UNITED STATES DISTRICT COURT EASTERN DISTRICT OF MICHIGAN STEVEN WILLIS, individually and on behalf of all others similarly situated, vs. Plaintiff, DELPHI CORPORATION; J.T. BATTENBERG III; ALAN S. DAWES; VIRGIS COLBERT; CRAIG NAYLON; JOHN OPIER; SUSAN A. McLAUGHLIN; THOMAS H. WYMAN; MICHAEL S. FLIGSTEIN; JAMES P. WHITSON; GENERAL MOTORS INVESTMENT MANAGEMENT CORPORATION; DELPHI MECHATRONIC BOARD OF DIRECTORS; JOHN DOES 1-20, Defendants. : : : : : : : : : : : : : : : : : : : : : Civil Action No. CLASS ACTION CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE EMPLOYEE RETIREMENT INCOME SECURITY ACT Plaintiff Steven Willis ( Plaintiff ), a participant in the Delphi Personal Savings Plan for Hourly-Rate Employees in the United States, for himself and all others similarly situated, and for participants in and beneficiaries of the Delphi Savings-Stock Purchase Program for Salaried Employees in the United States, the ASEC Manufacturing Savings Plan, and the Delphi Mechatronic Systems Savings-Stock Purchase Program (collectively, the Plans ), alleges as follows:
INTRODUCTION 1. This is a class action brought pursuant to 502 of the Employee Retirement Income Security Act ( ERISA ), 29 U.S.C. 1132, against Plan fiduciaries, including Delphi Corporation ( Delphi or the Company ), on behalf of participants in and beneficiaries of the Plans. 2. The Plans have two main components: (1) a component in which Plan participants make voluntary, pre-tax contributions to the Plans out of their base pay (the Participant Contribution Component ), and (2) a component in which the Company matches a portion of the participant s contributions to the Plans (the Company Match Component ). 3. Throughout the Class Period (May 28, 1999 to the present), a Delphi Common Stock Fund, which invested primarily in Delphi common stock ( Delphi Stock or Company Stock ), was offered as one of the investment alternatives in the Participant Contribution Component of the Plans. In addition, effective February 1, 2003, the Company Match component of the Plans has been invested in Delphi Stock. 4. Plaintiff s claims arise from the failure of Defendants, who are fiduciaries of the Plans, to act solely in the interest of the participants and beneficiaries of the Plans, and to exercise the required skill, care, prudence, and diligence in administering the Plans and the Plans assets during the Class Period, as is required by ERISA. 5. Specifically, Plaintiff alleges in Count I that the Defendants, responsible for the investment of the assets of the Plans, breached their fiduciary duties to Plaintiff in violation of ERISA by failing to prudently and loyally manage the Plans investment in Delphi Stock by continuing to offer Delphi stock as an investment option, match in Delphi Stock, and hold virtually all assets of the Delphi Bank Common Stock Fund in Delphi Stock instead of suitable 2
short-term options within the Fund, when the stock no longer was a prudent investment for participants retirement savings. In Count II, Plaintiff alleges that Defendants who communicated with participants regarding the Plans assets, or had a duty to do so, failed to provide participants with complete and accurate information regarding Delphi Stock sufficient to advise participants of the true risks of investing their retirement savings in Delphi Stock. In Count III, Plaintiff alleges that Defendants, responsible for the selection, removal, and, thus, monitoring of the Plans fiduciaries, failed to properly monitor the performance of their fiduciary appointees and remove and replace those whose performance was inadequate. In Count IV, Plaintiff alleges that Defendants breached their duties and responsibilities to avoid conflicts of interest and serve the interests of the participants in and beneficiaries of the Plans with undivided loyalty. In Count V, Plaintiff alleges that Defendants breached their duties and responsibilities as co-fiduciaries in the manner and to the extent set forth in the Count. Finally, in Count VI, Plaintiff states a claim against Delphi for knowing participation in the fiduciary breaches alleged herein. 6. This action is brought on behalf of the Plans and seeks losses to the Plans for which Defendants are personally liable pursuant to ERISA 409 and 502(a)(2), 29 U.S.C. 1109 and 1132(a)(2). In addition, under 502(a)(3) of ERISA, 29 U.S.C. 1132(a)(3), Plaintiff seeks other equitable relief from Defendants, including, without limitation, injunctive relief and, as available under applicable law, constructive trust, restitution, and other monetary relief. 7. As a result of Defendants fiduciary breaches, as hereinafter enumerated and described, the Plans have suffered substantial losses, resulting in the depletion of hundreds of millions of dollars of the retirement savings and anticipated retirement income of the Plans 3
participants. Under ERISA, the breaching fiduciaries are obligated to restore to the Plans the losses resulting from their fiduciary breaches. 8. Because Plaintiff s claims apply to the participants and beneficiaries as a whole, and because ERISA authorizes participants such as Plaintiff to sue for plan-wide relief for breach of fiduciary duty, Plaintiff brings this as a class action on behalf of all participants and beneficiaries of the Plans during the Class Period. Plaintiff also brings this action as a participant seeking Plan-wide relief for breach of fiduciary duty on behalf of the Plans. 9. In addition, because the information and documents on which Plaintiff s claims are based are, for the most part, solely in Defendants possession, certain of Plaintiff s allegations are by necessity upon information and belief. At such time as Plaintiff has had the opportunity to conduct additional discovery, Plaintiff will, to the extent necessary and appropriate, amend the Complaint, or, if required, seek leave to amend to add such other additional facts as are discovered that further support each of the following Counts below. JURISDICTION AND VENUE 10. Subject Matter Jurisdiction. This is a civil enforcement action for breach of fiduciary duty brought pursuant to ERISA 502(a), 29 U.S.C. 1132(a). This Court has original, exclusive subject matter jurisdiction over this action pursuant to the specific jurisdictional statute for claims of this type, ERISA 502(e)(1), 29 U.S.C. 1132(e)(1). In addition, this Court has subject matter jurisdiction pursuant to the general jurisdictional statute for civil actions arising under the... laws... of the United States. 28 U.S.C. 1331. 11. Personal Jurisdiction. ERISA provides for nation-wide service of process, ERISA 502(e)(2), 29 U.S.C. 1132(e)(2). All of the Defendants are residents of the United States and this Court therefore has personal jurisdiction over them. This Court also has personal 4
