Several class actions have been filed against energy holding company Progress Energy, Inc. (NYSE: PGN) and certain of its officers and directors on behalf of investors who obtained Contingent Value Obligations (CVOs) in exchange for their Florida Progress common stock pursuant to the closing of the merger of CP&L Energy and Florida Progress Corporation and who purchased the CVOs between November 30, 2000, and February 12, 2002. The actions claim that the defendants violated federal securities laws by failing to inform prospective CVO holders that the tax benefits represented as being made available to synthetic fuel producers, which were critical to the imputed value of the CVOs, would be adversely affected by the application of the alternative minimum tax. The stockholders seek to recover compensatory damages for the loss of value of their CVOs.

The action alleges that pursuant to the merger of CP&L Energy and the Florida Progress Corporation, Progress Energy, the merged company, issued a proxy statement that contained material omissions concerning the value of the CVOs, which had been used by the two companies to entice shareholders to approve the merger. The defendants, with full knowledge that the fuel credits underlying the CVOs would be subject to the alternative minimum tax, allegedly failed to inform prospective CVO holders that the tax benefits represented as being made available to synthetic fuel producers, which were critical to the imputed value of the CVOs, would be adversely affected by the application of the tax. In addition, the defendants allegedly failed to inform prospective CVO holders that as a result of the application of the tax, the fuel credits would not eliminate the federal income tax liability and the company could not use the fuel credits to reduce its effective tax rate below 20%.

The value of the CVOs was about $54 million, and they have lost about 80 percent of their value since Progress Energy made its disclosure in 2002.