According to the Stipulation filed on January 4, 2007, the Lead Plaintiffs voluntarily dismiss their appeal in this litigation.
According to the Company’s FORM 10-Q for the quarterly period ended September 30, 2006, following agreement by the plaintiffs and the defendants that the two lawsuits should be consolidated, the plaintiffs filed a consolidated class action complaint. On February 28, 2006, the Company filed a motion to have the consolidated class action complaint dismissed with prejudice for failure to state a claim. On October 6, 2006, the District Court granted the Company’s motion to dismiss the claim. On November 2, 2006, the plaintiffs filed a notice of appeal with the Fourth Circuit Court of Appeals.
The original complaint charges Trex and certain of its officers with violations of the Securities Exchange Act of 1934. More specifically, the Complaint alleges that the Company failed to disclose and misrepresented the following material adverse facts which were known to defendants or recklessly disregarded by them: (1) that the expected re-orders of inventory were not materializing, as Trex distributors worked to dispose of excess inventory; (2) that the expansion of the Company's distribution program with The Home Depot materially slowed due to delays in rolling out the Company's products; (3) that the Company cost cutting initiatives failed to limit the impact of higher raw material costs; (4) that there were manufacturing issues with the Artisan and Brasilia rail lines; and (5) that as a consequence of the foregoing, defendants' positive statements about the Company's growth and progress lacked in any reasonable basis when made. On June 22, 2005, Trex announced that the Company expected a substantial loss for the quarter and guided its earnings lower for the year. On this news, shares of Trex fell $10.59 per share, or 29.66%, on June 23, 2005, to close at $25.11 per share. During the Class Period, while Trex stock was trading at artificially inflated prices, insiders sold 680,395 shares for gross proceeds of $29,833,121.