Company Name: DPL Inc.
Public Availability Date: December 12, 2006
Document Sections:
INQUIRY LETTER
INQUIRY LETTER
STAFF REPLY LETTER
[INQUIRY LETTER]
1934 Act/Rules 14a-8(i)(1), 14a-8(i)(3) and 14a-8(i)(10)
November 7, 2006
Office of Chief Counsel
Division of Corporation Finance
U.S. Securities and Exchange Commission
100 F. Street, NE
Washington D.C. 20549
Re: DPL Inc. Shareholder Proposal
Ladies and Gentlemen:
On behalf of DPL Inc., an Ohio corporation (the "Company"), and in accordance
with Rule 14a-8(j) under the Securities Exchange Act of 1934, as amended, we
respectfully request the concurrence of the staff of the Division of Corporation
Finance (the "Staff") of the Securities and Exchange Commission (the
"Commission") that it will not recommend any enforcement action to the
Commission if the shareholder proposal described below (the "Proposal") is
excluded from the Company's proxy statement for the Company's 2007 Annual
Meeting of Shareholders (the "Proxy Statement"). The Annual Meeting is scheduled
for April 12, 2007. A copy of the Proposal is attached hereto. As required by
Rule 14a-8(j), six copies of this letter, including the attachment, are
enclosed.
We are also sending a copy of this letter to Donald Moberly to notify him of the
Company's intention to omit the Proposal from the Proxy Statement.
A. Factual Background
On October 27, 2006, the Company received a shareholder proposal from Donald
Moberly. The Proposal reads as follows:
"Bonuses for all officers and executives' must be based on performance as well
as the achievement of goals defined by the board. The benchmark for bonuses is
based proportionately to the realized increase in revenue for the company and
its shareholders."
Mr. Moberly also included a supporting statement. Mr. Moberly's full letter is
attached hereto as Exhibit A.
B. Reasons for Omission
1. The Proposal is Mandatory and Therefore Improper Under State Law
Rule 14a-8(i)(1) permits a registrant to omit a shareholder proposal that "is
not a proper subject for action by shareholders under the laws of the
jurisdiction of the company's organization." In the Note to such rule, the
Commission explains that proposals that are mandatory and binding on a company
may not be considered proper under state law. The staff has consistently
permitted exclusion of a shareholder's proposal if it is mandatory rather than
precatory if improper under the registrant's state law. See, e.g. Kmart
Corporation (March 27, 2000) (a proposal could be successfully challenged as an
improper subject for shareholder action under Michigan law because the proposal
was mandatory rather than precatory).
Section 1701.59(A) of the Ohio Revised Code states that "except where the law,
the articles, or the regulations require action to be authorized or taken by
shareholders, all of the authority of a corporation shall be exercised by or
under the direction of its directors." The Ohio Revised Code, the Company's
articles nor the Company's regulations require action relating to the Proposal
to be taken by shareholders. On the contrary, Section 1701.60(A)(c)(3) states
that "the directors, by affirmative vote of a majority of those in office, and
irrespective of any financial or personal interest of any of them, shall have
authority to establish reasonable compensation...for services to the corporation
by directors and officers, or to delegate such authority to one or more officers
or directors." Ohio law is therefore extremely clear that a company's board of
directors has the ultimate decision making authority in connection with
executive compensation.
The Proposal relates to executive compensation and the language of the Proposal
is mandatory rather than precatory. By using the phrases "must be based" and
"benchmark for bonuses is based," this proposal is more than a recommendation
that the Company's Board of Directors consider certain action. The Proposal is
phrased as a directive and its binding nature would therefore require the
Company's Board of Directors to relinquish part of its statutory authority. We
therefore believe that the Proposal is excludable under Rule 14a-8(i)(1).
2. The Proposal is Vague and the Supporting Statement is Materially False and
Misleading
Rule 14a-8(i)(3) provides that a registrant may exclude a proposal if it
violates the proxy rules, including Rule 14a-9, which prohibits materially false
or misleading statements in proxy soliciting materials. The Staff has determined
that a proposal is excludable under this rule if it is "so inherently vague and
indefinite that neither the shareholders voting on the proposal, nor the Company
in implementing the proposal (if adopted), would be able to determine with any
reasonable certainty exactly what actions or measures the proposal requires."
Philadelphia Electric Company (July 30, 1992). See also Bristol-Myers Squibb Co.
(February 1, 1999) (the Staff permitted exclusion of a proposal which was so
vague that it precluded shareholders from determining with reasonable certainty
either the meaning of the resolution or the consequences of its implementation)
and Microlog Corporation (December 22, 1994) (a proposal that recommended that a
company pay bonuses, etc. based on a very convoluted formula could be excluded
as vague and indefinite). The Staff has also permitted a company to exclude
entire shareholder proposals or portions of shareholder proposals and supporting
statements when they contained false and misleading statements. See, e.g.
