
	Litigation

In connection with the Company's past stock option grant practices, MRV and certain of its former directors and officers have been subjected to a number of stockholder lawsuits. In June 2008, the Company announced that our Board of Directors, based on information provided by management, and in consultation with management, concluded that the financial statements and the related reports of our independent public accountants should not be relied upon due to the Company's intention to restate its financial results from 2002 through 2008 to correct its accounting for option grants and other issues and a restatement of the Company's financial statements was filed in its Annual Report on Form 10-K for the year ended December 31, 2008 in October 2009.

From June to August 2008, five purported stockholder derivative and securities class action lawsuits were filed in the U.S. District Court in the Central District of California and one derivative lawsuit was filed in the Superior Court of the State of California against the Company and certain of our former officers and directors. The five lawsuits filed in the Central District of California were consolidated. Claims were asserted under Section 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and Rule 10b-5 promulgated thereunder. In November 2010, the judge overseeing the securities class action lawsuits gave final approval to a stipulated $10.0 million settlement agreement, which was covered by our director and officer insurance policies. The federal and state derivative lawsuits were not settled and continued to be litigated.

As of January 4, 2013, all pending litigation in the federal and state derivative actions was stayed by agreement of the parties pending final Federal Court approval of a settlement between derivative plaintiffs, individual defendants and the Company. On April 8, 2013 the Federal Court preliminarily approved a Stipulation of Settlement (the "Stipulation"), which includes, among other things, (a) a release of all claims relating to the derivative lawsuits for the Company, the individual defendants and the plaintiffs; (b) a provision that $2.5 million in cash be paid to the Company by the Company's insurance carriers; (c) a payment of attorney's fees to plaintiffs' counsel of up to $0.5 million in cash and 250,000 five-year term warrants to purchase the Company's Common Stock at a strike price equal to the closing price of the Company's Common Stock on the day the Court's judgment approving the settlement becomes final (as defined in the Stipulation); and (d) continued payment by the Company of applicable reasonable attorneys' fees for the individual defendants. A settlement hearing to determine final approval of the Stipulation in the federal derivative action is set for June 18, 2013. Pursuant to the Stipulation, if the Federal Court finally approves the Stipulation in the federal derivative action, the plaintiff in the state derivative action will apply for an order dismissing the state derivative action with prejudice. Within 120 days following the later of the issuance of an order finally approving the Stipulation by the Federal Court, or the end of the period available for appeal, the Company would be required to take certain corporate governance reform actions, many of which have already been implemented.

To date, a majority of the costs related to the Company's and defendants' defense of these actions had been paid by the Company's insurance carriers under its director and officer insurance policies, including the securities class action settlement. However, we have paid and accrued $2.8 million in payment for services of defense counsel and other parties through March 31, 2013 above the insured amount. We have agreed to pay reasonable attorney fees and expenses for the individual defendants in the Stipulation, and will continue to incur our own legal expenses until this matter is finally resolved and non-appealable. Any such future obligations are not determinable at this time.

From time to time, MRV has received notices from third parties alleging possible infringement of patents with respect to product features or manufacturing processes. Management believes such notices are common in the communications industry because of the large number of patents that have been filed on these subjects. The Company's policy is to discuss these notices with the parties in an effort to demonstrate that MRV's products and/or processes do not violate any patents. The Company has been involved in such discussions with Alcatel-Lucent SA, International Business Machines, Ortel Communications, Ltd., Nortel Networks Corporation, Rockwell Automation, Inc., The Lemelson Foundation, Finisar Corporation and Apcon, Inc. in the past.

MRV and its subsidiaries have been named as a defendant in other lawsuits involving matters that the Company considers routine to the nature of its business. Management is of the opinion that the ultimate resolution of such matters will not have a material adverse effect on the business, operating results and financial condition of the Company.