Interstate National Dealer Services Litigation

The present lawsuit (the "Action") was filed on September 30, 2002 on behalf of a purported class of stockholders of Interstate National Dealer Services, Inc. ("Old Interstate" or the "Company") challenging a proposed merger (the "Transaction") pursuant to which CHL Holdings Corp. ("CHL" or "New Interstate"), a corporation owned by Cindy H. Luby, would acquire the outstanding shares of Old Interstate (other than shares held by Chester J. Luby, Cindy H. Luby and Joan Luby, who together are referred to as the "continuing stockholders") for a cash price of $6.00 per share. The Transaction was consummated on January 15, 2003, during the pendency of this Action.

Old Interstate was a Delaware corporation engaged in the business of designing, marketing and administering service contracts and warranties for new and used motor vehicles, recreational vehicles and, to a lesser extent, watercraft, motorcycles and other vehicles.

At all times relevant to this Action, the members of the Board of Directors of Old Interstate included Chester J. Luby, Cindy H. Luby, Harvey Granat, Donald Kirsch and William H. Brown, all of whom are Defendants in this Action. At the time of the Transaction, Old Interstate had approximately 3.9 million shares outstanding. During the six and twelve month periods ending on June 3, 2002 (the last full day of trading of Old Interstate stock before the offer that is the subject of this Action was announced), the average closing prices of Old Interstate stock were approximately $4.80 and $5.13 per share, respectively. The closing price of Old Interstate stock on June 3, 2002 was $4.63 per share. At the time of the Transaction, there were also 156,800 outstanding options and warrants to purchase the common stock of Old Interstate held by nineteen current and former employees of Old Interstate (excluding the Defendants and their spouses). The exercise price of the options and warrants varied between $1.00 and $6.75, with an average exercise price of $4.762.

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