On April 27, 2001, shareholders filed a federal class action lawsuit charging Freemarkets, Inc. (“Freemarkets” or the “Company”) with securities fraud. The lawsuit was filed in the United States District Court for the Western District of Pennsylvania and seeks damages for violations of federal securities laws on behalf of all investors who bought Freemarkets, Inc. common stock between July 24, 2000 and April 23, 2001 (the “Class Period”).

Specifically, Freemarkets is charged with improperly accounting for its financial results for the second, third and fourth quarters and the year of fiscal 2000. In reporting its financial results during the Class Period, the Company failed to properly account for a warrant that it had provided to one of its largest customers, Visteon Corporation (“Visteon”). Consequently, Freemarkets was able to report artificially inflated revenues during the Class Period. On April 23, 2001, Freemarkets revealed that the Securities and Exchange Commission (the “SEC”) had informed the Company that its payments from Visteon should not be classified as revenue, but as money paid for the warrant. As a result, absent an appeal, the Company announced its intention to amend its financial statements to eliminate all the revenue it had received from Visteon during the Class Period. Freemarkets’ stock price fell from a close of $10.29 per share on April 23, 2001 to $9.30 on April 24, 2001.

The suit also names Freemarkets’ chief executive officer and chief financial officer as defendants. These officers are charged with collectively selling thousands of shares of Freemarkets common stock during the Class Period for proceeds totaling over $17 million>

According to the Company’s Form 10-Q/A for the quarterly period ended March 31, 2004, since April 27, 2001, eleven securities fraud class action complaints have been filed against the Company and two executive officers in federal court in Pittsburgh, Pennsylvania. The complaints, all of which assert the same claims, stem from the Company’s announcement on April 23, 2001 that, as a result of discussions with the SEC, the Company was considering amending its 2000 financial statements for the purpose of reclassifying fees earned by the Company under a service contract with Visteon. All of the cases have been consolidated into a single proceeding. On October 30, 2001, the Company filed a motion seeking to dismiss all of the cases in their entirety. On January 17, 2003, the Court denied the motion to dismiss. On March 10, 2004, the court certified the case as a class action. The case is now in the discovery phase.

On March 24, 2004, Defendants filed a petition in the Third Circuit United States Appeals Court for permission to appeal the District Court’s March 10, 2004 class certification order and on April 5, 2004, Lead Plaintiffs filed an opposition to Defendants’ petition. The petition to appeal was granted by the Appellate Court on August 2, 2004. Both parties filed briefing with the Appeals Court and oral arguments were scheduled to be heard on May 9, 2005. Prior to the Court of Appeals hearing oral arguments, the parties agreed to settle the action and on August 3, 2005 entered into a Stipulation and Agreement of Settlement (the “Stipulation").

Pursuant to the terms of the proposed Settlement, which was preliminarily approved by the Court on August 16, 2005, a Settlement Fund in the amount of $3,400,000, plus interest that accrues on the Fund, has been created for the benefit of the Class. A Settlement Hearing to determine, among other things, whether the proposed Settlement is fair, reasonable and adequate was held on October 28, 2005. On November 1, 2005 Judge Terrence McVerry signed an Order and Final Judgment approving the Settlement and Plan of Allocation as fair, reasonable and adequate and awarding Lead Counsel attorneys’ fees and reimbursement for expenses.