maurice levie, et al. v. sears roebuck & co., et al. 04-cv...
TRANSCRIPT
UNITED STATES DISTRICT COURTNORTHERN DISTRICT OF ILLINOIS
--------------------------------------------------------------XMAURICE LEVIE, individually and on Civil Action No. 04-C-7643behalf of all others similarly situated,
Plaintiff,
-against- : JURY TRIAL DEMANDED
SEARS ROEBUCK & CO . ALAN J . LACY,ESL PARTNERS, L.P. and EDWARD S . F L E DLAMPERT,
8112005Defendants .
--------------------------------------------------------------X X. U.S . 01'sTpper
AMENDED CLASS ACTION COMPLAINT
Co-lead Plaintiffs ("Plaintiffs") allege the following, upon information and belief, based
upon the investigation conducted by and through their undersigned attorneys . As to those
paragraphs relating to plaintiffs' sales of the securities of Sears Roebuck & Co . ("Sears" or th e
"Company") and their suitability to serve as class representatives , plaintiffs make those
allegations upon their own personal knowledge . The investigation of plaintiffs' counsel has
included, but has not been limited to, the review and analysis of: (a) the filings made by Sear s
with the United States Securities and Exchange Commission (the "SEC") ; (b) Sears ' public
statements and press releases ; and (c) the analyst reports and other publicly-available document s
concerning Sears, including news reports about the Company and its business .
1 .
JURISDICTION AND VENUE
1 . This Court has jurisdiction over the subject matter of this action pursuant to
Section 27 of the Securities Exchange Act of 1934 (the "Exchange Act"), 15 U .S.C. § 78aa .
2. The claims asserted herein arise under Sections 10(b) and 20(a) of the Exchange
Act (15 U .S.C . §§ 78j(b) and 78t(a)), and Rule lOb-5 promulgated thereunder by the SEC (1 7
C .F.R. § 240 .10b-5) .
Venue is proper in this District pursuant to Section 27 of the Exchange Act
because many of the alleged acts and transactions, and much of the conduct constitutin g
violations of law, occurred, at least in part, in this District . At all relevant times, Sears '
headquarters was located within this District .
4. In connection with the acts alleged in this Complaint, defendants, directly and
indirectly, used the means and instrumentalities of interstate commerce, including the mails ,
telephone communications , and the facilities of the national securities exchanges .
II .
THE PARTIE S
5 . Plaintiffs engaged in the transactions in Sears securities described in certification s
filed with this Court and suffered loss and damage as a result of the violations of law described
in this Complaint .
6. Defendant Sears ("Sears" or the "Company") is a New York corporation with its
headquarters located in Hoffman Estates, Illinois .
7. Defendant Alan J . Lacy ("Lacy")was at all relevant times the Chief Executive
Officer of Sears and President and Chairman of the Board .
8. Defendant ESL Pa rtners, LP ("ESL") was at all relevant times a Delaware limite d
partnership which, during the class period, beneficially owned up to approximately 15% of th e
outstanding shares of Sears common stock .
9. Defendant Edward S. Lampert (Lampert") was, at all relevant times, the
controlling person of ESL by virtue of his ownership interest in ESL. Defendant Lampert has
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admitted his direct and indirect control of ESL in the Proxy Prospectus issued in connection wit h
the vote of Sears shareholders on the proposed merger of Sears and Kmart Holding Corp .
("art
")
M.
PLAINTIFFS ' CLASS ACTION ALLEGATIONS
10 . Plaintiff brings this action as a class action pursuant to Federal Rule of Civil
Procedure 23. The Class consists of all persons and entities who were damaged as a result of
their sales of Sears' securities during the period from September 9, 2004 through the close o f
trading on November 16, 2004 . The following persons are excluded from the Class : (a )
defendants; (b) the officers and directors of (i) Sears, (ii) Kmart and (iii) Vomado Realty; (c)
members of those persons immediate families ; (d) those persons' legal representatives, heirs ,
successors and assigns ; and (e) any entity in which any defendant has, or had, a controlling
interest .