jurisdiction over them pursuant to Fed. R. Civ. P. 4(k)(1)(A) because they all would be subject to the jurisdiction of a court of general jurisdiction in the State of Michigan. 12. Venue. Venue is proper in this district pursuant to ERISA 502(e)(2), 29 U.S.C. 1132(e)(2), because the Plan was administered in this district, some or all of the fiduciary breaches for which relief is sought occurred in this district, and/or some Defendants reside or maintain their primary place of business in this district. PARTIES Plaintiff 13. Plaintiff Steven Willis ( Plaintiff ) is a resident of Ohio. Plaintiff is a Delphi employee and is a participant in the Delphi Personal Savings Plan. During the Class Period, as a result of his and/or the Company s contributions, Plaintiff acquired and held shares of Delphi Stock in his Plan account. Defendants 14. Defendants Delphi Corporation. Defendant Delphi Corporation ( Delphi ) is a leading global supplier of vehicle electronics, transportation components, integrated systems and modules and other electronic technology. Delphi technologies are present in more than 75 million vehicles on the road worldwide as well as in communication, computer, consumer electronic, energy and medical applications. During 2003, Delphi operated its business along three reporting segments that are grouped on the basis of similar product, market and operating factors: (1) Dynamics, Propulsion & Thermal Sector, which includes selected businesses from Delphi s energy and engine management systems, chassis, steering and thermal systems product lines; (2) Electrical, Electronics, Safety & Interior Sector, which includes selected businesses from Delphi s automotive electronics, audio, consumer and aftermarket products, 5
communication systems, safety and power and signal distribution systems product lines; and (3) Automotive Holdings Group, which is comprised of product lines and plant sites that do not meet Delphi s targets for net income or other financial metrics, so as to enable consistent and targeted management focus on finding solutions to these businesses. 15. Throughout the Class Period, Delphi s responsibilities included, through the Executive Committee of its Board of Directors (the Executive Committee ), broad oversight of and ultimate decision-making authority respecting the management and administration of the Plans and the Plans assets, as well as the appointment, removal, and, thus, monitoring of other fiduciaries of the Plan that it appointed, or to whom it assigned fiduciary responsibility. Throughout the Class Period, the Company exercised discretionary authority with respect to management and administration of the Plans and/or management and disposition of the Plans assets. 16. The Executive Committee to Delphi s Board of Directors. The Directors who served on the Executive Committee of Delphi s Board of Directors (the Executive Committee ) were fiduciaries because they exercised decision-making authority regarding the appointment of Plan fiduciaries and the management of the Plans assets throughout the Class Period. Delphi acted through the Executive Committee in carrying out its Plan-related fiduciary duties and responsibilities, and, thus, members of the Executive Committee were fiduciaries to the extent of their personal exercise of such responsibilities. 17. Moreover, the financial statements for the Plans filed with the SEC provide that: the Executive Committee of Delphi s Board of Directors acts as the Plan fiduciary and, along with various officers, employees and committees, controls and manages the operation and administration of the Plans subject to the provisions of ERISA. Thus, members of the 6
Executive Committee exercised discretionary authority with respect to the management and administration of the Plans and management and disposition of the Plans assets. 18. The Directors who served on the Executive Committee and acted as fiduciaries with respect to the Plans during the Class Period are as follows: a. Defendant Virgis Colbert ( Colbert ) served as an Executive Committee member during the Class Period. Defendant Colbert was a fiduciary within the meaning of ERISA because he exercised discretionary authority or discretionary control with respect to the appointment of Plan fiduciaries and with respect to the management of the Plan, he possessed discretionary authority or discretionary responsibility in the administration of the Plans, and he exercised authority or control with respect to the management of the Plans assets. b. Defendant Craig Naylon ( Naylon ) served as an Executive Committee member during the Class Period. Defendant Naylon was a fiduciary within the meaning of ERISA because he exercised discretionary authority or discretionary control with respect to the appointment of Plan fiduciaries and with respect to the management of the Plans, he possessed discretionary authority or discretionary responsibility in the administration of the Plans, and he exercised authority or control with respect to the management of the Plans assets. c. Defendant John Opier ( Opier ) served as an Executive Committee member during the Class Period. Defendant Opier was a fiduciary within the meaning of ERISA because he exercised discretionary authority or discretionary control with respect to the appointment of Plan fiduciaries and with respect to the management of the Plans, he possessed discretionary authority or discretionary responsibility in 7
