Case 1:05-cv-02494-WSD Document 18-1 Filed 02/02/2006 Page 1 of

UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF GEORGIA (ATLANTA)

IN RE SPECTRUM BRANDS, INC. FILE NO.: 1-05-CV-2494-WSD SECURITIES LITIGATION

CONSOLIDATED AMENDED CLASS ACTION COMPLAINT FOR VIOLATIONS OF FEDERAL SECURITIES LAWS Case 1:05-cv-02494-WSD Document 18-1 Filed 02/02/2006 Page 2 of

Table of Contents

Page

1. NATURE OF THE ACTION ...... 1

II. BACKGROUND ...... 3

III. JURISDICTION AND VENUE ...... 6

IV. THE PARTIES ...... 7

A. Lead Plaintiffs ...... 7

B. Defendants ...... 7

V. DEFENDANTS' FRAUDULENT SCHEME ...... 8

A. "We Always Find a Way to Make the Quarter ...... 8

B. Defendants' Clear View of the Retail Channel ...... 13

C. Defendants Fail to Reveal a Material Adverse Trend ...... 23

D. Acquisitions: Defendants' Light at the End of the Tunnel ...... 26

VI. FALSE AND MISLEADING STATEMENTS ...... 29

VII. THE TRUTH BEGINS TO EMERGE ...... 38

VIII. POST CLASS PERIOD EVENTS ...... 46

IX. DEFENDANTS' OMISSIONS AND FAILURE TO REVEAL THE TRUTH ...... 47

X. ADDITIONAL SCIENTER ALLEGATIONS ...... 48

A. Defendants Cash Out Before SPC's Huge Earnings Miss Is Revealed ...... 48

B. Performance-Based Bonuses: Additional Incentive to Withhold Material Information ...... 51

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C. A "Truly Transforming Transaction: The United Acquisition ...... 52

XI. CAUSATION AND ECONOMIC LOSS ...... 56

XII. CLASS ACTION ALLEGATIONS ...... 59

XIII. PRESUMPTION OF RELIANCE: FRAUD ON THE MARKET DOCTRINE ...... 61

COUNT I AGAINST SPC AND THE INDIVIDUAL DEFENDANTS FOR VIOLATIONS OF SECTION 10(B) OF THE EXCHANGE ACT ...... 64

COUNT II AGAINST THE INDIVIDUAL DEFENDANTS SECTION 20(A) OF THE EXCHANGE ACT ...... 68

XIV. PRAYER FOR RELIEF ...... 70

XV. JURY TRIAL DEMANDED ...... 71

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The Court appointed Lead Plaintiffs, James H. Milner, individually, and as

General Partner of Kountry Kitchen Ltd., Jain Sushil Kumar, David Davis, and

Brett Harris (the "Milner Group ) , (collectively "Lead Plaintiffs or "Plaintiffs ) individually and on behalf of all other persons similarly situated, make the following allegations against Spectrum Brands, Inc. ("SPC or the "Company ),

David A. Jones ("Jones ) and Randall J. Steward ("Steward ) (collectively,

"Defendants ). Except as to allegations specifically pertaining to the named Lead

Plaintiffs and their counsel, which are based upon personal knowledge, Lead

Plaintiffs' allegations are based upon Lead Plaintiffs' counsel's investigation, which included inter alia, a review of the public announcements made by

Defendants , Securities and Exchange Commission ("SEC ) filings, press releases, reports by securities industry analysts and media concerning SPC, and interviews with former SPC employees and SPC customers.

1. NATURE OF THE ACTION

1. This is a securities class action that arises out of the Defendants' dissemination of materially false and misleading information and omissions of material information to the investing public concerning the business, operations and financial performance of SPC during the period of November 11, 2004, through November 13, 2005 (the "Class Period ). This lawsuit is brought on behalf of all persons who purchased or otherwise acquired securities of SPC during Case 1:05-cv-02494-WSD Document 18-1 Filed 02/02/2006 Page 5 of

the Class Period, except for Defendants, the officers and directors of the Company, members of their immediate families and each of their legal representatives, heirs, successors or assigns and any entity in which any Defendant has or had a controlling interest (the "Class ).

2. Defendants find themselves responding to allegations of securities fraud for the second time in just four years. Not surprisingly, the U.S. Attorney's

Office for the Northern District of Georgia and the SEC are also conducting investigations into the Company's public statements and Defendants' suspiciously timed insider trading. Among other things, the U.S. Attorney's Office is investigating Defendant Jones' sale of almost $1 million worth of SPC stock just two days before a negative disclosure from the Company that sent shares trading as much as $8 .53 lower than Defendant Jones' sale price of $38.63.

3. Lead Plaintiffs allege that Defendants instituted a scheme to defraud the market by providing a false and misleading image of the operational strength of the Company's core battery business during the fourth quarter of fiscal year 2004 and first quarter of fiscal 2005. Defendants accomplished this fraud through what one former manager dubbed the Rayovac Philosophy - "channel stuffing. When the Defendants could no longer convince retailers to buy additional product at the rate necessary to keep the scheme secret, sales dropped considerably and so did the value of SPC stock.

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II. BACKGROUND

4. Founded in 1906 as the French Battery Company before a name change in the 1930's to Rayovacl, Rayovac existed for over 90 years as a privately owned battery manufacturer until 1996, when it was acquired by Thomas H. Lee

Partners, LP ("THL Partners ). Immediately after acquiring Rayovac, THL

Partners installed a new management team, led by Defendant Jones as Chairman of the Board and Chief Executive Officer. As revealed in the Company's SEC filings, THL Partners2 and Defendant Jones owned 80.2% of the outstanding shares of Rayovac following a September 12, 1996 recapitalization.

5. On November 22, 1997, THL Partners brought Rayovac public in a

$98 million offering of 6.5 million shares at $14 per share. Since that initial offering, the Company has engaged in additional secondary offerings to facilitate

THL Partners' sale of its Rayovac stock. One such offering in which THL Partners sold 4 million shares in June 2001 sent shareholders seeking legal redress in federal court. Just three months after the offering, the Company disclosed a

"slowdown in battery sales and negatively adjusted earnings guidance from positive 8-9% to flat or slightly negative. The market reacted swiftly and shares dropped to 35% below the then recent offering price of $19.50.

1 The Company was renamed in May 2005 with the name it bears today.

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6. Once again, under the direction of the same management team as in

2001, Defendants have manipulated the flow of information to investors to facilitate their strategy for transforming Rayovac from a battery company into

Spectrum Brands, a more diversified global company. From 1999 to 2002,

Rayovac's management team waged war against Duracell and Energizer, the two leading consumer battery suppliers in the United States. After four years of a campaign to undersell its competitors , Rayovac managed to lose 1.9% of its market share while at the same time reducing its price per cell from $0.72 in 1999 to $0.55 in 2003. With their failure to grow Rayovac's battery business becoming more evident, Defendants chose to take the Company in an entirely different direction by acquiring or "rolling-up other businesses to offset declining battery operations.

Beginning with the acquisition of Remington Products Company, LLC

("Remington ) in 2003 and culminating with the multi-billion dollar acquisitions of United Industries, Inc. ("United ) and Tetra Holding GmbH ("Tetra ) in the spring of 2005, the Company has evolved into the global, diverse consumer

2 Including numerous affiliates or like-named partnerships under the control and direction of THL Partners.

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products manufacturing and marketing company known today as Spectrum

Brands.3

7. Although the name Spectrum Brands may aptly describe the full spectrum of products it sells today, at the start of the Class Period, the Company only sold Rayovac's batteries and Remington's personal-grooming products. After the Remington acquisition, analysts began to question if the Company was committed to its diversification through acquisition strategy. On November 11,

2004, Deutsche Bank analysts wrote, "We like the Rayovac story when it is in acquisition mode... [but] Without a deal on the horizon and with few upcoming catalysts, we maintain our Hold rating. Defendants were under pressure to meet their previous targets of growing sales to $3 billion by 2006 - something that could only be achieved through acquisition - and the market anxiously awaited news of the next purchase. In order to conceal revenue shortages in its core battery business until the new acquisition could be completed, Defendants employed a scheme to artificially inflate battery revenues in the 4Q2004 and 1 Q2005, bolstering its stock price and enabling it to finance its largest acquisition ever,

United Industries, Inc.

3 Rayovac changed its name to Spectrum Brands on May 2, 2005 and began trading on the NYSE under the symbol "SPC instead of its previous symbol of "ROV .

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8. Taking advantage of his insider knowledge and the artificial increase in the stock price, Defendant Jones sold 164,350 shares of common stock during the Class Period, reaping proceeds of $6,371,944. As disclosed in November and

December 2005, the U.S. Attorney's Office for the Northern District of Georgia, as well as the SEC, are investigating Defendant Jones' transactions within 30 days of the July 28, 2005 and September 7, 2005 Company statements.

III. JURISDICTION AND VENUE

9. The claims asserted herein arise under 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 the rules and regulations promulgated thereunder, including SEC Rule

lOb-5 , 17 C.F.R. 240. 10b-5.

10. This Court has jurisdiction over the subject matter of this action pursuant to 28 U.S.C. §§ 1331 and 1337, and Section 27 of the Exchange Act [15

U.S.C. § 78aa].

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

Exchange Act, and 28 U.S.C. § 1391(b). SPC maintains its principal place of business in this District and many of the acts and practices complained of herein occurred in substantial part in this District.

12. In connection with the acts and conduct alleged in this Complaint,

Defendants, directly or indirectly, used the mails and instrumentalities of interstate

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commerce, including, but not limited to, the mails, interstate telephone communications and the facilities of the national securities markets.

IV. THE PARTIES

A. Lead Plaintiffs

13. Lead Plaintiffs, James H. Milner, individually, and as General Partner of Kountry Kitchen Ltd., Jain Sushil Kumar, David Davis, and Brett Harris purchased SPC securities during the Class Period and suffered damages as a result of the wrongful conduct alleged herein. Lead Plaintiffs' transactions and alleged losses are evidenced in their certifications and loss charts attached to their motion for appointment as Lead Plaintiffs and are incorporated hereto by reference.

B. Defendants

14. SPC's website provides the following description of the Company:

Spectrum Brands (formerly Rayovac Corporation) is a global consumer products company and a leading supplier of batteries, lawn and garden care products, specialty pet supplies, shaving and grooming products, household insecticides, personal care products and portable lighting. Spectrum Brands' products are sold by the world's top 25 retailers and are available in more than one million stores in 120 countries around the world. Headquartered in Atlanta, Georgia, SPC generates approximately $2.8 billion in annualized revenues and has approximately 10,000 employees worldwide. The company's stock trades on the New York Stock Exchange under the symbol SPC.

15. Defendant David A. Jones was during the relevant period, Chief

Executive Officer ("CEO ) of the Company. During the Class Period, Defendant

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Jones signed the Company's SEC filings, including but not limited to SPC's Forms

10-Q and 10-K and/or made other materially false and misleading statements to the financial press and during analyst and investor conference presentations.

16. Defendant Randall J. Steward, who upon information and belief is a

Certified Public Accountant, served as Chief Financial Officer ("CFO ) and

Executive Vice President of the Company during the Class Period. Defendant

Steward signed the Company's SEC filings, including but not limited to SPC's

Forms 10-Q and 10-K and/or made other materially false and misleading statements to the financial press or during analyst and investor conference presentations. Under tremendous scrutiny for his role in a prior accounting scandal at Rayovac in 2001, Defendant Steward announced his resignation as Rayovac's

CFO and Executive Vice President of Administration on November 8, 2001.

