UNITED STATES DISTRICT COURT WESTERN DISTRICT OF...

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UNITED STATES DISTRICT COURT

WESTERN DISTRICT OF WISCONSIN

___________________________________ IN RE GREAT WOLF RESORTS, INC., ) Civil Action No. 05-CV-0678-C SECURITIES LITIGATION ) ) Consolidated Amended Class ) Action Complaint ) ___________________________________ ) Jury Trial Demanded

Lead Plaintiff, Jack Christie and Representative Plaintiff, Thomas Wulf

(�Plaintiffs�), individually and on behalf of all other persons similarly situated, by their

undersigned attorneys, make the following averments for their Consolidated Amended

Class Action Complaint (�Complaint�). These averments are based upon personal

knowledge as to their own acts and the acts of purchasers of the common stock of Great

Wolf Resorts, Inc. (�Great Wolf� or the �Company�), and on information and belief as to

all other matters, based upon, inter alia, the investigation conducted by and through their

attorneys, which included, among other things, a review of the defendants� public

documents, conference calls, and announcements, United States Securities and Exchange

Commission (�SEC�) filings, as well as regulatory filings and reports, wire and press

releases published by and regarding Great Wolf, securities analysts� reports and

advisories about the Company, public documents and announcements about the

Company, interviews of former Great Wolf employees, and information readily

obtainable on the Internet. Plaintiffs believe that substantial, additional evidentiary

support will exist for the allegations set forth herein after a reasonable opportunity for

discovery.

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The Complaint is comprised of two wholly separate causes of action: (i) claims

for violations of Sections 11, 12(a)(2), and 15 of the Securities Act of 1933 (the

�Securities Act Claims�); and (ii) claims for violations of Sections 10(b) and 20(a) of the

Securities Exchange Act of 1934 (the �Exchange Act Claims�).

SECURITIES ACT CLAIMS

Nature of the Securities Act Claims

1. Representative Plaintiff, Thomas Wulf, brings this action pursuant to

Sections 11, 12(a)(2), and 15 of the Securities Act of 1933 (the �Securities Act�), 15

U.S.C. §§ 77k, 77l(a)(2), and 77o, respectively, on his own behalf and on behalf of all

other persons or entities who purchased or otherwise acquired Great Wolf common stock

pursuant or traceable to the Company�s Registration Statement filed with the SEC on

August 12, 2004 (as amended on September 23, 2004, October 21, 2004, November 26,

2004, and December 7, 2004), and a Prospectus filed with the SEC on December 14,

2004, in conjunction with the Company�s initial public offering (�IPO�) of 14 million

shares of Class A common stock, at $17.00 per share, plus an additional 2.1 million

shares to cover underwriters� over allotments. The Registration Statement and

Prospectus are collectively referred to herein as the �Offering Documents.� The IPO was

commenced on December 15, 2004, and was completed five days later, on December 20,

2004. During the course of the IPO, the Company sold over 16 million shares and raised

proceeds in excess of $248 million.

2. Representative Plaintiff�s Securities Act Claims are pled separate and

apart from Lead Plaintiff�s Exchange Act Claims, see infra at ¶64. The Securities Act

Claims do not incorporate by reference, or otherwise rely on any allegations pled in

support of the Exchange Act claims. Pursuant to this District�s decision in Friedman v.

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Rayovac Corp., 295 F. Supp. 2d 957, 978-79 (W.D. Wis. 2003), Representative

Plaintiff�s non-fraud allegations in support of the Securities Act claims are pled under the

notice pleading standards of Fed. R. Civ. P. 8(a).

3. Incident to the IPO, Great Wolf formally acquired the resorts and related

management business of The Great Lakes Companies, Inc. and its subsidiaries, including

resorts then under construction (�Great Lakes�), in exchange for an aggregate of

14,032,896 shares of common stock and $98.1 million (the �formation transactions�).

Pursuant to the formation transactions, Great Wolf acquired resorts in Wisconsin Dells,

Wisconsin (the �Dells�), Sandusky, Ohio, (�Sandusky�), Traverse City, Michigan

(�Traverse City�), Kansas City, Kansas (�Kansas City�), Williamsburg, Virginia

(�Williamsburg�), the Pocono Mountains, Pennsylvania (�the Poconos�), and the Blue

Harbor Resort & Conference Center in Sheboygan, Wisconsin (�Blue Harbor�).

4. The formation transactions were also designed to facilitate the offering,

and enable Great Wolf to raise the necessary capital to repay certain existing bank

indebtedness, purchase certain interests in the former Great Lakes resorts held by third

parties, and fund Great Wolf�s growth strategy, according to the Company�s SEC filings.

Pursuant to the formation transactions, Great Wolf sold at total of 16,100,000 shares of

its common stock, purchased the interests held by affiliates of AIG SunAmerica in the

entities owning the Wisconsin Dells, Wisconsin and Sandusky, Ohio resorts for an

aggregate purchase price of approximately $31.0 million, and merged the various limited

liability companies owning interests in each of the individual resorts comprising Great

Lakes prior to the IPO into wholly owned subsidiaries of Great Wolf.

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5. The Offering Documents represented that the financial statements

contained therein were true and accurate. On November 10, 2005, however, Great Wolf

announced that this was, in fact, not true. On that date, Great Wolf announced that the

Company was required to restate its financial results for the fiscal year-ended December

31, 2004, the quarters-ended March 31, 2005, and June 30, 2005, and that the Company

would delay filing its quarterly report for the quarter ending September 30, 2005, due to

errors in accounting for the formation transactions pursuant to the IPO. Specifically, the

Company disclosed that in connection with the formation transactions, the value of

goodwill was materially overstated and that property and equipment and the amounts of

intangible assets recorded on the Company�s balance sheets were materially understated,

rendering the Offering Documents materially false and misleading.

6. On, November 21, 2005, the date of the filing of the first class action

complaint alleging Securities Act violations, the price of Great Wolf common stock

closed at $8.90 per share.

JURISDICTION AND VENUE

7. This Court has jurisdiction over the subject matter of the Securities Act

claims pursuant to Section 22 of the Securities Act, 15 U.S.C. § 77v, and 28 U.S.C. §

1331. The Securities Act claims alleged herein arise under Sections 11, 12(a)(2), and 15

of the Securities Act, 15 U.S.C. §§ 77, 77l(a)(2), and 77o.

8. Venue is proper in this Judicial District pursuant to Section 22 of the

Securities Act, 15 U.S.C. §77v, and 28 U.S.C. § 1391(b). Much of the negligent conduct

alleged herein, including the preparation and dissemination of materially false and

misleading information, occurred in substantial part in this Judicial District.

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Additionally, the Company maintains a principal executive office in this Judicial District

at 122 West Washington Avenue, Madison, Wisconsin, 53703.

9. In connection with the negligent conduct alleged in this Complaint, the

Securities Act Defendants (defined below), directly or indirectly, used the means and

instrumentalities of interstate commerce, including but not limited to, the United States

mails, interstate telephone communications and the facilities of the national securities

exchange.

PARTIES TO THE SECURITIES ACT CLAIMS

Plaintiff

10. Representative Plaintiff Thomas Wulf, as set forth in the accompanying

certification (attached as Exhibit �A�), incorporated by reference herein, purchased Great

Wolf common stock at artificially inflated prices pursuant or traceable to the IPO and has

been damaged thereby.

Securities Act Defendants

11. Defendant Great Wolf was formed in May 2004 as the successor to the

family entertainment resort business of Great Lakes. As described in more detail supra at

¶¶3-4, pursuant to the formation transactions, Great Wolf acquired the management

business and ownership interests of Great Lakes. According to the Company�s SEC

filings, Great Wolf is the nation�s largest owner, operator and developer of drive-to

family destination resorts featuring indoor waterparks, and owns and operates its resorts

under the Great Wolf Lodge and Blue Harbor Resort brands. Great Wolf is now a fully

integrated resort company and owns and/or manages Great Wolf Lodge locations in the

Dells, Sandusky, Traverse City, Kansas City, Sheboygan, Wisconsin (Blue Harbor),

Williamsburg; the Poconos; Niagara Falls, Ontario (scheduled to open in Spring 2006);

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Mason, Ohio (scheduled to open in late 2006); Chehalis, Washington (scheduled to open

in 2007); and Grapevine, Texas (construction scheduled to commence in Spring 2006).

12. Defendant John Emery (�Emery�) was, at all relevant times, the

Company�s Chief Executive Officer, and a member of the Company�s Board of

Directors. Emery signed the Offering Documents.

13. Defendant James Calder (�Calder�) was, at all relevant times, the

Company�s Chief Financial Officer. Calder holds a Bachelor of Science degree in

accounting, and is a certified public accountant. Calder signed the Offering Documents.

14. Defendant Bruce Nevaiser (�Nevaiser�) was, at all relevant times, the

Company�s Chairman of the Board. Nevaiser signed the Offering Documents.

15. Defendant Marc Vaccaro (�Vaccaro�) was, at all relevant times, a member

of the Company�s Board of Directors. Vaccaro signed the Offering Documents.

16. Defendant Craig Stark (�Stark�) was the Company�s President until March

31, 2005, and a member of the Company�s Board of Directors. Stark signed the Offering

Documents.

17. Citigroup Global Markets, Inc. (�Citigroup�) was the lead underwriter for

the IPO. Citigroup is a nationally recognized investment banking and asset management

firm. Citigroup sold and distributed 7,700,000 shares of Great Wolf common stock

pursuant to the Offering Documents.

18. For purposes of the Securities Act Claims only, Great Wolf, Emery,

Calder, Nevaiser, Vaccaro, Stark and Citigroup are collectively referred to herein as the

�Securities Act Defendants.�

FALSE AND MISLEADING STATEMENTS IN THE OFFERING DOCUMENTS

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19. The Offering Documents falsely stated that the financial results contained

therein were accurate. Specifically, the Offering Documents stated that:

�In connection with the formation transactions, Great Lakes retained an independent financial advisory firm to render an opinion as to the fairness of the method used in allocating value among the resort-owning entities and the management company� and that the �unaudited financial data [included herein] reflect all adjustments, consisting only of normal and recurring adjustments, necessary for a fair presentation of the results for those periods.�

20. This statement caused investors to believe that the financial statements

presented in the Offering Documents were true and accurate. Accordingly,

Representative Plaintiff and the other members of the Class relied on the accuracy of the

financial statements contained in the Offering Documents when making their investment

decision.

21. However, the Offering Documents contained a number of materially false

statements concerning Great Wolf�s pro forma financial results. These materially false

financial statements resulted from inaccurate accounting of the formation transactions.

