According to the Form 10-K for the fiscal year ended December 31, 1999, on May 4, 1999 the Company reached a settlement with plaintiffs of the shareholder class action lawsuits described above. The aggregate settlement amount is $6 million. The settlement is funded by insurance proceeds of $5.4 million and by the Company contributing 120,000 shares of VIVUS Common Stock to the settlement fund.

Earlier, as reported by the SEC filing, five additional complaints were subsequently filed in the same court. The federal complaints were filed on behalf of a purported class of persons who purchased stock between May 2, 1997 and December 9, 1997. The federal complaints asserted the same factual allegations as the state court complaints, but asserted legal claims under the Federal Securities Laws. The federal court cases were consolidated, and a lead plaintiff was appointed and the plaintiff filed a consolidated and amended complaint in 1998.

The original complaint alleges defendants, as a result of their fraudulent activities, violated Securities Exchange Act of 1934. Specifically, the complaint alleges that from the beginning of the Class Period through December 9, 1997, Vivus was a strong performing stock trading on the NASDAQ National Market System ("NASDAQ") under the ticker symbol VVUS. Fueled by repeated bullish statements by top officers of the corporation, including the reporting of the purportedly outstanding success and market acceptance of the Company's primary product, MUSE, the price of Vivus stock soared to a Class Period high of $41 7/8 on October 6, 1997.1 The Company's reports include press releases and financial statements contained in the Company's quarterly reports filed with the Securities Exchange Commission ("SEC") and disseminated to the public.

The complaint alleges that the Company's bullish statements during the Class Period were part of a plan by defendants to artificially inflate and maintain the price of Vivus common stock. Defendants' plan included the making of publicly-disseminated false and misleading statements about Vivus, its financial performance and condition and its business prospects. The Company's false and misleading statements regarding its financial performance and prospects were repeated in Vivus press releases disseminated throughout the Class Period. Defendants, however, knew or recklessly disregarded the fact that the Company's reported product sales were overstated and did not fairly represent Vivus' results of operations, and that Vivus' projected earnings could not reasonably be achieved in light of the Company's systematic portrayal of its primary product, MUSE, as being far more successful in the marketplace than it actually was.

The complaint further alleges that on or around December 10, 1997, the investment community was shocked by the announcement that the Company would miss fourth quarter revenue goals by as much as 25%, and by the announcement by Asensio & Company the same day that not only did their study of MUSE not yield the same favorable results that Vivus was reporting, but that there were concerns about the accuracy of the product sales figures Vivus had been reporting. In response to the December 10, 1997 announcements, the price of Vivus common stock plummeted from December 9, 1997's high of $21 1/2 per share to close at $13 13/16, trading as low as $12 per share and losing over 30% of its value in one day.

Note: Vivus is a California based company whose business was to develop advanced therapeutic systems for the treatment of erectile dysfunction.