However, on August 21, 2002, Defendant Steward returned to his position as

Executive Vice President and CFO of the Company, where he remains to this day.

Defendants Jones and Steward are referred to herein as the "Individual

Defendants.

V. DEFENDANTS' FRAUDULENT SCHEME

A. "We Always Find a Way to Make the Quarter"

17. Defendants' fraudulent scheme included a practice known as "channel stuffing, whereby manufacturers induce customers to purchase larger volumes of

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product than ordinarily purchased, even though the customers do not need the larger volume . This practice has the effect of pulling forward into the present quarter orders and revenue that otherwise would be properly placed and recognized in a future quarter.

18. Defendants engaged in pervasive channel stuffing throughout the

4Q2004 and 1 Q2005.4 Although SPC had previously encouraged its sales force to pull sales in before quarter's end, Defendants stuffed the channel far more aggressively during the Class Period than ever before because the Company knew that missing Company forecasts and analysts' estimates would cause a steep decline in SPC's stock price at a time when the Company was in the middle of its transformation from Rayovac to Spectrum Brands - a transformation that was necessary to meet Wall Street's expectations of continued growth.

19. As evidenced in the chart below, North American battery sales spiked during the 4Q2004 and 1 Q2005 as a result of Defendants' channel stuffing activity.

4 The Company's fiscal year ("FY ) begins October 1 and ends September 30. All quarterly references contained herein are to fiscal year quarters.

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NA Battery Sales

$250,000

$200,000

$150,000

q NA Battery Sales

$100,000

$50,000

$0 2Q2004 3Q2004 4Q2004 1Q2005 2Q2005 3Q2005 4Q2005

20. To induce SPC's customers, including Best Buy, Menards, Wal-Mart,

Kmart, Shopco, and Toys R Us, to order unwanted product and to pull sales forward into earlier quarters, SPC gave its customers deeper discounts, longer payment terms, and credits towards future purchases. The highest levels of management at SPC engaged in this channel stuffing. Indeed, as one former national account manager stated, "The decision to put extra inventory into the distribution channel was made by management because Defendant Jones "wanted to over-deliver to Wall Street. Indeed, Defendants were intensely focused on meeting short-term earnings goals, especially in advance of the United acquisition.

For example, a former supply chain executive expressed concern that sales were

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off during the first or second quarter of 2005. In response, senior management stated that "we always find a way to "make the quarter. In fact, as detailed below, "making the quarter could only be accomplished through unusual quarter- end discounting and channel stuffing.

21. Channel stuffing has the effect of inflating results of operations in the period in which the practice is engaged, at the expense of future quarters because the customer has to work off the excess inventory. A former national account manager described this practice as "borrowing from Peter to pay Paul. The effect of the channel stuffing is magnified if the practice occurs during a sluggish economy because, as the rate of the customer' s sales decreases, it takes longer for the customer to work off the excess inventory. Thus, unless the channel stuffing continues at the same rate or there is increased demand for the goods during the period from which the future orders were pulled forward, the customer will reduce its purchases or even stop new purchases until its inventory is reduced. Moreover, when demand declines, the customer will inevitably order less product than in previous quarters. Thus, by engaging in pervasive channel stuffing, SPC mortgaged future sales and bookings, while continuing to assure investors that future sales would be robust.

22. A former Class Period senior marketing manager stated that "products were pushed out and deals were made with customers - too much was pushed

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without a thought of what the sales were gonna be in the market. A former marketing manager employed during the Class Period compared SPC's sales tactics to Sunbeam's (which resulted in the Company's bankruptcy and SEC proceedings). He noted that "just selling it doesn't mean people are going to buy it--similar to what we saw in the 1980s with Sunbeam--push all the product out, then get the stock up as high as we can ...if it doesn't sell, then that's a risk they are gonna take and they lost. He described the amount of product in the distribution channel as "tons of weeks' supplies at Wal-Mart and other customers.

This former employee confirmed that by February 2005, "too much product was pushed without a thought of what the sales would be, which turned out to be well below expectations. By this time, it became apparent at SPC that the Company

"couldn't reach [its] numbers. A former Director of Marketing confirmed that the

Company had "very aggressive numbers to meet and that the Company was

"incentivizing customers to make those numbers.

23. Although the practice of channel stuffing is not illegal per se, the failure to disclose the pervasive nature of the practice and the effect it would have on future sales and earnings rendered Defendants' Class Period statements about growth in sales, revenues and earnings false and misleading. These statements were particularly important to investors during the Company's transformation because its short-term success depended largely on its ability to maintain its core

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income streams while integration expenses and delays reduced the newly acquired revenue sources.

B. Defendants ' Clear View of the Retail Channel

24. To manipulate inventory levels and artificially meet quarterly Wall

Street expectations, Defendants had access to systems and reports which detailed how much product SPC customers had on hand. SPC employed numerous tools to maintain accurate control over its own inventory and that of its customers, including computer systems, accounting software and real-time links to its customers' computer networks. Defendants enjoyed access to numerous sources, discussed in more detail below, that gave them a clear view of the retail channel into which they would ship more product, whether customers needed it or not.

1. Electronic Inventory Surveillance

25. SPC deployed SAP Advanced Planner and Optimizer ("SAP ) to track everything within the Company, from inventory to sales. This powerful software is equipped with tools to manage almost every aspect of a complicated business and interfaces well with other business support software. According to three former managerial employees employed during the Class Period, Company executives, including Defendants, had unfettered access to the SAP system which provided real-time information on inventory, shipments, and any customer or POS

(Point of Sale) data that had been obtained.

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26. Customer inventory levels came from various sources depending on the customer and its inventory management system. SPC utilized Vendor

Managed Technologies Velocity POS analysis and reporting software to help plan, execute and measure its retail success, as well as provide valuable feedback to its production and forecasting departments. According to a former marketing manager, SPC used the Velocity software to obtain POS data and report internally at SPC.

27. SPC' s largest customer is Wal-Mart, representing almost 19% of

SPC's consolidated net sales in 2004. Wal-Mart employs a Web-based system called Retail Link that allows its suppliers to log on and see Wal-Mart's inventory in real time. Wal-Mart's inventory management is so sophisticated that suppliers can obtain its inventory information by particular SKU5 company wide, store-by- store, or even by regional warehouse . A former SPC sales analyst employed during the Class Period stated that every supplier that has access to Wal-Mart's

Retail Link is issued a separate ID, and that with this ID can find out exactly how many AA Rayovac batteries were in stock in a given Wal-Mart store.

28. Other retail customers did not utilize the web based system like Wal-

Mart, but they still communicated electronically with SPC. Many customers

5 A "SKU" or Stock Keeping Unit is a common term for a unique numeric identifier, used most commonly in online business to refer to a specific product in inventory or in a catalog.

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would provide POS data on EDI Form 852. EDI is a particular electronic file format standardized to share thousands of different fields of data on unlimited transactions . This raw data is translated into a format that is compatible with the receiving party's computer, SAP in SPC's instance. SPC used a digital translating program called Gentran to "map the data from the EDI Form 852s and create an intermediary document called an I-doc. I-docs were then loaded into the SAP system. Customers would submit these forms on a weekly basis to SPC utilizing eight to ten fields to inform SPC as to how much of a given SKU had been sold or remained.

29. For example, K-Mart would transmit its EDI data on Wednesday evenings because K-Mart's fiscal week ran from Thursday to Wednesday. By

Thursday morning, according to a former national account manager, a report would be generated by the SAP system for K-mart and be distributed via email to all

Brand Managers and Account Managers at SPC. These weekly inventory reports showed the sales for the previous four weeks, for the week that just ended, and the inventory on hand broken out by SKU number.

2. Frequent Meetings and Regular Reporting

30. Meetings were held by various departments within SPC to discuss their progress on satisfying weekly, monthly, and quarterly projections. For example, every Tuesday in the Marketing Conference Room of Rayovac's old

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headquarters in Madison, Wisconsin, Division Vice Presidents, including current employees Scott Duhamel (Wal-Mart Division VP), Tony Cords (Finance

Executive), Tom Walzer (VP of Finance - North America), Susan Gill-

Clappenberg (National Account Manager for Target), and other former employees, would meet for what was known as the "Make the Quarter Meeting. After concern arose that this name might be misconstrued, around September 2003 these meetings became known as the Quarterly Business Review or QBR.

31. Various SPC departments generated reports that displayed an accurate picture of the operational performance of each department. For example, the

Customer Service Department in St. Louis was responsible for metrics reporting and generated its "Operational Dashboard Report on a daily basis. The

"Dashboard report showed (1) daily and monthly customer shipments vs. goal; (2) fill rates; and, (3) on-time shipments. These reports were prepared using Microsoft

Excel and distributed via email in PDF format to approximately 30 people, including President and Chief Executive Office for North America, Robert Caulk.

32. According to a former Director of Marketing and Sales Information,

Company executives were provided with a Daily Sales Report from the SAP system which would update SPC's inventory by key accounts. With these daily reports, executives would then decide what level of promotion was appropriate to sell additional product.

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3. "We Needed to Make the Numbers": Defendants' Undisclosed Channel Stuffing Scheme Escalates

33. Defendants ability to see the inventory on hand at each retailer, allowed them to effectively maximize the channel stuffing. In order to find out how long a retailer 's inventory would last, SPC would divide the total inventory by the weekly average for sales, producing the number of weeks it would take to sell the inventory on hand. This information was essential for retailers and SPC to know when a re-supply was necessary, or more appropriately in this instance, when one was not.

34. According to a former national account manager, K-mart stores had on average between 52 to 100 weeks of Rayovac batteries, with some stores holding 250 weeks of C and D batteries. This same witness stated that Wal-Mart had 30-50 weeks of product in inventory and even though everyone knew in

January 2005 that Wal-Mart's inventory levels and weeks on hand were way up,

SPC continued to offer Wal-Mart incentives to take additional product because

"we needed to make the numbers. Wal-Mart's inflated inventory was confirmed by a former sales analyst, employed at SPC during the Class Period, who recalled at least "30 weeks on hand and stated, "We all knew what was going on, we front loaded the stores in August and September 2004 for the Christmas holiday. This witness reiterated that executive-level management handled every aspect of the

Wal-Mart account because the Company was so dependent on this relationship.

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35. In another instance during September 2004, a former Channel

Manager recalled offering ShopCo an additional 30 days onto the standard payment terms "because they weren't ready to take their Christmas inventory yet.

Rather than wait and ship the batteries under normal terms when the customer wanted them, the Company enticed the customer with promotional terms and discounts so that future quarter's revenue could be pulled back into the current quarter. Time and time again, former employees tell the same story.

4. "Mortgaging the Future"

36. Another tactic employed as part of Defendants' scheme to inflate revenues during the 4Q2004 and 1 Q2005 involved shipping goods, which was a revenue recognition event on the day they shipped, regardless of whether the customer wanted the goods yet. This has the same effect of pulling future revenue into the current quarter.