22. Specifically, the Offering Documents presented the following false and

misleading unaudited pro forma balance sheet data for Great Wolf, for the period ending

September 30, 2004:

Predecessor Historical

Dells/SanduskyHistorical Spin-Off Transaction

Adjustments Pro

Forma Current Assets:

Cash and cash

equivalents $2,401 $3,161 $(685)

$216,340 (98,111) (73,466) (3,000) $46,640

Other current assets 3,984 1,834 (1,424) (600) 3,794

Total current 6,385 4,999 (2,109) 41,163 50,434

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assets Property and equipment, net 184,082 54,011 (16,533) 4,519 226,079Equity escrow and other assets 16,105 2,537 (3,725) 3,000 16,448Goodwill 1,391 24,457 (1,391) 188,482 212,939Total assets 207,963 86,000 (23,758) 235,695 505,900Deferred tax liability -- -- -- 7,677 7,677Total liabilities 166,099 82,123 (19,693) (77,658) 150,871

23. The Offering Documents further stated that the unaudited pro forma

condensed balance sheet contained certain cash and cash equivalents, net property and

equipment, and goodwill that reflected �the application of the purchase method of

accounting in connection with [Great Lakes�] acquisition of the seven resort-owning

entities.�

24. That the statements contained in ¶¶19, 22-23, presenting and discussing

Great Wolf�s balance sheet, were materially false when made is clear from the

Company�s disclosure, on November 10, 2005. Specifically on that day the Company

announced that it would:

record adjustments relating to the application of the purchase method of accounting in connection with the company�s formation transactions which occurred on December 20, 2004. As a result of these adjustments, the company will restate its financial results for the year ended December 31, 2004...

25. The Company further disclosed that:

[t]he adjustments are expected to reduce the amount of goodwill and increase the amounts of intangible assets, property and equipment, and deferred tax liability recorded on the company�s consolidated balance sheet as of the date of the formation transactions. Subsequent

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consolidated statements of operations are expected to reflect increased amounts of depreciation and amortization expense, and decreased amounts of income tax expense during the year ended December 31, 2004 and the 2005 interim periods. The company, in discussion with its independent registered public accounting firm, Deloitte & Touche LLP, is in the process of determining the impact of these adjustments on net income for the year ended December 31, 2004

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The anticipated adjustments result from an application of Emerging Issues Task Force (EITF) Issues No. 98-3 and No. 04-1 with regard to the company�s recording of the formation transactions in December 2004. The company will furnish a report on Form 8-K with the SEC to provide additional detail on the background of the expected adjustments. When the adjustments are finalized, the company will include the restated results in a 10-K/A filing for the fiscal year ended December 31, 2004...

(emphasis added).

26. Restatements are governed by rules and regulations promulgated by the

Financial Accounting Standards Board (�FASB�). FASB is an organization consisting of

accounting professionals who (along with the American Institute of Certified Public

Accountants (�AICPA�)) establish and communicate standards of financial accounting

and reporting in the United States. FASB standards, known as generally accepted

accounting principles (�GAAP�), govern the preparation of corporate financial reports

and are recognized as authoritative by the SEC.

27. Accounting Principles Board Opinion No. 20 �Accounting Changes�

(�APB No. 20�) was promulgated by the FASB and AICPA, and governs, among other

things, restatements and adjustments to financial statements.

28. Specifically, APB No. 20, ¶¶36-38, commands that restatements to

financial statements are only made to correct previously issued statements that were

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materially false when made. Accordingly, a restatement of previous financial statements

may not be made unless the original statements were materially false when made.

29. Accordingly, by virtue of the Company�s announced restatement, it cannot

be disputed that the statements in the Offering Documents were materially false when

made. Specifically on November 10, 2005, regarding the restatement, the Company

announced that:

a. certain assets relating to the Company�s formation transactions

were improperly classified in the Offering Documents;

b. the amounts of intangible assets, property and equipment, and

deferred tax liability were materially understated;

c. the value of goodwill resulting from the formation transactions was

materially overstated; and

d. the Company was forced to make adjustments to the resulting

balance sheet and income statements, which necessarily called for a restatement

of all of Great Wolf�s subsequent financial statements as they each incorporated

and relied upon the improper accounting of the formation transactions.

30. The Offering Documents also represented that, �[i]n conjunction with

purchase accounting:

• Total purchase price for each of the seven resort-owning entities was calculated based on:

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o Property and equipment, other assets and other liabilities of the seven resort-owning entities are recorded at their fair values;

o A deferred tax liability resulting from the difference between the fair value and the tax basis of assets acquired from the seven resort-owning entities is recorded at our anticipated effective tax rate of 40%

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o The excess of consideration in the purchase transaction over the fair value of net tangible assets acquired from the seven resort-owning entities is recorded as goodwill (emphasis added).

31. Additionally, the Offering Documents stated that, in connection with the

formation transactions, the following adjustments, among others, were made as a result of

the application of purchase accounting:

Cash ($98,111) Property and Equipment, net 4,519 Goodwill 188,482 Deferred tax liability 7,677

32. The foregoing statements at ¶¶30-31, presenting or discussing the effects

of utilizing the purchase accounting method to record goodwill, property and equipment,

and intangible assets in connection with the formation transactions, were materially false

when made for the reasons set forth, supra, at ¶29.

33. The Offering Documents also misrepresented certain financial information

for each resort (relied on in conjunction with the formation transactions). Materially false

when made were the following statements regarding each resort�s (i) total purchase price;

(ii) resulting goodwill balance; and (iii) deferred tax liability:

Wisconsin Dells Sandusky Traverse

City Kansas

City Sheboygan Williamsburg Pocono Mountains Total

Fair value of property and equipment based on estimated replacement cost (28,207) (27,976) (43,959) (43,245) (36,415) (25,435) (19,224) (224,461)

Goodwill from asset acquisition $33,929 $45,849 $39,630 $20,555 $12,538 $20,997 $31,764 $205,262

Cost basis of property and equipment $27,313 $26,699 $42,571 $42,285 $36,415 $25,435 $19,224 $219,942

Step-up 894 1,277 1,388 960 -- -- -- 4,519

Fair value of property and equipment based $28,207 $27,976 $43,959 $43,245 $36,415 $25,435 $19,224 $224,461

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on estimated replacement cost

Purchase price $12,950 $48,420 $47,982 $27,408 $17,618 $41,680 $57,157 $253,215

Goodwill from asset acquisition 33,929 45,849 39,630 20,555 12,538 20,997 31,764 205,262

Purchase price excluding goodwill (20,979) 2,571 8,352 6,853 5,080 20,683 25,393 47,953

Estimated tax basis (5,895) (949) (2,352) (13,199) 5,080 20,683 25,393 28,761

Difference (15,084) 3,520 10,704 20,052 -- -- -- 19,192

Assumed tax rate 40% 40% 40% 40% 40% 40% 40% 40%

Deferred tax (asset) liability $(6,034) $1,408 $4,282 $8,021 $-- $-- $-- $7,677

Goodwill from asset acquisition and deferred taxes $27,895 $47,257 $43,912 $28,576 $12,538 $20,997 $31,764 $212,939

34. The foregoing statements of financial results and accounting for the

formation transactions were materially false when made for the reasons set forth, supra,

at ¶29.

35. Additionally, with respect to goodwill, the Offering Documents stated

that:

As a result of the formation transactions, we expect to record approximately $213,000 of goodwill on our balance sheet. On an annual basis, we perform an analysis to determine any impairment of the carrying value of goodwill. To test goodwill for impairment, we analyze the fair value of the individual resort to which the goodwill is assigned to the carrying value of that resort. If the analysis indicates that the carrying value is less than the fair value of the individual resort, we compare the implied fair value of the resort�s goodwill with the carrying amount of that goodwill. The implied fair value of the goodwill is determined by allocating the fair value of the individual resort to all the assets and liabilities of that resort as if it had been acquired in a business combination. The excess of the fair value of the individual resort over the amounts assigned to its assets and liabilities is the implied fair value of the goodwill. If the implied fair value of the goodwill is less than the carrying value, an impairment loss is recognized. Any impairment losses are recorded as operating expenses, which reduce net income.

* * *

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Depreciation and amortization expense [for the Dells/Sandusky properties] decreased by $350, or 4%, to $8,414 from $8,764 for 2001. This decrease resulted from $1,906 of goodwill amortization in 2001 that did not re-occur in 2002 due to the adoption of SFAS 142, partially offset by increased depreciation and amortization as a result of the Sandusky resort being open for a full year in 2002. 36. The foregoing statements regarding goodwill were materially false when

made because the amount of goodwill recorded in connection with the formation

transactions was materially overstated, as set forth supra at ¶29.

37. Finally, with respect to the valuation of Company property and equipment,

the Offering Documents represented that Great Wolf records �investments in property

and equipment at cost. Improvements and replacements are capitalized when they extend

the useful life, increase capacity or improve the efficiency of the asset. Repairs and

maintenance are charged to expense as incurred.�

38. The foregoing statements concerning the accounting of property and

equipment in connection with the formation transactions were materially false when

made because the value of property and equipment recorded in connection with the

formation transactions was materially understated, as set forth supra at ¶29.

SECURITIES ACT CLASS ALLEGATIONS

39. Representative Plaintiff brings this action as a class action pursuant to

Federal Rule of Civil Procedure 23(a) and (b)(3) on behalf of the Securities Act Class,

consisting of all those who purchased the common stock of Great Wolf pursuant or

traceable to the IPO and who were damaged thereby. Excluded from the Securities Act

Class are all defendants to the Securities Act Claims, the officers and directors of the

Company, at all relevant times, members of their immediate families and their legal

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representatives, heirs, successors or assigns, and any entity in which the Securities Act

defendants have or had a controlling interest.

40. The members of the Securities Act Class are so numerous that joinder of

all members is impracticable. Pursuant to the IPO, Great Wolf sold approximately 16.1

million shares of common stock, which were then immediately and actively traded on the

Nasdaq National Market System (�NASDAQ�). While the exact number of Securities

Act Class members is unknown to Representative Plaintiff at this time and can only be

ascertained through appropriate discovery, Representative Plaintiff believes that there are

hundreds or thousands of members in the proposed Securities Act Class. Record owners

and other members of the Securities Act Class may be identified from records maintained

by Great Wolf or its transfer agent and may be notified of the pendency of this action by

mail, using the form of notice similar to that customarily used in securities class actions.

41. Representative Plaintiff�s claims are typical of the claims of the members

of the Securities Act Class, as all members of the Securities Act Class are similarly

affected by the alleged actionable statements in the Offering Documents that are

complained of herein.

42. Representative Plaintiff will fairly and adequately protect the interests of

the members of the Securities Act Class and has retained counsel competent and

experienced in class and securities litigation.

