in re smith & wesson holding corporation securities...

Case 3:07-cv-30238-MAP Document 47 Filed 05/30/2008 of 81

UNITED STATES DISTRICT COURTDISTRICT OF MASSACHUSETTS

IN RE SMITH & WESSON HOLDING ) C.A. No. 07-30238CORP. SEC. LITIG.

CONSOLIDATED CLASS ACTION COMPLAINT

Court-appointed Lead Plaintiff, Oklahoma Firefighters Pension and Retirement

System ("Lead Plaintiff" or "Oklahoma Firefighters"), brings this federal securities class

action on behalf of itself and all other persons or entities (other than defendants and any

of their affiliates as described herein) who purchased or acquired the publicly traded

common stock of Smith & Wesson Holding Corporation ("S&W" or "Company") from

the period beginning on June 14, 2007 through and including December 6, 2007 ("Class

Period") and who were damaged by the conduct alleged herein.

I. INTRODUCTION

1. S&W is a manufacturer and seller of various types of firearms and firearm

related products. Acting through its Chief Executive Officer ("CEO"), Michael F.

Golden ("Golden"), its Chief Financial Officer ("CFO"), John Kelly ("Kelly"), and the

Chairman of its Board of Directors, Barry M. Monheit ("Monheit"), S&W knowingly

misled investors into believing that strong consumer demand for its products supported

the rosy financial outlook that the Company issued at the start of the Class Period. Most

notably, S&W projected robust earnings of $0.62 per share for fiscal year 2008

(beginning in May 2007), in large part fueled by strong customer demand for the

Company's firearm products.


2. In truth, S&W's officer and directors, including Defendants Golden, Kelly

and Monheit, knew at the time they made those statements in June 2007 that the

Company was then experiencing a major decline in product demand, with virtually all of

the Company's sales staff failing to meet their monthly sales targets in the winter, spring

and summer of 2007. As one former senior marketing executive put it, the precipitous

drop in demand at the time was obvious to the highest levels of management because it

affected S&W's products "across the board" from handguns and rifles to black powder

weapons and shotguns.

3. Moreover, as a direct corollary to the steady decline in demand for S&W's

guns in the winter/spring/summer of 2007, S&W experienced a massive inventory

buildup at the Company's largest production plant in Springfield, Massachusetts. Indeed,

the volume of inventory so exceeded established storage capacity in the spring of 2007

that S&W began putting unsold firearms in the aisles of the secured storage area. When

that space was filled, the Company had no choice but to let the guns pile up on unsecured

pallets on the factory floor. Eventually, after the United States Bureau of Alcohol,

Tobacco, Firearms and Explosives noticed the guns that had overflowed from the locked

storage area during a compliance inspection in the summer of 2007, S&W built an

additional secured storage facility to house the growing inventory overflow.

4. There is no question that S&W's most senior managers knew about the

product demand and inventory issues plaguing the Company at the end of fiscal year

2007. S&W's senior management — which was intensely focused at that time on meeting

earnings expectations in order to increase the Company's stock price — employed

numerous overlapping mechanisms designed to monitor consumer demand on a nearly

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real-time basis. Every one of those indicators demonstrated to S&W's senior managers

that the Company's business prospects were dampening significantly starting in the

winter of 2007 and continuing throughout the summer of that year.

5. Most notably, S&W's finance department prepared a daily report using

data from the Company's real-time sales and inventory computer program. That two-

page report — dubbed the "Orderometer" — contained detailed information on pending

orders, current inventory and comparisons of actual to projected sales. Virtually every

senior sales, marketing and production executive at S&W — including Defendants Golden

and Kelly — received a daily electronic copy of the "Orderometer." Significantly, a

number of witnesses revealed that the information contained in S&W's order and

inventory system, and consequently the "Orderometer" reports, during the

winter/spring/summer of 2007 demonstrated unequivocally that sales people were not

meeting their monthly sales targets and that inventory was rising steadily as a direct

result.

6. Another means by which S&W's senior management learned about the

slowdown in demand and related growth in inventory during the winter/spring of 2007

was the Company's daily sales and inventory meetings. During those meetings, senior

managers — led by Defendants Golden and Kelly — poured over the "Orderometer"

reports in exhaustive detail and grilled each senior sales executive about his or her staff's

progress toward meeting earnings targets. Tellingly, witnesses reported that senior

management learned from those meetings as early as April 2007 that S&W's sales were

down significantly in comparison to projections, resulting in the Company having

amassed a dangerously bloated inventory.

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7. Still other indicators of diminished demand were reports that S&W's

senior management received internally from its sales teams and externally from its

wholesale distributors. S&W's sales staff submitted weekly and monthly "Call Reports"

to management detailing anticipated dealer and retailer sales. Several sales

representatives reported that they and their colleagues made management aware through

those "Call Reports" that they were universally failing to meet their sales numbers in the

winter/spring/summer of 2007. S&W's senior management also received reports from

the Company's distributors reflecting state-by-state gun sales that, according to a number

of witnesses, demonstrated to S&W's senior management that the Company's sales staff

was failing to meet earnings targets in the spring of 2007.

8. In addition to reviewing reports and attending meetings about the sales

and inventory crisis, S&W's senior managers, including Defendant Golden, had firsthand

knowledge of the Company's excessive inventory buildup in the spring of 2007. In fact,

witness statements revealed that, on a weekly basis, Defendant Golden walked by the

Company's wire-caged "Vault" area where unsold guns were stored and "could not have

missed" the inventory overflowing onto the factory floor.

9. Yet despite knowing that product demand was cascading downward while

inventory was rising to unhealthy levels, defendants promulgated aggressive earnings

projections for fiscal year 2008 based in part on bogus claims that demand for S&W's

products was strong — all in an effort to boost the Company's stock price. Indeed, one

witness revealed that at a company-wide meeting in the spring of 2007, Defendant

Golden made it clear that his motive was, in fact, to drive the Company's stock price to

$25 dollars per share.

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10. Defendants' fraudulent conduct was partially revealed to the investing

public on October 29, 2007, when S&W announced that it was lowering its earnings

guidance for fiscal year 2008 from $0.63 per share down to $0.53 per share in part

because the Company's inventory was overstocked and demand for its products was

insufficient to work through the excess. On that news, the Company's stock price fell

sharply on heavy volume the next trading day, losing a staggering $7.97 per share to

close at $12.12 per share, a 40% decline.

11. Defendants' charade came to end on December 6, 2007, when the

Company revealed the true impact that the lack of consumer demand and excessive

inventory accumulation had on its unjustified earnings outlook for fiscal year 2008. In

particular, S&W announced that its "revised" earnings projections were only $0.40 per

share — a full 37% lower than the earnings that the Company claimed only three months

earlier that shareholders could expect for fiscal year 2008. Based upon that news, S&W's

common stock dropped another $2.84 per share, or 29%, to close at $7.08 per share the

next trading day.

12. In all, defendants' fraudulent conduct erased nearly $11.00 per share, or

54%, of the value of S&W's common stock.

JURISDICTION AND VENUE

13. The claims asserted herein arise under Sections 10(b) and 20(a) of the

Securities Exchange Act of 1934 ("Exchange Act"), 15 U.S.C. §§ 78j(b) and 78t(a), and

Rule 10b-5, 17 C.F.R. § 240.10b-5 promulgated thereunder.

14. This Court has jurisdiction over the subject matter of this action pursuant

to Section 27 of the Exchange Act, 15 U.S.C. §78aa, and 28 U.S.C. §§ 1331 and 1337.

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

Act and 28 U.S.C. § 1391(b). Many of the acts and transactions giving rise to the

violations of law complained of herein, including the preparation and dissemination to

the investing public of materially false and misleading financial and other statements,

occurred in this District. In addition, S&W maintains its principal executive office at

2100 Roosevelt Ave., Springfield, Massachusetts.

16. In connection with the acts, conduct and other wrongs complained of

herein, all defendants, directly or indirectly, used the means and instrumentalities of

interstate commerce, the United States mails, and the facilities of a national securities

market.

III. PARTIES

17. Lead Plaintiff Oklahoma Firefighters Pension and Retirement System was

created by the Oklahoma state legislature in 1981 to provide pension benefits to

Oklahoma firefighters and their beneficiaries. Oklahoma Firefighters currently has

21,238 participating members, more than half of which are active paid or volunteer

firefighters, with the remainder being retirees or their beneficiaries. As of June 30, 2007,

Oklahoma Firefighters' assets — valued at $1.848 billion — were invested in a diversified

portfolio consisting largely of domestic and international stocks and bonds, among other

investment vehicles. During the Class Period, Oklahoma Firefighters purchased shares of

S&W's stock as set forth in the certification attached to its lead plaintiff application in

this case and suffered damage on those trades as a direct and consequent result of the

fraudulent conduct alleged herein. By Order dated April 15, 2008, Oklahoma

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Firefighters was appointed Lead Plaintiff for the Class (defined below) pursuant to

Section 21D(a)(3)(B) of the Exchange Act.

18. Named Plaintiff and proposed Class Representative, the Sheet Metal

Workers Pension Plan of Northern California ("Sheet Metal Workers"), is a multi-

employer, collectively bargained defined benefit pension plan that provides retirement

benefits to employees of employers that contribute to the pension plan. The Sheet Metal

Workers was established in 1958 and covers members of Sheet Metal Workers Local

Unions 104, 162 and 371. The value of the Sheet Metal Workers's assets exceeds $1

billion and those assets are invested in a diversified portfolio consisting of domestic and

international stocks, bonds, and other investments. During the Class Period, the Sheet

Metal Workers purchased shares of S&W's stock as set forth in the certification attached

to its lead plaintiff application in this case and suffered damage on those trades as a direct

and consequent result of the fraudulent conduct alleged herein.

19. Defendant Smith & Wesson Holding Corporation is a public company

incorporated in the state of Nevada and maintains its principal place of business at 2100

Roosevelt Ave., Springfield, Massachusetts.

20. Defendant Michael F. Golden was, at all relevant times, S&W's President

and CEO. Defendant Golden signed S&W's annual report on Form 10-K for the period

ending April 30, 2007, which was filed with the United States Securities and Exchange

Commission ("SEC") on or about July 16, 2007 ("2007 10-K"), as well as the Company's

quarterly report on Form 10-Q for the period ending July 31, 2007, which was filed with

the SEC on or about September 10, 2007 ("Q1 2008 10-Q"). In addition, Defendant

Golden drafted, reviewed, approved, disseminated and/or ratified numerous other public

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statements on behalf of the Company during the Class Period, including without

limitation press releases, conference calls and other communications with securities

analysts and investors. According to the Statement of Changes in Beneficial Ownership

of Securities on Form 4, which was filed with the SEC on November 12, 2007, and the

Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934, filed

with the SEC on August 13, 2007 ("Proxy Statement"), as of November 12, 2007,

Defendant Golden was the beneficial owner of approximately 549,699 shares of S&W's

securities, including common stock and unexercised vested options. As CEO of S&W,

and by virtue of his holdings of S&W's common stock, Defendant Golden was a

controlling person of S&W within the meaning of Section 20(a) of the Exchange Act and

exercised his power and influence to cause S&W to engage in the wrongful conduct

alleged herein.

21. Defendant John A. Kelly was, at all relevant times, S&W's CFO and

Treasurer. Defendant Kelly signed the 2007 10-K and the Q1 2008 10-Q. In addition,

Defendant Kelly drafted, reviewed, approved, disseminated and/or ratified numerous

other public statements on behalf of the Company during the Class Period, including

without limitation press releases, conference calls and other communications with

securities analysts and investors. According to the Proxy Statement, as of July 31, 2007,

Defendant Kelly was the beneficial owner of approximately 479,730 shares of S&W's

securities, including common stock and unexercised vested options. As CFO of S&W,

and by virtue of his holdings of S&W's common stock, Defendant Kelly was a

controlling person of S&W within the meaning of Section 20(a) of the Exchange Act and

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exercised his power and influence to cause S&W to engage in the wrongful conduct

alleged herein.

22. Defendant Barry M. Monheit ("Monheit") was, at all relevant times,

Chairman of S&W's Board of Directors. Defendant Monheit drafted, reviewed,

approved, disseminated and/or ratified numerous public statements on behalf of the

Company during the Class Period, including without limitation press releases, conference

calls and other communications with securities analysts and investors. According to the

Proxy Statement, as of July 31, 2007, Defendant Monheit was the beneficial owner of

approximately 621,800 shares of S&W's securities, including common stock and

unexercised vested options. As the Chairman of S&W's Board of Directors, and by

virtue of his holdings of S&W's common stock, Defendant Monheit was a controlling

person of S&W within the meaning of Section 20(a) of the Exchange Act and exercised

his power and influence to cause S&W to engage in the wrongful conduct alleged herein.

23. Defendants Golden, Kelly and Monheit are referred to collectively herein

as the "Individual Defendants." Collectively with Defendant S&W, the Individual

Defendants are referred to herein as "Defendants."

24. By reason of their positions at S&W, each of the Individual Defendants

had access to internal company documents, reports and other information, including

adverse non-public information about the Company's business, financial condition and

future prospects, and attended management and/or board of director meetings. As a

result, they were responsible for the truthfulness and accuracy of S&W's public reports,

statements and releases. Among the documents the Individual Defendants reviewed, or

were provided with, prior to and during the Class Period were S&W's operating plans,

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budgets and forecasts, and reports of actual operations compared thereto, as well as other

periodic documents unique to S&W, such as "Orderometer" reports, internal sales "Call

Reports," and wholesale distributor state-by-state sales reports.

25. It is appropriate to treat the Individual Defendants as a group for pleading

purposes and to presume that the false and misleading information contained in S&W's

public filings, press releases and other statements, as alleged herein, are the collective

actions of this narrowly defined group of defendants. By virtue of their high-level

positions at S&W, each of the Individual Defendants directly participated in the

management of S&W and was privy to confidential, proprietary information about

S&W's business, operations and practices. The Individual Defendants were involved or

participated in drafting, reviewing, approving and/or disseminating the false and

misleading statements alleged in this Complaint and were thus aware that the statements

were being made, or approved and ratified them, in violation of the federal securities

laws.

26. As officers and/or directors and controlling persons of a publicly-held

company whose common stock was, and is, registered with the SEC pursuant to the

Exchange Act, trades on NASDAQ, and is governed by the provisions of the federal

securities laws, the Individual Defendants each had a duty to promptly disseminate

accurate and truthful information with respect to S&W's financial condition,

performance, operations, business, business practices, management, earnings and

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

materially misleading or untrue, so that the market price of S&W's publicly-traded

securities would be based upon truthful and accurate information. The Individual

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Defendants' misrepresentations and omissions during the Class Period violated those

specific requirements and obligations.

27. The Individual Defendants participated in drafting, reviewing, approving

and/or ratifying the various public, shareholder and investor reports and other

communications alleged herein. As a consequence, they were aware of, or recklessly

disregarded, the misstatements therein and/or omissions therefrom, and were aware of

their materially false and misleading nature. By virtue of their Board membership and/or

executive and managerial positions with S&W, each of the Individual Defendants had

access to the adverse undisclosed information about S&W's business practices, prospects,

financial condition and performance as alleged herein and knew, or recklessly

disregarded, that those adverse facts rendered materially false and misleading the positive

representations about S&W that the Individual Defendants made or ratified.

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

authority as officers and/or directors of S&W, were able to, and did, control the content

of the various SEC filings, press releases, and other public statements pertaining to S&W

during the Class Period. Each Individual Defendant was provided with copies of the

documents alleged herein to be misleading prior to, or shortly after, their issuance and

had the ability and opportunity to prevent their issuance or to cause them to be corrected.

Accordingly, each of the Individual Defendants is responsible for the accuracy of the

public reports and releases detailed herein and is, therefore, primarily liable for the

representations contained therein.

