-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FzWKH4AwCdTdmspuocit8QrQO3cEeTfechuEwrzILNRL1v0Pqudk0fyW1I3xOXL4 Mgz3BaW22L2sK9QXL3p07w== 0001104659-06-044020.txt : 20060628 0001104659-06-044020.hdr.sgml : 20060628 20060628121621 ACCESSION NUMBER: 0001104659-06-044020 CONFORMED SUBMISSION TYPE: SC 13D/A PUBLIC DOCUMENT COUNT: 3 FILED AS OF DATE: 20060628 DATE AS OF CHANGE: 20060628 GROUP MEMBERS: ALEXANDER R. SLUSKY GROUP MEMBERS: VECTOR CAPITAL PARTNERS III, L.L.C. SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: WATCHGUARD TECHNOLOGIES INC CENTRAL INDEX KEY: 0001062019 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 911712427 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D/A SEC ACT: 1934 Act SEC FILE NUMBER: 005-57889 FILM NUMBER: 06929075 BUSINESS ADDRESS: STREET 1: 505 FIFTH AVENUE SOUTH SUITE 500 CITY: SEATTLE STATE: WA ZIP: 98104 BUSINESS PHONE: 2065218340 MAIL ADDRESS: STREET 1: 505 FIFTH AVENUE SOUTH SUITE 500 CITY: SEATTLE STATE: WA ZIP: 98104 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: Vector Capital III, L.P. CENTRAL INDEX KEY: 0001357213 IRS NUMBER: 870729513 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D/A BUSINESS ADDRESS: STREET 1: 456 MONTGOMERY STREET STREET 2: 19TH FLOOR CITY: SAN FRANCISCO STATE: CA ZIP: 94104 BUSINESS PHONE: (415) 293-5000 MAIL ADDRESS: STREET 1: 456 MONTGOMERY STREET STREET 2: 19TH FLOOR CITY: SAN FRANCISCO STATE: CA ZIP: 94104 SC 13D/A 1 a06-14575_1sc13da.htm AMENDMENT

UNITED STATES

SECURITIES AND EXCHANGE
COMMISSION

Washington, D.C. 20549

SCHEDULE 13D
Under the Securities Exchange Act of 1934
(Amendment No. 2)*

WATCHGUARD TECHNOLOGIES, INC.

(Name of Issuer)

Common Stock, $0.01 par value per share

(Title of Class of Securities)

941105 10 8

(CUSIP Number)

Vector Capital III, L.P.

Vector Capital Partners III, L.L.C.

Alexander R. Slusky
c/o Vector Capital Corporation
456 Montgomery Street, 19^th Floor
San Francisco, CA 94104
Telephone: (415) 293-5000
Attn: Alexander R. Slusky

with a copy to:

Michael J. Kennedy
O’Melveny & Myers LLP
275 Battery Street, Suite 2600
San Francisco, CA 94111

(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications)

June 26, 2006

(Date of Event which Requires Filing of this Statement)

If the filing person has previously filed a statement on Schedule 13G to report the acquisition that is the subject of this Schedule 13D, and is filing this schedule because of §§240.13d-1(e), 240.13d-1(f) or 240.13d-1(g), check the following box. o

Note: Schedules filed in paper format shall include a signed original and five copies of the schedule, including all exhibits. See §240.13d-7 for other parties to whom copies are to be sent.

^* The remainder of this cover page shall be filled out for a reporting person’s initial filing on this form with respect to the subject class of securities, and for any subsequent amendment containing information which would alter disclosures provided in a prior cover page.

The information required on the remainder of this cover page shall not be deemed to be “filed” for the purpose of Section 18 of the Securities Exchange Act of 1934 (“Act”) or otherwise subject to the liabilities of that section of the Act but shall be subject to all other provisions of the Act (however, see the Notes).

CUSIP No. 9441105 10 8

	1.	Names of Reporting Persons. I.R.S. Identification Nos. of above persons (entities only) Vector Capital III, L.P.

	2.	Check the Appropriate Box if a Member of a Group (See Instructions)
		(a)			o
		(b)			o

	3.	SEC Use Only

	4.	Source of Funds (See Instructions) WC

	5.	Check if Disclosure of Legal Proceedings Is Required Pursuant to Items 2(d) or 2(e) o

	6.	Citizenship or Place of Organization Delaware

Number of Shares Beneficially Owned by Each Reporting Person With			7.	Sole Voting Power 0

			8.	Shared Voting Power 3,247,500 shares of Common Stock

			9.	Sole Dispositive Power 0

			10.	Shared Dispositive Power 3,247,500

	11.	Aggregate Amount Beneficially Owned by Each Reporting Person 3,247,500 shares of Common Stock

	12.	Check if the Aggregate Amount in Row (11) Excludes Certain Shares (See Instructions) o

	13.	Percent of Class Represented by Amount in Row (11) 9.4%

	14.	Type of Reporting Person (See Instructions) PN

CUSIP No. 9441105 10 8

	1.	Names of Reporting Persons. I.R.S. Identification Nos. of above persons (entities only) Vector Capital Partners III, L.L.C.