43. Common questions of law and fact exist as to all members of the

Securities Act Class and predominate over any questions solely affecting individual

members of the Securities Act Class. Among the questions of law and fact common to

the Securities Act Class are:

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a. whether the Securities Act was violated as alleged herein;

b. whether statements in the Offering Documents were materially

false when made; and

c. to what extent the members of the Securities Act Class have

sustained damages and the proper measure of damages.

44. A class action is superior to all other available methods for the fair and

efficient adjudication of this controversy because joinder of all members is impracticable.

Additionally, because the damages suffered by individual Securities Act Class members

may be relatively small, the expense and burden of individual litigation make it

impossible for members of the Securities Act Class to individually redress the wrongs

done to them. Further, there will be no difficulty in the management of this action as a

class action.

SECURITIES ACT COUNTS

COUNT I

Against Great Wolf, Emery, Calder, Nevaiser, Vaccaro, Stark and Citigroup For Violations of Section 11 of the Securities Act

In Connection with the IPO

45. Representative Plaintiff repeats and realleges each and every allegation set

forth above in ¶¶1-44, as if fully set forth herein.

46. This Count is brought pursuant to Section 11 of the Securities Act, 15

U.S.C. §77k, on behalf of all persons or entities who purchased or otherwise acquired

Great Wolf common stock pursuant or traceable to the Registration Statement contained

in the Offering Documents for the Company�s IPO. At the time they purchased or

otherwise acquired Great Wolf common stock, Representative Plaintiff and the other

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members of the Securities Act Class were without knowledge of the facts concerning the

materially false and misleading statements in the Offering Documents. Representative

Plaintiff asserts that the defendants named in this Count are liable for their conduct under

strict or negligent liability standards.

47. The Offering Documents, as set forth above, were false and misleading,

contained untrue statements of material facts, and omitted to state other facts necessary to

make the statements contained therein not misleading. In particular, as set forth above,

the Offering Documents were false and misleading in that they failed to accurately reflect

certain reclassifications of assets related to the Company�s formation transactions when

recording the same on the Company�s financial statements. These misstatements

rendered the Company�s financial results stated therein materially false and misleading.

48. Great Wolf, as the issuer of the Offering Documents, is strictly liable for

the false and misleading statements therein.

49. Citigroup, as lead underwriter for the IPO, is strictly liable for the false

and misleading statements in the Offering Documents.

50. Defendants Emery, Calder, Nevaiser, Vaccaro and Stark signed the false

and misleading Offering Documents for the IPO. Therefore, Emery, Calder, Nevaiser,

Vaccaro, and Stark are each strictly liable to Representative Plaintiff and the other

members of the Securities Act Class who purchased or otherwise acquired Great Wolf

common stock pursuant or traceable to the Offering Documents for the IPO.

51. Less than one year has elapsed from discovery of the violations and facts

upon which this Complaint is based to the time of the filing of this action. At the time of

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filing of this action, less than three years has elapsed from the time that Great Wolf�s

common stock was offered bona fide to the public.

52. By reason of the conduct alleged herein, each defendant named in this

Count violated Section 11 of the Securities Act. As a direct and proximate result of the

materially false and misleading statements in the Offering Documents, Representative

Plaintiff and the other members of the Securities Act Class have sustained substantial

damage in connection with their purchase or acquisition of Great Wolf common stock

pursuant or traceable to the Registration Statement contained in the Offering Documents

for the IPO.

COUNT II

Against Great Wolf and Citigroup For Violations of Section 12(a)(2) of the Securities Act




54. This Count is brought pursuant to Section 12(a)(2) of the Securities Act,

on behalf of all persons or entities who purchased or otherwise acquired Great Wolf

common stock pursuant to the Prospectus contained in the Offering Documents for the

IPO. At the time they purchased or acquired Great Wolf common stock, Representative

Plaintiff and the other members of the Securities Act Class were without knowledge of

the facts concerning the materially false and misleading statements in the Offering

Documents. Representative Plaintiff asserts that the defendants named in this Count are

liable for their conduct under strict or negligent liability standards.

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55. Each of the defendants named in this Count was a seller or offeror of a

security, as defined in the Securities Act. Specifically, Great Wolf offered its common

stock in the IPO to Representative Plaintiff and the other members of the Securities Act

Class. The Company�s actions of solicitation consisted primarily of the preparation and

dissemination of the Offering Documents, as well as presentations to investors at road

shows to promote the stock in advance of the IPO. Additionally, Citigroup was the lead

underwriter for the Company�s IPO, and thus also offered and/or sold Great Wolf

common stock in the IPO to Representative Plaintiff and other members of the Securities

Act Class.

56. The Great Wolf common stock offered in the IPO by the defendants

named in this Count was sold through the use of interstate communications, the use of

interstate commerce, and the use of the mails.

57. The Great Wolf common stock offered in the IPO through the use of the

Prospectus contained in the Offering Documents, as set forth above, contained false

statements of material fact or omitted to state material facts necessary in order to make

other statements made therein not misleading.

58. By reason of the conduct alleged herein, each defendant named in this

Count violated Section 12(a)(2) of the Securities Act. As a direct and proximate result of

the materially false and misleading statements in the Offering Documents, Representative

Plaintiff and the other members of the Securities Act Class have sustained substantial

damage in connection with their purchase and/or acquisition of Great Wolf common

stock pursuant or traceable to the Offering Documents for the IPO.

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59. Less than one year has elapsed from discovery of the violations and facts

upon which this Complaint is based to the time of filing of this action. At the time of

filing of the action, less than three years has elapsed from the time that Great Wolf�s

common stock was offered bona fide to the public.

COUNT III

Against Defendants Emery and Calder For Violations of Section 15 of the Securities Act




61. This Count is brought pursuant to Section 15 of the Securities Act, on

behalf of all persons or entities who purchased or otherwise acquired Great Wolf

common stock pursuant or traceable to the Offering Documents for the IPO. At the time

they purchased or acquired Great Wolf common stock, Representative Plaintiff and the

other members of the Securities Act Class were without knowledge of the facts

concerning the materially false and misleading statements in the Offering Documents. In

this Count, Representative Plaintiff asserts that Emery and Calder are liable for their

conduct under strict or negligent liability standards.

62. Defendants Emery and Calder were each control persons of Great Wolf by

virtue of their executive and/or directorial positions at the Company. Emery and Calder

had the power, and exercised the same, to cause Great Wolf to engage in the violations of

law complained of herein and were able to and did control the contents of the Offering

Documents for the IPO.

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63. By reason of their senior executive positions at Great Wolf and their actual

control over the Company�s day-to-day operations, financial statements, public filings

and their intimate involvement and control over the Offering Documents for the IPO,

Emery and Calder are each jointly and severally liable to Representative Plaintiff and the

other members of the Securities Act Class as a result of the wrongful conduct alleged

herein.

WHEREFORE, Representative Plaintiff prays for relief and judgment as

follows:

a) Determining that this action is a proper class action and certifying

Representative Plaintiff as class representative for the Securities Act Class under

Rule 23 of the Federal Rules of Civil Procedure;

b) Awarding compensatory damages in favor of Representative

Plaintiff and the other members of the Securities Act Class against all defendants

to the Securities Act Claims, jointly and severally, for all damages sustained as a

result of their wrongdoing, in an amount to be proven at trial, including interest

thereon;

c) Awarding Representative Plaintiff and the Securities Act Class

their reasonable costs and expenses incurred in this action, including counsel fees

and expert fees; and

d) Such other and further relief as the Court may deem just and

proper.

EXCHANGE ACT CLAIMS

Nature of the Exchange Act Claims

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64. Lead Plaintiff brings the Exchange Act Claims pursuant to Sections 10(b)

and 20(a) of the Securities Exchange Act of 1934 (the �Exchange Act�), 15 U.S.C. §§

78j(b) and 78t(a), and Rule 10b-5, promulgated thereunder (17 C.F.R. § 240.10b-5), on

his own behalf and on behalf of all other persons or entities who purchased or otherwise

acquired Great Wolf common stock between May 5, 2005, and July 28, 2005, inclusive

(the �Exchange Act Class Period�).

65. Just four months after the IPO, in April of 2005, Great Wolf and

defendants Emery, Calder, and Kimberly Schaefer (the �Exchange Act Defendants�)

were aware that the Company � which had been doing a booming business as one of the

nation�s leading drive-to indoor waterpark vacation destinations � was faced with a

problem that would potentially devastate the Company and, more importantly, its

investors. Specifically, the Exchange Act Defendants were aware that, as of April 2005,

the Company was losing customers at an alarming rate � with up to 60% of the

Company�s historical customers simply absent.

66. Great Wolf�s drastic customer losses arose for several reasons. First, the

Company had been in business in the Upper Midwest since the mid-1990�s, operating

under a variety of predecessor companies (described in more detail, herein). One of the

reasons that Great Wolf�s resorts in the Upper Midwest were so popular is that they

allowed vacationers to enjoy that which had been previously unavailable � a waterpark

experience in the snow-bound dead of winter. As a result of their great success, the

Company decided to expand into other markets.

67. However, shortly after opening many of its new resorts, the novelty of the

Great Wolf experience wore off as competitors began to enter the market. By early

22

2005, the Company posted an earnings loss for the first quarter of fiscal 2005.

Notwithstanding this loss, the Exchange Act Defendants assured the public that the loss

was inconsequential and not unexpected as the Company, in posting a loss, had met its

previously forecasted earnings projections. The Exchange Act Defendants continued to

falsely assert that things were only going to continue to improve for the Company and its

investors.

68. Unbeknownst to investors, however, the Company was only able to meet

its first quarter forecasts because Spring Break 2005 fell earlier in the year than normal.

Normally, Spring Break fell in Great Wolf�s second quarter. In 2005, however, Spring

Break fell in the first quarter, allowing the Company to capture substantially greater

revenue that quarter than it had been able to do historically. The downside of the early

Spring Break revenue �bump� in the first quarter, however, would be profound for the

subsequent quarters. Specifically, the Company lost a substantial amount of revenue that

it would normally have recorded in the second quarter.

69. Against this backdrop, the Exchange Act Class Period begins. On May 5,

2005, the Exchange Act Defendants announced their earnings projections for the second,

third, and fourth quarters of fiscal 2005, along with their projections for year-end

earnings. Specifically, and most important to the Exchange Act claims, they projected

earnings for the second quarter to range between a loss of $400,000 and a profit of

$200,000.

70. As alleged herein, this projection (and, indeed, the Company�s further

projections, discussed infra) was utterly false and materially misleading when made, as it

was the product of arbitrary and fraudulent manipulation (performed in the face of

23

guidance to the contrary from employees) of the Company�s earnings projections by the

Company�s top executives � Emery, Calder, and Schaefer (defined below).