11 . The Class is so numerous that joinder of all Class members is impracticable .
While the exact number of Class members is unknown to Plaintiffs at this time and can only b e
ascertained from the records maintained by Sears or its agents, during the Class Period ther e
were more than 100 million shares of Sears common stock sold through the New York Stock
Exchange .
12. Plaintiffs' claims are typical of the claims of the members of the Class because al l
members of the Class sold Sears securities during the Class Period and sustained damages as a
result of the same misconduct, as alleged herein .
13 . Plaintiffs will fairly and adequately protect the interests of the members of the
Class . Plaintiffs have retained counsel competent and expe rienced in class action and secu ri ties
litigation and Plaintiffs have no interests antagonistic to or in conflict with the other members of
the Class . Furthermore, Plaintiffs have suffered substantial economic losses as a result o f
defendants' misconduct and, therefore, have significant incentive to prosecute this actio n
diligently.
14. A class action is superior to other available methods for the fair and efficien t
adjudication of this controversy . Because there are many Class members and those persons ar e
located throughout the world, joinder of all Class members is impracticable . Moreover,
individual Class members are foreclosed from prosecuting separate claims because the damage s
suffered by most Class members are far smaller than the expenses associated with individua l
actions . Thus, it is desirable for all concerned to conduct this litigation on behalf of all Clas s
members in a single forum. No unusual difficulties are likely to be encountered in the
management of this class action .
15 . There are numerous questions of law and fact common to the members of th e
Class that predominate over any questions affecting only individual Class members . These
common questions of law and fact include, among others :
(a) whether defendants violated Sections 10(b) and 20(a) of the Exchange Act and SE C
Rule 10b-5 ;
(b) whether defendants participated in the common course of conduct complained o f
herein ;
(c) whether defendants omitted to disclose material facts during the Class Period ;
(d) whether defendants acted with knowledge or with reckless disregard for the truth i n
omi tting and/or misrepresenting material facts concerning the Company;
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(e) whether, during the Class Period, the market prices of Sears securities wer e
artificially depressed due to the non-disclosures and/or material misrepresentations
complained of herein ; and
(f) whether the members of the Class have sustained damages, and, if so, the prope r
measure thereof
IV.
FACTUAL ALLEGATIONS
16. Sears is a retailer whose fortunes have steadily declined in the last several years .
Despite the relative success of brands such as Kenmore and Craftsman, on the whole th e
Company has produced lackluster operational results. Sears, under Lacy, has overhauled it s
stores and cut costs and expanded with the acquisition of Lands End in 2002 for approximately
$1 .86 billion . Shareholder returns have been meager and showed no signs of picking up in 200 4
as Sears shed some profitable operations to concentrate on retailing .
17 . For much of 2004 , Sears stock languished in the mid to high $30's range as i t
issued quarterly reports of operations , and monthly sales reports which repeatedly disappointe d
anxious investors . The latest disappointing quarterly report issued before the announcement o f
the merger was on October 21, 2004 when Sears disappointed investors once again and the stoc k
price fell from the high $30's to the low $30's .
18. Sears publicly stated business plan and strategy was not working . Through June
2004, Sears had reported three straight monthly declines in sales, despite management's effort s
to revamp operations . The monthly declines continued throughout November 2004 .
19. On June 8, 2004, Sears and Kmart announced that Sears would be acquirin g
ownership of real estate and/or leases for approximately 54 Kmart stores throughout the country .
That announcement spurred rumors that a larger deal between Sears and Kmart was in the works .
The rumors were encouraged by ESL 's regulatory filings . On June 28 , 2004, ESL's waiting
period under the Hart Scott Rodino ("HSR")Antitrust Improvements Act of 1976 expired, thu s
enabling ESL to continue acquiring Sears stock up to an amount not to exceed 24 .99% of Sears
stock. ESL filed for such permission on May 28, 2004, thus evincing an intent to continue t o
enhance it's controlling interest in Sears beyond the approximately 14% of Sears stock ES L
owned at the time of the HSR filing .
