According to the Company’s Form 10-K for the fiscal year ended September 30, 2002, on March 17, 2000, these complaints were consolidated into In re Hi/fn, Inc. Securities Litigation No. 99-04531 SI. The consolidated complaint was filed on behalf of persons who purchased Hifn’s stock between July 26, 1999 and October 7, 1999 (the “class period”). The complaint sought unspecified money damages and alleged that Hifn and certain of its officers and directors violated federal securities laws in connection with various public statements made during the class period. In August 2000, the District Court dismissed the complaint as to all defendants, other than Raymond J. Farnham and Hifn. In February 2001, the District Court certified the purported class. On May 15, 2002, the parties entered into a Memorandum of Understanding to settle all claims in the consolidated securities class action. Under the terms of the settlement, all claims will be dismissed without any admission of liability or wrongdoing by any defendant, and the shareholder class will receive $9.5 million, comprised of $6.8 million in cash, which was contributed by Hifn’s insurance carriers, and the balance in Hifn common stock with a minimum of 270,000 shares to be issued. On June 10, 2002, the District Court entered an order preliminarily approving the Stipulation of Settlement and providing for notice and an opportunity to object to the shareholder class. The District Court approved the settlement and entered a Final Judgment and Order of Dismissal with Prejudice on September 4, 2002. In accordance with the settlement, Hifn will issue at least 270,000 shares of Hifn common stock, supplementing the allotment with cash or additional shares of common stock to compensate for shortfall in fair value below $2.7 million. To the extent that the trading price of the common stock exceeds $10.00 at the time of distribution, Hifn would recognize an additional litigation settlement charge equal to the aggregate fair market value of the 270,000 shares of common stock less the $2.7 million already recognized

The original complaint charges Hi/fn and certain of its officers and directors with violations of the Securities Exchange Act of 1934. Hi/fn designs, develops and markets semiconductor devices to enable secure, high-bandwidth network connectivity and storage of business information. The complaint alleges that on 7/26/99, Hi/fn reported strong revenues and earnings and strong networking revenues. In a conference call after the release, Hi/fn management discussed its new product, its largest customers and touted the Company's prospects. As a result, Hi/fn's stock immediately increased to $95-$105. Top officers of Hi/fn immediately took advantage of these inflated share prices and began to sell their shares, selling 105,000 shares for proceeds of $10.55 million over the next two weeks. However, Hi/fn's business and prospects were not nearly as favorable as defendants had represented. On 10/7/99, without any apparent news from Hi/fn, its stock dropped $32 before trading was halted. Later that day, Hi/fn issued a press release that indicated its results for the 1stQ F2000, ended 12/31/99, would be poor due to inventory corrections by the Company's two largest customers. On these shocking disclosures, Hi/fn's stock price declined another $36 to $37-3/4 per share on 10/8/99 from $109 per share just two days earlier.