71. That the Exchange Act Defendants knew, or recklessly disregarded, that

their projections were materially false and misleading is beyond dispute. As detailed

herein, reports recounting declining occupancy rates as of April 2005 at the individual

resorts were sent to the Exchange Act Defendants at corporate headquarters � in

particular, to defendant Schaefer. In addition to regularly receiving these reports, at

numerous meetings attended by Emery and Schaefer, the Company�s internal forecasts,

projected financial results, expenses, occupancy rates and trends, and budgets for each

resort were discussed in detail. These facts are corroborated by some of Lead Plaintiff�s

confidential witnesses who also attended those meetings. Finally, the Exchange Act

Defendants were also privy to the Company�s internal revenue indicators, including

occupancy statistics and Average Daily Room Rates (�ADRs�), which were prepared on

a rolling 12 week basis and detailed occupancy rates and projected guest revenue.

72. With the above information in hand � which they knew completely

contradicted their public statements � the Exchange Act Defendants decided, according to

one of Lead Plaintiff�s confidential witnesses, �to ride out the quarter,� and �pray� for a

miracle. Unfortunately, their prayers went unanswered, and by June, 2005, they knew

that they would eventually have to disclose the truth � that the Company�s projections

were not true or even realistic and, in fact, actual results would be much worse than

previously forecasted.

73. To that end, on June 14, 2005, the Company announced a downward

revision of its second quarter 2005 earnings projections. Great Wolf�s revised forecast

24

stated that the Company expected to post a second quarter loss of $1,000,000 � as

opposed to its previous forecast of a profit of up to $200,000. The market reacted swiftly

and Great Wolf�s stock price fell $2.87 per share, or 13.58% from the previously day�s

close of $21.14 per share.

74. The bad news for investors, however, did not end there. A mere month

later, on July 28, 2005, the Exchange Act Defendants dropped an additional earnings

bomb, when they revealed that they had not even met their much lowered and revised

loss projections issued on June 14, 2005 � posting a loss of $2,500,000 � over two-and-a-

half times what their previous revised projections were indicating.

75. The July 28, 2005, announcement shocked the market and caused Great

Wolf shares to plunge again in early-hours trading from its previous close of $19.77 per

share on July 27, 2005, to open at $15.24 per share on July 28, 2005, before closing at

$13.65 per share, on extraordinarily high volume of 6,064,900 shares traded.

JURISDICTION AND VENUE

76. This Court has jurisdiction over the subject matter of the Exchange Act

claims pursuant to Section 27 of the Exchange Act, 15 U.S.C. § 78aa, and 28 U.S.C. §

1331. The claims alleged herein arise under Sections 10(b) and 20(a) of the Exchange

Act, 15 U.S.C. §§ 78j(b) and 78t(a), and Rule 10b-5, 17 C.F.R. § 240.10b-5, promulgated

thereunder.

77. Venue is proper in this Judicial District pursuant to Section 27 of the

Exchange Act, 15 U.S.C. § 78aa, and 28 U.S.C. § 1391(b). Many of the acts and

transactions alleged herein, including the preparation and dissemination of materially

false and misleading information, occurred in substantial part in this Judicial District.

25

Additionally, the Company maintains a principal executive office in this Judicial District

at 122 West Washington Avenue, Madison, Wisconsin, 53703.

78. In connection with the acts, conduct and other wrongs alleged in this

Complaint, the Exchange Act Defendants, directly or indirectly, used the means and

instrumentalities of interstate commerce, including but not limited to, the United States

mails, interstate telephone communications and the facilities of the national securities

exchange.

PARTIES TO THE EXCHANGE ACT CLAIMS

Plaintiff

79. Lead Plaintiff, Jack Christie, purchased Great Wolf common stock at

artificially inflated prices during the Class Period, as demonstrated by Lead Plaintiff�s

certification previously filed with the Court and has suffered damages as a result of the

wrongful acts of the Exchange Act Defendants as alleged herein. By order dated

February 17, 2006, the Court appointed Jack Christie as Lead Plaintiff in this action

pursuant to 15 U.S.C. 78u-4.

The Exchange Act Defendants

80. Defendant Great Wolf, described above at paragraph 11, is a defendant to

the Exchange Act Claims.

81. Defendant Emery, described above at paragraph 12, is a defendant to the

Exchange Act Claims.

82. Defendant Calder, described above at paragraph 13, is a defendant to the

Exchange Act Claims.

83. Defendant Kim Schaefer (�Schaefer�) was the Company�s Chief Brand

Officer up to and including March 15, 2005, and the Company�s Chief Operating Officer

26

(�COO�) since March 15, 2005. In her role as COO, Schaefer reported directly to

defendant Emery. Also in her role as COO, Schaefer had substantial first-hand

responsibility in reviewing occupancy rates and trends at each of the resorts, and their

resulting impact on revenues, and in generating Defendants� fraudulent Exchange Act

Class Period earnings projections and statements. Schaefer is an Exchange Act defendant

only.

84. For purposes of the Exchange Act claims only, defendants Emery, Calder

and Schaefer are collectively referred to as the �Individual Defendants.�

85. Each of the Individual Defendants, as senior executive officers and/or

directors of Great Wolf was privy during the Exchange Act Class Period, and/or had

access to the adverse undisclosed information concerning Great Wolf�s business,

operations, operational trends, finances, financial statements, products, markets and

present and future business prospects via access to internal corporate documents

(including the Company�s operating plans, budgets, and forecasts and reports of actual

operations compared thereto), conversations and connections with other corporate

officers and employees, attendance at management and Board of Directors meetings and

committees thereof, and via reports and other information provided to them in connection

therewith. Because of their possession of such information, the Individual Defendants

knew or recklessly disregarded that the earnings guidance issued during the Exchange

Act Class Period was materially false and misleading.

86. As officers and controlling persons of a publicly-held company whose

common stock was and is registered with the SEC pursuant to the Exchange Act, and was

traded on the NASDAQ and governed by the provisions of the federal securities laws, the

27

Individual Defendants each had a duty to disseminate accurate and truthful information

promptly with respect to the Company�s financial condition and performance, growth,

operations, financial statements, business, markets, management, earnings and present

and future business prospects, and to correct any previously-issued statements that had

become materially misleading or untrue, so that the market price of the Company�s

publicly-traded common stock would be based upon truthful and accurate information.

The Individual Defendants� misrepresentations and omissions during the Exchange Act

Class Period violated these specific requirements and obligations.

87. The Individual Defendants participated in the drafting, preparation, and/or

approval of the various public, shareholder, and investor reports and other

communications complained of herein, and were aware of, or were deliberately reckless

in disregarding, the misstatements contained therein and omissions therefrom, and were

aware of, or were deliberately reckless in disregarding their materially false and

misleading nature. Because of their Board membership and/or executive and managerial

positions with Great Wolf, each of the Individual Defendants had access to the adverse

undisclosed information about Great Wolf�s financial condition and performance as

particularized herein, and knew (or were deliberately reckless in disregarding) that these

adverse facts rendered the positive representations made by or about Great Wolf and its

business, issued or adopted by the Company materially false and misleading.

88. The Individual Defendants, because of their positions of control and

authority as officers and/or directors of the Company, were able to and did control the

content of the various SEC filings, press releases and other public statements pertaining

to the Company during the Exchange Act Class Period. Each Individual Defendant was

28

provided with copies of the documents alleged herein to be misleading prior to or shortly

after their issuance and/or had the ability and/or opportunity to prevent their issuance or

cause them to be corrected. Accordingly, each of the Individual Defendants is

responsible for the accuracy of the public reports and press releases detailed herein, and

is, therefore, primarily liable for the representations contained therein.

89. Each of the Exchange Act Defendants is liable as a participant in a

fraudulent scheme and course of business that operated as a fraud or deceit on purchasers

of Great Wolf common stock by disseminating materially false and misleading

statements during the Exchange Act Class Period. The scheme (i) deceived the investing

public regarding Great Wolf�s business, operations, management and the intrinsic value

of Great Wolf common stock; and (ii) caused Lead Plaintiff and the other members of the

Exchange Act Class to purchase Great Wolf common stock at artificially inflated prices.

SUBSTANTIVE EXCHANGE ACT ALLEGATIONS

Lead Plaintiff�s Confidential Witnesses

90. Lead Plaintiff�s Exchange Act allegations, which are supported by

information provided by confidential witnesses, are wholly unrelated to the IPO, and

relate only to the period beginning in early 2005 and going forward.

91. Lead Plaintiff�s confidential witnesses consist of the following

individuals:

• W-1 who was the Food & Beverage Director for the Blue Harbor Resort in Sheboygan, Wisconsin from September 2004, until the end of December 2005. One of W-1�s roles was to �help to build the budget for �05 and �06� for Blue Harbor.

• W-2 who worked as a Director of Aquatics at a number of the Company�s resorts since March 1, 2000, including: Wisconsin Dells (2000 � 2001); Sandusky, Ohio (January 2001 � 2003); Traverse City, Michigan (January 2003 � April 2003); and Kansas City (April 2003 � May 19, 2005). W-2

29

reported to the General Manager of the Kansas City resort, Russell Archuletta, but his ultimate boss was Joe Schmidts at Great Wolf�s corporate headquarters in Madison, Wisconsin, who was responsible for all the resort�s water parks.

• W-3 who was a Retail Store Manager at the Kansas City resort between May 7, 2003, and August 12, 2005. W-3 reported to the Director of Retail Sales, for the Kansas City resort, Terry Lard. According to W-3, Terry Lard reported to the General Manager of the Kansas City resort, Russell Archuletta, who W-3 believed reported to Valerie McGee, head of Corporate Retail operations, based in Sandusky, Ohio.

• W-4 who worked as an Aquatics Manager at Great Wolf�s Sandusky resort between February 2001 and October 2005. While employed at Great Wolf, W-4 reported to Keith Gilbreath, Greg Vidumsky, and most recently, Jason Arthur.

• W-5 who served as the General Manager at Blue Harbor from November 2003 until December 31, 2005. W-5 reported directly to defendant Schaefer until April 2005, when Jeff Lococo, the Vice President of Operations who was in charge of all the Great Wolf properties, filled the same role. In his role as General Manager, W-5 had daily interaction with defendant Schaefer and others at headquarters.

• W-6 who was the Guest Services Director at the Blue Harbor resort from May 2004 until September 2005, serving initially as Guest Services Manager before becoming the Guest Services Director in January 2005, and reported directly to Josef Haas, the General Manager at Blue Harbor.

• W-7 who worked as a Catering and Convention Sales Manager at the Great Wolf Lodge in Kansas City, Kansas from April 2003, through June 2005. W-7 reported to Marci McNeal, and later to Ronn McLane, who was promoted to corporate Regional Marketing Director.