the administration of the Plans, and he exercised authority or control with respect to the management of the Plans assets. d. Defendant Susan A. McLaughlin ( McLaughlin ) served as an Executive Committee member during the Class Period. Defendant McLaughlin was a fiduciary within the meaning of ERISA because she exercised discretionary authority or discretionary control with respect to the appointment of Plan fiduciaries and with respect to the management of the Plans, she possessed discretionary authority or discretionary responsibility in the administration of the Plans, and she exercised authority or control with respect to the management of the Plans assets. e. Defendant Thomas H. Wyman ( Wyman ) served as an Executive Committee member during the Class Period. Defendant Wyman was a fiduciary within the meaning of ERISA because he exercised discretionary authority or discretionary control with respect to the appointment of Plan fiduciaries and with respect to the management of the Plan, he possessed discretionary authority or discretionary responsibility in the administration of the Plans, and he exercised authority or control with respect to the management of the Plans assets. 19. Defendant J.T. Battenberg III ( Battenberg ) served as Chairman of Delphi s Board of Directors, Chief Executive Officer and President during the Class Period. Defendant Battenberg was a fiduciary within the meaning of ERISA because he exercised discretionary authority or discretionary control with respect to the appointment of Plans fiduciaries and with respect to the management of the Plan, he possessed discretionary authority or discretionary responsibility in the administration of the Plans, and he exercised authority or control with 8
respect to the management of the Plans assets. Moreover, the financial statements for the Plans filed with the SEC provides that: the Executive Committee of Delphi s Board of Directors acts as the Plan fiduciary and, along with various officers, employees and committees, controls and manages the operation and administration of the Plans subject to the provisions of ERISA. Defendant Battenberg was one of the officers who controlled and managed the operation and administration of the Plans during the Class Period. 20. Defendant Alan S. Dawes ( Dawes ) served as Vice Chairman and Chief Financial Officer during the Class Period. Defendant Dawes was a fiduciary within the meaning of ERISA because he exercised discretionary authority or discretionary control with respect to the appointment of Plans fiduciaries and with respect to the management of the Plan, he possessed discretionary authority or discretionary responsibility in the administration of the Plans, and he exercised authority or control with respect to the management of the Plans assets. Moreover, the financial statements for the Plans filed with the SEC provides that: the Executive Committee of Delphi s Board of Directors acts as the Plan fiduciary and, along with various officers, employees and committees, controls and manages the operation and administration of the Plans subject to the provisions of ERISA. Upon information and belief, Defendant Dawes was one of the officers who controlled and managed the operation and administration of the Plans during the Class Period. 21. Defendant Michael S. Fligstein ( Fligstein ) served as Director of the Company s Pension and Welfare Benefits Plans during the Class Period. Defendant Fligstein was a fiduciary within the meaning of ERISA because he exercised discretionary authority or discretionary control with respect the management of the Plans, he possessed discretionary authority or discretionary responsibility in the administration of the Plans, and he exercised 9
authority or control with respect to the management of the Plans assets. Moreover, the financial statements for the Plans filed with the SEC provides that: the Executive Committee of Delphi s Board of Directors acts as the Plan fiduciary and, along with various officers, employees and committees, controls and manages the operation and administration of the Plans subject to the provisions of ERISA. Defendant Fligstein was one of the employees who controlled and managed the operation and administration of the Plans during the Class Period. 22. Defendant James P. Whitson ( Whitson ) served as Delphi s Chief Tax Officer during the Class Period. Defendant Whitson was a fiduciary within the meaning of ERISA because he exercised discretionary authority or discretionary control with respect to the management of the Plans, he possessed discretionary authority or discretionary responsibility in the administration of the Plans, and he exercised authority or control with respect to the management of the Plans assets. Defendant Whitson also signed the Form 5500s for the Delphi Savings-Stock Purchase Program for Salaried Employees in the United States and the Delphi Personal Savings Plan for Hourly-Rate Employees in the United States as the administrator for the Plans. Moreover, the financial statements for the Plans filed with the SEC provides that: the Executive Committee of Delphi s Board of Directors acts as the Plan fiduciary and, along with various officers, employees and committees, controls and manages the operation and administration of the Plans subject to the provisions of ERISA. Defendant Whitson was one of the employees who controlled and managed the operation and administration of the Plans during the Class Period 23. Defendant General Motors Investment Management Corporation ( GM Investment ) served as the named fiduciary and an investment advisor during the Class Period. The Plan financial reports filed with the SEC provide that Delphi s Executive Committee 10
designated General Motors Investment Management Corporation ( GM Investment ) as a named fiduciary and investment advisor to the Plans. Defendant GM Investment was a fiduciary within the meaning of ERISA because it exercised discretionary authority or discretionary control with respect to the management of the Plan, it possessed discretionary authority or discretionary responsibility in the administration of the Plans, and it exercised authority or control with respect to the management of the Plans assets. 24. The Delphi Mechatronic Board of Directors (the Mechatronic Board ). The Directors who served on the Delphi Mechatronic s Board of Directors (the Mechatronic Board ) were fiduciaries because they exercised decision-making authority regarding the appointment Delphi Mechatronic Systems Savings-Stock Purchase Program fiduciaries and the management of the Program s assets throughout the Class Period. Delphi Mechatronic acted through its Board in carrying out its Program-related fiduciary duties and responsibilities, and, thus, members of the Board were fiduciaries to the extent of their personal exercise of such responsibilities. 25. Moreover, the financial statements for the Delphi Mechatronic Systems Savings- Stock Purchase Program filed with the SEC provides that: Mechatronic s Board of Directors acts as a Program fiduciary and, along with various officers, employees and committees, controls and manages the operation and administration of the Program subject to the provisions of the Employee Retirement Income Security Act. Thus, members of the Board and certain other officers and employees exercised discretionary authority with respect to the management and administration of the Program and management and disposition of the Program s assets. Plaintiff currently does not know the identity of these Defendants. Therefore, such persons are named 11
