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UNITED STATES DISTRICT COURTSOUTHERN DISTRICT OF NEW YORK--------------------------------------------- - --------MURRAY CAPITAL MANAGEMENT, INC .
V.
Plaintiff,
.H (a : )
EXIDE TECHNOLOGIES, DEUTSCHE BANKSECURITIES, INC ., J. TIMOTHY GARGAROand CRAIG MUHLHAUSER,
Defendants .
05 Civ.
COMPLAINT
Ju ry Trial Demanded
--------------------------------------------- -----------------------X
Plaintiff, by its undersigned counsel, alleges upon personal knowledge as to its own
acts and upon information and belief, based upon the investigation of counsel, a review o f
public announcements, Securities and Exchange Commission filings, press releases, offering
documents and media repo rts, as follows:
Nature of the Actio n
1 . Plaintiff, Murray Capital Management, Inc ., brings this action against Exide
Technologies, Deutsche Bank Securities, Inc ., J . Timothy Gargaro and Craig Muhihauser for
violations of the Securities Exchange Act of 1934 (the "Exchange Act") and for common law
fraud, negligent misrepresentation , breach of fiduciary duty, negligence and unjus t
enrichment.
2 . In March 2005, Exide was attempting to complete a $350 million privat e
placement of senior notes and convertible securities . Defendant Deutsche Bank Securitie s
served as the lead investment banker in connection with that private placement . At the time
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of the offering, Defendants knew, or should have known, that Exide was in serious danger o f
defaulting on financial covenants under a $365 million senior secured credit facility ,
including a covenant requiring minimum EBITDA of $122 mil lion for the fiscal year ending
March 31, 2005 . Deutsche Bank AG, the parent company of Defendant Deutsche Bank
Securities, was both the agent bank and a lender under that senior credit facility . At the time
they were marketing the private placement - which was just weeks before the close o f
Exide's fiscal year - Defendants had ample information to determine that Exide's earning s
for that fiscal year were going to fall far short of that required under the senior credit facility .
Indeed, Exide later reported that its actual EBITDA for that fiscal year ending March 31 ,
2005 was only $105 .7 million, more than $16 million less than that required under the credi t
facility's covenants . Not only did Defendants conceal from Plaintiff (and other purchasers o f
the private placement notes) Exide's actual financial performance, Defendants made
affirmative statements to falsely signal that Exide's earnings would comfortably exceed the
minimums required under the senior credit facility . These material omissions an d
misrepresentations were made to induce Plaintiff and others to purchase the privat e
placement notes .
3 . Relying on Defendants' false representations and material omissions, Plaintif f
invested $5,000,000 in Exide's private placement on March 15, 2005 . In addition, at various
times between January 2005 and March 2005, Plaintiff purchased 76,344 shares of Exide' s
common stock . On May 16, 2005, only two (2) months after the private placement was
complete - and after Exide had replaced short term debt under the senior credit facility wit h
longer-term financing secured with the private placement - Exide finally revealed the truth
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about its precarious financial condition, including the substantial shortfall in its earnings fo r
the fiscal year ending March 31, 2005 . As Defendants knew it would, this news caused th e
value of Exide's securities to fall precipitously . Exide's stock opened down 48% on May 17 ,
2005, the day following the announcement . The Exide notes purchased by Plaintiff only two
months earlier lost more than 30% of their value on that same day .
4. Plaintiff subsequently liquidated all of its Exide securities, suffering damages o f
more than $2 million on its investments, $1 .4 million of which was attributable to losses
sustained on Plaintiff's purchase of the notes underwritten by Deutsche Bank Securities .
The Parties
5 . Plaintiff Murray Capital Management, Inc . ("Murray Capital") is a Delaware
corporation with a principal place of business at 680 Fifth Avenue, in the County and Stat e
of New York .
6. Murray Capital 's business is investment management .
7. Defendant Exide Technologies ("Exide" or the "Company") is a Delaware
corporation headquartered at 13000 Deerfield Parkway, Building 200, Alpharetta, Georgia .
8. Exide produces and recycles lead-acid batteries . It does business in the Unite d
States, in this District, and throughout the world .
9. Defendant Deutsche Bank Securities, Inc . ("Deutsche Bank Securities") is a
Delaware corporation with a principal place of business at 60 Wall Street, County and Stat e
of New York
10 . Deutsche Bank Securities is the t_J ited States investment banking and securitie s
arm of German banking company Deutsche Bank AG ("Deutsche Bank"), its parent
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company .
11 . Defendant Craig Muhlhauser was President and Chief Executive Officer o f
Exide until his resignation in April 2005 .
12. Defendant J. Timothy Gargaro was, at all relevant times, Chief Financia l
Officer and Executive Vice President of Exide . (Defendants Muhlhauser and Gargaro ar e
hereinafter referred as the "Individual Defendants .")
Jurisdiction and Venu e
13. The claims asserted in this action arise under Sections 10(b) and 20(a) of th e
Exchange Act (15 U .S .C . § 78j(b) and 78t (a)), Rule lOb-5 promulgated thereunder by th e
Securities and Exchange Commission ("SEC") (17 C .F . R. § 240 . 10b-5), and the common law
of the State of New York.
14 . This Court has jurisdiction over the subject matter of this action pursuant to 2 8
U.S .C. §§1331, 1337, 1367 and Section 27 of the Exchange Act, (15 U .S .C. §78aa) ,
15. Venue is proper in this District pursuant to Section 27 of the Exchange Act an d
28 U.S.C . § 1391(b) and (d) because offers and sales of Exide securities at issue in this actio n
occurred in this District . In addition, Defendants are located in, conduct substantial busines s
in, or have substantial contacts with this District .
16. In connection with the acts alleged in this Complaint, .Defendants, directly or
indirectly, used the means and instrumentalities of interstate commerce, including, but no t
limited to, the mails, interstate telephone communications and the facilities of the national
securities markets .
