Nesco Inc. Securities Litigation

Beginning on November 6, 2002, several securities class actions were filed in the United States District Court for the Northern District of Oklahoma against defendants Eddy L. Patterson, Chief Executive Officer and Chairman of the Board of Directors of Nesco, James Howell, President of Nesco, and Larry Johnson, Chief Financial Officer of Nesco (the "Individual Defendants"). These class actions were brought on behalf of all persons who purchased the common stock of Nesco during the period April 26, 2000 through August 16, 2001, inclusive, to recover damages allegedly caused by Defendants' alleged violations of the federal securities laws. These lawsuits alleged that the Individual Defendants violated §§10(b) and 20(a) of the Securities Exchange Act of 1934 (the "Exchange Act"), 15 U.S.C. §§78(b), 78(a), as well as Rule 10b-5 promulgated thereunder by the United States Securities and Exchange Commission (the "SEC").

By Order dated March 4, 2002, the United States District Court for the Northern District of Oklahoma (the "District Court") consolidated the pending federal securities actions into this Action, and appointed Ronald Nicol, Colin Nicol and William & Marjorie Groszkruger as lead plaintiffs ("Lead Plaintiffs"), and approved Lead Plaintiffs' selection of Berger & Montague, P.C. as Lead Counsel for Lead Plaintiffs.

On April 22, 2002, Lead Plaintiffs filed a Consolidated Amended Class Action Complaint (the "Complaint") in the Action on behalf of a class consisting of all persons and entities who purchased Nesco common stock during the period commencing April 26, 2000 through August 16, 2001, inclusive, (the "Class Period"), and all persons who purchased Nesco stock pursuant to Nesco's Private Placement Memorandum dated May 14, 2001. The Complaint superseded all complaints previously filed. The Complaint asserts claims against the Individual Defendants and Defendant Tullius Taylor Sartain & Sartain LLP ("Tullius Taylor"), Nesco's auditor who audited Nesco's year-end 2000 financial results and who issued a clean audit opinion for those results, (collectively, the "Defendants"). As alleged in the Complaint, Nesco is an Oklahoma corporation, engaged in the business of providing installation of fueling systems, equipment, maintenance and services to the owners and operators of fueling facilities. During the Class Period, Defendants engaged in a fraudulent scheme that served to substantially overstate Nesco's revenues and earnings for the year 2000, and which had the effect of inflating the price of Nesco's common stock throughout the Class Period. More specifically, at the direction of Defendant Eddy Patterson, the Company's Chairman of the Board and Chief Executive Officer, Nesco employees were instructed to create fictitious or inflated invoices for customers. After creating these invoices, the Company then booked the fictitious or inflated amounts as revenue on services that were not performed, thereby substantially overstating the Company's revenues and earnings for the periods in question. This improper practice was in violation of the Company's own formal revenue recognition policy and in violation of Generally Accepted Accounting Principles ("GAAP"). At the close of the Class Period, on August 16, 2001, the Company announced that it needed to restate its revenues for the year 2000 to adjust for $3.65 million in overbooked sales. Nesco also restated its earnings for the year 2000 to $588,000, or 6 cents a share, from the previously-reported $2.85 million, or 31 cents per share. On August 16, 2001, the Company further announced that Defendants Patterson and Howell had resigned their positions at the Company. Defendant Johnson's employment also was terminated shortly thereafter, in October 2001. As a result of these disclosures, trading in Nesco's stock was halted on August 17, 2001, before the market opened. Nesco's stock price was $1.35 per share when trading stopped. On November 26, 2001, Nesco filed a voluntary bankruptcy petition under Chapter 11 of the federal Bankruptcy Code in the United States Bankruptcy Court for the Northern District of Oklahoma. Finally, both the SEC and NASDAQ initiated inquiries of Nesco in connection with its reporting of false financial statements.

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