends under Rule
14a-8(i)(13);
The proposal could, if implemented, cause DPL to violate state law under Rule
14a-8(i)(2);
The proposal is not a proper subject for action by shareholders under Ohio law
under Rule 14a-8(i)(1); and
The proposal and supporting statement violate the Commission's proxy rules
under Rule 14a-8(i)(3).
1. The Proposal Relates to Specific Amounts of Cash or Stock DividendsRule
14a-8(i)(13).
A company may properly exclude a shareholder proposal under Rule 14a-8(i)(13) if
the proposal relates to specific amounts of cash or stock dividends.
The proposal seeks to tie the amount of bonus and long-term compensation awards
to DPL senior executives to mandatory matching increases in dividends paid to
shareholders. The staff has consistently held that shareholder proposals that
seek to directly link increases in executive compensation to increases in
dividends, either directly or by a formula, are excludable under Rule
14a-8(i)(13). See PacifiCorp (March 8, 1999) (proposal to increase dividends by
same relative percentage as increase in total compensation to directors and
management excludable under Rule 14a-8(i)(13) since the proposal appears to
include a formula that would result in a specific dividend amount); COM/Energy
Services Company (March 2, 1998) (proposal to limit rate of increase of annual
compensation paid to trustees to the rate of increase of cash dividends paid to
shareholders during any single year excludable under Rule 14a-8(c)(13) since the
proposal would specify a formula for the payment of dividends by linking annual
dividend and amount of executive compensation); BankAmerica Corporation (January
22, 1998) (proposal that total compensation to directors cannot increase at a
rate higher than double the rate of dividend increase for previous year);
COM/Energy Services Company (February 14, 1997) (permitting exclusion under Rule
14a-8(c)(13) of proposal to tie increases in executive compensation to the rate
of increase in dividends paid); Delmarva Power and Light Company (February 21,
1995) (permitting exclusion under Rule 14a-8(c)(13) of proposal that increases
in executive compensation be no greater percentage-wise than increase in
dividends paid).
The proposal would have the effect of specifying a formula for the payment of
dividends by mandating a specific, quantifiable increase in the amount of
dividends paid to shareholders in the event bonus and long-term compensation
awards to senior executives exceed a specific percentage of base salaries. DPL
believes the proposal, by establishing a formula for dividend payments, is
excludable under Rule 14a-8(i)(13) and the no-action letters cited above.
2. The Proposal Could, if Implemented, Cause DPL to Violate Ohio LawRule
14a-8(i)(2).
A company may exclude a shareholder proposal under Rule 14a-8(i)(2) if the
proposal would, if implemented, cause the company to violate any state, federal
or foreign law to which it is subject.
DPL has entered into agreements with senior executive officers which require DPL
to pay, and to provide the opportunity to receive, annual incentive bonuses. DPL
is legally bound to perform these agreements and to pay bonuses regardless of
whether dividends are paid on DPL common shares. The proposal, if implemented,
could require DPL to breach its obligations under these agreements since DPL
would be prohibited from paying any bonus compensation to senior executive
officers above a specific percentage of total base salaries unless a matching
amount is paid as dividends. Ohio courts have held that a breach of contract
gives rise to a cause of action against the breaching party for damages. See
e.g. Van Cantfort v. Colmar Realty Co., 13 Ohio L. Abs. 499 (Ct. App. 1932). The
staff has previously upheld omission of a proposal under former Rule 14a-8(c)(2)
that could require contractual breach under state law if implemented. See Core
Industries Inc. (October 25, 1996) (proposal that no stock options or bonuses be
issued to any officer during any three-year period where annual dividends and
net earnings not increased by stated percentages excludable under Rule
14a-8(c)(2) as causing the company to violate state law in that it may cause the
company to breach existing contractual or other obligations); see also US West,
Inc. (February 16, 1994).