37. A former customer service supervisor, employed during the Class

Period, relayed the following story as being indicative of the types of activity the

Company engaged in at management ' s direction during the 4Q2004 to meet projected sales targets. On the last day of the 4Q2004, a large tractor trailer truck full of batteries was shipped prematurely to a retail customer, only to let it sit in that customer's parking lot for three days because they refused to accept the product which had been delivered early. SPC recorded this revenue in the 4Q2004

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because it "shipped within the quarter, but management knew the customer would not accept the product at that time since delivery terms had not been established for that time. Defendants' practice of shipping goods earlier than a customer had requested in order to meet quarterly goals caused the product to either be shipped back to SPC, or caused significant penalties to SPC for violation of the agreed upon delivery terms. For example, a former supervisor of Customer Care explained that larger customers, such as Wal-Mart and Menards, would charge the

Company for storage space in their warehouse if goods were shipped early. Wal- mart, in particular, would simply deduct the amount it charged in storage fees for goods prematurely delivered from its payment to the Company for the total shipment. Another witness told a similar story, but in a prior period, where SPC sent five tractor trailer trucks to a customer on the last day of the quarter, only to have them returned full a week later after the customer refused the product.

According to this witness, these returns would be recorded in the quarter following the one in which the revenue had been improperly recorded. These are both examples of what a former Director of Marketing concluded was simply SPC

"mortgaging its future to meet monthly and quarterly goals. 6 These extraordinary "shipping procedures were necessary to artificially boost sales and did not reflect ordinary, sustainable demand for SPC products.

6 Unless indicated otherwise, emphasis added.

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38. As a result of this influx of product into the channel during the

4Q2004 and 1 Q2005, the Company announced "Record Fourth Quarter and Fiscal

2004 Results of 60 cents per diluted share, 2 cents better than First Call' mean estimates and 11 cents better then 4Q2003. On the heels of these impressive results, the Company issued guidance for 2005 of $2.10 to $2.15 per share, which

Defendants knew could not be achieved given the decline in its battery operations and the unusual amounts of inventory being held by retail customers.

39. According to one former marketing manager who along with

Defendant Jones attended a Company managerial meeting from February 14 to

February 16, 2005 in San Diego, California, at the Hotel Del Coronado, Defendant

Jones knew in February 2005 SPC would not make its 2005 earnings numbers because the channel had been stuffed. Sales personnel openly discussed this undeniable fact with attendees of this meeting because high inventory levels at retail frustrated their efforts to meet management' s current unattainable projections.

First Call Corporation provides real time broker research, analysts estimates, workflow, and technology based solutions.

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5. Defendants Engage In Guaranteed Sales & GAAP Violations

40. Another essential aspect to Defendants ' scheme was to accept returns from retailers to entice them to take additional product with no risk. For example, according to a former sales analyst for the Company during the class period, from

September 2004 through January 2005, the Company ran a pallet promotion where they sent 1/4 or 1/2 size pallets as promotional tools. The goal was to place 5 pallets per store location. The program helped the Company move a lot of additional inventory, but in January 2005, Wal-Mart requested the return of $5 million worth of batteries. This witness stated that only Defendant Steward or Defendant Jones could authorize a return of this magnitude. Accepting returns was contrary to

Defendants' publicly stated policy of not accepting returns, and also violated

GAAP.

41. GAAP (FASB Statement No. 48, Revenue Recognition When Right of Return Exists ; "FASB Statement No. 48 ) defines "guaranteed sales as

"arrangements in which customers buy products for resale with the right to return products. FASB Statement No. 48 provides that:

If an enterprise sells its product but gives the buyer the right to return the product, revenue from the sales transaction shall be recognized at time of sale only if all of the following conditions are met:

(i) The seller's price to the buyer is substantially fixed or determinable at the date of sale.

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(ii) The buyer has paid the seller, or the buyer is obligated to pay the seller and the obligation is not contingent on resale of the product.

(iii) The buyer's obligation to the seller would not be changed in the event of theft or physical destruction or damage of the product.

(iv) The buyer acquiring the product for resale has economic substance apart from that provided by the seller.

(v) The seller does not have significant obligations for future performance to directly bring about resale of the product by the buyer.

(vi) The amount of future return can be reasonably estimated.

42. In contravention of GAAP, SPC sold material quantities of merchandise on a guaranteed sales basis, and improperly recognized these amounts as revenue because (i) in all instances the amount of future returns could not be reasonably estimated by SPC; and (ii) in connection with the "sham shipments, the buyer had no obligation to SPC in the event of theft or physical destruction or damage of the product.

43. All requests for returns would be taken by the Customer Care center, where approval had to be obtained from a different level manager depending on the size of the return. For example, for the $5 million return Wal-Mart requested,

Defendant Steward would have had to approve the return before a return authorization number would be issued. The Company utilized a tiered scheme for returns that was very similar to the one employed for promotional proposals.

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C. Defendants Fail to Reveal a Material Adverse Trend

44. In order to convince retailers to take on additional inventory that they have no present need for, the Company offered what its refers to as "promotions.

In most instances, these promotions took the form of a rebate, extended payment terms or a discount in the purchase price. All of these incentives led to the erosion of the Company's profit margin in this division. Defendants' programs far exceeded normal promotional activity and were done as last minute attempts to boost sales in lagging quarters.

45. Defendants were required by the SEC to disclose the unusual material pattern of channel stuffing and deep discounting which reached a crescendo in

January 2005 . The SEC' s Staff Accounting Bulletin "SAB No . 101 states:

Management's Discussion and Analysis (MD&A) requires a discussion of liquidity, capital resources, results of operations and other information necessary to an understanding of a registrant's financial condition, changes in financial condition, and results of operations. This includes unusual or infrequent transactions, known trends or uncertainties that have had, or might reasonably be expected to have, a favorable or unfavorable material effect on revenue, operating income or net income and the relationship between revenue and the costs of the revenue. Changes in revenue should not be evaluated solely in terms of volume and price changes, but should also include an analysis of the reasons and factors contributing to the increase or decrease. The Commission stated in Financial Reporting Release (FRR) 36 that MD&A should "give investors an opportunity to look at the registrant through the eyes of management by providing a historical and prospective analysis of the

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registrant's financial condition and results of operations, with a particular emphasis on the registrant's prospects for the future." Examples of such revenue transactions or events that the staff has asked to be disclosed and discuss in accordance with FRR 36 are:

Shipments of product at the end of a reporting period that reasonably might be expected to result in lower shipments and revenue in the next period.

Granting of extended payment terms that will result in a longer collection period for accounts receivable (regardless of whether revenue has been recognized) and slower cash inflows from operations, and the effect on liquidity and capital resources. (The fair value of trade receivables should be disclosed in the footnotes to the financial statements when the fair value does not approximate the carrying amount.)

Changing trends in shipments into, and sales from, a sales channel or separate class of customer that could be expected to have a significant effect on future sales or sales returns.

An increasing trend toward sales to a different class of customer, such as a reseller distribution channel that has a lower gross profit margin than existing sales that are principally made to end users. Also, increasing service revenue that has a higher profit margin than product sales.

Seasonal trends or variations in sales.

A gain or loss from the sale of an asset(s).

46. Depending on the size of the purchase, the customer, and the amount of the discount, authorization could be obtained from different levels of management . The Company distributed documents entitled "North America

Customer Proposals - Authority Levels to its battery sales force. A copy of the

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document is attached hereto as Exhibit A. Based on the statements in the table, authority had to be obtained from two Executive Committee members, as well as a

VP of Finance or the CFO (Defendant Steward), to grant a customer a rebate greater than 35% of the purchase price, payment terms greater than 90 days, or extend credit of more than $750,000.

47. According to numerous former employees with direct knowledge of the Company' s sales practices, these procedures were faithfully followed by the

Company, which means that Defendants not only learned of smaller promotions through meetings and reports, but had to individually approve certain transactions, like the one to Wal-Mart discussed above during the 4Q2004.

48. As a direct result of overloading the channel in 4Q2004 and 1 Q2005,

Defendants put tremendous pressure on retailers to move even more of the

Company's batteries by increasing the quantity of batteries in its packaging. Even though the Company had direct access to, and knew of the inflated inventories in its retail channels, Defendants decided to change the quantity in its packages from four to six. This marketing strategy, referred to by the Company as "50% More , made it extremely difficult to move new product because the retailers wanted to sell the old before stocking the new.

49. To overcome this problem, the Company had to further incentivize retailers to move the old packaging. A former Channel Manager recalls an

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example of this at Toys R Us. At the time of the switch to the "50% More six- packs, Toys R Us had 26 weeks' worth of four-pack batteries in its inventory.

When the change took place, "We had [to] mark things down to $0.99 in order to move the old product. This witness also stated that Toys R Us had a "boatload of

AA 24-packs that upper management knew about, "but just didn't care.

50. To make matters worse, the Company instituted another marketing strategy change near the end of the Class Period shifting away from the "50% more six packs to "Same Performance, Better Value four-packs designed to compete directly with Duracell's and Energizer's more expensive four-packs.

Once again, product returns and unusual promotions were necessary to move packaged products from the stuffed retail channel.

D. Acquisitions: Defendants' Light at the End of the Tunnel

51. On January 4, 2005, the Company announced its intention to acquire privately held United Industries, Inc. United was owned, at the time, by the same firm that took Rayovac public, THL Partners. The press release announcing the acquisition contained the following relevant statements:

The transaction calls for Rayovac to issue $13.75 million shares of its common stock, along with additional consideration of $70 million in cash, to United Industries' current shareholders, for a total value of approximately $1.2 billion including the assumption of approximately $880 million of United Industries debt and a cash tax benefit of $140 million. This acquisition extends Rayovac's household products offerings into the

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large and growing lawn and garden and specialty pet supply categories, while leveraging the company's operational expertise and existing relationships with global retailers.

52. Commenting on the acquisition in the release, Defendant Jones stated:

Rayovac's publicly stated goal has been to grow through acquisitions that diversify and increase our revenue base while leveraging our global merchandising and distribution capabilities. United Industries is just such an acquisition. Upon closing, we will have a significant presence in several new consumer products markets-large growth categories where we can capitalize on our strengths with major retailers to leverage the full potential of the powerful combined enterprise.

53. This acquisition was essential to Defendants ' strategy of diversifying the Company's revenue streams from its declining battery business. Defendant

Jones did not overstate its importance when he stated, "This is a truly transforming transaction for Rayovac, representing a major step forward toward our goal of achieving annual revenues of $3 billion.

54. United was 83 percent owned by the Thomas H. Lee Equity Fund IV, a private equity fund managed by THL Partners and affiliates. When the acquisition was completed, THL Partners once again held an ownership position in

Rayovac of approximately 25 percent and Rayovac agreed to file a shelf registration within nine months following closing to allow for the sale of such shares. In addition, two new Class II seats will be added to Rayovac's current

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eight-person board of directors, to be filled by candidates selected by the THL shareholders.

55. On February 7, 2005, Rayovac announced the completion of the

United acquisition, completion of its offering of $700 million aggregate principal amount of its 7 3/8% Senior Subordinated Notes due 2015, and its tender offer for

United Industries 9 7/8% Senior Subordinated Notes due 2009. Rayovac's new senior credit facilities initially amounted to $1.03 billion.

56. On March 15, 2005, the Company announced its intentions to purchase Tetra Holding GmbH for 415 million euro. Commenting in the release,

Defendant Jones stated:

The acquisition of Tetra is a significant step forward in our strategy of becoming a more significant global player in the pet supplies industry. Tetra's superior brand equity and demonstrated record of product innovation make it a premiere property in this industry. The combination of Tetra with our United Pet Group business means Rayovac becomes the world' s largest manufacturer of pet supplies, a position with which we can leverage our company's worldwide operations, supply chain and information systems infrastructure to better meet the needs of our global retailer customers.

