HOFFMAN ESTATES, Ill. (April 6, 2001)—Exide Technologies is not off the hook yet.
The battery manufacturer has reached a plea agreement with the U.S. Attorney for the Southern District of Illinois, ending an investigation of Exide´s past dealings between its prior management and Sears, Roebuck and Co. But a breach-of-contract lawsuit Exide filed in September 1999 against Sears—and a Sears countersuit—are still pending.
According to terms of the settlement with the U.S. attorney, announced March 23, Exide Illinois Inc., a subsidiary of Exide Technologies, has agreed to plead guilty to conspiracy to commit fraud in connection with batteries it manufactured and sold to Sears under a contract that began in the fall of 1994.
Exide will pay a fine of $27.5 million, payable over five years, with the first year´s payment being $3 million.
The government, in turn, said it will not prosecute any other criminal charges against Exide for any matter relating to the contract between Exide and Sears and/or any other matters currently known to the government as a result of its investigation.
As part of its countersuit against Exide, Hoffman Estates-based Sears also is suing Gary K. Marks, a former battery buyer for the mass merchandiser.
Sears´ countersuit, filed in November 1999, acknowledged the retailer received, in part, a signing bonus of $7 million from Exide and $9 million in rebate bonuses from the battery maker as part of a deal Sears signed making Exide and the Service Parts Operations-ACDelco unit of General Motors Corp. its battery suppliers. Three-year contracts were signed with each firm.
But Sears denied breaching its agreement to increase the volume of its purchases from Exide, as well as several other Exide contentions, including that it failed to pay for batteries Exide delivered and is liable for damages of at least $15 million.
On the other hand, Sears´ countersuit claims "Exide fraudulently induced Sears" to enter into the battery supply agreement "by omitting to inform Sears that Exide had made improper, secret cash payments" to Mr. Marks, who had been a full-time Sears employee from 1970 through August 1997.
The retailer also alleges that Mr. Marks formed DG Consulting Inc., an Illinois company to which the secret payments were made. It said Mr. Marks is registered as the firm´s president and secretary.
Sears charged that he shared "confidential, proprietary business information of Sears" regarding its automotive and battery businesses with Exide.
DG Consulting, according to the Sears countersuit, "was created for the purpose of facilitating and concealing Mr. Marks´ receipt of undisclosed payments from Exide."
Sears also alleges that Exide and Mr. Marks "conspired in 1994 and/or early 1995 to make secret cash payments to Mr. Marks" in return for his breach of fiduciary duty to Sears. As part of that "scheme," Sears said "Exide made two cash payments of $10,000 each" to Mr. Marks in March and April 1995.
In seeking restitution from Exide, Sears said it was "damaged as a result of the intentional concealment and failure to disclose" the relationship between Mr. Marks and Exide. Instead, Sears said it continued "to interact with Exide as a normal supplier" and continued to "employ and trust" Mr. Marks.
Discussing the status of the suit and countersuit with Tire Business, a Sears spokeswoman said there has been no settlement. There is still "a lot of litigation involved over this," she said—including a related suit by battery manufacturer Johnson Controls Inc.—however "nothing is happening" right now. The lawsuits are still pending, "there has been a lot of contact between the parties," she added, but no trial has been scheduled.
Sears is seeking unspecified damages from Exide.
In an Exide press release following the company´s settlement with the U.S. attorney, the company´s chairman and CEO, Robert A. Lutz, said: "This agreement brings to a close investigations of Exide relating to the questionable business practices of this company´s former management team."
Mr. Lutz joined Exide in December 1998 after a career as an executive with Chrysler Corp.
"There´s a world of difference between the Exide of then and the Exide of now," he added. "We´ve replaced all managers who were implicated in any way, and are ourselves pursuing legal action against the three top former executives. We have an all-new board of directors. And we now have a zero-tolerance ethics and integrity code."
Exide "worked diligently with the government to ensure that the agreement we reached would not impede Exide´s ability to continue to serve our valued customers in our key industrial and transportation markets, and to continue our company´s restructuring program," Mr. Lutz continued.
"We also believe that the company can accommodate this settlement within its existing financial capacity. And, with it, we can now get back to concentrating our full and undivided attention to our mission of becoming the premier provider of electrical-energy storage solutions in the world."
On the brink of going to trial on related litigation, Advance Auto Parts and Exide Technologies, on March 23, jointly announced that the companies reached a settlement of a lawsuit filed by Advance against Exide in the U.S. District Court of the Western District of Virginia. It involved a battery supply contract between the two firms.
That case—which involved the enforceability of a battery supply agreement entered into between Advance and GNB Technologies, now merged into Exide—was scheduled for trial on March 26.
Terms of the settlement were not disclosed.
"We are pleased with the outcome," said Jim Wade, Advance´s president.
"Batteries are a significant part of our business, and they will continue to be," he said.
"We will continue to build on our relationships with suppliers, employees and customers as we continue as one of the most respected auto parts retailers in America."
Tom Minner, president of Exide´s Global Transportation Business Group, said the company also is pleased with the outcome of that settlement.
"This resolution allows us to continue to focus on our mission to become the global leader of stored electrical energy solutions," he said, "and the preferred supplier of automotive, heavy duty, marine and other batteries and technologies."
Advance Auto Parts is the primary trade name for Advance Stores Co. Inc., the second-largest auto parts chain in the nation.