According to a U.S. District Court Civil Docket, the case was settled. After hearing and based upon the submission of plaintiffs' counsel, the Court approved the settlement set forth in Stipulation and the H.J. Meyers Defendants Settlement Agreements, and finds that said agreements are, in all respects, fair, reasonable, and adequate to the Settlement Class and the Settlement Class Members. The parties to the Settlement Agreements are directed to consummate and perform their terms. Plaintiffs' counsel are awarded: (a) approximately 20% of the cash component of the Gross Settlement Fund, or $800,000.00; and approximately 20% of the stock component of the Gross Settlement Fund, or 89,000 number of shares, as their fee for services rendered to the Settlement Class, which percentage the Court finds to be fair and reasonable; and (b) $290,000.00 as reimbursement for the expenses incurred and to be incurred on behalf of the Settlement Class.

Palomar and the Varljen plaintiffs reached an agreement in principle pursuant to which Palomar and its insurance carrier would pay plaintiffs $5 million in settlement of all their claims. Of this amount, Palomar would contribute up to $1 million in stock and $1.375 million in cash, and its insurance carrier the remaining $2.625 million in cash. This settlement agreement must be approved by the court.

On March 11, 1999, the United States District Court for the Southern District of New York granted plaintiffs leave to amend their complaint in the action styled Varljen v. H.J. Meyers, Inc., et. al. to join the Company, its former chief executive officer and current chief financial officer as defendants. On March 17, 1999, the Second Amended Class Action Complaint in Varljen was served upon the Company and its current chief financial officer, alleging that the Company and the former and current officer violated the federal securities laws in various public disclosures that the Company made directly and indirectly during the period from February 1, 1996 to March 26, 1997. In particular, the Complaint alleges that Palomar, Georgiev and Caruso misrepresented the Company's financial results and future prospects through their direct disclosure and through disclosures made by securities analysts and other third parties.