The proposal makes no allowance for honoring existing contractual obligations
and imposes an absolute ban on all bonus and long-term compensation awards above
a specific amount unless dividends are increased by a matching amount,
regardless of whether the company would have sufficient earnings to pay the
dividend. Even where there are corporate earnings, directors must consider a
number of factors in exercising discretion to declare dividends to properly
discharge their duty to act in the best interests of the corporation. See United
States v. Byrum, 408 U.S. 125 (1972), citing Thomas v. Matthews, 94 Ohio St. 32,
113 N.E. 669 (1916). The proposal may place DPL's Board of Directors in a
situation where it must choose between breaching DPL's contractual obligations,
or abdicating its fiduciary duties by paying dividends that may not be justified
in view of the Company's overall financial requirements.
Because the proposal could, if implemented, cause DPL to violate its contractual
obligations or the Board of Directors to violate its fiduciary duties under
state law, DPL believes the proposal may be excluded under Rule 14a-8(i)(2).
3. The Proposal is Not a Proper Subject for Action by Shareholders Under Ohio
LawRule 14a-8(i)(1).
A company may exclude a shareholder proposal under Rule 14a-8(i)(1) if the
proposal is not a proper subject for action by shareholders under the laws of
the jurisdiction of the company's organization.
DPL is incorporated under and governed by Ohio law. A mandatory directive to the
board of directors of an Ohio corporation is inconsistent with Section 1701.59
of the Ohio Revised Code ("ORC") which entrusts the management of the business
and affairs of the corporation to, and imposes responsibility for that
management on, its board of directors. ORC 1701.59(A) states that:
Except where the law, the articles or the regulations require action to be
authorized or taken by the shareholders, all of the authority of a corporation
shall be exercised by or under the direction of its directors.
DPL's articles do not limit the board's statutory powers under ORC 1701.59(A).
DPL's regulations expressly provide that all the capacity of the company shall
be vested in and all of its authority shall be exercised by or under the
direction of a board of directors, and such board of directors shall manage and
conduct the business of the company. Neither Ohio law nor DPL's articles or
regulations give shareholders the authority to mandate the kind of action
envisioned by the proposal. The proposal is a mandatory instruction to the Board
of Directors that "total bonus and long-term compensation awards [to DPL's five
most highly compensated executive officers] cannot exceed 10% of total base
salaries unless the excess is matched by increased dividends on the common
stock." If adopted, the proposal would intrude on the Board of Directors'
statutory duties to manage the business and affairs of the corporation,
including determining suitable levels of compensation to officers and dividends
to shareholders.
When the Commission adopted Rule 14a-8(c)(1) (now Rule 14a-8(i)(1)), it stated
that under state corporation statutes, such as ORC 1701.59, "the board may be
considered to have exclusive discretion in corporate matters.... Accordingly,
proposals by security holders that mandate or direct the board to take certain
action may constitute an unlawful intrusion on the board's discretionary
authority under the typical statute." Release No. 34-12999 (November 22, 1976).
The release also stated specifically that "mandatory dividend proposals would
continue to be excludable under subparagraph (c)(1) of the revised rule, to the
extent that they would intrude on the board's exclusive discretionary authority
under the applicable state law to make decisions on dividends." The Rule is
generally intended to allow the omission of proposals which preempt matters
which, under the applicable state law, may be initiated only by the board of
directors or which are committed to their discretion, or which otherwise ignore
the statutory role of directors by proposing direct adoption of specified
action.
The proposal also attempts to usurp the authority of DPL's Board of Directors to
regulate the amount of dividends to shareholders. ORC 1701.33 gives the
directors of an Ohio corporation the authority to declare dividends and
distributions on outstanding shares of the corporation. The legal power to
declare dividends rests solely with the board of directors. See Johnson v.
Lamprecht, 133 Ohio St. 567, 15 N.E.2d 127 (1938). The power to elect directors
of a corporation does not give shareholders the legal right to order that
dividends be paid.
For these reasons, DPL believes the proposal may be excluded under Rule
14a-8(i)(1).
