IN THE UNITED STATES DISTRICT COURTFOR THE NORTH DISTRICT OF ILLINOIS

EASTERN DIVISION

DOUG SUTTON AND PRESCOTT NOTTINGHAM, X No . 00C6676On Behalf of Themselves and All Others Similarl ySituated : Judge John F . Grady

Plaintiffs,

vs .

ROBERT F. BERNARD, ROBERT T, CLARKSON,AND BERT B . YOUNG,

Defendants .

x

NOTICE OF FILING

To: Counsel on the Attached Service List

Consolidated with : Nos. 00-CV-6687 (JFG), 00-CV-6785(JFG), 00-CV-6812 (JFG), 00-CV-6821 (JFG), 00-CV-6908(JFG), 00-CV-7073 (JFG), 00-CV-7198 (JFG), 00-CV-7245(JFG), 00-CV-7741 (WJH)

Ki t

0 x00,

PLEASE TAKE NOTICE that on Thursday, May 3, 2001, we filed with the Clerk of th e

United States District Court for the Northern District of Illinois, Eastern Division, 219 Sout h

Dearborn Street, Chicago, Illinois , the Consolidated Class Action Complaint , a copy of which is

hereby served upon you .

Dated : May 3, 200 1

JS

FILED

MAYS-29 1

V09 ""M F,tim ? VAT-90 01S± RICT OJU:

Marvin A. MillerMILLER FAUCHER and CAFFERTY LLP30 North LaSalle Street, Suite 320 0Chicago, IL 60602Telephone: (312) 782-4880

L0 I Wd C -- 'tiii 10

CERTIFICATE OF SERVIC E

I, Marvin A. Miller, one of plaintiffs' attorneys, hereby certify that I caused the ConsolidatedClass Action Complaint to be served on all counsel on the attached service list by placing a copyof the same in the United States Mail at 30 North LaSalle Street, Chicago, Illinois this 3rd day ofMay, 2001, except the following which was served by hand delivery :

Joel G. ChefitzJames E . Hanlon, Jr .

Steven P . BlonderKarl R. BarnickolLisa C. Sullivan

Katten Muchin Zavis525 West Monroe Street, Suite 1600

Chicago, IL 6060 1

Marvin A. Miller

SERVICE LIST

Joel G . ChefitzJames E . Hanlon, Jr .Steven P . BlonderKarl R. BarnickolLisa C. SullivanKatten Muchin Zavi s525 West Monroe Street, Suite 1600Chicago, IL 60601

Robert M. RosemanSpector, Roseman & Kodroff1818 Market Street, Suite 2500Philadelphia, PA 1910 3

Marc A. TopazSchiffrin & Barroway, LLPThree Bala Plaza East, Suite 400Bala Cynwyd, PA 19004

Mary Jane Edelstein FaitKelly J .B. Elvi nAdam J . LevittWolf Haldenstein Adler Freeman & Herz, LLC205 North Michigan Avenue, Suite 1900Chicago, IL 6060 1

Corey D. HolzerHolzer & Holze rAttorney at Law

6135 Barfield Road, Suite 102Atlanta, GA 30328

Steven J . Tol lCohen, Milstein, Hausfeld, & Toll, P .L.L.C1100 New York Avenue, Suite 500Washington, D .C. 20005

Kenneth A . WexlerEdward A. WallaceKenneth A . Wexler and AssociatesOne North LaSalle Street, Suite 2000Chicago, IL 60602

Mark C . GardyAbbey, Gardy & Squitieri, LLP212 East 39th StreetNew York, NY 10016

Nadeem FaruqiFaruqi & Faruqi, LLP320 East 39' StreetNew York, NY 10016

Paul J . GellerCauley & Geller, LLPOne Boca Plaz a2255 Glades Road , Suite 421ABoca Raton , FL 3343 1

James E . TullmanWeiss & YourmanThe French Building551 Fifth Avenue , Suite 1600New York, NY 10176

Jules BrodyStull Stull & Brody

6 East 45'x' StreetNew York, NY 10017

Marc S . Henze]Law Offices of Marc S . Henzel210 West Washington Square, Third FloorPhiladelphia, PA 10106-3514

Deborah R. GrossLaw Office of Bernard M . Gross, P .C .1500 Walnut Street, 6th FloorPhiladelphia, PA 1910 2

Steven G . SchulmanSamuel H. RudmanMilberg Weiss Bershad Hynes & Lerach LLPOne Pennsylvania PlazaNew York, NY 10119-0165

-I-

Sherrie R . Savett

Carole BroderickMichael T . Fantini

Berger & Montague, P .C .1622 Locust StreetPhiladelphia, PA 1910 3

Roberta D. LiebenbergFine Kaplan & Black

1845 Walnut Street, 23`d FloorPhiladelphia, PA 1910 3

Arthur N . Bailey & Associates111 West 2nd Street, Suite 4500Jamestown , NY 1470 1

Michael I . BehnFutterman & Howard, Chtd .122 South Michigan AvenueSuite 185 0Chicago, IL 60603