herein as unknown John Doe Defendants 1-10. Once the identities of these are ascertained, Plaintiff will seek leave to join them under their true names. 26. The ASEC Defendants ( ASEC Defendants ). The financial statements for the ASEC Manufacturing Saving Plan filed with the SEC provides that: ASEC management controls and manages the operation and administration of the Plan. Plaintiff currently does not know the identity of these Defendants who exercised fiduciary duties on behalf of the ASEC Manufacturing Savings Plan. Therefore, such persons are named herein as unknown John Doe Defendants 11-20. Once the identities of these are ascertained, Plaintiff will seek leave to join them under their true names. THE PLANS Nature of Plans 27. The Delphi Savings-Stock Purchase Program for Salaried Employees in the United States, the Delphi Personal Savings Plan for Hourly-Rate Employees in the United States, the ASEC Manufacturing Savings Plan, and the Delphi Mechatronic Systems Savings-Stock Purchase Program (collectively, the Plans ) are defined contribution profit sharing plans, with a 401(k) feature, with separate accounts maintained for each participant. The Plans are subject to the provisions of the Employee Retirement Income Security Act of 1974 ( ERISA ). 28. The Plans are legal entities that can sue or be sued. ERISA 502(d)(1), 29 U.S.C. 1132(d)(1). However, in a breach of fiduciary duty action such as this, the Plans are neither plaintiff nor defendant. Rather, pursuant to ERISA 409, 29 U.S.C. 1109, and the law interpreting it, the relief requested in this action is for the benefit of the Plans. Stated differently, in this action, Plaintiff, who is described above, seeks relief that is inherently plan-wide. 12
Structure of Plans A. Delphi Savings-Stock Purchase Program for Salaried Employees in the U.S. and the Delphi Personal Savings Plan for Hourly-Rate Employees in the United States. 29. Delphi established the Delphi Savings-Stock Purchase Program for Salaried Employees in the United States and the Delphi Personal Savings Plan for Hourly-Rate Employees in the United States in connection with the spin-off of Delphi from General Motors Corporation ( GM ), effective on May 28, 1999. Both Plans are defined contribution plans. 30. The Executive Committee of Delphi s Board of Directors acts as the Plan fiduciary and, along with various officers, employees and committees, controls and manages the operation and administration of the Plans subject to the provisions of ERISA. The Executive Committee designated General Motors Investment Management Corporation ( GM Investment ) as a named fiduciary and investment advisor to the Plans. State Street Bank and Trust Company acts as the Plans trustee and Fidelity Investment Institutional Operations Company, Inc. ( Fidelity ) acts as the Plans record keeper. service. 31. Eligible employees may participate in the Plans upon completion of six months of 32. An eligible participant employed by Delphi (an Employee ) may elect to contribute to the Plans to the extent permissible by the Internal Revenue Service ( IRS ) as follows: Employees hired on or after January 1, 2001 are automatically enrolled in the Plans at a 3% pre-tax contribution rate upon meeting the required eligibility; An Employee may defer up to 40% (60% effective January 1, 2004) of an Employee s eligible salary, as defined in the Plans, on a pre-tax and/or after-tax basis; Employees may make catch-up contributions up to IRS limits; 13
An Employee may elect to have Delphi contribute 100% of the cash portion of the Incentive Compensation Plan for Salaried Employees in the United States to the Plans; An Employee may elect to have Delphi contribute to the Plans 100% of the Flexible Compensation Payment (for those eligible employees hired prior to January 1, 2001). 33. Employer Contributions Effective May 1, 2001, the Plans was amended to suspend Delphi s matching contribution for all participants. Effective February 1, 2003, the Plans was amended to reinstate Delphi s matching contributions to a level of $.30 per dollar of Employee basic savings up to 7% on annual base salary for all eligible salaried employees. Delphi s matching contribution is invested entirely in the Delphi Common Stock Fund. Such contributions must remain invested in this fund through December 31 of the calendar year in which the contributions were made, at which time Employer contributions may be transferred by the participant to other available investment options. 34. An Employee hired on or after January 1, 1993 and prior to January 1, 2001 receives additional monthly Employer contributions equal to 1% of the Employee s eligible salary. These contributions are provided because such Employee will receive different postretirement benefit treatment than an Employee hired prior to January 1, 1993. Such contributions are credited to the Employee s account whether or not the Employee elects to participate in the Plans. 35. From April 2002 to February 1, 2003, participants could exchange funds required to be invested in the Delphi Common Stock Fund immediately after contribution. Funds exchanged prior to the expiration of a 30-day holding period were charged a 1% redemption fee. 36. Employee and Employer contributions and earnings (losses) thereon vest immediately on allocation to the Employee s account, except for Employees with less than three 14