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IV. SUBSTANTIVE ALLEGATIONS

A. Backpround

29. S&W, through its wholly-owned subsidiary, Smith & Wesson

Corporation, manufactures firearms and firearm-related products and services. S&W is a

public company employing 1,500 individuals at its headquarters and primary

manufacturing facility in Springfield, Massachusetts, as well as production plants located

in Houlton, Maine, and Rochester, New Hampshire. S&W markets its products to gun

enthusiasts, collectors, hunters, sportsmen, protection focused individuals, public safety

agencies and officers and military agencies.

30. Prior to 2006, S&W almost exclusively manufactured handguns, a

category of firearm that includes pistols and revolvers. Beginning in 2006, the Company

added production of so-called "long guns," such as tactical and hunting rifles, assault

rifles, shotguns, interchangeable firearm systems and black powder firearms. According

to the 2007 10-K, the Company also acquired the Thompson/Center Arms Company, Inc.

("Thompson Center") in January 2007 to increase its presence in the long gun market,

particularly with respect to hunting rifles.

31. Although long guns made a minor contribution to S&W's fiscal year 2007

revenues, the Company has stated that the true financial impact of its introduction into

the long gun market will not be felt until fiscal year 2009. Indeed, as Defendant Golden

stated at a June 14, 2007, investor conference call: "what you're going to see from us in

fiscal 2008, and we've said this for a while now, is we're just ramping up our shotgun

production. The season's in the fall. Our hunting rifle, both Thompson and the Smith &

Wesson bolt-action rifle, will go into production in July. So we're just not going to have

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much product in the market this year. The real impact of Smith & Wesson in the long-

gun market will be in fiscal '09 for next year."

32. Thus, despite the Company's recent foray into the long gun market,

handguns were by far S&W's most significant product group and revenue source both

before and during the Class Period. According to the 2007 10-K, of the Company's

$221.3 million in firearm revenues, pistol sales accounted for $78.2 million and revolver

sales made up another $64.1 million. In addition, the Company's Walther pistol line

contributed $23.3 million to the Company's 2007 firearm sales and handgun sales made

up a significant portion of the $18.5 million in 2007 revenues from S&W's premium,

limited edition and classic firearm sales. In all, handgun sales accounted for an

overwhelming 75-80% of S&W's firearm sales in fiscal year 2007. Likewise, according

to S&W's quarterly report on Form 10-Q for the period ending October 31, 2007 ("Q2

2008 10-Q"), revenues from revolvers, pistols and the Walther pistol line alone accounted

for 56% of the Company's firearm revenues for the first six months of fiscal year 2008.

33. By direct contrast, long gun sales contributed a much less significant

amount to S&W's revenue in fiscal years 2007. Indeed, excluding revenues attributable

to the Thompson Center, S&W's 2007 rifle and shotgun sales totaled $9.9 million, or

only 5% of the Company's firearm sales. Similarly, excluding Thompson Center

revenues, S&W's rifle and shotgun sales for the first six months of fiscal year 2008

totaled approximately $8.5 million, or only 6.3% of the Company's firearms sales.

B. S&W's Business Model

34. According to the 2007 10-K, although S&W operates two retail stores, an

online catalogue, and sells products directly to public law enforcement agencies, the vast

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bulk of the Company's revenues derive from sales to wholesale firearms distributors. In

fact, sales to distributors constituted nearly 80% of the Company's revenues in 2007 —

with commercial or retail distributors accounting for a great majority of those revenues.

Indeed, the 2007 10-K stated that the top five (5) of S&W's commercial or retail

distributors alone accounted for thirty three percent (33%) of S&W's total revenues in

2007.

35. Commercial or retail distributors — also referred to internally as the

Company's "sporting goods" channel — sell the products to firearms dealers and/or

retailers, which, in turn, sell them to individual consumers. Law enforcement distributors

sell S&W's products directly to public law enforcement agencies. The 2007 10-K stated

that S&W maintains business relationships with twenty-four (24) wholesale distributors

that service commercial or retail consumers and another forty six (46) wholesale

distributors that service law enforcement consumers.

36. According to a former Regional Sales Manager who was responsible for

the western region of the United States ("U.S.") and who left the Company in November

2007, S&W utilized a two-tiered marketing approach both before and during the Class

Period to promote sales through its distributors. According to him, S&W employed: (1)

a sales staff devoted solely to selling products directly to distributors and large retailers,

and (2) a team of salespeople who serviced firearms dealers and small to mid-sized

retailers that regularly purchased S&W's products directly from wholesale distributors.

37. A former Director of Retail Sales who left the Company in January 2008

explained that it was S&W's National Sales Managers who sold S&W's products to the

Company's distributors and large retail customers. According to that former employee,

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who reported directly to S&W's Vice President of Sales, Tom Fimmen ("Fimmen"), the

National Sales Managers were responsible for introducing new products and

communicating the Company's promotional activities to those customers. The former

Regional Sales Manager for the western region of the U.S. further recalled that in

addition to those responsibilities, the sales staff also facilitated customer orders and

shipments.

38. Among the major distributors the team serviced in 2007 was AcuSport

Corporation in Bellefontaine, Ohio; RSR Group in Winter Park, Florida; Sports South in

Shreveport, Louisiana; Ellet Brothers in Chapin, South Carolina; Lew Horton

Distributing Co., Inc. in Westboro, Massachusetts; Jerry's Sports Center in Forest City,

Pennsylvania; Davidson's in Prescott, Arizona; Bill Hicks & Co., in Minneapolis,

Minnesota; and Big Rock Sports in Newport, North Carolina. The main retailers the

team handled in 2007 were Bass Pro Shops of Springfield, Missouri; Gander Mountain

Company of St. Paul, Minnesota; Sportsman's Warehouse of Midvale, Utah; and

Cabela's of Sidney, Nebraska.

39. According to the former Regional Sales Manager for the western region of

the U.S., the sales team that serviced dealers and small to mid-sized retailers was

responsible for familiarizing them with S&W's product lines, demonstrating new

products, promoting the Company's incentive programs, and assisting them with product

orders through S&W's wholesale distributors. The former Director of Retail Sales, who

reported directly to Fimmen and managed S&W's entire product line, recalled that the

goal of this sales team was to "pull product through" the distribution chain by motivating

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and incentivizing dealers and retailers to purchase firearms from S&W's wholesale

distributors.

C. S&W's Revenue Recognition Policy and Order Backlog

40. According to a former Sales Administrator for S&W's Law Enforcement

Division who had worked for the Company for more than thirty (30) years prior to

leaving in May 2007, S&W's customers often ordered products months in advance of the

date on which they sought to have them delivered. The President of one of S&W's

largest distributors confirmed that he historically placed some of his company's product

orders from S&W months in advance of the date on which he wanted the products to be

shipped to him.

41. According to the 2007 10-K, S&W did not recognize revenue from those

sales until the orders were shipped to the customer. In pertinent part, the Company's

revenue recognition policy stated as follows:

Revenue Recognition

We recognize revenue when the following four basic criteria havebeen met: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred or services have been provided; (3) the fee is fixed ordeterminable; and (4) collection is reasonably assured.

Product sales account for a substantial portion of our revenues. Werecognize revenue from product sales when the earnings process iscomplete and the risks and rewards of ownership have transferred to thecustomer, which is 2enerally upon shipment

(emphasis added).

42. As a consequence, S&W consistently maintained a quantifiable "backlog"

of product orders that were to be shipped to the customer within six months, i.e.,

revenues that the Company could not immediately recognize, but could anticipate

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recognizing within the next two quarterly reporting periods. S&W publicly reported its

order "backlog" in quarterly and yearly financial statements, including the 2007 10-K and

the Q1 2008 10-Q.

43. S&W used the Company's order "backlog" in conjunction with internal

measurements of product demand as the basis for earnings projections issued to the

public. Indeed, during an investor conference call concerning S&W's fiscal year 2008

earnings forecasts, Defendant Golden explained the process by which the Company's

reached its earnings projections for that year:

[A]s we typically do, we have for the last two and a half years that I'vebeen here, is we tell you guys what we see as the numbers that we'regoing to deliver for the year, and we adjust when we see things that aretangible that just give us a reason to tell you differently. Whenever we'vegotten a big military contract, we've adjusted. So as we look in thebusiness, we ended the year with a pretty good backlog. Demand hasbeen strong, and that's—the Thompson, our capacity in Thompson,we've gotten our barrel output up by 20% in the first whatever it's been,five months, that we've had it.

So we're putting all those together, and that's why we reactedconfidently with our new guidance.

(emphasis added).

D. S&W Had Several Internal Mechanisms to Gauge Current Product Demand

44. Several employees, including the former Sales Administrator for S&W's

Law Enforcement Division, a former Marketing Manager for S&W's Performance Center

who left the Company in May 2007, and a former Engineer who left the Company in

November 2007, reported that S&W's senior management team was overwhelmingly

preoccupied during 2007 with meeting sales expectations and increasing the Company's

stock price.

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45. As the former Sales Administrator for the Law Enforcement Division

reported, management was so sharply focused on meeting its numbers at that time that

managers such as S&W's Chief Operating Officer, Leland Nichols ("Nichols"), "would

give orders" to his subordinates to "pull the orders in" whenever S&W was in danger of

missing its sales targets. In other words, during fiscal year 2007, the Company frequently

shipped orders as much as a month earlier than they were scheduled for delivery, solely

to allow the Company to book enough revenue to meet Wall Street's expectations. As

the former Engineer recalled, at a company-wide meeting in the spring of 2007,

Defendant Golden conveyed his view of the ultimate goal of management's sales

practices: to increase S&W's stock price to $25 per share within a year.

46. As a means to that end, senior management, including Defendants Golden

and Kelly, religiously monitored customer demand for the Company's products before

and during the Class Period. To do so, management had in place several overlapping

systems, reports and practices designed to assess the retail consumer environment for the

Company's products on a virtually real-time basis. First, the Company employed a full-

time order entry staff and a customized real-time computer system to allow management

to access data and generate reports detailing current sales and inventory results. Second,

on a daily basis, S&W's finance staff distributed a two-page report to senior management

detailing the Company's current product order, backlog and inventory numbers. Third,

senior management held daily meetings with senior sales staff to track actual and

anticipated orders and monitor production levels. Fourth, S&W's sales staff regularly

submitted "Call Reports" to senior management describing the sales picture at the firearm

dealer and large retailer level. Fifth, senior managers received monthly reports from

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S&W's distributors, providing them with a further barometer of the geographic demand

for the Company's products.

47. The following practices, reports and systems combined to provide senior

management with specific and contemporaneous insight into the Company's product

order and production numbers, i.e., customer demand for the Company's products, both

in terms of actual and anticipated units sold and revenues generated.

1. Real-Time Order Entry and Inventory Tracking System

48. According to the former Sales Administrator for the Law Enforcement

Division who had worked at S&W for decades in many positions prior to leaving the

Company in May 2007, S&W maintained a sophisticated real-time order entry and

inventory tracking system. His recollection was that the system — a JDA replenishment

system with A5400 software that was compatible with Microsoft products ("A5400

System") — was administered by a staff of seven (7) full-time order entry department

employees reporting ultimately to Nichols. Having used the A5400 System on numerous

occasions during his tenure at the Company, the former Sales Administrator for the Law

Enforcement Division recalled that it housed complete, up-to-the-minute data concerning

S&W's product orders and inventory. According to him, given its importance to S&W's

business affairs, "the A5400 system was the heartbeat of the Company."


Division, S&W manager Neil Gibree ("Gibree") supervised six employees in the order

entry department, three of whom entered domestic orders and three of whom entered

international orders. He further reported that, pursuant to S&W's internal protocol, the

Company received written customer orders by fax or email and routed them to Gibree

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and his staff. Based on the geographic location of the customer, the appropriate data

entry personnel on Gibree's staff would then enter the order information into the A5400

System. The former Sales Administrator for the Law Enforcement Division further

recalled that among the data entered in the A5400 System was the name of the customer,

the firearm model number, the firearm SKU number, unit quantity, unit price and the

promised delivery date.


Division, the A5400 System allowed users to form "queries" to organize the raw data that

had been entered into the system. He further explained that such "queries" allowed users

to generate reports aggregating the data on a daily, monthly or quarterly basis by one or

more categories, including gun type, model, customer, distribution channel, units sold

and revenues generated.

51. According to the former Engineer who was responsible for operations

efficiency at the Springfield, Massachusetts plant, S&W also used the A5400 System as

its primary inventory management program. Having periodically entered new inventory

into the A5400 System, the former Engineer recalled that each unsold gun was boxed

individually, scanned into the A5400 System with a hand-held scanner by employees in

the packing and assembly department headed by Paul Styckiewicz, and then placed in

inventory. According to him, another group of employees scanned each purchased gun

into the A5400 System to record its sale just prior to sending it to loading dock to be

shipped to a customer. He further recalled that the inventory data entered into the A5400

System was integrated with the information contained on the system concerning orders,

parts, shipments and manufacturing schedules.

20



Division, many employees had varying levels of access to the sales and inventory

information in the A5400 system, but S&W's senior management unquestionably had

full access to the data. "There's nothing they can't get," he noted, explaining that top

executives including Defendants Golden and Kelly could either log on themselves or ask

a subordinate to "run a query" to obtain whatever information they wanted from the

A5400 System. Moreover, his recollection was that after a query had been used once, the

requesting party could re-run the query from his own desktop anytime thereafter to obtain

more current information.

2. "Orderometer" Reports


Division, Defendant Kelly directed S&W's finance department to use data from the

A5400 System to generate a daily report — known internally as the "Orderometer" —

providing exhaustive detail about the Company's current sales and production results.

He and the former Marketing Manager of S&W's Performance Center, both of whom

regularly received the "Orderometer" report during fiscal year 2007, recalled that the

"Orderometer" contained up-to-date statistics — by units and revenues — concerning the

Company's actual sales, incoming orders and pending shipments for all of S&W's

product lines. In addition, both witnesses recalled that the "Orderometer" report

contained an exact reporting of current product production, inventory and order backlog.

54. Both the former Marketing Manager of the Performance Center and the

former Sales Administrator for the Law Enforcement Division described the

"Orderometer" report as a two-page Excel® spreadsheet. According to the former

21


Performance Center Marketing Manager, the "Orderometer" report contained aggregated

revenue results for all product categories, including consumer sales, law

enforcement/military sales, specialized sales, accessories and handcuffs. According to

the former Sales Administrator for the Law Enforcement Division, the "Orderometer"

report included daily, monthly and quarterly breakdowns of such data

55. Both witnesses who regularly received the "Orderometer" report further

recalled that it was circulated as an attachment to an email sent to all participants of daily

sales and manufacturing meetings that Defendant Kelly conducted alongside Defendant

Golden, Fimmen, and Nichols. The former Sales Administrator for the Law Enforcement

Division further recalled that the daily "Orderometer" email was sent either by Martin

Devasier or another finance department employee at the direction of Defendant Kelly.

3. Daily Sales and Manufacturing Meetings

56. In order to maintain a firm understanding of consumer demand for S&W's

products, senior management constantly met with the Company's sales staff to discuss

both their actual sales numbers and their progress toward meeting aggressive sales goals.

57. Most notably, according to numerous former employees, including the

former Performance Center Marketing Manager, the former Sales Administrator for the

Law Enforcement Division, the former Director of Retail Sales, the former Regional

Sales Manager, the former Engineer, as well as a former Long Guns Product Manager

and a former Director of Procurement, Planning and Inventory Control employed by the

Company during fiscal year 2007, senior management held meetings with senior sales

staff on a daily basis during fiscal year 2007 to discuss in detail the Company's actual

sales, pending orders, and production and inventory numbers.

