The action charges that the accounting for sales revenue, because of the nature of its distribution agreement with Stanson Marketing, Inc. overstated its revenues for fiscal (June 30) 1995 and for the September 30, 1995 quarter ($3 million and $10 million, respectively), which, the action claims, violated generally accepted accounting principles and the Federal securities laws. The complaint notes that Chantal Burnison sold 300,000 shares during the class period (the sales were actually made by CBD Pharmaceutical Corporation.) The complaint appears to rely on details of the contractual relationship with the distributor to contend that the revenues should not have been booked by the Company based on shipped orders from the distributor, since among other reasons, plaintiffs allege that Stanson, during the relevant time period, had the right to require the Company to purchase Stanson on a formula dependent on its income from the Company's products' sales, and the Company did not have a substantial history of selling through the distributor and the distribution system. The action seeks monetary damages in an unspecified amount. The amount sought on the basis stated in the complaint would be in excess of the Company's current net worth.

On March 15, 1996, the defendants filed a motion to dismiss the Class Action Complaint and on April 16, 1996, the motion was denied.

On May 6, 1996, the Court granted the motion of the plaintiffs' group in the Litigation to be appointed lead plaintiffs under §21D(a)(3)(B) of the Exchange Act and approved lead plaintiffs selection of Milberg Weiss Bershad Hynes & Lerach LLP, and Hagens & Berman LLP as co-lead counsel pursuant to §21D(a)(3)(B)(v) of the Exchange Act. The actions were also consolidated as Marksman Partners L.P., et al. v. Chantal Pharmaceutical Corporation, et al, Case No. CV-96-0872-WJR. On May 6, 1996, the lead plaintiffs filed a Consolidated Class Action Complaint.

On June 10, 1996, the Court certified a class of persons who purchased the common stock of Chantal during the period between July 10, 1995 and January 5, 1996, inclusive.

On December 31, 1997, the lead plaintiffs filed a First Amended Complaint adding Coopers and Lybrand, LLP, the Company's former auditors ("C&L"), Stanson Medical Marketing, Inc., the Company's North America distributor ("Stanson"), and Fred Reinstein, identified as the President of Stanson, as defendants.

On May 28, 1998, defendants Stanson Marketing and Fred Reinstein filed a motion to dismiss, which was denied on August 12, 1998.

On January 13, 1999, defendants Fred Reinstein and Stanson Marketing filed a motion for summary judgment as did defendants Chantal Burnison and Chantal. On January 15, 1999, defendant Coopers & Lybrand also filed a motion for summary judgment.

On February 24, 1999, the Court entered an order denying two of the motions for summary judgment and granting defendant Coopers & Lybrand LLP’s motion for summary judgment. That order was affirmed by the Ninth Circuit Court of Appeals on August 22, 2000. The judgment entered pursuant to the foregoing order is now final and no longer subject to appeal.

On May 21, 2001, the remaining parties entered a Stipulation and Agreement of Settlement. The settlement was preliminarily approved on May 31, 2001. According to the preliminary approval order, on February 17, 1999, an involuntary petition under Chapter 11 of the United States Bankruptcy Code was filed against Chantal. An order for relief was entered in the Chantal bankruptcy on March 15, 1999. On March 12, 1999, Chantal Skin Care Corporation ("Chantal Skin Care") filed a voluntary petition under Chapter 11 of the United States Bankruptcy Code. On April 28, 2000, the Bankruptcy Court entered an order consolidating the Chantal and Chantal Skin Care bankruptcy cases. Because of Chantal's bankruptcy, the lack of any available insurance and the fact that the remaining Defendants have no substantial assets to satisfy any judgment in this Litigation, there is no recovery for the Class.

According to the Memorandum Of Points And Authorities In Support Of Final Approval Of Settlement dated July 23, 2001, the settlement is with the remaining defendants in the action Chantal, Chantal Burnison, Fred Reinstein and Stanson Marketing, Inc. Plaintiff attorneys will not receive any attorney fees or expenses. The Settlement consists of a payment of $20,000 from Burnison and a payment of $20,000 from Stanson and Reinstein collectively. These funds are to pay the costs and expenses reasonably and actually incurred in printing and mailing the Notice to shareholders and the cost of publishing the Summary Notice. The settlement provides no monetary relief for Members of the Class.

On July 31, 2001, District Court Judge William J. Rea signed the Final Judgment and Order, approving the settlement and dismissing action with prejudice.