	2.	Check the Appropriate Box if a Member of a Group (See Instructions)
		(a)			o
		(b)			o

	3.	SEC Use Only

	4.	Source of Funds (See Instructions) AF

	5.	Check if Disclosure of Legal Proceedings Is Required Pursuant to Items 2(d) or 2(e) o

	6.	Citizenship or Place of Organization Delaware

Number of Shares Beneficially Owned by Each Reporting Person With			7.	Sole Voting Power 0

			8.	Shared Voting Power 3,247,500 shares of Common Stock

			9.	Sole Dispositive Power 0

			10.	Shared Dispositive Power 3,247,500 shares of Common Stock

	11.	Aggregate Amount Beneficially Owned by Each Reporting Person 3,247,500 shares of Common Stock

	12.	Check if the Aggregate Amount in Row (11) Excludes Certain Shares (See Instructions) o

	13.	Percent of Class Represented by Amount in Row (11) 9.4%

	14.	Type of Reporting Person (See Instructions) 00

CUSIP No. 9441105 10 8

	1.	Names of Reporting Persons. I.R.S. Identification Nos. of above persons (entities only) Alexander R. Slusky

	2.	Check the Appropriate Box if a Member of a Group (See Instructions)
		(a)			o
		(b)			o

	3.	SEC Use Only

	4.	Source of Funds (See Instructions) AF

	5.	Check if Disclosure of Legal Proceedings Is Required Pursuant to Items 2(d) or 2(e) o

	6.	Citizenship or Place of Organization United States

Number of Shares Beneficially Owned by Each Reporting Person With			7.	Sole Voting Power 0

			8.	Shared Voting Power 3,247,500 shares of Common Stock

			9.	Sole Dispositive Power 0

			10.	Shared Dispositive Power 3,247,500 shares of Common Stock

	11.	Aggregate Amount Beneficially Owned by Each Reporting Person 3,247,500 shares of Common Stock

	12.	Check if the Aggregate Amount in Row (11) Excludes Certain Shares (See Instructions) o

	13.	Percent of Class Represented by Amount in Row (11) 9.4%

	14.	Type of Reporting Person (See Instructions) IN

This Second Amended Statement (this “Second Amended Statement”) to the initial Schedule 13D filed with the Securities and Exchange Commission on behalf of Vector Capital III, L.P., a Delaware limited partnership, Vector Capital Partners III, L.L.C., a Delaware limited liability company (together with Vector Capital III, L.P., “Vector”) and Alexander R. Slusky, an individual (together with Vector, the “Reporting Persons”) on March 23, 2006 (the “Initial Statement”), as amended pursuant to Amendment No.1 to the Initial Statement filed on May 31, 2006 (together with the Initial Statement, the “Prior Statements”), is being filed pursuant to Rule 13d-2 of the Securities Exchange Act, as amended, on behalf of the Reporting Persons to amend certain information previously reported by the Reporting Persons in the Prior Statements by adding the information set forth below to the items indicated. Unless otherwise stated herein, all capitalized terms used in this Second Amended Statement have the same meanings as those set forth in the Prior Statements.

