On August 6, 2007, the Court entered the Orders granting the final approval of the settlement, approving the Plan of Allocation and approving the motion for attorney fees and expenses.
On April 18, 2007, the Court entered the Mandate of the Ninth Circuit U.S. Court of Appeals. According to the Mandate, pursuant to April 3, 2007 order, this appeal is deemed dismissed voluntarily. Dismissal is without prejudice to reinstatement in the event the district court denies the parties' motions to approve their settlement. On May 17, 2007, a Stipulation of Settlement was filed. The settlement is in the amount of $1,750,000 in cash. The settlement was preliminarily approved on May 25, 2007.
On October 12, 2006, the Court entered the Order and Judgment signed by U.S. District Judge James L. Robart granting the defendants’ motion to dismiss the First Amended Class Action Complaint. The case was dismissed with prejudice. On November 13, 2006, the plaintiff filed an appeal from the Judgment and the Order on Motion to Dismiss.
As disclosed by the Company’s FORM 10-Q for the quarterly period ended June 30, 2006, a number of related purported class action suits alleging violations of the federal securities laws were filed by holders of WatchGuard’s common stock. The various actions have been consolidated by the Washington Court, and are referred to herein as the Action. On October 3, 2005, a consolidated amended complaint was filed in the Action and WatchGuard filed a motion to dismiss the consolidated complaint. On April 21, 2006, the Washington Court granted WatchGuard’s motion and dismissed the consolidated amended complaint. The Court granted plaintiffs leave to amend their complaint and on May 8, 2006, the plaintiffs filed their second consolidated amended complaint.
The original complaint charges WatchGuard and certain of its officers and directors with violations of the Securities Exchange Act of 1934. WatchGuard provides Internet security solutions designed to protect small to medium-sized enterprises that use the Internet for e-commerce and secure communications. Specifically, the complaint alleges that during the Class Period, defendants caused WatchGuard’s shares to trade at artificially inflated levels through the issuance of false and misleading financial statements. As a result of this inflation, the Company’s FY 2004 revenues were overstated. Further, on or around March 15, 2005, the Company announced that it was delaying its Q4 2004 and FY 2004 earnings call, would file a Notification of Late Filing with the SEC with respect to its annual report on Form 10-K and that it was restating its financial results for FY 2004. On this news, the stock fell below $3 per share.
The complaint specifically alleges that the true facts, which were known by the defendants during the Class Period but concealed from the investing public, were as follows: (a) the Company’s Q1-Q3 2004 reported financial results were materially false and misleading due to: (i) inaccurate income statement classification of early pay incentive discounts taken by customers; (ii) under-accrual of customer rebate obligations; and (iii) timing of revenue recognition associated with specific products and services (resulting from an overstatement of product revenue and an understatement of deferred revenue); (b) the Company’s February 12, 2004 projections were materially false and misleading; (c) the functionality and value of the Company’s “Firebox X” product was grossly overstated and this product did not materially or accurately improve the Company’s gross margins, streamline the Company’s management or otherwise reduce its reliance on custom components; and (d) contrary to defendants’ statements, the Firebox X was not tracking as defendants claimed.