SACC Partners, LP Writes Letter to WatchGuard Technologies (WGRD) Expressing Concerns Over Rights Agreement, Urges Sale of Comp

LOS ANGELES, May 3  /PRNewswire/ -- The following statement has been issued by Bryant Riley, Founder & General Partner of SACC Partners, LP:

  The Board of Directors of WatchGuard Technologies, Inc.
  WatchGuard Technologies, Inc.
  505 Fifth Avenue South, Suite 500
  Seattle, WA  98104

  Members of the Board of Directors:



As you are aware, SACC Partners, LP has been a shareholder of WatchGuard (NASDAQ:WGRD)for the past two years having acquired approximately 2% of the outstanding shares.  As a large shareholder and a proud user of several WatchGuard Firebox Core, SOHO and Firebox Edge appliances, we are excited about the opportunities in front of the Company.  That said, however, we have been very disappointed with the financial performance of the Company over the past few years.  Thus, we were encouraged to learn that Vector Capital Corporation ("Vector") has expressed an interest in acquiring WatchGuard as indicated in a letter from Vector, dated February 17, 2006 and disclosed in a recent 13-D filing.  While we are encouraged by your recent hiring of Wachovia to review strategic alternatives, we want to emphasize to you that we are strongly against your proposal to put a Rights Agreement in place at the annual meeting scheduled to take place Thursday, May 4th.  We agree with ISS that having a poison pill in place is NOT in the best interest of shareholders as it entrenches management and the board and discourages legitimate suitors from pursuing an acquisition of the Company.  Therefore, we have submitted our vote AGAINST the Rights Agreement.

Over the past year, WatchGuard's execution has been poor and we have not seen any material progress in the "eighteen-month turnaround" program, which was initiated soon after the Company hired its current CEO and Chairman.  The company has shown five straight quarters of declining revenues (year-over-year) and the Company generated its tenth year of operating losses since its inception in 1996.  In our opinion, WatchGuard's performance has simply been unacceptable.

Additionally, we have been disappointed in the Company's lack of a buyback program over the last year and a half.  You have publicly stated that acquisitions are not in your long-term plan and that the Company and shareholders would be rewarded by focusing on improving operations.  However, you have refrained from a share buyback despite exiting the 4th quarter with $77.8 million in cash and a relatively small cash burn.  Given your apparent lack of need for cash and your belief that a focus on operations will result in stronger profitability we are disappointed that you have refrained from repurchasing shares even when the company's enterprise value, based on share prices in the market, has fallen to as low as $30 million dollars.

While we believe there are significant growth opportunities in the IT Security market overall, we are concerned that increasing competition as well as the costs of being a public company will limit WatchGuard's growth potential in both the near-term and long-term.  Given how fragmented the IT Security industry is, especially as it relates to UTM providers, we believe that consolidation is inevitable and we have indicated many times that we believe WatchGuard would make a compelling acquisition target for a strategic or financial buyer.  We also believe strongly that your size and growth prospects make it difficult to be a profitable public company given the costs associated with being public.  For example, selling to a public company would result in the streamlining of executive management, removal of Board fees and related costs including D & O insurance, rationalization of sales and research as well as auditing costs to name a few.  Whether a purchase by Vector or a purchase by a competitor, we believe that the timing is appropriate and that you should aggressively pursue this opportunity.  We agree with Vector that as a nimble private company WatchGuard could more effectively pursue its strategic objectives.  Thus, we urge you to seriously consider Vector's offer and pursue a sale of the Company sooner rather than later.

  Regards,

  Bryant Riley
  Founder & General Partner
  SACC Partners, LP
  11100 Santa Monica Blvd., Suite 800
  Los Angeles, CA  90025


DATASOURCE: SACC Partners, LP



CONTACT:  SACC Partners, LP, [phone]

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