22


58. According to the former Performance Center Marketing Manager, who

regularly attended the meetings throughout fiscal year 2007, the meetings were held at

8:30 a.m. in the first floor boardroom at the Company's Springfield, Massachusetts,

headquarters building. He further recalled that the meetings, which lasted approximately

half an hour, were attended by 20-25 of S&W's senior sales, marketing and

manufacturing executives, including Defendants Golden and Kelly, as well as Nichols

and Fimmens. According to the former Performance Center Marketing Manager,

Defendant Golden generally ran the meetings, but if he could not attend in person,

Nichols and Defendant Kelly ran them while he actively participated via conference call.


Division, who attended approximately 50-60 such meetings between January and May

2007, sales executives would brief senior management on their staff's sales numbers,

both actual orders and pending deals. In addition, he recalled that the manufacturing staff

would provide senior management with current updates on the Company's production

and inventory levels. According to him and the former Performance Center Marketing

Manager, senior management frequently quizzed the sales executives regarding actual

versus forecasted sales.

60. According to the former Performance Center Marketing Manager and the

former Sales Administrator for the Law Enforcement Division, all anticipated meeting

participants received the "Orderometer" email on a daily basis. Each former employee

further recalled that Defendants Golden and Kelly, as well as Nichols and Fimmen, were

on the distribution list for the "Orderometer" email. They also recalled that Defendant

Kelly and Nichols used the "Orderometer" report extensively during those meetings to

23


compare demand with sales and production goals. According to the former Performance

Center Marketing Manager, Nichols took detailed handwritten notes at all daily sales and

manufacturing meetings throughout 2007.

61. According to the former Director of Retail Sales, S&W's senior

management also conducted a similar daily meeting concerning the Thompson Center

subsequent to its acquisition by S&W. Nichols and Fimmen led that meeting via

conference call from S&W's headquarters with about six executives, including the former

Director of Retail Sales, at the Thompson Center headquarters in Rochester, New

Hampshire. According to him, the meeting participants received an email in advance of

the meetings that attached a separate "Orderometer" report reflecting Thompson Center

sales, order and manufacturing results. His recollection is that Nichols and Fimmen

reviewed the Thompson Center "Orderometer" report in depth during the daily

Thompson Center conference call.

62. The former Performance Center Marketing Manager stated that senior

management, spearheaded by Defendant Golden, also conducted daily strategy sessions

with the marketing department during the latter part of fiscal year 2007. According to

him, participants discussed the same sales results reviewed during the daily sales and

production meeting, with an eye toward brainstorming about how S&W could meet its

aggressive sales goals. He further described those meetings as a monthly "fire drill" that

became more and more intense as each month during fiscal year 2007 came to a close.

4. Sales Department "Call Reports"

63. According to two former District Sales Representatives who were

employed in that capacity for years prior to leaving S&W in the spring of 2008, as well as

24


the former Sales Administrator for the Law Enforcement Division, senior management

required the Company's regional and district sales representatives to submit weekly and

monthly "call reports," which tracked dealer and retailer demand trends ("Call Reports").

One of the former District Sales Representatives, who was responsible for Pennsylvania

and prepared Call Reports from 2000 until his departure from S&W in May 2008, stated

that regional and district sales representatives received an email from their supervisors

each month attaching that month's blank Call Report, which was a standardized four-

page Excel® spreadsheet to be filled out by each sales representative.

64. According to the other former District Sales Representative, who was

responsible for territory in Ohio and Kentucky and prepared Call Reports from August

2005 until he left the Company in May 2008, management required sales representatives

to submit completed Call Reports on a weekly basis. He further reported that

management expected the Call Reports to contain detailed order and inventory

information for each dealer, including the total dollar amount of a dealer's weekly and

monthly orders. The former District Sales Representative who was responsible for

Pennsylvania further recalled that the monthly Call Reports were cumulative in that they

included information from each weekly report submitted earlier that month.

65. According to the former District Sales Representatives responsible for

Pennsylvania and Ohio/Kentucky, respectively, the monthly Call Reports also contained

a series of survey questions to be answered by dealers. According to them, the questions

on each monthly Call Report varied from month to month, but were always related to the

demand for S&W's products or popularity of the Company's promotions. The District

Sales Representative for Ohio and Kentucky remembered seeing questions concerning

25


66. Both former employees further recalled that the sales managers were

instructed to ask each dealer the questions presented in each month's form Call Report

and then to summarize the answers, which were invariably short and could be expressed

in monetary, numerical or percentage terms. Salespeople were expected to record survey

answers for each customer visited throughout that month.

67. Both former employees further recalled that completed Call Reports were

sent to their respective supervisors via email on a weekly and monthly basis. The former

District Sales Representative for Pennsylvania also recalled that the reports were

forwarded to Fimmen, who collected all such reports for his and Defendant Golden's use

in tracking market trends. The former Sales Administrator for the Law Enforcement

Division confirmed that, as late as May 2007, senior management required district

managers to prepare Call Reports because management "wanted to know what the trends

were out there" with respect to demand for S&W's products and that Call Reports

afforded senior management another means of knowing what was "going on in the

market."

S. Distributor Reports

68. A former Director of Sporting Goods Sales employed by S&W during

fiscal year 2007 stated that the Company's largest distributors had "relatively

sophisticated operations" to track the movement and sales of their inventory and that each

would share the data with S&W on a periodic basis ("Distributor Reports"). A long-

serving President one of S&W's largest wholesale distributors confirmed that both before

26


and during the Class Period, his company provided S&W's senior management with

Distributor Reports detailing the number and price of guns sold in each state.

69. The former Regional Sales Manager for the western region of the U.S.

corroborated that account, stating that S&W's larger distributors sent the Company's

senior management the Distributor Reports on a monthly and quarterly basis detailing

their state-by-state sales of S&W's products. According to him, the periodic reports were

typically in the form of an Excel® spreadsheet and reflected the aggregate number, by

region, of each type of firearm sold by the distributor during the particular time period

covered by the report.

70. According to a former District Sales Representative for Pennsylvania and

the President of one of S&W's largest distributors, S&W primarily used the Distributor

Report to determine compensation for the sales team that serviced firearms dealers and

retailers. According to the Director of Sporting Goods, the Distributor Reports were also

very important to S&W's senior management as a means of assessing regional demand

for the Company's products.

E. Demand for S&W's Guns Declined Drastically in the Winter/Spring of 2007

71. Beginning in the winter/spring of 2007 and continuing throughout the

summer of that year, S&W experienced an uncharacteristically sharp downturn in the

demand for its products. As the following former employees attested, the impact of that

falloff in demand was severe, causing virtually every member of the Company's sales

force to miss their sales goals in 2007. At the same time, senior management increased

manufacturing output to an extremely high level. As a result, the perfect storm of greatly

diminished product demand occurring simultaneously with S&W's significant increase in

27


production caused the Company's inventory levels prior to and during the Class Period to

soar to astronomical levels.

1. S& W's Sales Force Almost Universally Failed to Meet Sales Targets SetBy Senior Management for Months Prior to the Start of the Class Period

72. According to several members of S&W's sales force, including three

former District Sales Representatives and a former Regional Sales Manager, demand for

S&W products declined significantly in the winter/spring of 2007. Indeed, despite

stepped up promotions that management initiated at the time to combat shrinking

demand, sales people routinely failed to meet their monthly sales targets during that

period.

73. For example, a former District Sales Representative for Florida and

Georgia, who held that position at S&W throughout fiscal year 2007 and left the

Company in May 2008, recalled that he never came close to making his numbers during

the entire calendar year 2007. Nevertheless, he remembered that his performance was

much better than that of his colleagues, with whom he had frequent telephone

conversations about sales results. In fact, he recalled that while he may have approached

85% of his sales targets during the winter/spring/summer of 2007, many of his colleagues

barely reached 50% of the goals management set for them.

74. The former District Sales Representative for Florida and Georgia further

stated that, in May 2007, when S&W presented the sales force with its sales goals for

fiscal year 2008, there was near universal agreement among the District Sales

Representatives that it would be impossible to meet the Company's ambitious

expectation of a 40% growth in sales above fiscal year 2007's results. According to him,

"things were softening up [at the end of fiscal year 20071. We had seen a topping off of

28


demand before they gave us those goals." He further recalled that demand for S&W

products at the time was "moderate" at best and could never justify the accelerated

growth the Company's management demanded of its sales force. According to him,

S&W simply could not "grow sales that fast" in fiscal year 2008 when its sales force

could not even meet the less ambitious sales targets set during fiscal year 2007.

75. The former District Sales Representative for Ohio and Kentucky provided

the same information almost verbatim, stating that senior management's sales outlook for

fiscal year 2008 was completely unrealistic at the time because "there was no way to

grow the business that fast" when everyone missed lower sales targets in prior periods.

In fact, despite working 43 of 52 weekends during the year, he missed his sales goals in

every month throughout calendar year 2007 and, furthermore, he was not aware of

anyone who met their targets during that time period.

76. The former District Sales Representative for Pennsylvania agreed with his

fellow salespeople, noting that demand for S&W's products trailed off noticeably in the

spring of 2007, which resulted in him and his colleagues missing their numbers during

that time period.

77. The story was much the same at the regional level according to the former

Regional Sales Manager who was responsible for sales in the western region of the U.S.

throughout fiscal year 2007 and beyond. His recollection was that, although the summer

is traditionally S&W's worst season for sales, the slow down in demand for S&W's

products in the spring of 2007 was "worse than usual." According to him, the waning

demand at that time affected all gun models, including both handguns and long guns. As

29


a result, he recalled that the sales force, en masse, was having difficulty meeting their

sales goals in the spring of 2007 and thereafter.

78. As Defendants subsequently disclosed, the financial impact of the major

slump in demand that S&W's sales force experienced in the winter/spring of 2007

manifested itself quite clearly in the first six months of fiscal year 2008. According to

the Q2 2008 10-Q, despite the solid "backlog" of orders from which S&W claimed to

expect revenue generation in the first six months of fiscal year 2008, revenues from the

Company's primary product group — handguns — actually decreased almost 2% in that

period relative to the comparable six-month period in fiscal year 2007.

2. As Demand for S& W's Products Plummeted the Company's ProductInventory Skyrocketed to Distressingly High Levels

79. During the latter half of fiscal year 2007, S&W's senior managers, led by

Defendants Golden and Kelly, placed the Company on an aggressive production schedule

despite growing signals that demand for S&W's products was waning significantly. As a

direct result, the Company's inventory grew to staggering proportions, eventually

overflowing the Company's secured inventory storage area and spilling out onto the

factory floor.

80. According to a former Engineer who was responsible for increasing

operations efficiency at the Springfield, Massachusetts, factory from September 2004

through November 2007, senior management directed the manufacturing staff to produce

at an aggressive pace during fiscal year 2007. His recollection was that management was

"hell bent on producing 1,000 pistols a day and another 1,000 revolvers a day"

irrespective of the demand for those guns during that time period. The former Sales

30


Administrator for the Law Enforcement Division corroborated the heavy emphasis that

senior management placed on production during the spring of 2007.

81. The former Engineer stated that S&W's overproduction of guns became

apparent by April of 2007, as S&W's inventory storage area reached — and eventually

exceeded — its capacity. According to him, S&W typically stored finished firearms in a

multi-leveled, 60 x 60 foot caged area known internally as the "Vault." He further stated

that the interior of the Vault, which was generally kept locked, was perfectly visible from

the factory floor. According to him, prior to entering the Vault, each gun was logged into

the AS400 system, packed individually in a blue or black plastic box labeled with the

gun's serial number, and then stored on racks or pallets inside the Vault.

82. The former Engineer, who regularly entered the Vault, recalled that,

although the Vault was normally no more than half full, inventory began to exceed its

capacity in April 2007. He stated that senior managers frequently visited the area and

knew about the increasing inventory levels. He further recalled that, as a result of the

growing inventory levels, factory workers began storing the glut of firearms — most of

which were handguns — on pallets in the aisles of the Vault. The former Marketing

Manager for the Performance Center corroborated the fact that S&W's inventory levels at

the Springfield plant rose to "uncomfortable" levels before he left the company in May

2007.

83. The former Engineer reported that when firearms were sold to a customer,

they would be removed from the Vault by "shippers," employees who packed the guns

together in cardboard boxes, logged them out of the A5400 system, and loaded them on

trucks to ship to the customer. According to him, in the summer of 2007, the "shippers"

31


work slowed down considerably more than usual for that time of year. He recalled that

"shippers" like Rick Jara and Richard Ries had less and less to do during that period as

demand declined, noting that "every day they would ask us: 'What are we going to do

with all these guns?'

84. By the summer of 2007, the former Engineer recalled that S&W had run

out of room to store firearms in the Vault and began to store them in an unsecured area on

the factory floor. In all, he recalled that S&W had about eight (8) to ten (10) pallets of

guns stored outside the Vault at the beginning of the summer of 2007, each containing

about 300 to 400 guns.

85. According to the former Engineer, the multiplying inventory level was so

apparent that it drew the attention of agents from the U.S. Bureau of Alcohol, Tobacco,

Firearms and Explosives ("ATF"), who had come to the plant in or around July 2007 to

conduct an inspection. His recollection was that management hosted the ATF team of

approximately 2-6 agents for one month or more as they conducted an inspection of the

Springfield plant for compliance with federal gun laws. According to him, among other

things, the ATF team focused on the eight to ten pallets of firearms stored outside the

Vault, noting serial numbers on those guns, matching them with the labels on the boxes,

and checking to see whether they were entered into the A5400 System. The former

Engineer further stated that, after the ATF agents left, management had an additional

secure storage area built to house the ever-growing stock of unsold guns.

F. Senior Management Knew That S&W' s Business Condition DidNot Justify Robust Earning Expectations for Fiscal Year 2008

86. At the close of fiscal year 2007 and beyond, S&W's business results and

prospects simply could not form the basis for optimistic growth expectations for fiscal

32


year 2008. Indeed, every one of senior management's many internal indicators signaled

that demand for S&W's products was in steep decline. Moreover, as a direct corollary to

the decline in product demand, a massive inventory pileup occurred during the spring of

2007 at the Company's main plant in Springfield, Massachusetts.

87. As the following former employee accounts attest, S&W's senior

management, including Defendants Golden, Kelly and Monheit, knowingly or recklessly

disregarded the information they had about the Company's worsening business condition

at the close of fiscal year 2007. Among other things, Defendants Golden and Kelly

ignored the real-time information presented in the "Orderometer" reports and reviewed in

depth at S&W's daily sales and production meetings, which consistently reflected

declining demand for S&W's products. In addition, Defendants Golden and Kelly not

only ignored reports of the skyrocketing inventory at the Company's Springfield,

Massachusetts, headquarters, but also disregarded their personal observations of the

obvious inventory overflow. Each of those indicators alone demonstrated the Company's

precarious financial condition in the spring of 2007; taken together, they clearly

illustrated to senior management that demand for S&W's products could not justify

robust earnings expectations for fiscal year 2008.

1. Senior Management Knew That Demandfor S& W's Products WasSignificantly Diminished in the Winter/Spring of 2007

88. According to a former Director of Sporting Goods Sales who held that

position during 2007, rather than consulting ex post facto barometers of customer demand

such as federal background check and excise tax data, S&W's senior management relied

heavily on feedback from the Company's sales force and distributors to determine and

forecast demand for its products. Senior management knew or recklessly disregarded

33


data from those sources — such as the "Orderometer" reports generated from the real-time

AS400 System and reviewed at the daily sales meetings, as well as the Company's Call

Reports and Distributor Reports — that unequivocally reflected declining demand in the

winter/spring of 2007.