20. After June 8, 2004, Defendants knew, without doubt, that any news of potential
transactions between Sears and Kmart was material to investors because of the rise of Sears
stock price when Kmart's sale of stores to Sears was announced . From June 1, 2004 through
June 8, 2004, the price of Sears stock rose from $37 .65 to $40 .18 per share with approximatel y
10,000,000 shares of Sears stock trading on June 8, 2004, approximately five times the averag e
daily volume. However, the stock price retreated when no further news about transactions wa s
forthcoming . Sears stock began a steadier decline after July 1, 2004 when ESL filed a false an d
misleading schedule 13G, which contained ESL's certifications that it had no plan to see k
control or change control of Sears . See ¶22 below .
21 . Section 13 (d) of the Exchange Act and Rule 13d-1, et . seq. thereunder required
ESL to file a Schedule 13G upon its acquisition of more than 5% of the outstanding commo n
stock of Sears . It did so . Schedule 13G required ESL to certify its intentions with respect to its
ownership of Sears stock . Section 13(d) also required ESL to update the information in its 13 G
in the event of material changes in, inter alia, ESL's ownership of Sears stock or ESL' s
intentions with respect to its investment in ESL stock .
22 . In its Schedule 13G filed on July 1, 2004, ESL certified as follows :
" . . .the securities referred to above were not acquired and are not heldfor the purpose of or with the effect of changing or influencing the
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control of the issuer of the securities and were not acquired and are notheld in connection with or as a participant in any transaction having that
purpose or effect . "
23 . According to the Wall Street Journal, after Krnart sold stores to Sears in earl y
summer of 2004, defendant Lacy and Edward S . Lampert, "talked throughout the summer abou t
a larger deal . Originally, talk centered on a Sears acquisition of Kmart" . Wall Street Journal
November 18, 2004, Attention Shoppers : Kmart to Buy Sears For $11 .5 billion, Amy Merrick
and Dennis K . Berman .
24 . According to an article in Investment Dealers Digest , January 17, 2005, Eddie
Lampert's Big Retailing Play, Michelle Celarier, "merger discussions," between Kmart and
Sears, "had been moving slowly since the real estate deal in June ."
25 . Defendant Lacy has admitted in public statements issued a fter the close of the
class period, that almost immediately after the purchase in June, Lacy and Lampert discussed " a
larger scale transaction between Sears and Kmart . "
26 . Once Lampert engaged in the discussions he did with Lacy during the summer o f
2004 regarding a potential merger or other business combination which could effect, o r
potentially effect, a change in control of Sears, ESL lost its eligibility to file a Schedule 13G (see
Rule 13d-l(c) 15 U.S .C. Sec. 78m(d) (1)) and was legally required to fi le a Schedule 13D and/or
to amend its 13G certification to disclose that ESL's purpose was to (1) acquire control of th e
business of Sears ; (2) merge Sears with Kmart ; (3) and make major changes to Sears business o r
corporate structure . ESL's and Lampert's duty to do so continued throughout the Class Period .
At no time before the announcement of Kmart' s acquisition of Sears did ESL or Lampert ever
amend ESL's 13d filings nor did ESL or Lampert ever correct the false and misleadin g
certification in the July 1, 2004 Schedule 13G despite a clear and unequivocal duty to do s o
under the federal securities laws .
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27. (a) September 9, 2004 , Sears appeared at Goldman Sachs Eleventh Annual
Global Retailing Conference . Sears Executive Vice President and Chief Financial Officer, Glen n
R. Richter, gave a presentation to analysts and investors in which he provided a "Strateg y
Update ."
