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Enterasys Settles Shareholder Lawsuit

October 17, 2003

CONCORD, N.H. (AP) _ Enterasys Networks Inc. agreed Friday to pay $50 million to settle a class-action lawsuit alleging the company orchestrated phony deals and used accounting tricks to inflate revenues.

The agreement, which still must be approved by a judge, also calls for Enterasys officials to make changes in how the company is run, including how board members serve and disclosure of compensation for the chief executive.

The Los Angeles County Employees Retirement Association, which led the federal lawsuit, praised the settlement, saying it compensates investors and provides greater corporate oversight.

``The settlement opens Enterasys to greater outside scrutiny, makes the board of directors more independent and gives shareholders more say in the way the company is run,″ said Glen DeValerio, a lawyer for the group.

William O’Brien, chief executive officer of the Andover, Mass.-based company, said the settlement was in the best interests of shareholders. Enterasys had denied the accusations and admitted no wrongdoing as part of the settlement.

``Settling all of these cases at one time will put this litigation completely behind us, allowing management to focus on running the company’s business,″ he said.

In April, the company settled a yearlong Securities and Exchange Commission investigation of its accounting practices. The agreement did not require penalties, fines or adjustments to previous financial statements.

The U.S. District Court lawsuit, filed in New Hampshire because Enterasys formerly was based there, accused the company of pressuring distributors to buy more toward the end of a quarter, then let them return unsold products.

The shareholders said Enterasys allegedly booked all the revenue, violating accounting principles.

The lawsuit also said several top executives belonged to a ``special teams unit″ that met regularly to plan deceptive maneuvers. The suit said the information came from former employees whom it did not identify.

The settlement announced Friday calls for Enterasys to pay $17 million and distribute shares of stock valued at $33 million.

Enterasys officials said they expect the settlement to be approved by December.

Enterasys still is suing some of its insurance companies after they refused to cover legal and settlement fees in the cases. Enterasys officials said any money awarded as part of that could adjust the settlement figures.

The computer networking company is the main successor to Cabletron Systems, the Rochester company that New Hampshire Gov. Craig Benson co-founded.

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