89. For example, according to the former Performance Center Marketing

Manager, the Company's daily sales and manufacturing meetings "became very

pressurized" in the spring of 2007 because the "Orderometer" reports reflected that

demand for S&W's products — both handguns and long guns — had declined significantly

by the spring of 2007, especially with respect to automatic rifles, certain revolvers and

the Sigma brand pistol. According to him, everyone at those meetings, including

Defendants Golden and Kelly, "knew there was an issue with slow sales and increasing

inventory. It was across the board." He further recalled that management was so

concerned about declining demand that "it was a topic of conversation that was constant

at those meetings."

90. The former Performance Center Marketing Manager further recalled that

by the spring of 2007, senior management was intently focused on the "Orderometer"

reports, particularly the data they contained comparing actual to forecasted sales results.

His recollection was that management was extremely dismayed at the time because the

Company's sales force was failing to meet company-wide sales targets. He further

recalled that all sales or production misses were discussed at length and that the

discussions were "sometimes heated" and eventually "became pretty ugly." Indeed, he

further revealed that Defendant Golden's goal was "to make the bottom line no matter

34


what" and that, during the meetings, Defendant Kelly regularly translated missed

forecasts into lost earnings per share of the Company's stock.

91. The former Sales Administrator for the Law Enforcement Division agreed,

stating that he learned from the daily sales and inventory meetings that the Company's

sales force "specifically did not make their numbers" in the spring of 2007. He further

explained that senior management was told during those meetings that "the orders just

didn't come through. They didn't make the maximum sales goals they were looking for

in that time frame. The orders didn't materialize."

92. The former Performance Center Marketing Manager stated that senior

management's response to eroding demand in 2007 was to launch a spate of promotional

and incentive programs designed to prompt distributor orders. For example, he stated

that, in an effort to counteract declining demand, S&W developed the "Shooting for

Hawaii" program — through which distributors and dealers earned credits toward an all-

expense trip to Hawaii — as well as various extended payment term arrangements or "buy

one get one free" deals for particularly slow moving firearm models. The former

Regional Sales Manager for the western region of the U.S. confirmed that, as demand

slumped in the spring of 2007, senior management introduced several promotional

discounts, such as offering customer rebates and free magazines in addition to the

"Shooting for Hawaii" and other programs.

93. Over and above the information gleaned from the daily sales and

production meetings, S&W's senior management learned of the decline in demand for the

Company's products through direct communications with the sales force. According to

the former Regional Sales Manager for the western region of the U.S., he and S&W's

35


other Regional Sales Managers (who serviced S&W's dealers) and National Sales

Managers (who serviced S&W's distributors) participated in monthly conference calls

with Fimmen during which the sales managers reported their monthly sales results.

According to him, he and his colleagues made senior management aware that demand for

all of S&W's gun models, including handguns, was unusually low during the spring of

2007.

94. S&W's Call Reports were another indicator of the diminishing consumer

demand that S&W's senior management knowingly or recklessly disregarded as fiscal

year 2007 came to a close. According to the former District Sales Representative for

Florida and Georgia, based on his own Call Reports and conversations he had with other

District Sales Representatives about their own submissions, S&W's overall Call Reports

during the winter/spring of 2007 unequivocally reflected the fact that salespeople were

not meeting their sales targets. "We told them [via the Call Reports] that business wasn't

so hot in the winter/spring of 2007," he said, explaining that the reports were forwarded

through district and regional sales managers directly to Fimmen, who reported directly to

Defendant Golden. According to the former Regional Sales Manager for the western

United States, "Fimmen was eager to get the Call Reports" and was "monitoring them

closely" at the time.

95. The former District Sales Representative for Florida and Georgia

confirmed that senior management responded to the negative Call Reports in the

winter/spring of 2007, recalling that Fimmen and his supervisor told him to "do whatever

it takes to make the goals," something he and the vast majority of his colleagues were

ultimately unable to do in that sales environment. The former Regional Sales Manager

36


for the western region of the U.S. made similar statements, noting that Fimmen

responded to the negative Call Reports in the spring of 2007 by telling the sales staff that

they needed to "boost" sales and meet their numbers going forward.

96. Still another indicator of reduced demand that S&W's senior management

knowingly or recklessly disregarded at the close of fiscal year 2007 was the Distributor

Reports. The former District Sales Representative for Pennsylvania stated that senior

management knew from the comprehensive Distributor Reports that demand for S&W's

products was significantly down in the spring of 2007. According to him, in both April

and May of 2007, Regional Managers conveyed to the sales force, via emails or

conference calls, that management had concluded from its review of the Distributor

Reports that the sales force did not make its numbers in the spring of 2007.

97. According to the former Engineer, data concerning S&W's sales in the

winter/spring of 2007 also formed the basis for quarterly and annual sales forecasts that

the Company's marketing team generated in connection with the Company's operating

budget for fiscal year 2008. He further recalled that those forecasts were submitted with

the proposed budget for approval by the Company's Board of Directors, which Defendant

Monheit chaired, and that the approved forecast was used, among other ways, in

connection with his production schedule. His further understanding was that Defendant

Monheit and every other member of S&W's Board of Directors had access to, or the

ability to obtain, any of the raw sales and inventory data underlying the forecasts

included with the budgets that S&W's Board of Directors reviewed and approved.

98. The information described above concerning the lack of demand for

S&W's products in the winter/spring of 2007— which S&W's senior management

37


knowingly or recklessly disregarded — ultimately forced the Company to reduce earnings

guidance for fiscal year 2008. Indeed, according to the former Sales Administrator for

the Law Enforcement Division, the direct impact of reduced product demand in the

spring of 2007 would have been decreased revenues in one or both of the first two

quarters of 2008 — the periods in which much of that product would have been delivered

to the customer. In a press release dated October 29, 2007, S&W cited that very outcome

— "lower second quarter revenue results" — as one of the reasons for its reduced earnings

guidance for fiscal year 2008. Moreover, the Q2 2008 10-Q further revealed that the

main source of the decline was handgun sales, which were down nearly 2% during the

first six months of fiscal year 2008 (as compared to the comparable period in fiscal year

2007).

2. Senior Management Knew That Inventory Levels Were RisingDramatically As Demand Dropped Sharply During the Spring of 2007

99. According to the former Performance Center Marketing Manager, senior

managers such as Defendants Kelly and Golden knew that the Company's inventory

levels were reaching unacceptably high levels as early as the spring of 2007. According

to him, it was a frequently discussed topic at the daily sales and production meetings held

at the Springfield, Massachusetts headquarters during that time period. Indeed, his

recollection was brief and to the point: Everyone "knew there was an issue with slow

sales and increasing inventory. It was across the board."

100. The former Performance Center Marketing Manager further asserted that

senior managers, including Defendant Golden, knew S&W's inventory level in the spring

of 2007 "down to the gun" from their attention to the daily "Orderometer" reports that

were circulated and reviewed at the daily sales and inventory meetings during that time

38


period. The former Sales Administrator for the Law Enforcement Division corroborated

that account, stating that senior management regularly reviewed current inventory levels

at the daily sales and inventory meetings in April of 2007.

101. In addition to reviewing reports about S&W's inventory crisis and

discussing the issue at daily sales and production meetings, S&W's senior management

personally observed the inventory overflow. According to the former Engineer,

Defendants Kelly and Golden, along with their direct subordinate, S&W's Vice President

of Operations, Ken Chandler ("Chandler"), regularly walked through the Vault area,

which was situated between two "focal points" of the manufacturing plant — the testing

range and the finished goods area — that they frequently visited.

102. The former Engineer further reported that Defendants Golden and Kelly

were in the Vault area as often as once a week during the spring/summer of 2007, while

Chandler was there virtually every day during that time period and, in fact, was in and out

of the Vault itself with similar frequency. Moreover, it was his understanding that all

three executives "could not have missed" the overflowing inventory in the Vault area

during the spring/summer of 2007, because it was not only stacked to the rafters in the

transparent cage-like structure, it also spilled over into the Vault's walkways and onto the

unsecured factory floor.

103. As further evidence of their knowledge of the inventory crisis, the former

Engineer confirmed that senior management, including Defendants Golden and Kelly,

was well aware that the team of ATF agents conducting a compliance inspection in the

summer of 2007 took particular interest in the inventoried firearms that were stacked

outside the Vault. In addition, he recalled that subsequent to the ATF's compliance

39


inspection, senior management authorized the construction of a secondary secured area to

accommodate the firearms previously stored outside of the Vault.

G. Defendants' False and Misleading Statements

104. Despite the stark drop in demand for S&W's products and the abnormally

large build-up of inventory at the Company's Springfield facility, Defendants made

several positive announcements regarding the Company's financial situation during the

Class Period. In particular, Defendants made numerous misrepresentations and

omissions concerning the demand for S&W's products and the Company's financial

outlook for fiscal year 2008. Those false and misleading statements inflated the value of

S&W's stock, which the market valued on the basis of, among other things, the

Company's reported demand level and anticipated per share revenues. The following

statements are among the false and misleading statements that Defendants made during

the Class Period.

105. On June 14, 2007, Defendants issued a press release announcing S&W's

financial results for fiscal year 2007, which ended on April 30, 2007 ("June 14 th Press

Release"). In pertinent part, the June 14 th Press Release stated that:

Smith & Wesson Holding Corporation (NASDAQ: SWHC), parentcompany of Smith & Wesson Corp., the legendary 155-year old companyin the global business of safety, security, protection and sport, todayannounced financial results for the fiscal year and the fourth fiscal quarterended April 30, 2007.

Operational Improvements

Golden added, "We continued to make significant operating improvementsthroughout fiscal 2007. Our Springfield factory delivered enhancements tomanufacturing processes, supply chain management, and leanmanufacturing practices. We began implementing the Smith & WessonOperating System at our Thompson/Center facility shortly after the

40


acquisition in January 2007 and have increased long gun barrel productionby 26%. We continue to explore various operating synergies between theSmith & Wesson and Thompson/Center operating facilities. We invested$14.6 million in fiscal 2007 throughout our factories to upgrade andpurchase manufacturing equipment, geared primarily toward increasingcapacity and improving manufacturing processes."

Outlook for Fiscal 2008

We are raisin2 our sales expectations for fiscal 2008 from $320 million to $330 million, which would represent a 40.5% increase over fiscal2007 sales. This increased sales expectation includes 2rowth in ourexistin2 sportin2 moods channel and our continued penetration of thelaw enforcement and international markets. It also reflects a full fiscalyear of impact from our Thompson/Center acquisition. The increasedsales expectation does not include any significant revenue from federalgovernment orders, nor does it include the results of any potential futurediversification initiatives. The M&P pistol and tactical rifle series, alon2 with our new shotmun and bob-action rifle lines, are expected to bedrivers in the sales' increase for fiscal 2008.

Net income for fiscal 2008 is anticipated to be $28.0 million, or $0.62 perdiluted share, double the earninms per diluted share for fiscal 2007 Ourincreased expectation of $0.62 per diluted share in net income reflects an increase over our previously announced muidance of $0.60. This increase is expected to result from himher expected sales volume, improvement in 2ross mar2in percenta2e to between 35% and 36%, adecline in operating expenses' as a percentage of sales and licensing, anda full fiscal year of impact from our Thompson/Center acquisition.Because of the acquisition, the seasonality of the hunting segment willnow be reflected in our quarterly results. Therefore, our first quarter(May through July) of fiscal 2008 will be our weakest quarter, whileresults in our second quarter (August through October), traditionally astrong quarter for hunting sales, will improve substantially over resultsfor the second quarter of fiscal 2006. We began the year with a strongorder backlog and as a result, we expect earnings for the first quarter offiscal 2008 to now be $.09 per diluted share compared with $.08 perdiluted share for the first quarter of fiscal 2007 and expect that thesubsequent quarters through fiscal 2008 will increase more significantlyon a year-over- year basis.

We expect positive cash flow in fiscal 2008 of approximately $41 million,with net cash flow of approximately $23.0 million after capitalexpenditures of $177 million. We now participate in the hunting

41


segment of the firearms industry, which traditionally offers itsauthorized dealers extended payment terms that do not come due untilafter the fall hunting season. These extended terms will significantlyimpact first half cash flow. In addition, a significant portion of ourcapital expenditures are expected to occur in the first half of fiscal 2008.These factors combined with our traditional first quarter expendituresfor profit sharing, bonuses and insurance premiums, will result in anegative cash flow for the first half, positive cash flow in the thirdquarter, and a strengthening of positive cash flow in the fourth quarter.

We expect capital expenditures in fiscal 2008 of $17.7 million, fundedentirely by cash flow from operations. Planned capital expenditures infiscal 2008 are based upon growth in the firearms business and excludeany new business opportunities we may pursue.

(emphasis added).

106. On that date, Defendants Golden and Kelly also participated in an investor

conference call concerning S&W's fiscal year 2007 financial results and projections for

fiscal year 2008. During that call, Defendants Golden and Kelly represented that demand

for S&W's handguns was strong and that, as a result, S&W was increasing production

capacity to meet that demand In fact, Defendant Kelly claimed that demand for

handguns was so strong in S&W's bread-and-butter "sporting goods" channel that

revenues would grow at a double-digit rate, reasoning that:

Planned capital expenditures for fiscal 2008 of $17 7 million representa $1 7 million increase from our previous estimate and allows for anexpansion of our polymer pistol manufacturing capacity due to increased demand Depreciation expense of $8 million remainsunchanged from our previous projection.

(emphasis added).

107. During the June 14, 2007 conference call, Defendant Golden also stated

that:

Operational improvements in all our factories throughout fiscal 2007drove gross margins to an unprecedented level and gave us increasedmanufacturing capabilities on many fronts. We made substantialinvestments in our pistol manufacturink capacity, as the krowth and

42


demand exceeded 59%. At the same time, we increased our tactical riflecapacity by supplementing it with internal manufacturing in calendar year2007.

(emphasis added).

108. Similarly, during the June 14, 2007 conference call, Defendant Kelly

explained that "[I:Tanned capital expenditures for fiscal year 2008 of $17.7 million

represents a $1.7 million increase from our previous estimate and allows for an

expansion of our polymer pistol manufacturin2 capacity due to increased demand."

109. Moreover, Defendant Kelly had the following exchange with Amit Dayal,

an analyst with Rodman and Renshaw:

Q: You've raised guidance again. What was missing from your analysislast quarter on which you have better visibility now, and should we expectthis to be somewhat of a conservative guidance?

A: Well, the guidance that we put out is, we don't have any, as we said,any federal government, large federal government contracts in it.

But as we typically do, we have for the last two and a half years that I'vebeen here, is we tell you guys what we see as the numbers that we'regoing to deliver for the year, and we adjust when we see things that aretangible that just give us a reason to tell you differently. Whenever we'vegotten a big military contract, we've adjusted our guidance. So as we lookin the business, we ended the year with a pretty good backlog. Demandhas been stron2, and that's—the Thompson, our capacity in Thompson,we've gotten our barrel output up by 20% in the first whatever it's been,five months, that we've had it.

So we're putting all those together, and that's why we reactedconfidently with our new guidance.

(emphasis added).

110. In addition, Defendant Golden had the following response to a question

posed by Tony Leesa, an analyst with Cowen Advisors:

Q: I have one question I've kind of struggled with for the last couplequarters, and we've talked about this before and I'm just wondering if youcould help me out with it again. And that is as you cycle on an annual

43


basis now for, I think, the second quarter, the changes that you made inyour sporting good channel, if you will, sales force. That group now hasnew product to sell. And I was wondering how, given the growth ratesthat you're putting up year over years still, how I should think about thetransition on a percentage-of-growth basis, increasing penetration andmarket share in handguns versus what you'll be selling in shotguns?

A: Let me try and take them — there's a couple of different questions inthere, I think, Tony. The sporting goods channel, the guidance that we'vegiven people — let's just talk about handguns first, okay?

The sporting coods channel von should assume that we will crow ourbusiness in the sportinc moods channel at a double-dicit rate, in aboutthe mid teens. Now last quarter was the second anniversary quarter ofthe change [that S&W made in its sporting good channel], and again wegrew by 30% in the sporting goods channel.