57. The recently acquired President of the United Pet Group, John Heil, offered the following praise for Tetra, "The Tetra brand is arguably the most recognized global brand name in the pet supplies industry. The acquisition of

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Tetra is a linchpin to our goal of becoming the most important pet supplies provider in the world.

58. As a result of all the acquisitions, on April 27, 2005, Rayovac changed its name to Spectrum Brands, Inc. That same day, SPC filed a Form S-3 shelf registration statement with the SEC. When declared effective by the SEC, the registration statement will permit Rayovac to issue, from time to time, up to an aggregate of $1,181,750,000 of Rayovac common stock, preferred stock, debt securities, warrants, stock purchase contracts and stock purchase units.

59. On April 29, 2005, the Company announced the completion of the

Tetra acquisition. With all of the acquisitions completed, Defendants needed the new income streams to perform as advertised in order to keep their fraudulent scheme concealed. However, that never happened since the battery business continued its slide and United's revenue contribution was less than expected in lawn, garden and pet products. As disclosed on September 7, 2005, weakness across all business divisions rendered concealment of the channel stuffing impossible to maintain.

VI. FALSE AND MISLEADING STATEMENTS

60. On November 10, 2004, after the markets closed, the Company issued a press release containing its periodic results entitled, "Rayovac Announces Record

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Fourth Quarter and Fiscal 2004 Results. The release contained the following false and misleading statements:

Rayovac Corporation announced fiscal 2004 fourth quarter diluted earnings per share of 52 cents and pro forma diluted earnings per share of 60 cents, two cents higher than First Call mean estimates. These results compare to diluted earnings per share of 39 cents and pro forma diluted earnings per share of 49 cents for the comparable prior year period.

"Fiscal 2004 has been a year of tremendous progress for Rayovac, as our strong fourth quarter results clearly demonstrate, said Dave Jones, chairman and CEO. "We saw solid twelve percent sales growth in our global battery business8 and very strong eighteen percent top line growth from Remington as compared with Remington's 2003 results. The integration of the Remington acquisition is complete and the resulting synergies will meet our target of approximately $35 million. The cash flow we generated during fiscal 2004 has allowed us to invest in high return areas of our business while lowering debt levels significantly. These accomplishments should position Rayovac for another successful year in fiscal 2005.

Fiscal Year 2005 Outlook

The Company is raising its expectations for fiscal year 2005 diluted earnings per share to a range of $2.10 to $2.15. This represents an increase of approximately fifteen to seventeen percent over fiscal 2004 pro forma results. Fiscal 2005 net sales are expected to approximate $1.5 billion.

8 Unless otherwise indicated, emphasis added.

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61. The statements contained above are false and misleading because they failed to disclose: (1) the adverse sales trend that had emerged in the Company's core battery business; and (2) that Defendants had intentionally concealed the adverse trend in the Company's core battery business by engaging in channel stuffing, thereby rendering the Fiscal Year 2005 projections unattainable.

62. The very next day, November 11, 2004, the Individual Defendants participated in an earnings conference call with analysts. Defendant Jones made the following false and misleading statements during this conference call:

As we go through our discussion of Q4 results, there's four primary areas I'd like to highlight that have been the major drivers behind our accomplishments, both for the quarter and the year. The first is organic growth.

Rayovac ' s global battery sales growth for the quarter was 12%, reflecting the strength in momentum in our Rayovac and VARTA brands.

We had a very good quarter in our North American battery business, with 14% overall growth driven by very strong 16% growth in alkaline batteries.

Excluding hurricane-related sales, battery revenue was up 6%, reflecting the continued strong momentum in our "50% More marketing strategy. Our alkaline battery market share increased approximately one point during the quarter as compared with last year.

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63. The statements made by Defendant Jones above are false and misleading for the reasons stated throughout this Complaint, including that

Defendants failed to disclose:(1) an adverse sales trend had emerged in the

Company's core battery business; and (2) that Defendants had intentionally concealed the adverse trend in the Company's core battery business by engaging in channel stuffing.

64. On December 14, 2004, the Company filed its Form 10-K for the period ending September 30, 2004. The Form 10-K, which was signed and certified by the Individual Defendants pursuant to the Sarbanes -Oxley Act of 2002, contained the financial results first announced on November 10, 2004. The Form

10-K also contained the following false and misleading statements:

Revenue Recognition and Concentration of Credit Risks

We recognize revenue from product sales upon shipment to the customer, which is the point at which all risks and rewards of ownership of the product are passed, provided that: there are no uncertainties regarding customer acceptance; persuasive evidence of an arrangement exists; the price to the buyer is fixed or determinable; and collectibility is deemed reasonably assured. We are generally not obligated to allow for, and our general policy is not to accept, product returns for battery sales. We do accept returns related to our shaving, grooming and personal care products. We estimate and accrue the cost of these returns based on historical experience, which are treated as a reduction of net sales.

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65. The statement contained above is false and misleading for the reasons stated throughout this Complaint, including that Defendants knew that the

Company regularly accepted returns of batteries from its customers, including

Wal-Mart, its largest customer. According to a former Return Center Coordinator was responsible for unloading battery and shaver returns, the Company had a "real problem shipping too much product and "ran out of room in its brand new

560,000 foot distribution center in Dixon, Illinois, for returns and had to lease another facility in town. A former Vice President of Supply during the Class

Period described the Company 's relationship with Wal-Mart as an improper guaranteed sale, that is, "anything they [Wal-Mart] didn't sell, they could return.

66. On January 27, 2005, the Company issued a press release announcing

"Record First Quarter Results. The release contained the following false and misleading statements:

Rayovac Corporation announced fiscal 2005 first quarter diluted earnings per share of 79 cents, which include a one cent net gain from the disposal of fixed assets, compared with diluted earnings per share of 67 cents for the comparable period last year. First quarter 2005 pro forma diluted earnings per share of 78 cents were 20 percent higher than 2004 first quarter pro forma diluted earnings per share of 65 cents, and three cents higher than analysts' mean estimates as reported by First Call.

Rayovac Chairman and CEO David Jones commented that, "Rayovac delivered solid sales growth and double-

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digit earnings growth in our fiscal first quarter. Our worldwide battery business generated a strong sales increase of twelve percent. Global sales of Remington products improved modestly, with a very strong performance in Europe/Rest of World somewhat offset by lower sales in North America resulting from a challenging retail environment. We continue to make significant progress in the integration of our Microlite and Ningbo Baowang acquisitions, and we are pleased to announce that our Brazilian business (formerly Microlite) contributed positive operating earnings in the first quarter, two quarters ahead of our original expectations. With a 20 percent pro forma diluted EPS growth rate for the fiscal first quarter, Rayovac continues to deliver exceptional performance.

North American battery sales showed modest growth of two percent.

Fiscal Year 2005 Outlook

The Company is raising expectations for fiscal year 2005 diluted earnings per share to a range of $2.15 to $2.20. Fiscal 2005 net sales expectations are unchanged at approximately $1.5 billion. This guidance does not include the impact of the pending United Industries acquisition. Financial guidance incorporating the impact of this acquisition will be provided subsequent to the anticipated closing of that transaction in February.

67. The statements contained above are false and misleading for the reasons stated throughout this Complaint, including that Defendants failed to disclose: (1) the adverse sales trend that had emerged in the Company's core battery business; and (2) that Defendants had intentionally concealed the adverse

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trend in the Company's core battery business by engaging in channel stuffing.

Moreover, according to a former Trade Marketing Manager, SPC by this time had been "pushing a lot of product to the market and had at least four months of product in the channel. According to his former employee, the goals for SPC were inflated because there was so much product in the channel, "the sales were just not there. By early 2005, "everyone knew we were not going to make our earnings and customers were offered "deep discounts or 90-day payment terms to take product before the end of the quarter. A former Marketing Manager confirmed that by January 2005, "people knew the stock levels and weeks in supply were way up and Wal-Mart was offered additional "incentives to take product "because we needed to make the numbers to keep the stock price up. In fact, the incentives provided to customers were so widespread that, according to a former supervisor of

Customer Care, "the bills never matched what as being charged. This former employee noted that discounts were so frequent that SPC customers were "always short-paying the bill and customers such as Best Buy "would get a discount on the backend.

68. The results announced on January 27 were restated in the Company's

Form 10-Q filed with the SEC on February 11, 2005. The Form 10-Q was signed and certified by the Individual Defendants pursuant to the Sarbanes Oxley Act of

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2002. This Form 10-Q contained the following false statement, which is identical to the one first made during the Class Period in the Fiscal Year 2004 Form 10-K:

Revenue Recognition and Concentration of Credit Risks

We recognize revenue from product sales upon shipment to the customer, which is the point at which all risks and rewards of ownership of the product are passed, provided that: there are no uncertainties regarding customer acceptance; persuasive evidence of an arrangement exists; the price to the buyer is fixed or determinable; and collectibility is deemed reasonably assured. We are generally not obligated to allow for, and our general policy is not to accept, product returns for battery sales. We do accept returns related to our shaving, grooming and personal care products. We estimate and accrue the cost of these returns based on historical experience, which are treated as a reduction of net sales.

69. The statement contained above is false and misleading for the reasons stated in ¶61.

70. On May 4, 2005, SPC announced its results for the second quarter of fiscal 2005. The release contained the following false and misleading statements:

Spectrum Brands... announced a fiscal 2005 second quarter fully diluted loss per share of four cents, compared with diluted earnings per share of eight cents for the comparable period last year. Second quarter 2005 pro forma diluted earnings per share were 51 cents, a 168 percent improvement compared with 2004 second quarter pro forma diluted earnings per share of 19 cents, and one cent higher than analysts' mean estimates as reported by First Call.

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"We are off to an excellent start in our first quarter reportings as Spectrum Brands, said Dave Jones, Chairman and Chief Executive Officer. "Net sales showed strong growth of nine percent when compared to 2004 results adjusted to include United Industries. When compared to the same quarter last year, worldwide battery sales grew eleven percent and global sales of Remington branded products showed an improvement of ten percent. The lawn and garden, household insect control and pet supplies businesses we acquired with the United acquisition in February generated strong sales growth of seven percent versus their comparable standalone 2004 results. Spectrum Brands is continuing to deliver on our strategy of delivering industry-leading earnings growth through:

Fiscal Year 2005 Outlook

Spectrum Brands management is raising its earnings guidance for fiscal year 2005 diluted earnings per share to a range of $2.40 to $2.50. Fiscal 2005 net sales are projected at approximately $2.4 billion.

71. The statements contained above are false and misleading for the reasons stated throughout this Complaint, including that Defendants failed to disclose: (1) the adverse sales trend that had emerged in the Company's core battery business; and (2) that Defendants had intentionally concealed the adverse trend in the Company's core battery business by engaging in channel stuffing.

72. The results announced on May 4, 2005 were restated in the

Company's Form 10-Q filed with the SEC on May 13, 2005. The Form 10-Q was signed and certified pursuant to the Sarbanes Oxley Act of 2002 by the Individual

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Defendants. The fiscal 2005 second quarter Form 10-Q contained the identical false and misleading statement regarding the Company' s revenue recognition policy and product returns as the 2005 first quarter Form 10-Q and the 2004 Form

10-K. It is untrue for the reasons cited above, including that the Company routinely accepted returns of batteries.