(b) The "Strategy Update" set forth Sears' "Strategic Objectives" as follows :
Reposition Core 870 Full- line Stores
Build Leading Customer Direct Busines s
Continue to Leverage/Grow Home Services
Refocus Specialty Stores for Improved Profitability
(c) At the Goldman conference , Richter provided a "Transaction Update" of
the deals with Kmart but disclosed only that Sears :
-Anticipate closing a vast majority of stores by end of Q3 .
-Take possession of most shares in spring '05 .
-Stores to open prior to '05 holiday season .
(d) In describing the progress of Sears' pursuit of its "Strategic Objectives, "
Richter communicated the following :
-Sears is in the midst of one of the most comprehensive repositioning efforts in
our history .
-Significant progress in FLS repositioning ; although more work to do .
-Accelerating off-mall growth .
-Strong customer direct, services and specialty business .
28 . These statements were materially false and misleading because defendants Lacy
and Sears failed to disclose that Sears, Kmart and Lampert were in discussions, the goal of which
was to arrange a merger of Sears and Kmart with Lampert and Kmart obtaining control of Sears .
This omission was material . Defendants Lacy and Sears were under a legal duty to make suc h
disclosure for two reasons : First, having issued statements on the subject of Sears' strategi c
objectives and it 's transaction with Kma rt, defendants Lacy and Sears were under a duty to
provide complete disclosure of all material information on these subjects . Second, Sears was in
the open market purchasing shares of its own stock under its share repurchase program . Lampert
and ESL were under a legal duty to make suck disclosure because ESL had a duty to amend it s
July 1, 2004 Schedule 13G and was under a duty to ensure that the certification in the 13G wa s
true, accurate, complete and update .
29. On September 29, 2004, Sears issued a press release announcing inter alia , that it
had closed on the acquisition of ownership or leasehold interests in 50 stores from Kmart for
$575 .9 million .
30. In the September 29, 2004 press release, Sears represented that it would take
possession of the stores beginning in "spring 2005 ." This was a change from Sears' previousl y
announced plan (in the Sears June 30, 2004 press release it issued) to take possession in 2004 o f
some of the stores it was acquiring from Kmart . Sears was not required to pay for the stores unti l
it acquired possession of them . Thus, the change in plans for taking possession of Kmart store s
would allow Sears to conserve its cash until "spring 2005 ." Not coincidentally, Sears and Kmart
plan to close the proposed merger of Sears and Kmart in spring 2005 . Sears' change in plans for
the time to take possession of Kmart stores constitutes strong circumstantial evidence that
defendants' plans for Kmart to take over Sears had reached a very advanced and detailed stag e
by early September 2004 and that all parties had conclusively decided to combine the tw o
companies . The foregoing plans and intentions required ESL and Lampert to amend the July 1 ,
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2004 Schedule 13G to disclose these and intentions . ESL's and Lampert's failure to do so
rendered the Schedule 13G materially false and misleading .
31 . In the September 29, 2004 press release , defendant Lacy is quoted as follows :
"The completion of this transaction moves Sears another step closerto its strategic goal of growing our store base and the Sears brandoff-mall . We look forward to an increased presence in these keymarkets and serving new and existing customers . "
32. This statement was materially false and misleading for the reasons set forth in ¶2 8
and herein . During the time that Sears and Kmart were discussing a merger, Sears was in th e
open market buying shares of its stock, thus imposing a duty upon defendants Lacy and Sears t o
disclose all material information concerning discussions with Kmart and Lampert . Such material
information included, but was not limited to the fact that Kmart, Sears and Lampert ha d
discussed the relative values of the companies ; the form of the combination of the two
companies ; the affect of Kmart's climbing stock price and the proposed combination of th e
companies; the proposed leadership of the combined companies ; and the price Kmart would pay
for Sears' shares . During the third quarter of 2004, Sears purchased 6 million common shares a t
a total cost of $225 million, or an average price of $36 .64 per share . As of October 2, 2004 ,
Sears had remaining authorization to repurchase approximately $500 million of common shares
under the existing share repurchase program approved by the Board of Directors in October
2003 . During the fourth quarter of 2004, but before the announcement of the merger, Sear s
continued to buy its own shares in the open market. From the beginning of October 200 4
through the announcement of the merger, Sears purchased 600,000 shares at a total cost o f
approximately $20 million or an average price of $32 .35 per share .
