In December 2006, the appellate court overturned the certification of classes in the six test cases that were selected by the underwriter defendants and plaintiffs in the coordinated proceedings. Because class certification was a condition of the settlement, it was unlikely that the settlement would receive final Court approval. On June 25, 2007, the Court entered an order terminating the proposed settlement based upon a stipulation among the parties to the settlement. Plaintiffs have filed an amended complaint and filed a motion for class certification based on their amended allegations. It is uncertain whether there will be any revised or future settlement.

The complaint alleges, among other things, that the investment banks which underwrote the company's initial public offering of securities, and others, received commissions and made agreements which were not disclosed, but should have been disclosed in the initial public offering prospectus, and which affected the price of our securities. Specifically, the complaint alleges violations of Sections 11, 12(a)(2) and 15 of the Securities Act of 1933 and Section 19(b) of the Securities Exchange Act of 1934. Calico commenced an IPO of 4 million shares of common stock at an offering price of $14.00 per share. In connection therewith, Calico filed a registration statement, which incorporated a Prospectus with the SEC. The complaint further alleges that the Prospectus was false and misleading because it failed to disclose that:(i) Goldman Sachs, Credit Suisse, Merrill Lynch and BancBoston had solicited and received excessive and undisclosed commissions from certain investors in exchange for which these companies allocated to investors material portions of the restricted number of Calico shares issued in connection with the Calico IPO; and (ii) Goldman Sachs, Credit Suisse, Merrill Lynch and BancBoston had entered into agreements with customers whereby Goldman Sachs, Credit Suisse, Merrill Lynch and BancBoston agreed to allocate Calico shares to those customers in the Calico IPO in exchange for which the customers agreed to purchase additional Calico shares in the aftermarket at pre-determined prices.

Note: According to the Form 10-K for the fiscal year ended March 31, 2002 filed with the SEC, on December 14, 2001 Calico Commerce filed a voluntary petition for reorganization relief under Chapter 11 of the U.S. Bankruptcy Code in the United States Bankruptcy Court for the Northern District of California under Case No. 01-56101. On June 30, 2003, the company filed the First Amended Joint Plan of Reorganization, which the Court confirmed on August 14, 2003. Among other things, the plan provides for resolution of the purported class claim filed in the Company's bankruptcy case by the plaintiffs in this class action lawsuit by transferring jurisdiction and venue over the class action claim for settlement or judgment to the District Court, and limiting the sources of recovery on the claim to the proceeds of directors' and officers insurance policies issued to the Company and to certain claims assigned to a litigation trust for the plaintiffs' benefit.