VII. THE TRUTH BEGINS TO EMERGE

73. On July 28, 2005, SPC announced its results for the third quarter of

2005. The release provided the first glimpse into what was actually going on within the Company and the markets' reaction was very swift. The release contained the following relevant statements and partial disclosures:

Spectrum Brands, Inc. announced fiscal 2005 third quarter diluted earnings per share of 46 cents and pro forma diluted earnings per share of 76 cents. These results compare to diluted earnings per share of 36 cents and pro forma diluted earnings per share of 39 cents for the comparable prior year period.

"It's gratifying to see strong revenue growth of seven percent achieved by our company, this quarter, comparing this year's reported results to 2004 results adjusted to include the United, Tetra and Microlite acquisitions, said Chairman and CEO Dave Jones. "Sales growth in many of our new categories was the main driver of our performance. Remington branded products showed an improvement of eighteen percent in the quarter. Sales at United Industries and Tetra, our latest acquisitions, improved eight percent and seven percent, respectively, on a year over year basis. However, global battery growth was modest and bottom line results were tempered by increases in raw materials

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and higher fuel and transportation costs. We remain focused on strong operational execution that will enable us to capitalize on the cost savings opportunities from our recent acquisitions while continuing to drive top line growth.

Spectrum Brands expects fiscal year 2005 pro forma earnings per share to fall within the range of $2.40 to $2.43, at the lower end of the company's previous guidance.

For fiscal year 2006, the company currently expects pro forma earnings per share of $2.70 to $2.85, reflecting earnings growth of between thirteen to seventeen percent over projected 2005 results. In the first quarter of 2006, pro forma earnings per share of between 50 and 55 cents are projected. The company believes its new earnings guidance appropriately reflects the outlook for long-term net sales growth of three to five percent, reflecting the stagnant West European economy as well as projected low single digit global consumer battery growth. The new guidance also reflects current expectations for higher raw materials, transportation and other operating expenses.

74. Based on the significant disparity between Defendants' prior guidance, the Company's past performance and the results announced by

Defendants that day, following the publication of Defendants' release, shares of the

Company fell precipitously from a close of $38.37 per share on July 27, 2005, to a low of $30.10 on July 28, 2005. That day's trading volume exceeded 4 million shares, almost 10 times the Company's average daily. This substantial decline in the price of SPC stock occurred, in part, as a reaction to Defendants sudden and

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belated disclosures regarding the dramatic decline in sales of the Company's core battery products.

75. Following the publication of this release, analysts at Prudential

Securities immediately cut their rating on SPC to "Neutral from "Overweight and lowered their price target to $36.00 per share from their previous target of

$52.00 per share. According to analysts, the Company' s main problems stemmed from its significant decline in battery sales, which declined approximately 2% year-over-year, during the same quarter that overall North American sales for the

Company rose 9%. In addition, analysts were also quick to notice that, in the same period that the Company's battery sales were declining, North American battery sales at its competitor, Energizer, grew 11% during approximately the same period.

At least one analyst was quoted as stating, "so the health ofthe category does not appear to be the issue."

76. However, the full extent of SPC's deterioration had not yet been revealed. On September 7, 2005, Defendants disclosed that expectations for the fourth quarter and fiscal 2006 were even worse than revealed on July 28, 2005. In a press release entitled, "Spectrum Brands Lowers Expectations for Fourth Quarter and Fiscal 2006 Financial Results , Defendants shocked the market and sent the price of SPC stock spiraling downward yet again. The press release contained the following disclosures and relevant statements:

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Spectrum Brands, Inc. (NYSE: SPC) announced today that earnings for its fourth quarter ending September 30, 2005 will be substantially lower than the guidance it provided earlier in the year. The company indicated that it expects to report fourth quarter pro forma diluted earnings per share between ten and fifteen cents when actual results are announced on November 10, 2005. (See table below for reconciliation of pro forma numbers to GAAP results.)

According to the company, two primary factors contributed to revenue and earnings coming in below expectations. First, consumer demand appears softer this quarter across many of Spectrum Brands' product categories. This trend is reflected in lower-than-expected battery sales in Europe, a weak end to the lawn and garden season in North America, especially in the insect repellant category, and a deceleration of the historically strong sales growth in the global pet supply category. North American battery sales will decline compared with last year, as expected, due to the ongoing transition to the new Rayovac marketing program combined with high inventory levels at retail. The slight uptick in sales expected from battery and flashlight sales in hurricane-impacted regions this quarter will not offset the expected sales decline in this segment. Overall, fourth quarter global revenue is forecast to be essentially flat with last year's results adjusted to include all acquisitions. Secondly, raw materials cost increases have accelerated recently in oil and natural gas, negatively impacting urea, plastics and packaging materials and transportation costs.

"We are in the process of reviewing our operating cost structure on a global basis for opportunities to right-size our business and protect margins," said Dave Jones, Spectrum Brands chairman and chief executive officer. "In addition, we are working to accelerate plans to capture the synergy opportunity we've identified with our recent acquisitions. However, at this point we remain

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cautious about the outlook for improvement in consumer spending trends and believe it prudent to lower our expectations for fiscal 2006 pro forma EPS to a range of $2.50 to $2.65."

77. In reaction to the Company's second reduction of earnings guidance in as many months, analysts were quick to highlight management's falling credibility. Bear Stearns analysts wrote, "management credibility has suffered a bit more as it threw more cold water on what had been an evolving growth story at

Spectrum Brands until August 2005, and continued, "Reestablishing credibility and stronger momentum will take time... Fundamental visibility must now be called into question and the stock appears to be mired in a sticky show-me quagmire.

78. On November 10, 2005, the Company announced its disappointing results for fiscal year 2005. Even worse to investors, the Company reduced its guidance for fiscal year 2006 for the third time in three and a half months. The release contained the following relevant statements:

[F]iscal 2005 fourth quarter diluted net loss per share of six cents and pro forma diluted earnings per share of thirteen cents, in line with analysts expectations as reported by First Call. These results compare to diluted earnings per share of 52 cents and pro forma diluted earnings per share of 60 cents for the comparable prior year period.

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79. Defendants participated in an earnings conference call with analysts that same day. During that call the following exchange occurred between

Defendant Jones and Prudential Equity Group analyst Constance M. Maneaty:

Connie Maneaty: One final question. This whole business about reducing inventory levels at the trade, I hope I am not putting you too much on the spot here, but Energizer and Duracell say they didn 't see the kind of pressure that you talk about in terms of trade reductions, in terms of number of weeks coming out of the system. So is it possible that there was just way too much inventory of Rayovac batteries in general, and why would that be?

David Jones : I think the answer is yes . There was disproportionate issue to Rayovac and disproportionate to some of the specific accounts that we're looking at because it represents a higher percentage of our sales in those counts than does either at Duracell or Energizer who have much higher numeric distribution in the U.S. versus Rayovac when we're concentrated, significantly concentrated in fewer accounts. And the second portion of that is it just became extremely exacerbated by the fact, when you put a brand-new product line in place, there's nowhere for that old stuff to hide. It has to be moved out and it has to all go and that just put incremental pressure on us. So if our competitors are saying, we have a little pain but not as much as Rayovac, I think that's probably true for all of the facts I just mentioned.

Connie Maneaty: Would there have been any kind of deals that you gave to some of your accounts that would have led, even before you announced the change in pack size (ph), were there sorts of deals that you were giving some of the accounts that led them to carrying unusual amounts of inventory?

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David Jones : I don't think that was a significant factor . I think it was (indiscernible).

80. Although Defendant Jones readily admits that the Company had placed a disproportionate amount of product into the retail channels, and that this was a problem unique to the Company that did not adversely effect any of its competitors, Defendant Jones still denied what former Company employees corroborate: special deals and promotions were being made on a regular basis to customers as large as Wal-Mart and as small as Audiologists offices (for hearing aid batteries) to accept additional product even though they currently had more than enough on hand. Additionally, this statement directly contradicts what transpired at Toys R Us where the Company offered substantial discounts to promote the old-style packages.

81. Once again the price of SPC stock tumbled lower, losing 11.2% from its previous close of $20.28 per share on November 9, 2005, to close at $18.

Trading volume was unusually high at 4.5 million shares. Analysts from numerous brokerage houses weighed in with criticism of yet another negative release by the

Company. Prudential Equity Group summed up the markets view of management 's credibility as "uncomfortably low.

82. Before the markets opened on the morning of November 14, 2004, the

Company disclosed to investors that the United States Attorney's Office for the

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Northern District of Georgia was investigating its recent disclosures. The release stated:

Spectrum Brands, Inc. (NYSE: SPC) today announced that it has been advised that the United States Attorney's Office for the Northern District of Georgia has initiated an investigation into recent disclosures by the Company regarding its results for its third quarter ended July 3, 2005 and the Company's revised guidance issued on September 7, 2005 as to earnings for the fourth quarter of fiscal 2005 and fiscal year 2006. The Company intends to cooperate fully with the investigation.

83. Coming just two days after the Company issued its fiscal 2005 earnings release and conducted its earnings conference call, the stock fell yet again, this time by 8.9% from its previous close of $18 to close at $16.39 per share on November 14, 2005. What is very curious about the timing of this release is that according to the Company's Form 10-K filed in early December 2005, the

U.S. Attorney's Office informed the Company of its investigation on November 9,

2005, the day before the earnings release. Defendants delayed reporting this material information to investors until November 14, 2005 - no doubt Defendant

Jones wanted to avoid having to address analysts' questions regarding his conduct.

84. Analysts for SunTrust Robinson Humphreys quickly expressed surprise "that the U.S. Attorney's Office has stepped into the process (vs. the SEC) and expect the investigation to be an overhang on the stock until it is completed.

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VIII. POST CLASS PERIOD EVENTS

85. On December 14, 2005, the Company filed its Form 10-K for the period ending September 30, 2005 with the SEC. The Form 10-K was signed and certified pursuant to the Sarbanes Oxley Act of 2002 by the Individual Defendants.

Along with reiterating the results first disclosed to the market on November 10,

2005, the Form 10-K also informed investors that the SEC had on December 12,

2005 requested the same information from the Company as the US Attorney's

Office for the Northern District of Georgia had requested on November 9, 2005.

The Company stated that it was fully cooperating with the investigations, but "are unable to predict the outcome of the investigations or the timing of their resolution at this time.

86. The Form 10-K also disclosed the following about the Company's efforts to reduce retail inventories:

The decline in North American battery sales was driven by the transition to a new alkaline marketing strategy centered around an improved value position. The transition to this new product position took longer than initially anticipated partially due to the continued focus on reducing inventory at the retail by our customers. Markdown monies were required to assist in the transition which further reduced net sales.

Our alkaline battery sales in North America declined by $35 million, driven by the transition to a new marketing strategy which has taken longer than anticipated and has been more costly. Markdown dollars were required and

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shipments were impacted by high retail inventories of the previous product while retailers continue to focus on reducing their inventory.

IX. DEFENDANTS' OMISSIONS AND FAILURE TO REVEAL THE TRUTH

87. In addition to the false and misleading statements described in detail throughout this Complaint, Defendants also failed to disclose the truth regarding

SPC's financial condition. Specifically, and in addition to the other omissions described in this Complaint, Defendants failed to tell the public that: a) it was experiencing an adverse trend in its core battery business; b) as a result of this adverse trend, Defendants engaged in channel stuffing to meet projections for the

4Q2004 and 1 Q2005 and give the appearance of continued operating strength; and c) as a result of the channel stuffing, the Company experienced reduced profit margins on North American battery sales because Defendants over-incentivized customers to take additional, unneeded product as part of their fraudulent scheme.

