According to the Company’s FORM 10-Q For The Quarterly Period Ended September 30, 2001, on October 1, 2001, the United States District Court for the Southern District of Texas dismissed with prejudice the consolidated federal securities action styled Dov Klein v. BMC Software, Inc., No. 00-CV-359. Plaintiffs have elected not to appeal the dismissal.

As previously disclosed by the Company’s FORM 10-Q For The Quarterly Period Ended June 30, 2001, on March 9, 2000, the court consolidated four similar actions, ordered that all subsequently filed similar actions be consolidated, and set out a briefing schedule. Subsequently, six additional cases were filed that made similar allegations. These cases were also consolidated into the main action. On August 14, 2000, the plaintiff filed a consolidated amended complaint. This complaint alleges a class of all persons who purchased BMC stock between July 29, 1999 and July 5, 2000. The Company has filed a motion to dismiss the complaints.

The original complaint charges BMC and certain of its officers and directors with violations of the Securities Exchange Act of 1934. The complaint alleges that defendants' false and misleading statements about strong sales of BMC's existing software products, the successful integration of its acquisitions of Boole & Babbage and New Dimension Software earlier in 1999, strong demand for its mainframe MIPS software, notwithstanding a slow down in sales of IBM mainframe computers, and the lack of customer deferrals of orders or purchases due to Y2K concerns, which would result in 25%-30% EPS growth for BMC during F00-F01 and 3rd and 4thQ F00 EPS of .55 and .64, respectively, artificially inflated its stock to a Class Period high of $86-5/8 on January 3, 2000. During the Class Period, BMC insiders and controlling shareholders sold 1,085,015 shares of their BMC stock at as high as $78.83 for $63.1 million in proceeds. On January 5, 2000, just two days after BMC's stock hit its all-time high, BMC revealed that, due to problems integrating the BMC, Boole & Babbage and New Dimension sales forces, sales execution procedures in Europe and the U.S., and weakness in demand for mainframe MIPS software products, its 3rdQ F00 results would be much worse than earlier forecast. BMC's stock fell from $85-1/8 on January 4, 2000 to $47, an almost 50% drop in one day, and when BMC reported 3rdQ F00 EPS of just $.41, a decline from its 2ndQ F00 EPS and its year-earlier 3rdQ F99 EPS, its stock continued to fall to just $36.