SUBSTANTIVE ALLEGATIONS
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Exide's Reporting Requirements Underthe Senior Secured Credit Facilit y
17. Exide emerged from Chapter 11 bankruptcy on May 5, 2004 . Since that time ,
Exide has been heavily dependent on debt financing to support its operations .
18. Part of that debt financing was a $365 million senior secured credit facility (the
"Senior Credit Facility") obtained by Exide pursuant to a Credit Agreement with severa l
lenders entered into on or about May 4, 2004 ("Credit Agreement") .
19. Deutsche Bank was a lender and the agent bank under the Senior Credi t
Facility .
20 . The Credit Agreement requires Exide to comply with several financia l
covenants, including : (1) maintaining a specified ratio of debt to equity (the "Leverage Ratio
Covenant") and (2) achieving minimum consolidated earnings before interest, taxes ,
depreciation and amortization ("EBI.TDA") (the "EBITDA Covenant") .
21 . The Credit Agreement requires Exide to provide monthly reports to Deutsche
Bank consisting of consolidated balance sheet and related consolidated statements of income ,
retained earnings and cash flows .
22. As the agent bank, Deutsche Bank AG furnishes the monthly financial report s
to each of the lenders .
Defendants' False and Misleading Statementsand Plaintiff's Purchase of Exide Securities
23 . On November 15, 2004, Exide issued a press release announcing its results fo r
the second quarter of fiscal 2005 (the period ended September 30, 2004) . The release state d
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nothing to signal the serious financial challenges that were then facing Exide . Rather, it
suggested that those challenges were largely behind it, stating in relevant part :
Consolidated net sales for the second quarter of fiscal 2005 rose8 .5% to $637.6 million from $587 .4 million in the secondquarter of fiscal 2004 . Quarterly net sales results benefited fromfavorable currency exchange rates compared to the prior yearand the effect of the Company's lead-related pricing actions .
Consolidated net loss for the second quarter of fiscal 2005,including restructuring costs of $4 .8 million, reorganizationcosts of $1 .7 million and gain on revaluation of warrantsliability of $12 .1 million, was $17 .1 million, or $0 .68 per share,compared to a net loss of $15 .7 million, or $0.57 per share, inthe second quarter of fiscal 2004, including restructuring costsof $4.8 million and reorganization costs of $15 .7 million . Netloss as adjusted for these items was $22 .7 million for the secondquarter of fiscal 2005, compared to net income as adjusted of$4 .8 million for the second quarter of fiscal 2004 .
Consolidated net sales for the first half of fiscal 2005 rose 6 .7%to $1 .25 billion from $1 .17 billion in the first half of fiscal 2004 .
Consolidated net income for the first half, including Fresh Startaccounting adjustments, restructuring costs, reorganizationitems, gain on revaluation of warrants liability, gain on thedischarge of liabilities subject to compromise and cumulativeeffect of change in accounting principle was $1 .77 billioncompared to a net loss of $54 .3 million in the first half of 2004 .
Net loss as adjusted for these items was $48 .1 million in the firsthalf of fiscal 2005 compared to a net loss of $7 .1 million in thefirst half of fiscal 2004 .
24. Defendant Muhlhauser , Exide 's CEO at the time , stated in an upbeat pres s
release issued that same day that : "In the second half, we believe the Company will realiz e
additional benefits from the lead hedging, pricing actions, restructuring and cost reductions
implemented in the first half of fiscal year 2005 to mitigate the impact of higher lead prices . "
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25 . The same day, November 15, 2004, Exide filed its second quarter 2005 repor t
on a Form 10-Q with the SEC in which it reiterated the results stated in the press release an d
stated the following with respect to the Senior Credit Facility :
The Credit Agreement requires the Company to comply withfinancial covenants with respect to certain ratios and tests, asdefined in the Credit Agreement, including interest coverage,leverage, EBITDAR, asset coverage and capital expenditures .Principally as a result of the dramatic increase in lead costs yearon year and the resultant adverse impact upon the Company'sresults, in November 2004 the Company was required to obtainamendments to certain financial covenants with respect toEBITDAR and leverage contained in the Credit Agreement . Inaddition, the Credit Agreement has been amended with respectto the treatment of proceeds from insurance recoveries .Although there can be no assurances , the Company believes,taking into account the November 2004 Credit Agreementamendments and based upon its updated financial forecastsand plans, that it will comply with these covenants for theforeseeable future . [Emphasis added . ]
26. The Form 10-Q contained certifications signed by Defendants Muhlhauser an d
Gargaro representing that the quarterly report did not contain any untrue statement of a
material fact or omit to state a material fact and that the report fairly presented the financia l
condition, results of operations and cash flows of Exide .
27 . On November 16, 2004, Exide hosted an earnings conference call to discuss it s
results for the second quarter of fiscal 2005 .
28. Defendant Gargaro again stated that, based on their updated financial forecasts ,
Exide would be in compliance with the amended covenants under the Credit Agreement :
"Although there can be no assurances, we believe that taking into account thes e
amendments and based upon our updated financial forecasts and plans, we will comply
with these covenants for the foreseeable future . "
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29. During the earnings call, when pressed on that forecast, Defendant Gargar o
repeated that Exide was comfortable that its year-end performance would meet or exceed that
required under the financial covenants :
Q : The second question would just deal with the amended creditagreement which you disclose as part of the 10-Q calculation . Itlooks as if the annualized amendment to the EBITDAR totalnumbers is off by only about 10 million a quarter . And if I'mdoing my calculation right, you have generated about 47 millionin first-half EBITDAR - I think that's what you just announced .And your goal, or the bank's credit demands, are 155 millionbeginning next March. So I guess would it be fair to say thatyour expectation for the business is about 100 million --- 110million or more in EBITDAR in the second half ?
