Delphi stockholder alleges board, management in breach of fiduciary duty with Chapter 11 filing

By Caroline Salls

Pittsburgh, March 16 - Delphi Corp. stockholder Appaloosa Management LP alleged that Delphi's management and board of directors are in breach of their fiduciary duties in connection with the company's bankruptcy filing, according to a Thursday filing with the Securities and Exchange Commission.

According to an Appaloosa letter to Delphi's board of directors, "there has been no indication that any material adverse event occurred between Aug. 2, 2005 (when a dividend was paid) and Oct. 8, 2005 (when the Chapter 11 petitions were filed) that would justify the onset of bankruptcy."

Appaloosa also said Delphi's management and board of directors have authorized the company to take actions "that are inconsistent with their duty to maximize value and prevented [Delphi's] stockholders from being properly represented."

Specifically, Appaloosa said Delphi:

• Has repeatedly overstated the amount of its labor-related obligations by failing to take into account the fact that many of the benefits can be terminated without liability and Delphi's legal duty to provide them expires with the collective bargaining agreement in late 2007;

• Has improperly characterized itself as grossly insolvent by relying on a superficial balance sheet analysis and without performing an appropriate enterprise valuation based on a properly-vetted business plan presented after the assessment of alternative reorganization strategies;

• Has included a reservation of 10% of its stock in the key employee compensation program for management, putting management in direct conflict with Delphi's stockholders;

• Canceled its annual stockholders meeting for 2005 in violation of Delaware law; and

• Has thwarted the stockholders' efforts to be heard in the Chapter 11 case by opposing the appointment of an official equityholders committee.

Appaloosa asked the board to schedule an annual stockholders' meeting as soon as possible and said it intends to elect a slate of one to four directors to the board at the meeting.

According to the filing, if Delphi's board does not schedule a meeting, Appaloosa will ask the court to direct it to do so and start an action for damages arising from the alleged breaches of fiduciary duty.

Delphi, a Troy, Mich.-based automotive electronics manufacturer, filed for bankruptcy on Oct. 8, 2005 in the U.S. Bankruptcy Court for the Southern District of New York. Its Chapter 11 case number is 05-44481.

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