According to a Press Release dated July 25, 2001, the complaint alleges violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. On or about October 5, 1999, Breakaway and selling shareholders commenced an initial public offering of 3,000,000 of its shares of common stock at an offering price of $14 per share (the "Breakaway IPO"). In connection therewith, Breakaway 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 Breakaway shares issued in connection with the Breakaway IPO; and (ii) defendants had entered into agreements with customers whereby defendants agreed to allocate Breakaway shares to those customers in the Breakaway IPO in exchange for which the customers agreed to purchase additional Breakaway shares in the aftermarket at pre-determined prices.

NOTE: In September 2001, the Company filed a petition under Chapter 11 of the United States Bankruptcy Code.