A: Let me answer that. I think it's not our objective to provideguidance, given the volatility of lead, which today is still tradingupwards of €747 per metric ton. However we feel comfortablewith the bank arrangements and the amendment that hasbeen put in -place. And the relaxing that was done in theEBITDAR calculations was basically to provide usheadroom for the volatility of lead , a world commodity thatisn't controllable by the management of the Company, exceptfor hedging strategies and pricing actions which are under ourday-to-day control . You can derive what you want from thecovenant . But that's our feeling. [Emphasis added. ]
30. During the same conference call on November 16, 2004, Defendant Muhlhauser
touted several cost-cutting initiatives Exide had implemented, assuring investors that Exid e
was "well-positioned to reap the benefits" of its lead pricing hedging and escalators in th e
second half of the year :
The second major initiative involves actions to minimize theimpact of lead price increases and volatility on our operatingearnings and cash flow. As previously indicated, the Companyworked to offset the impact of lead through base price increasesin automatic lead escalators . Because of the timing of thesepricing actions and lags associated with cost recovery throughescalators and surcharges, the benefits in the second quarte r
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were lower than we anticipated . However , we are now well-positioned to reap the financial benefits of these pricinginitiatives and we expect the impact to be more significant inour second half. [Emphasis added.]
31 . Beginning on January 13, 2005, Murray Capital made the following purchase s
of Exide common stock: January 13, 2005 - 10,000 shares at $14 .14 per share ; January 14,
2005 - 10,000 shares at $14 .23 per share ; January 20, 2005 - 10,000 shares at $13 .89 per
share; January 24, 2005 - 800 shares at $12 .88 per share ; February 8, 2005 - 1,444 shares at
$13 .75 per share .
32. As of February 8, 2005, Murray Capital held 32,244 shares of Exide .
33. On February 9, 2005, Exide issued a press release announcing a proposed
private placement of $350 million in senior notes and convertible securities (the "Offering") .
34 . Exide stated in the press release that the proceeds from the Offering would b e
used to pay down a portion of the Company's credit facilities, for general corporate purposes,
and to provide the Company with greater liquidity . The proposed offering was conditioned
upon Exide's obtaining an amendment to the Senior Credit Facility that would permit
issuance of the notes and the proposed application of the proceeds .
35 . Two (2) days later, on February 11, 2005, Murray Capital purchased a n
additional 10,000 shares of Exide at $13 .17 per share, increasing its holdings to 42,24 4
shares .
36 . On February 14, 2005, Exide issued a press release announcing its third quarte r
fiscal 2005 results in which it stated that it had failed to satisfy the Leverage Ratio Covenan t
under its Senior Credit Facility .
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37. In the February 14, 2005 press release Exide assured investors that it "requeste d
and expects to receive a waiver of the leverage ratio covenant from its lenders, as well as
amendments relating to the Company's proposed senior note offering . "
38 . Exide also reported the following financial results on February 14, 2005 :
Consolidated net sales for the third quarter of fiscal 2005 rose11 .5% to $727.9 million from $653 .0 million in the third quarterof fiscal 2004. Quarterly net sales results benefited from higheraverage selling prices as a result of lead-related pricing actionsacross the business, as well as strong Motive Power demandworldwide. Favorable currency exchange rates also benefited netsales Company-wide .
Consolidated net loss for the third quarter of fiscal 2005 was$439.0 million, or $17 .56 per share, compared to a net loss of$9.3 million, or $0 .34 per share, in the third quarter of fiscal2004. The third quarter of fiscal 2005 results include a non-cashgoodwill impairment charge of $399 .4 million, restructuringcosts and reorganization items of approximately $8 .0 millionand a non-cash income tax charge of $34 .5 million to adjustvaluation allowances against previously recognized deferred taxassets. The results were favorably offset by a gain onrevaluation of Warrants of $5 .8 million .
39. Defendant Muhlhauser provided the following positive commentary on th e
financial results :
-This quarter, we successfully recovered 65-70% of theincreased lead costs in the quarter due to pricing actions, leadprice escalators, lead hedging and improved spent batterycollection rates .
-This is a significant improvement over the second quarter,when we were only able to offset 30-40% of the adverse impactfrom lead price increases .
-The Company will continue its efforts to implement plans andmake investments to accelerate cost reductions and increasecash flow from operations .
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-We remain committed to making our customers successful andcreating long-term value for our shareholders .
40. Exide did not disclose in this press release that it was well on its way to a
serious default of the EBITDA requirement under its Senior Credit Facility for the fiscal year
ending March 31, 2005 .
41 . To the contrary, on an earnings conference call on the same day, February 14 ,
2005, Defendant Gargaro stated that he expected the Company's lenders to waive th e
Leverage Ratio Covenant and that the reason for the need for the leverage ratio covenan t
waiver was unrelated to lower than forecasted EBITDA :
We also mentioned last quarter we had obtained amendments tocertain financial covenants with respect to adjusted EBITDAand leverage contained in our credit agreement . Based on ouradjusted EBITDA performance this quarter, we are incompliance with that covenant.
However, partially because a large percentage of our debt iseuro denominated, the continued fall of the dollar against theeuro has inflated the value of our debt, so, we did not satisfy ourleverage ratio covenant as of December 31, 2004 under oursenior secured credit facility. We have requested and expect toreceive a waiver of the leverage ratio covenant from our lenders,as well as amendments relating to the Company's proposedsenior note offering .
Since our adjusted EBITDA have more than doubled from thesecond quarter , we believe that our suppliers' continuedcooperation and support will contribute to a strengthening of ourbalance sheet and our liquidity .
42 . Also on February 14, 2005, Exide filed its third quarter 2005 report with th e
SEC on a Form 10-Q, reiterating the results announced in the press release and conferenc e
call .