These omissions, which were required to be disclosed, rendered SPC's public statements and SEC Filings materially false and misleading.

88. According to SEC Financial Reporting Release No. 36, the following items must be disclosed and discussed by all registrants, which Defendants failed to do:

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a. Shipments of product at the end of a reporting period that significantly reduce customer backlog and that reasonably might be expected to result in lower shipments and revenue in the next period;

b. Granting of extended payment terms that will result in longer collection period for accounts receivable; and

c. Changing trends in shipments into, and sales from, a sales channel or separate class of customer that could be expected to have a significant effect on future sales or sales returns.

89. In violation of the clear mandate of SEC Reporting Release No. 36,

Defendants failed to inform investors that they had indeed pulled significant revenue from future quarters through the use of reporting period sales, and granted extended payment terms to customers to accept these end of period sales. ¶¶17-23

X. ADDITIONAL SCIENTER ALLEGATIONS

A. Defendants Cash Out Before SPC's Huge Earnings Miss Is Revealed

90. In addition to the allegations discussed above, such as Defendants' intentional quarter-end manipulations in order to meet quarterly Wall Street estimates , Defendants were powerfully motivated to engage in the fraud in order to sell their own SPC stock before the bad news was publicly revealed. For example, during the Class Period, Defendants sold 224,367 shares of SPC stock for proceeds of $8,683,594 at prices as high as $42.66 per share. Defendant Jones

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sold 164,350 shares for proceeds of $6,371,944, amounting to 15.05% of his personal holdings as shown below:

Class Period Transact1ans

Rayo ac 22 5,2005 30,040 . 42.66 S 1,279.800 Ra rcVac 3.`:.x2005 17,628 $ 40.42 5 T12.524 Rayovac K.'U06 12,372 $ 40.42 S 500.076 Rayavac 4.2612005 25,000 . 38.59 S 964,750 Spectrum 5.4,2045 4.350 $ 40.01 S 174.044 Spectrum `2412005 25,440 $ 37.60 S 940.000 Spectrum 6..+30?2005 20,000 . 33.00 S 660,000 Spectrum 7+512005 5,000 . 35.00 5 175,000 Spectrum 7+2E12D05 25,000 $ 38.63 S 965,750 Total: 1E4.350 S 6,371,944

91. Defendant Steward sold 60,017 shares during the Class Period, for proceeds of $2,311, 650, amounting to 25.54% of his holdings, as shown below:

Class Period Transactions

Raya'Vac '9?2005 30,017 $ 38.45 S 1.154,154 Spectrum 5..202005 20,400 $ 38.50 : 785,400 Spectrum 5,2312005 9,600 $ 38.7E : 372,096 Total: 60,0,17 2,311,650

92. These sales were suspicious in both timing and amount. As the chart below illustrates, Defendants sold stock at prices substantially higher than the stock price after SPC's two earnings misses were revealed. (Also attached hereto as Exhibit

B).

49 Case 1:05-cv-02494-WSD Document 18-1 Filed 02/02/2006 Page 53 of

Spectrum Brand , Inc Common Stock Price October 1, 2004 - January 27. 2006

Defendant Jcnes se15 00.02' shares For aroceed, o f $24 riil:io, 4.2...-`.: ^.P75. Da'-dare Jones sells S', L6'7 shares for proceeds or 52." n• I ion

.A5.OG

5-07.00

536.0^

530.00

525.00

s2o.oo

515.7Q

51 0.90

, .1110' jIM1 L11^ AIq L7`. r -r +.lL`r y.IM1ll7 .r Y lf^`' I11r17, "^.IL1r' 0, 1I11LYr. .L7111L 1Al k), M1^I'^.IOA X11 M1iln ^1i tl'.Iv'`-r I ?y 1n^

93. The suspiciously timed insider selling not only drew the attention of the SEC, but has sparked an investigation originating from the U.S. Attorney's

Office in the Northern District of Georgia. Federal prosecutors are investigating, among other things, Defendant Jones' sale of nearly $1 million worth of stock only two days prior to the July 28, 2005 announcement that sales would fall woefully short of previous estimates. The fact that the U.S Attorney has initiated an investigation indicates that the SEC referred the matter to the Department of

50 Case 1:05-cv-02494-WSD Document 18-1 Filed 02/02/2006 Page 54 of

Justice for a criminal investigation . As stated in 17 CFR 202.5(b), which governs the SEC's enforcement authority:

After investigation or otherwise the Commission may in its discretion take one or more of the following actions: Institution of administrative proceedings looking to the imposition of remedial sanctions, initiation of injunctive proceedings in the courts, and, in the case of a willful violation, reference of the matter to the Department of Justice for criminal prosecution.

B. Performance-Based Bonuses: Additional Incentive to Withhold Material Information

94. In addition to reaping over $8 million in insider selling, Defendants were also motivated to conceal the truth from the public in order to reap tremendous year-end bonuses, equal to as much as 150% of their base salaries.

According to the Company's executive compensation plan disclosed in their Proxy

Statement dated March 22, 2005, Defendant Jones received a bonus equal to 134% of his base salary in 2004:

Annual Incentive Compensation

In fiscal 2004, our executive officers were eligible to participate in an incentive bonus plan which called for payments to Mr. Jones based on 100% of his annual salary, to Mr. Hussey and Mr. Lee based on 75% of their respective annual base salaries and to our other executive officers based on 60% of their annual salaries as cash bonuses in the event that we reached 100% of our target financial goals. Bonuses could have exceeded that amount (but in no event could bonuses exceed 150% of annual salary) if we exceeded our target financial goals. We reached 134% of our corporate target financial goals

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in fiscal 2004 and, as a result, in November 2004 Mr. Jones was paid 134% of his annual salary

EXECUTIVE COMPENSATION AND OTHER INFORMATION

Restricted Other Stock All Other Defendant Year Salary Bonus Compensation Awards Compensation Jones 2005 $918,500 $938,000 $ 272,000 $ 5,830,000 $ 7,430,000 2004 $700,000 $784,000 $ 1,444,000 $ 1,263,000 $ 4,095,000

Steward 2005 $428,000 $281,000 $ 118,000 $ 2,573,500 $ 791,500 2004 $360,000 $218,500 $ 211,000 $ 361,000

95. In 2005, Jones received a salary of $918,500, with a bonus again exceeding his base salary, of $938,000. In addition, Defendant Steward received a bonus equal to more than 50% of his base salary in both 2004 and 2005, due to meeting specific performance goals.

C. A "Truly Transforming Transaction :" The United Acquisition

96. During and even prior to the Class Period, Defendants regularly expressed a desire to transform the Company from a Company which primarily sold batteries, to a more diversified corporation. For example, during the

Company's March 24, 2005 earnings conference call, Defendant Jones emphasized the Company' s success in moving away from its traditional battery business into more diversified products. Jones noted: "[E]ight years ago we were a battery company that sold products in North America, and we are far different from that now. Jones summarized SPC's aggressive acquisition strategy as follows:

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1996 , the company was acquired by Thomas Lee, taken public a year later, an IPO, and then have had a series of very large acquisitions beginning in 1999 with ROV Limited, largest battery company in Latin America, so a big Latin American acquisition . In 2002 , acquisition of VARTA, which is the largest battery company in Europe, selling in every country in Europe, Africa and Middle East. And more recently in 2003 , the acquisition of Remington, which was a first diversification move moved us into shaving, grooming and personal care... And then more recently, we closed the United Industries acquisition, which moved us into three other product categories and last week announced the acquisition of Tetra, a German pet supplier. What that mean in terms of revenue? Well, since 1997, our revenues [have] grown from $393 million to a projected revenue at somewhere around $2.7 billion....

97. Indeed, the Company changed its name from Rayovac to SPC in order to conform to its new image of a diversified, global company. One of the key drivers to the Company' s desired transformation was the acquisition of United

Industries Corporation.

98. Jones also emphasized the Company 's need to reduce its dependence on batteries, noting in the March conference call that SPC "reduced [its] dependence on batteries down to 40% of [its] total portfolio globally. As noted in a January 28, 2005 Dow Jones news article, "[t]he deal was made, in part, to diversify Rayovac' s reliance on battery sales for its revenue.

99. On January 4, 2005, the Company announced its intention to acquire privately held United owned at the time by the same firm that took Rayovac public,

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THL Partners. The press release announcing the acquisition contained the following relevant statements:

The transaction calls for Rayovac to issue 13.75 million shares of its common stock, along with additional consideration of $70 million in cash, to United Industries' current shareholders, for a total value of approximately $1.2 billion including the assumption of approximately $880 million of United Industries debt and a cash tax benefit of $140 million. This acquisition extends Rayovac's household products offerings into the large and growing lawn and garden and specialty pet supply categories, while leveraging the company's operational expertise and existing relationships with global retailers.

100. Commenting on the acquisition in the release, Defendant Jones stated:

Rayovac's publicly stated goal has been to grow through acquisitions that diversify and increase our revenue base while leveraging our global merchandising and distribution capabilities. United Industries is just such an acquisition. Upon closing, we will have a significant presence in several new consumer products markets-large growth categories where we can capitalize on our strengths with major retailers to leverage the full potential of the powerful combined enterprise.

101. This acquisition was essential to Defendants ' strategy of diversifying the Company's revenue streams from its declining battery business. Defendant

Jones did not overstate its importance when he stated, "This is a truly transforming transaction for Rayovac, representing a major step forward toward our goal of achieving annual revenues of $3 billion.

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102. Since such a large portion of the purchase price for this crucial acquisition was in the form of SPC stock, Defendants were particularly motivated to stuff the channels and artificially inflate the price of SPC stock prior to the approval of the merger in January 2005, in order to complete the deal using SPC stock as currency.

103. Further, Defendant Jones was extremely eager to have the acquisition completed since he stood to personally benefit from its consummation. As detailed in the Company's March 22, 2005 Proxy:

Mr. Jones, Chairman of the Board and Chief Executive Officer of the Company, and trusts for his family members, collectively owned 202,935 shares of United common stock as of immediately prior to the Merger, which shares were converted into an aggregate of 36,239 shares of Company Common Stock pursuant to the Merger. In addition, Mr. Jones held vested options to acquire 397,065 shares of United common stock at a weighted average exercise price of $2.00 per share, which, pursuant to the terms of the Merger Agreement, were cashed out in an amount equal to the number of shares underlying options having an exercise price less than $5.997 per share multiplied by the amount by which $5.997 exceeded the relevant option exercise price. Mr. Jones was a member of the Board of Directors of United from January 20, 1999 to December 31, 2003 and provided consulting services to United under an agreement that was terminated on September 28, 2004. Mr. Shepherd, a member of the Company's Board of Directors , is an investor in Thomas H. Lee Equity Fund IV, L.P., a large shareholder of United immediately prior to the Merger, and, as a result of the Merger, currently is a large shareholder of Rayovac.

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XI. CAUSATION AND ECONOMIC LOSS

104. During the Class Period, as detailed herein, Defendants engaged in a scheme to deceive the market and artificially inflate SPC's stock price by misrepresenting the Company' s financial results. Ultimately, however, when

Defendants' prior misrepresentations and fraudulent conduct were revealed, shares of SPC declined precipitously - - evidence that the prior artificial inflation in the price of SPC shares was eradicated. As a result of their purchases of SPC stock during the Class Period, Plaintiffs and other members of the Class suffered economic losses, i.e., damages under the federal securities laws.