-2-

IN THE UNITED STATES DISTRICT COURTFILED

FOR THE NORTH DISTRICT OF ILLINOIS MAY 0 32001EASTERN DIVISION

DOUG SUTTON AND PRESCOTT NOTTINGHAM, X No . 00C6MICHAEL S

~~~RK, U .S . DISTRICT COURTOn Behalf of Themselves and All Others SimilarlySituated : Judge John F . Grady

Plaintiffs,

vs .

ROBERT F . BERNARD, ROBERT T . CLARKSON,AND BERT B . YOUNG,

Defendants .

Consolidated with: Nos. 00-CV-6687 (JFG), 00-CV-6785(JFG), 00-CV-6812 (JFG), 00-CV-6821 (JFG), 00-CV-6908(fl G), 00-CV-7073 (JFG), 00-CV-7198 (JFG), 00-CV-7245(JFG), 00-CV-7741 (WJH )

X 1424CONSOLIDATED CLASS ACTION COMPLAINT -~®

Plaintiffs allege the following based upon the investigation conducted by and under 131?el

supervision of plaintiffs' counsel, which included reviewing and analyzing information and financial

data obtained from numerous public and proprietary sources including, without limitation, LEXIS-

NEXIS, Dow Jones and the Bloomberg wire service, United States Securities and Exchang e

Commission ("SEC") filings by marchFIRST, Inc . ("marchFIRST" or the "Company") and its officers

and directors, securities analysts' reports and advisories about the Company, press releases and othe r

public statements issued by the Company, and media reports about the Company . Plaintiffs' counsels '

investigation also included interviewing or consulting with numerous individuals, including forme r

employees of marchFIRST, who are knowledgeable about the Company's business practices durin g

the relevant time period and about the industry and markets in which the Company operates .

Plaintiffs believe that substantial additional evidentiary support will exist for the allegations set forth

herein after a reasonable opportunity for discovery .

SUMMARY OF THE CASE

1 . Lead Plaintiffs bring this class action , pursuant to the antifraud provisions of §§ 10(b)

and 20(a) of the Securities Exchange Act of 1934, on behalf of all persons , as defined below, wh o

purchased or acquired the securities of marchFIRST during the period commencing March 23, 2000

through November 20, 2000 (the "Class Period") . Defendants are three of marchFIRST's executiv e

officers who were responsible for the public dissemination of materially false and misleadin g

statements made during the Class Period .

2. marchFIRST purported to be an Internet consulting firm that helped companies buil d

business models, brands, systems and processes to capitalize on opportunities created by the Interne t

and related computer and communications technologies and to be a provider of integrated applicatio n

hosting services . The Company' s revenues were generated primarily from professional fees generated

by its consultants . The Company's most significant cost was project cost of services, which consisted

largely of consultant salaries and benefi ts . Thus the Company 's financial performance was primarily

based upon billing margin (billable hourly rate less the consultant's hourly costs) and personne l

utilization rates (billable hours divided by paid hours) .

3 . On March 1, 2000, the Company, previously named Whittman-Hart, completed a $7 . 1

billion merger with USWeb/CKS Corporation and began trading as a single company on the

NASDAQ national exchange under the name "Whit ." On March 23, 2000, the Company announced

its new name, and corporate identity, marchFIRST, in conjunction with an opening day ceremony t o

mark the Company's first day of trading under its new ticker symbol, "MRCH . "

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4. During the coming months, defendants made materially false and misleadin g

statements concerning the successful integration of USWeb/CKS and Whittman-Hart, the value of

the Company' s assets, the Company's first and second-quarter results , the Company's business

momentum, and the Company's accounts receivable, and told analysts to expect third quarter and yea r

2000 earnings per share of $ .20 and $ .76, respectively . These materially false and misleadin g

statements artificially inflated marchFIRST stock to prices ranging from a Class Period high of $4 7

to a Class Period low of $3 .

5 . Unbeknownst to investors, defendants used improper accounting techniques t o

artificially inflate reported revenue and earnings during the second quarter ended June 30, 2000 .

Furthermore, the Company was in a state of chaos due to its failure to integrate the sprawlin g

operations of USWeb/CKS and Whittman-Hart . As one analyst put it after the close of the Clas s

Period, a "look under the hood" of marchFIRST is "scary" and "outlines a chaotic view of life insid e

marchFIRST . "

6. The truth began to emerge on October 24, 2000. On that date, marchFIRST blind-

sided the market and analysts covering marchFIRST, revealing that it was experiencing a hug e

shortfall in revenues, that its third quarter earnings per share would be only $0 .01, instead of th e

$0.20 it had forecast, and that it had had extensive problems during the Class Period collectin g

payment from certain of its customers . As a result, the Company announced, it was writing off $4 5

million as bad debt . Analysts were stunned . Just days before, defendants had stated that th e

Company would meet earnings and revenue expectations . Reacting to the Company's news, Ro b

Zimmerman , the host of Radio Wall Street stated :

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Well, $45 million in revenue disappeared . Gone . . . .

Most of the time you don't take things personally in this business, because it is business, butin this case analysts were just -- fuming is the only word I can tell you -- fuming, even to thepoint where a couple of them were just so mad they just didn't want to come on and talkabout it . That's how bad it was .

7. On the evening of November 20, 2000, the Company belatedly filed its Form 10- Q

for the third quarter ended September 30, 2000, which was due on November 14, 2000 . Therein, the

Company revealed more bad news ; marchFIRST had $68 .3 million of outstanding borrowings du e

by March 15, 2001, but, as of November 17, 2000, had only $27 million of cash and cash equivalent s

to meet the Company's short-term liquidity needs and only $2 million available under existing short-

term credit agreements . (The Company had reported $120 million of cash and cash equivalents and

short term investments as of September 30, 2000 but $53 million of this amount was restricted by

letters of credit .) In addition, the Company disclosed that it would need approximately $50 millo n

in additional financing within an approximate 40-day time frame and an additional $50 million in earl y

2001 . Moreover, the Company disclosed that it had identified and reserved approximately $59 . 8

million of accounts receivable for which collection was doubtful, approximately $27 .3 million of

which was charged to goodwill relating to the acquisition of USWeb/CKS and the remainder ofwhic h

was charged to third-quarter operating results .

8 . Defendants added insult to injury by announcing, on November 20, 2000, over the P R

Newswire, that the Company was initiating a stock option re-issuance program which allowe d

employees to return their outstanding stock options to the Company for cancellation after a perio d

of six months and one day . In exchange, marchFIRST was to issue one option for every thre e

canceled, with an exercise price determined by the average of the stock's high and low prices on th e

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day they are issued . According to marchFIRST's proxy statement , filed on April 28, 2000, certain

executive officers were issued 444,113 options in 1999, including 200,000 to Bernard . At year-end

1999, marchFIRST officers held 1 .01 million unexercised options, of which Bernard held 378,000 .

9. On April 12, 2001, less than six months later, after the Company had sold off its most

valuable assets, it filed for relief under Chapter 1 I of the Federal Bankruptcy Code, after recording ,

in February 2001, a $3 7per share loss and a $6. S billion charge to write off the goodwill associate d

with the USWeb/CKS acquisition .

JURISDICTION AND VENUE

10 . The claims asserted herein arise under §§10(b) and 20(a) of the Securities Exchang e

Act of 1934 (" 1934 Act"), 15 U.S .C . §§78j(b) and 78t(a), and Rule I Ob-5 promulgated thereunder .

Jurisdiction is conferred by §27 of the 1934 Act, 15 U .S .C. §78aa . Venue is proper here pursuant

to §27 of the 1934 Act . Acts and transactions giving rise to the violations of law complained o f

occurred in this District .

11 . On April 25, 2001, marchFIRST obtained an order to convert the Chapter 11 filin g

for reorganization to a Chapter 7 filing for liquidation, and listed $789 .3 million in assets and $427 . 5

million in liabilities as of December 21, 2000 .

THE PARTIE S

12. Plaintiffs are court-appointed lead plaintiffs Leonard Megliola, Jr ., Jon LoganNelson ,

and Abbey National Asset Managers, who purchased shares of marchFIRST common stock a s

described in the attached certifications and were damaged thereby .

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13 . marchFIRST maintains its headquarters at Chicago, Illinois . During the Class Period,

marchFIRST's common stock traded in an efficient market. It traded on the NASDAQ Nationa l

Market System under the symbol "WHIT" from March 1, 2000 to March 22, 2000 . Thereafter, it

traded on the NASDAQ National Market System under the symbol "MRCH." On April 12, 2001 ,

marchFIRST announced over the PR Newswire that it and its domestic subsidiaries and affiliates had

filed for relief under Chapter 1 I of the Federal Bankruptcy Code . For this reason, and this reason

alone, marchFIRST has not been included as a named defendant in this consolidated complaint .

14. Defendant Robert F. Bernard ("Bernard") was Chairman of the Board of Directors,

ChiefExecutive Officer and President of marchFIRST .' Bernard was formerly Chairman , President

and Chief Executive Officer of Whittman -Hart . As of March 31, 2000, Bernard owned 12,832,53 5

shares of marchFIRST stock . In 1999, Bernard was one of Fortune magazine's 40 Richest Under 40 .

Bernard resigned from the Company on March 12, 2001, a month after the Company posted a los s

of $6 .8 billion, or $37 .09 per share .

15 . In 1999, the Company eliminated Bernard's salary and cash bonuses, leaving stock

options and their associated gains as Bernard's sole source of compensation . Thus Bernard's

compensation from marchFIRST was entirely dependent on the creation of incremental market value .

In 1999, the Company granted Bernard 200,000 marchFIRST stock options with exercise price s

ranging from $23 per share to $37 .31 per share. The potential value of these options, assuming a

10% annual rate of stock price appreciation over the option term, was $9 ,217,759 . In March, 2000 ,

after Bernard assumed the role of president of the Company, the Board, in its Proxy dated May 24 ,

' Bernard was appointed marchFIRST ' s Chairman of the Board on March 29, 2000 .

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2000, stated that it was expected that Bernard would receive a salary in 2000, although stock option s

would continue to be a primary component of his compensation .

16. Robert T. Clarkson ("Clarkson") was Chief Operating Officer of marchFIRST fro m

March 2000 until his resignation in or around October 2000 . From November 1999 until March

2000, he served as Chief Operating Officer of USWeb/CKS . Clarkson owned options to purchase

250,326 shares of the Company's stock .

17. Bert B . Young ("Young") was Chief Financial Officer and Treasurer of marchFIRS T

until his resignation in or around October 2000 . In 1999, the Company granted Young 42,16 6

marchFIRST stock options with exercise prices ranging from $23 .69 per share to $26 .34 per share .

The potential value of these options, assuming a 10% annual rate of stock price appreciation over the

option term, was $1,685,908 .

18. Defendants, as officers and directors of marchFIRST, are controlling persons of the

Company within the meaning of Section 20(a) of the Exchange Act . By reason of their positions with

marchFIRST, they were able to and did, directly or indirectly, in whole or in material part, contro l

the content of public statements issued by or on behalf of the Company . They participated in an d

approved the issuance of such statements made throughout the Class Period, including the materiall y

false and misleading statements identified herein .

19. By reason of their positions with marchFIRST, defendants had access to interna l

Company documents, reports, and other information, including, among other things, the adverse, non-

public information concerning the Company ' s inability to integrate the operations of USWeb/CKS ,

the Company's inability to properly perform services for its customers, and the Company's use o f

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improper means to inflate reported revenue. As a result of the foregoing, they were responsible fo r

the truthfulness and accuracy of marchFIRST's public statements described herein .

20, marchFIRST, and defendants, as officers and directors of a publicly-held company ,

had a duty to promptly disseminate truthful and accurate information with respect to marchFIRS T

and to promptly correct any public statements issued by or on behalf of the Company which ha d

become false and misleading .

21 . Each of the defendants knew or recklessly disregarded that the misleading statement s

and omissions complained of herein would adversely affect the integrity of the market fo r

marchFIRST's common stock and would cause the price ofmarchFIRST's common stock to becom e

artificially inflated . Each of the defendants acted knowingly or recklessly in such a manner as to

constitute a fraud and deceit upon Lead Plaintiffs and the other members of the Class .

22 . Defendants are liable as direct participants in and co-conspirators of, the wrong s

complained of herein .

SCIENTER, SCHEME AND FRAUDULENTCOURSE OF BUSINES S

23 . Defendants made false and misleading statements, engaged in a scheme to defraud ,

and pursued a course of business that operated as a fraud and deceit on purchasers of marchFIRS T

common stock .

24 . Defendants were top executives of marchFIRST and ran marchFIRST as "hands-on "

managers, dealing with important issues facing marchFIRST's business, i .e., the Company's growth ,

its dispute with a large customer in Mexico, its transactions with Internet companies, the problem s

these companies were having paying marchFIRST, new business these companies would and woul d

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not generate , the integration of USWeb/CKS, marchFIRST' s market share position , and the growth

of the Internet consulting market upon which marchFIRST' s business depended .

25 . Defendants closely monitored the performance of marchFIRST' s business via reports

which marchFIRST 's Finance Department (under Bert Young, until his resignation in October, and

later under his successor, Peter Murphy) generated on a weekly and monthly basis . Among the

reports defendants monitored were "order reports"and "backlog reports" that summarized orders ,

dollar volume and product type, and accounts receivable aging reports .

26. Each of the defendants, by virtue of their high -level positions with marchFIRST ,

directly participated in the management of marchFIRST, was directly involved in the day-to-day

operations ofmarchFIRST at the highest levels and was privy to confidential proprietary informatio n

concerning marchFIRST and its business , operations, growth, financial statements and financia l

condition and was aware of or deliberately disregarded that the false and misleading statements wer e

being made by and regarding the Company . Because of their managerial positions with marchFIRST ,

each of the defendants had access to the adverse undisclosed information about marchFIRST' s

business, products, financial condition and prospects and knew (or deliberately disregarded) that thes e

adverse facts rendered the positive representations made during the Class Period materially false an d

misleading .

27 . Moreover, in the third quarter ended September 30, 2000, the Company increased it s

allowance for doubtful accounts by $60 . 9 million . In addition , the Company announced that a

portion of its bad debts would be charged against goodwill as noted below . This indicates that such

receivable was acquired through an acquisition, rather than generated through the Company's ongoin g

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business . Accordingly, the receivable was well over 120 days old at the time the Company reporte d

its second quarter 2000 results . The retroactive goodwill adjustment shows that defendants kne w

or recklessly disregarded, but did not disclose, during the Class Period, that collection of thes e

accounts was doubtful .

28. In addition to having actual knowledge of the falsity of their statements, each of th e

defendants had the motive and the opportunity to perpetrate the fraudulent scheme and course o f

business described herein . In 1998, Bernard had agreed to be compensated solely with stock options .

He received 200,000 options in 1999 at exercise prices above $27. In 1999, the Company grante d

Young 42,166 marchFIRST stock options with exercise prices ranging from $23 .69 per share t o

$26.34 per share . The potential value of these options, assuming a 10% annual rate of stock pric e

appreciation over the option term, was $1,685,908 . Clarkson owned options to purchase 250,32 6

shares of the Company's stock . Thus, increasing the stock price was critical to these defendants '

income .

DEFENDANTS' GUIDANCE TO MARKET ANALYSTS

29 . Throughout the Class Period, marchFIRST regularly disseminated material

information about its businesses through the conduit of securities analysts employed by Wall Street

investment banks . Specifically marchFIRST, like other publicly-held companies, manage d

expectations for earnings by providing "guidance" to analysts . In particular, Defendant Bernard

participated in regular conference calls with analysts on the Bloomberg forum among other places,

during which he issued guidance on marchFIRST's business, results and future earnings . These

analysts communicated that guidance to the marketplace, which in turn then influenced investors '

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buying decisions and the Company's share price . As a result, marchFIRST was under pressure t o

meet analysts' earnings projections in order to continue to grow market capitalization and increase

the value of the company's stock .

30 . The importance of the sort of guidance that marchFIRST provided to securitie s

analysts is evident from the fact that recently, the SEC took action to stem the selective disclosur e

of material information to analysts . See 65 FR 51716, 17 C .F.R. 240, 243, and 249, SEC Releas e

Nos. 33-7881 , 34-43154, Selective Disclosure and Insider Trading, ("Regulation FD"). Regulation

FD, which took effect October 23, 2000, provides that when a Company, or person acting on it s

behalf, discloses material non-public information to securities market professionals and company

insiders, it must also publicly disclose such information . Id. In adopting the regulation, the SEC

stated that its purpose was to address the threat to the integrity of the securities markets posed b y

the behavior of publicly-held companies in making disclosures to analysts . Id .

UNDISCLOSED ADVERSE INFORMATIO N

Summa

31 . During the Class Period, defendants materially misled the investing public, thereb y

inflating the price ofmarchFIRST's common stock, by publicly issuing materially false and misleadin g

statements and omitting to disclose material facts necessary to make defendants' and the Company's

statements, as set forth herein, not false and misleading . Said statements and omissions were

materially false and misleading in that they failed to disclose material adverse information an d

misrepresented the truth about the Company, its business and operations, including, inter alia . :

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a. Defendants claimed that by the second quarter ended June 30, 2000, th e

integration of USWeb/CKS and Whittman -Hart was 85-90% complete . However, defendants knew

or recklessly disregarded that the two companies were not 85-90% integrated, that in fact their effort s

to integrate the Company were a complete failure, and that defendants never had a plan fo r

integrating the two companies. Indeed, after the class period, Bernard admitted to an analyst tha t

USWeb/CKS had integrated only 18 of the 45 companies it had acquired during the previous fou r

years. Moreover, the company's two financial reporting systems were not even scheduled to b e

integrated until April 2001 . As a result , the Company' s internal information systems were in such a

state of disarray that defendants, in many cases, could not determine which of its customers' account s

were overdue,

b. The combined Company lost existing business and new opportunities because

it could not deliver the full range of services that it had promised its customers, yet throughout the

Class Period it boasted of having hired new consultants who were at the top their field. Defendants

failed to disclose that, in many cases, the Company had no work for these consultants, or thei r

existing employees, and that, consequently, many of the Company's consultants --- as many as 50 i n

some offices --- were "on the bench," i .e. on marchFIRST's payroll but staying at home, and not

assigned to projects . This had an undisclosed, materially adverse effect on marchFIRST's financia l

performance because the Company's financial performance was primarily based on billing margin, i. e . ,

the consultants' billable hourly rates less the consultant's hourly cost . By keeping idle consultants o n

the payroll, the Company maintained a constant rate of hourly costs but decreased billable hours ,

thereby decreasing earnings .

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c. When it became apparent to defendants that the Company would not mee t

defendants' revenue and earnings forecasts, defendants set out to falsely inflate the Company' s

reported revenues and earnings . The Company improperly reported millions of dollars in revenu e

by issuing phony invoices, by strong-arming customers to purchase services they did not require, and

by invoicing those customers for services the Company had not performed or had performe d

