The action is seen as a victory by Encad in a climate where a number of high-tech companies are getting slapped with shareholder lawsuits. The firm representing the plaintiffs was Milberg, Weiss, Bershad, Hynes & Lerach, renowned for launching shareholder lawsuits and a strong supporter of California Proposition 211, an initiative on the November ballot that would make it easier for investors in that state to sue companies.
The shareholders filed their suit in August 1995 after the company announced its third quarter would not be as strong as analysts had expected. With that news, the stock dropped from around $22 to $17 within 24 hours, according to Thomas Green, Encad vice president and general counsel.
Shareholders alleged fraud and misrepresentation in their case, noting two company officers had sold a portion of their stock three months earlier because they knew future earnings would be off.
"We said sales would be slow because most of our business is in Europe, and the summer months is when the season is the slowest," Green said.
Since then, the stock has rebounded. When excluding a split last May, Encad's shares have since risen from $14 a share around the time of the suit's filing to $79.
"To their credit, the plaintiffs recognized this case was without merit after going through the due diligence," Green said. Moreover, "there are very few times plaintiffs who would be willing to dismiss a lawsuit without a settlement."