33 . On October 21, 2004, Sears issued a press release announcing its third quarte r
2004 results, which repo rted a net loss of $61 million or $ .29 per share . Defendant Lacy said, in
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the press release, that "softer retail demand" contributed to the "disappointing third quarter" . In
its Outlook Section, the press release revealed on the following :
"Based on our sales and margin performance over the past two quarters,coupled with a more cautious holiday outlook, we have adopted a moreconservative outlook for the fourth quarter. While we remain optimisticabout a favorable holiday shopping season, we believe it appropriateto lower our fourth quarter sales and margin assumptions . "
In the same press release, under the "The Significant Developments" section, Sears discussed it s
transaction with Kmart, but stated only :
"On September 29, 2004, the company closed the acquisition of ownership orleasehold interest in 50 stores from Kmart Holding Corporation for $575 .9million. The company has paid 30 percent of the overall purchase price for theseproperties, with the remaining 70 percent to be paid upon Sears taking possessionof the stores . Sears will take possession of the stores on spring 2005 and expectsto convert them to Sears nameplates by the fourth quarter of 2005 . "
34. On the release of this news, Sears ' stock fell approximately 10% from $36 .92 at
the close on October 20, 2004 to $33 .74 per share at the close on October 21, 2004 .
35 . This statement was false and misleading for the reasons set forth in ¶28 and ¶32 .
36 . On October 31, 2004, Lacy met with Lampert and continued to discuss the merge r
of Sears and Kmart . Lacy had previously advised the Sears board of directors that he would b e
meeting with Lampert to discuss, among other things, a business combination between the tw o
companies . At the meeting , Lacy and Lampert continued to discuss the price to be paid for Sear s
common stock and the form of the consideration as well as the structure of the board of director s
and management of the combined companies . Before the meeting, Lacy had engaged an
investment banker, Morgan Stanley & Co, to advise it with respect to a business combinatio n
with Kmart .
37 . On November 1, 2004, Lacy reported to the Sears Board , at a special meeting h e
called, that he had met with Lampert to discuss a combination between the two companies . The
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Sears board indicated its suppo rt of a possible combination of Sears and Kmart and authorized
Lacy to continue the discussions with Kmart representatives . At or about this time, Sear s
formally retained the law firm of Watchell Lipton Rosen & Katz as its attorneys in connectio n
with a potential merger with Kmart .
38 . The November 5 2004, announcement by Vomado that it had acquired an
approximately 4 .3% interest in Sears equity, resulted in the decision by Sears and Kmart to
"accelerate the time frame for implementing the proposed business combination . . ." See Proxy
Prospectus, "Background of the Merger" . The parties discussed the effect of the Vornado
transaction on the price of Sears stock and the potential that Sears stock would continue to
increase .
39 . In responding to the news that Vornado Realty Trust had acquired a 4 .3% of Sears
equity, Sears issued a statement in which it said Sears was "pleased that Vornado sees value i n
our stock ," but that Sears was committed to its future as a retailer . At the time, a Sears '
spokesman was quoted in various publications as follows :
"We're taking strong actions to improve our store performance, continuing t o
expand our direct to customer channels and building out home services
business, while pursuing an aggressive off-mall growth strategy . "
40 . This statement was materially false and misleading for the reasons set forth i n
¶28, ¶32 and ¶36 .
41 . Upon disclosure of the Vornado ownership interest, the price of Sears tock soare d
from $37 .18 on November 4, 2004 to $45 .88 on November 5, 2004, but fell back to $43 .14 on
November 8, 2004 as Sears statements quashed any hope in investors of a Sears-Kmart merger.
