Electro Scientific Industries, Inc. ("ESI" or the Company) supplies laser-based microfabrication solutions for the microtechnology industry worldwide.

The original Complaint alleges that Defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5 promulgated thereunder, by issuing a series of material misrepresentations to the market between September 17, 2002 and March 20, 2003, thereby artificially inflating the price of ESI securities. The Complaint alleges that these statements were materially false and misleading because they failed to disclose and misrepresented the following adverse facts, among others: (a) that the Company had reported artificially inflated financial results for the quarters ended August 31, 2002 and November 30, 2002; (b) that the Company was improperly accounting for sales, thereby overstating its sales figures and, in addition thereto, was understating the cost of sales, in violation of Generally Accepted Accounting Principles ("GAAP") and its own revenue recognition policies; (c) that the Company lacked adequate internal controls and was therefore unable to ascertain the true financial condition of the Company; and (d) as a result of the foregoing, it was not true that the Company's financial statements published during the Class Period contained "all adjustments ... necessary for a fair presentation" of the Company's financial position. On March 20, 2003, after the close of the market, ESI issued a press release announcing that it would be restating its financial statements for the first and second fiscal quarters. In response to this announcement, the price of ESI common stock dropped precipitously, falling from $15.17 per share to $12.51 per share.

Between March 26, 2003 and May 20, 2003, three purported class action lawsuits were filed in the United States District Court for the District of Oregon against ESI and certain of its former officers and/or directors. The Complaints were filed on behalf of a purported class of persons who purchased ESI common stock between September 17, 2002 and at the latest April 15, 2003, and alleged violations of Section 10(b) of the Securities Exchange Act of 1934 (the Act) and Rule 10b-5 promulgated thereunder, as well as Section 20(a) of the Act. The Complaints were consolidated under the name In re Electro Scientific Industries, Inc. Securities Litigation, Case No. CV 03-404-HA. Lead Plaintiffs and lead Counsel for Plaintiffs were appointed. The Plaintiffs’ consolidated class action Complaint (the Consolidated Complaint) was filed on October 10, 2003, which shortened the purported class to purchasers between September 17, 2002 and March 20, 2003, and added additional Defendants. The Consolidated Complaint alleges that Defendants made false and misleading statements during the purported class period about ESI's financial condition and performance, business prospects, and operations, artificially inflating the Company’ stock price and leading to the restatement first announced on March 20, 2003.

As reported in the Company’s Form 10-K for the Fiscal Year Ended May 29, 2004, on April 22, 2004, the Company announced an agreement in principle to settle both the class action and derivative actions. The settlement, which is subject to court approval, calls for the payment of $9.3 million, of which approximately $3.8 million will be paid by the Company and approximately $5.5 million will be paid by the Company's insurance carrier.

According to the docket, on August 31, 2004, a Stipulation of Settlement was filed, and on September 3, 2004, the Court entered the Order by U.S. District Judge Ancer L. Haggerty preliminarily approving the settlement. A settlement hearing was scheduled for November 19, 2004. At the hearing, Judge Haggerty issued orders approving the plan of allocation of settlement proceeds and the awarding of attorney fees and reimbursement of expenses. On November 19, 2004, the Court entered the Final Judgment and Order of Dismissal with prejudice, and the case was closed.