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43. The Form 10-Q contained a certification by Defendant Gargaro that it did not
contain any untrue statement of material fact or omit a material fact and that the report fairl y
presented the financial condition, results of operation and cash flows of Exide .
44 . Pursuant to the reporting requirements under the Credit Agreement, by no late r
than February 14, 2005, Exide was required to report its consolidated balance sheet, income ,
retained earnings and cash flows for December 2004 to Deutsche Bank .
45 . On February 28, 2005, Exide filed a Form 8-K with the SEC in which i t
disclosed that it had completed a Third Amendment to its Senior Credit Facility on Februar y
24, 2005 . The amendment revised financial covenants, including a revised EBITD A
covenant of $122 million (lowered from $155 million) for the twelve (12) month perio d
ending March 31, 2005,
The Offering
46 . On March 1, 2005, one (1) day after Exide filed its 8 -K disclosing the revision s
to its financial covenants under the Senior Credit Facility, Exide issued a preliminary
offering memorandum for the issuance of $350 million principal amount of senior notes du e
in 2013 .
47. Defendant Deutsche Bank Securities and Credit Suisse First Boston were name d
Joint Book-Running Managers .
48 . From the $350 million proceeds of the Offering, the preliminary offerin g
memorandum stated that Exide intended to repay approximately $309 million in loans unde r
the Senior Credit Facility, together with a $2 .5 million pre-payment fee and accrued interest .
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49. Deutsche Bank was one of the lenders under the Senior Credit Facility that wa s
expected to receive proceeds of the Offering, thereby significantly reducing its risky loan
exposure to Exide .
50. In addition, Defendant Deutsche Bank Securities, as Joint Book-Runnin g
Manager, was to receive a portion of the $14 million from the Offering to be paid i n
discounts, fees and expenses .
51 . The preliminary offering memorandum states on page one that Exide's Adjuste d
EBITDA for the 12 months ended December 31, 2004 was $145 .2 million .
52. At the time the Defendants disseminated the preliminary offering memorandum ,
fiscal 2005 was to end in only thirty (30) days .
53 . The preliminary offering memorandum states on page 48 that "We have als o
obtained amendments to our senior credit facility to adjust certain other financial covenant s
and to permit the offering of the notes contemplated by this offering memorandum .
Although there can be no assurances, we believe, taking into account the November and
February 2005 amendments and based upon our updated financial forecasts and plans ,
that we will comply with these covenants for the foreseeable future . "
54. The preliminary offering memorandum did not disclose that Exide was i n
serious danger of violating the revised $122 million EBITDA covenant under the Senio r
Credit Facility .
55 . The fact that Exide was in serious danger of violating the EBITDA covenan t
was material information for prospective purchasers of the senior notes in the Offering .
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56. On March 2, 2005, the day after the preliminary offering memorandum was
issued, Murray Capital purchased 4,100 shares of Exide at $14 .96 per share, increasing it s
holdings to 46,344 shares .
The Road Show
57. Defendant Deutsche Bank Securities arranged a "road show" for the Offering.
58. On March 3, 2005, Edward Mally, head of Murray Capital's research group ,
attended the road show for the Offering at the "21" Club in New York City.
59. The road show consisted of a slide presentation and oral presentations b y
representatives of Deutsche Bank Securities and Exide .
60. Attendees at the road show also had the opportunity to discuss the Offering wit h
representatives of Exide and Deutsche Bank Securities .
61 . The slide show and oral presentations depicted a very positive view of Exide' s
credit prospects and the prospects of the Company in general .
62 . During the oral presentations and slide show, Defendant Gargaro mad e
reference to the recent amendment to the covenants under the Credit Agreement.
63 . In addition, Gargaro stated that Exide expected to recover 65-70% of recen t
price increases in lead through a new pricing structure and that, at 70% cost recovery ,
Exide's EBITDA would be within the range of $165-$170 million .
64 . After the presentation, David Bitterman, Deutsche Bank Securities' Managin g
Director and Director of High Yield Research, spoke with Edward Mally about the ne w
senior notes .
65 . Mr. Bitterman stated the he had a positive view of the company and that h e
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recommended the purchase of the notes as a good investment opportunity .
66. On the day after the road show, March 4, 2005, Murray Capital purchased an
additional 10,000 shares of Exide at $15 .30 per share, and on March 8, 2005, it purchased
15,000 shares at $15 .68 per share. As of March 8, 2005, Murray Capital held 71,344 share s
of Exide.
67. On March 10, 2005, Exide announced that it would be offering $60 million o f
floating rate convertible senior subordinated notes in partial replacement of its previously
announced offering of senior notes .
68. The same day, March 10, 2005, Murray Capital purchased an additional 5,00 0
shares of Exide at $14.59 per share, increasing its holdings to 76,344 shares .
69. On March 15, 2005, Exide priced $290 million principal amount of 10 .50%
senior notes and $60 million principal amount of 1 .53% convertible notes .
70 . The final offering memorandum , dated March 15, 2005, stated on page 51 tha t
"We have also obtained amendments to our senior credit facility to adjust certain other
financial covenants and to permit the offering of the notes contemplated by this offerin g
memorandum. Although there can be no assurances , we believe, taking into account th e
November and February 2005 amendments and based upon our updated financial
forecasts and plans, that we will comply with these covenants for the foreseeabl e
future."
71 . These statements in the final offering memorandum, made only 15 days before
Exide's March 31 year end, were made while Exide was in material non-compliance with th e
covenants under the Senior Credit Facility . In fact, Exide later reported that its EBITDA fo r
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the period ending March 31, 2005 was $105 .7 million, or 13 .4% below the $122 million
EBITDA required under the Senior Credit Facility. A variance of that magnitude must have
been known, or should have been known, by Exide so close to the end of its fiscal year .
