According to the latest docket posted, on May 5, 2000, a Second Amended Consolidated Complaint was filed against the remaining defendants, and on August 8, 2000, the defendants responded by filing a motion to dismiss the Second Amended Complaint. On October 30, 2000, the Court entered the Order by Judge Jeremy Fogel granting motion to dismiss Second Amended Complaint. Judgment dismissing the case was entered on October 31, 2000. On November 22, 2000, the plaintiffs filed a notice of appeal, and on June 3, 2002, the Court entered the copy of the judgment from the U.S. Court of Appeals affirming the decision of the District Court.

As previously reported by the Company’s FORM 10-K For the Fiscal Year Ended March 31, 2000, the following actions have been filed against the Company, its officer, Cowen & Company and a Cowen analyst. The action, In re Rational Software Securities Litigation, No. 21001-JF (N.D. Cal. May 26, 1998) is a consolidated action supplanting prior complaints filed against defendants. The actions are putative shareholder class action lawsuits. The complaint alleges that defendants violated Sections 10(b) and 20A of the Securities Exchange Act of 1934 through the selective disclosure of material inside information regarding the Company's prospects and seek damages on behalf of a class of shareholders who purchased the Company's Common Stock on October 8, 1997. Plaintiffs have dismissed the Complaint as against the Company and its officer.

The original Complaint charges Rational, certain of its officers, and Cowen & Company, Inc. ("Cowen"), with violations of federal securities laws. Plaintiff complains of Rational's dissemination of material inside information regarding Rational's business prospects on a selective and discriminatory basis. Plaintiff contends that Rational provided material inside information to Cowen during the course of the day of October 8, 1997, permitting Cowen to inform its institutional clients and let them dump shares of Rational prior to full and proper disclosure of such information on a widespread basis to the investing public. Only after the market closed did Rational inform the investing public of the downward forecast of the Company's prospects.

Several similar, purported class action complaints were filed in the U.S. District Courts for the Eastern District of New York and Eastern District of Virginia. Those complaints have been transferred to the U.S. District Court for the District of Massachusetts and have subsequently been consolidated with the lead case.