According to a press release dated August 15, 2005, in October 2004, the plaintiffs filed their amended class action complaint, which charged the defendants with violating § § 10(b) and 20(a) of the SEC Act of 1934 and various state laws. The defendants filed separate motions to dismiss, arguing that the complaint failed to state an actionable claim and failed to meet the heightened pleading requirements of the Private Securities Litigation Reform Act (PSLRA). The plaintiffs failed to state a claim. The U.S. District Court for the District of Maryland dismissed the plaintiffs' federal securities law claims, finding first that the complaint failed to adequately state a claim under § 10(b) and Rule 10b-5 promulgated thereunder, as the plaintiffs failed to identify the relevant economic loss caused by the false financial statements and reports at issue, and failed to adequately allege the causal nexus between the defendants' conduct and that loss. The district court then went on to find that the plaintiffs' failure in adequately stating a claim for a primary securi-ties fraud violation under § 10(b) also precludes the possibility of finding control person liability under § 20(a).

The complaint alleges that defendants violated sections 10(b) and 20(a) of the Exchange Act, and Rule 10b-5 promulgated thereunder, by issuing a series of material misrepresentations to the market between August 1, 2001 and October 31, 2002. The complaint alleges that during the Class Period, Acterna, in an effort to grow its communications testing business, began to acquire market competitors and as a result, assumed a tremendous amount of goodwill. The Company repeatedly characterized its goodwill as unimpaired and continuously portrayed itself as having a future in the communications test sector, despite experiencing a record decrease in its business.

More specifically, the complaint alleges that in 2000, Acterna Corporation, formerly known as Dynatech Corporation, went on a buying spree in an effort to grow its communications testing business - a sector that accounted for approximately 91% of the Company's total revenues. Specifically, the Company merged its existing subsidiary, TTC, with Wavetek Wandel Golermann ('WWG'), representing a merger of the number-two and number-three companies in the communications testing market. Later in 2000, the Company again beefed up its communications testing capabilities by purchasing Superior Electronics Group, Inc., a Florida corporation doing business as Cheetah Technologies ('Cheetah') for a purchase price of $171.5 million. The market response to these events was tremendous. In a span of seven months, the stock price soared from a price of $10.37 on February 14, 2000 (the date of the announcement of the merger with WWG) to a peek of $41.38 on August 29, 2000. In conjunction with these acquisitions, the Company assumed a tremendous amount of goodwill - quantified as the excess of purchase price over fair market value of net assets acquired under the purchase method of accounting. Between the WWG and Cheetah acquisitions alone, the Company acquired over $600 million in goodwill. Over the next year, the telecom industry entered a free- fall, which included many of Acterna's customers. Not surprisingly, new orders for Acterna's products also began to slip. While the Company was able to ward off massive losses due to its backlog of orders, its stock price fell within the intervening year from $41.38 to $6.03.

The complaint further alleges that during Class Period, the Fair Accounting Standards Board issued FAS 142, which required companies to perform an annual test of their goodwill to see if it is impaired. If so, the Company is required to write-down the goodwill and take a charge against earnings. Impressively, the Company adopted the new accounting standard retroactively to the beginning of Fiscal 2002, before it was actually required to do so. Rather than reclassifying its substantial goodwill as impaired, however, the Company gave repeated assurances that goodwill was not, in fact, impaired.

Finally, the complaint alleges that all of defendants' statements during the Class Period failed to disclose and misrepresented the following material adverse facts which were then known to defendants or recklessly disregarded by them: (1) that in light of the significant adverse change in the Company's business climate, the Company's goodwill was seriously impaired; (2) that the Company lacked adequate internal controls and was therefore unable to ascertain the true financial condition of the Company; and (3) that as a result, the value of the Company's net income and financial results were materially overstated at all relevant times. On October 31, 2002, the Company issued a press release announcing the financial results for the second quarter of 2003. In addition to reporting yet another disappointing quarter of sales and orders, the Company finally took a charge of $388 million for impaired goodwill stemming from its acquisitions in the communication test sector. Moreover, instead of experiencing a gain of $155-165 million as predicted, the Company took a loss of $284 million. By the time the Company finally made this concession, the stock price had already fallen to $.30 per share. Despite quarters of decreased sales, orders and profits, the Company still portrayed itself as having a future in the communications test sector. However, the recognition of the goodwill impairment finally dispelled this notion conclusively.

NOTE: Acterna is not named as a defendant herein based upon the Company’s discharge in bankruptcy. Specifically, on May 6, 2003, Acterna and its domestic subsidiaries filed voluntary petitions under Chapter 11 of Title 11, United States Code, 11 U.S.C. §§101 et seq., in the United States Bankruptcy Court for the Southern District of New York (Case Nos. 12836 (BRL) through 12843 (BRL)). On September 25, 2003, the Bankruptcy Court entered an order confirming the Debtors’ Joint Plan of Reorganization and Modification to the Debtors’ Joint Plan of Reorganization (collectively, the “Plan”). The Company’s common stockholders received nothing under the Plan. Acterna emerged from bankruptcy as a virtually debt-free privately held company, which is majority owned by Defendant CD&R.