As summarized by the Company’s FORM 10-Q For The Quarterly Period Ended July 31, 2005, on February 14, 2005, the Court entered into an order preliminarily approving the settlement, certifying the class for settlement purposes and providing for notice. The Court held a hearing on the settlement on July 11, 2005, and at the hearing, it approved the settlement and entered a final judgment dismissing the case with prejudice.

According to a press release dated December 8, 2004, Crossroads Systems, Inc. announced that it has reached an agreement in principle to settle the consolidated securities class action litigation, In re Crossroads Systems, Inc. Securities Litigation, Master File No. A-00-CA-457-JN, pending in the U.S. District Court for the Western District of Texas, Austin Division. The shareholder class will receive a total payment of $4.35 million. Of that amount, the Company’s directors-and-officers insurance carriers have agreed to pay $3.35 million and the Company will pay $1.0 million. As a result, Crossroads will take a charge to earnings in the fourth quarter of fiscal year 2004 of $1.0 million for the settlement and will report this with the earnings call scheduled for December 20, 2004. The settlement is subject to a number of conditions, including a definitive agreement and final court approval following completion of a fairness hearing.

Defendants filed a motion for summary judgment on June 17, 2002 and another motion for partial summary judgment on July 17, 2002. Plaintiffs filed a response in opposition to the motion for partial summary judgment on July 22, 2002. Defendants’ response in support of their motion for summary judgment was filed on August 12, 2002. The court granted defendants’ motion for partial summary judgment on November 22, 2002, ruling that plaintiffs are not entitled to the fraud-on-the-market presumption of reliance. On February 24, 2003, the Court entered judgment in accordance with the ruling on the motion for summary judgment and closed the case. On February 26, 2003, plaintiffs noticed an appeal to the United States Court of Appeals for the Fifth Circuit. On May 25, 2004, the district court received the certified copy of the Fifth Circuit’s judgment affirming in part and vacating in part the lower court’s ruling and remanding the case for further proceedings at the district court level. The case was reopened.

Various cases with similar allegations were consolidated under the caption In re Crossroads Systems, Inc., Securities Litigation, Lead File Case A-00-CV-457-JN on October 12, 2000. Lead Plaintiff and Counsel were appointed by an order dated November 15, 2000. Plaintiffs filed a consolidated amended complaint on February 15, 2001. On April 2, 2001, defendants moved to dismiss the complaint. Plaintiffs filed a response in opposition to defendants’ motion to dismiss on May 25, 2001. Defendants filed a response in support of their motion to dismiss on June 25, 2001. On August 15, 2001, the Court denied the motion to dismiss. Defendants answered the consolidated complaint on October 10, 2001. Pursuant to a scheduling order dated November 15, 2001, all discovery was to be completed by September 16, 2002 with an alternative dispute resolution report due by November 28, 2001. The case proceeded with discovery.

The original complaint charges Crossroads and certain of its officers and directors with violations of the federal securities laws. The complaint alleges that Crossroads and certain of its senior executives issued materially false and misleading statements -- in violation of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 -- regarding Crossroads' operations and financial results for its fiscal third quarter (ending July 31, 2000). Specifically, the complaint alleges that, during the Class Period, Crossroads knew -- but did not disclose to investors until July 27, 2000 -- that certain of its products were experiencing interoperability problems with network software. These problems were so severe that the company, by mid-July, had stopped shipping the products and has not yet resumed shipment of corrected devices. On July 27, 2000, the company disclosed that its revenues would decline from the previous quarter's revenues by a shocking 66% due to the product shipment halt as well as a cancellation of an order at the end of the quarter. When the truth about the company's operations and financial results was finally revealed to investors on July 27, 2000, investors saw their shares lose more than 50% of their value in one day, from $13-7/16 to $6-3/8 per share. Thus, as result of Crossroads' misrepresentations and omissions, the complaint alleges, the price of Crossroads' stock was artificially inflated during the class period, and investors who bought these securities were damaged thereby.