72 . The final offering memorandum omi tted the same material facts as had th e
preliminary offering memorandum in that it did not fully and accurately disclose Exide's true
financial condition, including that Exide was certain to be in material breach of its EBITD A
covenant for the fiscal year ended March 31, 2005 .
73 . On March 15, 2005, Murray Capital requested an allocation of the Offering, and
subsequently was allocated by the Book-Running Managers and acquired $5,000,000 of th e
senior notes at par.
74 . Based on the reporting requirements of the Credit Agreement, Deutsche Ban k
should have received as of that date updated financial information on Exide as of January 31 ,
2005, including information that would have shown that Exide would be in material breac h
of its EBITDA covenant for the fiscal year ending just fifteen days later .
75 . On March 18, 2005, Exide issued a press release announcing the completion o f
its private placement of $290 senior notes and $ 60 million floating rate convertible senior
subordinated notes .
76 . Exide indicated in the press release that the planned use of the proceeds fro m
the Offering was to reduce its bank indebtedness under the Senior Credit Facility .
77. According to the 10-K filed by Exide for the fiscal year ended March 31, 2005 ,
the proceeds from the Offering were used to repay $250 million of term loans and al l
revolving loans outstanding under that Senior Credit Facility .
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78 . The statements made by Defendants referenced in paragraphs 23-30, 36-39, 41-
43, 53, 61-65, 70 were materially false and omitted material information or were made
recklessly by Defendants because they failed to disclose the following facts :
(a) Exide knew or knew it was likely that it would violate the EBITDA andLeverage Ratio Covenants for the fiscal year ending on March 31, 2005,thereby seriously jeopardizing its liquidity and viability ;
(b) Exide could not accurately forecast its inventory requirements ;
(c) Exide did not write down the value of obsolescent inventory and discontinuedproduct lines ; and
(d) Exide had to record adjustments of several million dollars to reconcile pricingunder a contract with one of its large North American customers .
Exide Reveals True Financial Condition Only After Offering Complet e
79. On May 16, 2005, less than two (2) months after Defendants completed th e
Offering, Exide issued a press release revealing that it had likely violated the EBITDA and
Leverage Ratio Covenants for the fiscal year-ended March 31, 2005 .
80. Exide stated in the press release that it estimated adjusted EBITDA for fisca l
2005 in the $100-107 million range, well short of the $122 million required under the Senior
Credit Facility, even as amended .
81 . In reaction to this announcement, which was made after the market closed o n
May 16, 2005, the price of Exide stock, which had closed at $11 .15 per share on May 16,
opened at $5 .75 per share the following trading day, representing a one-day decline of $5 .40 ,
or 48%, and closed at $6 .88 per share on 50 times its average daily volume.
8 2 . In a conference call on May 17, 2005 Defendant Gargaro claimed that th e
shortfall was due to several "unanticipated or unusual items" . However, the reasons cited -
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inventory write-offs, compliance with the Sarbanes-Oxley Act, higher lead costs, an d
contract issues with a major North American customer - could not genuinely have been
"unanticipated or unusual" as of the time of the Offering, just two months earlier, and fiftee n
days before the close of Exide's fiscal year .
83 . In fact, rising lead costs had been cited as an issue since at least November 16 ,
2004, but Exide had repeatedly advised that it was "well positioned" to "reap the benefits" o f
pricing hedging and escalators in the second half of fiscal year 2005 .
84 . The Sarbanes-Oxley was legislation passed in 2002. Costs associated wit h
compliance for the fiscal year ending March 31, 2005 could not have been "unanticipated" a s
of March 15, 2005, just fifteen days before the close of that year .
85 . Defendants likewise must have been aware at the time of the Offering in Marc h
2005, or recklessly disregarded, the need for large year-end inventory write-offs, and need t o
account for the later-identified "contract issue" with one of Exide's large North American
customers .
86 . In reaction to the conference call on May 17, the price of Exide shares fel l
another $1 .55, or 22%, from their closing price of $6 .88 on May 17, 2005, to close at $5 .33
on May 18, 2005 .
87. Between May 16 and May 18, 2005, Murray Capital sold all of its stock an d
bond holdings of Exide, at a total loss of $2,020,253 .90, with $1,400,000 of that loss
attributable t o
the bond holdings, and $620,235 .99 of the loss attributable to the stock holdings.
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88 . On June 16, 2005, Moody's downgraded all ratings for Exide by two notches ,
citing Exide ' s "insufficient EBIT coverage of cash interest ." The Moody' s rating outlook
following these actions was negative .
89. On June 27, 2005, Exide announced that its financial statements for the fisca l
year ending March 31, 2005 would contain a "going-concern" qualification, whic h
constituted a separate default under the Senior Credit Facility .
90. On July 6, Standard & Poor's lowered its corporate credit rating on Exide ,
citing its weaker-than-expected financial results for its fiscal year ended March 31, 2005 .
91 . On July 8, 2005, Exide announced that the SEC had initiated a preliminary
inquiry into statements Exide made about its ability to comply with the fiscal 2005 financial
covenants and the going concern qualification filed in its financial statements in June 2005 .
In summary, Exide's public filings, press releases and road show presentation that
preceded the Offering all hid from the market Exide's true financial condition and prospects ,
repeatedly advising the investing community that "based on updated financial forecasts an d
plans" Exide would be in compliance with the financial covenants under the Senior Credi t
Facility and was "well positioned" to address the known price volatility in the lead market .
Defendants continued this positive story through the lead-up to, and completion of th e
Offering, which closed just 15 days prior to the close of Exide's fiscal year. It was only after
that Offering was completed --- the proceeds from which had been used to pay down the
Senior Credit Facility, including indebtedness owed Deutsche Bank -- that Exide reveale d
the truth about its precarious financial condition . And once the truth was revealed, the value
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of Exide securities immediately and dramatically dropped, resulting in damages to Murray o f
over $2 million .