years of credited service for whom Employer contributions and earnings thereon vest on January 1, following the calendar year in which such contributions or earnings are credited. Effective January 1, 2002, the Plans was amended to reduce the vesting period from five years to three years. Forfeitures are used to offset future Employer contributions. 37. Participants may exchange funds between investment options on any business day. During the Required Retention Period, this provision does not apply to either Employee or Employer contributions required to be invested in the Delphi s Common Stock Fund. 38. A participant may withdraw funds from his or her account at any time after attaining age 59-1/2 without penalty subject to the Required Retention Period, as defined by the Plans document. Prior to age 59-1/2, employee after-tax savings may be withdrawn at any time without penalty. However, prior to age 59-1/2, pre-tax savings may only be withdrawn upon termination of employment, retirement, death, total and permanent disability, or financial hardship and a 10% additional tax may apply. Withdrawals due to financial hardship are available. Prior to receiving a withdrawal for financial hardship, a participant previously must have taken all available asset distributions, withdrawals and loans under all applicable plans maintained by Delphi. 39. The amount that may be withdrawn for a financial hardship is limited as defined in the Plans. The Funds that represent a financial hardship withdrawal must conform to conditions required by the IRS. A participant who receives a hardship distribution shall have his or her contributions to the Plans suspended for 12 months following the distribution as required by the law. 40. One-half of an Employee s basic savings and all of Delphi s contributions are required to be invested in the Delphi Common Stock Fund during the Required Retention Period. 15
The remaining portion of an Employee s contributions shall be invested at the employee s direction, in 1% increments, in any of the following investment options: Delphi Common Stock Fund Under this investment option, contributions are invested by the Trustee in Delphi common stock. Each unit represents a proportionate interest in all of the assets of the respective Delphi Common Stock Fund. The number of units credited to each participant s account within an applicable plan will be determined by the amount of the participant s contributions and the purchase price of a unit in the Delphi Common Stock Fund. The value of each participant s account is determined each business day by the number of units to the participant s credit, multiplied by the current unit value. The return on a participant s investment is based on the value of units, which, in turn, is determined by the market price of Delphi common stock and the amount of any dividends paid thereon. Promark Funds These investment options include many investment funds managed by General Motors Trust Company ( GMTC ), a New Hampshire State Charter Trust Company. Each of the funds has a unique objective and investment strategy. To pursue their objectives, GMTC fund managers invest in a wide variety of investments. Fidelity Mutual Funds These investment options include many different mutual funds managed by Fidelity Investments. Each mutual fund has a unique objective and investment strategy. To pursue their objectives, the mutual fund managers invest in a wide variety of investments. B. Delphi Mechatronic Systems Savings-Stock Purchase Program. 41. Delphi Mechatronic Systems, Inc. ( Mechatronic ) established the Delphi Mechatronic Systems Savings-Stock Purchase Program (the Program ) on June 1, 2001, a defined contribution plan, in connection with the formation of the Mechatronic and the acquisition of the Vehicle Switch/Electronics Division of Eaton Corporation by Delphi Corporation ( Delphi ) on March 30, 2001 (the Acquisition ). 42. Mechatronic s Board of Directors acts as a Program fiduciary and, along with various officers, employees and committees, controls and manages the operation and administration of the Program subject to the provisions of the Employee Retirement Income 16
Security Act of 1974, as amended ( ERISA ). Mechatronic s Board of Directors designated General Motors Investment Management Corporation ( GMIMCo ) as a named fiduciary and investment advisor to the Program. State Street Bank and Trust Company ( State Street or the Trustee ) acts as the trustee of the Program and Fidelity Investment Institutional Operations Company, Inc. ( Fidelity ) acts as the record keeper of the Program. Certain costs of program administration are paid by the Mechatronic and Delphi. 43. An employee compensated by salary or commission shall become eligible to participate and accumulate savings on the first day of the month following the completion of six months of service with the Mechatronic. Employees who transitioned from Eaton Corporation in connection with the Acquisition and were already eligible to participate in the Eaton Corporation Share Purchase and Investment Plan on March 30, 2001 were eligible to participate in the Program on June 1, 2001. 44. An employee compensated by salary or commission shall become eligible to participate and accumulate savings on the first day of the month following the completion of six months of service with the Company. Employees who transitioned from Eaton Corporation in connection with the Acquisition and were already eligible to participate in the Eaton Corporation Share Purchase and Investment Plan on March 30, 2001 were eligible to participate in the Program on June 1, 2001. 45. As a result of the Economic Growth and Tax Relief Reconciliation Act of 2001, effective April 1, 2002, participants may now defer up to 40% of an Employee s eligible salary (including after-tax contributions and elective deferrals), as defined in the Program, up to current Internal Revenue Service ( IRS ) contribution limits. The Program was amended to adopt this 17
