According to a press release dated July 31, 2006, the Third U.S. Circuit Court of Appeals has upheld an unusual fee arrangement in a securities class action, allowing a percentage that increases, rather than drops, as the amount of the settlement rises. On July 20, the court approved $21.25 million in fees, plus $5.46 million in costs and expenses, for plaintiffs' counsel out of a $100 million common fund settlement in In re AT&T Corp. Securities Litigation , 05-2727 and 05-2728. An agreement between the lead plaintiffs and their counsel provided for fees of 15 percent of a settlement amount up to $25 million, 20 percent of a $25 million to $50 million settlement and 25 percent of a settlement above $50 million. U.S. District Judge Garrett Brown Jr. approved the settlement and fees in April 2005. Four objectors appealed the fees but not the settlement. The upward sliding fee scale was one of several grounds for the appeal, with the objectors arguing that the fee percentage should go down, not up, as the settlement amount increased. The appeals court disagreed, saying Brown 'did not abuse his discretion in concluding the sliding scale was fair and reasonable in light of the size of the settlement fund, the difficulty and length of the litigation, and the fact that all benefits accruing to class members are properly credited to the efforts of class counsel.

On April 25, 2005, the Court entered the Final Judgment approving the settlement and dismissing the action. Two notice of appeals have been filed by class members and the appeals are pending in the Third Circuit Court of Appeals.

By the Notice of Settlement of Class Action dated October 26, 2004, a settlement hearing will be held on February 28, 2005. The purpose of the Settlement Hearing will be: (1) to determine whether the settlement consisting of One Hundred Million Dollars ($100,000,000.00) in cash should be approved as fair, reasonable, and adequate to Members of the Class (as defined below); (2) to determine whether the Final Judgment, dismissing with prejudice the Action and releasing the Released Parties from all Released Claims against them, should be entered pursuant to the Settlement and Stipulation; (3) to consider whether the proposed plan to distribute the settlement proceeds (the “Plan of Allocation”) is fair, reasonable, and adequate and should be approved; and (4) to consider whether the application by Plaintiffs’ Lead Counsel for an award of attorneys’ fees and reimbursement of expenses and the Lead Plaintiffs’ request for reimbursement of their expenses (including lost wages) should be approved.

As summarized by the same Notice, On October 27, 2000, by Order dated January 25, 2001, the Court consolidated ten related cases under the caption In re AT&T Corporation Securities Litigation, Master File No. 3:00-cv-05364(GEB) (the “Action”). On January 25, 2001 the Court appointed The New Hampshire Retirement System, Robert Baker, Mohammed Karkanawi, Mauline Coon (f.k.a. Mauline Karkanawi) and Secure Holdings, Inc. as Lead Plaintiffs and approved Lead Plaintiffs’ choice of counsel. On or about February 14, 2001, Lead Plaintiffs filed a Consolidated Class Action Complaint (the “Complaint”). The Complaint generally alleges that the Defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 of the Securities and Exchange Commission during the period October 25, 1999 through May 1, 2000, inclusive of those dates. On January 30, 2002, the Court granted in part and denied in part, Defendants’ motions to dismiss and dismissed all claims against the Former Defendants. On or about September 16, 2002, the Court granted Plaintiffs’ motion for class certification and certified a class consisting of all purchasers of AT&T common stock between October 25, 1999 and May 1, 2000, inclusive of those dates. On June 4, 2004, the Court granted in part and denied in part Defendants’ motions for summary judgment. On or about July 2, 2004, the Court, pursuant to a request by Plaintiffs in light of the Court’s summary judgment rulings, ordered that the previously-certified class be narrowed to purchasers of AT&T common stock during the period from December 6, 1999 through May 1, 2000, inclusive of those dates. Following that, notice and an opportunity to request exclusion from the Class was provided to Class Members with a deadline of September 30, 2004 for any requests for exclusion from the Class.
Trial of the Action commenced on October 5, 2004. Counsel for Lead Plaintiffs and counsel for the Defendants engaged in arm’s-length negotiations in an effort to resolve the Action, including conducting settlement conferences with Magistrate
Judge John J. Hughes.

The original action seeks damages for violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. The defendants are AT&T and C. Michael Armstrong, Chairman and Chief Executive Officer of AT&T. Plaintiff alleges that defendants knowingly or recklessly disseminated materially false and misleading statements and omissions that misrepresented AT&T's business, operations, new acquisitions and earnings growth and its ability to achieve profitable growth. Plaintiff further alleges that the misrepresentations and omissions by defendants influenced the views of securities analysts and fostered an unrealistically positive assessment of AT&T and its business, prospects and operations. Plaintiff alleges that, as a result of such misinformation, AT&T's stock traded at artificially inflated prices throughout the Class Period. Plaintiff alleges that defendants' materially false and misleading statements, included, among others: statements about AT&T's Concert joint venture, AT&T's Business Services corporate long-distance segment and AT&T's accelerating revenue growth made between 10/25/99 and 5/2/00 which were false due to undisclosed problems. These problems were exacerbated by AT&T's loss during 99 of two large U.S. government long-distance contracts (the FTS 2000 contracts) and a huge ($650 million per year) BP Amoco PLC contract. As a result of these negative factors, AT&T's competitive position was impaired and AT&T and Armstrong knew by 10/25/99 that AT&T's Business Services unit's revenues were being materially adversely affected.

NOTE: Certain actions filed in 2000 against AT&T Corporation were also pending in the U.S. District for the Southern District of New York. In 2001, the Judicial Panel on Multidistrict Litigation ordered those actions to be transferred to the District of New Jersey. By the Order issued on December 19, 2001, the "New York cases" were consolidated under the master docket number 01-CV-1883. Further, lead plaintiff and lead counsel were also granted. On December 8, 2004, the Court issued the Order by the MDL Panel remanding the cases back to the USDC, Southern District of New York. The separate action is titled In Re: AT&T Wireless Tracking Stock Securities Litigation, docket number 00-CV-08754 and is settling for $150 million.