General Magic, Inc. (May 1, 2000) (the Staff permitted exclusion of an entire
proposal) and Sysco Corp. (August 12, 2003) (the Staff permitted exclusion of
portions of the supporting statement pursuant to Rule 14a-9).
The Proposal is indefinite because it is contradictory. The first sentence of
the Proposal provides that bonuses must be based on "performance" and "goals
defined by the board." This is further substantiated by Mr. Moberly's supporting
statement in which he states that "bonuses should be based on meeting these
goals as well as a review of the financial performance against budget, prior
years and the stewardship of resources." However, the second sentence of the
Proposal provides that the benchmark for bonuses "is based proportionately to
the realized increase in revenue for the company and its shareholders." If
bonuses must be based proportionately to an increase in revenue, then they
cannot be based on any other goals that may be established by the Company's
Board of Directors. The two sentences of the Proposal and the supporting
statement are therefore in conflict, and, as a result, the Company would not
know how to implement the Proposal. Would the Board of Directors be permitted to
award bonuses based on the achievement of specific operating and management
goals other than "realized increase in revenue" or not? Further, how would the
Company's shareholders know how to vote on the Proposal? If shareholders approve
of using various performance goals established by the Company's Board of
Directors, then they would agree with the first sentence but not the second
sentence. Alternatively, if shareholders approve of only using "realized
increase in revenue," then they would agree with the second sentence but not the
first sentence.
The Proposal is also extremely vague. What is the "realized increase in revenue"
and is this a measurement that is made for both the Company and its
shareholders? With respect to shareholders, is this measure earnings per share?
Further, if the "realized increase in revenue" is different for the company and
its shareholders, then the Proposal is unclear as to whether bonuses would be
based proportionately to the increase for the Company or to the increase for
shareholders.
Mr. Moberly's supporting statement is also materially false and misleading
because it misstates the effect prior compensation decisions have had on the
Company's stock price. In the last paragraph of his letter, Mr. Moberly states
that "our stock is just recovering to its level before the announcement of Mr.
Biggs $1 million bonus and 100% retroactive pay raise." This statement suggests
that the Company's stock price was materially adversely affected by the
compensation awarded to Mr. Biggs, the Company's then-Executive Chairman, and
that the Company's stock price has been slow to recover. The fact is that the
business day after the Company announced that it had entered into a new
employment agreement with Mr. Biggs that included a pay raise and minimum bonus
amount, the Company's stock price decreased by less than a quarter of a percent
and, by the end of the week, the stock price was higher than it had been prior
to the announcement. Similarly, the business day after Mr. Biggs' full 2005
compensation was reported in the Company's proxy statement for the 2006 Annual
Meeting of Shareholders, the Company's stock price decreased by less than one
percent and, a week later, the stock price was higher than it had been prior to
the announcement. Further, the Company's current stock price is more than one
dollar higher than the price on the days of these announcements. Mr. Moberly's
accusations are therefore factually inaccurate and will mislead and misinform
the Company's shareholders about the Company's compensation decisions and the
impact they have on the Company.
The defects above render the Proposal inherently vague, indefinite and
misleading. If included in the Proxy Statement, the Proxy Statement will contain
false statements in direct violation of Rule 14a-9. In addition, if the Proposal
is approved by shareholders, the Company would not know how to determine whether
to award bonuses to its officers or how to calculate the amount of any such
bonuses to be awarded. We therefore believe that the Proposal is excludable
under Rule 14a-8(i)(3).
3. The Proposal is Substantially Implemented
Rule 14a-8(i)(10) provides that a shareholder proposal may be excluded if the
registrant has already substantially implemented the proposal. The Staff has
stated that "a determination that the Company has substantially implemented the
proposal depends upon whether its particular policies, practices and procedures
compare favorably with the guidelines of the proposal." Texaco, Inc. (March 28,
1991). The Staff has also determined that a stockholder proposal has been
"substantially implemented" and may be excluded from a company's proxy statement
when the company can demonstrate that it has already taken actions to address
the substance of a shareholder proposal. See, e.g. Nordstrom Inc. (February 8,
1995) (proposal that the company commit to a code of conduct and submit a report
to shareholders describing the Company's supplier policy and compliance efforts
was substantially covered by existing company guidelines and was therefore
excludable as moot) and The Gap, Inc. (March 8, 1996) (proposal that the company
adopt guidelines that were substantially implemented was rendered moot).
