According to the Company’s FORM 10-Q For the quarterly period ended September 30, 2002, the Company conducted mediation and reached an agreement with the plaintiffs to settle the lawsuit for a payment of $1.25 million to the plaintiffs, without an admission of liability by any party. The agreement between the Company and the plaintiffs was approved by the District Court in September 2002. The Company's insurer paid $1.0 million of the cost of the settlement. Accordingly, the Company recorded a $250,000 expense during the three months ended June 30, 2002, which is included in selling, general and administrative expense in the accompanying condensed consolidated statement of operations.

Previously, in September 2000, after the plaintiffs had filed a first amended complaint, the Federal District Trial Court dismissed the lawsuit with prejudice, stating that the plaintiffs had failed to state a claim against the Company and its officers. In October 2000, the plaintiffs filed an appeal of the dismissal of the lawsuit, and the dismissal was overturned in February 2002. The case was remanded back to the District Court with instructions to allow the plaintiff to file a second amended complaint.

The original action charges that SafeGuard and certain of its officers violated the securities laws and regulations of the United States by issuing a series of false and misleading statements concerning the Company's publicly reported revenues and earnings during the Class Period. After the close of trading on November 12, 1999, the Company issued a press release announcing that it believed its revenues, and therefore its earnings, for the quarter and nine months ended September 30, 1999, which were previously announced on October 21, 1999, were overstated by a material amount. The Company further disclosed its belief that it may have to restate the Company's results of operations for the periods ended March 31, 1999 and June 30, 1999. SafeGuard also warned that that it expected to restate its financial statements for the years ended December 31, 1998 and 1997, as well as certain quarterly periods therein. The Company cautioned that the 1998 and 1997 annual financial statements and the independent auditors' report thereon should not be relied upon. The Company had previously restated certain of these financial results. Thus, the Company announced that it was now going to restate, restated financial results, in addition to other financial results. As a result of these revelations, SafeGuard's stock collapsed, falling from over $3 to just under $1 the day after the revelations.