According to the Company’s FORM 10-Q for the quarterly period ended September 30, 2004, the Company and certain of its officers and directors were named as defendants in a consolidated amended complaint that was filed in the United States District Court for the Northern District of Georgia on October 9, 2002. The lawsuit purported to be brought on behalf of a class of investors who purchased the Company’s stock during the period from April 5, 2001 through August 14, 2001. The lawsuit alleged violations of the federal securities laws. On September 3, 2003, the court dismissed, with prejudice, the consolidated amended complaint and all rights to appeal expired in May 2004.

On November 28, 2001, the Court entered the Order granting the motion to consolidate the cases. On July 31, 2002, the Court entered the Order granting the motion to appoint lead plaintiffs and to approve lead plaintiffs’ selection of counsel. According to the Order, lead plaintiffs are Flynn-Lampman Living Trust, William Hadley, Sean McGrath and Dagney Hein and lead co- counsel are Berger & Montague, P.C. and Chitwood & Harley.

The original class action lawsuit has been filed against Internet Security Systems, Inc. alleging that Defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and SEC Rule 10b-5. The Complaint alleges that Defendants issued materially false and misleading statements throughout the Class Period that had the effect of artificially inflating the market price of the Company's securities. The complaint further alleges that Defendants had the information to determine that the Company could not live up to the expectations created by these statements. As a result of statements like these, the securities markets were misled and, as a result, the price of ISS securities was artificially inflated throughout the Class Period. The complaint also alleges that during this period of artificial inflation, Company insiders took advantage of their insider status to sell thousands of their own shares of ISS stock at artificially high prices for proceeds of over $18 million. The Complaint also alleges that during this period, the Company further took advantage of the artificially inflated share prices by using ISS stock as currency to acquire another company, Network ICE Corporation. On July 2, 2001, however, Defendants revealed that rather than achieving revenues of $64-67 million for the second quarter as they had led investors to expect, the Company's revenues were actually in the $50-52 million range. Instead of earning $0.15 to $0.16 per share, the Company would actually suffer losses of up to $0.02 per share. Ultimately, the Company announced losses of $0.13 per share for the quarter. The Complaint alleges that as a result of these announcements, ISS stock fell by more than 40% in one day, and ISS stock that traded between $40 and $60 per share during much of the class period is now worth less than $10 per share.