12
42. Lampert has admitted, in a public statement at the press conference announcing
the merger that Sears and Kmart knew before any public announcement that Vornado had
purchased a large share in Sears . Such information is frequently available before any public
announcement from professional stock monitoring services hired by institutional investors such
as ESL to track significant ownership changes in companies' stock . Defendants had a motive to
conceal information about their plans to merge Sears and Kmart in order to avoid attracting any
interest in Sears' undervalued equity from competing acquirers .
43 . Defendants had an additional financial motive to keep any information concernin g
their discussions confidential in order to prevent increases in the price of Sears stock, whic h
would have threatened Kmart's ability to complete the transaction at a low price . According to
the Wall Street Journal , Sears and Kmart were concerned that a rise in Sears stock price raised
"the possibility that Sears would become too expensive to acquire ." The Wall Street Journal
quoted a Sears insider, "We were concerned the Sears price might get away from us ." WSJ,
"Attention Shoppers," November 18, 2004 .
44 . On November 9, 2004, Crowley, Kmart's Senior Vice President, Finance, met
with Morgan Stanley, Sear's financial advisor to discuss the terms of the merger . Crowley i s
also a principal at ESL, the owner of 15% of Sears stock.
45 . Sears allowed misinformation about dealings between Sears and Lampert to
permeate the market . In the November 14, 2004 Final Edition, Michael O'Neil and Thomas A .
Coufman, of the Chicago Tribune, reported that a "source close to the [Sears] board" said Sear s
was not aware whether Lampert was working with Vornado or what Lampert's plans were . That
statement was materially false and misleading for the reasons previously set forth herein.
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46 . During the Class Period, plaintiffs sold their Sears stock as set forth in th e
certificates on file with this court .
47 . Several credit rating agencies received advance notice of the transaction fro m
Sears and Kmart .
48 . On November 17, 2004 Sears and Kmart announced that Kmart would acquire
Sears with Kmart stockholders receiving 55% of the combined companies' equity in Sear s
Holding Corp., the surviving company in the merger .
49 . Upon the announcement, Sears shares surged $7.79 or 17% to $52 .99, while
Kmart shares rose $7 .78 or 7 .7% to $109 and the volume of Sears shares traded was nearly te n
times the average daily trading volume of Sears stock .
50 . During the Class Period, defendants' material omissions and misrepresentations
had the effect of artificially deflating the price of Sears' securities and/or maintaining the price o f
Sears securities at levels at which those securities would not have traded had the truth concerning
the Company been disclosed to investors. This conduct resulted in plaintiffs and other member s
of the Class selling Sears securities at prices significantly below the actual value of those
securities .
51 . Plaintiffs and other members of the Class either would not have sold Sear s
securities or would not have sold such securities at the prices that prevailed during the Clas s
Period had defendants disclosed the material information about the Company's plan to merg e
with Kmart .
52. The material omissions , misrepresentations , acts, practices and schemes allege d
herein were the proximate causes of the damages and loss sustained by Class members i n
connection with their sales of the Company's securities during the Class Period .
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COUNT I
(VIOLATIONS OF00(b) OF THE EXCHANGE ACT AGAINST DEFENDANT ESL )
53 . Plaintiffs repeat and realleage the foregoing allegations as if fully set forth herein .
54. During the Class Period, ESL and each of the other defendants, individually, and
in concert with the other defendants, engaged in a plan, scheme and course of conduct, pursuant
to which they knowingly and/or recklessly engaged in acts, transactions, practices and courses o f
business, which operated, as a fraud upon plaintiff and other members of the Class . ESL's
scienter is evidence by its conscious knowledge of the SEC rules and regulations concerning 13 d
filings and their contents and ESL's participation in merger discussions and ESL's financia l
interest in having Kmart acquire Sears as cheaply as possible .
55 . Defendant ESL contributed to the scheme by failing to disclose its discussions
with Sears and the plan to merge with Kmart . Under SEC regulations , ESL was required to file
an amendment to its July 1, 2004 Schedule 13D upon ESL' s formulation of an intent to effect a
change in control of Sears .