change on April 15, 2002. Prior to this amendment, participants could contribute up to 20% of base pay through payroll deductions, as defined in the Program. 46. Effective April 1, 2003, one half of the first 7% of base compensation contributions by the participant are automatically invested in the Delphi Common Stock Fund (previously 6%). Such contributions along with net earnings on those amounts must remain invested in this fund through the last day of the Program year in which the contributions were made, at which time they may be transferred by the participant to other available investment options. Participants may also contribute amounts representing rollover distributions from other qualified plans and catch-up contributions up to IRS limits. 47. Effective April 1, 2003, Mechatronic contributes an amount equal to 30% of the first 7% of base compensation contribution by the participant (previously, 25% of the first 6%). Mechatronic s matching contribution is invested entirely in the Delphi Common Stock Fund. Such contributions along with net earnings on those amounts must remain invested in this fund through the last day of the Program year in which the contributions were made, at which time employer contributions may be transferred by the participant to other available investment options. 48. Each participant s account is credited with the participant s contributions and withdrawals, as applicable, and allocations of (a) Mechatronic s contributions and (b) Program earnings. Allocations are based on participant earnings or account balances, as defined. The benefit to which a participant is entitled is the benefit that can be provided from the participant s account. 49. Participants are immediately vested in their contributions plus actual earnings thereon. Vesting in the Company s contribution plus actual earnings / (losses) thereon is based 18
on years of credited service. A participant is 100% vested in Mechatronic s contributions after three years of credited service if last hour of service is after December 31, 2001 or five years of credited service if before December 31, 2001. Also, if a participant is actively employed on the last day of the Program year, the participant s employer matching contributions made during that Program year and net earnings on them shall become fully vested. 50. A participant may direct employee contributions in whole percentage increments to any of the following options as described by the funds prospectus: Delphi Common Stock Fund Under this investment option, contributions are invested by the Trustee in Delphi common stock. Each unit represents a proportionate interest in all of the assets of the respective Delphi Common Stock Fund. The number of units credited to each participant s account within an applicable plan will be determined by the amount of the participant s contributions and the purchase price of a unit in the Delphi Common Stock Fund. The value of each participant s account is determined each business day by the number of units to the participant s credit, multiplied by the current unit value. The return on a participant s investment is based on the value of units, which, in turn, is determined by the market price of Delphi common stock and the amount of any dividends paid thereon. Promark Funds This investment option is comprised of many investment funds managed by General Motors Trust Company ( GMTC ), a New Hampshire State Charter Trust Company. Each of the funds has a different objective and investment strategy. To pursue their objectives, GMTC fund managers invest in a wide variety of investments. Fidelity Mutual Funds This investment option is comprised of many different mutual funds managed by Fidelity Investments. Each mutual fund has a different objective and investment strategy. To pursue their objectives, the mutual fund managers invest in a wide variety of investments. C. ASEC Manufacturing Savings Plan. 51. The ASEC Manufacturing Saving Plan is a defined contribution plan covering all full-time employees and eligible part-time employees who have one year of service with ASEC 19
Manufacturing, a subsidiary of Delphi, and currently doing business as Delphi Catalyst ( ASEC ). ASEC management controls and manages the operation and administration of the Plan. State Street Bank and Trust Company ( State Street or the Trustee ) acts as the trustee of the Plan and Fidelity Investment Institutional Operations Company, Inc. ( Fidelity ) acts as the record keeper of the Plan. General Motors Investment Management Corporation ( GM Investment ) is a fiduciary and investment advisor to the Plan. The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974, as amended ( ERISA ). Certain costs of Plan administration are paid by ASEC. 52. Effective January 1, 2002, participants may defer up to 25% of an Employee s eligible salary (before and after-tax), as defined in the Plan, up to current Internal Revenue Service ( IRS ) contribution limits. Participants may also contribute amounts representing rollover distributions from other qualified plans and catch-up contributions up to IRS limits. 53. Under the provisions in effect prior to June 1, 2003, after the participant completes one year of credited service in the Plan, the Company contributes an amount equal to 50% of the first 8% of base compensation contribution by the participant during the next 60 months of participation in the Plan. Subsequently, the Company s contributions equal 100% of the first 8% of base compensation contributed by the participant. Effective June 1, 2003, the committee approved an amendment to suspend employer-matching contributions. The Plan was amended to adopt this change on June 1, 2003. Effective April 1, 2004, the Plan was amended to reinstate the Company s matching contributions to a level of 25% of the first 8% of base compensation contribution by the participant. 54. Each participant s account is credited with the participant s contributions and withdrawals, as applicable, and allocations of ASEC s contributions and Plan earnings. 20