inadequately . The Company improperly reported these false revenues during the Class Period .

d. The Company and Bernard had substantial equity investments in certain of it s

customers and used the control those investments afforded the Company to improperly exert pressur e

on the customers to purchase services they did not require. As revealed for the first time in the

Company's Form 10-Q for the third quarter ended November 30, 2000, $45 million, or 12 .2% of the

company's $369 .4 million in third-quarter revenues, came from related parties, many of which ha d

no source of revenue independent of the investment capital provided by companies in which

marchFIRST owned a controlling interest . Specifically :

0 During the three -and nine-month periods ended September 30, 2000 ,

companies in which BV Strategic Partners owned an equity interest contributed $24 .2 million an d

$30.4 million, respectively, to marchFIRST's reported revenue . BV Strategic Partners is a venture

fund in which marchFIRST owned a majority interest .

• During the three-and nine-month periods ended September 30, 2000 ,

companies in which Blue Vector LLC ("Blue Vector") had an equity interest contributed $20 . 1

million and $46 .7 million, respectively, to marchFIRST's reported revenue . Blue Vector is a venture

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fund in which marchFIRST had invested $72 .5 million as of September 30, 2000, which represented

a 50% equity interest .

• During the three- and nine -month periods ended September 30, 2000 ,

divine interVentures, Inc ., which subsequently changed its name to Divine, Inc . ("Divine"),

contributed $800,000 and $4.2 million respectively to reported revenues . The Company owne d

1,666,667 shares of Divine common stock and 2,000,000 shares of Divine preferred stock, an d

Bernard sat on Divine's Board of Directors .

C, All told, BV Strategic Partners, Blue Vector and Divine had outstandin g

receivables to marchFIRST of $28 .5 million, even after marchFIRST had funded $19 .9 million of

nonmarketable equity securities and convertible notes for BV Strategic Partners, which then use d

$19 .8 million to repay accounts receivable .

f In the third quarter ended September 30, 2000, the Company increased it s

allowance for doubtful accounts by $60 .9 million. In addition, the Company announced that one of

its bad debts would be charged against goodwill . As noted below, this retroactive goodwil l

adjustment shows that defendants knew or recklessly disregarded that these accounts were doubtfu l

when it reported its operating results for the quarter ended June 30, 2000 . Nevertheless ,

marchFIRST failed to write off such receivables until September 30, 2000 ,

Undisclosed Adverse Information Regarding the FailureTo Integrate Whittman-Hart and USWeb/CKS

32 . By the time of the merger, USWeb/CKS had yet to integrate the 45 acquisitions it ha d

made during the previous four years . Whittman-Hart had its own troubles . In December 1999, i t

rolled out a computerized information management system, comprised of components obtained fro m

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multiple vendors, that had been integrated into a system designed especially for Whittman-Hart an d

its business flow but which, unbeknownst to investors, was riddled with flaws that made it impossibl e

for the Company to accurately account for its business transactions . These undisclosed condition s

at Whittman-Hart and USWeb/CKS added to the usual integration challenges .

33 . Specifically, the Whittman-Hart system was supposed to integrate and track, on a

weekly basis, data from each of the company's branch offices concerning all aspects of the Company' s

business, including but not limited to project status, cash flow, billable and nonbillable hours, an d

consultant utilization rates . The system also was supposed to generate client invoices and keep trac k

of accounts receivable. The system was the only automated method the Company had for suc h

operations. Ironically, the system employed SAP software programs, which are the same softwar e

programs that marchFIRST configured and implemented for its clients' businesses .' Consequently,

marchFIRST had a motive to conceal these adverse facts, since marchFIRST's reputation would hav e

been materially damaged if it had become publicly known that it was unable to implement its ow n

SAP software system .

34. marchFIRST 's organization called for an executive-level employee, who it referred t o

as a "principal ," in marchFIRST' s Central Group Field Support ("CGFS") whose responsibilities

included conducting performance assessments of marchFIRST's Central Group (mid-west) offices .

In this capacity, the CGFS principal, from March 2000 through September 2000, traveled to and/o r

monitored operations in most of marchFIRST's 17 Central Group offices on a regular basis and

assisted the offices in data management, and, specifically, in the preparation of the weekly offic e

2 SAP is an enterprise resource planning system which integrates all aspects of the functionaloperations of a business .

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status workbooks ("Workbooks") . This former CGFS principal had first-hand knowledge of the

undisclosed material difficulties the Company encountered when it tried to switch over to the ne w

information systems, and received memos from the executive team, which included the defendants ,

in which the executive team acknowledged the problems .

35 . The Workbooks were supposed to account for weekly, quarter-to-date and year-to-

date revenue ; accounts receivable; pipeline status (i.e ., the status of work to be performed and

backlog); monthly and quarterly earnings; and weekly project-by-project revenue .

36. Beginning in January 2000, the new information systems generated this data .

However, the data was not accurate and, consequently, marchFIRST employees were required t o

audit and adjust the data and then enter the data into Excel spreadsheets . This process was extremely

time consuming and very prone to error .

37 . With regard to these problems, during one of several interviews with lead counsel, th e

former CGFS principal described above stated :

Bob [Bernard] knew the problems in December 1999 . We rolled those systems out inDecember of'99. And many key people in the company knew when they were rolled out thatthey were ineffective, The systems were so difficult to use that some offices simply stoppedinputting the data. Others input data but due to bugs in the system, the reports generatedby the system, based on that data, were inaccurate. This meant that Bob in some cases hadno access to information from the system . The information he could access from the systemwas inaccurate . So he was forced to rely on oral statements that were passed from the branchoffices, to the regions to central group and/or on manually generated spreadsheets .

1f he's forecasting for the second quarter, and he's making an announcement about whathe expects in Q2, I don 't even think, because our accounting systems were so bad, on thebackhand side, he never would really have an accurate picture and that 's part of thereason we had such frequent layoffs, because there was no accurate means for him toaccurately predict upcoming business.

-16-

38, The problems set forth above continued, unabated, and, were exacerbated by th e

merger and by the combined companies' inability to integrate their billing, accounting, personne l

infrastructure and computer systems .

39. Each office was responsible for, inter alia, maintaining its own computer systems, sale s

organizations and finance functions . While the Company did have a central corporate financ e

division, that division (which was poorly staffed) relied upon each office to provide it with separat e

financial results. Accurate consolidation of these results proved difficult, time-consuming, and

ultimately impossible, as marchFIRST's offices employed varying and inconsistent revenu e

recognition policies and presented their financial results in varying ways .

40. Specifically, USWeb/CKS personnel continued to generate financial repo rts on a

monthly basis, using a separate Oracle system, while former Whittman-Hart employees continued t o

report on a weekly basis on the new system that had been rolled out in December 1999 . To provid e

upper-level managers with the weekly reports they had come to expect, each branch office was

required, weekly, to manually adjust and reconcile the two sets of statements . This process was

hugely time consuming and prone to error . Consequently, throughout the Class period, defendant s

knew or recklessly disregarded that they did not have timely or accurate information about th e

Company's operations or financial performance .

41 . Bernard nevertheless used this data, which he knew to be inaccurate , to form the basi s

of statements he made to the media and financial analysts, and which he included in filings with th e

SEC regarding the Company's current revenue, accounts receivable and earnings, as well a s

projections regarding marchFIRST's performance, and the status ofthe integration of Whittman-Har t

-17-

and USWeb/CKS . When Bernard made such statements , many employees were very skeptical ,

because they knew the numbers could not be correct . The former CGFS principal quoted abov e

stated that Bernard, in making the public announcements about the Company's financial performance ,

integration and other issues, was being "unethical and maybe dishonest" because the method th e

Company used to generate the information was inherently unreliable .

42. Concerned about the very material nature of these problems, in or about May 2000 ,

Bernard secretly ordered marchFIRST executives to undertake a reassessment of the informatio n

system, and to devise a schedule for modifying the system such that it could integrate and account

for USWeb/CKS' s operations . That project , with regard to United States operations , was not slated

for completion until April 2001 . There was no schedule, at that time, for integration of international

operations. The need for and fact of this reassessment, however, were not publicly disclosed .

43 . The account set forth in the preceding paragraphs was corroborated after the Clas s

Period, in a research report published by Deutsche Banc Alex . Brown on November 29, 2000 ,

commenting on a conference call hosted by Bernard the day before . During the call Bernard reveale d

that, during the Class Period, when Bernard had been trumpeting the Company's success i n

integrating the operations of USWEB/CKS and Whittman-Hart, the merged entity had in fact bee n

riddled with operating inefficiencies that had had an undisclosed, materially adverse effect on the

Company's financial performance . In this regard, the report stated :

On the call, CEO Bob Bernard first laid out the challenges the company has been facing,including the market downturn, longer sales cycles with the Global 3000, and the reduceddot-com opportunity . These challenges coupled with internal operating inefficiencies(largely a sub-optimal operating structure and ineffective financial and operationalcontrols) have led to inefficient resource allocation, poor collections performance, and anear-term financial crunch. [Emphasis added . I

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isclosed Adverse Information Regarding marchFIRST'iility to Keen Track of Customer Pavments

44. The system's inability to generate accurate financial information had a material impact

on other aspects of marchFIRST's operations as well . Before December 1999, when Whittman-Hart' s

new system was installed, if a client's bill was past due beyond a specified number of days, th e

Company would charge back a portion of the commission granted the sales person who had been

given credit for obtaining the customer . marchFIRST's information management system was so

unreliable, however, that beginning in February, the Company was no longer confident enough of th e

accuracy of its accounts receivable data to charge back the sales persons' commission accounts .

45 . More significantly, during the second and third quarters of2000, defendants knew tha t

the Company's accounts receivable balance was growing at an unacceptable rate, while at the sam e

time the Company could not attempt to collect on these receivables because the information wit h

respect to specific accounts was so unreliable . In this regard, the former CGFS employee stated :

[I]n Q1, Q2 and Q3, we were on conference calls, with regard to the Central Group wherewe were told by our finance representatives that this [i.e ., accounts receivable] was a big issueand we had to deal with it . Yet when we tried to, the systems were so screwed up, they said,'Well you guys are going to have to back off, nobody can make calls to those customers rightnow.' We can't call company A because we really don't know whether the data was accurateor not . They might have paid .

46 . Defendants were afraid that marchFIRST clients would find out about the Company' s

utter inability to implement its own information systems . Accordingly, in or around March 2000, th e

Company's Chief Information Officer posted a voice mail, copied to all employees, advising them no t

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reveal the Company's difficulties to its customers, for fear that the customers would lose confidence

in marchFIRST's ability to implement their systems . 3

Material Adverse InformationConcernin Customers' Refusals To P a

47. As a result of the failure of the integration of USWeb/CKS and Whittman-Hart, an d

for other reasons as well, the Company suffered numerous customer complaints . Indeed, many

customers refused to pay marchFIRST because marchFIRST had never performed the services fo r

which the customers were invoiced and therefore had no right to payment, or because marchFIRS T

provided services other than, and less than, what had been promised, marchFIRST nonetheles s

improperly accounted for these contracts as revenue . In this regard, a former branch director in th e

Central Region stated :

"We had customers firing us because we would not be able to deliver upon what we said wecould deliver . And that's where the real problem lies . As you dig into this a little further,you're going to find that after the acquisition of USWeb/CKS, the company would 'pad' theproject plan. They would say, okay, what I'm going to do is build you a web site, JoeCompany, for one million bucks . And they already had it done . Because they wrote it intemplate form from previous [jobs] . "

48 . In many cases, the customer dissatisfaction arose because marchFIRST agreed t o

provide the client with an adaptable "custom" Web site, but instead installed an "off-the-shelf '

template that it had developed for previous customers, and then billed the client for the customize d

system .

49. There were many such instances .

a. In September 2000, Mexican media giant Grupo Televisa ("Televisa" )

announced that it was "very disappointed with the design of the Internet portal by marchFIRST, "

'The Executive Team often communicated with its employees by posting voice mails andcopying them to every employee .

-20-

according to an article published on October 23, 20000 in Smart Partner from ZDWire. Televisa

subsequently announced plans to sue marchFIRST for over $30 million over its involvement in the

design of the Televisa Web portal Esmas .com, according to an article published on February 19, 200 1

in the Mexico City Daily Reforma . According to the Reforma article, Televisa paid marchFIRST $23

million to design the portal but problems emerged in 2000 when it was discovered to be difficult t o

modify or expand the portal due to its original design -- a common complaint among marchFIRST

customers . marchFIRST ultimately took a $20 million charge to account for its failure to collec t

from Televisa,

b. According to a lawsuit filed against marchFIRST in the Cook County Circui t

Court, Chicago, marchFIRST and Venture Capital Online, L.L.C . ("VC Online") entered into a

professional services agreement, effective February 9, 2000, pursuant to which marchFIRST was t o

provide VC Online with substantial marketing, branding and technology development service s

regarding VC Online's website , vcapital .com . marchFIRST invoiced VC Online $8 ,172,915 .89 for

professional services marchFIRST claimed to have performed under the Professional Service s

Agreement . VC Online prepaid $4 .9 million but refused to pay the remaining $4.37 million of the

amount marchFIRST claimed was due . marchFIRST sued VC Online . According to the counterclai m

filed by VC Online, the services provided by marchFIRST " were not performed in a professional an d

competent manner consistent with industry standards, and the deliverables were materially defective, "

and "the site architecture provided by marchFIRST was substantially delayed, incomplete, materiall y

defective, and not fit for its intended purpose ." Significantly, the counterclaim also alleges tha t

marchFIRST submitted phony invoices . In this regard, the counterclaim complaint states :

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marchFIRST also submitted an inaccurate and false invoice . This invoice constitutes amisrepresentation by marchFIRST that the services described in the invoice were authorized,performed in a competent manner consistent with industry standards and the deliverables werenot materially deficient .

VC Online was forced to secure a third party to complete its web site and in its counterclaim , claims

to have incurred damages in excess of $12 million .

c. Shooting Gallery Movie Production, Inc . (the "Shooting Gallery") hire d

USWeb/CKS to design a web page for selling the Shooting Gallery's movie production services t o

the movie industry . According to a former Shooting Gallery employee, the Shooting Gallery fire d

USWeb/CKS in February 2000, before paying its outstanding bill of approximately $1 million ,

because "we didn't get experienced people . We walked in there looking for USWeb/CKS experience,

expertise in building a robust business web site, and yet the first guy that they gave us, the projec t

leader that they gave us, they had just brought him in new. [ . . .J The documents that they provide d

us, which were supposed to be the blue prints for this web site were unusable . [ . . .W]e felt like we

wasted perhaps eight months with them, and as much as, at least what was invoiced, about one

million and a half. "

d . Fox River Mills, Inc. and Calibrus, Inc . were other companies that refused t o

pay marchFIRST invoices in substantial amounts, because marchFIRST failed to perform according

to the terms of its contract .

50 . Defendants were aware of this state of affairs because, according to numerous forme r

employees, defendants ran marchFIRST as a hands-on business and required branch employees t o

update them, as often as daily, on the status of the Company's larger projects and because Bernard

-22-

was directly involved in decisions regarding the reporting of financial information and, specifically ,

the Company's revenues .

Undisclosed Adverse Information RegardingThe Company's Failure to Grow its Busines s

51 . Defendants also knew that the Company was unable to grow its business, and that it s

failure to retain existing customers and to sign on new customers was having a materially advers e

effect on revenues and earnings . As marchFIRST' s business fell off, large numbers of its consultant s

were put "on the bench," i .e ., told not to report to work, and the Company's offices appeared idle .

52 . The Company went to great lengths to hide this state of affairs, both from potential

customers and from the investing public . This is illustrated by the Company's attempts, in September

and October 2000, to obtain a contract from AT&T . In anticipation of AT&T's visit to

marchFIRST's Denver office, the Company sent out an e-mail directing all employees who were "o n

the bench " to come into work and "look productive ." There were approximately 50 such employees

who were "on the bench ." In this regard, a former employee in the Denver office stated, "They wer e

going to bring in the AT&T executives and walk them through the office . So they had everybody

come in and pretend that they had something to do ." Another former marchFIRST employee in th e

Denver office recalled :

When the AT &T team came in they [the consultants on the bench ] actually had to come onin and look busy and just kind of fill the office up . In addition to that, we did things like 'falsepages ' to where they would call [name of employee ] and say hey [name of employee], youknow paging [name of employee], you got a call on line two, just to make it seem that wewere really busy, as they were walking through -- just to give AT&T the feel thatmarchFirst was a ve ry legitimate organization , that these guys are real busy and they're reallymaking things happen and closing deals . This is a group that we want to be part of Youknow they were really cheesy that way .

-23-

53 . According to one of these employees, in the third quarter, "the bench became so

massive that there was utter panic in our office . And not only that, but in the third quarter we wer e

given some ultimatums, basically, and that is if we don't break even by the first quarter next year, if

Denver does not break even, then we're going to shut down and basically heads are going to roll . "

54. Yet throughout this time period, defendants were actively touting their recruitmen t

of additional consultants, without disclosing that many of these consultants had little or nothing to

do. In addition to hiring consultants who had no work to do, merely so that the Company coul d

announce that these employees had been hired and thereby create an appearance of a growing

business, defendants devised various schemes for artificially inflating reported revenue . One such

scheme involved invoicing customers for services the Company had never performed . In other cases ,

the Company invoiced clients for services that were above and beyond what the client required . It

then reported the invoiced amount as revenue even though the Company knew it was highly unlikel y

that the customer would ever pay the invoice .

55 . A particularly stunning instance involved Autozone, Inc . ("Autozone"), a Memphis-

based auto parts dealer . According to a former employee, in the third quarter of 2000, Joseph Bong ,

