According to the Company’s Form 10-K For the Fiscal Year Ended December 31, 2004, a consolidated amended complaint was filed by the lead plaintiff on May 7, 2004. On June 28, 2004, the Company and the individual defendants filed a motion to dismiss the complaint. The motion was successful and the complaint was dismissed with prejudice on January 12, 2005, and no appeal was filed prior to the now expired deadline.
As previously reported by the Company’s Form 10-K For the Fiscal Year Ended December 31, 2003, on both December 30, 2003, and February 20, 2004, separate putative shareholder class action complaints were filed in the United States District Court for the Western District of Michigan against the Company, its former President and Chief Executive Officer, and its Chief Financial Officer. On each of March 2, 2004 and March 3, 2004, motions were filed by various shareholders seeking orders consolidating the two lawsuits, naming the moving shareholders as lead plaintiff and naming lead counsel. On March 9, 2004, the parties filed a stipulation and proposed order consolidating the two cases by dismissing the first suit with prejudice and appointing a lead plaintiff and lead counsel.
The original Complaint alleges that defendants AP Capital Inc. and certain of its officers violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5 promulgated thereunder. More specifically, the Complaint alleges that defendants failed to disclose and indicate (1) that the Company's provisions for loss reserves were inadequate; (2) that defendants failed to sufficiently increase the Company's loss reserves during the Class Period; and (3) as a result of the foregoing, the Company's operating results, an important metric used to value the Company's financial performance, were overstated at all relevant times.
Further, the complaint alleges that on November 6, 2003, AP Capital shocked the market when it issued a press release announcing that its earnings release scheduled for that afternoon will be delayed until Wednesday, November 12, 2003 after the market closes. The Company further stated that it expects to announce a “substantial net loss” for the quarter due to significant adjustments in reserves for policy losses. The additional reserves are expected to approximate $43 million, before taxes ($28 million, net of tax). In addition, as a result of the net loss, the Company expects that, for the foreseeable future, it will not be able to report the deferred tax asset that results from its accumulated net operating losses and other timing differences. This will require the Company to incur a non-cash charge of approximately $50 million to establish a valuation allowance in order to eliminate the deferred tax asset. The Company also said it will discontinue offering workers compensation and health care insurance, which account for about 30 percent of its premiums.