Allocations are based on participant earnings or account balances, as defined. The benefit to which a participant is entitled is the benefit that can be provided from the participant s account. 55. Participants are immediately vested in their contributions plus actual earnings thereon. Vesting in ASEC s contributions plus actual earnings (losses) thereon is based on years of credited service. Effective January 1, 2002, the Plan was amended such that a participant is 100 percent vested in ASEC s contributions after three years of credited service. 56. Company contributions are made to the funds on the same basis as the employee contributions. A participant may direct employee contributions in whole percentage increments to any of the options described below. Participants may transfer their balances or change their investment options daily. 57. A participant may direct employee contributions in whole percentage increments to any of the following options as described by the funds prospectus: Delphi Common Stock Fund Under this investment option, contributions are invested by the Trustee in Delphi common stock. Each unit represents a proportionate interest in all of the assets of the respective Delphi Common Stock Fund. The number of units credited to each participant s account within an applicable plan will be determined by the amount of the participant s contributions and the purchase price of a unit in the Delphi Common Stock Fund. The value of each participant s account is determined each business day by the number of units to the participant s credit, multiplied by the current unit value. The return on a participant s investment is based on the value of units, which, in turn, is determined by the market price of Delphi common stock and the amount of any dividends paid thereon. Promark Funds This investment option is comprised of many investment funds managed by General Motors Trust Company ( GMTC ), a New Hampshire State Charter Trust Company. Each of the funds has a different objective and investment strategy. To pursue their objectives, GMTC fund managers invest in a wide variety of investments. Fidelity Mutual Funds This investment option is comprised of many different mutual funds managed by Fidelity Investments. Each mutual 21
fund has a different objective and investment strategy. To pursue their objectives, the mutual fund managers invest in a wide variety of investments. Honeywell Common Stock Fund The fund was formerly known as the Allied Signal Common Stock Fund and invested primarily in Honeywell International Inc. common stock. The fund was liquidated as of September 20, 2002, in accordance with the Plan amendment dated June 26, 2002. Participants with amounts invested in that fund had the ability to transfer such amounts to one of the other investment funds maintained under the Plan. If a participant failed to make an investment election regarding amounts in the Honeywell Common Stock Fund, the amounts invested in that fund were transferred to a short-term income or similar investment fund. DEFENDANTS FIDUCIARY STATUS 58. During the Class Period, all of the Defendants acted as fiduciaries of the Plans pursuant to 3(21)(A) of ERISA, 29 U.S.C. 1002(21)(A) and the law interpreting that section. The Defendants all had discretionary authority with respect to the management of the Plans and/or the management or disposition of the Plans assets, and had discretionary authority or responsibility for the administration of the Plans. 59. During the Class Period, all of the Defendants acted as fiduciaries of the Plans pursuant to 3(21)(A) of ERISA, 29 U.S.C. 1002(21)(A), and the law interpreting that section. 60. ERISA requires every plan to provide for one or more named fiduciaries who will have authority to control and manage the operation and administration of the plan. 402(a)(1), 29 U.S.C. 1102(a)(1). 61. ERISA treats as fiduciaries not only persons explicitly named as fiduciaries under 402(a)(1), but also any other persons who act in fact as fiduciaries, i.e., perform fiduciary functions. Section 3(21)(A)(i) of ERISA, 29 U.S.C. 1002(21)(A)(i), provides that a person is a fiduciary to the extent... he exercises any discretionary authority or discretionary control respecting management of such plan or exercises any authority or control respecting 22
management of disposition of its assets.... During the Class Period, Defendants performed fiduciary functions under this standard, and thereby also acted as fiduciaries under ERISA. 62. The Plans and their assets are administered and managed by the Defendants, along with several other unnamed fiduciaries who were officers and employees of the Delphi, Mechatronics and ASEC. 63. During the Class Period, Defendants direct and indirect communications with the Plan s participants included statements regarding investments in Company Stock. Upon information and belief, these communications included, but were not limited to, SEC filings, annual reports, press releases, Company presentations made available to the Plans participants via the Company s website and Plan-related documents which incorporated and/or reiterated these statements. Defendants also acted as fiduciaries to the extent of this activity. 64. In addition, under ERISA, in various circumstances, non-fiduciaries who knowingly participate in fiduciary breaches may themselves be liable. To the extent any of the Defendants are held not to be fiduciaries, they remain liable as non-fiduciaries who knowingly participated in the breaches of fiduciary duty described below. CLASS ACTION ALLEGATIONS 65. Plaintiff brings this action as a class action pursuant to Rules 23(a), (b)(1), (b)(2) and (b)(3) of the Federal Rules of Civil Procedure on behalf of himself and the following class of persons similarly situated (the Class ): Class because: All persons who were participants in or beneficiaries of the Plans at any time between May 28, 1999 and the present (the Class Period ) and whose accounts included investments in Delphi Stock. 66. Plaintiff meets the prerequisites of Rule 23(a) to bring this action on behalf of the 23
67. Numerosity. The members of the Class are so numerous that joinder of all members is impracticable. While the exact number of Class members is unknown to Plaintiff at this time, and can only be ascertained through appropriate discovery, Plaintiff believes there are, at a minimum, thousands of members of the Class who participated in, or were beneficiaries of, the Plan during the Class Period. 68. Commonality. Common questions of law and fact exist as to all members of the Class and predominate over any questions affecting solely individual members of the Class. Among the questions of law and fact common to the Class are: (a) (b) whether Defendants acted as fiduciaries; whether Defendants breached their fiduciary duties to the Plans, Plaintiff and members of the Class by failing to act prudently and solely in the interests of the Plans, and the Plans participants and beneficiaries; (c) (d) whether Defendants violated ERISA; and whether the Plan and, therefore, members of the Class have sustained damages and, if so, what is the proper measure of damages. 69. Typicality. Plaintiff s claims are typical of the claims of the members of the Class because the Plans, as well as the Plaintiff and the other members of the Class, each sustained damages arising out of the Defendants wrongful conduct in violation of federal law as complained of herein. 70. Adequacy. Plaintiff will fairly and adequately protect the interests of the members of the Class and has retained counsel competent and experienced in class action, complex, and ERISA litigation. Plaintiff has no interests antagonistic to or in conflict with those of the Class. 24