marchFIRST's Executive Vice President, attempted to cause a marchFIRST employee to invoice

AutoZone for approximately $1 million even though marchFIRST had done absolutely no work fo r

Autozone. An employee noti fied the U.S . Attorneys' office, which initiated an investigation of

marchFIRST's billing practices . In response to this incident, the Company fired the employee who

had notified the U .S. Attorneys office and initiated an internal investigation that was conducted b y

Katten Muchin Zavis, the same law firm that has appeared for and is representing the defendants i n

-24-

this lawsuit . Neither the results of the investigation, nor the fact that an investigation was bein g

conducted, was disclosed to the public .

56. Defendants also manipulated companies in which they and marchFIRST had an equit y

interest , to create the false appearance that the Company was generating revenue . The May Report ,

published on themayreport .com, is a technology oriented, Chicago-based investigative news service .

After the Class Period, on April 12, 2001, it published a report about defendants and their use o f

"equity for services" to artificially inflate the Company's reported revenues . The report was based

on "very well placed people who no longer have anything to fear ." With regard to the "equity fo r

services" scheme, the report stated :

Here is how it works . Little or no money actually changes hands . One of Bernard's shellcompanies or marchFIRST itself offers to invest in a firm. The firm being invested in needscash or services . Bernard says, 'here is a million dollars for equity in your firm.' Then he tellsthat firm to give him a purchase order for $1MM in services in exchange for the 'investment .'In other words, that firm has just gotten a million dollars on account, so to speak, for servicesthat have not even been provided . They are'on credit' . Then Bernard can make a P .O . andrun it through his accounting system to make it appear that his firm is generating revenue forconsulting services . Meanwhile, little or no cash has changed hands, and Bernard can puffthe books .

Now, here is a logical question : What does the firm that is giving up the equity for bogusservices get? Good question, right? The answer is, as it was explained to me, is that they getthe cachet of having marchFIRST as their major technology implementation partner, so thatthey can go to real VCs and get funding, using the marchFIRST name and supposedfirepower . [ . . . ]

Bernard (and when I say Bernard, I mean Bob and his minions because he may not havepersonally executed everything) was creating the illusion that they were doing business to thetune of whatever amount of money . There was little cash involved, and the whole thing wassmoke and mirrors . But it did help Bernard to create better market capital . The schemewould have worked well had the dotcom business not collapsed forcing marchFIRST and theshell companies to write off the equity in the defunct companies .

57. On April 15, 2001, themayreport.com published a response to the item above, which

stated:

I would have to say that the author (Ron May) hasn't missed a beat yet . We had a lot of"service for equity" accounts especially in the Chicago area . IfBob's [Bernard's] hands wer e

-25-

in it, we were told to leave it alone because Bob was aware of the problems . Some of thebranches had bogus equity on non-existent companies .

An example would be of a 2M a/r [i.e ., $2 million account receivable] . . . we couldn't findtheir office, we couldn't get a hold of any employee, and when we tried to press further, wewere told that the account was being escalated to Bob Bernard and that we were to leave theaccount alone . This type of scenario happened on MANY of the accounts .

58 . The allegations contained in ¶¶5 6-57 above are borne out by the statements of

marchFIRST employees who were intimately familiar with marchFIRST's operations during the Class

Period, as well as public records disclosing Bernard's ownership interests . For example, accordin g

to Texas Secretary of State corporate records, Bernard was one of two members and managers of

William Reid , LLC, a Texas- based clothing designer ("William Reid")

59 . Beginning in 1999, and continuing throughout the class period, marchFIRS T

recognized revenue for William Reid . With regard to the services performed, a CGFS employe e

stated :

When we were short in a quarter in making our revenue numbers and this happened . Itstarted in Q3 of 1999 . All of a sudden we had this huge, huge project with William Reid, thissingle clothing designer in Dallas, Texas . It turned out that Bob, either owned it or had 51%controlling interest, something of that nature . Then all of a sudden we're doing a couplemillion dollar project and we can recognize (on the books) a million dollars of it right now,for that quarter. So we were recognizing in advance for work that we hadn't done . We didthat a couple quarters running ." [ . . . ]

With William Reid, a call was made to the Branch Manager [Thomas Frye of the Dallasbranch] and the Branch Manager consequently told the Dallas branch management team,'herethis fell down from the sky, book a million bucks '

We had to do the work, we did eventually . I would say we did all the work, however, it wasoverkill . I mean we put in a huge ERP [Enterprise Relationship Package]' system in for thistiny clothing designer . And you know Bob made him get loans from the bank, apparently,I heard, to be able to pay our invoices. And William Reid, I heard, eventually, he said, youknow, get the f--k out of my business . I don't care if I start under another name. Williamstarted to get the idea that an elephant was sitting in front of him and he didn't know what thehell to do with it . He was paying for it but he didn't need it .

4ERP is a software package designed to manage many facets of a businesses enterprise . William Reidwas a ve ry small clothing designer . The ERP package installed for William Reid was an SAP package,typically meant for very large enterprises .

-26-

60 . The former CGFS employee stated that Frye received instructions to book revenu e

on the William Reid project by e-mail and telephone message from Bernard or his assistant, and tha t

the CGFS employee had seen these e-mails and heard the voice messages . The CGFS employee also

was present for a conference call with Bernard and on that call was personally directed by Bernar d

to invoice William Reid .

61 . Similarly, Bernard is a 90% owner of Form and Function Capital LLC ("Form an d

Function"), according to marchFIRST's proxy form filed with the SEC on April 28, 2000 . On

January 19, 2000, marchFIRST and Form and Function each purchased 400,000 shares o f

Homeoriginals . com, Inc . convertible preferred stock for $2,000,0000 . On that same date ,

Homeoriginals entered into a consulting services agreement with the Company agreeing to purchas e

no less than $4 million of serv ices .

62 . As set forth in ¶31 d -e supra, at the close of the Class Period , the Company disclose d

that $45 million, or 12 .2%, of the company's $369 .4 million in third-quarter revenues, came fro m

related parties. Specifically, BV Strategic Partners, a venture fund in which marchFIRST owned a

majority interest, contributed $24 .2 million to revenues and Blue Vector, a venture fund in whic h

marchFIRST owned a 50% interest, contributed $20.1 million to revenues . divine interVentures ,

Inc., which subsequently changed its name to Divine, Inc . ("Divine"), added $800,000 to reporte d

revenues. The Company owned 1,666,667 shares of Divine common stock and 2,000,000 shares o f

Divine preferred stock, and Bernard sat on Divine 's Board of Directors . All told, these related parties

had outstanding receivables to marchFIRST of $28 .5 million, even after marchFlRST had funded

-27-

$19.9 million ofnonmarketable equity securities and convertible notes for BVStrategic partners ,

which then used $19.8 million to repay accounts receivable .

63 . In short, unable to generate by proper means sufficient reportable revenue from

marchFIRST's services to meet projections, defendants purchased revenue with equity, usin g

subsidiaries to invest in Internet startups, only to recoup the investment in "revenue" for services tha t

had never been provided or which had never been fully provided . As set forth herein, this practice

violated GAAP .

FALSE AND MISLEADING STATEMENTSDURING THE CLASS PERIO D

Defendants Introduce the marchFIRST Name an dMake Materially False and Misleading Statements AboutCompetitive Strength, Integration and Revenue Recognition

64. The Class Period commences on March 23, 2000 . On that date, the merged

Whittman-Hart and USWeb/CKS launched the marchFIRST name and began the first day of trading

on Nasdaq under the ticker symbol, "MRCH ." In an upbeat news release issued over the PR

Newswire on March 23, 2000 to announce the combined Company's first day of trading, the

Company stated :

Bernard said MarchFirst combines two powerhouse companies to create an extraordinaryone. He noted Whittman-Hart was recognized worldwide for its industry leadership in back-office business systems integration, supply chain management and business-to-businessprocesses and technologies. Similarly, he added, USWeb/CKS earned a global reputation forbuilding brands, creating high-performance business-to-consumer e-Commerce systems anduniquely understanding how to weave creative design, branding, marketing and strategy intothose implementations .

'There are dozens of players in the internetprofessional services arena but most competewithin the narrowly defined niches of strategy, marketing, creative services, or front-or-back end interfaces, ' Bernard said 'However, marchFIRST has expertise in all of theseareas, allowing us to immediately and profoundly impact our clients' performance. [ . .J

-28-

Although MarchFIRST's formal brand launch is slated for this summer, Bernard providedsome insight into how the combined company will be positioned . "The combination of ourtwo dynamic cultures and their extraordinary success stories gives us amazing competitivestrengths," he said. [Emphasis added . ]

65 . These news releases were issued in conjunction with an analyst summit held b y

marchFIRST in New York City on March 23, 2000, attended by analysts and marchFIRST investors .

66. The statements set forth in ¶64 were materially false and misleading at the time they

were published because defendants failed to disclose that USWeb/CKS had yet to integrate the

approximately 45 acquisitions it had made during the previous four years, and that defendants ha d

not adequately planned for the integration of the two companies and that consequently, marchFIRS T

would be unable to "immediately and profoundly impact" its clients' performance . On the contrary ,

USWeb/CKS was unable to meet the minimum indust ry standards of service . Rather, the Company

installed "off the rack" Internet systems for its clients but billed them for customized Internet

solutions .

67 . During this period, the Company assured analysts that it had a detailed plan an d

schedule for integrating the operations ofUSWeb/CKS and marchFIRST. In this regard, rNG Baring

Furman Selz LLC stated in a research report on March 30, 2000, based on a conversation wit h

marchFIRST officials :

Management has outlined a detailed integration plan that calls for 100%integration by the end of 2000. Quarter to quarter, the integration of USWB/CKS andWhittman-Hart is expected to be : 1) 28% completed by the end of the first quarter 2000, withoperating plans and rules of engagement for the new entity established ; 2) 57% completed bythe end of the second quarter, with the combined firm's operating structure in place on global,national, regional and local levels ; 3) 72% complete by the end of the third quarter, with thecombined firm's new service offerings, segmentation, channels and new alliances defined ; and4) 100% completed by the end of the fourth quarter, with a unified business model, brand andprocesses in place . [Emphasis added .]

-29-

68. Management's statements to analysts, as typified in ¶67 above, were materially fals e

and misleading . As described in greater detail in ¶32-43 above, defendants had no plans fo r

integrating the operations of USWeb/CKS and Whittman-Hart ; indeed, USWeb/CKS itself had ye t

to integrate the 45 acquisitions it had made during the preceding four years .

69. On March 30, 2000, the Company filed its Form 10-K for the year ended Decembe r

31, 1999 ("Form 10-K") . With regard to revenue recognition, the Form 10-K stated :

In general, the Company recognizes revenues at the time services are performed . On time andexpense contracts, revenue is recognized as costs are incurred . On fixed-price contracts,revenues are recorded using the percentage-of-completion method of accounting byrelating contract costs incurred to date to total estimated contract costs at completion .Contract costs include both direct and indirect costs . Contract losses are provided for in theirentirety in the period they become known, without regard to th epercentage-of completion . [Emphasis added . ]

70. Defendants knew or recklessly disregarded that this statement was materially false and

misleading . According to a former employee, the Company reported revenue in excess of th e

contract costs incurred to date as a percentage of the total estimated contract costs at completion .

As set forth in ¶1130, 137-138, on fixed -priced contracts initiated by USWeb/CKS, revenue was

improperly recognized by former Whittman-Hart employees, working on the same project as forme r

USWeb/CKS employees, but who used a different accounting system . Specifically, former Whittman-

Hart employees reported revenue on a weekly basis, according to their time, their hourly rate, an d

estimated costs . For revenue recognition purposes, these reported revenues, generated by the forme r

Whittman-Hart employees, were improperly added to the revenues that were reported according t o

the contractual fixed rate . As a result, the Company recognized revenue in excess of the fixed rat e

the Company had agreed upon with the client .

-30-

71, This problem was complicated by the Company' s time-keeping system , called Paratrac ,

which, defendants knew, would sometimes record non-billable time as billable . This glitch also ha d

the effect of artificially inflating the Company's reported revenue, earnings and growth rate .

72. With regard to the Company's information system, the Form 10-K stated :

The Company replaced its existing internal information systems in the fourth quarter of1999. The system is currently operating without any significant interruptions and theCompany is not aware of any Year 2000 related problems associated with the system . Thecost of this implementation did not have a material adverse impact on the Company 's resultsof operations or financial condition. [Emphasis added . ]

73 . Defendants knew or recklessly disregarded that this statement was materially false and

misleading at the time this statement was made and thereafter, because, as set forth in ¶¶32-46 supra,

the new internal information system was a disaster, plagued with huge problems that made it virtuall y

impossible for the Company to track its financial performance, and to otherwise obtain the data it

required to fully understand and to make accurate statements about the Company's past, present and

future economic performance . Defendants knew that the system was a disaster because they trie d

to generate accurate data using the system, and failed, and because they read e-mails, that were sen t

to them individually and posted on a central computer bulletin board established to host discussio n

of company-wide problems . In these e-mails, employees complained angrily about the system' s

inability to generate accurate data concerning the project status, cash flow, billable and nonbillabl e

hours, and consultant utilization rates . These problems affected, among other things, the Company' s

ability to accurately bill its clients, to know which customers had paid their bills and which had not ,

to know how many consultants it needed and to deploy those consultants in a way that maximize d

their utility.

-31-

Defendants Announce marchFIRST's First QuarterResults and "Integration Milestones "

74. On April 25, 2000, marchFIRST announced its results for the first quarter ended

March 31, 2000. Since the merger of Whittman-Hart and USWeb/CKS became effective on March

1, 2000, in mid-first quarter, the combined Company's financial statements reflected only one mont h

of USWeb/CKS results . The financial results were announced in a news release issued by

marchFIRST over the PR Newswire in which the Company stated :

marchFIRST, Inc., the new global Internet professional services companycreated by the merger of Whittman-Hart and USWeb/CKS, today reported revenuesand net income for the first quarter ended March 31, 2000 .

Revenues for the first quarter, according to GAAP standards, increased 109percent to $227 million from $108.7 million for the same period last year. First-quarter revenues represented a 71 percent increase from $133 .0 million for the fourthquarter of 1999 .

On a pro-forma basis, first-quarter revenue increased 41 percent to $352.0 millionfrom $249.3 million for the same period last year . First-quarter revenues represented a 71percent increase from $133 .0 million for the fourth quarter of 1999 .

Pro-forma supplemental net income rose 97 percent to $27 .8 million or 17 cents pershare from $14 .1 million for the same period last year . Quarterly sequential supplemental netincome climbed 23 percent to $27 .8 million from $22 .6 million . All earnings-per-share figureswere calculated on a fully diluted basis . [ . . . ]

First Quarter Integration MilestonesBernard also highlighted the progress of the Company's ongoing integration project,

led by Chief Combination Officer Mike Berent, pointing to significant first-quarter milestonessuch as :

-- Naming the executive management team, creating a single management structurefor field and corporate, [ . . . ]-- Identifying enterprise-wide business systems for financials, opportunitymanagement, billing, project accounting, and time and expense reporting ,-- Conforming accounting policies and forecasting methods-- Completing a company-wide cultural assessment and conducting focus groups-- Consolidating offices in cities where multiple locations existed, and-- Deploying a company-wide intranet and conforming company-wide e-mailaddresses . [Emphasis added.]

-32-

75, This news release included marchFIRST Consolidated Balance Sheets in

which the Company reported trade accounts, receivable, net, of $406 million for the quarter, up

sequentially from $90.7 million in the quarter ended December 31, 1999 . Following issuance of the

release, defendants assured analysts that bad receivables were not a problem, and supported th e

assert ion by claiming that only a small po rtion of its revenues were derived from dot . com companies,

which were widely believed to be less stable and therefore less likely to be able to make good o n

financial commitments .

76. With regard to credit risk and receivables, defendants made the following statements ,

among others, to analysts :

• Revenue derivedfrom do t.corns (both pure dot corns and brick and mortar backeddot.coms) represented 9% of total revenuefor the quarter. The company haslimited exposure in this area and carefully screens all potential clients forfinancial viability. [Emphasis added.] [April 26, 2000, Chase Hambrecht & Quist,Inc . ]

• Collections are under control, with DSOs coming in at 88 days, in our view. Earlystage "dot corn " companies represent less than 20 % of revenue, and we believethey pose little to no receivable risk as all are well funded [Emphasis added . ] [April26, 2000, Robertson Stephens]

• MRCH's exposure to dot .com clients remains low relative to many competitors ."Non-brick and mortar" dot-corns comprised only 8% of revenue in the quarter,and management expects this percentage to remain in the single digits for the restof 2000. [Emphasis added .] [April 27, 2000, ING Baring Furman Selz LLC ]

77. The statements in ¶¶74-76 were materially false and misleading because :

a. As demonstrated by their huge accounts receivable, and the huge write-off s

for bad debt the Company was forced to take after the Class Period, the Company did not carefull y

screen all potential clients for financial viability ;

b. Defendants failed to disclose that, even if revenues from dot . corns were small ,

relative to total revenue, there was a significant risk of nonpayment from other clients . Defendants

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knew this because, among other reasons, marchFIRST had substantial equity investments in many of

the delinquent clients and therefore monitored their financial condition ; and

Collections were not under control, because (i) a substantial number of th e

customers were companies that had no source of revenue other than marchFIRST's investment i n

them; (ii) marchFIRST's integration problems made it impossible for the Company to accurately track ,

assess and act upon collections issues ; and (iii) marchFIRST had no right to payment from a

substantial number of customers because marchFIRST had not performed the services that woul d

have entitled it to payment .

78. On May 15, 2000, marchFIRST filed its Form 1 OQ for the first quarter ended Marc h

31, 2000. This Form 10-Q confirmed the previously announced financial results and was signed b y

Bernard and Young .

Defendants Report marchFIRST's Second Quarter Results

79. On July 25, 2000, marchFIRST announced its results for the second quarter of 2000 ,

which ended June 30, 2000, in a press release which stated . in part:

Second Quarter Performance Highlight s

"We just completed a landmark quarter for marchFIRST," said RobertBernard, marchFJRST Chairman and Chief Executive Officer . "In our first fullreporting quarter as a new company, we were able to grow sequential revenue andprofitability while making tremendous strides in integration and bringing a recordnumber of new professionals into the Company . We built exciting momentumthroughout the organization by consistently surpassing the goals we set for thequarter . "

Bernard attributed the solid sequential growth to marchFIRST's emphasison "hunting in packs" -- creating opportunities to expand relationships withclients by bringing together business strategists, brand-building experts andtechnology architects to demonstrate the potent value proposition of integratingthese three disciplines to drive dynamic results. He also noted the progress ofmarchFIRST HostOne, the Company's enterprise application services business unit ,

