According to the Company’s FORM 10-Q for the quarterly period ended June 30, 2005, on May 26, 2005, the Company received a copy of a notice of Dismissal without Prejudice filed by the law firms that had represented the plaintiffs in the Zak complaint. A dismissal without prejudice does not preclude plaintiffs from re-filing the claim in the future.
As disclosed by the Company’s FORM 10-K for the fiscal year ended December 31, 2004, on March 9, 2005, the Company received a copy of a Notice of Dismissal without Prejudice filed by the law firms that had represented the plaintiffs in the Gross complaint. On March 15, 2005, the law firms in the Gross complaint filed a class action suit in U.S. District Court for the Western District of Washington styled as Stephen Zak, et al. v. Shurgard Storage Centers, Inc., Charles K. Barbo, and Harrell Beck (Case No. CV05-0417C) for alleged violations of federal securities law. Mr. Zak’s complaint makes substantially similar claims to those in the Gross complaint.
The action charges that Shurgard and one or more of its officers and/or directors violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. Specifically, the complaint alleges that during the Class Period, Defendants materially misled the investing public by issuing false and misleading statements regarding the business and financial results of Shurgard. More specifically the complaint alleges: i) the Company lacked sufficient internal controls and therefore was unable to ascertain its true financial standing; ii) the Company's U.S. owned entities should have been accounted for using a consolidated accounting method since the inception of each entity; iii) the Company's European operations incurred operating losses which were not supported but sufficient evidence of future profitability to recognize loss carry forwards; iv) net income for 2001, 2002 and for the nine-month period ended September 30, 2003 had been seriously overstated due to the improper accounting for the Tax Retention Operating Lease; v) because of these errors, the value of the Company's balance sheet and income statement had been materially overstated at all relevant times; vi) Shurgard's quarterly and annual filings and press releases had not conformed to Generally Accepted Accounting Principles ("GAAP"), and; vii) at the time the Company presented its earnings guidance, it knew or should have known that it had no adequate basis to make those statements.
The complaint further alleges that on or around March 26, 2004, Shurgard began to reveal the extent of its accounting irregularities by announcing that it would be unable to file its Form 10-K for the year ended December 31, 2003. It further stated that as a result of its audit process certain accounting adjustments having a material effect on reported financials would have to be made. Then on May 17, 2004, Shurgard announced that management had reviewed previously reported historical financial data and related descriptions for certain accounting errors. Shurgard announced that it had conducted a re-audit of the financial statements for the years ended December 31, 2001 and 2002 and for the quarters ended March 31, June 30, September 30, 2003 and 2002 as well as the quarter ended December 21, 2002. It also indicated that it had incorrectly assessed certain accounting policies applied to its consolidated financial statements which were required to be restated. In addition, the Company's newly appointed auditors, PricewaterhoseCoopers, had identified other accounting errors impacting prior periods which were required to be restated. As a result, Shurgard's shares fell to $33.30 per share in response to the news that the Company's previously-reported financial results, which had already been restated, may not in fact be what they seemed.
On March 9, 2005, a Notice of Dismissal without Prejudice was filed pursuant to Federal Rules of Civil Procedure 41(a)(1), by the Plaintiff that dismissed this action without prejudice.