• W-8 who worked as the Food & Beverage Director, and later as the Assistant General Manager at the Wisconsin Dells property until November 2005. W-8 worked at the Wisconsin Dells property since 1998, when it was owned by Great Lakes.

• W-9 who was a former Director of Food & Beverage at Great Wolf�s Williamsburg resort. W-9 began working at Great Wolf in 2001, and left �a few months� after the Company filed its IPO in December 2004.

92. Information obtained from these confidential witnesses demonstrates that

the Exchange Act Defendants knowingly and/or recklessly mislead the investing public

by issuing overly optimistic earnings guidance for the second, third, and fourth quarters

and full-year of fiscal 2005.

30

Events Preceding the Exchange Act Defendants� False and Misleading Statements

93. Immediately following the Company�s December 2004 IPO, and through

the end of March 2005, business at Great Wolf progressed as expected. Although the

Company experienced a first quarter loss, it still met its first quarter 2005 revenue and

earnings projections and affirmed that it was on track to earn substantial profits by the

end of the fiscal year.

94. However, unbeknownst to investors, by April 2005, Great Wolf began to

experience precipitously declining occupancy rates in its resorts. In particular, W-1

recalled that Blue Harbor�s occupancy rates were sluggish during the April, May, and

June 2005 time period. According to W-1, Blue Harbor�s occupancy projections fell to

around 40% in the Second Quarter 2005, such that by the end of May 2005, Blue Harbor

management realized that they �might not be seeing what [they were] expecting.� And,

by June of 2005, management realized the summer was an absolute flop, and it was going

to continue in that pattern.

95. W-2 confirms the statements of W-1. Specifically, W-2 recalled steep

declines in occupancy rates at Kansas City, and stated that the �bottom dropped out right

after Spring Break� 2005, and particularly during April, May and June 2005.

96. Similarly, W-3 recalled that the �numbers were dropping like crazy,� at

the Kansas City resort, and that April, May, and June of 2005 were �unusually slow.�

Indeed, according to W-3, by early- to mid-2005, the �underlying current� at her lodge

was such that �everyone knew in management that the numbers were not as strong as

projected.� As a result, in or around April, May, and June of 2005 management directed

them �to find cost-cutting avenues to stay within [their] monthly budget or below it.�

31

97. W-4 also recalled that, during this time, �room capacities were nothing

like they were in the past� at Sandusky.

98. In response to the precipitously declining occupancy rates across the

resorts, the Exchange Act Defendants embarked on a campaign to drastically and

unrealistically cut costs in an effort to meet their unattainable forecasts. The Exchange

Act Defendants� cost-cutting efforts were futile because: (i) occupancy rates were so low

that not enough costs could be cut to meet forecasts; (ii) the cost cutting would only serve

to decrease the quality of the vacation experience at Great Wolf, thus driving even more

customers away; and (iii) the cost cutting measures themselves were unrealistic and/or

unreasonable and did not, in any case, lower Great Wolf�s costs substantially enough to

have any positive cost-side impact.

99. Indeed, according to W-1, the Exchange Act Defendants� overly

optimistic guidance and praise for the Company�s business prospects for 2005 were based

on the unfounded idea of �riding out that quarter and hoping that something would

rebound to make a difference. And it just didn�t happen.� In effect, the Exchange Act

Defendants had nothing but to pray for a miracle.

The Exchange Act Defendants Resort to Aggressive Budgeting to Combat Lost Business

100. As a result of declining occupancy rates in early 2005, the Exchange Act

Defendants, particularly defendant Schaefer, became intimately involved in the budgeting

process at each of the Great Wolf Lodges. According to W-1, the Exchange Act

Defendants� involvement in the budgeting process of each lodge was driven entirely by

the bottom line � with no regard for the details in how such a bottom line was achieved.

32

101. W-2 recalled that defendant Schaefer would routinely visit each resort to

help work through the resort�s budget, �line item by line item for every department.� W-

5 confirmed the statements of W-2, recalling that defendant Schaefer reviewed the

proposed budget for Blue Harbor and would send it back with revisions.

102. However, the Exchange Act Defendants would ultimately present each

resort with a budget and, in cavalier fashion say, �here it is, work with it,� according to

W-2. W-6 confirmed this statement, adding that when Schaefer handed down a budget

the effect was to say, �This is where we got to be at. This is what we came up with.� For

example, W-6 recalled that the first numbers he projected for Blue Harbor were �nowhere

� anywhere near what they came out on a budget.� W-6 further recalled that when they

received the budget back from defendant Schaefer, they thought, �This is impossible.

This isn�t even fair. I don�t know where you�re coming out with these figures.� Indeed,

W-6 recalled constantly questioning �Where are these numbers coming from; they don�t

make sense? They�re too high.�

103. Importantly, W-6 recalled repeatedly �throwing up red flags� to

management �in January� 2005, informing them that Spring Break was in March not

April. Ignoring W-6�s warnings, the Exchange Act Defendants projected April to be

better than March. Thus, it is clear that the Exchange Act Defendants knew as early as

January 2005, and indeed, by no later than April 2005, that their second quarter

projections were unattainable.

104. W-5 confirmed this, stating that he, defendant Schaefer, and others knew,

by no later than April 2005, that Blue Harbor�s projected numbers would never be met, in

part, because of the �lack of development� in Sheboygan. Accordingly, W-5 recalled that

33

in May 2005 they started talking about the impending projections miss, and began to

come up with �new numbers for the second half of 2005.� According to W-5, Jeff

Lococo took the new projections to Schaefer, and they were included in the �re-forecast�

of June 2005. W-5 further recalled that the new projected numbers had a heavy emphasis

on keeping expenses down.

105. Essentially, the Exchange Act Defendants forced the resorts to plan

massive cutbacks in services and staffing in order to meet even their lowered earnings

projections. W-1 stated, however, that the Exchange Act Defendants knew full-well that

such cuts in services and staffing would only drive business to competitors. Thus, even

the downwardly revised projections would still not be realized.

106. As a result of the Exchange Act Defendants� aggressive budget cuts, W-1

recalled that payroll hours in the retail department at Kansas City, which was already

limited to part-time employees who did not require benefits, were reduced as a result of a

�decline in occupancy.� Indeed, because part-time payroll hours were cut bare-thin, W-3,

a salaried employee, was forced herself to work �50, 60, and 70 hours per week,� with no

overtime, just to keep the store operating. Additionally, Terry Lard instructed W-3 to

further reduce expenses by cutting merchandise orders in half, thereby limiting supplies

for the store.

107. W-4 confirmed that overtime pay was also eliminated at Sandusky

sometime around April, May or June of 2005 when Derrick Kinsale, his boss, was

instructed by �someone in corporate to cut a lot of costs.�

108. However, as the Exchange Act Defendants knew and/or recklessly

disregarded, occupancy rates had declined so substantially following Spring Break 2005,

34

that no expense reduction could save the Company from missing its forecasts. In fact,

expenses were cut so low that they were impossible to achieve.

The Exchange Act Defendants� Knowledge of and/or Reckless Disregard of Declining Occupancy Rates and Revenue

109. During the Exchange Act Class Period, the Exchange Act Defendants

knew and/or had access to material information undermining the reasonableness of Great

Wolf�s second, third, and fourth quarter, and full-year fiscal 2005 earnings guidance.

110. For example, according to W-2, the Exchange Act Defendants were well

aware that Great Wolf was experiencing precipitously declining occupancy rates because

it only took two weeks to recognize such a downward trend in the Company�s chief

revenue indicator. W-2 explained that although you can expect a fall-off after a relatively

strong period, such as the first quarter 2005, as little as �two weeks out you can tell if

you�re struggling.� W-2 further stated that following Spring Break 2005, �things started

to get sticky,� such that the Exchange Act Defendants became increasingly worried about

meeting forecasts. Importantly, W-2 also recalled that there was an �attention to detail�

during this time, and particularly, an �awareness of where we sat relative to making our

numbers.�

111. W-1 confirmed that the Exchange Act Defendants were aware of the fall-

off in business following Spring Break 2005, because in or around May 2005, corporate

required Blue Harbor to begin making adjustments to their budget. Indeed, according to

W-1, Blue Harbor was constantly re-forecasting their budget after that point.

112. This is also confirmed by W-7. According to W-7, defendants Emery and

Schaefer attended meetings �three to four times a year� at which W-7 was present. At

35

each of these meetings, the financial results, occupancy rates and trends, and budgets for

each resort were discussed in detail.

113. The involvement of Great Wolf�s corporate level management, including

the Exchange Act Defendants, is also confirmed by W-1. According to W-1, conference

calls with corporate were held each week to discuss actual and forecasted weekly

financial results for various segments of Great Wolf�s business and trends for each

prospective area. These weekly financial results calls were conducted with respect to

each of Great Wolf�s resorts.

114. The Exchange Act Defendants also had knowledge of and/or recklessly

disregarded Average Daily Room Rates (�ADRs�) for each lodge. According to W-8, the

Dells (like the other resorts) had a Revenue Maximization Committee that met weekly,

with the exception of four times during the year. W-6 confirmed that a Revenue

Maximization Committee also met weekly at Blue Harbor. In attendance were the

General Manager, Assistant General Manager (W-8), Controller, Revenue Manager, and

Room Division Manager. The lodge executives discussed the ADRs and where it should

be that week based on rolling specials that were booked 12 weeks out. W-8 added that

the Central Reservation Manager worked with the Rooms and Revenue Managers to

�make sure that the Internet specials were out there� on the web so they could �get a

handle on the 12 week projected numbers.� W-8 described this 12-week system as a

�rolling system� and that the lodge would adjust its ADRs accordingly based on the

forward-looking bookings. W-8 further stated that although these were lodge-based

meetings, headquarters was kept abreast of the revenue activities at the Dells.

Accordingly, each individual resort, as well as Great Wolf corporate knew as much as 12

36

weeks (or one quarter) ahead of time what the Company�s occupancy rates would

actually be.

115. W-8 also explained that at the end of every month, the General Manager

and Controller at the Dells met with each Director to review the monthly statement for

that Director�s department. In particular, they reviewed the numbers from the previous

month, including what was projected, what was booked and what was spent. By doing

this, W-8 explained, they could project forward what would be needed in the next month.

W-8 met with the Controller at the end of each month while he was Food & Beverage

Director. W-8 recalled that after they met, they�d fax off a copy of his Department�s

monthly statement to headquarters.