56 . ESL failed to do so and violated SEC regulations by its failure .
57. ESL' s knowing failure to amend its Schedule 13d constitutes a violation of
Section I Ob and Rule 1Ob-5 thereunder.
58 . As a direct and proximate result of the foregoing material omissions an d
misrepresentations and the fraudulent scheme in which defendant participated, the market price s
of Sears' securities were artificially suppressed throughout the Class Period .
59 . In ignorance of the materially misleading and/or incomplete nature of the Class
Period representations made by defendants and defendants' participation in the fraudulen t
scheme alleged herein, Plaintiffs and other members of the Class relied to their detriment upon
15
the accuracy and completeness of defendants' statements and/or upon the integrity and efficienc y
of the market for Sears' securities .
60 . Plaintiffs and the other members of the Class would not have sold Sears securitie s
at the market prices that prevailed during the Class Period, if at all, had defendants disclose d
information about the Company's business and plans .
61 . The market price of Sears' securities increased significantly as investors belatedly
learned the facts that had been concealed by defendants during the Class Period . Plaintiffs and
other members of the Class therefore have suffered substantial damages as a direct and
proximate result of the misconduct committed by defendants .
62 . By reason of the foregoing , ESL knowingly or recklessly violated Section 10(b)
of the Exchange Act and Rule I Ob-5 promulgated thereunder in that he. (a) employed devices ,
schemes and artifices to defraud; (b) made material omissions and/or misrepresentations of fac t
and failed to disclose material facts necessary in order to make their statements, in light of the
circumstances under which they were made, not misleading; or (c) engaged in acts, practices and
a course of business that operated as a fraud or deceit upon Plaintiffs and other members of th e
Class in connection with their sales of Sears securities during the Class Period .
COUNT II
(VIOLATIONS OF 410(b) OF THE EXCHANGE ACT AGAINST DEFENDANTSSEARS AND LACY)
63 . Plaintiffs repeat and realleage the foregoing allegations as if fully set forth herein.
64 . During the Class Period, each defendant named herein, individually, and i n
concert with the other defendants, engaged in a plan, scheme and course of conduct, pursuant t o
which they knowingly and/or recklessly engaged in acts, transactions , practices and courses of
business, which operated, as a fraud upon plaintiffs and other members of the Class .
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65 . Defendants perpetrated this fraudulent scheme by making the false an d
misleading statements described in the complaint and by failing to disclose the plan to merg e
with Kmart .
66. Defendants had actual knowledge about the Company's plan to merge with Kmar t
and that the omissions and statements specifically alleged above were materially false an d
misleading . In the alternative, defendants acted with reckless disregard for the truth in that the y
failed or refused to disclose information about the Company's negotiations with Kmart and th e
plan to merge with Kmart . Defendants had a financial motive to conceal and misrepresen t
material information as set forth herein in order to facilitate a merger with Kmart and to allow
Sears to reproduce its own stock very cheaply .
67. As a direct and proximate result of the foregoing mate rial omissions and
misrepresentations and the fraudulent scheme in which defendants participated, the market prices
of Sears' securities were artificially suppressed throughout the Class Period .
68. In ignorance of the materially misleading and/or incomplete nature of the Class
Period representations made by defendants and defendants' participation in the fraudulen t
scheme alleged herein, Plaintiffs and other members of the Class relied to their detriment upon
the accuracy and completeness of defendants' statements and/or upon the integrity and efficienc y
of the market for Sears' securities .
69. Plaintiffs and the other members of the Class would not have sold Sears securitie s
at the market prices that prevailed during the Class Period, if at all, had defendants disclosed
information about the Company's business and plans .
70. The market price of Sears' securities increased significantly after the Class Perio d
as investors belatedly learned the facts that had been concealed by defendants during the Class
17
Period. Plaintiffs and other members of the Class therefore have suffered substantial damages a s
a direct and proximate result of the misconduct committed by defendants .