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which continued to forge relationships with leading companies, opened a state-of-the-art monitoring and management facility in the Washington, D . C . area, and establisheda new partner program for independent software vendors (ISVs) in the secondquarter.

"We are proving our business model with market-leading companies each andevery day," Bernard said, citing marchFIRST's work with OAG on a wirelessapplication to provide flight schedules for more than 800 airlines to OAG customersvia technologies such as Web-enabled phones and personal digital assistants . He alsonoted engagements with Barbie .com and Frontgate .

"Like ourprofessional services teams, our recruiting organization is firingon all cylinders, pulling top talent from leading strategy firms, advertisingagencies and technology companies, " he added "We have assembled a team ofgifted professionals who are committed to marchFlRST and who want to workhere because they believe in our core values and vision as a company. "

Lastly, Bernard said integration moved ahead of schedule in the secondquarter. As highlights, he cited a Company-wide professional capabilities audit todetermine the distribution of expertise in marchFIRST's core disciplines . Thisinformation was used to create a new professional services portfolio, whichstandardizes offerings throughout the organization . Additionally, the Companycombined multiple office locations in Atlanta, Chicago and Phoenix . [Emphasisadded. ]

80. After releasing these results, marchFIRST held a conference call on July 25, 2000 with

analysts and marchFIRST investors regarding the second quarter 2000 results and the Company' s

business and prospects, in which conference Bernard and other members of marchFIRST' s

management team made positive statements to analysts and other participants which were intende d

to be, and were, later repeated in analyst reports .

81 . On July 26, 2000, Deutsche Banc Alex . Brown issued a report on marchFIRS T

written by Mark D'Annolfo repeating Bernard's and other members of marchFJRST's managemen t

team's statements . These statements were made with the intent that they would be relied upon an d

repeated to investors . The report forecasted third quarter 2000 earnings per share of $ .20 and year

2000 earnings per share of $.76, and stated :

* Hiring and retention improves . It appears that the worst of the integration-relatedvoluntary turnover is behind the company as that figure improved to 22% from 23 %

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in 1Q . Over 400 net new billable adds (up 6% q/q) indicates strong hiring in light of6% involuntary turnover (virtually all integration-related) . Forced tu rnover is likelyat or near a peak, and should move lower by 4Q . Inbound resumes have tripled,largely due to the branding campaign , indicative of a strong hi ring pipeline. Employeereferrals generate about half of new hires , a good number in our view . Slowing paceof departures through year-end could set stage for accelerated NET hiring in 2001 .

* Integration ahead of plan . We expect 95% of the integration to be completed bythe end of 3Q, and the entire integration in 4Q . During the quarter, the companycompleted initiatives including : (1) consolidating ATL, CHI and SF facilities, (2)standardizing service offerings across the firm, (3) hosting re-orientation in CHI,Washington DC and Paris for about 1000 employees, (4) expanding brand awarenessthrough marketing campaign, (5) standardizing benefits plans and employee referralincentives, and (6) launching MarchFirst campus for e-Leamingltraining initiatives .Merger costs were about $1 million ahead of our $27 .5 mil target and should becompleted in the current quarter (estimated $43 mil . in merger costs in 3Q) .Improving DSOs and hiring/retention give us increasing comfort in the integrationeffort .

* Balance sheet in good shape Cash position solid at $176 million , especiallygiven virtually all major cash outflows in 2Q are non-recurring (buybacks notexpected at higher share prices (3 mix purchased to date at avg . price of $21.67),no additional investment in Blue Vector expected near-term, and merger-relatedbanker fees are paid in full) . Collections improving as DSOs dropped to 85 from88 in IQ (after increasing last quarter). We expect continued improvement asmanagement continues to target collections . [Emphasis added . ]

82. On July 26, 2000, PaineWebber issued a report on marchFIRST by Andrew Burns

based on Burns' conversations with Bernard and other members of marchFlRST management, whic h

forecast third quarter 2000 and year 2000 earnings per share of $ .19 and $36, respectively, and

stated :

* Solid quarter bolsters confidence in management's ability to integrate mergerwhile maintaining strong operating visibility . Lower turnover indicates integrationissues troughed in 1 Q00. Expect lionshare of integration complete by end of3Q00 . [Emphasis added . ]

83 . On July 26, 2000, SG Cowen Securities Inc . issued a report on marchFIRST by

Moshe Katri based on Katri's conversations with Bernard and other members of marchFIRS T

management . The report forecast third quarter 2000 and year 2000 earnings per share of $.20 and

$37, respectively, and stated :

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-CLIENT DATA SHOWING FAVORABLE TRENDS. Annualized revenue fromthe Company 's top 100 clients increased in the quarter to $12 MM, and overallaverage project size increased to $8 MM from the previous quarter 's $5 MM.International revenues, as a percentage of sales, were 18%, up slightly from lastquarter's 17%. Repeat business for the quarter was flat sequentially at 65% .Revenues by category were as follows : Technology - $221 .7 MM versus $207 .7 MMlast quarter (up 6 .5% sequentially) ; Brand Building - $63 .9 MM versus $59 .0 MM(up 8 .3% sequentially); and Strategy - $85 .2 versus last quarter's $79 .3 MM (up7.4% sequentially). [Emphasis added . ]

84. On July 26, 2000, DLJ Securities issued a report on marchFIRST by Eric Ross base d

on Ross' conversations with Bernard and other members of the Company's management . The report

forecast third quarter 2000 and year 2000 earnings per share of $ .20 and $ .76, respectively, and

stated :

• Integration efforts continue to progress ahead ofschedule, and as of theend of Q2 we believe is 85% completed Management conservatively expects thatthe two companies will have completed the entire integration process by the endof Q4. [Emphasis added . ]

85. On July 26, 2000, Roth Capital Partners, Inc . issued a report on marchFIRST b y

Glenn Powers based on Powers' conversations with Bernard and other members of the Company' s

management. The report forecast third quarter 2000 and 2000 earnings per shares of $ .20 and $.77 ,

respectively, and stated :

This was the company's first full quarter as a combined company, and the merger isdemonstrating its benefits . MarchFirst brought in a record number of newprofessionals to the company this quarter, lowered voluntary employee turnover,and raised its average hourly billable rate .

Highlights :[ . . . At the end of Q2, it was 85% complete with the integration; it should be 95%complete by Q3 and 100% by the end of the year. After Q3, there should be nomore charges related to the merger .

86. The statements in ¶¶79, 81-85 were materially false and misleading because :

a. For the reasons stated in ¶¶32-43, the Company was not making "tremendous stride s

in integration" ; integration was not moving ahead of schedule in the second quarter ; and indeed there

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was an undisclosed plan to reassess and modify the computerized information system such that i t

could integrate and account for USWeb/CKS' United States operations which would not be full y

implemented until April 2001, with no schedule for integration of international operations .

b. Defendants failed to disclose that the Company's reported revenues and earnings wer e

artificially inflated as set forth in ¶¶47-50, 54-63, 133-139 ; and

c. Defendants failed to disclose that to the extent the Company experienced "sequentia l

growth" in revenue, the revenue was attributable not to the Company's expanded relationships wit h

clients but rather, were achieved by foisting unwanted services on clients that materially relied o n

marchFIRST and its subsidiaries for working capital; and

d. As described in ¶151.53, the Company had no work for many of the new hires it wa s

touting, and kept many of them "on the bench . "

87 . On August 11, 2000, A .G. Edwards issued a report " initiating coverage" on

marchFIRST by Laura Browder . Because this was A . G. Edward's first report on marchFIRST, it wa s

issued only after Browder had extensive discussions with Bernard and other members ofmarchFIRST

management , and was based on and repeated information provided by them . marchFIRST

management reviewed this report before it was issued and assured Browder it was accurate . The

report forecast third quarter 2000 and year 2000 and Earnings per share of $ .20 and $.76 and a 30 %

long-term EPS/secular growth rate and stated :

We believe marchFIRST represents an attractive investment in the Internetconsulting services industry due to its large consultant base, strong management teamand attractive growth opportunities, and is [sic] working through its integration issuesin the near term. Formed through the combination of a systems integrator (Whittman-Hart) and a web development firm (USWeb/CKS), marchFIRST, in our opinion, willbe a powerful leader in the Internet consulting services industry once its integrationstrategy is realized . We believe marchFIRST's competitive advantages are its breadt h

_38-

and depth of services, its technical expertise, and its industry knowledge, combinedwith its scale and geographic reach .

Integration issues are settling quickly. We believe marchFIRSTis movingquickly to integrate the operations of Whittman-Hart and USWeb/CKS, as well asthe numerous other companies acquired over the last several years. We alsoanticipate that the specifics of a 2 year business plan will be announced before the endof the current year . [Emphasis added . ]

88 . On August 15, 2000, George K . Baum & Company issued a report written by Steve

Toomey on marchFIRST, based on conversations Toomey had with marchFIRST management in the

week preceding his report . These statements were made by marchFIRST management with the inten t

that they would be repeated to and relied upon by investors . The report forecast third quarter 200 0

earnings per share of $.20 and stated :

We have had contact with management recently concerning the quarter and believethe trends within the company continue to be positive with more successful hiring, andimproving turnover metrics. The integration of USWeb/CKS remains on track withgood progress toward a common back office system throughout the enterprise, andthe company has had an intense focus thus far in the quarter on receivablesmanagement.

89 . In fact, defendants were investigating problematic receivables and had, by this time ,

determined that two large receivables, in the total amount of $45 million, should be written off. As

a result, marchFIRST's third quarter 2000 results would be much worse than defendants '

representations . Nevertheless, defendants failed to disclose the true status ofmarchFIRST's business .

90 . marchFIRST's stock price declined to the $21 level over the next several days a s

marchFIRST's Form 10-Q for the second quarter was filed on August 14, 2000 . This Form 10-Q

reported that marchFIRST's "unbilled" receivables had increased to $97 million. This was higher than

marchFIR.ST had represented to analysts in its July 25, 2000, second quarter 2000 conference call .

-39-

Defendants worked hard to reassure investors and analysts with Bernard speaking to several analyst s

over the following days .

91 . On August 16, 2000, DLJ Securities issued a report on marchFIRST written by Ross

entitled "MARCHFIRST : Positioned to Benefit from Shift in Demand ; Reiterate Buy," which

included information about marchFIRST's receivables and was based on information provided to Ros s

by marchFIRST management. The report repeated statements by management which omitted an y

mention of its problem receivables as mentioned in ¶6 above :

• The integration effort appears to be tracking ahead ofplan, and we believeit is nearly 90% complete Turnover looks as if it has stabilized (20-21% in July), andmoderate upside to our financial model during the balance of 2000 is likely . Finally,the company has collected $11 million from Televisa since the end of Q2, so despiteconcern, credit risk at the Mexican media giant is not an issue . We reiterate our Buyrating and $54 price target . [Emphasis added . ]

92. Due to back office problems defendants lacked adequate information about account s

receivable, and also knew of and failed to disclose specific accounts receivable problems . The

accounts receivable issues also included a major issue concerning the Televisa receivable, includin g

Televisa's claims that marchFIRST had failed to deliver a project, and approximately $20 million i n

receivables that defendants knew, during the Class Period, that the Company was unlikely to collect .

Ultimately, Televisa would threaten litigation . Thus, contrary to defendants' statements to analysts,

including Ross, credit risk with Televisa and other accounts was clearly an issue .

93 . On August 18, 2000, prior to the markets opening, PaineWebber issued a report on

marchFIRST by Burns which stated :

* MaintainBUYrating, December 2001 target $50-55 , 2000 and 2001 EPS estimates$0.76 (up 33% Y/Y) and $1 .04 (up 37% Y/Y) .

* Upbeat discussion with CEO, Chairman Bob Bernard All metrics indicateintegration tightly in hand, ad campaign gaining traction .

-40-

* Three main points : 1) Headcount : 250 net adds in first month of qtr . (ahead oftarget 400-500 per qtr .), voluntary turnover tracking flat seq . (22%); 2) DSOstrending down: tracking at 80-82 days (vs . 85 reported in 2Q00, 88 in 1Q00); 3)Increasing project sizes : $12-14 mm (vs . $12 mm last quarter, $1-3 mm year ago) .

* Branding campaign launched 1 Q00 fuels headcount pipeline (4-fold increase in hitsto their web site from prospective billable employees since March) . Flat turnover anddeclining DSOs indicate management has tight handle on integration . Larger projectsizes reduce S&M expenses, add to revenue visibility, reduce employee utilizationrisks .

* marchFIRST well-positioned in e-service market as one of only handful ofcompanies with global scale, breadth of services to service large, complex projects .Near-term catalysts: couple joint ventures deepening company presence inAsia/Pacific announced over next few weeks, several high-profile client wins .

94. As a result of these positive statements , on August 18, 2000 marchFIRST's stock

traded as high as $26-1/2 .

95. On August 22, 2000, Lehman Brothers issued a report on marchFIRST written b y

Kierstead, repeating Bernard's statements . The statements were made by Bernard on August 21,

2000 with the intent that they would be repeated to investors . The report forecast third quarter 2000

earnings per share of $.20 and stated :

* Yesterday we had a private meeting with the CEO of marchFIRST. At about 24times forward estimated EPS, we reiterate our 2-Outperform rating .

* According to the CEO, employee turnover should decline in 3 Q00 from 28% in2Q00, net new hires should meet expectations of over 400 in 3Q00 and revenue perprofessional should improve . The merger integration is apparently on track (alltargeted offices will be integrated by the end of the quarter) and project sizes areincreasing. Unlike some other consulting firms, marchFIRST is seeing nosoftening in the demand backdrop and is focusing squarely on large end-to-endprojects with Global 3000 clients.

* In conclusion, our confidence level in our assumed 6% sequential growth ratein 3Q00 (to $403 million) is improved and we believe that the stock will beginworking later in 2000 when 3Q00 numbers are released and the sector sentimentimproves .

96 . On August 21, 2000, marchFIRST fled an amended Form 10-Q for the quarter ende d

June 30, 2000 which revised the amount of accounts receivable marchFIRST classified as "unbilled . "

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In the amended 10-Q, the unbilled receivables account was revised down from $97 million to $6 6

million with the difference being posted to "media" receivables .

97. On August 22, 2000, George K . Baum & Company issued a report on marchFIRST

which stated :

MRCH's stock is down about 19% since the close on August 17, afterincreasing 46% in the week prior. We believe that some of the decline is due toconcerns about the levels of MRCH's unbilled revenues as reported in the company's1 OQ, which was released on August 14, 2000 . Management indicated to us that thereported unbilled revenue figure of $97 .7 million is incorrect as it contains about $32million in media pass-through receivables, rather than unbilled revenues . Mediapass-through receivables are created when the company purchases media/advertisingfor its clients as part of its creative services, which are then billed to the client . Afteradjusting for the incorrectly classified media-pass throughs, the actual unbilledrevenue figure at the end of the 2Q was about $66 million, down from $74 million inthe IQ. The company plans to issue a corrected 1 OQ . The $40 million media-passthrough figure is consistent with information provided by management in its 2Qconference call on July 25, 2000 .

98 . marchFJ.RST management, while reassuring analysts and investors as to the Company' s

financials , made no mention of the Company's receivables problems and the write-offs which woul d

be necessary in coming months .

99. On September 5, 2000, Lehman Brothers issued a report on marchFIRST whic h

stated :

* On Friday [September I, 20001 we spoke with the CFO of marchFIRST, whosounds very confident with Street estimatesfor 3Q00. Employee turnover shoulddecline in 3Q00, the company is seeing no material demand slowdown and ' .com'startups represent just 15% of the overall mix .

100 . On September 6, 2000, A .G. Edwards issued a report on marchFIRST by Browder

which stated :

After a conversation with the CFO of marchFIRST this morning, webelieve that the company is on trackfor the September quarter. For this third fiscalquarter, our cash EPS estimate is $0 .20 vs. $0.15, which is in-line with consensusestimates. Our revenue estimate of $404 .2 million reflects 6% sequential growth and36% annual growth on a pro forma basis .

-42-

We believe turnover is trending down, a good sign that the acquisition-relateddepartures are slowing . In addition, in mid-August, the company had 225 net billableadds, which put it on schedule for its target of 400-plus net new hires for the quarter .

101 . On September 8, 2000, Credit Suisse First Boston issued a report on marchFIRS T

which stated :

Mid-qtr update post conversation w/ mgm t. Tone positive, pipeline solid .Global scale & breadth of services (strategy through back-end integration & hosting)continuing to differentiate MRCH in market .

USWB integration concluding this qtr, while co focused on hiring leader inNY. Believe co looking at expansion into Asia through potential JV, enabling MRCHrapid mkt entry into partner's base of customers .

Metrics tracking firmly across the board including T/O in-line to slightly belowQ2's 22%, bill rates in-line to ahead of our $153/hr est (up $2/hr Q/Q), util 63-64%level (63% est, 64% Q2), & hiring on target w/ 400 net add est . Host One appearson track for another solid qtr .

Accordingly, expect revs & EPS in-line to slightly ahead of our $406M &$0.20 EPS est, resp. Model continues to contain potential upside leverage throughhosting, util, & bill rates .

Services value play at 18.6x FY01 EPS ests for company w/ broadest skill setin Internet services industry . MRCH remains well positioned as engagements becomemore complex, larger in scale, & more global . Maintain Strong Buy . [Emphasisadded . ]

102. In fact, as defendants knew, marchFIRST's September quarter was not on track, and

marchFIRST had uncollectible receivables which would adversely impact its results, integration wa s

a disaster, the pipeline was not solid and marchFIRST would report nowhere close to $ .20 in the third

quarter of 2000 .

103 . On September 11, 2000, marchFIRST made a presentation at the DLJ 2000 Growth

Stock Conference in which it represented that :

• 3rdQ 00 business remained on track and the Company should obtain revenue targetsof $404 million .

• The Company sees pipeline growth to $800 million, and 5,000 active clients . 25% offuture growth will come from strategy work.

104 . On September 18, 2000, marchFIRST announced management changes :

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marchFIRST, Inc ., a leading global professional services company, today announcedthe promotions ofThomas Metz to President/ChiefOperating Officer, Michael Berentto Executive Vice President in charge of North American Professional Services andPeter Murphy to Chief Financial Officer, effective immediately . The Company alsonamed John Peschier Managing Executive, Investor Relations .

Robert Clarkson, Chief Operating Officer, and Bert Young, Chief FinancialOfficer, will transition their current roles to Metz, Berent and Murphy through the endof October. Clarkson intends to spend more time with his family and pursue otherinterests. Young intends to relocate to his native Utah, where he will pursue anopportunity with a voice technology company that provides wireless access to criticalinformation .

105 . Based on statements from Young and others at the Company that were designed t o

conceal the real reasons Young was leaving, i.e., the Company's severe receivable problems, several

analysts commented on Young' s resignation and that it was not an indication of any of the Company' s

accounting problems. For example :

• George K. Baum & Company : "The change at the CFO positionwas one of a personalnature and should not be viewed as an indication of any financial issues. "

• A. G. Edwards : "We believe that moving these people into new top managementpositions strengthens marchFIRST's large-company expertise and are a positive sign that thecompany is completing its integration and focusing on growth . While the shares maybe weakinitially as investors generally interpret management changes as a negative, we believe thattoday's news is a positive for the shares over the long term . "