116. W-8 also recalled that a �Management Report,� authored by either the

Controller or the Revenue Manager at each resort, or jointly, and generated using

statistics from either the central reservation system (to which the Exchange Act

Defendants and the other resorts had unlimited access) or from the Property Management

System (which was site-specific), was circulated weekly to the General Manager,

Assistant General Manager (W-8), Revenue Manager and Room Division Manager.

According to W-8, these reports were critical to keeping on top of the resort�s

projections. Contents of the reports included room and revenue statistics for the property,

specifically �where we were last week, where we expected to be next month, and where

we were a year ago.� W-8 stated that the Dells sent these reports �in on a weekly

basis directly to corporate� to Schaefer�s attention.

117. That business activity and projections were reported to the corporate office

is confirmed by W-6, who recalled that the Exchange Act Defendants �were involved in

37

our weekly reports, so if they did not know [before each weekly report] what was going

on, they knew exactly what was going on [after each weekly report].� Specifically, W-6

recalled that a Blue Harbor Yield Management report was submitted to Al Jenik, who

was in charge of Central Reservations. Jenik, in turn, met with Schaefer on a weekly

basis to discuss these reports.

118. W-8 further stated that each Great Wolf resort prepared and circulated a

weekly report substantially similar to those generated at the Dells. Indeed, W-3 recalled

that the Kansas City resort, along with corporate, would get other lodge reports. For

example, in her department, the retail store, she could go into the �inventory reporting

system� online (called DataWorks) and �put in another lodge�s number and compare

[their] sales on a daily/weekly/monthly basis and see how they did.� W-3 also recalled

that when the belt started to tighten on keeping expenses down, considerable pressure on

other Great Wolf resorts could also be observed from the inventory reporting system.

119. Similarly, W-2 explained that you could check in real time to see �how

you were doing� at any moment, compared to other properties, and compared to where

you expected to be. W-2 stated that, as a result, corporate knew that business was

�unusually slow� as early as April 2005.

120. Commenting on the Exchange Act Defendants� issuance of overly

optimistic projections during May and June 2005, W-1 stated that the point behind these

upbeat forecasts �was riding out that quarter and hoping that something would rebound to

make a difference. And it just didn�t happen.�

121. In fact, the Exchange Act Defendants knew and/or recklessly disregarded

that Great Wolf would not rebound so easily from the downward trending in occupancy

38

rates because they received accurate figures of occupancy rates and future business

projections from the resorts indicating that business overall was declining. In particular,

W-1 stated that once the resorts calculated these figures, they forwarded detailed and

accurate information to corporate headquarters regarding customer booking patterns. W-

1 recalled that these reports were prepared by the Director of Sales and the marketing

team of each resort.

122. Referring to the Exchange Act Defendants, W-1 further recalled that �they

knew the trends because not only were they forecasted, but they were reported [to the

Exchange Act Defendants] if not on a daily, but a weekly level from the Accounting

Department.� W-1 explained that the resort does �a full close every month, including

inventories and the whole gamut, all the way down to the yield as far as how much to the

dollar we�re getting from each guest that�s profitable [], based on occupancy.� In

particular, W-1 stated that executives reviewed the information, paid attention to it, but

then ultimately sent out a message to investors that was more upbeat than what was the

reality.

123. W-3 confirmed that the Exchange Act Defendants received accurate

reports of financial data on a routine basis. For example, W-3 stated that the Exchange

Act Defendants monitored weekly reports submitted by each lodge in connection with

weekly Director�s Meetings that took place each Wednesday at the respective lodges to

ensure that each resort was �maintain[ing] self-sufficiency.� W-3 recalled that these

weekly reports contained: (1) revenue forecasts; (2) occupancy forecasts; and (3) food

and beverage forecast per department, based on occupancy. W-3 attended approximately

ten of these weekly Director�s meetings, standing in for Terry Lard when he was unable

39

to attend, and recalled that the General Manager would �talk shop and go over numbers,�

including a discussion of results for the previous week and how they would affect the

resort�s upcoming weekly budget.

ADDITIONAL SCIENTER ALLEGATIONS

The Exchange Act Defendants Recklessly Disregarded the Truth

124. As set forth in detail supra at ¶¶93-123, the Exchange Act Defendants

were exposed to a wealth of information that should have caused them to refrain from

issuing wholly unrealistic financial projections during the Exchange Act Class Period. In

particular, the Exchange Act Defendants received detailed updates from each of the

lodges regarding occupancy rates, ADRs, etc., which revealed, contrary to the Exchange

Act Defendants� rosy projections, that business was precipitously declining.

Visability of Executives at the Lodges

125. The Exchange Act Defendants were also keenly aware and/or recklessly

disregarded declining business trends that undermined their glowing earnings outlook

because they regularly visited each of the resorts where they could observe the decline in

business as a result of decreased occupancy. According to W-3, there was no way to

avoid knowing how well the lodge was doing on a weekly basis because there was �a tote

board in the administrative hallway� where management listed the tally of �rooms to go

for the week� and �rooms to go for the month.� Any Exchange Act Defendant visiting

the lodge would have seen such information.

126. For example, W-9 recalled that defendant Emery made frequent visits to

the Wisconsin Dells property while W-9 was employed there.

40

127. W-7 also recalled that executives from corporate visited the Kansas City

resort at least 10 to 12 times a year. In particular, W-7 recalled seeing defendant Emery

there at least two times, and seeing defendant Schaefer and Eric Lund there �a lot.�

128. W-3 also recalled seeing executives from corporate at the Kansas City

resort every six months or so. In particular, W-3 recalled seeing defendant Schaefer and

Melissa Wheeler.

THE EXCHANGE ACT DEFENDANTS� MATERIALLY FALSE AND MISLEADING STATEMENTS

DURING THE EXCHANGE ACT CLASS PERIOD

129. On May 5, 2005, the Exchange Act Defendants issued a press release (the

�May 5, 2005, press release�), announcing its first quarter 2005 financial results, as well

as guidance for the second, third and fourth quarters, and the full-year of fiscal 2005. On

May 6, 2005, the Exchange Act Defendants filed a Form 8-K with the SEC (the May 6,

2005, Form 8-K) incorporating the May 5, 2005 press release.

130. Great Wolf�s May 5, 2005, press release and May 6, 2005, Form 8-K,

misrepresented the following with respect to the second, third and fourth quarters and

full-year fiscal 2005 earnings guidance (amounts in thousands, except per share data):

Second Quarter Third Quarter Fourth Quarter Full Year Low High Low High Low High Low High Net Income (loss) $(400) $200 $9,700 $10,900 $(1,400) $(800) $5,600 $8,000 Net income (loss) per diluted share

$(0.01) $0.01 $0.32 $0.36 $(0.05) $(0.03) $0.18 $0.26

Adjusted EBITDA $8,000 $9,000 $25,400 $27,400 $9,500 $10,500 $50,000 $54,000 Adjusted net income (loss) $(100) $500 $10,300 $11,500 $(560) $40 $10,400 $12,800 Adjusted net income (loss) per diluted share

$0.00 $0.02 $0.34 $0.38 $(0.02) $0.00 $0.34 $0.42

131. These rosy projections were materially false and misleading when made

because:

41

a. occupancy rates had been precipitously declining across the resorts

since at least April 2005, according to W-1 � W-4 (see ¶¶94-97);

b. budget forecasts for the individual resorts were patently unrealistic,

according to W-6 (see ¶103);

c. Spring Break fell in the first quarter of 2005, leaving Great Wolf to

try to meet its second quarter forecasts without this highly lucrative season of

revenues (see ¶104); and

d. Expenses were cut bare thin, according to W-1, rendering it

impossible to meet Great Wolf�s fabricated forecasts (see ¶¶105, 108).

132. Also on May 5, 2005, Great Wolf held a conference call with securities

analysts to review the Company�s first quarter 2005 earnings results. During the

conference call, Defendant Calder reiterated some of the same earnings guidance

disclosed in the May 5, 2005, press release and the May 6, 2005, Form 8-K. For

example, Calder stated that:

Our adjusted EBITDA forecast for the fully year is in the same range we�d given before, $50 � 54 million so $52 million our mid-point on that. Adjusted net income per share is $0.38 per share, which again is consistent with what we had issued at the beginning of this year.

133. These statements were materially false and misleading when made

because:





42






134. On June 14, 2005, the Exchange Act Defendants revised the above

guidance. Specifically, Great Wolf�s June 14, 2005, press release and Form 8-K filed

June 15, 2005, incorporating the June 14, 2005, press release, misrepresented the

following with respect to the revised second, third and fourth quarter, and full-year fiscal

2005 earnings guidance (amounts in thousands, except per share data):

Second Quarter Third Quarter Fourth Quarter Full Year Low High Low High Low High Net Income (loss) $(1,000) $9,000 $10,200 $(2,000) $(1,400) $3,700 $5,500 Net income (loss) per diluted share

$(0.03) $0.30 $0.34 $(0.07) $(0.05) $0.12 $0.18

Adjusted EBITDA $7,000 $24,400 $26,400 $8,500 $9,500 $47,000 $50,000 Adjusted net income (loss) $(700) $9,600 $10,800 $(1,160) $(560) $8,500 $10,300 Adjusted net income (loss) per diluted share

$(0.02) $0.32 $0.36 ($0.04) $(0.02) $0.28 $0.34

135. Even the Exchange Act Defendants� revised guidance was still materially

false and misleading because, unbeknownst to investors, the guidance was without any

reasonable basis as





43






136. Indeed, the Exchange Act Defendants admitted that even their revised

earnings projections were without reasonable basis, stating that second quarter earnings

were negatively impacted by the fact that the Easter and Spring Breaks fell in the first

quarter of 2005, instead of the second quarter. To wit, commenting on the revised

projections, defendant Emery stated that �Although our first quarter results were ahead of

our original projections as a result of the Easter holiday and related school spring breaks

falling in the first quarter this year, our budgeting expectations for 2005 underestimated

the total impact of this shift on our second quarter results.�

THE TRUTH BEGINS TO EMERGE

137. The true financial condition of Great Wolf began to be revealed on June

14, 2005, when the Company announced the downward revision of its second quarter

2005 earnings projections. Great Wolf�s revised forecast stated that the Company

expected to post a second quarter loss of $1 million, or a loss of $0.03 per share, as

opposed to its previous forecast of net income ranging between a loss of $400,000, or a

loss of $0.01 per share and net income of $200,000 or a profit of $0.01 per share. On an

adjusted basis, the Company stated that it expected to post a loss of $700,000, or $0.02

per share, compared with its previous guidance of a $0.02 per share profit. The Company

projected revised full-year 2005, earnings between $3.7 million and $5.5 million, or

44

$0.12 and $0.18 per share, and between $8.5 million and $10.3 million, or $0.28 and

$0.35 per share on an adjusted basis. The Company also lowered its forecast for full-year

adjusted EBITDA to $48.5 million from $52 million.

