According to the Polyphase Corporation's FORM 10-K filed in the SEC for the fiscal year ended September 30, 2002, on remand from the Court of Appeals, the case was set for trial to commence in March 2003. In the days immediately prior to the scheduled trial date, the defendants offered to settle all claims advanced in the litigation in consideration of an aggregate payment of $13,000. In June 2003, the defendants paid $13,000 to the plaintiffs collectively, and the lawsuit was dismissed with prejudice, preventing the plaintiffs from refiling or advancing similar claims in the future.
During fiscal 1997, five substantially identical complaints were filed in the United States District Court for the District of Nevada against the Company and certain of its officers and directors. The defendants filed motions to dismiss in each of the lawsuits. Without certifying the cases as class actions, the District Court consolidated several of the cases into a single action. In March 2000, the District Court dismissed the plaintiffs' claims against one of the Company's officers and directors and restricted the plaintiffs from pursuing a number of their claims against the other defendants. The Court also granted the remaining defendants leave to renew their motions to dismiss in the form of motions for summary judgment. After pretrial discovery by plaintiffs, the remaining defendants filed motions for summary judgment, pointing out that there was no evidence to support the plaintiffs' claims. In November 2000, in a lengthy decision addressing the plaintiffs' claims against each of the remaining defendants, the District Court granted the motions for summary judgment, thereby disposing of all of the claims asserted by the plaintiffs. The plaintiffs then filed a motion for rehearing, which the District Court denied in March 2001. The plaintiffs appealed those decisions to the United States Court of Appeals for the Ninth Circuit. In September 2001, the plaintiffs requested the Ninth Circuit to enjoin the Company's proposed spin-off of Overhill Farms. The Court of Appeals denied the plaintiffs' request and directed them to address their request to the District Court. The plaintiffs thereafter filed an application with the District Court, which restrained the spin-off for a few days until a hearing could be conducted. Following an October 11, 2001 hearing at which counsel for all parties appeared, the District Court dissolved its temporary restraining order, thereby allowing the Company to proceed with the proposed spin-off. The plaintiffs did not appeal that decision by the District Court. On June 5, 2002, the Ninth Circuit rendered a decision that affirmed several of the trial court's rulings but reversed other rulings and remanded portions of the case for further proceedings in the District Court. Among other things, the Court of Appeals remanded certain claims against the Company and four individual defendants for further consideration by the trial court. Both sides then filed petitions for rehearing, and on July 18, 2002, the appellate court revised certain statements in its original opinion.
The original complaint alleges that Polyphase and certain of its officers and directors violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 as well as Nevada state common law for fraud and deceit and negligent misrepresentation by overstating the company's financial results for fiscal 1996. The complaint further alleges that defendants failed to disclose that Polyphase was in breach of certain covenants contained in various lending agreements valued at approximately $31 million. The complaint alleges that these debts were placed in default by the company's lenders and became immediately due, requiring the company to reclassify such debts as current liabilities and prompting the company's auditors to question the company's ability to survive as a going concern. The complaint further alleges that noncompliance of the loan agreements caused the suspension of the company's stock from trading for over five months.