(emphasis added).

111. Defendants' June 14, 2007, statements concerning consumer demand for

S&W's products were relied upon by Wall Street analysts and cited in publicly available

analyst reports. For example, Cowen and Company's June 15, 2007 report stated that

S&W "bumped [its] FY08 est. to reflect SWHC's $10MM sales projection hike for sports

channel gains (tactical rifles, M&P pistol, new long guns)," stating further that the

projection "assumes a 23% organic sales gain." Likewise, Think Equity Partners LLC's

June 15 th Report alluded to the positive consumer response created by S&W's newly

hired sales staff, noting that "[w]e think Smith &Wesson is benefiting from substantial

changes in its manufacturing and sales operations, and that these changes should lay the

foundation for stronger growth in FY08 and beyond."

112. In direct response to the June 14th Press Release and contemporaneous

investor conference call, S&W's stock price rose from $14.91 per share to $16.15 per

share, an 8% increase, on heavy trading volume.

44


113. On July 16, 2007, S&W filed the 2007 10-K, which reported substantially

the same financial results that were contained in the June 14 th Press Release. In addition,

Defendants stated that:

We are continuing our efforts to enhance our manufacturing productivity in terms of increased daily production quantities, increasedoperational availability of equipment, lower machinery down time, extension of machinery useful life, reduced overtime, increasedefficiency, and enhanced product quality. The recent introduction of newproduction methods and additional machinery has resulted in significantimprovements in our production. For example, we have been able toincrease our average daily handgun production by 145% from May 2004to May 2007 while improving product quality, reducing waste, andreducing overtime. The significant growth of our business, however, requires us to continue to increase our manufacturing capacity. Forexample, during the last two fiscal years, we have been unable to satisfy on a timely basis the consumer demand for a number of our mostpopular new products, including our M&P Series of pistols and ourM&P1.5 tactical rifles.

(emphasis added). The 2007 10-K also stated that:

A key element of our strategy is to enhance our manufacturingproductivity in terms of added capacity, increased daily productionquantities, increased operational availability of equipment, lowermachinery down time, extension of machinery useful life, reducedovertime, increased efficiency, and enhanced product quality. The recentintroduction of new production methods and additional machinery hasresulted in significant improvements in our production. For example, wehave been able to increase our average daily handgun production by 145%from May 2004 to May 2007 while improving product quality, reducingwaste, and reducing overtime. The significant growth of our business, however, requires us to continue to increase our manufacturing capacity. For example, during the last two fiscal years, we have been unable to satisfy on a timely basis the consumer demand for a number ofour most popular new products, including our M&P Series of Pistols and our M&P1.5 tactical rifles. We plan to continue to seek gains inmanufacturing efficiency and capacity.

(emphasis added). Defendants Golden and Kelly signed the 2007 10-K.

45


114. On September 6, 2007, Defendants issued a press release announcing

S&W's financial results for the quarter ended July 31, 2007 (September 6 th Press

Release"). At length, the September 6 th Press Release stated that:

Smith & Wesson Holding Corporation (NASDAQ: SWHC), parentcompany of Smith & Wesson Corp., the legendary 155-year old companyin the global business of safety, security, protection and sport, todayannounced financial results for its first fiscal quarter ended July 31, 2007.

Record revenue of $74.4 million for the quarter ended July 31, 2007reflects an increase of 56.3% over the comparable quarter last year.Revenue from the sale of firearms for the quarter ended July 31, 2007grew 55.2% over the comparable quarter last year. Excluding revenuefrom Thompson/Center Arms, a rifle maker we acquired in January 2007,revenue increased by 17.8% over the comparable quarter last year.

Net income for the quarter was $4.7 million, or $0.11 per diluted share,compared with $3.4 million, or $.08 per diluted share, for the comparablequarter last year.

Smith & Wesson President and CEO Michael F. Golden said, "Our results for the first quarter of fiscal 2008 demonstrate progress across many initiatives and reflect growth in our core hantkun business as well as our newly established long gun business. Our sales growth wasparticularly strong given that the comparable quarter of the prior yearincluded $5.2 million in U.S. government orders for Afghanistan that werenot duplicated in the current quarter. Handgun sales into the retailchannel increased by 41.0% for the quarter, driven by our direct sales force and a number of ongoing retail initiatives. We continued to penetrate the law enforcement channel in the first quarter. Our Military& Police (M&P) polymer pistols have a cumulative win rate of over 80%in all test and evaluation processes in which they have competed. Thenumber of law enforcement agencies that have purchased or approved forcarry our M&P pistol has now gown to 231, including recent wins atsizeable agencies such as the Hartford, Connecticut Police and the NewHampshire State Police."

Golden continued, "On the diversification front, we continued to deliver aswell. Long guns, a category that we entered in late fiscal 2006, accountedfor over 25% of our revenue for the quarter. We continue to be extremelypleased with our acquisition of Thompson/Center, which has nowdelivered its second consecutive quarter of 22% revenue growth. We havecommenced production on our Thompson/Center ICON(TM) and ourSmith &Wesson i-Bolt (TM) bolt-action rifles, and both of these newcategory entries are beginning to arrive in retail locations. We have also

46


commenced shipments of our S&W shotguns. They are beginning toarrive in retail locations as well. As we have stated, our goal is to becomea significant player in the $1.1 billion long-gun market."

Golden added, "We are very pleased with our profit performance on anumber of fronts. Gross margin for the quarter was 36.4%, an increase of170 basis points over our gross margin of 34.7% for the comparablequarter last year. Operating income increased by 66.7% over thecomparable quarter last year, driven by the combination of higher salesand improved gross margins. Both our revenue and our earnings came inabove our expectations. It should be noted that our stronger-than-expectedresults in the first quarter reflect not only growth in our business but alsothe integration of Thompson/Center and the impact of hunting on ourtraditional seasonality."

Outlook for Fiscal 2008

We continue to expect revenue to increase to approximately $330 million in fiscal 2008, which would represent a 40% increase over fiscal 2007revenue. This revenue expectation does not include the results of any potential future, diversification initiatives, but does include growth in our existing consumer market, as well as continued penetration of thelaw enforcement, federal government, and international markets. Sales of our M&P pistols, M&P tactical rifles, our new shotguns and both ofour new lines of hunting rifles are all expected to be key drivers of therevenue increase for fiscal 2008. We expect second quarter revenue to increase by approximately 60% over revenue in second quarter of fiscal2007, driven by continued expansion in our existing markets and theaddition of revenue from Thompson/Center.

We are increasing our expectations for fiscal 2008 net income toapproximately $28.5 million, or $0.63 per diluted share, which is higherthan our earlier expectation of $28.0 million, or $0.62 per share. Theseresults would represent an increase of 119% over net income for fiscal2007. While first quarter results were $0.02 per diluted share higher thanour expectations, approximately one-half of this increase was due totiming on depreciation expense. Our capital expenditures for the firstquarter were lower than anticipated, though we still expect to spend $17.7million in fiscal 2008. We continue to expect gross margin improvementto the range of 35% to 36% for the full fiscal year, with second quartergross margins of approximately 33%, reflecting the impact of the annualtwo week plant shutdown which occurs each August at our Springfieldand Houlton facilities. The 33% gross margin reflects a 180 basis' pointincrease over the second quarter of fiscal 2006. The seasonal nature ofthe hunting business will be reflected in higher marketing expenditures inthe second quarter as a result of our increased advertising efforts during

47


this peak buying period. We still expect operating expenses to be in the20% to 21% range for the full fiscal year.

We continue to expect positive cash flow in fiscal 2008 of approximately $41 million, with net cash flow of $23.0 million after capitalexpenditures of $17.7 million. We also continue to expect cash flow forthe first half of fiscal 2008 to be negative, becoming positive in the thirdquarter and strengthening in the fourth quarter.

(emphasis added).

115. On that date, Defendants Golden and Kelly also participated in a

conference call with financial analysts concerning S&W's financial results for first

quarter of fiscal year 2008. During the call, Defendant Golden stated that, with respect to

their first quarter (May 1, 2007-July 31, 2007):

Our results for the first quarter are a great way to start the new fiscal year.To recap, we continued to deliver double-digit growth in year-over-yearquarterly revenue, supported by strong sales into the retail channel andour ongoing penetration in law enforcement We delivered double-digitgrowth in our operating income and our net income as well. And we areraising our expectations for the full year net income. We continue to beextremely pleased with our integration of Thompson/Center Arms, whichagain delivered tremendous growth. And we commenced production thisquarter of our two new bolt-action hunting rifles and shipment of our newshotguns. This long list of accomplishments demonstrates great progressacross many initiatives.

So now, let me break it down and get into some detail. The results wedelivered this quarter in the retail channel reflect growth in our corehantkun business, as well as the addition of and growth in our newly established long gun business. The results also demonstrated thesuccess of our all-encompassing retail strategy, which incorporates' a direct sales force backed-up with solid marketing and merchandising programs.

S&W firearms sales into the retail channel, not counting the positiveimpact of Thompson, increased by 41% for the quarter. I want to pointout that our sales growth was particularly strong during the firstquarter, given that it compares to some major events that occurred in thecomparable quarter in the prior year. On the federal government front,last year's first quarter results included approximately $5 million inshipments for Afghanistan that did not reoccur in the current quarter.

48


While we have won all major new orders issued by the federal governmentin the last two years, no new major orders have been issued recently.

(emphasis added).

116. In addition, Defendant Golden provided the following response to a

question from Eric Wold, an analyst for Merriman Curhan Ford:

Q: A quick question, to make sure I heard things correctly, were revolversales up 38.8% in the quarter?

A: That's correct.

Q: What particularly drove that strength in the quarter versus just kind ofwhat we – obviously way above what we have see in the past fewquarters?

A: We have increased capacity on revolvers at the end of the year lastyear going into this quarter.

Q: Okay. So would that be kind of– would your sense of 01 kind of a makeup of fulfilling demand that's been there you couldn't do before, oryou think the strength will continue?

A: What we are saying is small frame revolvers are pretty hot right now. And with—as more states are increasing their conceal carry ability, so small frame revolvers are really driving a lot of that growth for us andwe don't really see that slowing down.

(emphasis added).

117. Likewise, Defendant Golden had the following exchange with Reed

Anderson, an analyst with D.A. Davidson:

Q: Got it. And out of curiosity, as you dig into that growth you are seeingin pistols, and just handguns in general, is a lot of that still – is the newermodels driving that or are you still seeing the stuff you've introduced ayear or two ago actually growing year-over-year as well?

A: The M&P was up 63%.

Q: Okay.

A: So, that's -- certainly the M&P is driving and has been driving ourgrowth in pistol.

49


(emphasis added).

118. Defendants' September 6, 2007, statements concerning consumer demand

for S&W's products were relied upon by Wall Street analysts and cited in publicly

available analyst reports, including the following:

• D.A. Davidson's September 7, 2007 report cited handguns as one ofS&W's "key products driving revenues" and stated INA/1e are raising ourrevenue expectations slightly higher for the year, to reflect strongunderlying trends in pistols and at Thompson/Center."

• Cowen and Company's September 7, 2007 report, entitled "HandgunVigor Drove Strong Ql," referred to a "still-robust consumer handgunvigor" which "suggest[s] hefty gains in H2 and FY09." Cowen also statedthat "Q1 EPS of $0.11 (+38%) beat consensus by $0.02 on robustconsumer handgun sales (+38% aided by change in concealed carry laws)& a 22% lift at T/C (despite no ICON/i-Bolt shipments) as expandedmuzzleload capacity enabled higher output."

• In their September 7, 2007 report, Rodman & Renshaw stated "kin thehand gun segment, M&P pistols and revolver sales remain strong,especially compact offerings driven party by 'conceal and carry' adoptionin several states."

• Think Equity Partners LLC's September 7, 2007 report stated that INA/1ethink Smith & Wesson is benefiting from substantial changes in itsmanufacturing and sales operations, and that these changes should lay thefoundation for stronger growth in FY08 and beyond."

119. In direct response to the September 6 th Press Release and

contemporaneous investor conference call, S&W's stock price rose from $20.04 per share

to $21.06 per share, an 5.1% increase, on heavy trading volume.

120. On or about September 10, 2007, S&W filed the Q1 2008 10-Q, which

reported substantially the same financial results that were contained in the September 6th

Press Release. In particular, Defendants stated that strong demand for pistols was a

driver of the Company's growth, claiming that "lake major capital expenditures will

focus on increasin2 pistol production capacity to meet increased demand, primarily our

50


pistol product line tooling for new product offerings, and various projects designed to

increase capacity and upgrade manufacturing technology." (emphasis added).

121. In addition, the Q1 2008 10-Q stated that:

Cash used for investing activities increased by $2,706,242 for the threemonths ended July 31, 2007 over the three months ended July 31, 2006.Capital spending for the three months ended July 31, 2007 was $6,116,462compared with $3,410,079 for the three months ended July 31, 2006, anincrease of $2,706,383. We expect to spend approximately $17.7 millionon capital expenditures in fiscal 2008. The major capital expenditureswill focus on increasing pistol production capacity to meet increaseddemand, primarily our pistol product line, tooling for new productofferings, and various projects designed to increase capacity andupgrade manufacturing technology.

(emphasis added). Defendants Golden and Kelly signed the Q1 2008 10-Q.

122. The statements set forth in tf 105-121 above regarding strong demand for

S&W's products were materially false and misleading because, among other reasons:

• As reflected in the data from S&W's AS400 System that was used tocreate the daily "Orderometer" reports, the Company's sales force wasunable to meet its sales goals in the winter/spring of 2007;

• As known by S&W's senior executives, including Defendants Golden andKelly, S&W's senior sales staff notified senior management at daily salesand production meetings held at the Springfield, Massachusettsheadquarters that the Company was failing to meet its monthly sales goalsduring the winter/spring of 2007;

• As reflected in S&W's Call Reports and Distributor Reports, theCompany's sales staff was reporting that dealers and small to mid-sizedretailers were scaling back on purchases from S&W's distributors duringthe winter/spring of 2007 to the point where the sales force as a whole wasfailing to meet monthly sales targets; and

• S&W's inventory at the Springfield plant had accumulated to anunprecedented level and was, in fact, growing faster than it could beabsorbed into the retail channel.

51


H. The Truth Emerges

123. On October 29, 2007, S&W issued a press release announcing its

preliminary second quarter financial results for the period ending October 31, 2007

("October 29th Press Release"). In the October 29 th Press Release, among other things,

the Company revised its earnings guidance for fiscal 2008 downward by 16%, from

$28.5 million, or $0.63 per share, to $23.5 million, or $0.53 per share. According to the

Company, the reduced guidance was, in part, due to "lower than expected consumer

demand," and "a buildup of pre-season retail inventories." At length, the October 29,

2007 press release stated the following:

Smith & Wesson Holding Corporation (NASDAQ: SWHC), parentcompany of Smith & Wesson Corp., the legendary 155-year old companyin the global business of safety, security, protection and sport, todayannounced preliminary financial results for its second fiscal quarter whichends October 31, 2007.

Based on preliminary financial data, the Company currently expects toreport revenue for the second quarter of fiscal 2008 in the range of $69.0million to $71.0 million compared with revenue of $50.8 million for thecomparable quarter last fiscal year, reflecting revenue growth in the rangeof 36% to 40%. The Company expects to report earnings for the secondquarter of fiscal 2008 in the range of $0.05 to $0.07 per fully diluted share,compared with earnings of $0.07 per fully diluted share for thecomparable quarter last fiscal year. These results are preliminary in natureand subject to change based on the completion of the Company's normalquarter-end review process.