• I;NG Barings: "CFO Bert Young is leaving marchFIRST to join a voice-recognitiontechnology start-up in his home state of Utah . We view this as a personal decision on theCFO's part, and underscore that we do not see any 'red flags' here . "

106 . On September 20, 2000, marchFIRST's management, including its new CFO and new

COO, presented at the ING Barings 3rd Millennium Conference . 1MG Barings wrote on September

21, 2000 that :

Managementconfirmed its comfort with analysts ' current estimates ; we arelooking for cash EPS of $0 .20 for Q3'00, which is in line with consensus . Berent andMurphy both indicated that DSOs will continue to be a focus going forward, and weexpect marchFIRST to show further improvement in the coming quarter . We alsolook for voluntary turnover to continue to trend down . As expected, managementalso indicated that utilization could be down a tick or so for Q3 as a result ofmarchFIRST's larger European workforce, but, based on yesterday's presentation, weexpect it to trend upward after Q3 .

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107 . On September 26, 2000, SGCowen Securities Inc . issued a report repeating Bernard's

and his new CFO's statements at SG Cowen's fall Technology Conference :

As indicated by the ongoing improvements in hourly bill rates , annualrevenue per consultant, and especially , the impressive decline in voluntaryturnover rates, the integration with USWeb/CKS is tracking ahead ofexpectationsFor thepending third quarter, management expects more of the same. Turnovercould decline to 20%, from the previous quarter's 22% . Management does notintend to increase its allowance for bad debt reservefrom the previous quarter'scontroversial $20MMlevel, which increasedfrom $11MM. Currently 50% of theallowance covers 50 clients. Management is very comfortable with Street'sestimates for the third quarter, 2000 and 2001 . marchFIRST is strategicallypositioned to compete in the current technology cycle : its has critical mass, hugescale , strong capabilities in managing large complex projects (average project sizealready $6MM-$8MM) and it is a TOTAL Solutions Provider able to providestrategy, creative, technology and "virtual ASP" services. We believe thatmarchFIRST can ultimately become a formidable competitor to The Big Fiveconsulting firms .

Financial Preview :

-SALES. We expect sales to increase 6 .0% sequentially to $403 .0MM. Our modelreflects a sequential increase in billable headcount of 5 .9% to 8,495 .

-METRICS . We expect an improvement in most closely watched metrics (hourly billrates, utilization , and annual revenue per consultant) .

-GROSS AND OPERATING MARGIN TRENDS . We expect gross margin toremain flat sequentially at 49 .3%. We expect a slight sequential increase in operatingmargin from the previous quarter's 12 .5% to 12 .6%.

-EPS . We expect EPS to reach $0 .20 per share, up 30% Y-O-Y and up 5%sequentially .

Highlights From Recent Presentation at SG Cowen's Fall Technology Conference :

-RECENT MANAGERIAL CHANGES . Newly appointed CFO, Peter Murphypresented to investors with CEO Bob Bernard . Search started three months ago withthe help of previous CFO, Burt Young . Mr. Murphy has been with marchFIRST forthe past two months. Other changes/promotions : former head of Internationalpromoted to COO and former head of integration promoted to head ofN.A./Professional services . Most promotions are of executives previously withWhittman-Hart .

-OTHER DEVELOPMENTS .

Pricing-expect sequential (quarterly) upticks of $3/hr-$5/hr.Engagement sizes : $12MM (in Q2:00) vs. $SMM and $4MM in Q1 :00 and

Q4 :99, respectively .

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Engagement duration : over 9 months (in Q2 :00) vs . 6-9 months and 6 monthsin Q 1 :00 and Q4 :99, respectively.

B&P pipeline was quantified at $1B .Since the beginning of the year, accumulated significant critical mass: 72

offices, 14 countries, 1,880 new hires, processed 42,000 resumes .Strong vertical market focus : financial services, media & entertainment, ETC .Strong back-end integration effort with expertise in CRM, SCM, Busines s

intelligence, and knowledge management applications (5,000consultants) .

Hosting services-expected to generate $30MM in revenues and to break-evenby year-end. "Host-1" operating at 20% capacity is hosting 130clients . At full capacity, management expects the facility to generateOM that is north of 20%.

Wireless effort-via partnership with 3Com (royalty and revenue sharing),management expects to generate revenues of $35MM-$45MM .

New markets-Australia with three ongoing local engagements .

108. In fact, marchFIRST had large collectibility issues with respect to its receivables an d

its revenues in the nearly completed quarter were well below market expectations . However,

defendants concealed this information from the markets .

109. As late as October 23, 2000, the market still had no idea about marchFIRST's massiv e

receivables issues and the other problems described herein . On October 23, 2000, McDonald

Investments , Inc. issued a report entitled , "MRCH: TO REPORT 3 Q00 RESULTS ON OCTOBE R

24; 3Q EPS STILL ESTIMATED AT $0.20 . "

The Truth Begins to Emerge andAnalysts Ask: "Where'd The Money Go? "

110. On October 24, 2000, marchFIRST shocked the market with horrible results, includin g

revenues 10% below forecasts and earnings per share 95% below forecasts . The release stated :

marchFIRST, Inc ., a leading global professional services company, today reportedrevenues and net income for the third quarter ended September 30, 2000 .

Third-quarter revenues increased 24 percent to $369 .4 million from $297 .2million for the same period last year . Revenues for the previous quarter were $3 80 .2million .

Supplemental net income was $2 .0 million or 1 cent per share . Earnings pershare figures were calculated on a fully diluted basis .

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"The environment for professional services over the past few months has beenchallenging. A number of factors have created this environment including thedownturn in the market, changing e-commerce priorities and the weakness of theeuro . During this same period, marchFIRST laid the foundation for long-termgrowth by completing our extensive integration process, " said Robert Bernard,marchFIRST Chairman and Chief Executive Officer . [Emphasis added . ]

111 . On October 24, 2000, TheStreet.com reported that :

After closing the books on the third quarter, executives of the consultingfirm MarchFirst have spent the last few weeks promising Wall Street that thenumbers looked fine. On Tuesday, they instead issued a report that showed $45million, more than 10% of revenue, had vanished.

The disclosure infuriated analysts and sparked a plunge in theonce highflying stock's value.

Writing off as bad debt two accounts worth $45 million, Chicago-basedMarchFirst missed earnings predictions by a wide margin . The professional servicescompany's stock was down $7 .06, or 60%, to $4 .75 in afternoon trading after hittinga 52-week low of $4.59 . Analysts said the money had seemingly vanished and,more disturbingly, would apparently continue to do so based on guidance companyofficials offered in a conference call .

The company, which gained fame earlier this year with its own marketingcampaign based around the gimmick of beginning operations on March 1, oncecarried a market capitalization of more than $12 billion. It was formed from themerger of Whittman-Hart, a computer consulting company based in Chicago, andUSWeb/CKS, a San Francisco-based company specializing in Internet design andmarketing strategy, in a stock swap valued at around $5.87 billion .

It was MarchFirst's misfortune to begin operations in nearly directsynchronicity with a plunge in the valuation of Internet stocks . But while RobertBernard, the company's chief executive, blamed the downturn in the Internet sectorfor the bulk of their troubles, it was the write-off that took Wall Street by surprise .

"The environment for professional services over the past few months has beenchallenging," Bernard said in a statement . "A number of factors have created thisenvironment including the downturn in the market, changing e-commerce prioritiesand the weakness of the euro . During this same period, MarchFirst laid thefoundation for long-term growth by completing our extensive integration process ."

For the third quarter ended Sept . 30, MarchFirst said supplemental net incomewas $2 million, or a penny a diluted share, compared to $9 .9 million, or 16 cents adiluted share, in the comparable quarter last year . Those figures do not includemerger, stock compensation or amortization costs . Analysts polled by FirstCall/Thomson Financial had predicted earnings of 20 cents a share . Revenueincreased 24% to $369 .4 million from $297 .2 million in the year-earlier period .

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Without all the merger costs, which analysts in the survey had expected, thecompany reported a net loss of $437 million, or $2 .86 a diluted share.

"There is at least a signif cant portion of this which is internal, " said MarkWolfenberger, analyst for Credit Suisse First Boston . "Clearly they've got issuesthat are beyond those of this sector. "

In a conference call with analysts and investors Tuesday, Peter Murphy, whowas promoted last month to chief financial officer, offered a limited explanation .Murphy, who built a career at the accounting firm Coopers & Lybrand and served asan executive at Moore and Kraft General Foods, said that in August the companybegan investigating two key accounts worth $45 million in revenue .

The company determined that the accounts, which Murphy did not name,should be written off as bad debt . According to the company, $25 million from oneaccount was attributed on balance sheets to goodwill and $20 million from the otheraccount went to general and administrative expenses .

"How do you let that large a receivable go out to a client when you're notsure you're going to be able to collect it?" asked Steven Birer, analyst forRobertson Stephens, which co-managed a secondary public offering forMarchFirst Birer rated the stock a buy until Tuesday, and he was unsure whetherhe would alter his rating based on the new information . "Where'd the money go? "

Perhaps more importantly, Birer added, it seemed unclear where the moneywould continue to go . In the conference call, company officials said revenue wouldbe flat in the fourth quarter and the first quarter of 2001, with 20% growth overall fornext year . But that would seemingly contradict company officials' promises that theywould continue to grow the consulting staff and attract more business, Birer said .And while the company called half of the deferred revenue an equity investment, itsaid it might recognize the other half in coming quarters, he noted, wondering whythat factor would not boost revenues above flat .

In the call, MarchFirst officials said they will likely need another stock or debtoffering to raise capital . They predicted earnings of 10 to 15 cents a share in thefourth quarter, compared to First Call's current consensus of 21 cents a share . Fornext year, they predicted earnings of 60 to 65 cents a share, compared to the First Callconsensus of $1 .05 .

But after failing to pre-announce the missing revenue and telling analystsjust weeks ago that the quarter was on track, the company, which has never missedestimates in 16 quarters as a publicly traded entity, lacked credibility on WallStreet

"I don't have any faith in management right now, " said Drake Johnstone,analyst for Davenport & Co. who rates the stock a hold and whose firm has notdone underwriting for MarchFirst. "Given that Robert Bernard was the one onthe Street giving this guidance, the best thing the company could do would be tofire him. " [Emphasis added .]

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112 . Similarly, Rob Zimmerman, the host of Radio Wall Street, stated :

Well, $45 million in revenue disappeared . [ . . .] And thus this company has no credibility andit is one thing to stumble cause lets face it there are many many students in the class room thathave stumbled this semester but not many who have kind of put the big surprise on theteacher . And that is the problem here . E . . . ]

113 . Thus, marchFIRST's third quarter 2000 earnings were less than 5% the amoun t

represented by defendants, i . e., $ .01 versus estimates of $0.20. Upon these revelations , marchFIRS T

stock collapsed to a low of $4-19/32 on October 24, 2000, some 82% below the Class Period hig h

of $26-1/2, on huge volume of 49 . 8 million shares, inflicting hundreds of millions of dollars o f

damages on plaintiffs and the Class .

114. Analysts reacted with shock to the sudden announcements , slashing 2000 earnings per

share estimates to $0.45-$0.50 versus the $0.76-$0.77 forecast during the Class Period. INGBaring s

analyst Ficker wrote :

* We are also lowering our Q400 and 2001 estimates to reflect the Q300 sho rtfall aswell as revised guidance from management . We now look for 2000 revenue and cashEPS of $1 . 5 billion and $0 .45 respectively, versus prior expectations of $1 .6 billionand $0 .77 .

* Revised guidance from management calls for 20% y-o-y revenue growth for 2001,as well as cash EPS in the range of $0 . 60 - $0.65 ; our revised estimates are for a 19%annual top-line improvement and $0 . 55 on the bottom line, below management'sguidance .

* We believe that management 's credibility has been put into question, as the Streetwas clearly surprised by this sho rtfall . In addition , lowered guidance and thelikelihood of option repricing have led us to downgrade the MRCH shares .

115 . A.G . Edwards analyst Browder wrote :

We are lowering our rating on the shares of marchFIRST toMaintain/Speculative . The company do [sic] not meet third qua rter expectations and,in our opinion, has lost significant credibility in not pre-releasing this bad news .(Despite numerous other companies in the sector pre-releasing with bad news,marchFIRST had remained comfo rtable with estimates .) We believe that it will takeseveral quarters for management to regain this credibility .

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116. The Company continued to issue materially and false and misleading statements abou t

the relative strength of Company's position .

117. On October 24, 2001, Bernard was interviewed by Ken Mandel of the Bloomberg

News Service. During the interview, Bernard continued to conceal the Company's problems an d

instead, blamed its reduced revenues on general market conditions . In this regard, Bernard stated :

Yes, we reported revenues of just under $370 million which was sequentially down by a littleless than 3% for the prior quarter, second quarter and what we attributed the downturn towas a number of different factors and conditions . First and foremost was the market-placein general as it relates to [inaudible] solutions and overall spending whether it's corporatespending from large corporations or as well from the com business that has recently in thelast 7 or 8 months begun to dry up . We have also had a slight hit as it relates specifically tothe Euro dollar which definitely was at a weak point, and coincidentally, at that quarter aswell . And last but not least, we attribute some of the downside to a couple of major projectsthat started multi-million dollar projects, that we started in the third quarter that we decidedto be very cautious and take loss revenue recognition for those projects in Q3 and take theminto Q4 and Q1 . So all those things that I just mentioned add up to a short fall that werealized .

118. This statement was materially false and misleading for the reasons stated in ¶31 .

119 . On November 15, during late market hours, the Company notified the SEC that i t

intended to delay filing its Form 10-Q for the third quarter ended September 30, 2000 .

More Of The Truth Emerges And Analysts Get A "Scary Look Under The Hood"

120. On November 20, 2000, marchFIRST belatedly filed its form 10-Q with the SEC, fo r

the first time revealing that $45 million of the revenue recognized in the third quarter came from

companies related to its Blue Vector venture investment subsidiary and that it had insufficient cash

to meet its short term debt obligations. On this news, the price of the stock fell by approximatel y

22%, from an opening price of $3 .59 on November 20, 2000 to an opening price of $2 .78 on

November 21, 2000 .

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121 . Subsequently, during its pre-scheduled conference call with analysts, after the clos e

of trading on November 28, 2000, Bernard gave a "somber inside look" at marchFIRST . In a

research report dated November 29, 2000, Morgan Stanley Dean Witter issued a report on th e

conference call, in which it stated :

"A Scary Look Under the Hood "

During its call, Bob Bernard, CEO, gave a "somber" inside look at the MRCH'soperations. In our view the most concerning of these data points are as follows :

* Based on a review of operations, the company classifies only 50% of its revenue aseServices, with the remainder in more traditional technology services . Such level is wellbelow where management historically positioned the company's revenue composition . [ . . . ]

* The company noted that of the 45 acquisitions completed by USWeb/Mpriorto its acquisition of this company, many if most were integrated At present managementhas integrated 18 of the 45. This lack of integration resulted in significant operatingdifficulties. [ . .]

* In our view, this "look under the hood" outlines a chaotic view of life insideMarchFirst . The above represent major structural and business model deficiencies which willrequire significant time, management bandwidth and investment to rectify.

122. On February 12, 2001, the Company further shocked the market, posting a $6. 8

billion loss , or $37.09 per share for the quarter, $6 .5 billion of which was attributable to the

Company's writeoff of the goodwill accrued in connection with the USWeb/CKS merger .

MARCHFIRST'S FALSE F INANCIALREPORTING DURING THE CLASS PERIOD

marchFIRST'S DECEPTIVE ACCOUNTING AND FINANCIAL REPORTIN G

123 . Prior to the Class Period, Whitman-Hart and USWeb/CKS enjoyed exceptiona l

revenue and earnings growth, resulting in dramatic increases in the prices of their respective common

stock. However, beginning in at least early 2000, the demand for the Company' s services beg an to

slow. In an attempt to mask the waning demand for marchFIRST's services, Defendants engaged i n

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a series of manipulative accounting practices . These practices violated Generally Accepte d

Accounting P rinciples ("GAAP"), created a false impression about the value of marchFIRST's ne t

assets , and created the false impression that the demand for marchFIRST's services continued to b e

robust .

124 . GAAP are those principles recognized by the accounting profession as the

conventions, rules, and procedures necessary to define accepted accounting practice at a particula r

time. As set forth in Financial Accounting Standards Board ("FASB") Statement of Concept s

("Concepts Statement") No . 1, one of the fundamental objectives of financial reporting is that it

provide accurate and reliable information concerning an entity's financial performance during the

period being presented . Concepts Statement No. 1, ¶42 , states:

Financial reporting should provide information about an enterprise'sfinancial performance during a period . Investors and creditors oftenuse information about the past to help in assessing the prospects of anenterprise . Thus, although investment and credit decisions reflectinvestors' and creditors' expectations about future enterpriseperformance, those expectations are commonly based at least partlyon evaluations of past enterprise performance .

125 . Regulation S-X[17C.F.R. § 210 .4-0 1 (a) (1)] states that fi nancial statements fi led with

the SEC that are not prepared in conformity with GAAP are presumed to be misleading an d

inaccurate . The representations by the defendants that marchFIRST's financial statements wer e

prepared in accordance with GAAP were materially false and misleading because the financial

statements materially inflated and distorted the Company's true financial performance during the Clas s

Period .

126. In an attempt to mask the waning demand for the Company's services, the defendant s

caused marchFIRST's employees to engage in improper accounting practices, and/or knowingl y

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acquiesced in and condoned those practices . These practices afforded marchFirst the ability to meet

analysts' earnings estimates and inflate the price of marchFIRST's common stock .

(a) marchFIRST's Disparate InternalControl And Financial Reporting Systems

127. As noted in detail above, after the merger between Whitman-Hart and USWeb/CKS ,

the record keeping associated with the combined company's contracts required the coordination of

many different departments, including the Company's central financial accounting and informatio n

systems, each with their own processes, procedures and computer systems. These disparate system s

were unable to accurately and timely generate reliable financial information .

128 . In fact, in February 2000, marchFIRST's information management system was s o

unreliable that the Company's management had so little confidence in the accuracy of its account s

receivable data that it suspended its policy of charging back a sales persons' commission accounts on

overdue receivables . Indeed such lack of confidence was not without good cause, as exemplified in

marchFIRST's filings of its June 30, 2000 Form 10-Q .

129. For example, on August 14, 2000, the Company filed its June 30, 2000 Form 10-Q .

In it , marchFIRST repo rted accounts receivable, media receivable and unbilled revenues of $377 . 5

million, $8 .5 million and $97 .7 million, respectively . Seven days later, on August 21, 2000, th e

Company had amended its June 30, 2000 10-Q by restating its reported accounts receivable, medi a

receivable and unbilled revenues to $373 . 5 million, $40.4 million and $69 .8 million, respectively.

130. In addition, the Company's internal control and financial reporting systems problem s

were such that USWeb/CKS and Whittman-Hart employees were improperly billing customers o n