138. However, even Great Wolf�s revised earnings guidance did not reveal the

full truth about Great Wolf�s financial condition because as the Exchange Act Defendants

knew and/or recklessly disregarded, occupancy rates had been on a steep decline since at

least April 2005 and expenses had been cut so thin as a result of aggressive budgeting

measures, that even this revised forecast was without a reasonable basis and patently

unattainable.

139. The full truth about Great Wolf�s materially false and misleading quarterly

and full-year fiscal 2005 earnings guidance was not revealed until July 28, 2005, when

the Exchange Act Defendants announced that they had missed even their revised earnings

projections by over 250%, and that third and fourth quarter 2005 earnings would fall

short of forecasts. Specifically, the Exchange Act Defendants reported a loss of $2.5

million, or a loss of $0.08 per diluted share, on sales of $26 million, well below analysts�

expectations of a loss of $0.02 per share.

140. In explaining the earnings miss, the Exchange Act Defendants stated that

bookings from the Detroit market, the primary feeder location for the Sandusky and

Traverse City resorts, were down more than 30% for the quarter over the same period last

year. Additionally, the Exchange Act Defendants admitted that Blue Harbor failed to

meet expectations, achieving only a 54% occupancy rate during the second quarter.

45

141. In response to this adverse news, the price of Great Wolf common stock

plummeted $6.12 or 31% from its previous close of $19.77, to close at $13.65 on July 28,

2005 � the lowest level the Company traded at since it went public in December 2004.

LOSS CAUSATION/ECONOMIC LOSS

142. During the Exchange Act Class Period, as detailed herein, the Exchange

Act Defendants engaged in a scheme to deceive the market and a course of conduct that

artificially inflated Great Wolf�s stock price and operated as a fraud or deceit on

Exchange Act Class Period purchasers of Great Wolf common stock by misrepresenting

the Company�s earnings guidance for the second, third and fourth quarters, and full-year

of fiscal 2005.

143. The Exchange Act Defendants� false and misleading financial projections

had the intended effect of causing Great Wolf common stock to trade at artificially

inflated levels, reaching as high as $22.75 per share on May 10, 2005.

144. On June 14, 2005, the Exchange Act Defendants began to condition the

market that its future financial outlook was not as rosy as previously disclosed.

Specifically, on that day, the Exchange Act Defendants announced that Great Wolf was

revising downward its second quarter 2005 earnings guidance, and that it expected to post

a second-quarter loss of $1 million, or $0.03 per share, as opposed to the roughly break-

even quarter that was previously forecast.

145. As a direct result of the Exchange Act Defendants� partial disclosure that

Great Wolf�s financial prospects were not as rosy as previously guided, the Company�s

shares fell $2.87 per share, or 13.58% from the previous day�s close of $21.14 per share,

to open at $18.27 per share, on unusually heavy trading volume of more than 3.6 million

46

shares. This drop however, removed only a small part of the inflation from Great Wolf�s

stock price, causing real economic loss to investors who purchased the stock during the

Exchange Act Class Period. However, Great Wolf�s stock continued to trade at

artificially inflated levels following the June 14, 2005, partial disclosure because on that

day, the Exchange Act Defendants� continued to misrepresent the Company�s financial

outlook by issuing revised guidance that was, itself, materially false and misleading.

146. Then, before the start of trading on July 28, 2005, the Company issued a

press release announcing Great Wolf�s financial results for the first quarter, ending

March 31, 2005. Specifically, the Exchange Act Defendants announced that the

Company missed even its revised earnings projections by 250%.

147. The July 28, 2005, disclosure shocked the market, in light of statements

made just one month before, revising guidance downward from previously forecasted

levels.

148. As a direct result of the Exchange Act Defendants� admissions that the

Company missed its earnings projections because of downward trending occupancy rates,

the price of Great Wolf stock price plummeted 31%, or $6.12 from its previous close of

$19.77, to close at $13.65 on July 28, 2005, on extraordinarily high trading volume of

more than 6 million shares.

149. In sum, when the market became aware that Great Wolf�s financial

outlook was not nearly as glowing as the Exchange Act Defendants had made it out to be,

and as the truth about the Exchange Act Defendants� fraud was revealed, the artificial

inflation came out of the stock, damaging Lead Plaintiff and the other members of the

Class.

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150. The nearly 31% decline in Great Wolf�s stock price on July 28, 2005, was

a direct result of the nature and extent of the Exchange Act Defendants� fraud finally

being revealed to investors and the market. The timing and magnitude of Great Wolf�s

stock price declines negate any inference that the loss suffered by Lead Plaintiff and the

other members of the Class was caused by changed market conditions, macroeconomic or

industry factors, or Company-specific facts unrelated to the Exchange Act Defendants�

fraudulent conduct.

151. While the price of Great Wolf common stock fell from an opening price of

$22.20 per share on July 25, 2005, to a closing price of $13.65 per share on July 28,

2005, representing a 62.6 percent drop in just four days, the NASDAQ went up over 19

points during the same time period.

152. The economic loss, i.e., damages suffered by Lead Plaintiff and the other

members of the Exchange Act Class was a direct result of the Exchange Act Defendants�

materially false and misleading statements which artificially inflated Great Wolf�s

common stock price and the subsequent significant decline in value of Great Wolf�s

common stock when the falsity of the Exchange Act Defendants� prior

misrepresentations was revealed.

APPLICABILITY OF PRESUMPTION OF RELIANCE: FRAUD-ON-THE-MARKET DOCTRINE

153. At all relevant times, the market for Great Wolf common stock was an

efficient market for the following reasons, among others:

a. Great Wolf common stock met the requirements for listing, and

was listed and actively traded on the NASDAQ, a highly efficient and

technologically advanced equities market;

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b. As a regulated issuer, Great Wolf filed periodic public reports with

the SEC and the NASDAQ;

c. As of November 18, 2005, there were approximately 30.2 million

shares of Great Wolf common stock outstanding;

d. Great Wolf regularly communicated with public investors via

established market communication mechanisms, including through regular

disseminations of press releases on the national circuits of major newswire

services and through other wide ranging public disclosures, such as

communications with the financial press and other similar reporting services;

e. During the Exchange Act Class Period, Great Wolf common stock

had a high average daily trading volume of approximately 448,000 shares;

f. During the Exchange Act Class Period, Great Wolf was followed

by numerous securities analysts employed by major brokerage and securities

research firms, including, but not limited to, A. G. Edwards & Sons, Inc.,

Citigroup, Jeffries & Co., JMP Securities, Raymond James & Associates and

ThinkEquity Partners, who regularly wrote reports that were distributed to certain

customers of their respective brokerage and research firms. Each of these reports

was publicly available and entered the public marketplace;

g. According to Bloomberg®, Great Wolf common stock had

approximately 58 market makers during the Exchange Act Class Period; and

h. As demonstrated herein, there are �empirical facts� showing

causation between corporate events or releases and an immediate response in the

price of Great Wolf common stock.

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154. As a result of the foregoing, the market for Great Wolf�s common stock

promptly digested current information regarding Great Wolf from all publicly available

sources and reflected such information in Great Wolf�s stock price.

155. Great Wolf and all other members of the Exchange Act Class purchased

shares of Great Wolf�s common stock at prices set by the market and did so in reliance on

the integrity of those prices. Under these circumstances, all purchasers of Great Wolf�s

common stock during the Exchange Act Class Period suffered similar injury through their

purchase of Great Wolf�s common stock at artificially inflated prices, and a presumption

of reliance applies.

NO STATUTORY SAFE HARBOR

156. The statutory safe harbor provided for forward-looking statements under

certain circumstances does not apply to any of the allegedly false statements pleaded in

the Exchange Act Claim. To the extent there were any forward-looking statements, there

were no meaningful cautionary statements identifying important factors that could cause

actual results to differ materially from those in the purportedly forward-looking

statements. Alternatively, to the extent that the statutory safe harbor does apply to any

forward-looking statements pleaded herein, the Exchange Act Defendants are liable for

those false forward-looking statements because at the time each of those forward-looking

statements was made, the particular speaker knew that the particular forward-looking

statement was false, and/or the forward-looking statement was authorized and/or

approved by an executive officer of Great Wolf who knew that those statements were

false when made.

EXCHANGE ACT CLASS ALLEGATIONS

50

157. Lead Plaintiff brings this action as a class action pursuant to Federal Rule

of Civil Procedure 23(a) and (b)(3) on behalf of the Exchange Act Class, consisting of all

those who purchased the common stock of Great Wolf at artificially inflated prices

between May 5, 2005, through and including July 28, 2005. Excluded from the

Exchange Act Class are all Securities Act Defendants and all Exchange Act Defendants,

the officers and directors of the Company, at all relevant times, members of their

immediate families and their legal representatives, heirs, successors or assigns, and any

entity in which any of the defendants have or had a controlling interest.

158. The members of the Exchange Act Class are so numerous that joinder of

all members is impracticable. During the Exchange Act Class Period, the common stock

of Great Wolf was actively traded on NASDAQ. While the exact number of Exchange

Act Class members is unknown to Lead Plaintiff at this time and can only be ascertained

through appropriate discovery, Lead Plaintiff believes that there are hundreds or

thousands of members in the proposed Exchange Act Class. Record owners and other

members of the Exchange Act Class may be identified from records maintained by Great

Wolf or its transfer agent and may be notified of the pendency of this action by mail,

using the form of notice similar to that customarily used in securities class actions.

159. Lead Plaintiff�s claims are typical of the claims of the members of the

Exchange Act Class as all members of the Exchange Act Class are similarly affected by

Defendants� wrongful conduct in violation of federal law that is complained of herein.

160. Lead Plaintiff will fairly and adequately protect the interests of the

members of the Exchange Act Class and have retained counsel competent and

experienced in class and securities litigation.

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161. Common questions of law and fact exist as to all members of the

Exchange Act Class and predominate over any questions solely affecting individual

members of the Exchange Act Class. Among the questions of law and fact common to

the Exchange Act Class are:

a. Whether the Exchange Act was violated by the Exchange Act

Defendants� acts as alleged herein;

b. Whether the Exchange Act Defendants� statements during the

Exchange Act Class Period were materially false and misleading; and

c. To what extent the members of the Exchange Act Class have

sustained damages and the proper measure of damages.

162. A class action is superior to all other available methods for the fair and

efficient adjudication of this controversy because joinder of all members is impracticable.

Further, because the damages suffered by individual Exchange Act Class members may

be relatively small, the expense and burden of individual litigation make it impossible for

members of the Exchange Act Class to individually redress the wrongs done to them.

There will be no difficulty in the management of this action as a class action.