Additional Allegations Concerning Deutsche Bank
92 . Defendant Deutsche Bank Securities possessed inside knowledge of Exide' s
true financial condition through the services it provided to Exide in connection with th e
Offering and related due diligence .
93 . Deutsche Bank Securities also had access to detailed information concernin g
Exide's financial condition because its parent company, Deutsche Bank, served as the agent
bank and a lender under the Senior Credit Facility .
94. Pursuant to the Credit Agreement, Deutsche Bank was to receive reports at leas t
monthly containing Exide's consolidated balance sheet, statements of income, retained
earnings and cash flows .
95 . As of the Offering, therefore, Deutsche Bank should have had updated financia l
information as of January 31, 2005 . In addition, Deutsche Bank Securities would have ha d
updated financial information as a result of its due diligence as lead underwriter for th e
Offering .
96. Defendant Deutsche Bank Securities knew or recklessly disregarded the fac t
that material adverse information had not been disclosed to, and was being concealed from ,
Plaintiff and the investing public (as specified in paragraphs 23-30, 3 6-39, 41-43, 53, 61-6 5 ,
70 of this Compl aint) .
97. Deutsche Bank Securities coordinated and attended the road show at which i t
encouraged Plaintiff to participate in the Offering, and must have known that the financia l
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condition of Exide was not accurately portrayed in public statements and the offering
memorandum .
98. Deutsche Bank Securities was motivated by the desire to have Exide pay dow n
the Senior Credit Facility and minimize Deutsche Bank's exposure to Exide's deterioratin g
financial condition .
99. The proceeds of the Offering were used, in part, for that purpose, including th e
payment of interest and a $2 .5 million pre-payment fee .
100. Deutsche Bank Securities was further motivated by the prospects of receiving
substantial fees in connection with the Offering .
101 . If the concealed information had been disclosed, the Offering would have been
negatively impacted, thereby reducing, or eliminating, the revenue realized by Deutsch e
Bank Securities and reduced risk exposure of its parent, Deutsche Bank .
Additional Allegations Concerning the Individual Defendant s
102 . The Individual Defendants are (or were during the relevant period ) the senior
executive officers of Exide .
103 . In their capacities as senior executive officers, the Individual Defendants ha d
access to the Company's confidential and proprietary information .
104 . The Individual Defendants also had knowledge of and access to materia l
adverse non-public information concerning Exide .
105 . The Individual Defendants were aware of the financial information contained i n
the monthly reports required under the Credit Agreement .
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106. The Individual Defendants knew of or had access to almost all of the financia l
data and information that would comprise Exide's fiscal 2005 EBITDA when the Offering
occurred in mid-March 2005 because the fiscal year ended only fifteen days after the closin g
of the Offering .
107. The Individual Defendants controlled the contents of Exide's public disclosures .
108. Upon information and belief, the Individual Defendants were provided wit h
drafts or copies of Exide's reports and press releases that Plaintiff assert were false an d
misleading prior to or shortly after their issuance and had the ability to prevent their issuanc e
or cause them to be corrected .
109 . Because of their positions of control, the Individual Defendants controlled the
conduct of Exide's business and had the ability to cause Exide to engage in the fraudulent
conduct alleged in this Complaint .
110. As senior executive officers and as controlling persons of Exide, the Individua l
Defendants had a duty to disseminate accurate and truthful information with respect to Exid e
and to correct any previously issued statements that were materially misleading .
111 . The Individual Defendants knew or recklessly disregarded the fact that advers e
information specified in this Complaint had not been disclosed to, and was being conceale d
from, Plaintiff and the investing public .
112 . The Individual Defendants are liable as direct participants in the fraud alleged i n
this Complaint .
113 . The fraud deceived Plaintiff with respect to Exide's business and the value o f
Exide securities, and caused Plaintiff to purchase Exide securities at artificially inflate d
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prices .
114. The Individual Defendants are liable as direct participants in a fraud on Plaintiff
by disseminating materially false and misleading statements and by concealing materia l
adverse facts .
115 . The Individual Defendants, as senior executive officers, were controllin g
persons within the meaning of Section 20 of the Exchange Act .
Presumptions of Reliance
116. Plaintiff purchased Exide stock and notes in direct reliance upon the fals e
financial information disseminated by the Defendants .
117. Plaintiff regularly observed Defendants' public statements, documents and
filings and purchased securities based on an analysis of that information .
118. In the alternative, Plaintiff is entitled to a presumption of reliance because, at al l
relevant times, the market for Exide's securities was an efficient market .
119. The market for Exide's securities promptly digested current informatio n
regarding Exide from all publicly-available sources and reflected such information in Exide' s
securities' prices .
120 . Under these circumstances , Plaintiff suffered injury through its purchase o f
Exide's securities at artificially inflated prices and a presumption of reliance applies .
121 . Plaintiff is entitled to a presumption of reliance because its claim primarily
involves non-disclosure, rather than affirmative misrepresentations .
1.22 . Plaintiff is entitled to a presumption of reliance because if not for Defendants '
fraud, the senior notes would have been unmarketable .
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Loss Causatio n
123 . Defendants' wrongful conduct directly and proximately caused the damage s
suffered by Plaintiff.
124. Plaintiff purchased securities of Exide at artificially inflated prices and suffere d
resulting damages .
125 . The price of Exide common stock and the senior notes declined immediatel y
when the information concealed from the market was revealed, and the disclosure of th e
concealed information was the direct cause of the decline in the value of securities that
Plaintiff claims as its loss .
126. The loss in value was foreseeable .
Additional Scienter Allegations
127. Defendants acted with scienter because they knew that the public document s
and statements issued on behalf of Exide were materially false and misleading or acted with
reckless disregard of the truth therein, and because they knowingly participated in th e
issuance of such documents and statements .