71 . By reason of the foregoing, Defendants knowingly or recklessly violated Sectio n
10(b) of the Exchange Act and Rule IOb-5 promulgated thereunder in that they : (a) employed
devices, schemes and artifices to defraud; (b) made material omissions and/or misrepresentations
of fact and failed to disclose material facts necessary in order to make their statements, in light o f
the circumstances under which they were made, not misleading ; or (c) engaged in acts, practices
and a course of business that operated as a fraud or deceit upon Plaintiffs and other members o f
the Class in connection with their sales of Sears securities during the Class Perio d
COUNT II I
(VIOLATIONS OF §20 (a) OF THE EXCHANGE ACTAGAINST THE INDIVIDUAL DEFENDANTS)
72 . Plaintiffs repeat and reallege each and every allegation contained above .
73 . Defendant Lacy was the controlling person of Sears within the meaning o f
Section 20(a) of the Exchange Act. By reason of his senior executive and/or Board positions i n
the Company, Lacy had the power and authority to cause Sears to engage in the wrongfu l
conduct complained of herein and exercise same to cause Sear to engage in the conduct
complained of herein .
74. Defendant Lampert was the controlling person of ESL within the meaning o f
Section 20(a) of the Exchange Act and exercised same to cause ESL to engage in the conduc t
complained of herein .
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75. By reason of such wrongful conduct and positions of control and the exercise
thereof, Lampert and Lacy are liable pursuant to §20(a) of the Exchange Act for the violation s
described in Count I and Count 2 respectively, and the paragraphs incorporated therein .
76. As a direct and proximate result of Lacy 's and Lampe rt's wrongful conduct ,
plaintiffs and the other members of the Class suffered damages in connection with their sales o f
Sears' stock during the Class Period .
WHEREFORE , plaintiffs pray for relief and judgment , as follows :
A. Determining that this action is a proper class action and certifying plaintiffs as
class representatives under Rule 23 of the Federal Rules of Civil Procedure ;
B . Awarding compensatory damages in favor of plaintiffs and the other Clas s
members against all defendants, jointly and severally, for all damages sustained as a result o f
defendants' wrongdoing, in an amount to be proven at trial, including interest thereon ;
C . Awarding plaintiffs and the Class their reasonable costs and expenses incurred i n
this action, including counsel fees and expert fees ; and
D. Such other and further relief as the Court may deem just and prope r
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JURY TRIAL DEMANDED
Plaintiffs hereby demand a trial by jury .
Dated: March 11, 2005
THE WEXLER FIRM LLP
By:_F~wa 4
Kenneth A . WexlerEdward A . WallaceOne North LaSalle StreetSuite 200 0Chicago , IL 60602(312) 346-2222Local Counsel
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SQUITIERI & FEARON, LLPLee Squitieri32 East 57th Street12`}' Floo rNew York, New York 10022Tel: (212) 421-6492
LAW OFFICES OF CHARLES J . PIVENCharles J . PivenMarshall N. PerkinsThe World Trade Center401 East Pratt StreetSuite 252 5Baltimore, Maryland 21202(410) 332-003 0
Co-lead Counsel for Plaintiffs and the ProposedClass
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CERTIFICATE OF SERVIC E
I, Edward A. Wallace, hereby certify that I caused copies of the Amended ClassAction Complaint to be served on :
Counsel for Defendan t
Mark A. FlessnerChristopher W. KingPhilip AckermanAnthony T. EliseusonSONNENSCHEIN NATH & ROSENTHAL LLP8000 Sears Tower233 S. WAcker DriveChicago, IL 60606
via hand delivery on this 11th day of March, 2005, and on :
Counsel f
SQUITIERI & FEARON, LLPLee Squitie ri32 East 57th Street12th FloorNew York, New York 1002 2
LAW OFFICES OF CHARLES J . PIVENCharles J . PivenThe World Trade Center401 East Pratt StreetSuite 252 5Baltimore, Maryland 21202
via facsimile on this 11 `h day of March, 2005
Edward A . Wallace