Item 4.	Purpose of Transaction
Item 4 is hereby amended and supplemented by inserting the following at the end of the first paragraph thereof: On June 26, 2006 the Reporting Persons, acting through Vector Capital Corporation, sent a revised non-binding letter of interest to the Company replacing the prior non-binding letter of interest sent on May 26, 2006 and setting forth a revised proposal for the acquisition by Vector of all outstanding shares and options of capital stock of the Company for cash. The letter is attached hereto as Exhibit 4 and is incorporated herein by reference. Item 4 of Schedule 13D is hereby further amended and supplemented by deleting the last paragraph thereof in its entirety and replacing such deleted text with the following: Except as set forth above or in the letters attached hereto as exhibits, the Reporting Persons do not have any current intention, plan or proposal with respect to: (a) the acquisition by any person of additional securities of the Company, or the disposition of securities of the Company; (b) an extraordinary corporate transaction, such as a merger, reorganization or liquidation, involving the Company or any of its subsidiaries; (c) a sale or transfer of a material amount of assets of the Company or any of its subsidiaries; (d) any change in the present board of directors or management of the Company, including any plans or proposals to change the number or term of directors or to fill any existing vacancies on the board; (e) any material change in the present capitalization or dividend policy of the Company; (f) any other material change in the Company's business or corporate structure; (g) changes in the Company's charter, bylaws or instruments corresponding thereto or other actions which may impede the acquisition of control of the Company by any person; (h) causing a class of securities of the Company to be delisted from a national securities exchange, if any, or cease to be authorized to be quoted in an inter-dealer quotation system of a registered national securities association; (i) a class of equity securities of the Company becoming eligible for termination of a registration pursuant to Section 12(g)(4) of the Exchange Act; or (j) any action similar to any of those enumerated above.

Item 7.	Material to Be Filed as Exhibits
Item 7 is hereby supplemented as set forth below:
	4 Letter dated as of June 26, 2006, from Vector Capital Corporation to WatchGuard Technologies, Inc.

SIGNATURE

After reasonable inquiry and to the best of each of the undersigned’s knowledge and belief, the undersigned certifies that the information set forth in this statement is true, complete and correct.

Dated: June 27, 2006
		VECTOR CAPITAL III, L.P.
		By: Vector Capital Partners III, L.L.C., its General Partner

		By: /s/ Alexander R. Slusky
		Name: Alexander R. Slusky
		Title: Managing Member

		VECTOR CAPITAL PARTNERS III, L.L.C.

		By: /s/ Alexander R. Slusky
		Name: Alexander R. Slusky
		Title: Managing Member

		ALEXANDER R. SLUSKY

		/s/ Alexander R. Slusky
		Alexander R. Slusky

INDEX TO EXHIBITS

Exhibit Number		Document

1		Joint Filing Agreement dated March 23, 2006, by and among Vector Capital III, L.P., Vector Capital Partners III, L.L.C. and Alexander R. Slusky. (Incorporated by reference to Exhibit 1 to the Reporting Persons’ Schedule 13D filed with the Securities and Exchange Commission on March 23, 2006).

2		Letter dated as of February 17, 2006 from Vector Capital Corporation to the Board of Directors of WatchGuard Technologies, Inc. (Incorporated by reference to Exhibit 2 to the Reporting Persons’ Schedule 13D filed with the Securities and Exchange Commission on March 23, 2006).

3		Letter dated as of May 26, 2006, from Vector Capital Corporation to WatchGuard Technologies, Inc. (Incorporated by reference to Exhibit 3 to the Reporting Persons’ Amendment No. 1 to Schedule 13D filed with the Securities and Exchange Commission on May 31, 2006)

4		Letter dated as of June 26, 2006, from Vector Capital Corporation to WatchGuard Technologies, Inc.

EX-4 2 a06-14575_1ex4.htm EX-4

Exhibit 4

CONFIDENTIAL

June 26, 2006

WatchGuard Technologies, Inc.

Ed Borey, Chief Executive Officer

505 Fifth Avenue South

Suite 500

Seattle, WA 98104

Dear Ed:

This revised non-binding letter of interest replaces our letter dated May 26, 2006 and is being provided per the request of Wachovia Securities.

After an extensive due diligence investigation, we are revising our previous offer of $5.10 per share to $4.65 per share in cash. Our cash offer, further detailed below, is subject only to the satisfactory completion of confirmatory due diligence and definitive agreements. We believe that these remaining tasks can be completed in two to three weeks following your agreement to an exclusive dealing period.

We are eager, both as a bidder and as WatchGuard’s second largest shareholder, to discuss with the board the due diligence findings that led to this downward revision and are prepared to do so as soon as possible.

Below are the principal terms of a potential transaction that we believe can be completed expeditiously:

1. Proposed Parties and Purchase Price. A newly-formed affiliate of Vector would acquire 100% of the outstanding shares and options of capital stock of WatchGuard for a price of $4.65 in cash. This represents a 23% premium to WatchGuard’s unaffected stock price (based on the opening price of $3.78 on March 14, 2006, the day we resumed our effort to buy stock in the open market in significant volumes). Our proposal represents

an enterprise value of $91 million based on information contained in the company’s most recent public filings and is based on a minimum net cash balance of $73 million at the close of the transaction, representing a 57% premium to the company’s unaffected enterprise value.