128 . Defendants acted with scienter because they knew such statements o r
documents would be disseminated to the investing public .
129. By virtue of their receipt of information reflecting the true facts regarding Exid e
before the Offering was complete, Defendants participated in the fraud alleged in thi s
Complaint .
130 . Defendants were motivated to conceal Exide's true financial condition becaus e
of their desire and financial need to complete the Offering .
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131 . The Offering would have been negatively impacted if the truth about Exide' s
business had been disclosed .
Inapplicability of Statutory Safe Harbor
132 . The statutory safe harbor for forward- looking statements under ce rtain
circumstances does not apply to the false statements and omissions alleged in this Complaint .
133 . To the extent there were any forward-looking statements, there were no
meaningful cautionary statements identifying important factors that could cause actual result s
to differ materially from those in the purportedly forward-looking statements .
134. Alternatively, to the extent that the statutory safe harbor does apply to any
forward-looking statements, Defendants are liable for those false forward-looking statements
because at the time, the particular speaker knew that the particular forward-looking statement
was false, and/or the forward-looking statement was authorized and approved by a n
executive officer of Exide who knew that those statements were false when made.
Count IViolation of Section 10(b) of
the Exchange Act and Rule lOb-SPromulgated Thereunder Against All Defendants
135 . Plaintiff repeats and realleges each allegation contained above as if fully se t
forth in this Count .
136. Exide, Deutsche Bank Securities and the Individual Defendants employe d
devices, schemes and artifices to defraud and engaged in acts, practices and a course o f
business conduct that operated as a fraud and deceit upon the Plaintiff .
137. Defendants carried out a plan, scheme and course of conduct that was intende d
to and did: (a) deceive the Plaintiff and the investing public as alleged in this Complaint; (b)
36482425
artificially inflate and maintain the market for and market prices of Exide's securities ; and (c)
cause Plaintiff to purchase Exide's securities at artificially inflated prices . In furtherance of
this unlawful scheme, plan and course of conduct, Defendants took the actions set forth i n
this Complaint, in violation of Section 10(b) of the Exchange Act and Rule I Ob-5 .
138. Among other things, Defendants made numerous public statements that failed to
disclose Exide's true financial condition, including that they knew or knew it was likely tha t
Exide would default on the financial covenants under the Senior Credit Facility for the fisca l
year ended March 31, 2005 ,
139. Defendants further disseminated an offering memorandum for the senior note s
that failed to disclose Exide's true financial condition, including that they knew, or knew i t
was likely, that Exide would default on the financial covenants under the Senior Credi t
Facility for the fiscal year ended March 31, 2005 .
140. Defendants made presentations at the road show that were intended to induc e
the Plaintiff and others to purchase the senior notes and failed to disclose Exide's true
financial condition, including that they knew, or knew it was likely, that Exide would defaul t
on the financial covenants under the Senior Credit Facility for the fiscal year ended Marc h
31, 2005 .
141 . Defendants either knew or had a duty to monitor and recklessly disregarded th e
material fact that it was likely that Exide would default on the financial covenants under th e
Credit Agreement for the fiscal year ended March 31, 2005 .
142 . Defendants made false and misleading statements and material omissions wit h
the intent to deceive the Plaintiff so that the price of Exide's stock would remain artificiall y
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high and so that Exide could complete the Offering .
143 . Defendants, individually and in concert, directly and indirectly, by the use ,
means or instrumentalities of interstate commerce and/or of the mails, engaged an d
participated in a continuous course of conduct to conceal adverse material information abou t
the business, operations and future prospects of Exide as specified in this Complaint .
144 . As a result of the dissemination of the materially false and misleading
information and failure to disclose material facts, the price of Exide's securities wa s
artificially inflated when they were purchased by the Plaintiff.
145 . In ignorance of the fact that prices of Exide's securities were artificially
inflated, and relying on the false and misleading statements made by Defendants, th e
integrity of the market in which the securities trade, and on the absence of material advers e
information that was known to or recklessly disregarded by Defendants but not disclosed i n
public statements by Defendants, Plaintiff acquired Exide securities at artificially high price s
and was damaged.
146. At the time of Defendants ' misrepresentations and omissions , Plaintiff did no t
know of their falsity and believed them to be true . Had Plaintiff known of the true financial
condition and business prospects of Exide, Plaintiff would not have purchased or otherwis e
acquired Exide securities, including, without limitation, the notes, or, if it did, it would no t
have done so at the artificially inflated prices that it paid .
147. Based on the foregoing, Defendants violated Section 10(b) of the Exchange Ac t
and .Rule I Ob-S promulgated thereunder .
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148 . As a direct and proximate result of Defendants' wrongful conduct, Plaintiff
suffered damages in connection with its purchases and sales of the Company's securities .
Count 2Violation of Section 20(a) of
The Exchange Act Against the Individual Defendant s
149 . Plaintiff repeats and realleges each allegation contained above as if fully set
forth herein .
150 . The Individual Defendants acted as controlling persons of Exide within th e
meaning of Section 20(a) of the Exchange Act .
151 . Because of their high-level positions, participation in Exide's operations an d
intimate knowledge of the statements filed by Exide with the SEC and disseminated to th e
investing public, the Individual Defendants had the power to influence and control, and did
influence and control, directly or indirectly, the decision-making of Exide, including th e
content and dissemination of the various statements that were false and misleading, an d
omitted material information .
152 . The Individual Defendants were provided with or had unlimited access t o
copies of all of the Company's reports, press releases, public filings and other statement s
prior to and shortly after these statements were issued .
153 . The Individual Defendants had the ability to prevent the issuance of th e
statements or cause the statements to be corrected .
