1. ERISA EMPLOYER STOCK CLASS ACTIONS PLUS EMPLOYMENT & FIDUCIARY ISSUES SYMPOSIUM April 13, 2005 Doug Hinson – Alston & Bird Leader, ERISA Litigation Practice Group

2. The Plaintiffs’ Securities Class Action Bar Has Discovered ERISA –70-80 employers hit with ERISA Class Action suits –Most “follow” in the wake of a Securities Class Action –Attempt to get around Private Securities Litigation Reform Act of 1995 Pleading Standards Automatic Stay Lead Plaintiff/Counsel selection –A new pot of gold – often a separate/additional policy or tower from the D&O policy/tower

3. Nature Of The Claims Parties – –Plaintiff – any “participant” in 401k Plan – current or former employee –Defendants – “fiduciaries” Committees/individuals responsible for plans/investments Whoever appoints same – power to appoint comes with a fiduciary duty to monitor Officers/Directors involved in communications related to Employer Stock or the business/fortunes of the Company “Directed” Trustees

4. Nature Of The Claims (cont) BREACH OF FIDUCIARY DUTY – BOTH LOYALTY AND PRUDENCE –Employer Stock is an imprudent investment option Never should have been selected If Plan requires – should have overridden Plan –Communications – both misrepresentation and failures to disclose Misrepresentations – lying is inconsistent with fiduciary duty Duty to disclose – anything a fiduciary knows “might be harmful” –Whether duty to participants or other fiduciaries

5. Nature Of The Claims (cont) Relief Requested –“Harm to the Plan” Difference between stock performance and performance of other “prudent” investment – usually the best performing plan option during class period Prejudgment Interest and Attorneys’ Fees –Injunctive/Equitable relief Removal of fiduciaries Removal of trading restrictions Education/Communication

6. Nature of the Defenses Whether Defendant was a “fiduciary” or was acting as such –“Named Fiduciaries” v “Functional Fiduciaries” –“Two Hats Rule” – must be wearing fiduciary hat when taking action at issue –Plan Sponsor activities – establishing Plan terms or benefits/ amending same

7. Nature of the Defenses (cont) No Duty to Disclose under ERISA –Cannot selectively disclose – Reg FD –Disclosure to Market – price adjusts – no harm from failure to disclose No Duty to Violate Securities Laws No Duty to Foresee the Future –Absent inside information – no way to predict future stock price –Presumption of Prudence – statutory exemption to the usual duty to diversify and prudence (to the extent it would require diversification) with regard to employer securities

8. The Department of Labor’s View –Filed an Amicus brief in Enron on the side of the Plaintiffs Those with the power to appoint have a duty to monitor, and this may require disclosure of inside information to fiduciaries and/or overriding the fiduciaries’ decisions

9. The Department of Labor’s View (cont) –Fiduciaries have a duty to disclose if required to protect participants from “misstatements” or “misleading information” Duty to disclose “arises only in those circumstances where material information is essential to protect the interests of the beneficiaries” – “critical threat” – “extreme impact”

10. The Department of Labor’s View (cont) –Securities laws do not insulate fiduciaries from such claims Could publicly disclose information or alert regulators Could “abstain” – avoid buying additional stock by eliminating it as an option –Fiduciaries have a duty to override Plan terms and/or Participant Directions if they know they are imprudent Even in an ESOP, fiduciaries ultimately control whether to invest in employer securities and thus make a fiduciary decision But DOL recognized that a significant drop in the price is not alone sufficient – must have some inside information or “extraordinary circumstances” to deem publicly traded stock imprudent

11. KEY ISSUES/TRENDS Motions to Dismiss –Fiduciary status –Presumption of Prudence –Duty to Disclose Class Certification –Communications Claims v. Prudence Claims –502(a)(2) v. 502(a)(3) Summary Judgment –WorldCom – directed trustee

12. SETTLEMENTS The Good –Ikon – agreed to amend the plan to allow participants to sell stock – relatively small amount of cash for attorneys’ fees –Louisiana Pacific – agreed to put investment policy in place and provide new education materials – less than $400,000 in attorneys’ fees The (not too) Bad –RiteAid – approximately $10 million –Providian – approximately $8.5 million The Ugly –Global Crossing – approximately $80 million –Lucent – approximately $70 million –Enron – approximately $85 million Average (per Cornerstone Research): approximately $30 million

13. WHAT TO LOOK FOR Plan Design –Does the Plan hold employer stock? –What does the Plan say about the stock? Does it require participants to hold stock? Does it require Plan to offer stock? Is the stock held in an ESOP within the 401k Plan? Appointing Process – Reporting Process –Is the Plan clear on who the fiduciaries are – what their role/responsibility is? –Is it clear who appoints the fiduciaries? –Is there a reporting/monitoring function in place?

14. WHAT TO LOOK FOR ( cont) Communications –Plan prospectus for Employer Stock – do they incorporate public filings by reference into the Summary Plan Description (SPD)? –Who is responsible for Plan communications? –Do they distinguish between communications to Participants v. Employees?

15. WHAT TO LOOK FOR ( cont) Operations –Is there an Investment Policy in place to guide the fiduciaries? –Do the fiduciaries review Employer Stock like all other investment options? –Have they kept good minutes/records of their monitoring activities?