fixed-price contracts in excess of the contractual fixed amount. This problem was complicated by

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the Company's time-keeping system, called Paratrac, which, defendants knew, would sometime s

record non-billable time as billable . These internal control and information system deficiencies ha d

the effect of artificially inflating the Company's reported revenue, earnings and growth rate .

(b) marchFIRST's Improper Recognition and Reporting Of Revenue

131 . GAAP provides that revenue should not be recognized until it is realized or realizable

and earned . FASB Concepts Statement No . 5, ¶83. The conditions for revenue recognition

ordinarily are met when persuasive evidence of an arrangement exists, delivery has occurred o r

services have been rendered, the seller's price is fixed or determinable, collectibility of the sales pric e

is reasonably assured and when the entity has substantially performed the obligations which entitl e

it to the benefits represented by the revenue . Generally, revenue should not be recognized until a n

exchange has occurred and the earnings process is complete. A transfer of risk has to occur in order

to effect an "exchange" for the purposes of revenue recognition . SEC Staff Accounting Bulletin No .

101 ; FASB Concept Statement Nos. 2 and 5 ; FASB Statement of Financial Accounting Standard s

("SFAS") No. 48; Accounting Research Bulletin ("ARB") No. 43; Accounting Principles Board

("APB") Opinion No. 10; and American Institute of Certified Public Accountants ("AICPA")

Statement of Position ("SOP") 97-2 .

132. marchFIRST falsely represented that it complied with these accounting rules . In it s

December 31, 1999 Form 10-K, the Company disclosed the following with respect to its policy o f

revenue recognition :

In general, the Company recognizes revenues at the time services are performed . Ontime and expense contracts, revenue is recognized as costs are incurred . Onfixed-price contracts, revenues are recorded using the percentage-of-completionmethod of accounting by relating contract costs incurred to date to total estimatedcontract costs at completion. Contract costs include both direct and indirect costs .

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Contract losses are provided for in their entirety in the period they become known,without regard to the percentage-of-completion .

133 . As noted above in ¶¶49, 54-55, defendants caused employees to invoice millions of

dollars in revenue by issuing phony invoices for services the Company had not performed . Thi s

improper practice occurred particularly when it became apparent to defendants that the Company

would not meet analyst revenue and earnings forecasts .

134. For example, during the Class Period, a marchFIRST Executive Vice Presiden t

attempted to cause a marchFIRST employee to invoice AutoZone for approximately $1 million eve n

though marchFIRST had done no work for Autozone . Indeed, this was not an isolated instance a s

the Company received numerous complaints from many customers who refused to pay marchFIRS T

because marchFIRST did not perform the services for which the customers were invoiced, which th e

defendants knew or recklessly disregarded .

135 . As a result of the forgoing practices during the Class Period, marchFIRST violate d

its stated policy of revenue recognition and GAAP when it issued such invoices and recognized an d

reported revenue on such transactions because the "revenue" was not earned, services were no t

rendered, the collectibility of the sales price was not reasonably assured and the Company had no t

substantially performed the obligations which entitled it to the benefits represented by the revenue .

136 . Another tactic employed by marchFIRST to prematurely recognize revenue involved

the percentage-of-completion method . The AICPA SOP 81-1, Accounting for Performance o f

Construction-Type and Certain Production-Type Contracts, provides that companies may use the

"percentage-of completion method" to recognize revenue on contracts prior to completing th e

contracts so long as the company can reasonably estimate the extent of progress toward completion ,

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the amount of contract revenues and the amount of contract costs . In order to determine the amount

earned on a contract for a period prior to completion, a company must determine the differenc e

between total estimated contract revenue and total estimated contract cost . See SOP 81-1, ¶¶22-25 ,

79 .

137. As noted above, marchFlRST's revenue recognition policy on fixed-price contract s

was to record revenues using the percentage-of-completion method ofaccounting by relating contract

costs incurred to date to total estimated contract costs at completion. Under this method, an estimate

of total production costs (which consist of internal costs, including salaries and wages, and externa l

costs, including subcontractor costs) must be reasonably estimated for each contract . At the end of

each accounting period , the percentage to which each of the Company's contracts is complete must

be computed based on production costs incurred to date as a percentage of total estimated production

costs . This percentage must then be multiplied by the contract's total value to calculate the sale s

revenue to be recognized, as follows :

PRODUCTION COSTSINCURRED TO DATE TOTAL RECOGNIZABLE

X CONTRACT VALUE SALES REVENUETOTAL ESTIMATE DPRODUCTION COSTS

138 . Contrary to its publicly stated policy of revenue recognition and GAAP, marchFIRS T

improperly overstated the Company's apparent revenue and income growth by inflating the costs

expended on fixed-price contracts (thereby increasing the "numerator" in the percentage-of-

completion formula), leading to improperly inflated revenues and earnings. As noted above, th e

Company's internal control and financial reporting systems problems were such that USWeb/CKS and

Whittman-Hart employees were improperly billing customers on fixed-price contracts . These billing

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problems were exacerbated by the Company's time-keeping system, which would sometimes recor d

non-billable time as billable . These internal control and information system deficiencies had the effec t

of artificially inflating the Company's reported revenue, earnings and growth rate by overstating th e

percent to which a contract was complete .

139. To the detriment of unsuspecting investors , marchFIRST 's management directed or

knowingly condoned and encouraged the process in which employees would improperly invoic e

orders, thereby inflating reported revenue . These practices masked the waning demand fo r

marchFIRST' s services and created a false impression about the value of marchFIRST' s business .

(c) marchFIRST's Uncollectible Accounts ReceivableAnd Its Manipulation of Accounts Receivable Reserve s

140. Although the investing public did not understand why marchFIRST's receivables were

growing, the magnitude of marchFIRST's premature revenue recognition practices is evidenced, i n

part, by its ballooning accounts receivable balance . For example, during the three months ended Jun e

30, 2000, marchFIRST's gross accounts receivable increased by approximately $67 million while it s

revenues (on a pro-forma basis to account for the Whittman-Hart USWeb/CKS merger) increased only

$28 million. In fact, the annualized rate of increase in the Company's gross accounts receivable

during the three months ended June 30, 2000 approximated 64% .

141 . Defendants knew or recklessly disregarded that the magnitude of the increase i n

marchFIRST's receivables during, at least, the three months ended June 30, 2000 was highly irregular .

In furtherance of their scheme to misrepresent the Company's operating results, the defendants

compounded marchFIRST' s misleading accounting and reporting of revenues by failing to timely and

adequately reserve for uncollectible receivables .

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142 . GAAP requires that financial statements account for existing uncertainties as to

probable losses. Such loss contingencies should be recognized and reported as a charge to income

when: information existing at the date of the financial statements indicates that it is probable (e.g_, a

likely chance) that an asset has been impaired or a liability has been incurred; and the amount of such

loss can be reasonably estimated . SFAS No. 5, ¶8 .

143 . GAAP also requires that financial statements disclose contingencies when it is at leas t

reasonably possible (e.g_, a greater than slight chance ) that a loss may have been incurred . SFAS No .

5, ¶10. The disclosure shall indicate the nature of the contingency and shall give an estimate of th e

possible loss, a range of loss or state that such an estimate cannot be made . Id .

144. The SEC considers the disclosure of loss contingencies to be so important to a n

informed investment decision that it promulgated Regulation S-X [17 C .F .R. § 210 . 10-01 ], which

provides that disclosures in interim period financial statements may be abbreviated and need not

duplicate the disclosure contained in the most recent audited financial statements, except that, "wher e

material contingencies exist, disclosure of such matters shall be provided even though a significan t

change since year end may not have occurred ."

145. As noted above in ¶¶45, 141, by June 30, 2000, marchFIRST' s accounts receivable had

increased to a very high level. This was due to the fact that the Company was recording revenue at

a rate faster than it was collecting unpaid receivables . In fact, throughout the Class Period, it wa s

widely recognized within marchFIRST that the Company was having significant problems collecting

its accounts receivable . As a result, the age of the Company's outstanding receivables progressively

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increased . For example, marchFIRST's average days'sales outstanding (i e., the average number

of days it takes to collect receivables) at June 30, 2000 totaled approximately 108 days.

146 . In furtherance of their scheme to inflate the price of marchFIRST's stock, defendant s

caused the Company to falsely report its results for, at least, the quarter ended June 30, 2000, b y

failing to adequately reserve for uncollectible accounts, thereby materially overstating its operatin g

results . Ultimately, when marchFIRST filed its Form 10-Q for the three months ended September 30 ,

2000, the operating results reported therein were, in part, adversely affected by its improper failur e

to timely reserve for uncollectible accounts receivable in the prior quarter .

147. The results included in marchFIRST's June 30, 2000 Form 10-Q filed with the SEC,

which was signed by Bernard and Young, represented that "the information furnished herein include s

all adjustments, which are, in the opinion of management, necessary for a fair presentation of result s

for these interim periods." Unfortunately for investors, these results, and the representation s

concerning them, were false .

148. For example, on or about October 24, 2000, marchFIRST acknowledged that one o f

its bad debts in the amount of $25 million would be charged to goodwill . Since the recording of

goodwill can only result from an acquisition, this representation indicates the uncollectible receivabl e

was acquired via an acquisition. Since the Company's most recent acquisition occurred on March 1 ,

2000, the uncollectible $25 million receivable was at least 120 days old at June 30, 2000 and a t

least 145 days old when the Company reported its June 30, 2000 results on July 25, 2000. In

addition, by June 30, 2000, marchFIRST also had a $20 million receivable from Groupo Televisa

in Mexico that was in dispute .

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149, The defendants knew, or recklessly disregarded, that a material amount o f

marchFIRST's receivables were in dispute and/or remained uncollected over an unusually long perio d

of time . Thus, it was probable, as defined by GAAP, that a significant portion of its receivables were

not collectible at June 30 , 2000 and that GAAP required that the Company establish an adequat e

reserve in its financial statements to account for probable uncollectible receivables, which th e

defendants knew or recklessly disregarded . Nonetheless, in violation of GAAP, marchFIRST 's Class

Period financial statements failed to adequately reserve for uncollectible accounts receivable .

(d) marchFIRST's Failure To Timely Record Impaired Goodwil l

150. marchFIRST' s Class Period financial statements were otherwise materially false and

misleading because the Company failed to timely record a loss due to an impairment in the value o f

its intangible assets . This was yet another way in which marchFIRST's Class Period financia l

statements were not presented in conformity with GAAP, the rules and regulations of the SEC, and

misrepresented and distorted the Company's true operating results .

151 . As a result, the results included in marchFTRST's June 30, 2000 Form 10-Q filed wit h

the SEC, which was signed by Bernard and Young and represented that "the information furnishe d

herein includes all adjustments, which are, in the opinion of management , necessary for a fair

presentation of results for these interim periods," were false and misleading .

152 . As noted above, on March 1, 2000, Whitman-Hart and USWeb/CKS effectuated a

merger transaction valued at $7 .1 billion. The Company's 1999 Form 10-K disclosed that it utilize d

the "purchase method" of accounting for the acquisition. Pursuant to GAAP's purchase method, a s

set forth in APB Opinion No . 16, ¶11 :

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The acquiring corporation records at its cost the acquired assets less liabilitiesassumed. A difference between the cost of an acquired company and the sum of thefair values of tangible and identifiable intangible assets less liabilities is recorded asgoodwill .

153. The purchase method also requires that the cost of the acquisition be allocated t o

individual net assets acquired based on their respective fair values . Accordingly, the Company

allocated the cost ($7.1 billion) of the merger to net assets, including goodwill .

154. On or about May 15, 2000, marchFIRST filed its March 31, 2000 Form 10-Q with th e

SEC, which disclosed the details of the March 1, 2000 merger transaction . Pursuant to the Form 10-

Q, marchFTRST allocated $6 .7 billion of the $7 .1 billion merger to goodwill .

155 . As noted above, GAAP provides that financial statements must recognize and report

a charge to income when : a) information existing at the date of the financial statements indicates tha t

it is probable (ems, a likely chance) that an asset has been impaired and, b) the amount of such loss can

be reasonably estimated . In addition, FASB's SFAS No . 121 requires that where events indicate that

the carrying amount of an asset may not be recoverable (i .e, the reported asset value is not as grea t

as the amount of cash expected to be received from the use or sale of the asset), the company should

evaluate such asset for impairment and report a loss for any such impairment . SFAS No . 121 provide s

a two-step approach to recognizing impairment losses . When events or changes in circumstance s

indicate that the carrying value of the asset may not be recoverable, then : 1) the entity shall estimat e

the future undescended cash flows resulting from the use of the asset and its disposition, and 2 )

compare the estimated future cash flows against the carrying (i .e., the reported) value of the asset .

If the sum of the expected future cash flows is less than the carrying value, the entity shall record an

impairment loss. If goodwill is associated with the assets subject to an impairment loss, the carryin g

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value of goodwill is reduced to zero via a charge against earnings before an impairment loss is charge d

against the carrying value of the impaired asset .

156 . The Company's March 31, 2000 financial statements valued the asset it classified

as goodwill at $6.7 billion, or approximately $45.90 per share. However, on or about May 15,

2000, when the Company filed such financial statements with the SEC, the market valued the entire

company was only $2.9 billion, or $19.70 per share .

157 . Similarly, the Company's June 30, 2000 financial statements valued the asset it classified

as goodwill at $6 .7 billion, or approximately $44 .78 per share. However, on or about August 15,

2000, when the Company filed such financial statements with the SEC, the market valued the entire

company at only $3. 0 billion, or $20.38 per share .

158 . These circumstances indicate that the value of marchFIRST 's intangible goodwil l

assets were impaired at March 31 , 2000 and June 30 , 2000 . Nonetheless , marchFIRST failed to

record an impairment loss in the carrying value of this asset in its Class Period financial statements i n

accordance with GAAP . In fact, marchF.IRST's September30, 2000 financialstatements continued

to improperly value and report the value of its goodwill at $6.7 billion even though by then th e

market value of the entire Company was only $2.4 billion.

159. Ultimately, the Company filed for relief under Chapter 11 of the Federal Bankruptcy

Code on April 12, 2001 , and two weeks later converted this to a liquidation under Chapter 7. Shortly

before, in February 2001, only after realizing it could no longer inflate its operating results by ignoring

the impairment in the value of its goodwill, the Company reported a $6.5 billion charge, or $37 per

share, to write off the goodwill associated with the USWeb acquisition .

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(e) marchFIRST's Undisclosed Related Party Transaction s

160. During the Class Period, marchFIRST's financial statements failed to disclos e

transactions between related pa rties as required by GAAP. GAAP, in SFAS No . 57, requires that

financial statements disclose related party transactions because, among other things, "[t]ransactions

involving related parties cannot be presumed to be carried out on an arm's - length basis " . SFAS 57

defines a related party to include a party that directly or indirectly controls or can significantl y

influence the management or operating policies of the other .

161 . As noted above in, the Company and Bernard made substantial equity investments i n

certain companies that purchased marchFIRST services. This fact was not disclosed until the

Company filed its September 30, 2000 Form 10-Q on November 21, 2000 . Then, for the first time ,

marchFIRST disclosed that it recognized and reported $6 .5 million in revenue during the quarte r

ended June 30, 2000 from entities in which the Company's majority owned subsidiaries owned a n

equity interest, marchFIRST's failure to disclose material related party transactions, during at leas t

its June 30, 2000 quarter, violated GAAP and SEC accounting rules and regulations, which the

defendants knew or recklessly disregarded .

162 . As a result of the foregoing accounting improprieties, marchFIRST presented its

financial results during the Class Period in a manner which violated numerous provisions of GAAP .

In addition to the accounting improprieties stated above, marchFIRST presented its financia l

statements during the Class Period in a manner which also violated at least the following provision s

of GAAP :

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(i) The concept that financial reporting should provide information that is useful

to present and potential investors and creditors and other users in making rational investment, credi t

and similar decisions (Concepts Statement No . 1, ¶34) ;

(ii) The concept that financial reporting should provide information about th e

economic resources of an enterprise, the claims to those resources, and the effects of transactions ,

events and circumstances that change resources and claims to those resources (Concepts Statement

No. 1, ¶40) ;

(iii) The concept that financial reporting should provide information about ho w

management of an enterprise has discharged its stewardship responsibility to owners (stockholders )

for the use of enterprise resources entrusted to it . To the extent that management offers securities o f

the enterprise to the public, it voluntarily accepts wider responsibilities for accountability to

prospective investors and to the public in general (Concepts Statement No . 1, ¶50);

(iv) The concept that financial reporting should provide information about a n

enterprise's financial performance during a period . Investors and creditors often use information about

the past to help in assessing the prospects of an enterprise . Thus, although investment and credit

decisions reflect investors' expectations about future enterprise performance, those expectations ar e

commonly based at least partly on evaluations of past enterprise performance (Concepts Statemen t

No . 1, ¶42) ;

(v) The concept that financial reporting should be reliable in that it represents wha t

it purpo rts to represent. That information should be reliable as well as relevant is a notion that i s

central to accounting (Concepts Statement No . 2, ¶¶58-59) ;

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(vi) The concept of completeness, which means that nothing is left out of th e

information that may be necessary to ensure that it validly represents underlying events and condition s

(Concepts Statement No. 2, ¶79) ;

(vii) The concept that conservatism be used as a prudent reaction to uncertainty t o

try to ensure that uncertainties and risks inherent in business situations are adequately considered . The

best way to avoid injury to investors is to try to ensure that what is reported represents what i t

purports to represent (Concepts Statement No. 2, ¶¶95, 97) .

163 . The foregoing accounting improprieties caused marchFIRST to issue financia l

statements that materially falsified its financial performance to the detriment of unsuspecting investor s

and further masked the problems the Company was experiencing after acquiring USWeb/CKS in

March 2000 . In failing to file financial statements with the SEC which conformed to the requirement s

of GAAP, defendants repeatedly disseminated financial statements of marchFIRST which were

presumptively misleading and inaccurate . Indeed, the numerous accounting machinations detailed

