In December 2006, the appellate court overturned the certification of classes in six test cases that were selected by the underwriter defendants and plaintiffs in the coordinated proceedings. Because class certification was a condition of the settlement, it was unlikely that the settlement would receive final Court approval. On June 25, 2007, the Court entered an order terminating the proposed settlement based upon a stipulation among the parties to the settlement.

According to the Company’s FORM 10-Q for the quarterly period ended September 30, 2004, the class action has been consolidated for pre-trial purposes with more than one thousand other actions, filed against more than 300 other issuers of securities, affiliated individuals and dozens of underwriters of the securities offerings in In Re Initial Public Offering Securities Litigation, 21 MC 92 (SAS) (“IPO Allocation Litigation”). In recent months in the IPO Allocation Litigation, counsel for the plaintiffs, liaison counsel for the issuer defendants and counsel for insurers of the issuer defendants have taken part in continuing discussions mediated by a former federal district court judge to explore a possible settlement of the claims against all of the issuer defendants, including the Company. In June 2003, a memorandum of understanding was entered into by and among the plaintiffs, liaison counsel for the issuer defendants and counsel for the insurers which would result in dismissal of the action against the issuers, including the Company, on terms that would not require any current payment by the Company and are believed by the Company’s board of directors to carry only a remote risk that any future payment by the Company would be required. In addition, the plaintiffs would release the Company and its officers and directors from the claims that have been asserted against them in the IPO Allocation Litigation as a part of the proposed settlement. On June 30, 2003, the Company’s board of directors approved the memorandum of understanding and authorized the Company to enter into the proposed settlement. On June 14, 2004, the proposed settlement was submitted to the Court for its required approval, and the Court has taken the motion for preliminary approval of the proposed settlement under submission. The IPO Allocation Litigation in general, and the litigation against the Company in particular, are in an early phase, and no date has yet been set by the court for completion of pre-trial discovery or trial.

The lawsuit asserts claims under Sections 11, 12 and 15 of the Securities Act of 1933 and Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated by the SEC thereunder. Specifically, the complaint alleges that Ventro Corporation and certain of its officers and directors violated the federal securities laws by issuing and selling Ventro Corp. common stock pursuant to the July 26, 1999 IPO without disclosing to investors that at least two of the lead underwriters in the offering had solicited and received excessive and undisclosed commissions from certain investors.

In exchange for the excessive commissions, the complaint alleges, lead underwriters Morgan Stanley Dean Witter & Co. and BancBoston Robertson Stephens, Inc. allocated Ventro Corp. shares to customers at the IPO price of $15.00 per share. To receive the allocations (i.e., the ability to purchase shares) at $15.00, the defendant underwriters' brokerage customers had to agree to purchase additional shares in the aftermarket at progressively higher prices. The requirement that customers make additional purchases at progressively higher prices as the price of Ventro Corp. stock rocketed upward (a practice known on Wall Street as laddering) was intended to (and did) drive Ventro's share price up to artificially high levels. This artificial price inflation, the complaint alleges, enabled both the underwriters and their customers to reap enormous profits by buying stock at the $15.00 IPO price and then selling it later for a profit at inflated aftermarket prices, which rose as high as $34.88 during its first day of trading.

The complaint alleges that rather than allowing their customers to keep their profits from the IPO, the complaint alleges, the defendant underwriters required their customers to kick back some of their profits in the form of secret commissions. These secret commission payments were sometimes calculated after the fact based on how much profit each investor had made from his or her IPO stock allocation.

The complaint further alleges that defendants violated the Securities Act of 1933 because the Prospectus distributed to investors and the Registration Statement filed with the SEC in order to gain regulatory approval for the Ventro Corp. offering contained material misstatements regarding the commissions that the underwriters would derive from the IPO transaction and failed to disclose the additional commissions and laddering scheme discussed above.