4. The Proposal and Supporting Statement Violate the Commission's Proxy
RulesRule 14a-8(i)(3).
A company may exclude a shareholder proposal under Rule 14a-8(i)(3) if the
proposal or supporting statement is contrary to any of the Commission's proxy
rules, including Rule 14a-9, which prohibits materially false or misleading
statements in proxy soliciting materials.
Executive Compensation
Mr. Look's supporting statement is factually incorrect and misleading in several
respects. First, Mr. Look incorrectly calculated the compensation of DPL
executive officers, which results in numerous false and misleading statements in
the supporting statement. Mr. Look states in the first full paragraph that the
Board of Directors of DPL "awarded Mr. Hill, Mr. Forster and two other top
executives a total increase in compensation of 205%, from $4.739M in 1999 to
$14.442M in 2000." The $14.442 million total compensation figure for 2000
incorrectly includes as dollar amounts the number of shares underlying stock
options awarded to these individuals in 2000, overstating cash compensation by
$4.77 million. See summary compensation table from DPL Inc. proxy statement for
2001 annual meeting of shareholders (copy enclosed). Second, the total increase
in compensation was 104%, not 205%.
Mr. Look's incorrect numbers also make his comparison to the increase in
Southern Company executive compensation false and misleading. The percentage
increase in total compensation for the top four executives of Southern Company
was not "well under half that given to the DPL executives" as Mr. Look states,
but was in fact well over half that of the DPL executives, even when the value
of restricted stock awards to Southern Company executives are not included in
their total compensation. See summary compensation table from Southern Company
proxy statement for 2001 annual meeting of shareholders (copy enclosed).
Other numbers and percentages in the supporting statement likewise are erroneous
and significantly overstated. For example, the increase in DPL executive
compensation from 1999 to 2000 noted in the supporting statement was
approximately 4per share, not "nearly 8" as Mr. Look states. The increase also
constituted 12.5% of the total increase in DPL's earnings for the year, not
"unbelievably 36%" as Mr. Look claims.
Stock Price Performance
Mr. Look's comparison of DPL's stock price performance to Southern Company is
factually incorrect and misleading. Mr. Look states that during the period
January 1 to October 23, 2001, DPL's stock price fell from $33.20 to $23 per
share, while Southern Company "has risen from $33.2 to $40.6, adjusted for a
split." There was no split of Southern Company stock during this period. Rather,
on April 2, 2001, there was a spinoff of Mirant Corporation by which
shareholders received .397614 shares of Mirant for each share of Southern
Company owned. Southern Company shareholders were advised to combine the dollar
values of their Southern Company and Mirant holdings to determine the total
value of their investment. See Southern Company press release dated April 3,
2001 (copy enclosed). On October 23, 2001, the combined closing price of one
share of Southern Company and .397614 shares of Mirant was $36.17, not $40.60
claimed by Mr. Look.
Mr. Look's statement that "nearly all utilities rose dramatically in 2000, and
since then many, including DPL, have fallen dramatically" is misleading in that
it suggests that DPL's stock price is lower than it was at the beginning of
2000, which is false. DPL's stock price has increased from a closing price of
$16.625 on January 3, 2000 to $22.35 on October 23, 2001, the date of Mr. Look's
letter.
Mr. Look states in the second full paragraph that DPL's stock price "has
retreated to previous levels." This statement is vague and misleading because it
is not clear to what time frame Mr. Look is referring.
DPL believes the numerous incorrect, inaccurate, false and misleading statements
in Mr. Look's supporting statement combine to render the supporting statement as
a whole materially false and misleading in violation of Rule 14a-9 and permit
DPL to exclude the proposal under Rule 14a-8(i)(3).
Conclusion
For the reasons set forth above, DPL believes it may properly exclude the
proposal from its proxy materials for its 2002 annual meeting of shareholders
under Rules 14a-8(i)(13), (i)(2), (i)(1) and (i)(3), or any of them, and hereby
requests the concurrence of the staff that it will not recommend enforcement to
the Commission if DPL so excludes the proposal. Please contact the undersigned
at (937) 449-2832 if you have any questions or need further information.
