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Eleven law firms have filed shareholder lawsuits against Entrust Technologies Inc., claiming that the Plano, Texas, Internet security company delayed disclosing poor earnings results in order to keep its acquisition of enCommerce Inc. on track. Two business days after closing of the $700 million acquisition of enCommerce on June 27, Entrust announced it expected second-quarter earnings to be $0.02 per share. Analysts had been expecting $0.08 per share, according to First Call consensus estimates. When the poor earnings predictions were released on July 5, Entrust’s shares tumbled 53% from $77.13 to $36.63. Entrust shares slid 3.3% in Nasdaq trading Thursday, closing at $26.22. “The company believes the class-action lawsuits are without merit and we intend to contest them vigorously,” an Entrust spokeswoman said. Entrust executives told analysts they had been trying to close four product sales until the end of the second quarter. Those sales, they said, would have enabled the company to meet analysts’ estimates. Only after they fell through were the executives sure they would miss estimates. “You have to advise the shareholders as soon as you have knowledge that the sales numbers would not meet expectations, and that’s what the company’s executives did,” the spokeswoman said. Results for the quarter, released July 18, were $0.03 per share. The shareholders allege that the Entrust executives knew, but did not publicly disclose, that its business was performing significantly worse than the company had led analysts to believe. They allege Entrust’s pending acquisition of enCommerce motivated the nondisclosure. “Unless [the Entrust executives] are lying, then the suit is without merit,” said David Zale, a senior Internet analyst at Sands Brothers & Co. in New York. He added, “And I have no reason to believe that they’re lying. I think they’re straight shooters.” The lawsuit is pending in the U.S. District Court for the Eastern District of Texas in Marshall. After Sept. 6, the shareholder lawsuits will be consolidated and the companies will file to have the court certify it as a class action. If it does so, the court will then likely appoint a lead plaintiff who will designate a lead counsel. The Entrust spokeswoman declined to say which law firm is defending the company. Boston-based Hale and Dorr LLP was legal counsel and Bear, Stearns & Co. Inc. was financial adviser to Entrust in its acquisition of enCommerce, a Santa Clara, Calif.-based provider of software and services for managing online business relationships. It remains unclear what effect a stock drop precipitated by a negative pre-announcement in June would have had on Entrust’s ability to close the enCommerce deal. The deal, after all, was structured as a fixed exchange ratio, where enCommerce shareholders would receive 10.25 Entrust shares. This means that regardless of Entrust’s stock price, enCommerce shareholders would receive the same amount of equity in the combined company. New York law firms soliciting shareholders who bought Entrust stock from April 19 to July 3 are Wolf Haldenstein Adler Freeman & Herz LLP, Bernstein Liebhard & Lifshitz LLP, Kirby McInerney & Squire LLP and Stull, Stull & Brody. Other participating firms are Baltimore-based Law Office Of Charles J. Piven, Houston-based Whittington, von Sternberg, Emerson & Wilsher LLP, Philadelphia-based Spector, Roseman, & Kodroff PC, West Palm Beach, Fla.-based Desmond Law Firm, Bala Cynwyd, Pa.-based Schiffrin & Barroway LLP, the San Diego office of Milberg Weiss Bershad Hynes & Lerach LLP and Boca Raton, Fla.-based Cauley & Geller LLP. Attorneys at Bernstein Liebhard, Milberg Weiss and Cauley & Geller did not return calls for comment. Copyright �2000 TDD, LLC. All rights reserved.

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