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<td valign="top" width="5%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&nbsp; </font></td>
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<div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">Shortly before the hearing was held on the motion to dismiss, the parties (including the Company) agreed in principle to settle the matter. The terms of the settlement are anticipated to include a commitment by the Company to redeem its Senior Secured Notes. The settlement is not expected to have a material adverse impact on finances of the Company. However, the precise terms of the settlement are under negotiation and subject to final approval by all parties, and approval by the Court. Although the Company believes that a final settlement will be reached during the 2012 fiscal year, it is not certain that the parties will ultimately agree on specific terms, or that the Court (whose approval of any settlement is required) will approve the terms that the parties may agree upon. In the event the parties are unable to conclude a final settlement, for whatever reason, the litigation will resume. The ultimate outcome of any litigation is uncertain and could result in substantial damages.</font></div>
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<td valign="top" width="5%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&nbsp; </font></td>
<td valign="top" width="95%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&nbsp; </font></td>
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<td valign="top" width="5%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&nbsp; </font></td>
<td valign="top" width="95%">
<div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">The Company has obligations to provide indemnification to its officers and directors (and former officers and directors), as well as to the investors in the December 2009 financing, including for all legal costs incurred by them in defending these claims. Through the year ended March 31, 2011, the Company had incurred approximately $831,000 in legal expenses in connection with its defense of the lawsuit and its indemnification obligations.</font></div>
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<div><font>Shortly before the hearing was held on the motion to dismiss, the parties (including the Company) agreed in principle to settle the matter. The terms of the settlement are anticipated to include a commitment by the Company to redeem its Senior Secured Notes. The settlement is not expected to have a material adverse impact on finances of the Company. However, the precise terms of the settlement are under negotiation and subject to final approval by all parties, and approval by the Court. Although the Company believes that a final settlement will be reached during the 2012 fiscal year, it is not certain that the parties will ultimately agree on specific terms, or that the Court (whose approval of any settlement is required) will approve the terms that the parties may agree upon. In the event the parties are unable to conclude a final settlement, for whatever reason, the litigation will resume. The ultimate outcome of any litigation is uncertain and could result in substantial damages.</font></div>
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<div><font>The Company has obligations to provide indemnification to its officers and directors (and former officers and directors), as well as to the investors in the December 2009 financing, including for all legal costs incurred by them in defending these claims. Through the year ended March 31, 2011, the Company had incurred approximately $831,000 in legal expenses in connection with its defense of the lawsuit and its indemnification obligations.</font></div>
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