Michael F. Golden, President and CEO of Smith & Wesson HoldingCorporation, said, "While second quarter sales growth came in strong at36% to 40%, our results were impacted by a combination of factors thatemerged late in the quarter. Among these factors were softness in themarket for hunting rifles and shotguns, driven by lower than expectedconsumer demand, a buildup of pre-season retail inventories, andunseasonably warm autumn weather, which decreased retail traffic andcompressed the fall hunting season. Sales of our Thompson/Center Armshunting rifles, which have a brand name that is already well-established inthe consumer hunting market, appear to be far less impacted by these

52


factors than are sales of new Smith & Wesson rifles and shotguns, whichhave only just begun to arrive in retail locations."

Sales in the sporting goods channel in the second quarter of fiscal 2008,which include revenue from our acquisition of Thompson/Center Arms,and our expansion into the long gun market for rifles and shotguns, wereapproximately 56% higher than sales for the comparable quarter last year.On a six month basis, sales in the sporting goods channel were upapproximately 76% over sales for the comparable period last year. Wecontinue to expand the presence of our M&P polymer pistol line in thesporting goods channel, and preliminary reports for the second quarter offiscal 2008 indicate that the M&P line will deliver year-over-year revenuegrowth exceeding 55%. We experienced lower than planned sales of ournon-M&P pistol products in the second quarter of fiscal 2008, the resultof several competitors offering deep discounts to distributors and retailers,in what we believe is an effort to eliminate their excess inventories. Weintend to respond to this competitive environment in the remainder offiscal 2008 with a series of consumer pull promotions. While the cost ofthese promotions is expected to somewhat impact second half grossmargins, we believe they will drive demand at the customer level to fuelincreased sales of Smith & Wesson products in the sporting goods channelthroughout the balance of fiscal 2008.

Golden said "We now expect revenue to increase to approximately $325million in fiscal 2008, which is lower than our previous guidance of$330 million but which represents a 38% increase over fiscal 2007revenue. This revenue expectation does not include the results of anypotential future diversification initiatives, but does include growth in ourexisting consumer market, as well as continued penetration of the lawenforcement, federal government, and international markets. Due to theincreased investment in consumer focused promotional programs, wenow expect full fiscal 2008 gross margins of 33.5% to 34.5% lower thanour previous gross margin guidance of 35% to 36%, but higher than fiscal2007 gross margins of 32.3%. We now expect fiscal 2008 net income ofapproximately $23.5 million, or $0.53 per diluted share, which is lowerthan our earlier expectation of $28.5 million, or $0.63 per share butwhich represents an increase of 81% over net income for fiscal 2007. Thisreduction is attributable to the lower second quarter revenue results combined with the cost of the anticipated promotional programs."

(emphasis added).

124. As a direct result of that announcement, S&W's common stock price took

a steep nosedive on the next trading day, plummeting $7.97 per share, or 40%, on heavy

53


volume to close at $12.12 per share from the prior day's closing price of $20.09 per

share.

125. On December 6, 2007, S&W announced its actual financial results for the

second quarter of fiscal year 2008, ending October 31, 2007 ("December 6 th Press

Release"). In the December 6th Press Release, the Company further reduced its outlook

for fiscal year 2008 by another 25% to $0.40 per share, down an astounding 35% from

the Company's original earnings forecast of $0.62 per share at the beginning of the Class

Period. At length, the Company stated that:

Smith & Wesson Holding Corporation (NASDAQ: SWHC), parentcompany of Smith & Wesson Corp., the legendary 155-year old companyin the global business of safety, security, protection and sport, todayannounced financial results for its second fiscal quarter ended October 31,2007.

Net product sales for the quarter ended October 31, 2007 were $70.8million, an increase of 39.4% over the comparable quarter last year. Grossmargin increased to 32.3% for the quarter ended October 31, 2007 ascompared to 31.2% for the same period last year. Net income of $2.9million, or $0.07 per fully diluted share, for the quarter ended October 31,2007 was $87,000 higher than the comparable quarter last year. Netincome of $7.6 million, or $0.18 per fully diluted share, for the six monthsended October 31, 2007 was $1.4 million, or $0.03 per fully diluted sharehigher than for the six months ended October 31, 2006. Net income for thesecond quarter of fiscal 2008 reflects a 54.5% year-over-year increase inoperating expenses, combined with a $1.7 million year-over-year increasein interest expense, both attributable to the acquisition ofThompson/Center Arms in January 2007.

As we announced last month, our results for the second quarter of fiscal2008 in the consumer channel were impacted by a combination offactors, including softness in the market for hunting rifles and shotguns driven by lower than expected consumer demand, an industry-widebuildup of pre-season retail inventories, and unseasonably warm autumnweather, which compressed the fall hunting season. Within the consumerchannel, the reduced retail activity not only affected long guns buthantkuns as well, and was compounded by the fact that inventory in the

54


channel was at an extremely high level, due in part to the anticipation ofa strong hunting season. In fact, during the first six months of calendar2007, federal excise tax data indicates that industry-wide long gun salesinto the distribution channel increased 20% year-over-year and handgunsales increased 37% year-over-year. However, federal background checkdata, which is an indicator of retail purchases, reflects that retail purchasesfor the same period of time increased by only 5.2%. The resulting,industry-wide inventory buildup, accentuated by lower retail traffic,caused order activity to slow beginning in October. Several manufacturersresponded with significant discounts on both long guns and handguns.This caused increased price competition in the channel and served toexacerbate already inflated inventory levels.

Fiscal 2008 Outlook

We now expect net product sales to increase to approximately $300million in fiscal 2008, which would represent a 28% increase over fiscal2007 net product sales. This expectation does not include the results ofany potential future diversification initiative, but does include growth inour existing consumer market, as well as continued penetration of the lawenforcement, federal government and international markets. We expectgross margins of approximately 32%, a reduction from our earlierexpectations, reflecting increased promotional costs, an extendedSpringfield plant shutdown in December, and the lower absorption rateof overhead costs due to lower production volumes. We now expect netincome for the fiscal year ending April 30, 2008 of approximately $170million, or $0.40 per diluted share, which would represent an increase innet income of 33% over net income for fiscal 2007, and an increase inearnings of $0.09 per diluted share, or 29%, over the fiscal year endedApril 30, 2007.

(emphasis added).

126. In direct response to that news, the price of S&W's common stock lost

another 29% of its value, closing at $7.08 per share on December 7, 2007, down $2.85

per share from its closing price the prior day of $9.92 per share.

55


V. ADDITIONAL SCIENTER ALLEGATIONS

A. Actual Knowled2e

127. Throughout the Class Period, each of the Individual Defendants acted

intentionally in orchestrating the fraudulent scheme alleged herein.

128. As set forth in tf 44-55, 86-92, from their access to the AS400 sales and

inventory data and their receipt of the daily "Orderometer" reports, Defendants Golden

and Kelly knew at the time they provided the public with a rosy financial outlook for

fiscal year 2008 that S&W was enduring a severe lack of demand for the Company's

products that began in the winter/spring of 2007.

129. As set forth in tf 44-47, 56-62, 86-93, from their attendance and active

participation at, and/or knowledge of, S&W's daily sales and inventory meetings, daily

Thompson Center sales and inventory meetings, daily marketing meetings and monthly

sales force conference calls, Defendants Golden and Kelly knew at the time that they

provided the public with a rosy financial outlook for fiscal year 2008 that the Company's

salespeople were failing, en masse, to meet their sales goals during the winter/spring of

2007 due to the lack of demand for S&W's products.

130. As set forth in tf 44-47, 63-70, 86-88, 94-96, from their receipt and/or

knowledge of internal Call Reports and external Distributor Reports, Defendants Golden

and Kelly knew at the time they provided the public with a rosy financial outlook for

fiscal year 2008 that dealer and retailer demand for S&W's products was in a steep

decline during the winter/spring of 2007.

131. As set forth in tf 44-62, 79-88, 99-103, from their attendance and active

participation at S&W's daily sales and inventory meetings, and their firsthand

56


observation of the factory floor at S&W's Springfield plant, Defendants Golden and

Kelly knew at the time they provided the public with a rosy financial outlook for fiscal

year 2008 that the Company's inventory of unsold product was unusually large and

growing during the spring/summer of 2007 due to the combination of an overly

aggressive production schedule and a drastic decline in the demand for those products.

132. As set forth in tf 44-62, 86-87, 97, from his receipt of sales and inventory

forecasts for fiscal year 2008 that S&W's senior management provided or made available

to him as part of S&W's annual budget process, as well as his ability to obtain the

underlying data supporting those forecasts, Defendant Monheit knew at the time he

provided the public with a rosy financial outlook for fiscal year 2008 that S&W was

enduring a severe the lack of demand for the Company's products beginning in the

winter/spring of 2007 and an overflowing inventory during the spring/summer of 2007 as

a direct result of that drastic falloff in customer demand.

133. Accordingly, the Defendants acted with scienter in that each Individual

Defendant knowingly or recklessly disregarded that the statements issued or disseminated

on behalf of S&W were materially false and misleading; knowingly or recklessly

disregarded that such statements or documents would be issued or disseminated to the

investing public; and knowingly or recklessly participated or acquiesced in the issuance

or dissemination of such statements or documents as primary violations of the federal

securities laws.

B. Insider Tradinp

134. By virtue of his knowingly or recklessly disregarding the falsity of the

materially false and misleading statements and omissions alleged herein, there is a strong

57


inference that Defendant Monheit acted with scienter. The fact that Defendant Monheit

was motivated to artificially inflate the price of S&W's common stock in order to reap

monetary rewards through the sale of S&W's common stock during the Class Period

further contributes to a strong inference of scienter.

135. Throughout the Class Period, Defendant Monheit, as Chairman of S&W's

Board of Directors, was in possession of the material non-public information detailed

above regarding the lack of demand for the Company's products. As a result, it was

foreseeable to him that S&W would not reach its earnings projections for fiscal year 2008

and that, consequently, the Company's common stock price would fall. Defendant

Monheit thus had a duty to disclose that information or refrain from selling his personal

holdings of S&W's common stock. The fact that Defendant Monheit failed to disclose

that information, but nevertheless reaped millions of dollars through several sales of

S&W's common stock during the Class Period thus contributes to a strong inference of

scienter. Moreover, the magnitude, timing and circumstances of Defendant Monheit's

trades are highly suspicious and further contribute to a strong inference of scienter.

136. The magnitude of Defendant Monheit's trades is very suspicious. During

the Class Period, Defendant Monheit sold approximately 300,000 shares of S&W's

common stock, reaping a whopping $5,860,077.54 in proceeds. The vast majority of

those shares (255,654 shares) was sold through open market trades, whereas only a small

fraction (44,346 shares) was sold pursuant to Defendant Monheit's 10b5-1 trading plan.

Moreover, Defendant Monheit's sales accounted for 48% of his total holdings of S&W's

common stock.

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137. The timing of Defendant Monheit's trades is also very suspicious in that

they were made on September 13, 14, and 18 of 2007— all within two weeks of S&W's

promulgation of positive earnings news in September 6 th Press Release and related

investor conference call, but before the Company disclosed on October 29, 2007, that it

was drastically reducing its earnings guidance for fiscal year 2008. In addition, all of

Defendant Monheit's trades were made when the Company's stock — which now trades in

the $5.00-6.00 per share range — was trading at over $19.00 per share, just below the

Company's 2007 high of $21.90 per share.

138. The circumstances surrounding Defendant Monheit's trades are likewise

suspicious. Indeed, his trading pattern during the Class Period was distinctly different

from his trading practices prior to the Class Period in that he made no sales of S&W

common stock prior to the Class Period between December 19, 2006 and June 13, 2007

and then sold nearly half of his holdings in the month before S&W revealed extremely

negative news about its fiscal year 2008 earnings.

139. Defendant Monheit's suspicious sales of S&W's common stock are

detailed below:

DATE SHARES DISPOSED PRICE PROCEEDS

09/13/07 2,602 $19.75 $51,389.50

09/13/07 4,000 $19.76 $79,040.00

09/13/07 1,000 $19.77 $19,770.00

09/13/07 600 $19.78 $11,868.00

09/13/07 500 $19.79 $9,895.00

09/13/07 155 $19.80 $3,069.00

09/13/07 1,845 $19.81 $36,549.45

09/13/07 700 $19.82 $13,874.00

09/13/07 100 $19.83 $1,983.00

09/13/07 1,300 $19.84 $25,792.00

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09/13/07 1,544 $19.85 $30,648.4009/13/07 1,000 $19.86 $19,860.0009/13/07 300 $19.87 $5,961.0009/13/07 1,000 $19.89 $19,890.0009/13/07 2,700 $19.90 $53,730.0009/13/07 1,400 $19.92 $27,888.0009/13/07 2,100 $19.93 $41,853.0009/13/07 2,924 $19.94 $58,304.5609/13/07 3,476 $19.95 $69,346.2009/13/07 2,100 $19.96 $41,916.0009/13/07 1,000 $19.97 $19,970.0009/13/07 1,500 $19.98 $29,970.0009/13/07 2,500 $19.99 $49,975.0009/13/07 2,000 $20.00 $40,000.0009/13/07 1,400 $20.01 $28,014.0009/13/07 500 $20.08 $10,040.0009/13/07 800 $20.09 $16,072.0009/13/07 800 $20.21 $16,168.0009/13/07 100 $20.22 $2,022.0009/13/07 100 $20.25 $2,025.0009/14/07 1,500 $19.75 $29,625.0009/14/07 800 $19.76 $15,808.0009/18/07 1,600 $19.18 $30,688.0009/18/07 10,600 $19.19 $203,414.0009/18/07 24,900 $19.20 $478,080.0009/18/07 23,990 $19.21 $460,847.9009/18/07 13,380 $19.22 $257,163.6009/18/07 9,079 $19.23 $174,589.1709/18/07 5,900 $19.24 $113,516.0009/18/07 2,000 $19.25 $38,500.0009/18/07 3,000 $19.26 $57,780.0009/18/07 1,000 $19.28 $19,280.0009/18/07 1,000 $19.30 $19,300.0009/18/07 1,000 $19.31 $19,310.0009/18/07 1,000 $19.32 $19,320.0009/18/07 1,000 $19.33 $19,330.0009/18/07 1,000 $19.35 $19,350.00

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09/18/07 1,000 $19.36 $19,360.0009/18/07 1,000 $19.39 $19,390.0009/18/07 2,400 $19.43 $46,632.0009/18/07 3,850 $19.44 $74,844.0009/18/07 7,950 $19.45 $154,627.5009/18/07 2,600 $19.46 $50,596.0009/18/07 1,900 $19.47 $36,993.0009/18/07 4,170 $19.48 $81,231.6009/18/07 6,838 $19.49 $133,272.6209/18/07 1,100 $19.50 $21,450.0009/18/07 4,000 $19.51 $78,040.0009/18/07 5,400 $19.52 $105,408.0009/18/07 4,200 $19.53 $82,026.0009/18/07 1,000 $19.54 $19,540.0009/18/07 4,630 $19.55 $90,516.5009/18/07 6,600 $19.56 $129,096.0009/18/07 1,200 $19.57 $23,484.0009/18/07 2,000 $19.58 $39,160.0009/18/07 2,000 $19.59 $39,180.0009/18/07 4,000 $19.61 $78,440.0009/18/07 1,000 $19.62 $19,620.0009/18/07 6,100 $19.63 $119,743.0009/18/07 2,400 $19.64 $47,136.0009/18/07 1,300 $19.65 $25,545.0009/18/07 1,000 $19.66 $19,660.0009/18/07 2,000 $19.67 $39,340.0009/18/07 1,000 $19.68 $19,680.0009/18/07 4,000 $19.69 $78,760.0009/18/07 7,369 $19.70 $145,169.3009/18/07 9,931 $19.71 $195,740.0109/18/07 10,221 $19.72 $201,558.1209/18/07 7,115 $19.73 $140,378.9509/18/07 7,699 $19.74 $151,978.2609/18/07 4,774 $19.75 $94,286.5009/18/07 2,000 $19.76 $39,520.0009/18/07 3,000 $19.77 $59,310.0009/18/07 3,700 $19.78 $73,186.00

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09/18/07 1,000 $19.79 $19,790.0009/18/07 1,558 $19.80 $30,848.4009/18/07 1,000 $19.81 $19,810.0009/18/07 1,000 $19.84 $19,840.0009/18/07 1,000 $19.85 $19,850.0009/18/07 100 $19.87 $1,987.0009/18/07 1,000 $19.88 $19,880.0009/18/07 2,100 $19.89 $41,769.0009/18/07 2,000 $19.90 $39,800.0009/18/07 2,000 $19.91 $39,820.00TOTAL 300,000 $5,860,077.54

140. Several other senior officers and directors also engaged in substantial

insider trading during the Class Period, collectively reaping more than $26.3 million in

proceeds from their Class Period sales of S&W's stock. In addition to the magnitude of

those trades, the circumstances surrounding them are highly suspicious. For example,

Class Period sales by Vice President of Marketing, Thomas L. Taylor ("Taylor"),

Director Ann B Makkiya ("Makkiya"), Vice President of Operations, Kenneth W.

