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One Down, One to Go For Cisco

Cisco Systems agreed to pay $91.8 million to make a headache go away, but it doesn't mark the end of Cisco's legal woes.

The headache was a suit, filed April 20, 2001, claiming Cisco, as well as current and former officers and directors, made misleading statements, or omitted statements of material fact that were relied on by purchasers of Cisco stock.

It also alleged that the individual defendants sold Cisco stock while in possession of material, non-public information.

According to Mark Chandler, senior vice president and general counsel for Cisco, the company was confident that it would win, but decided to settle rather than go through the disruption and expense associated with fighting a protracted legal battle.

Cisco nonetheless denied all allegations in the suit.

Cisco said this settlement will have no material impact on its financial position or results of operations because the cost will be covered by its insurance policies.

"Cisco continues to firmly believe that the suit's claims are without merit, and we have been eager to achieve a victory in this case," said Chandler in a statement.

Shareholders accepted the settlement, their lawyer said, because the SEC had not charged the company with wrongdoing, making it harder for them to prove that they were misled.

"Though not required to prove securities fraud, there was a lack of insider trading, and Cisco was not required to make a financial restatement," said Spencer Burkholz, lead lawyer for Lerach, Coughlin, Stoia, Gellar, Rudman and Robbins LLP, counsel for the plaintiffs.

The agreement is subject to final documentation and court approval.

The recovery, less fees and expenses will be distributed to purchasers of Cisco common stock between November 10, 1999, and February 6, 2001, who file valid proofs of claim under procedures to be implemented by the United States District Court for the Northern District of California, which is overseeing the litigation.

However, Cisco remains on a short legal leash.

The San Jose, Calif.-based networking equipment maker has another lawsuit staring it in the face in connection with the timing of option grants and compensation to officers and directors.

According to its most recent filing with SEC, a suit was filed on February 16, 2005.

That lawsuit includes claims for breach of fiduciary duty, unjust enrichment, constructive trust and violations of the California Corporations Code.

Plaintiffs allege wrongdoing in connection with option grants and compensation to officers and directors, the timing of option grants, and the stock repurchase program.

They're seeking unspecified compensation and other damages, rescission of options and other relief.