The Company currently awards bonuses pursuant to the Company reaching or
exceeding specified targets. As explained in the Company's proxy statement for
the Company's 2006 Annual Meeting of Shareholders, executive officer bonuses are
based on the attainment of defined objectives with respect to corporate
performance and achievement of business unit/functional goals. Pursuant to the
Company's various compensation plans, including the Executive Incentive
Compensation Plan, the objectives may include appreciation in value of shares;
total shareholder return; earnings per share; operating income; net income;
pretax earnings; earnings before interest, taxes, depreciation and amortization;
pro forma net income; return on equity; return on designated assets; return on
capital; economic value added; revenues; expenses; operating cash flow; free
cash flow; cash flow return on investment; operating margin or net profit
margin; or any of the above criteria as compared to the performance of a
published or a special index deemed applicable by the Board, including, but not
limited to, the Standard & Poor's Utility Index.
The Proposal is therefore moot because it is substantially implemented. It is
therefore unnecessary to have shareholders vote on such matter. Accordingly, we
believe that the Proposal is excludable under Rule 14a-8(i)(10).
Request
Based on the foregoing, the Company believes that it may omit the Proposal from
the Proxy Statement, and we respectfully request that the Staff not recommend
any enforcement action if the Proposal is omitted from the Proxy Statement. If
you have any questions or if the Staff is unable to concur with our conclusions
without additional information or discussion, we respectfully request the
opportunity to confer with members of the Staff prior to the issuance of a
written response to this letter. Please do not hesitate to contact the
undersigned at (212) 504-5555. Thank you for your consideration.
Very truly yours,
/s/
Dennis J. Block
cc: Paul Barbas
Glenn Harder
Arthur G. Meyer
Donald Moberly
[INQUIRY LETTER]
October 21, 2006
Dayton Power & Light Corporate Secretary
Re: Shareholders Proposal
Dear Sir/Madam:
I have been a shareholder of Dayton Power & Light stock for over 20 years and
will continue to do so beyond the 2007 shareholders meeting. With over 10,000
shares I hold a vested interest in the company's success. The history of
management's questionable integrity within this organization demanded that best
practices be implemented. While I applaud your steps in the addition of bonuses
being based on goals, you must keep the interest of the stockholders in mind.
Goals need to be instituted to increase the value of our stock and not just the
self enrichment of company executives. If you have not earned money for the
owners you can not justify salary increases or bonuses.
I propose that Dayton Power & Light institute the following policy: Bonuses for
all officers and executives' must be based on performance as well as the
achievement of goals defined by the board. The benchmark for bonuses is based
proportionately to the realized increase in revenue for the company and its
shareholders.
In publicly held companies, the board of directors is legally responsible for
selecting the CEO, approving the executive's compensation and, if necessary,
dismissing this individual. Effective monitoring and regular assessment of CEO
performance is another key function. Goals must be built on a secure foundation
in order to be meaningful and to help the organization achieve its mission.
Bonuses should be based on meeting these goals as well as a review of the
financial performance against budget, prior years and the stewardship of
resources. Compensation of all officers and executives must be linked to the
company's performance. This demonstrates that both sides have made a commitment
to the value and seriousness of the relationship."
The only way to grow the value of Dayton Power & Light stock is raise dividends
to make our stock attractive to investors. Let me ask you, would you buy our
stock paying 3.7% or purchase certificates of deposit earning 5.5%? A
corporation is merely a conduit through which the owners of the business (the
shareholders) manage their collective capital.
Although the DOW has enjoyed 5 new record highs, our stock is just recovering to
its level before the announcement of Mr. Biggs $1 million bonus and 100%
retroactive pay raise. This was an obscene amount of money, and we have to
establish limits and expectations. Why has it taken 7 years for stockholders to
receive a 4% increase in dividends while whole profits have increased an average
of 13% per year? What truly counts, as we have been reminded by the great minds
of finance over and over again, is the per share growth. Too many companies
forget this and it is the shareholders who suffer the consequences.
Sincerely,
/s/
Donald Moberly
1308 Fairway Court
Miamisburg, OH 45342
937-866-2027
[STAFF REPLY LETTER]
December 12, 2006
Response of the Office of Chief Counsel Division of Corporation Finance
Re: DPL Inc. Incoming letter dated November 7, 2006
The proposal provides that bonuses for all officers and executives must be based
on performance as well as the achievement of goals defined by the board.
There appears to be some basis for your view that DPL may exclude the proposal
under rule 14a-8(i)(1), as an improper subject for shareholder action under
applicable state law. It appears that this defect could be cured, however, if
the proposal was recast as a recommendation or request to the board of
directors. Accordingly, unless the proponent provides DPL with a proposal
revised in this manner, within seven calendar days after receiving this letter,
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)(1).
We are unable to concur in your view that DPL may exclude the proposal under
rule 14a-8(i)(3). Accordingly, we do not believe that DPL may omit the proposal
from its proxy materials in reliance on rule 14a-8(i)(3).
We are unable to concur in your view that DPL may exclude the proposal under
rule 14a-8(i)(10). Accordingly, we do not believe that DPL may omit the proposal
from its proxy materials in reliance on rule 14a-8(i)(10).
Sincerely,
/s/
Ted Yu
Special Counsel
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