Chandler ("Chandler"), Director Mitchell A. Saltz ("Saltz") and Director Colton Melby

("Melby") represent 62%, 55%, 34%, 20% and 13% of their respective holdings of

S&W's stock. In addition, Makkiya and Chandler sold 55% and 34% of their respective

holdings during the Class Period after having sold no shares of S&W's stock prior to the

Class Period.

141. The highly suspicious sales of S&W's common stock by non-defendant

officers and directors of the Company is detailed below:

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NAME DATE SHARES DISPOSED PRICE PROCEEDS

Saltz 06/15/07 80,000 $15.85 $1,268,000.00Saltz 06/15/07 10,000 $15.87 $158,700.00Saltz 06/15/07 15,000 $15.88 $238,200.00Saltz 06/15/07 15,000 $15.89 $238,350.00Saltz 06/15/07 40,000 $15.90 $636,000.00Saltz 06/15/07 25,000 $15.95 $398,750.00Saltz 06/15/07 10,000 $15.97 $159,700.00Saltz 06/15/07 5,000 $16.00 $80,000.00Saltz 07/12/07 40,000 $17.66 $706,400.00Saltz 07/12/07 60,000 $17.90 $1,074,000.00Saltz 07/12/07 25,000 $18.29 $457,250.00Saltz 07/12/07 50,000 $18.36 $918,000.00Saltz 07/12/07 50,000 $18.53 $926,500.00Saltz 07/12/07 12,000 $18.55 $222,600.00Saltz 07/13/07 8,000 $17.80 $142,400.00Saltz 07/13/07 5,000 $18.00 $90,000.00Saltz 09/28/07 20,000 $19.25 $385,000.00Saltz 09/28/07 35,000 $19.51 $682,850.00Saltz 09/28/07 25,000 $19.53 $488,250.00Saltz 09/28/07 25,000 $19.54 $488,500.00Saltz 10/01/07 30,100 $18.50 $556,850.00Saltz 10/01/07 5,900 $18.51 $109,209.00Saltz 10/01/07 4,000 $18.54 $74,160.00Saltz 10/01/07 7,000 $18.58 $130,060.00Saltz 10/01/07 2,500 $18.61 $46,525.00Saltz 10/01/07 2,500 $18.62 $46,550.00Saltz 10/01/07 3,000 $18.63 $55,890.00Saltz 10/01/07 3,000 $18.65 $55,950.00Saltz 10/01/07 5,000 $18.67 $93,350.00Saltz 10/01/07 4,500 $18.68 $84,060.00Saltz 10/01/07 2,500 $18.69 $46,725.00Saltz 10/01/07 5,000 $18.70 $93,500.00Saltz 10/01/07 7,000 $18.73 $131,110.00Saltz 10/01/07 4,500 $18.74 $84,330.00Saltz 10/01/07 3,000 $18.75 $56,250.00Saltz 10/01/07 5,500 $18.76 $103,180.00Saltz 10/01/07 5,000 $18.77 $93,850.00

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Saltz 10/01/07 10,000 $18.79 $187,900.00Saltz 10/01/07 2,500 $18.80 $47,000.00Saltz 10/01/07 7,500 $18.83 $141,225.00Saltz 10/01/07 6,000 $19.00 $114,000.00Saltz 10/01/07 5,500 $19.01 $104,555.00Saltz 10/01/07 4,000 $19.02 $76,080.00Saltz 10/01/07 4,500 $19.03 $85,635.00Saltz 10/01/07 1,500 $19.10 $28,650.00Saltz 10/01/07 3,500 $19.11 $66,885.00

TOTAL 700,000 $12,472,929

Melby 06/15/07 100,000 $16.00 $1,600,000.00Melby 07/11/07 88,216 $17.50 $1,543,780.00Melby 07/12/07 161,784 $17.51 $2,832,999.62Melby 10/01/07 45 $18.35 $825.75Melby 10/01/07 307 $18.37 $5,639.59Melby 10/01/07 8,200 $18.38 $150,716.00Melby 10/01/07 5,775 $18.39 $106,202.25Melby 10/01/07 4,666 $18.40 $85,854.40Melby 10/01/07 900 $18.41 $16,569.00Melby 10/01/07 800 $18.42 $14,736.00Melby 10/01/07 400 $18.43 $7,372.00Melby 10/01/07 200 $18.44 $3,688.00Melby 10/01/07 100 $18.46 $1,846.00Melby 10/01/07 1,766 $18.47 $32,618.02Melby 10/01/07 7,734 $18.48 $142,924.32Melby 10/01/07 500 $18.49 $9,245.00Melby 10/01/07 3,983 $18.50 $73,685.50Melby 10/01/07 4,707 $18.51 $87,126.57Melby 10/01/07 5,450 $18.52 $100,934.00Melby 10/01/07 10,638 $18.53 $197,122.14Melby 10/01/07 1,100 $18.54 $20,394.00Melby 10/01/07 400 $18.55 $7,420.00Melby 10/01/07 1,144 $18.56 $21,232.64Melby 10/01/07 100 $18.57 $1,857.00Melby 10/01/07 202 $18.58 $3,753.16Melby 10/01/07 800 $18.59 $14,872.00

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Melby 10/01/07 500 $18.60 $9,300.00Melby 10/01/07 400 $18.61 $7,444.00Melby 10/01/07 200 $18.62 $3,724.00Melby 10/01/07 8,625 $18.63 $160,683.75Melby 10/01/07 5,500 $18.64 $102,520.00Melby 10/01/07 3,680 $18.65 $68,632.00Melby 10/01/07 100 $18.66 $1,865.50Melby 10/01/07 25,582 $18.66 $477,360.12Melby 10/01/07 100 $18.67 $1,866.50Melby 10/01/07 3,486 $18.67 $65,083.62Melby 10/01/07 563 $18.68 $10,516.84Melby 10/01/07 1,000 $18.69 $18,685.00Melby 10/01/07 5,500 $18.69 $102,795.00Melby 10/01/07 10,809 $18.70 $202,128.30Melby 10/01/07 6,984 $18.71 $130,670.64Melby 10/01/07 700 $18.72 $13,100.50Melby 10/01/07 5,001 $18.72 $93,618.72Melby 10/01/07 6,011 $18.73 $112,586.03Melby 10/01/07 3,766 $18.74 $70,574.84Melby 10/01/07 24 $18.75 $449.88Melby 10/01/07 13,255 $18.75 $248,531.25Melby 10/01/07 200 $18.76 $3,751.00Melby 10/01/07 2,637 $18.76 $49,470.12Melby 10/01/07 100 $18.77 $1,876.50Melby 10/01/07 6,816 $18.77 $127,936.32Melby 10/01/07 2,896 $18.78 $54,386.88Melby 10/01/07 7,488 $18.79 $140,699.52Melby 10/01/07 8,553 $18.80 $160,796.40Melby 10/01/07 1,000 $18.81 $18,805.00Melby 10/01/07 6,746 $18.81 $126,892.26Melby 10/01/07 1,672 $18.82 $31,467.04Melby 10/01/07 4,528 $18.83 $85,262.24Melby 10/01/07 200 $18.84 $3,767.00Melby 10/01/07 700 $18.84 $13,188.00Melby 10/01/07 700 $18.85 $13,191.50Melby 10/01/07 800 $18.85 $15,080.00Melby 10/01/07 200 $18.89 $3,778.00

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Melby 10/01/07 511 $18.90 $9,657.90Melby 10/01/07 700 $18.94 $13,258.00Melby 10/01/07 3,596 $18.95 $68,144.20Melby 10/01/07 500 $18.96 $9,480.00Melby 10/01/07 302 $18.97 $5,728.94Melby 10/01/07 400 $18.98 $7,592.00Melby 10/01/07 405 $18.99 $7,690.95Melby 10/01/07 4,700 $19.00 $89,300.00Melby 10/01/07 11,005 $19.01 $209,205.05Melby 10/01/07 1,900 $19.02 $36,138.00Melby 10/01/07 2,756 $19.03 $52,446.68Melby 10/01/07 4,228 $19.04 $80,501.12Melby 10/01/07 100 $19.05 $1,904.50Melby 10/01/07 244 $19.05 $4,648.20Melby 10/01/07 400 $19.07 $7,628.00Melby 10/01/07 400 $19.08 $7,632.00Melby 10/01/07 1,907 $19.09 $36,404.63Melby 10/01/07 300 $19.10 $5,730.00Melby 10/01/07 700 $19.12 $13,384.00Melby 10/01/07 3,300 $19.13 $63,129.00Melby 10/01/07 3,207 $19.14 $61,381.98Melby 10/01/07 600 $19.15 $11,490.00Melby 10/01/07 500 $19.18 $9,590.00Melby 10/01/07 400 $19.19 $7,676.00

TOTAL 600,000 $10,655,638.38

Taylor 06/26/07 2,334 $16.26 $37,950.84Taylor 06/26/07 500 $16.27 $8,135.00Taylor 06/26/07 100 $16.28 $1,628.00Taylor 07/12/07 17,766 $18.00 $319,788.00Taylor 07/12/07 200 $18.01 $3,602.00Taylor 07/12/07 8,600 $18.03 $155,058.00Taylor 07/12/07 6,100 $18.04 $110,044.00Taylor 07/12/07 5,200 $18.05 $93,860.00Taylor 07/12/07 600 $18.06 $10,836.00Taylor 07/12/07 900 $18.07 $16,263.00Taylor 07/12/07 600 $18.08 $10,848.00

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Taylor 08/07/07 8,300 $20.00 $166,000.00

Taylor 08/09/07 30,234 $22.00 $665,148.00

Taylor 08/09/07 2,600 $22.01 $57,226.00

Taylor 08/09/07 400 $22.03 $8,812.00

Taylor 08/09/07 100 $22.05 $2,205.00TOTAL 84,534 $1,667,403.84

Chandler 06/26/07 2,834 $16.40 $46,477.60

Chandler 06/26/07 100 $16.41 $1,641.00

Chandler 07/13/07 32,000 $18.13 $580,160.00

Chandler 08/07/07 11,449 $20.00 $228,980.00

Chandler 08/08/07 23,551 $20.00 $471,020.00TOTAL 69,934 $1,328,278.60

Makkiya 06/28/07 515 $16.91 $8,708.65

Makkiya 06/28/07 400 $16.93 $6,772.00

Makkiya 06/28/07 652 $16.94 $11,044.88

Makkiya 06/28/07 200 $16.95 $3,390.00

Makkiya 06/28/07 500 $16.98 $8,490.00

Makkiya 07/26/07 11,666 $17.51 $204,271.66TOTAL 13,933 $242,677

C. Executive Compensation

142. By virtue of their knowingly or recklessly disregarding the falsity of the

materially false and misleading statements and omissions alleged herein, there is a strong

inference that Defendants Golden and Kelly acted with scienter. The fact that Defendants

Golden and Kelly were motivated by their compensation plans to artificially inflate the

price of S&W's common stock in order to reap monetary rewards further contributes to a

strong inference of scienter.

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143. The Proxy Statement provided the following information concerning the

compensation packages that S&W awarded to executives such as Defendants Golden and

Kelly:

The compensation program for executive officers consists primarily ofbase salary, performance based bonuses, and long-term incentives in theform of stock-based compensation, including stock options, restrictedstock, restricted stock units, and other long-term equity incentives.Executives also participate in other benefit plans, including medical andretirement plans, which generally are available to all regular full-timeemployees of our company.

Our philosophy is to pay base salaries to executives at levels that enable usto attract, motivate, and retain highly qualified executives. We establish annual bonus programs designed to reward individuals for performancebased primarily on our financial results as well as the achievement ofpersonal and corporate objectives that contribute to our long-termsuccess in building stockholder value.

The [Compensation] committee generally recommends base salary levels for executive officers of our company at the beginning of each fiscalyear and recommends bonuses at the end of each fiscal year based upon the performance of our company and our executives.

The Compensation Committee of our Board of Directors reviews andrecommends to the full board the compensation of our chief executiveofficer and our other executive officers. Annually, our Compensation Committee evaluates' the performance of our chief executive officer andrecommends' to our Board of Directors the compensation of our ChiefExecutive Officer in light of the goals and objectives of ourcompensation program for that year. Our Compensation Committeetogether with our chief executive officer annually assess the performanceof our other executive officers. Based on recommendations from our chiefexecutive officer and the determinations of our Compensation Committee,our Compensation Committee makes recommendations to our Board ofDirectors regarding the compensation of our other executive officers.

We establish annual incentive compensation programs for our executives.In establishing a compensation program for any particular year, we

68


focus on then current corporate goals. Annual incentive awards arebased on our financial performance and the efforts of our executives.

Stock-Based Compensation Grants

We strongly believe in tying executive rewards directly to our long-termsuccess and increases in stockholder value through grants of stock-based awards. Stock-based awards also will enable executives to developand maintain a significant stock ownership position in our company. Theamount of stock-based compensation granted takes into account previousgrants to an individual. Historically, our stock-based compensation hasbeen through the giant of stock options and restricted stock units, orRSUs. We set vesting levels over multiple year periods to encourageexecutive retention.

Our incentive compensation program covering our executive officers forfiscal 2007 established two thresholds', based on our performance underthree performance criteria: sales, operating profit, and return on assets. Meeting the objectives for each of the three performance criteria of thefirst threshold would result in the establishment of an incentive pool of1.5% of our fiscal 2007 operating income. The incentive pool would then be distributed among all our executive officers on a weighted pro rata basis calculated by multiplying the base salary of the Chief ExecutiveOfficer and Chief Operating Officer of Smith & Wesson Corp. by 75% and the base salary of each other executive officer by 50%, which wecall the modified base salary, and then distributing a percentage of thepool to an executive equal to which that the modified base salary for thatexecutive officer bears to the modified base salaries for all executiveofficers. No incentive compensation would be payable in the event of thefailure to achieve all three performance criteria.

Meeting the objectives for each of the performance criteria of the secondthreshold would result in our Chief Executive Officer and ChiefOperating Officer of Smith & Wesson Corp. receiving incentivecompensation equal to 75% of their base salaries and each otherexecutive officer instead receiving incentive compensation equal to 50% of base salary, plus, in each case, a percentage of base salary equal to the percentage by which our operating profit exceeded the operating profit performance criteria in the second threshold

(emphasis added).