105. By improperly characterizing the Company 's financial results and misrepresenting its prospects , Defendants presented a misleading image of SPC's business and future growth. During the Class Period, Defendants repeatedly emphasized the financial strength and well being of the Company, and consistently reported sales of its core battery products well within expectations sponsored and/or endorsed by Defendants. These claims caused and maintained the artificial inflation in SPC's stock price throughout the Class Period and until the truth about the Company was ultimately revealed to investors.

106. Defendants' false and materially misleading statements had the intended effect of causing SPC's shares to trade at artificially inflated levels

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throughout the Class Period - - reaching a Class Period high of over $46.00 per share on March 15, 2005.

107. On July 28, 2005, however, Defendants revealed that the Company would come nowhere near achieving guidance previously sponsored and/or endorsed by Defendants. That day, Defendants reported a huge earnings miss for the third fiscal quarter of 2005 and revised full year guidance much lower than previous guidance, after announcing that sales of the Company's core battery products were well below guidance and well below the double-digit sales growth reported in the prior quarters, when Defendants rushed to complete the acquisitions of United and Tetra, and when Defendants also sold and/or registered for sale almost $2.5 billion in additional SPC securities. A second disclosure caused the stock to drop yet again on September 7, 2005. These belated disclosures had an immediate, adverse impact on the price of SPC shares. Finally, a third disclosure occurred on November 10, 2005 with the release of the 4Q2005 and FY 2005 results. A fourth and final disclosure occurred on November 14, 2005 with the announcement at the Federal investigation into the Defendants' stock sales and the

Company's July 28, 2005 and September 7, 2005 statements.

108. These belated revelations also evidenced Defendants' prior falsification of SPC's business prospects due to Defendants' false statements. As investors and the market ultimately learned, the Company's prior business

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prospects and demand for its core battery products had been materially overstated.

As this adverse information became known to investors, the prior artificial inflation began to be eliminated from SPC's share price and Plaintiffs and other members of the Class were damaged as a result of the related share price decline.

109. As a direct result of Defendants' statements of July 28, 2005,

September 7, 2005, November 10, 2005 and November 14, 2005, which indicated that that sales of the Company' s core battery products were much lower than previously disclosed, and that the guidance for FY 2005 and FY 2006 were also overstated throughout the Class Period, SPC's stock price collapsed to $30.10 per share, from over $38.25 per share - - a decline of over 20% on very heavy trading volume of over 4 million shares, over 10 times the average daily trading volume and an additional 13% on September 7, 2005. This dramatic share price decline eradicated much of the artificial inflation from SPC's share price, causing real economic loss to investors who purchased this stock during the Class Period. In sum, as the truth about Defendants' fraud and deceptive course of conduct became known to investors, and as the artificial inflation in the price of SPC shares was eliminated, Plaintiffs and the other members of the Class were damaged, suffering an economic loss of at least $8.00 per share.

110. The decline in SPC stock price at the end of the Class Period was a direct result of the nature and extend of Defendants' fraud being revealed to

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investors and to the market. The timing and magnitude of SPC stock price decline negates any inference that the losses suffered by Plaintiffs and the other members of the Class was caused by changed market conditions, macroeconomic or industry factors or even Company-specific facts unrelated to Defendants' fraudulent conduct. During the same period in which SPC share price fell over 20% as a result of Defendants' fraud being revealed, the Standard & Poor's 500 securities index was relatively unchanged. The economic loss, i.e. damages suffered by

Plaintiffs and other members of the Class, was a direct result of Defendants' fraudulent scheme to artificially inflate the price of SPC' s stock and the subsequent significant decline in the value of the Company's shares when Defendants' prior misstatements and other fraudulent conduct was revealed.

XII. CLASS ACTION ALLEGATIONS

111. Plaintiffs bring this action as a class action pursuant to Federal Rule of

Civil Procedure 23(a) and (b)(3) on behalf of a Class, consisting of all those who purchased or otherwise acquired the common stock of SPC between November 11,

2004 and November 13 2005, inclusive (the "Class ) and who were damaged thereby. Excluded from the Class are 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

Defendants have or had a controlling interest.

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112. The members of the Class are so numerous that joinder of all members is impracticable. Throughout the Class Period, SPC common shares were actively traded on the NYSE. As of February 7, 2005, the Company had over

49.68 million shares of common stock issued and outstanding. While the exact number of Class members is unknown to Plaintiffs at this time and can only be ascertained through appropriate discovery, Plaintiffs believe that there are hundreds or thousands of members in the proposed Class. Record owners and other members of the Class may be identified from records maintained by SPC 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.

113. Plaintiffs' claims are typical of the claims of the members of the Class as all members of the Class are similarly affected by Defendants' wrongful conduct in violation of federal law that is complained of herein.

114. Plaintiffs will fairly and adequately protect the interests of the members of the Class and has retained counsel competent and experienced in class and securities litigation.

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

Class and predominate over any questions solely affecting individual members of the Class. Among the questions of law and fact common to the Class are:

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a. whether the federal securities laws were violated by

Defendants' acts as alleged herein;

b. whether statements made by Defendants to the investing public during the Class Period misrepresented material facts about the business, operations and management of SPC; and

c. to what extent the members of the Class have sustained damages and the proper measure of damages.

116. A class action is superior to all other available methods for the fair and efficient adjudication of this controversy since joinder of all members is impracticable. Furthermore, as the damages suffered by individual Class members may be relatively small, the expense and burden of individual litigation make it impossible for members of the Class to individually redress the wrongs done to them. There will be no difficulty in the management of this action as a class action.

XIII. PRESUMPTION OF RELIANCE: FRAUD ON THE MARKET DOCTRINE

117. Plaintiffs will rely, in part, upon the presumption of reliance established by the fraud-on-the -market doctrine in that, among other things:

a. Defendants made public misrepresentations or failed to disclose material facts during the Class Period;

b. The omissions and misrepresentations were material;

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c. SPC securities traded in an efficient market;

d. The misrepresentation alleged would tend to induce a reasonable investor to misjudge the value of the Company 's securities; and

e. Plaintiffs and other members of the Class purchased SPC securities between the time Defendants misrepresented or failed to disclose material facts and the time the true facts were disclosed, without knowledge of the misrepresented or omitted facts.

118. At all relevant times, the market for SPC securities was an efficient market for the following reasons, among others:

a. SPC securities were listed and actively traded during the

Class Period on the NYSE exchange, an open, highly efficient and

automated market. The average daily volume of the SPC common stock

during the Class Period was 600,988 shares. The total number of shares

traded during the Class Period was 152,050,000 shares;

b. As a regulated issuer, SPC regularly made public filings,

including its Forms 10-K, Forms 10-Q and related press releases, with the

SEC;

c. SPC was followed by analysts from major brokerages

including AG Edwards, Banc of America, Bear Stearns , CIBC World

Markets, Deustche Bank, Goldman Sachs, JPMorgan, Merrill Lynch,

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Prudential Securities, Standard & Poor's, SunTrust Robinson Humphrey.

The reports of these analysts were redistributed to the brokerages' sales

force, their customers, and the public at large; and

d. SPC regularly communicated with public investors via

established market communication mechanisms, including the Company's

website, regular disseminations of press releases on the major news wire

services, and other wide-ranging public disclosures, such as communications

with the financial press and other similar reporting services.

119. Asa result, the market for SPC securities digested current information regarding the Company from the publicly available sources described above and reflected such information in the prices of SPC' s securities . As would be expected where a security is traded in an efficient market, material news concerning SPC's business had an immediate effect on the market price of SPC's securities, as evidenced by the rapid decline in the market price in the immediate aftermath of

SPC's corrective disclosures as described herein. Under these circumstances, all purchasers of SPC' s securities during the Class Period suffered similar injury due to the fact that the price of SPC securities was artificially inflated throughout the

Class Period. At the times they purchased or otherwise acquired SPC's securities,

Lead Plaintiffs and other members of the Class were without knowledge of the facts concerning the wrongful conduct alleged herein and could not reasonably

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have discovered those facts. As a result, the presumption of reliance applies.

Plaintiffs will also rely, in part, upon the presumption of reliance established by a material omission.

COUNT I

AGAINST SPC AND THE INDIVIDUAL DEFENDANTS FOR VIOLATIONS OF SECTION 10(B) OF THE EXCHANGE ACT

120. Lead Plaintiffs repeat and reallege the allegations set forth above as though fully set forth herein.

121. This Count is brought pursuant to Section 10(b) of the Exchange Act,

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

5, against all Defendants.

122. During the Class Period, SPC and the Individual Defendants carried out a plan, scheme and course of conduct which was intended to and, throughout the Class Period, did: (i) deceive the investing public, including Lead Plaintiffs and other Class members, as alleged herein; (ii) artificially inflate and maintain the market price of SPC common stock; and (iii) cause Lead Plaintiffs and other members of the Class to purchase SPC stock at artificially inflated prices. In furtherance of this unlawful scheme, plan and course of conduct, SPC and the

Individual Defendants took the actions set forth herein.

123. SPC and the Individual Defendants: (a) employed devices, schemes, and artifices to defraud; (b) made untrue statements of material fact and/or omitted

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to state material facts necessary to make the statements not misleading; and (c) engaged in acts, practices and a course of business which operated as a fraud and deceit upon the purchasers of the Company's common stock in an effort to maintain artificially high market prices for SPC common stock in violation of

Section 10(b) of the Exchange Act and Rule 1 Ob-5 promulgated thereunder. SPC and the Individual Defendants are sued as primary participants in the wrongful and illegal conduct charged herein, as alleged herein.

124. In addition to the duties of full disclosure imposed on SPC and the

Individual Defendants as a result of their making of affirmative statements and reports, or participation in the making of affirmative statements and reports, to the investing public, SPC and the Individual Defendants had a duty to promptly disseminate truthful information that would be material to investors. The undisclosed adverse information concealed by SPC and the Individual Defendants during the Class Period is the type of information which, because of SEC regulations, regulations of the national stock exchanges and customary business practice, is expected by investors and securities analysts to be disclosed and is known by corporate officials and their legal and financial advisors to be the type of information which is expected to be and must be disclosed.

125. SPC and the Individual Defendants , individually and in concert, directly and indirectly, by the use, means or instrumentalities of interstate

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commerce and/or of the mails, engaged and participated in a continuous course of conduct to conceal adverse material information about the business and operations of SPC and its affiliates, as specified herein. SPC and the Individual Defendants employed devices, schemes and artifices to defraud, while in possession of material adverse non-public information and engaged in acts, practices, and a course of conduct as alleged herein in an effort to assure investors of SPC'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 SPC, its affiliates and their business operations in the light of the circumstances under which they were made, not misleading, as set forth more particularly herein, and engaged in transactions, practices and a course of business which operated as a fraud and deceit upon the purchasers of SPC common stock during the Class Period.