154 . In particular, the Individual Defendants had direct and supervisory involvemen t
in the day-to-day operations of the Company and, therefore, are presumed to have had the
364824 28
power to control or influence the particular transactions and did exercise that power and
control, giving rise to the securities violations alleged in the Complaint .
155 . As set forth above, Exide and the Individual Defendants each violated Sectio n
10(b) and Rule lOb-S by their acts and omissions as alleged in this Complaint. By virtue of
their positions as controlling persons, the Individual Defendants are liable pursuant to
Section 20(a) of the Exchange Act .
156 . As a direct and proximate result of the foregoing wrongful conduct, Plaintiff
suffered damages in connection with their purchases and sales of Exide's securities .
Count 3Common Law Fraud Against All Defendants
157. Plaintiff repeats and realleges each allegation contained above as if fully set
forth herein .
158. Defendants made materially false misrepresentations and omitted material fact s
in their public statements, documents and filings .
159. Defendants made the material false misrepresentations and omitted material
facts in their public statements, documents and filings with the intent to defraud the Plaintiff.
160. Plaintiff relied upon the false statements and omissions and purchased Exid e
securities at artificially inflated prices and retained the securities .
161 . Defendants were at all times aware of Plaintiffs reliance .
162. As a direct and proximate result of the foregoing, Plaintiff has suffere d
damages .
163 . Plaintiff is entitled to an award of punitive damages based upon conduct of th e
364824 29
Defendants aimed at the public that was gross, wanton or willful, or otherwise morall y
culpable .
Count 4Fraud in the Inducement Against All Defendant s
164. Plaintiff repeats and realleges each allegation contained above as if fully se t
forth herein .
165 . Defendants fraudulently induced Plaintiff to purchase Exide's securities b y
making materially false misrepresentations and omitting material facts in their publi c
statements, documents and filings .
166 . Defendants made the material false misrepresentations and omitted materia l
facts in their public statements, documents and filings with the intent to induce the Plaintif f
to purchase Exide's stock and the senior notes .
167. Plaintiff relied upon the false statements and omissions and purchased Exid e
securities .
168. Defendants were at all times aware of Plaintiff's reliance .
169. As a direct and proximate result of the foregoing, Plaintiff has been injured .
170. Plaintiff is entitled to an award of punitive damages based upon conduct of th e
Defendants aimed at the public that was gross, wanton or willful, or otherwise morall y
culpable .
Count 5Negligent Misrepresentation A ainst Exide and the Individual Defendant s
171 . Plaintiff repeats and realleges each allegation contained above as if fully se t
forth herein .
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1.72 . Defendants Exide and the Individual Defendants had a duty as a result of a
special relationship to give correct information to the Plaintiff, who was a shareholder, a
prospective purchaser and ultimately a purchaser of Exide's senior notes .
173 . Exide and the Individual Defendants made false statements that they shoul d
have known were incorrect .
174 . The information supplied by Exide and the Individual Defendants was known t o
be desired by the Plaintiff for a serious purpose; the purchase of securities .
175 . Plaintiff intended to rely and act upon the false representations .
176. Plaintiff reasonably relied on the false statements to its detriment and ha s
suffered damages .
Count 6Breach of Fiduciary Duty Against Exide and the Individual Defendants
177. Plaintiff repeats and realleges each allegation contained above as if fully set
forth herein .
178. Exide and the Individual Defendants had a fiduciary duty to the Plaintiff, who
was a shareholder, a prospective purchaser and ultimately a purchaser of Exide's senior
notes .
179 . Based on the allegations in this Complaint, Exide and the Individual Defendants
breached their fiduciary duty .
180 . Plaintiff proximately suffered damages as a result .
181 . Plaintiff is entitled to an award of punitive damages based upon conduct of th e
Exide and the Individual Defendants, which was aimed at the public and was gross, wanto n
or willful, or otherwise morally culpable.
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Count 7Negligence Against Exide and the Individual Defendants
182 . Plaintiff repeats and realleges each allegation contained above as if fully se t
forth herein .
183 . Exide and the Individual Defendants owed a duty to the Plaintiff .
184 . Exide and the Individual Defendants breached their duty to the Plaintiff.
185 . As a direct and proximate result of the Exide and the Individual Defendants '
breach of duty, the Plaintiff has suffered damages .
Count 8Unjust Enrichment A ainst Exide and Deutsche Bank Securities
186. Plaintiff repeats and realleges each allegation contained above as if fully set
forth herein .
187. Defendants Exide and Deutsche Bank Securities were enriched at Plaintiff s
expense .
188. Equity and good conscience militate against permitting Defendants Exide and
Deutsche Bank Securities to retain what Plaintiff is seeking to recover .
Request for Relief
WHEREFORE, Plaintiff requests relief and judgment, as follows :
A . Awarding compensatory damages in favor of Plaintiff, Murray Capita l
Management, Inc., against all Defendants , jointly and severally, for all damages sustained a s
a result of Defendants' wrongdoing, in an amount to be proven at trial, including interest .
B . Awarding rescission of Plaintiff's purchases of Exide's securities an d
returning to Plaintiff all monies expended in connection with its purchase of Exide securities .
364824 32
C . Awarding Plaintiff its reasonable costs and expenses incurred in this action,
including attorneys' fees, expert fees and costs ;
D . Awarding punitive damages in an amount to be determined at trial based on th e
Defendants ' gross, wanton , or willful fraud or other morally culpable conduct ; and
E . Such other and further relief as the Court may deem just and proper .
MURRAY CAPITAL MANAGEMENT, INC .PlaintiBy i attorneys ,
Lucy Pr`ashker, Esq . (LP-1822)David 1Valicenti, Esq . (DV-9090)Cain Hibbard Myers & Cook, PC66 West StreetPittsfield, Massachusetts 01201(413) 443-477 1lprashker@cainhibbard . con]dual icenti@cainhibbard . corn
Dated : October 3, 2005
364824 33