On or about November 10, 1997, the Company reached an agreement in principle with the plaintiffs to settle the lawsuit. Plaintiffs have agreed to accept payment of $2,325,000 in exchange for a complete release of all claims arising from the allegations set forth in the plaintiffs' complaint. The Company's insurers agreed to advance all settlement and defense costs, including the Company's attorneys' fees and expenses, subject to the Company's agreement to reimburse the insurers for up to approximately $577,000 of those settlement and defense costs if the Company achieves certain positive financial results prior to the Federal Court's final approval of the settlement.

By the Order dated September 13, 1996, the case was transferred from the Southern Division of California of Judge Gary L. Taylor to the Western Division of California of Judge Dean D. Pregerson, New Case No. CV 96-6441.

According to the original complaint dated March 15, 1996, the Company management engaged in improper accounting practices and made certain false and misleading statements.