Sears 2007 Annual Report Download - page 96

SEARS HOLDINGS CORPORATION
Notes to Consolidated Financial Statements—(Continued)
underwriters for SRAC’s March 18, May 21, and June 21, 2002 notes offerings. The complaint
purports to allege violations of Sections 11, 12(a)(2), and 15 of the Securities Act of 1933,
Section 10(b) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Rule 10b-5
promulgated thereunder and, as against the individual defendants, violations of §20(a) of the Exchange
Act. The complaint purports to allege that defendants made a number of false and misleading
statements in one or more prospectuses for debt securities offerings and in SEC filings and other public
statements, concerning the adequacy of reserves for uncollectible accounts, and the condition of Sears’
former credit business, among other things. The parties have settled the matter and on February 28,
2008, the Court granted preliminary approval of the settlement. Subsequently, Sears transferred the full
settlement amount to an escrow account in accordance with the terms of the settlement agreement. In
agreeing to the settlement, defendants did not admit any wrongdoing and denied committing any
violation of law. Defendants agreed to the settlement solely to eliminate the uncertainties, burden and
expense of further protracted litigation. The Company previously established a reserve for the expected
settlement and it will not have a material adverse effect on our annual results of operations, financial
position, liquidity or capital resources.
Following the announcement of the Merger on November 17, 2004, several actions have been filed relating
to the transaction. These lawsuits are in their preliminary stages, and defendants have not yet been required to
respond to certain of the complaints. We believe that all of these claims lack merit and intend to defend against
them vigorously.
•William Fischer, individually and on behalf of all others similarly situated v. Sears, Roebuck and Co.,
et al.—Three actions were filed and then consolidated in the Circuit Court of Cook County, Illinois.
These actions assert claims on behalf of a purported class of Sears’ stockholders against Sears and
certain of its officers and directors, together with Kmart, Edward S. Lampert, William C. Crowley and
other affiliated entities, alleging breach of fiduciary duty in connection with the Merger and seeking
damages. The plaintiffs allege that the Merger favors interested defendants by awarding them
disproportionate benefits, and that the defendants failed to take appropriate steps to maximize the value
of a merger transaction for Sears’ stockholders. On September 7, 2006, plaintiffs filed a notice of
appeal with the Illinois Appellate Court of the Circuit Court’s August 8, 2006 order dismissing
plaintiffs’ amended complaint. Pursuant to an order dated December 21, 2007, the Appellate Court
affirmed the Circuit Court’s dismissal of plaintiffs’ amended complaint. Plaintiffs then petitioned the
Illinois Supreme Court for leave to appeal the dismissal, which the Supreme Court subsequently denied
without prejudice. Plaintiffs have filed an amended petition for leave to appeal to the Supreme Court.
•Maurice Levie, individually and on behalf of all others similarly situated v. Sears, Roebuck & Co., et
al.—One action has been filed in the United States District Court for the Northern District of Illinois.
This action asserts claims under the federal securities laws on behalf of a purported class of Sears’
stockholders against Sears and Alan J. Lacy, for allegedly failing to make timely disclosure of merger
discussions with Kmart during the period September 9 through November 16, 2004, and seeks
damages. The court appointed a lead plaintiff and lead counsel, and an amended complaint was filed on
March 11, 2005. The amended complaint names Edward S. Lampert and ESL Partners, L.P. as
additional defendants, and purports to assert claims on behalf of sellers of Sears stock during the period
September 9 through November 16, 2004. The defendants have answered the amended complaint. On
July 17, 2007, the Court granted in part and denied in part plaintiffs’ motion for class certification,
certifying a class of Sears stockholders who sold shares of Sears stock between September 9, 2004 and
November 16, 2004, excluding short sellers who covered their positions during the class period. On
September 24, 2007, the Seventh Circuit Court of Appeals denied defendants’ petition for leave to
appeal the class certification order. Merits discovery is underway.
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