Very truly yours,
/s/
Steven R. Watts
SRW:cab:17443
Enclosure
cc: Stephen F. Koziar, Jr., Esq. (w/enc.)
David C. Look, 1851 Stonewood Drive, Dayton, OH, 45432, holder of 3986 shares of
common stock, intends to present the following resolution at the 2002 annual
meeting:
For the five most highly compensated executive officers of DPL Inc., the total
bonus and long-term compensation awards cannot exceed 10% of the total base
salaries unless the excess above 10% is matched by increased dividends on the
common stock.
The proponent, David C. Look, recommends a vote FOR the proposal, and urges all
participants to read carefully the following statement before casting their
vote.
In 2000, the Board of Directors of DPL Inc., which includes Mr. Hill, CEO, and
Mr. Forster, Chairman, awarded Mr. Hill, Mr. Forster, and two other top
executives a total increase in compensation of 205%, from $4.739M in 1999 to
$14.442M in 2000. This increase in executive compensation was nearly 8per
share, and, unbelievably, constituted 36% of the total increase in earnings for
the year. According to the 2001 proxy statement, this huge bonus was triggered
by the stock reaching a value of $26 per share. However, nearly all utilities
rose dramatically in 2000, and since then many, including DPL, have fallen
dramatically. For example, as of this writing (Oct 23, 2001), the DPL shares are
trading at $23.0 per share, falling from $33.2 on Jan 1, 2001. Meanwhile, during
the same time period, Southern Company, a much larger electric utility also
owned by this writer, has risen from $33.2 to $40.6, adjusted for a split. In
spite of the much more impressive showing of Southern Company in 2000 and 2001,
the percentage increase in total compensation for the top four executives of
that company in 2000 was well under half that given to the DPL executives. It
also cannot be argued that the extremely generous DPL compensation package was
necessary to keep the executives at their posts, because each of them has been
employed there for over twenty years.
The question is, why haven't the shareholders benefited from the increases in
earnings? The stock price has retreated to previous levels, and the dividend has
remained stagnant at 94per share for the third straight year. At recent annual
meetings, the Chairman and the CEO have explained that increased earnings must
now be retained, in order to help the company grow. However, that same argument
could be applied to executive bonuses, but is evidently waived in that case. The
shareholders must regain control of the company and demand accountability, and
shareholder resolutions are the only way to do that. Hopefully, the present
proposal, that dividend increases should match executive bonuses above 10%, will
cause the executives to pause before awarding themselves excessively generous
compensation increases at the expense of the shareholders.
/s/
David C. Look
[INQUIRY LETTER]
DPL Inc
Attn.: Secretary
P.O. Box 1247
Dayton, OH 45401
23Oct01
Dear Secretary:
Enclosed is a resolution to be introduced by me at the 2002 Annual Meeting.
Please let me know by mail (the above address) or phone (255-1725, daytime) if
there are any problems with it. The proposal format can be changed to correspond
to your standard format, if applicable. Thank you.
Sincerely,
/s/
David C. Look
[STAFF REPLY LETTER]
January 11, 2002
Response of the Office of Chief Counsel Division of Corporation Finance
Re: DPL Inc.
Incoming letter dated December 3, 2001
The proposal requests that DPL match increases in dividends with increases in
bonuses and long-term compensation.
There appears to be some basis for your view that DPL may exclude the proposal
under rule 14a-8(i)(13). We note that the proposal appears to include a formula
that would result in a specific dividend amount. Accordingly, we will not
recommend enforcement action to the Commission if DPL omits the proposal from
its proxy materials in reliance on rule 14a-8(i)(13). In reaching this position,
we have not found it necessary to address the alternative bases for omission
upon which DPL relies.
Sincerely,
/s/
Grace K. Lee
Attorney-Advisor
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