According to the Company’s FORM 10-Q for the quarterly period ended April 30, 2006, four similar suits were filed against the Company and the individuals. The complaints are substantially identical to numerous other complaints filed against other companies that went public in 1999 and 2000. In September 2002, plaintiffs’ counsel in the above-mentioned lawsuits offered to individual defendants of many of the public companies being sued, including the Company, the opportunity to enter into a Reservation of Rights and Tolling Agreement that would dismiss without prejudice and without costs all claims against such persons if the company itself had entity coverage insurance. This agreement was signed by the former Company Chairman, the former chief financial officer, and Mr. the current General Counsel and Vice President of Business Development and the plaintiffs’ executive committee. Under the Reservation of Rights and Tolling Agreement, the plaintiffs dismissed the claims against such individuals. On February 19, 2003, the court in the above-mentioned lawsuits entered a ruling on the pending motions to dismiss, which dismissed some, but not all, of the plaintiffs’ claims against the Company. These lawsuits have been consolidated as part of In Re Initial Public Offering Securities Litigation (SDNY). The Company has considered and agreed to enter into a proposed settlement offer with representatives of the plaintiffs in the consolidated proceeding, and we believe that any liability on behalf of the Company that may accrue under that settlement offer would be covered by our insurance policies. On August 31, 2005, the court preliminarily approved the proposed settlement. A fairness hearing will be held in 2006 before any final settlement is approved, if at all.

The complaint alleges violations of Sections 11, 12(a)(2) and 15 of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. The complaint further alleges that the Prospectus was materially false and misleading because it failed to disclose, among other things, that: (i) Credit Suisse, Merrill Lynch, Bear Stearns and Robertson Stephens had solicited and received excessive and undisclosed commissions from certain investors in exchange for which Credit Suisse, Merrill Lynch, Bear Stearns and Robertson Stephens allocated to those investors material portions of the restricted number of McData shares issued in connection with the McData IPO; and (ii) Credit Suisse, Merrill Lynch, Bear Stearns and Robertson Stephens had entered into agreements with customers whereby Credit Suisse, Merrill Lynch, Bear Stearns and Robertson Stephens agreed to allocate McData shares to those customers in the McData IPO in exchange for which the customers agreed to purchase additional McData shares in the aftermarket at pre-determined prices.