2. Sources of Financing. Vector would be the sole source of equity capital for the transaction. Although we also expect to use modest leverage pursuant to commitment letters to be entered into prior to execution of the definitive transaction agreement, our proposal is not contingent on the availability or terms of third-party financing.

3. Approvals. Other than approval of Vector’s investment committee (comprised of our three investing partners, and which I chair), no other consents or approvals are required. Our investment committee has already reviewed and preliminarily approved this potential transaction. Assuming satisfactory completion of confirmatory due diligence, this preliminary approval would be finalized shortly before the execution of mutually-acceptable definitive transaction documents.

4. Regulatory and Third-party Approvals. Other than HSR and approval of WatchGuard’s board of directors and shareholders, we do not anticipate the need for any regulatory or third-party approvals to complete a transaction.

5. Further Confirmatory Due Diligence. In making this revised indication, we have relied upon the information and projections in the Confidential Information Package provided by Wachovia, presentations and information provided by management, publicly available information, and materials in the data room (including but not limited to financial projections and historical data, information concerning Net Operating Losses, “sell-in to sell-through” calculations, shipment and pricing data, and inventory data). Should our revised indication be accepted, we would conduct a final phase of confirmatory due diligence, focusing on: customer satisfaction and loyalty, relationships with resellers and other channel partners, accuracy of operational metrics and financial data presented by management, and customary legal and accounting diligence.

6. Definitive Documents. We are also separately sending a summary of our principal comments to the draft Definitive Agreement provided by Wachovia.

7. Contact Information. The following people will serve as your Vector contact for this transaction:

Alex Slusky

Managing Partner

415-293-5000

aslusky@vectorcapital.com

Dominic Ang

Vice President

415-293-5080

dang@vectorcapital.com

8. Exclusive Dealing. Upon receipt of a countersigned copy of this letter, the following provisions shall be binding on us. For a period of thirty (30) days from the date of acceptance of this letter, WatchGuard will not, and will cause its officers, directors, shareholders, employees, agents and affiliates not to, directly or indirectly, through any representative or otherwise, solicit or entertain offers from, negotiate with, provide any non-public information to, or in any manner encourage, discuss, accept, consider any proposal of, or enter into any agreement with any other third party relating to (i) the acquisition of WatchGuard, its shares, or its assets or business, in whole or in part, whether through direct purchase, merger, consolidation, sale of shares, or equity investments, including, without limitation, the grant of any license to any intellectual property of WatchGuard other than in the ordinary course of business related to the sale of WatchGuard products and services, (ii) any additional funding or sources of funding for WatchGuard, or (iii) any other business combination. WatchGuard agrees that any such negotiations (other than negotiations with Vector) in progress as of the date of this LOI will be immediately terminated. In no event will WatchGuard accept or enter into an agreement concerning any such third party acquisition transaction during such period. WatchGuard will notify Vector promptly, and in any event within 24 hours, after receipt by WatchGuard (or any of its officers, directors, shareholders, employees, agents or affiliates) of any proposal for, or inquiry respecting, any such third party acquisition transaction involving WatchGuard or any request for information in connection with such a proposal or inquiry, or for access to the properties, books or records of WatchGuard by any third party that informs WatchGuard that it is considering making, or has made, such a proposal or inquiry. Such notice to Vector will indicate in reasonable detail the identity of the person or entity making such proposal or inquiry and the terms and conditions of such proposal or inquiry. WatchGuard represents and warrants that it has the legal right to terminate or suspend any such pending negotiations and agrees to indemnify Vector, its representatives and agents from and against any claims by any party to such negotiations based upon or arising out of the discussion or any consummation of the proposed

transaction as contemplated by this LOI.

We would be happy to provide further clarification and answer any questions you may have regarding the terms proposed above. We continue to believe that WatchGuard shareholders strongly prefer a sale of the company as soon as possible to the highest cash bidder, whether that be us or another party. We believe that our revised all-cash proposal continues to represent compelling value in light of the operational and structural challenges and risks faced by the company and urge the board to accept our invitation to meet and discuss these matters further.

If we have not received a favorable response from you by the close of business on Thursday, June 29, 2006, we will assume you have no interest in our proposal.

Sincerely,

VECTOR CAPITAL CORPORATION

/s/ Alex R. Slusky

Alex Slusky,

President

Acknowledged and Agreed:

WatchGuard Technologies, Inc.

