According to the Company’s Form 10-Q/A for the quarterly period ended March 31, 2004, since July 31, 2001, several securities fraud class action complaints have been filed in the United States District Court for the Southern District of New York alleging violations of the securities laws in connection with the Company’s December 1999 initial public offering (“IPO”). In four of the complaints, the Company and certain of its officers are named as defendants, together with the underwriters that are the subject of the plaintiffs’ allegations. Each of these cases has been consolidated for pretrial purposes into an earlier lawsuit against the underwriters of the Company’s IPO. In addition, the cases have been consolidated for pretrial purposes with approximately 1,000 other lawsuits filed against other issuers, their officers, and underwriters of their initial public offerings. On April 19, 2002, a consolidated amended class action complaint (the “Consolidated Complaint”) was filed. The Consolidated Complaint alleges claims against the Company and seven of its officers and/or directors, as well as seven investment banking firms who either served as underwriters or are successors in interest to underwriters of the Company’s IPO. The Consolidated Complaint alleges that the prospectus used in the Company’s IPO contained material misstatements or omissions regarding the underwriters’ allocation practices and compensation in connection with the IPO and also alleges that the underwriters manipulated the aftermarket for the Company’s stock. Damages in an unspecified amount are sought, together with interest, costs and attorney’s fees. The defendants filed a motion to dismiss the Consolidated Complaint. On February 19, 2003, the court denied the Company’s motion to dismiss. On June 25, 2003, a Special Committee of the Board of Directors of the Company approved a proposed settlement of the litigation under terms set forth in a memorandum of understanding, and authorized the Company to enter into a definitive settlement agreement to be prepared in accordance with the memorandum of understanding. The anticipated settlement will be subject to court approval following notice to class members and a fairness hearing. Based on the memorandum of understanding, the Company believes that the anticipated settlement will have no material effect on the Company.

The original complaint alleges violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. On or about December 9, 1999, FreeMarkets commenced an initial public offering of 3,600,000 of its shares of common stock at an offering price of $48 per share (the "FreeMarkets IPO"). In connection therewith, FreeMarkets filed a registration statement, which incorporated a prospectus (the "Prospectus"), with the SEC. The complaint further alleges that the Prospectus was materially false and misleading because it failed to disclose, among other things, that: (i) defendants had solicited and received excessive and undisclosed commissions from certain investors in exchange for which defendants allocated to those investors material portions of the restricted number of FreeMarkets shares issued in connection with the FreeMarkets IPO; and (ii) defendants had entered into agreements with customers whereby defendants agreed to allocate FreeMarkets shares to those customers in the FreeMarkets IPO in exchange for which the customers agreed to purchase additional FreeMarkets shares in the aftermarket at pre-determined prices.