EXCHANGE ACT COUNTS

COUNT IV

Against the Exchange Act Defendants For Violations of Section 10(b) of the Exchange Act

and Rule 10b-5 Promulgated Thereunder

163. Lead Plaintiff repeats and realleges each and every allegation contained

above in ¶¶64-162, as if fully set forth herein.

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164. During the Exchange Act Class Period, the Exchange Act Defendants

issued a number of materially false and misleading statements that: (i) misled the

investing public, including Lead Plaintiff and the other members of the Exchange Act

Class, as alleged herein; and (ii) caused Lead Plaintiff and the other members of the

Exchange Act Class to purchase Great Wolf common stock at artificially inflated prices.

165. The Exchange Act Defendants made untrue statements of material fact

and/or omitted to state material facts necessary to make other statements issued not

misleading, in an effort to maintain artificially high market prices for Great Wolf

common stock in violation of Section 10(b) of the Exchange Act and Rule 10b-5. All

Exchange Act Defendants are sued either as primary participants in the wrongful and

illegal conduct charged herein, or as controlling persons as alleged below, or as both.

166. The Exchange Act Defendants, individually and in concert, directly and

indirectly, by the use, means or instrumentalities of interstate commerce and/or of the

mails, engaged and participated in a continuous course of conduct to conceal adverse

material information about the business, operations and future prospects of Great Wolf,

as specified herein.

167. The Exchange Act Defendants employed devices, while in possession of

material adverse non-public information and engaged in acts as alleged herein in an effort

to assure investors of Great Wolf�s value and performance and continued substantial

growth, which included the making of, or the participation in the making of, untrue

statements of material facts and omitting to state material facts necessary in order to

make the statements made about Great Wolf and its business operations and future

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prospects in light of the circumstances under which they were made, not misleading, as

set forth more particularly herein during the Exchange Act Class Period.

168. Each of the Exchange Act Defendants� primary liability, and controlling

person liability, arises from the following facts: (i) the Individual Defendants were high-

level executives and/or directors at the Company during the Exchange Act Class Period

and members of the Company�s management team or had control thereof; (ii) each of the

Individual Defendants, by virtue of his responsibilities and activities as a senior officer

and/or director of the Company was privy to and participated in the creation,

development and reporting of the Company�s internal budgets, plans, projections and/or

reports; (iii) each of the Individual Defendants enjoyed significant personal contact and

familiarity with the other Individual Defendants and was advised of and had access to

other members of the Company�s management team, internal reports and other data and

information about the Company�s finances, operations, and sales at all relevant times; and

(iv) each of the Individual Defendants was aware of the Company�s dissemination of

information to the investing public which they knew or recklessly disregarded was

materially false and misleading.

169. The Exchange Act Defendants acted with reckless disregard for the truth

in that they failed to ascertain and to disclose such facts, even though such facts were

available to them. Such material misrepresentations and/or omissions were done

recklessly and for the purpose and effect of concealing Great Wolf�s operating condition

and future business prospects from the investing public and supporting the artificially

inflated price of its common stock. As demonstrated by the Exchange Act Defendants�

overstatements and misstatements of the Company�s business operations and earnings

54

throughout the Exchange Act Class Period, the Exchange Act Defendants, if they did not

have actual knowledge of the misrepresentations and omissions alleged, were reckless in

failing to obtain such knowledge by deliberately refraining from taking those steps

necessary to discover whether those statements were false or misleading.

170. As a result of the dissemination of the materially false and misleading

information and failure to disclose material facts, as set forth above, the market price of

Great Wolf common stock was artificially inflated during the Exchange Act Class Period.

In ignorance of the fact that market prices of Great Wolf�s public-traded common stock

were artificially inflated, and relying directly or indirectly on the false and misleading

statements made by the Exchange Act Defendants, or upon the integrity of the market in

which the common stock traded, and/or on the absence of material adverse information

that was known to or recklessly disregarded by the Exchange Act Defendants but not

disclosed in public statements by the Exchange Act Defendants during the Exchange Act

Class Period, Lead Plaintiff and the other members of the Exchange Act Class acquired

Great Wolf common stock during the Exchange Act Class Period at artificially inflated

prices and were damaged thereby.

171. At the time of said misrepresentations and omissions, Lead Plaintiff and

the other members of the Exchange Act Class were ignorant of their falsity, and believed

them to be true. Had Lead Plaintiff and the other members of the Exchange Act Class

and the marketplace known the truth regarding the problems that Great Wolf was

experiencing, which were not disclosed by the Exchange Act Defendants, Lead Plaintiff

and the other members of the Exchange Act Class would not have purchased or otherwise

acquired their Great Wolf common stock, or, if they had acquired such common stock

55

during the Exchange Act Class Period, they would not have done so at the artificially

inflated prices which they paid.

172. By virtue of the foregoing, the Exchange Act Defendants have violated

Section 10(b) of the Exchange Act, and Rule 10b-5, promulgated thereunder.

173. As a direct and proximate result of Defendants� wrongful conduct, Lead

Plaintiff and the other members of the Exchange Act Class suffered damages in

connection with their respective purchases and sales of the Company�s common stock

during the Exchange Act Class Period.

COUNT V

Against Emery, Calder, and Schaefer For Violations of Section 20(a) of the Exchange Act

174. Lead Plaintiff repeats and realleges each and every allegation contained

above in ¶¶64-173 as if fully set forth in detail herein.

175. Emery, Calder, and Schaefer acted as controlling persons of Great Wolf

within the meaning of Section 20(a) of the Exchange Act as alleged herein. By virtue of

their high-level positions, and their ownership and contractual rights, participation in

and/or awareness of the Company�s operations and/or intimate knowledge of the false

financial statements filed by the Company with the SEC and disseminated to the

investing public, Emery, Calder, and Schaefer had the power to influence and control and

did influence and control, directly or indirectly, the decision-making of the Company,

including the content and dissemination of the various statements which Lead Plaintiff

contends are false and misleading. Emery, Calder and Schaefer were provided with or

had unlimited access to copies of the Company�s reports, press releases, public filings

and other statements alleged by Lead Plaintiff to be misleading prior to and/or shortly

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after these statements were issued and had the ability to prevent the issuance of the

statements or cause the statements to be corrected.

176. In particular, Emery, Calder, and Schaefer each had direct and supervisory

involvement in the day-to-day operations of the Company and, therefore, is presumed to

have had the power to control or influence the particular transactions giving rise to the

securities violations as alleged herein, and exercised the same.

177. As set forth above, the Exchange Act Defendants each violated Section

10(b) and Rule 10b-5 by their acts and omissions as alleged by the Exchange Act Claims

in Complaint. By virtue of their positions as controlling persons, Emery, Calder, and

Schaefer are liable pursuant to Section 20(a) of the Exchange Act. As a direct and

proximate result of Emery, Calder, and Schaefer�s wrongful conduct, Lead Plaintiff and

other members of the Exchange Act Class suffered damages in connection with their

purchases of the Company�s common stock during the Exchange Act Class Period.

WHEREFORE, Lead Plaintiff prays for relief and judgment as follows:

e) Determining that this action is a proper class action and certifying

Lead Plaintiff as class representative for the Exchange Act Class under Rule 23 of

the Federal Rules of Civil Procedure;

f) Awarding compensatory damages in favor of Lead Plaintiff and

the other members of the Exchange Act Class against all Exchange Act

Defendants, jointly and severally, for all damages sustained as a result of their

wrongdoing, in an amount to be proven at trial, including interest thereon;

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g) Awarding Lead Plaintiff and the Exchange Act Class their

reasonable costs and expenses incurred in this action, including counsel fees and

expert fees; and

h) Such other and further relief as the Court may deem just and

proper.

JURY TRIAL DEMANDED

Plaintiffs hereby demand a trial by jury.

Dated: March 20, 2006.

Respectfully submitted, _____________________________ Susan LaCava Wis. Atty. #1010779 23 North Pickney, Suite 300 Madison, Wisconsin 53703 Telephone: (608) 258-1335 Facsimile: (608) 258-1669 [email protected] Liaison Counsel for Plaintiffs and the Proposed Classes SCHIFFRIN & BARROWAY, LLP Michael K. Yarnoff, admitted pro hac vice Christopher L. Nelson, admitted pro hac vice Todd Mosser, admitted pro hac vice Michelle M. Backes, admitted pro hac vice Lead Counsel for Plaintiffs and the Proposed Classes MILBERG, WEISS, BERSHAD & SCHULMAN, LLP Steven S. Schulman Peter Seidman One Pennsylvania Avenue New York, New York 10119-0165 Telephone: (212) 594-5300 Facsimile: (212) 868-1229

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SCOTT & SCOTT, LLC David R. Scott Neil Rothstein 108 Norwich Avenue Colchester, Connecticut 06415 Telephone: (860) 537-5537 Facsimile: (860) 537-4432 WECHSLER HARWOOD LLC Robert I. Harwood Jeffrey M. Norton 488 Madison Avenue, 8th Floor New York, New York 10022 Telephone: (212) 935-7400 Facsimile: (212) 753-3630 Additional Counsel for Plaintiffs and the Proposed Classes

CERTIFICATION OF NAMED PVEWUAluT TY) -LAWS

' . . . J, Thomas 0 Wulf plaintift) deck&,, as to the elaims assuted undsr tba ikderai d d s s laws, thw

1. Plamtiff has reviawed the Compbmt md retains & Barnmay, U P and suah eoco~nsel it

deems appropriate,to associate with to pursue s w h on a fmfhgmt * besis.

2. Plaintiff dld not purchase the sawrity i s the subject of tht e n at drc disecdo11 d PhiffiEa

counsel or in order to participate in any privatt action.

3- f lamtiff is willing to strve as a repraentalive party on behalf ofthe dass, includii providing

testimony at deposition and Rid, if necessaty.

4. Plaintiffs transations &I the Great Wolf Resorrs (NASDAQ WOLF) that are the subject of this

action durtng the Class Period are as follw~:

No. of Sbares Buy/!!$ell &!St Price Per Sharp

15486 - BUY - 200

laMB!!& BUY 3mnoos

S14.OQ Saa!

-

List additional aansactoa on a span# sheet of paper, if v.

5 . Durin,~ the three years prior to the date ofthis Certiibtion, Plsintiflhas sMlght to m e 01' Ww3d

as a representative party for a class in the following acsfws fikd uader the Meal HI laws: nla

6. Plaintiff will not accept any payment for wing as a representative party on behalf of the class

beyond the PlaiatifPs pro tata share of any recovery. except such reasonabk costa and expmm Cinchding lost

wages) directly reking to the represedation of the class as ordered or approved by ttrc Cowt

I declare underrrenalty of perjury thatthe hregoiug isme and comct.

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