Lead Counsel for Plaintiffs
 
 

1. This is an action on behalf of persons who purchased or otherwise acquired Autodesk, Inc. ("Autodesk"or the "Company") stock between 9/14/98 and 5/4/99. Autodesk creates and sells computer-aided-design software for use in the mechanical design and engineering, architecture, mapping/geographic information systems, civil engineering and education markets. Autodesk's flagship product, AutoCAD, is a computer-aided design ("CAD") tool, which historically provided 70%-80% of Autodesk's revenues. During the mid-90s, Autodesk was trying to diversify its business away from its undue dependence on sales of AutoCAD, principally by making acquisitions of other companies and different technologies to get or create different products to sell. In 5/98, Autodesk was considering its largest and most important acquisition ever - of Discreet Logic, Inc. ("Discreet Logic") - in exchange for Autodesk stock. However, Autodesk's stock declined sharply, falling from $49-$50 in 5/98 to $31-$32 by mid-8/98, due to concerns over Autodesk's sales in Asia, sales of Autodesk's current version of its AutoCAD product - R14 - and the disclosure that key Autodesk insiders had sold over 142,000 shares of their Autodesk stock at $41-$43 per share in 5/98-6/98. Despite the decline in Autodesk stock, its key executives were determined to go ahead with the acquisition of Discreet Logic because they hoped this large acquisition would dramatically diversify Autodesk's revenues away from AutoCAD and because they feared that if they did not move now, Discreet Logic - which was being "shopped" for sale - would be sold to someone else and this extremely important acquisition opportunity would be lost. On 8/20/98, despite its low stock price, Autodesk announced the Discreet Logic acquisition in which it would issue .525 shares of Autodesk stock for each of the 31 million shares of Discreet Logic stock outstanding, i.e., 16.3 million shares. Autodesk revealed that it would also have to sell three million new shares of stock to the public at the time of the Discreet Logic acquisition in order to use "pooling" accounting - the only way Autodesk could avoid putting millions of dollars of goodwill on its balance sheet as part of the acquisition which would result in write-offs which would penalize its earnings over the next several years. The announcement that Autodesk would issue over 19 million new shares on top of its currently outstanding 46.6 million shares caused Autodesk stock to plunge even lower, falling to $22-1/4 - less than one-half its price three months earlier and its lowest price in over two years. This stock plunge gravely endangered Autodesk's acquisition of Discreet Logic and its associated three million share stock offering. To halt the decline in Autodesk stock and push it higher, Autodesk, its top officers and their investment banker/financial advisor began to make very positive but false statements about strong continuing demand for Autodesk's existing AutoCAD R14 product line, strong demand for all its products in Europe, Autodesk's successful diversification of its business due to the strong sales of its "vertical" products resulting in lessened dependence on its AutoCAD product line and thus the elimination of the AutoCAD "boom/bust" cycle, the successful development and testing and accelerated commercial release of its new R15/AutoCAD 2000 product, the beneficial impact of Autodesk VIP upgrade program, the lack of any negative impact on Autodesk's business due to Y2K issues, plus the limited dilutive impact of Autodesk's acquisition of Discreet Logic, all of which would result in Autodesk achieving F00 (to end 1/31/00) revenues of $1+ billion, earnings per share ("EPS") of $2.45-$2.55 and 20%-25% yearly EPS growth during F99-F01. These representations artificially inflated the price of Autodesk stock to a Class Period high of $49-7/16 in 1/99.

2. The more than 100% upsurge in Autodesk's stock price not only enabled Autodesk to successfully complete the Discreet Logic acquisition in 3/99, but to do so while cutting the exchange ratio to just .33, thus drastically reducing the number of shares of its stock it had to issue to complete the Discreet Logic acquisition from 16.3 million shares to 10 million shares. This also permitted the defendants at the same time to sell three million new Autodesk shares to the public at $41 per share for over $120 million. These developments greatly benefitted Autodesk, Autodesk's insiders and Autodesk's financial advisor/investment banker to the tune of millions and millions of dollars. But then, during early 4/99, Autodesk's stock began to plunge, falling to $22-13/16 by 4/21/99, on rumors - which Autodesk, its insiders and their investment banker/financial advisor denied - that Autodesk's launch of its R15/AutoCAD 2000 product was troubled, demand for Autodesk's products was weak in Europe and elsewhere and Autodesk's 1stQ F00 results would be worse than forecast.