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144. In addition, the Proxy Statement reported the following with respect to

compensation paid to Defendant Golden:

During fiscal 2007, the committee evaluated the factors described above indetermining the base salary and other compensation of Michael F. Golden,our President and Chief Executive Officer. We have an employmentagreement with Mr. Golden. See "Executive Compensation Employment Agreement." We paid Mr. Golden a base salary during fiscal2007 as provided under his employment agreement and a bonus of$399,533 under our incentive compensation program for fiscal 2007.

145. Both Defendant Golden's and Defendant Kelly's compensation was tied

directly to S&W's financial performance, including the performance of the Company's

stock price. That fact motivated both Defendants Golden and Kelly to act in a manner

intended to fraudulently increase the per share price of the Company's common stock.

Coupled with the facts pleaded above, there is a strong inference that Defendants Golden

and Kelly acted with scienter.

VI. LOSS CAUSATION

146. Defendants' scheme operated as a fraud or deceit on Lead Plaintiff and the

other members of the Class because the false and misleading statements and omissions

artificially inflated S&W's stock prices throughout the Class Period. Indeed, the false

and misleading representations about the pre-Class Period demand for S&W's products

caused and maintained the artificial inflation in the Company's securities prices

throughout the Class Period until the truth was slowly revealed to the market.

147. As set forth above, Defendants' false and misleading statements regarding

consumer demand for S&W's products prior to the Class Period, and their concealment

from the investing public of the true lack of such demand, were material. In addition, it

was entirely foreseeable to Defendants that S&W's stock price would decline

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significantly when the public learned of the dismal demand for S&W's products before

and during the Class Period.

148. The lack of demand for S&W's products was apparent to Defendants as

early as the winter/spring of 2007, well prior to Defendants' announcements concerning

the Company's financial outlook for fiscal year 2008. Despite possessing that

knowledge, Defendants continued to make statements regarding S&W's purportedly

stellar financial condition and the Company's expectations of strong enough demand to

justify Defendants' unreasonably optimistic earning expectations for fiscal year 2008. As

a result of Defendants' material misrepresentations and omissions, as detailed above, the

prices of the S&W's securities were artificially inflated throughout the Class Period.

149. As pleaded herein, during and after the Class Period, S&W's stock

consistently reacted to information in the market place. For example, on October 29,

2007, S&W announced that it would be reducing its earnings guidance for the fiscal year

2008 from $0.63 per share to $0.50 per share because, among other reasons, the demand

for S&W's products was not as strong as Defendants had previously represented it to be.

The disclosure revealed that the actual demand for S&W's products — which Defendants

knowingly concealed from the investing public — was not at a level that would have

justified Defendants' projection that the Company would earn $0.63 per share in fiscal

year 2008. That news caused S&W's stock price to plummet $7.97 per share, or 40%, on

extremely heavy volume the next trading day, eliminating some of the price inflation

attributable to Defendants' misrepresentations and omissions and causing significant

damages to Lead Plaintiff and the other Class members.

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150. Likewise, on December 6, 2007, Defendants finally revealed the full truth

about the lack of demand for S&W's products, again reducing previous earnings

guidance for fiscal year 2008 from $0.50 per share to $0.40 per share. In that disclosure,

S&W further revealed that the lack of demand for the Company's products extended

across all product types and was compounded by the Company's massive inventory

buildup. The very next trading day, the Company's stock dropped another $2.84 per

share, or 30%, on heavy volume.

151. Both of the foregoing drops in the price of S&W's stock were entirely

foreseeable consequences of the acts described herein. Defendants' conduct, as alleged

herein, proximately caused foreseeable loss and damage to Lead Plaintiff and the other

members of the Class.

152. The removal of the artificial inflation through declines in the Company's

securities prices directly following the revelations described herein resulted in the Lead

Plaintiff and other Class members suffering damages. Those declines and corresponding

losses are directly attributable to the market's reaction to the disclosure of information

that had previously been misrepresented or concealed by Defendants and to the market's

adjustment of the Company's securities prices to reflect the newly emerging truth about

the Company's condition.

153. The totality of the circumstances around the common stock price drops

combines to negate any inference that the economic loss suffered by Lead Plaintiff and

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

macroeconomic or industry factors or Company-specific facts unrelated to Defendants'

fraudulent conduct. Had Lead Plaintiff and the other members of the Class known of the

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material adverse information not disclosed by Defendants, or been aware of the truth

behind Defendants' materially false and misleading statements and omissions, they

would not have purchased S&W's securities at artificially inflated prices.

VII. LEAD PLAINTIFF'S INVESTIGATION

154. Lead Plaintiff's allegations as set forth herein, to the extent they relate to

conduct other than its own, are based on a thorough investigation, conducted by and

through its attorneys, of all reasonably available sources of information so as to permit it

to plead the claims alleged herein with particularity. The nature and scope of Lead

Plaintiff's efforts to obtain the information needed to plead with particularity included:

(a) Reviewing S&W's filings with the SEC, including but not limited to theCompany's:

• annual report on Form 10-K for fiscal year 2007;

• quarterly reports on Form 10-Q for the first and second fiscal quarters of

2008;

• Form 8-Ks filed during fiscal years 2007 and 2008;

• Proxy Statements filed during fiscal year 2007; and

• Individual Defendants' Forms 144s and Forms 4s.

(b) Reviewing S&W's press releases, analyst conference call transcripts, andother publicly-disseminated statements Defendants made during the ClassPeriod;

(c) Reviewing reports, articles, and discussions concerning S&W and thesubject matter of this Complaint contained in the print and electronicmedia and computer databases;

(d) Reviewing reports of securities analysts and investor advisory servicesconcerning S&W and the firearms industry;

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(e)

Interviewing former employees of S&W with first-hand knowledge of theCompany's business policies and practices, corporate reporting structureand financial dealings; and

Interviewing customers of S&W's products with first-hand knowledge ofthe Company's products and sales.

155. Except as alleged herein, the underlying information relating to

Defendants' misconduct and the particulars thereof is not currently available to Lead

Plaintiff and the public, and lies exclusively within the possession and control of

Defendants and other insiders at the Company, thus preventing Lead Plaintiff from

further detailing Defendants' misconduct at this time.

VIII. CLASS ALLEGATIONS

156. Lead Plaintiff brings this action as a class action pursuant to Federal Rules

of Civil Procedure 23(a) and 23(b)(3) on behalf of a class ("Class") of all persons who

purchased S&W's common stock on the open market between June 14, 2007 through

December 6, 2007, inclusive, and who were damaged thereby. Excluded from this Class

are: (1) Defendants herein, and all of S&W's subsidiaries, affiliates, successors and

assigns and any person who was a partner, officer, executive or director of any such

entity at any time from June 14, 2007 through the date of the Complaint; (2) members of

the immediate families of each of the individual defendants; (3) any entity in which any

excluded person has a controlling interest; and (4) the legal representatives, heirs,

successors and assigns of any such excluded person or entity.

157. The members of the Class are so numerous that joinder of all members is

impracticable. Although the exact number of Class members is unknown to Lead

Plaintiff at the present time, Lead Plaintiff believes that the Class members number in the

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thousands. During the Class Period, S&W's stock traded on the NASDAQ National

Market System, an efficient national market.

158. 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:

• Whether the federal securities laws were violated by Defendants' acts andomissions as alleged herein;

• Whether Defendants participated in and pursued the common course ofconduct and fraudulent scheme complained of herein;

• Whether the documents, reports, filings, releases, and public statementsdisseminated to the Class by Defendants during the Class Periodmisrepresented material facts about the business, performance andfinancial condition of S&W;

• Whether Defendants acted knowingly or with recklessness inmisrepresenting material facts;

• Whether the market price of S&W's common stock during the ClassPeriod was artificially inflated due to the misrepresentations complainedof herein; and

• Whether Lead Plaintiff and the other members of the Class have sustaineddamages, and, if so, the appropriate measure thereof

159. Lead Plaintiff will fairly and adequately represent and protect the interests

of the members of the Class. Lead Plaintiff has retained competent counsel experienced

in class and securities litigation and intends to prosecute this action vigorously. Lead

Plaintiff is a member of the Class and does not have interests antagonistic to, or in

conflict with, the other members of the Class.

160. Lead Plaintiff's claims are typical of the claims of the members of the

Class. Lead Plaintiff and all members of the Class purchased S&W' s common stock

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

efficient adjudication of this controversy. Given that the damage suffered by individual

Class members may be relatively small, the expense and burden of individual litigation

make it virtually impossible for the Class members to seek individual redress for the

wrongful conduct alleged. Lead Plaintiff knows of no difficulty that will be encountered

in the management of this litigation that would preclude its maintenance as a class action.

IX. APPLICABILITY OF PRESUMPTION OF RELIANCE:FRAUD-ON-THE-MARKET DOCTRINE

162. Lead Plaintiff will rely, in part, upon the presumption of reliance

established by the "fraud-on-the-market" doctrine in that, among other things:

• Defendants made public misrepresentations and/or failed to disclosematerial facts during the Class Period;

• The omissions and misrepresentations were material;

• S&W's common stock traded in an efficient market;

• The misrepresentations alleged would tend to induce a reasonable investorto misjudge the value of S&W's common stock; and

• Lead Plaintiff and other members of the Class purchased S&W's commonstock between the time Defendants misrepresented or failed to disclosematerial facts and the time the true facts were disclosed withoutknowledge of the misrepresented or omitted facts.

163. At all relevant times, the market for S&W's common stock was efficient

for the following reasons, among others:

• S&W met the requirements for listing, was listed, and its stock wasactively traded on the NASDAQ, an efficient national market;

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• As a regulated issuer, S&W filed periodic public reports with the SEC andthe NASDAQ; and

• S&W regularly communicated with public investors via establishedmarket communications mechanisms, including through the regulardisseminations of press releases on the major newswire services andthrough other wide-ranging public disclosures, including communicationwith the financial press and other similar reporting services.

164. Based upon the foregoing, the market for S&W's common stock promptly

digested current information regarding the Company from the publicly available sources

described herein and reflected such information in the Company's stock. Under such

circumstances, all purchasers of S&W's common stock on the open market during the

Class Period suffered similar injury due to the fact that the price of S&W's common

stock was artificially inflated throughout the Class Period.

165. As a result of the foregoing, the presumption of reliance established by the

"fraud-on-the-market" doctrine applies in this case.

X. NO SAFE HARBOR

166. The statutory safe harbor provided for forward-looking statements under

certain circumstances does not apply to any of the allegedly false statements pleaded in

this Complaint. The statements alleged to be false and misleading herein all relate to

then-existing facts and conditions. In addition, to the extent that any of the statements

alleged to be false and misleading may be characterized as "forward-looking," they were

not identified as "forward-looking statements" when made, and there were no meaningful

cautionary statements identifying important factors that could cause actual results to

differ materially from those in the purportedly forward-looking statements.

Alternatively, to the extent that the statutory safe harbor is intended to apply to any

forward-looking statements pleaded herein, defendants are liable for those false forward-

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looking statements because at the time each of those forward-looking statements was

made, Defendants had actual knowledge that the particular forward-looking statement

was false, and/or the forward-looking statement was authorized and/or approved by an

executive officer of S&W who knew that the statement was false when made. In

addition, to the extent that any of the statements set forth above were accurate when

made, they became inaccurate or misleading because of subsequent events, and

Defendants failed to update those statements that later became inaccurate.

XI. CLAIMS FOR RELIEF

COUNT ONEViolation of Section 10(b) of the Exchange Act

and Rule 10b-5 Promulgated ThereunderAgainst all Defendants

167. Lead Plaintiff repeats and realleges each of the allegations set forth in the

foregoing paragraphs. This claim is brought pursuant to Section 10(b) of the Exchange

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

on behalf of all purchasers of S&W's common stock on the open market during the Class

Period.

168. Throughout the Class Period, Defendants disseminated or approved the

materially false and misleading statements and/or omissions specified above, which they

knew or recklessly disregarded were misleading in that they contained material

misrepresentations and failed to disclose material facts necessary in order to make the

statements made, in light of the circumstances under which they were made, not

misleading.

169. Defendants: (a) employed devices, schemes, and artifices to defraud; (b)

made untrue statements of material fact and/or omitted to state material facts necessary to

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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

securities during the Class Period.

170. Lead Plaintiff and the Class have suffered damages in that, in reliance on

the integrity of the market, they paid artificially inflated prices for S&W's securities.

Lead Plaintiff and the Class would not have purchased S&W's securities at the prices

they paid, or at all, if they had been aware that the market prices had been artificially and

falsely inflated by Defendants' false and misleading statements and/or omissions.

171. As a direct and proximate result of Defendants' wrongful conduct, Lead

Plaintiff and the other members of the Class suffered damages in connection with their

purchases of S&W's securities during the Class Period.

COUNT IIViolation of Section 20(a) of the Exchange Act

Against the Individual Defendants

172. Lead Plaintiff repeats and realleges each of the allegations set forth in the

foregoing paragraphs. This claim is brought pursuant to Section 20(a) of the Exchange

Act on behalf of all purchasers of S&W's common stock on the open market during the

Class Period.

173. Defendant Michael F. Golden acted as controlling person of S&W within

the meaning of Section 20(a) of the Exchange Act as alleged herein. By reason of his

position as an officer and/or director of S&W, and his ownership of S&W's stock,

Defendant Golden had the power and authority to cause S&W to engage in the wrongful

conduct complained of herein. At all times relevant hereto, Defendant Golden was the

CEO and a member of the Company's Board of Directors, actively managed the

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Company and reported to S&W's investors concerning the Company's financial

condition. By reason of such conduct, Defendant Golden is liable pursuant to Section

20(a) of the Exchange Act.

174. Defendant John Kelly acted as controlling person of S&W within the

meaning of Section 20(a) of the Exchange Act as alleged herein. By reason of his


Defendant Kelly had the power and authority to cause S&W to engage in the wrongful

conduct complained of herein. At all times relevant hereto, Defendant Kelly was S&W's

CFO, actively managed the Company and reported to S&W's investors concerning the

Company's financial condition. By reason of such conduct, Defendant Kelly is liable

pursuant to Section 20(a) of the Exchange Act.

175. Defendant Barry M. Monheit acted as controlling person of S&W within

the meaning of Section 20(a) of the Exchange Act as alleged herein. By reason of his


Defendant Monheit had the power and authority to cause S&W to engage in the wrongful

conduct complained of herein. At all times relevant hereto, Defendant Monheit was the

Chairman of the Company's Board of Directors and reported to S&W's investors

concerning the Company's financial condition. By reason of such conduct, Defendant

Golden is liable pursuant to Section 20(a) of the Exchange Act.

XII. PRAYER FOR RELIEF

WHEREFORE, Lead Plaintiff, on behalf of itself and the other members of the

Class, pray for judgment as follows:

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A. Declaring this action to be a proper class action maintainable pursuant to

Rule 23 of the Federal Rules of Civil Procedure and declaring Lead

Plaintiff to be a proper Class representative;

B. Awarding Lead Plaintiff and the other members of the Class compensatory

damages as a result of the wrongs alleged in the Complaint;

C. Awarding Lead Plaintiff and other members of the Class their costs and

expenses in this litigation, including reasonable attorneys' fees and

experts' fees and other costs and disbursements; and

D. Awarding Lead Plaintiff and the other members of the Class such other

and further relief as the Court may deem just and proper.

XIII JURY TRIAL DEMANDED

Lead Plaintiff demands a jury trial of all issues so triable.

Respectfully submitted,

BERMAN DEVALERIO PEASETABACCO BURT & PUCILLO

By: /s/ Bryan A. Wood Glen DeValerio (BBO# 122010)Bryan A. Wood (BBO# 648414)One Liberty SquareBoston, MA 02109Telephone: (617) 542-8300Facsimile: (617) 542-1194E-Mail: gdevalericilaThermanesq.com

Lead Counsel for Lead PlaintiffOklahoma Firefighters Pensionand Retirement System

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in re smith & wesson holding corporation securities...

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