71. Class action status in this ERISA action is warranted under Rule 23(b)(1)(B) because prosecution of separate actions by the members of the Class would create a risk of adjudications with respect to individual members of the Class which would, as a practical matter, be dispositive of the interests of the other members not parties to the actions, or substantially impair or impede their ability to protect their interests. 72. Class action status is also warranted under the other subsections of Rule 23(b) because: (i) prosecution of separate actions by the members of the Class would create a risk of establishing incompatible standards of conduct for Defendants; (ii) Defendants have acted or refused to act on grounds generally applicable to the Plans and the Class, thereby making appropriate final injunctive, declaratory, or other appropriate equitable relief with respect to the Class as a whole; and (iii) questions of law or fact common to members of the Class predominate over any questions affecting only individual members and a class action is superior to the other available methods for the fair and efficient adjudication of this controversy. DEFENDANTS CONDUCT A. Delphi Stock Was an Imprudent Investment for the Plans 73. During the Class Period, Defendants knew or should have known Delphi s business was not performing nearly as well as represented and therefore Delphi stock was an imprudent investment for the Plans. 74. Among other things, Delphi s operations, net income, EPS and cash flows from operations were overstated during the Class Period, in violation of GAAP and SEC rules, due to several accounting manipulations, including improper accounting for certain transactions involving receipt rebates, credits or other lump-sum payments from suppliers ( Rebate Transactions ) and off-balance sheet financing of certain indirect materials and inventory. The 25
Company also engaged in improper accounting for off-balance sheet transactions, admitting that its cash flows from operating activities were overstated by $200 million. 75. Delphi also admitted that the Class Period results were false, were improperly reported and the Company will restate the results. Delphi originally reported the following financial results during the Class Period: 2000 2001 2002 2003 Net Sale $29.1B $26.1B $27.4B $28.1B Cash Flows from Operations $268M $1.36B $2.07B $737M Net Income (Loss) $106B $(370)M $342M $(56)M Continuing Operations $1.94 $0.39 $0.92 $0.62 76. Delphi included these results in press releases and SEC filings, including Forms 10-Q for the interim results and Forms 10-K for the annual results. The SEC filings represented that the financial information was a fair statement of its financial results and that the results were prepared in accordance with GAAP. These representations were false and misleading as to the financial information reported because it was neither prepared in conformity with GAAP nor a fair presentation of the Company s operations due to the improper accounting described herein, causing the financial results to be presented in violation of GAAP and SEC rules. 77. GAAP are those principles recognized by the accounting profession as the conventions, rules and procedures necessary to define accepted accounting practice at a particular time. Regulation S-X (17 C.F.R. 210.4-01(a)(1)) states that financial statements filed with the SEC that are not prepared in compliance with GAAP are presumed to be misleading and inaccurate. Regulation S-X requires that interim financial statements must also comply with GAAP, with the exception that they need not include disclosure that would be duplicative of disclosures accompanying annual financial statements. 17 C.F.R. 210.10-01(a). 26
78. Moreover, pursuant to 13(b)(2) of the Exchange Act, Delphi was required to: (A) make and keep books, records, and accounts, which, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the issuer; (B) devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances that: (i) transactions are executed in accordance with management s general or specific authorization; (ii) transactions are recorded as necessary (I) to permit the preparation of financial statements in conformity with generally accepted accounting principles... 79. GAAP, as set forth in Financial Accounting Standards Board ( FASB ) Statement of Financial Accounting Standards ( SFAS ) No. 95, Statement of Cash Flows, states in part: Financing activities include obtaining resources from owners and providing them with a return on, and a return of, their investment; borrowing money and repaying amounts borrowed, or otherwise settling the obligation; and obtaining and paying for other resources obtained from creditors on long-term credit. 80. During the Class Period, Delphi improperly classified some $200 million from off-balance sheet financing transactions as cash flows from operations, when, according to GAAP, they should have been classified as cash flows from financing. 81. Delphi also inflated income by at least $61 million in 2001, by recognizing improperly income from Rebate Transactions. This had the intended effect of misleading the market as to Delphi s profitability. 82. GAAP, as described by FASB Concepts No. 5 states: Further guidance for recognition of revenues and gains is intended to provide an acceptable level of assurance of the existence and amounts of revenues and gains before they are recognized. Revenues and gains of an enterprise during a period are generally measured by the exchange values of the assets (goods or services) or liabilities involved, and recognition involves consideration of two factors, (a) being realized or realizable and (b) being earned, with sometimes one and sometimes the other being the more important consideration. 27