By: _____________________

Ed Borey

Chief Executive Officer

GRAPHIC 3 g145751kai001.gif GRAPHIC begin 644 g145751kai001.gif M1TE&.#EA8`!5`'<`,2'^&E-O9G1W87)E.B!-:6-R;W-O9G0@3V9F:6-E`"'Y M!`$`````+`````!?`%0`AP``````````,P``9@``F0``S```_P`S```S,P`S M9@`SF0`SS``S_P!F``!F,P!F9@!FF0!FS`!F_P"9``"9,P"99@"9F0"9S`"9 M_P#,``#,,P#,9@#,F0#,S`#,_P#_``#_,P#_9@#_F0#_S`#__S,``#,`,S,` M9C,`F3,`S#,`_S,S`#,S,S,S9C,SF3,SS#,S_S-F`#-F,S-F9C-FF3-FS#-F M_S.9`#.9,S.99C.9F3.9S#.9_S/,`#/,,S/,9C/,F3/,S#/,_S/_`#/_,S/_ M9C/_F3/_S#/__V8``&8`,V8`9F8`F68`S&8`_V8S`&8S,V8S9F8SF68SS&8S M_V9F`&9F,V9F9F9FF69FS&9F_V:9`&:9,V:99F:9F6:9S&:9_V;,`&;,,V;, M9F;,F6;,S&;,_V;_`&;_,V;_9F;_F6;_S&;__YD``)D`,YD`9ID`F9D`S)D` M_YDS`)DS,YDS9IDSF9DSS)DS_YEF`)EF,YEF9IEFF9EFS)EF_YF9`)F9,YF9 M9IF9F9F9S)F9_YG,`)G,,YG,9IG,F9G,S)G,_YG_`)G_,YG_9IG_F9G_S)G_ M_\P``,P`,\P`9LP`F#`K5Z!=757M2%2HT9E:)6P7:)"BH M8-B"7XA^Q1:T5:NR;6G!Q2;H+5VW=-GB==N6K4&J-,:*+>JV[M:S9_T21&R6 MK]^@3Y4Z/OR8[V2]?2WW-4PK*-'#);]:7LR0\4*J?+UXA=K7X%S/>^]FMMNJ M<^S6;<32QYEF;3"H$+="R(!MZLMO\*5RQ4,,)6L[!YJ3&<>=7EV)P?WVZV M.Y;5:ZM7_[],'MMGO^?;XOW48Y4N5M)^SZG*(IX9DCKJ7,5V255)A!!;KZB^(A:; M4:XHN.Q@\8652!;@1=LIJST%'&N7]2KJGDW#>IGB<`&WJV=V[HTZ$I$+4UIN MJ3?NV'%M_4*:EZJDAFH4+8JH]2(V7]3,<,@X]S0(4'E5[!$V@SS[,6D^NPRP M(J`>%%W0-/AGGEM`_;8FCCGKU(HKNUF:R"R"6+A2A482->QLV'XUR'YN^8;0 M(#4DK")^BW6FME)8TV**RF&Y4@,8$@K_-NJ^1E9]4B(Q+RA0#5DT1="9"A/D M<8I?<#LM+1]]MQJ4?ODE%N1+Y7S6O)BV:05[<%B&7'^C>KE0?Z&G+5(\[TQ>$G)5[X+NK3+"E#'X! M.M"I#E36KK>%&Q2&O&>U$G@L#?+1;]655>GL>UW=(9[*RX1P6Q1^`;[&9.6L MF=$Z!:T6PON)7NDZ]9_XA21U,1D$&/HT0-I=S"$P(<0L:G:F!Y[D&BS16Q;& M4SQ?H0A%!!%4!PUXDJ#5C"A8&,3!DA03!7P!"RXPC@)<0(N2_(@M+M@@#73H M'FS0P`LT4(`/R&-"0P:U[2G6"\P-$S`0)C(1"XHP"1.QH8"VU$"*V$A`>[`Q M@-R8I(MKR0+"!)+"'RF`!@@:#G6$B(5$N.`[;'D*%F1%Q3:VD8I(<@46KJ&D MJ"#I"_<*5BNH8R*!!`V/74Q`(F(B"*\,($9;]"%0ODA!G*SE8`,9A!!+TD*3 MH+&.@*S!*?J4`.L!D@9WS"*2!A$T1C7R>JP!`X>\)JP1<9!?Q7+%6+`B*5V: @IV[A(:$%-2+,81KSF,A,IC*7R -----END PRIVACY-ENHANCED MESSAGE-----

SCHEDULE 13D Under the Securities Exchange Act of 1934 (Amendment No. 2)*

SCHEDULE 13D
Under the Securities Exchange Act of 1934
(Amendment No. 2)*