According to the Company’s FORM 10-Q for the quarterly period ended September 30, 2001, in August 2000, the Company, its Chief Executive Officer, and former Chief Financial Officer were named as defendants in seven lawsuits, all filed in the United States District Court for the Northern District of California (Docket Nos: C-00-2792-MMC; C-00-2795-BZ; C-00-2834-SC; C-00-20856-EAI; C-00-3007-EDL; C-00-3027-JCS; and C-00-3079-MMC) (the "Actions") all alleging violations of the federal securities laws. Each of the plaintiffs in the Actions alleges that he purchased shares of the Company's common stock and seeks to represent a class of shareholders who purchased shares during the period July 26, 2000 through August 1, 2000, such dates constituting the period from the Company's release of its financial results for the first quarter of FY 2000, to the date that it issued its press release announcing that it would be restating its financial statements for that quarter. The substantive allegations in each of the Actions are essentially the same, i.e., that the defendants knew, or were reckless in not knowing, that the Company's first quarter financial statements were in error and violated generally accepted accounting principles, and that as a result the putative class members purchased stock at artificially inflated prices and were damaged. In the third quarter of 2001, the parties reached agreement on a settlement, in the amount of $4.2 million, which has received final approval from the court. The negotiated settlement was paid entirely by the Company's insurers.

The action charges that Southwall and certain of its officers violated the securities laws by issuing a series of false and misleading statements concerning the Company’s financial condition during the Class Period. In particular, the Complaint charges that Southwall improperly valued its inventory, requiring a restatement of its first quarter results. As a result of these revelations, NASDAQ halted trading in Southwall common stock and, as of the date of this release, trading has not resumed.