According to the FORM 10-Q for the quarterly period ended September 30, 2002, on September 23, 2002, following a hearing, the Court entered a final order approving the settlement and dismissing the action at which time Company's insurance carrier paid $2.0 million into escrow and the Company issued 1.7 million shares into escrow. The time to appeal has expired. As of December 31, 2001, the Company recorded the fair value of the 1.7 million shares of Common Stock of $7,837,000, as an increase to additional paid-in capital.

In March, April and May of 2001, eleven stockholder class actions were filed in the United States District Court for the Eastern District of Pennsylvania against the Company and certain of its officers and directors seeking unspecified damages. The lawsuits alleged that the Company and its officers made false and misleading statements about the Company's drug candidate, Aptosyn(R), which caused artificial inflation of the Company's stock price during the class period of October 27, 1999 to September 22, 2000, when the Company announced that the FDA had informed the Company that it would be receiving a "not approvable" letter for its new drug application for Aptosyn(R).

Specifically, the original complaint alleges, among other things, that in the clinical trials of Aptosyn in the treatment of FAP patients (1) representations that Aptosyn reduced polyp formation across the entire colorectum of FAP patients, when, in fact, the patients' colons had been surgically removed before the trials; (2) defendants' representations that treatment with Aptosyn caused regression of polyps, all of the patients polyps had been removed before the trials; and (3) defendants' representations that Aptosyn was a chemopreventive for FAP patients were misleading because less than one percent of adenomatous polyps become malignant, and, without complete regression of all colorectal polyps there is no evidence that reduction in polyps results in a decrease in colorectal cancer in FAP patients. The Complaint also alleges that defendants misrepresented the comparative toxicity of Aptosyn and competing drugs, and that defendants' representation that Aptosyn was an alternative to surgery for FAP patients was misleading.

The complaint further alleges, that on September 22, 2000, when CPI announced that the U.S. Food & Drug Administration ("FDA") refused to approve Aptosyn as a treatment for FAP, which occurs when the clinical trial evidence of the efficacy and safety of a drug is inadequate. In reaction, Cell Pathways' stock, which traded as high as $61 a share during the Class Period, quickly fell from nearly $21 a share to about $9 a share, a 70% drop in value.