With Network Server Database hangs after some time with many connections executing prepareStatement()

Rajesh found this issue in running Network Server system tests for the 10.1 release candidate

While running the Network Server system test with 210 clients,
the Network Server and all the clients hangs after some time.
A Ctrl+\ on the Network Server shows that upto 180 threads
waiting on the PreparedStatements to compile and comes from the
embedded engine. The following is the stack trace from the java
dump.

3XMTHREADINFO "DRDAConnThread_181" (TID:1007C998,
sys_thread_t:85C4478, state:CW, native ID:4575ABB0) prio=5
4XESTACKTRACE at java.lang.Object.wait(Native Method)
4XESTACKTRACE at
java.lang.Object.wait(Object.java(Compiled Code))
4XESTACKTRACE at
org.apache.derby.impl.sql.GenericStatement.prepMinion(GenericSta
tement.java(Compiled Code))
4XESTACKTRACE at
org.apache.derby.impl.sql.GenericStatement.prepare(GenericStatem
ent.java)
4XESTACKTRACE at
org.apache.derby.impl.sql.conn.GenericLanguageConnectionContext.
prepareInternalStatement(GenericLanguageConnectionContext.java)

4XESTACKTRACE at
org.apache.derby.impl.jdbc.EmbedPreparedStatement.<init>(Embe
dPreparedStatement.java)
4XESTACKTRACE at
org.apache.derby.impl.jdbc.EmbedPreparedStatement20.<init>(Em
bedPreparedStatement20.java)
4XESTACKTRACE at
org.apache.derby.impl.jdbc.EmbedPreparedStatement30.<init>(Em
bedPreparedStatement30.java)
4XESTACKTRACE at
org.apache.derby.jdbc.Driver30.newEmbedPreparedStatement(Driver3
0.java)
4XESTACKTRACE at
org.apache.derby.impl.jdbc.EmbedConnection.prepareStatement(Embe
dConnection.java)
4XESTACKTRACE at
org.apache.derby.impl.jdbc.EmbedConnection.prepareStatement(Embe
dConnection.java)
4XESTACKTRACE at
sun.reflect.GeneratedMethodAccessor3.invoke(Unknown Source)
4XESTACKTRACE at
sun.reflect.DelegatingMethodAccessorImpl.invoke(DelegatingMethod
AccessorImpl.java(Compiled Code))
4XESTACKTRACE at
java.lang.reflect.Method.invoke(Method.java(Compiled Code))
4XESTACKTRACE at
org.apache.derby.impl.drda.DRDAStatement.prepareStatementJDBC3(D
RDAStatement.java)
4XESTACKTRACE at
org.apache.derby.impl.drda.DRDAStatement.prepare(DRDAStatement.j
ava)
4XESTACKTRACE at
org.apache.derby.impl.drda.DRDAStatement.explicitPrepare(DRDASta
tement.java(Compiled Code))
4XESTACKTRACE at
org.apache.derby.impl.drda.DRDAConnThread.parsePRPSQLSTT(DRDACon
nThread.java(Compiled Code))
4XESTACKTRACE at
org.apache.derby.impl.drda.DRDAConnThread.processCommands(DRDACo
nnThread.java(Compiled Code))
4XESTACKTRACE at
org.apache.derby.impl.drda.DRDAConnThread.run(DRDAConnThread.jav
a)