According to the Cholestech’s Form 10-K for the fiscal year ended March 29, 2002, the Company executed an agreement in principle with plaintiffs to resolve the matter for a payment of $3.0 million by their insurance carrier. Cholestech recorded a $1.3 million charge during the fiscal year ended March 30, 2001 for legal fees and insurance costs and paid $855,000 to their insurance company and $121,000 for legal fees in the quarter ended June 29, 2001.

On November 12, 2002, U.S. District Judge Phyllis J. Hamilton issued the Order granting the motion for an order authorizing the disbursement of the net settlement fund. Earlier, on November 6, 2001, the Court entered several Orders by Judge Phyllis J. Hamilton granting the motions for approval of the plan of allocation of settlement proceeds, for reimbursement of class notice costs, and for lead plaintiffs’ counsel’s application for an award of attorneys' fees and reimbursement of expenses. Judge Phyllis J. Hamilton also issued the Final Judgment and Order dismissing the action with prejudice.

The Complaint charges Cholestech and its president, CEO and director with violations of the federal securities laws. The Complaint claims that, during the Class Period, the defendants publicly misreported the sales-performance levels and market acceptance of the Company's primary product, the LDX System. The Company essentially describes that product as a diagnostic testing method that allows for the rapid and simultaneous testing and measuring of multiple biochemical analytes with a single drop of blood.

Specifically, the Complaint alleges that, during the Class Period, defendants engaged and participated in a continuous course of conduct to misrepresent the financial success of Cholestech's operations. The defendants knew that the LDX System had been underperforming expectations in the marketplace as a result of slow market acceptance as well as limited end-user sales and installation of that system. In response, the defendants materially overstated the Company's reported earnings by their strategy of "stuffing" its product distribution channel with excessive LDX system "deliveries." This "channel stuffing" strategy enabled the defendants to inflate the Company's earnings by booking as revenues all "deliveries" of its product to distributors, even where such "deliveries" did not amount to actual sales of the LDX System to the targeted end users and the attendant installation of that system and cassette purchase by such end users.

The complaint further alleges that as a result of the foregoing fraudulent conduct, Cholestech's common stock traded during the Class Period at artificially inflated prices as high as $17.875 per share, plummeting to $6 when the Company finally revealed that the overstuffed distribution channels were not effectively selling through to the targeted end users.