herein evidence the defendants' intent to deceive investors during the Class Period and to misrepresen t

the truth about the Company and its business, operations and financial performance to the detrimen t

of those who relied on them .

164. The Company's Class Period Forms 10-Q reports were also materially false an d

misleading in that they failed to disclose known trends, demands, commitments, events, an d

uncertainties that were reasonably likely to have a materially adverse effect on the Company's liquidity ,

net sales, revenues and income from continuing operations, as required by Item 303 of Regulation S-

K.

-65-

CLASS ACTION ALLEGATIONS

165 . Plaintiffs bring this action as a class action pursuant to Rules 23(a) and (b)(3) of the

Federal Rules of Civil Procedure, on behalf of themselves and all other purchasers or acquirers o f

marchFIRST securities during the Class Period . Excluded from the Class are marchFIRST, it s

subsidiaries and affiliates, defendants, members of the immediate families of each of the defendants ,

and any entities in which any of the defendants had a controlling interest, and the legal representatives ,

heirs, successors, predecessors in interest, affiliates or assigns of any of the defendants .

166. The members of the Class are so numerous that joinder of all class members i s

impracticable . On information and belief, there were hundreds, if not thousands of purchasers or

acquirers of marchFIRST securities during the Class Period . These purchasers were geographically

dispersed in many different states and regions of the United States. As of October 31, 2000, there

were 155,284,971 shares of marchFIRST common stock outstanding .

Throughout the Class Period, marchFIRST shares were actively traded on NASDAQ . The average

daily volume of trading in marchFIRST common stock during the Class Period was several million

shares . Therefore, many millions of shares of marchFIRST common stock were traded during th e

Class Period . Record owners and other members of the Class may be identified from record s

maintained by marchFIRST and/or its transfer agent(s) and may be notified of the pendency of thi s

action by mail and publication using forms ofnotice similar to those customarily used in securities clas s

actions .

-66-

167. Plaintiffs ' claims are typical of the claims of the other members of the Class, and

plaintiffs and all members of the Class sustained damages as a result of defendants' wrongful conduc t

complained of herein .

168. Questions of law and fact common to members of the Class predominate over any

questions affecting any individual members of the Class . These common questions of law and fact

include :

a. Whether defendants violated federal securities laws by making material

misrepresentations or by omitting to state material facts necessary to render statements containe d

therein not misleading ;

b. Whether defendants acted with knowledge or with reckless disregard for th e

truth in omitting to state such material facts;

c. Whether the market price of the Company's secu rities during the Class Period

were artificially inflated due to the non-disclosures and/or misrepresentations complained of herein ;

d . Whether the members of the Class have sustained damages and, if so, what i s

the proper measure thereof .

169. Plaintiffs and their counsel will fairly and adequately protect the interests of the other

members of the Class . Plaintiffs have retained counsel competent and experienced in class actio n

securities litigation . Plaintiffs have no interests antagonistic to, or in conflict with, the Class they seek

to represent .

170. A class action is superior to other available methods for the fair and efficien t

adjudication of the claims asserted herein, because joinder of all members is impracticable .

67 -

Furthermore, because the damages suffered by the individual class members may be relatively smal l

in relation to the potential costs of litigation of this complexity, the expense and burden of individua l

litigation make it impractical for the class members individually to redress the wrongs done to them .

STATUTORY SAFE HARBOR

171 . The statutory safe harbor provided for forward-looking statements ("FLS") does not

apply to the false FLS pleaded . None of theparticular oral FLS in marchFIRST's conferences and

meetings with analysts were so identified as required . The defendants are liable for the false FLS

pleaded because, at the time each FLS was made, the speaker knew the FLS was false and the FL S

was authorized and/or approved by an executive officer of marchFJRST who knew that the FLS wa s

false. None of the historic or present-tense statements made by defendants were assumption s

underlying or relating to any plan, projection or statement of future economic performance, as the y

were not stated to be such assumptions underlying or relating to any projection or statement of future

economic performance when made nor were any of the projections or forecasts made by defendant s

expressly related to or stated to be dependent on those historic or present-tense statements whe n

made .

COUNT I

VIOLATION OF § 10(b) OF THE 1934 ACTAND RULE 10b-5 PROMULGATED THEREUNDE R

ON BEHALF OF THE ENTIRE CLASS AGAINST ALL DEFENDANTS

172 . Plaintiffs repeat and reallege each and every allegation contained in the abov e

paragraphs, as if fully set forth herein . This claim is asserted against each defendant .

173 . During the Class Period, defendants, and each of them, carried out a plan, scheme an d

course of conduct which was intended to and, throughout the Class Period, did : (i) deceive the

-68-

investing public, including plaintiffs and the Class; (ii) artificially inflate and maintain the market price

of marchFIRST securities ; and (iii) cause plaintiffs and the Class to purchase or otherwise acquir e

marchFIRST securities at inflated prices . In furtherance of this unlawful scheme, plan and course of

conduct, defendants took the actions set forth herein .

174. Defendants (a) employed devices, schemes, and artifices to defraud ; (b) made untrue

statements of material fact and/or omitted to state material facts necessary to make the statement s

made not misleading ; and/or (c) engaged in acts, practices, and a course of business which operated

as a fraud and deceit upon the purchasers and/or acquirers of the Company's stock in an effort t o

maintain artificially high market prices for marchFIRST securities in violation of § 10(b) of the 193 4

Act, 15 U.S.C . 78j(b), and Rule 10b-5 promulgated thereunder, 17 C.F.R. 240.10b-5 . Defendants are

sued either as primary participants in the wrongful and illegal conduct charged herein or as controllin g

persons as alleged below .

175. In addition to the duties of full disclosure imposed on defendants as a result of their

making of affirmative statements and reports, or participation in the making of affirmative statement s

and reports to the investing public, they had a duty to promptly disseminate truthful information tha t

would be material to investors, in compliance with GAAP and the integrated disclosure provisions of

the SEC as embodied in SEC Regulations S-X (17 C .F.R. § 210 . 01 et seq .) and S-K (17 C.F.R. §

229.10 et sea .) and other SEC regulations, including truthful, complete and accurate information with

respect to the Company's operations and performance so that the market prices of the Company' s

publicly traded securities would be based on truthful, complete and accurate information .

-69-

176. Defendants, individually and in concert, directly and indirectly, by the use of means and

instrumentalities of interstate commerce and/or the mails, engaged and participated in a continuou s

course of conduct to conceal adverse material information about the Company's financial results ,

businesses, operations, and prospects as specified herein . Defendants employed devices, schemes, and

artifices to defraud, while in possession of material adverse non-public information, and engaged i n

acts, practices, and a course of conduct as alleged herein, in an effort to assure investors o f

marchFIRST's earnings, assets , accounts receivable, revenue, expenses and the accuracy of th e

Company's financial reporting of performance, which included the making of, or the participation i n

the making of, untrue statements of material facts and omissions to state the material facts necessary

in order to make the statements made about the Company's financial and business operations in th e

light of the circumstances under which they were made, not misleading, as set forth more particularl y

herein .

177. Defendants' primary liability and controlling person liability arise from the followin g

facts: (i) they were high-level executives and directors of the Company during the Class Period an d

were members ofthe Company' s management team; (ii) by virtue oftheir responsibilities and activities

as senior officers of the Company, they were privy to and participated in the drafting, reviewing ,

and/or approving the misleading statements , omissions, releases, reports, and other publi c

representations of and about marchFIRST, and/or signed the Company' s public filings with the SEC ,

which public filings contained the materially misleading statements and omissions ; (iii) they knew or

had access to the material adverse non-public information about the financial results of marchFIRST

-70-

which were not disclosed; and (iv) they were aware of the Company's dissemination of informatio n

to the investing public which they knew or recklessly disregarded was materially false and misleading .

178. Each of the defendants had actual knowledge of the misrepresentations and omission s

of material facts set forth herein, or acted with reckless disregard for the truth in that they failed t o

ascertain and to disclose such facts, even though such facts were available to them. Defendants '

material misrepresentations and/or omissions were done knowingly or recklessly and for the purpos e

and effect of concealing marchFIRST's accounting irregularities from the investing public and

supporting the artificially inflated price of its securities . As demonstrated by defendants' statement s

throughout the Class Period, if they did not have actual knowledge of the misrepresentations and

omissions alleged, they were reckless in failing to obtain such knowledge by deliberately refraining

from taking those steps necessary to discover whether those statements were false or misleading .

179. As a result of the dissemination of the materially false and misleading informatio n

and/or defendants' failure to disclose material facts, as set forth herein, the market price of

marchFIRST securities was artificially inflated during the Class Period . In ignorance of the fact that

the market price of marchFIRST's publicly-traded securities was artificially inflated, and relyin g

directly or indirectly on the false and misleading statements made by defendants, or upon the integrity

of the market in which the securities trade, and/or on the absence of material adverse information tha t

was known to or recklessly disregarded by defendants, but not disclosed in public statements b y

defendants during the Class Period, the Class purchased or otherwise acquired for value marchFIRS T

securities during the Class Period at artificially high prices and were damaged thereby .

-71-

180 . At the time of such misstatements and omissions, plaintiffs and the Class were ignoran t

of their falsity, and believed them to be true. Had plaintiffs and the Class and the marketplace known

of the true financial condition of the Company, which was not disclosed by defendants, plaintiffs and

the Class would not have purchased or otherwise acquired their marchFIRST securities during th e

Class Period, or, if they had purchased or otherwise acquired such securities during the Class Period ,

they would not have done so at artificially inflated prices .

181 . By virtue of the foregoing, defendants have violated § 10(b) ofthe 1934 Act, and Rul e

lob-5 promulgated thereunder .

182. As a direct and proximate result of defendants' wrongful conduct, plaintiffs and th e

Class suffered damages .

COUNT TI

VIOLATION OF § 20(a) OF THE 1934 ACTON BEHALF OF THE ENTIRE CLASS AGAINST ALL DEFENDANTS

183. Plaintiffs repeat and reallege each and every allegation contained in the above

paragraphs, as if fully set forth herein. This claim is asserted against each defendant .

184 . Defendants and each of them acted as a controlling person ofmarchFIRST within th e

meaning of § 20(a) of the 1934 Act, as alleged herein . By virtue of their executive positions, and

positions on the Board of Directors, each had the power to influence and control and did influence an d

control, directly or indirectly, the decision-making of the Company, including the content an d

dissemination of the various statements which plaintiffs contend are false and misleading . Defendants

were provided with or had unlimited access to copies ofthe Company's internal reports, press releases ,

public filings, and other statements alleged by plaintiffs to be misleading prior to and/or shortly afte r

-72-

these statements were issued and had the ability to prevent the issuance of the statements or cause th e

statements to be corrected .

185. In particular, each Defendant had direct involvement in the day-to-day operations o f

the Company and, therefore, is presumed to have had the power to control or influence the particula r

transactions giving rise to the securities violations as alleged herein, especially by virtue of their senio r

positions, and exercised the same .

186. As set forth above, defendants violated § 10(b) and Rule 10b-5 by their acts an d

omissions as alleged herein . By virtue of their positions as controlling persons of marchFIRST, eac h

of the defendants is liable pursuant to § 20 (a) of the 1934 Act. As a direct and proximate result of

defendants' wrongful conduct, plaintiffs and the Class suffered damages .

PRAYER FOR RELIEF

WHEREFORE, plaintiffs demand judgment :

A. determining that the instant action is a proper class action maintainable under Rule 2 3

of the Federal Rules of Civil Procedure;

B. awarding compensation damages and/or recission as appropriate against defendants an d

each of them, in favor of plaintiffs and all members of the Class for damages sustained as a result of

the defendants' wrongdoing ;

C. awarding plaintiffs and all members of the Class their costs and disbursements of thi s

suit, including reasonable attorneys' fees, accountants' fees and experts' fees ; and

D . awarding such other and further relief as may be just and proper .

-73-

JURY DEMAND

Plaintiffs demand a trial by jury .

DATED : May 3, 2001 MILLER FAUCHER AND CAFFERTY LLP

Mai in A. Miler30 North LaSalle Street, Suite 3200Chicago, IL 60602Telephone : 312/782-4880

Plaintiffs' Liaison Counse l

MILBERG WEISS BERSHADHYNES & LERACH LLP

Brad N . FriedmanPeter E . SeidmanOne Pennsylvania PlazaNew York, NY 10119-0165Telephone : 212/594-5300

Lead Counsel for Plaintiffs

WEISS & YOURMANJoseph H. WeissJames E . Tullman551 5th Avenue, Suite 1600New York, NY 10176Telephone: (212) 682-3025

BERGER & MONTAGUE, P .C.Sherrie R. SavettMichael T . Fantini1622 Locust StreetPhiladelphia , PA 19103Telephone: (215) 875-3000

STULL, STULL & BRODYJules Brody6 East 45th StreetNew York, N.Y. 10017Telephone : (212) 687-7230

Additional Plaintiffs' Counsel

-74-

MARCH ST. INC .CERTfkTCATION FURS U " TO THE FEDERAL SECURITIES LAWS

duly swears and says, as to theClaims asserted under the federal securities Taws, that

1 . 1 have reviewed the complaint flied on behalf of Randall James Bum and all otherpersons similarly situated against March 'irs , Inc_ and its officers and directors. I approve of thecontents , and I authorize a sl ur complaint to be fil ed on my behalf.

2. 1 did not purchase the security that is The subject of this action at the direction of mycounsel or ia order to participate i n. this private action.

3. I am witting to scare as a representative plaintiff on behalf of the cuss , includingproviding testimony at deposition and trial, if n sazy.

4. My tr sactious in the seauities ofMarchPiat, Inc. between and melt flag Yuly 25,2000 Waugh October 23, 2000 (the "Class Period") are as fvlIows:

Shares Date of Pre per

Pure as t Pub Share

Sham Date of price perOld Sale Share5 .

S. I bye not sought to s 'o as a class representative in any other action flied Hader theTJrted States fie lerai s ties laws in the past three (3) ye= preceding the date ou which this

iaaissled . .

6. 1 have not and wilt not accept any payment for sing as a representative plaintiff onbeba]fof the class beyond hay pro rata share of any recovery, except for any award for r ilecosts and eacpeeses (, ding lost wages) dkec4y relates to the representation of the class asordered by the court.

I declare under penalty of perjury under' the Iaws of the United States that the foregoing is+f `,.,► '.three and correct Executed this $.day cf rj ¢ •r 2000, at 12- .'

Ey'

print Name : •l - .w 4' C V

B/L 3~Ka m[ iC1 cFY Y, a2=ar =w[nx~ ram =o . , ..

Purchase Da te .Ant Sha 'e Purchase Pric e

10/23/00 10,000 513 .75010/23/00 100 $13 .75010/23100 100 $13 .690310/23/00 100 $13 .81010/23/00 4-,700 $13 .75 010/10/00 3,500 51013 010/10/00 320 s?0 .240L0/11/00 I$0 S12 .14 0

Safe Date10/24/0010/24/0010/24/0010/24/0010/24/0010/24/0010/24/0 0

r

Amt. Sham10,000100100

9,70031500320I80

Safe Price$5.320$5 .120$5 .120$5 .120$5 .060$5 .060$5 .060

B/9 9 !)t/d °QI :14Q 1 9Z :91 i0-E0-1LHW

CERTIF C TI h PEYRS AN O ?- D~RA~, E IES LAWS

Q-6-or-r- PA(",T t~1 hereby ce iEes as follows:'P'rint Name)

I . To the best ofmy knowledge, the foUowin ; are all my tra actions in

marchMST, Inc. during the period from July 25, 2000 and October 23, 2000 (the "Cias

Period") :

Pats Purchased or Sall Nc. .of Shares Price er sbg=/00 RAf GI-;A 1,4000 -~..1•81~

/E 1c P.,tR tAS€ 1, 1 $ 21 -2.S

Z7/ 100 ~►.cac.e- i 6,r o o63

4/ (o p Pc,c crt •q G 3% too ► • ms

2. ,I have reviewed the complaint styled arxa Lou o -m, m=h= Inc_ et s . I

necessary, I authorize the filing of a similar complaint on my behal f

3. 1 did not purchase or acquire the securities that are the subject of this action at th e

dic=tion of covzrsel or in order to participate in I his private action .

4. I am wring to serve as a represem ve party on behalf of the class, i chiding

providing testimony at deposition and aial, if necessary. I tmderstand that the litigation is not

settled, this is not a c1a~= foarm., and sharing in any recovery is not dependent upon execution of

this Certification.

5. D wring the last flune years, I have not served or sought to serve as a class

representative in any case brought under the fedm-al securities laws .

6. 1 have not b= promised . will not accept any paym for saving as a

representative party on behalfof the class beyond, my pro rata sham of any recovery, except as

ordered or approved by the court, including any award for reasonable costs and expeses

(ncluding lost wages) directly relating to the representation of the class .

I hereby certify Lauder penalty of peiury that the foregoing is true and correct.

Darted: '~o 1 ► ~E 2000

A-44CT r-A r4_+

TOTF L P .02

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074-

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Schedule ALeonard Meyiiola, Jr.

Tram gd ans ire narchFFRST . Eric. SecurftieS.

Pur asea:Date Shares Prices

07125100 1,000 22.440007/27/00 1,000 21 .750007127100 2,000 22.810007127100 1,000 22.250007127/00 500 21 .580007i28/00 700 20.810007/28/00 500 20.810007/28/00 500 20.760007128/00 800 20.810007128100 500 20.810008115100 300 21 .000008115/00 1,000 21 .000008/15100 700 21 .000008115100 1,000 21 .000008/15/00 1 .000 21 .000008115/00 1,000 21 .000008/17100 400 23.560008117100 600 23.56000$117100 1,000 22,630008121100 500 20.250008/21100 1,5007 20.250008/28/00 200 21 .000008128/00 800 20.890008/28/00 500 20.6900 .08128/00 1,000 20.590009/01/00 2.000 18.130009/01/00 500 18.130009101/00 300 1$.190009/01100 1,000 18.130009/08/00 500 19.750009108100 500 13.750009112100 1,000 20.250009112100 1,000 20.250009112/00 2,000 20.060009/13/00 1,000 19.630009/15/00 2,000 20.130009/15/00 1,706 19.029903115100 294 19.030009/15/00 1,000 19.130009115/00 1,000 18.750009118/00 1,000 17.880009/18/00 1,000 17.880009/19100 1, 17.8800

S/T7 3OVd : C l .Ho SZ = SE 19-CO -WW

.1

Schedule ALeonard Me oT2. Jr.

Tr nsactfons in rtzarchFif3 7., Inc.Securities

Sales :

09120100 800 17-380009/20100 200 17.380009120100 400 17.380009120/00 600 17.380000120/00 200 17.690009120100 800 17.380009/20/00 , 1,000 17.690009/21100 250 18.060009/21100 900 18.130009/21100 2,000 17.750009/21100 1,100 18.130009/22100 2,000 17,190009122!00 300 17.190009125/00 1,000 16.750009/25/00 2,000 17.130009255100 1,000 16.750009/27100 4,000 14,690010106100 6,500 10.880010106/00 sea 10.810010/09100 2.000 11 .060010/15/00 100 11 .000010/16/00 200 10.810010/16/00 100 10.500010/16/00 1,100 11,000010115100 1,000 11 .000010/16/00 500 10.500010/16/00 400 11,000010116/00 800 10.500010/16/00 200 11 .000010/16100 1,500 10.500010/15/00 500 11 .000010116100 100 10.500010/16/00 1,000 11 .000010116100 Soo 10.810010117100 1,000 10.60010117100 2,000 10,7500

ARM Shares Price07125100 300 23.440007/25/00 700 23.500007125100 2,000 23.500008115100 700 21.000008115100 400 21 .000008115/00 500 21 .000 008115100 600 21 .000008115100 1,500 21 .000008/15/00 500 21 .0000

2

E3/5 30+Id =QI 'WOld 5Z=5L 10 -9- V W

ScheduleLeonard Metio#a_ .1r_

Transactiaris in mmarchl R$T, Inc_ Securities

08/ 15100 600 21 .0000081 15100 200 21 .000008/17/00 1,000 25.440008117/00 500 25.500008117/00 500 25.560008117100 1 . 000 23.500008/17/00 1,000 23.560008117100 1,000 23.630008117100 2,000 23.500008/17100 2,000 23.500009/01100 200 18 .250009108100 800 20.310009/08100 1,000 19.940009108/00 1,000 20.310009108100 1,000 20.310009108/00 2.000 20.310009/i 1100 21000 21 .000009112100 2,000 20-060009/19100 1,000 18.000009/20/00 2,000 18.000009120100 1,100 18.690004/20100 600 18.250009/20100 400 18.130009120/00 400 18.250009120/00 1,000 18.250009/20100 1,000 18.3100091 /00 600 18.130009120100 900 18.630003125100 1,000 15.630010/04/00 2,000 13.250010/06/00 10,000 11 .690010/16/00 3,000 11.00001011 6100 2,000 11 .000010/16100 1,900 11 .000010/16/00 5030 11 .000010/15/00 .500 11 .000010/16100 100 11 .00001011 7100 1,000 11.130010/19100 500 11 .000010119/00 50 11 .0000101/9/00 4,000 11 .130010124/00 10,000 4.690010/24100 4,500 10.4222

3

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