126. SPC and the Individual Defendants had actual knowledge of the misrepresentations and omissions of material facts set forth herein, or acted with severe reckless disregard for the truth in that they failed to ascertain and to disclose such facts, even though such facts were available to them. SPC's and the

Individual Defendants' material misrepresentations and/or omissions were done knowingly or severely recklessly and for the purpose and effect of concealing

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SPC's operating condition and deteriorating and adverse business prospects from the investing public and supporting the artificially inflated price of its common stock. As demonstrated by SPC' s and the Individual Defendants ' misstatements of the Company' s business, operations and earnings throughout the Class Period, SPC and the Individual Defendants, if they did not have actual knowledge of the misrepresentations and omissions alleged, were severely reckless in failing to obtain such knowledge by deliberately refraining from taking those steps necessary to discover whether those statements were materially false or misleading.

127. 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 SPC common stock was artificially inflated during the Class Period. In ignorance of the fact that the market price of SPC common stock was artificially inflated, and relying directly or indirectly on the materially false and misleading statements made by SPC and the Individual Defendants, or upon the integrity of the market in which the securities trade, and/or on the absence of material adverse information that was known to or recklessly disregarded by SPC and the Individual

Defendants but not disclosed in public statements by SPC and the Individual

Defendants during the Class Period, Lead Plaintiffs and the other members of the

Class acquired SPC common stock during the Class Period at artificially high prices and were damaged thereby.

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128. At the time of said misrepresentations and omissions, Lead Plaintiffs and the other members of the Class were ignorant of their falsity, and believed them to be true. Had Lead Plaintiffs and the other members of the Class and the marketplace known of the true financial condition and business prospects of SPC, which were not disclosed by SPC and the Individual Defendants, Lead Plaintiffs and other members of the Class would not have purchased or otherwise acquired their SPC common stock during the Class Period, or, if they had acquired such common stock during the Class Period, they would not have done so at the artificially inflated prices which they paid.

129. By virtue of the foregoing, SPC and the Individual Defendants have violated Section 10(b) of the Exchange Act, and Rule IOb-5 promulgated thereunder.

130. As a direct and proximate result of SPC ' s and the Individual

Defendants' wrongful conduct, Lead Plaintiffs and the other members of the Class suffered damages in connection with their purchases of the Company's common stock during the Class Period.

COUNT II

AGAINST THE INDIVIDUAL DEFENDANTS SECTION 20(A) OF THE EXCHANGE ACT

131. Lead Plaintiffs repeat and reallege each and every allegation contained above as if alleged in full herein.

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132. This Count is brought pursuant to Section 20(a) of the Exchange Act,

15 U.S.C. § 78t(a), on behalf of the Lead Plaintiffs and the Class, against the

Individual Defendants.

133. The Individual Defendants acted as controlling persons of SPC within the meaning of Section 20(a) of the Exchange Act as alleged herein. By virtue of their high-level positions and/or their ownership and contractual rights, participation in and/or awareness of the Company 's operations and/or intimate knowledge of the Company's finances and business prospects, the Individual

Defendants 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 Plaintiffs allege were materially false and misleading. The Individual Defendants were provided with or had unlimited access to copies of the Company's reports, press releases, public filings and other statements alleged by Lead Plaintiffs to be misleading prior to and/or shortly after these statements were issued and had the ability to prevent the issuance of the statements or cause the statements to be corrected.

134. In particular, each of the Individual Defendants had direct and supervisory involvement in the day-to-day operations of the Company and/or control over major corporate decision and policy making, and therefore, is presumed to have had the power to control or influence the particular transactions

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giving rise to the securities violations as alleged herein, and exercised the same.

The Individual Defendants culpably participated in the commission of the wrongs alleged herein.

135. As set forth above, SPC and the Individual Defendants each violated

Section 10(b) and Rule IOb-5 by their acts and omissions as alleged in this

Complaint. By virtue of their positions as controlling persons, the Individual

Defendants and Control Person Defendants are liable pursuant to Section 20(a) of the Exchange Act. As a direct and proximate result of the Individual Defendants and Control Person Defendants' wrongful conduct, Lead Plaintiffs and other members of the Section 10(b) Class suffered damages in connection with their purchases of SPC common stock during the Class Period.

136. By reason of such wrongful conduct, the Individual Defendants and

Control Person Defendants are liable pursuant to Section 20(a) of the Exchange

Act.

XIV. PRAYER FOR RELIEF

WHEREFORE, Lead Plaintiffs request a judgment, as follows:

a. Determining that this action is a proper class action, and certifying proposed class representatives under Rule 23 of the Federal Rules of

Civil Procedure;

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b. Awarding compensatory damages in favor of Lead Plaintiffs and the other Class members against all Defendants, jointly and severally, for all damages sustained as a result of Defendants' wrongdoing, in an amount to be proven at trial, including interest thereon;

c. Awarding Lead Plaintiffs and the Class their reasonable costs and expenses incurred in this action, including counsel fees and expert fees;

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

XV. JURY TRIAL DEMANDED

Lead Plaintiffs hereby demand a trial by jury.

Dated: February 2, 2006 Respectfully submitted,

MILBERG WEISS BERSHAD & SCHULMAN LLP

s/ Christopher S. Jones Christopher S. Jones Georgia Bar No. 141843 Florida Bar No. 0306230 [email protected] Maya Saxena Florida Bar No. 0095494 Joseph E. White, III Florida Bar No. 0621064 5200 Town Center Circle Tower One - Suite 600 Boca Raton, FL 33486 Tel: (561) 361-5000 Fax: (561) 367-8400

71 Case 1:05-cv-02494-WSD Document 18-1 Filed 02/02/2006 Page 75 of

SCHIFFRIN & BARROWAY, LLP David Kessler Trevan Borum Heather Tashman 280 King of Prussia Rd. Radnor, PA 19087 Tel: (610) 667-7706 Fax: (610) 667-7056

Lead Counsel for Plaintiffs

CHITWOOD HARLEY HARNES LLP Martin D. Chitwood Georgia Bar No. 124950 Stuart J. Guber Georgia Bar No. 141879 James M. Evangelista Georgia Bar No. 707807 Meryl Edelstein Georgia Bar No. 238919 2300 Promenade II 1230 Peachtree Street, NE Atlanta, GA 30309 Tel: (404) 873-3900 Fax: (404) 876-4476 [email protected]

Liaison Counsel for Plaintiffs

72 Case 1:05-cv-02494-WSD Document 18-1 Filed 02/02/2006 Page 76 of

CERTIFICATE OF SERVICE

I HEREBY CERTIFY that on the 2nd day of February, 2006, I presented the foregoing to the Clerk of the Court for filing and uploading to the CM/ECF system. I further certify that on the same date I mailed the foregoing document to counsel of record on the attached Service List.

By s/ Christopher S. Jones

73 Case 1:05-cv-02494-WSD Document 18-1 Filed 02/02/2006 Page 77 of 77r]

SERVICE LIST

David Kessler Martin D. Chitwood Trevan Borum James M. Evangelista Heather Tashman Meryl M. Edelstein SCHIFFRIN & BARROWAY, LLP CHITWOOD HARLEY HARNES, 280 King of Prussia Rd. LLP Radnor, PA 19087 2300 Promenade II Tel: (610) 667-7706 1230 Peachtree Street, NE Fax: (610) 667-7056 Atlanta, GA 30309 Tel: (404) 873-3900 Co-Lead Counselfor Plaintiffs Sushil- Fax: (404) 876-4476 Kumar Jain, David Hunkapiller, and Stanley Davies Liaison Counselfor Plaintiffs Sushil Kumar Jain, David Hunkapiller, and Stanley Davies LAW OFFICES OF MICHAEL A. Richard A. Lockridge SWICK, PLLC Karen Hansen Riebel Michael A. Swick Nathan D. Prosser One Williams Street LOCKRIDGE GRINDAL NAUEN Suite 555 P.L.L.P. New York, NY 10004 100 Washington Avenue South Tel: (212) 920-4310 Suite 2200 Fax: (212) 584-0799 Minneapolis , MN 55401 Tel: (612) 339-6900 Counselfor PlaintiffSushil Kumar Jain Fax: (612) 339-0981

Counselfor PlaintiffDavid Hunkapiller

Guri Ademi LAW OFFICES OF BRUCE G. ADEMI & O'REILLY, LLP MURPHY 3620 E. Layton Avenue Bruce G. Murphy Milwaukee, WI 53110 265 Llwyds Lane [email protected] Vero Beach, FL 32963 Tel: (414) 482-8000 Tel: (828) 737-0500 Fax: (414) 482-8000 Fax: (828) 737-0528

Counselfor PlaintiffPaul Counsel Sushil Kumar Jain

74 Case 1:05-cv-02494-WSD Document 18-2 Filed 02/02/2006 Page 1 of

Exhibit A NORTH AMERICA CUSTOMER PROPOSALS - AUTHORITY LEVELS

W0 FINANCE EVERYDAY NON-NAT'L Cl) APPROVAL SLOTTING/ PRICING< REBATE MARKETING CREDIT LEVEL LIFT CHANNEL** LEVELS*** OFFERS TERMS LIMIT n 0 BRAND/CHANNEL MANAGER ALL CD

ACCOUNT MANAGER COL ANALYST* < 10,000 0 15%/8% na Net 30 < $25,000 O

DIVISION MANAGER SR ANALYST 10,001 - 25,000 0-5% 20%/10% na Net 45 25,001 - 250,00 0

NATIONAL MANAGER MGR OF FIN 25,001 - 50 ,000 5 - 7% 22%/12% na Net 60 250,001 - 350,08 (MANAGES DIVISIONAL MGRS)

DIVISION VICE-PRESIDENT MGR OF FIN 50,001 - 100,000 7 -10% 25%/15% na 1 % 30, Net 31 350,001 - 500,00 or Net 60 (see Note A) VICE-PRESIDENT CONTROLLER 100,001 - 500,000 10 - 35% 35%/ 25% na 2%45, Net 46 500,001 - 750,091 or Net 90 a 0 2 EC MEMBERS VP FIN , CFO > 500,000 35% + 35% + na > Above > 750,000 0 N

REQUESTS FOR VOUCHERS AND DEDUCTION RESOLUTION FUNDED BY CUSTOMER ACCRUALS REQUIRE 5 DIVISIONAL MANAGER APPROVAL AND FINANCE APPROVAL PROVIDED SIGNED P&L EXISTS (HIGHER APPROVAL NO LONGER REQUIRED BASED ON INITIAL APPROVAL SECURED THROUGH P&L)

* Collection Analyst approval relates to credit limits only N Pricing less than lowest account will need to be approved by VP even though it may fit within respective authority levels. *** First rate listed pertains to Alkaline/HD/Rechargeables /Hearing Aid. Second rate relates to remaining product lines. Note A: Must include Shanesy and Walzer approval for terms beyond 1% 30 , Net 60. Case 1:05-cv-02494-WSD Document 18-2 Filed 02/02/2006 Page 3 of

Exhibit B Spectrum Brand , Inc Common Stock Price October 1, 2004 - January 27, 2006

0)c^ CD 2/25/05 - 3/29/05 O Defendant Jones sells 60,000 shares for proceeds of $2.4 million

4/26/05 - 5/24/05: Defendant Jones sells 54,350 O shares for proceeds of $2.0 million NJ CD

$45.00 C/)v v $40.00 0 C) C 3 CD

$35.00 00 N

$30.00 -n CD O. O N $25.00 O N N O O C) $20.00

ca CD $15.00 O

$10.00

1 I A 105 2I 105 105 1105 1105 611105 105 811105 105 X 11106 1211 06 101 \ I04 A 111104 A2I'\ 104 31 \ 41 51 I I A 91 A 101 A 105 A 1 i' 105 1211105 A