3. As a result of defendants' denials and reassurances, Autodesk's stock had recovered to $29-1/8 by 5/4/99. But then Autodesk revealed that its F00 results were, in fact, going to be much worse than earlier forecast due to poor sales of R15/AutoCAD 2000 and weak sales in Europe. Autodesk's stock immediately collapsed - falling by almost 25% in one day to $22-1/4 and later to as low as $19-3/4:

 4. Defendants' scheme was primarily carried out by offering incentives for Autodesk's dealers/resellers to purchase excessive quantities of AutoCAD R14 and misrepresent the statement of AutoCAD 2000. These incentives allowed end users to upgrade to AutoCAD 2000 (R15) for a fraction of the cost of a new R15. Defendants' desire to significantly inflate 3rdQ and 4thQ revenue and earnings resulted, as they knew it would, in the decline of 1stQ revenues.

5. Defendants' fraudulent scheme was successful - for them. By artificially inflating Autodesk's stock, Autodesk was able to acquire Discreet Logic for at least six million fewer shares than would have been necessary had Autodesk's stock sold at its true value. Also, Autodesk sold three million shares of Autodesk stock at $41 per share for over $117 million net of underwriting charges, at least $51 million more than it would have obtained had Autodesk's stock sold at its true value of about $22 per share. Defendant U.S. Bancorp Piper Jaffray Inc. (formerly, Piper Jaffray Inc.) ("Piper Jaffray") got $740,000 of the stock sales proceeds and $3,075,000 for its work helping Autodesk complete the Discreet Logic acquisition, monies it would not have obtained had Autodesk's stock not been inflated during the Class Period. Because of how defendant Carol A. Bartz pulled off the Discreet Logic acquisition, Autodesk's Board rewarded her with an $800,000 cash bonus for F99 - by far the largest cash bonus Bartz or any Autodesk executive ever received. By comparison, during the prior five fiscal years, Bartz received total cash bonuses of $916,120 - an average of $183,224 per year. This extraordinarily large F99 cash bonus was a reward to Bartz for pushing Autodesk's stock up to such a high level that Autodesk was able to cut the exchange ratio almost in half and drastically cut the number of shares to be issued, and so that the sale of the three million shares of Autodesk stock would be at very high and non-dilutive prices as well. Defendant Eric B. Herr got a $420,000 cash bonus in F99 for the same reason Bartz got her $800,000 bonus. This was also Herr's largest-ever cash bonus and, by comparison, Herr's cash bonuses in the prior five fiscal years totaled $505,000, or an average of $101,000 per year.

6. (a) The claims asserted herein arise under §§10(b) and 20(a) of the Securities Exchange Act of 1934 ("1934 Act"), 15 U.S.C. §§78j(b) and 78t(a), and Rule 10b-5. Jurisdiction is conferred by §27 of the 1934 Act, 15 U.S.C. §78aa.

(b) Venue is proper here pursuant to §27 of the 1934 Act. Acts and transactions giving rise to the violations of law complained of occurred here.

(c) Assignment of this action to this Division is appropriate as a substantial part of the acts or omissions identified herein occurred in Marin County.

7. In accordance with the Court's June 26, 2000 Order, the following plaintiffs are designated as Lead Plaintiff. Each purchased or otherwise acquired, common stock issued by Autodesk at artificially inflated prices during the Class Period and was damaged as a result thereof: (i) Lisa Preble, (ii) Norman Bolker, (iii) Anthony Neston and (iv) Carole Neston.

8. Defendant Autodesk is headquartered at San Rafael, California. Autodesk's stock traded in an efficient market on the NASDAQ National Market System.

9. (a) Defendant Carol A. Bartz was, during the Class Period, Chief Executive Officer and Chairman of the Board of the Company.

(b) Defendant Eric B. Herr was, during the Class Period, President and Chief Operating Officer of the Company.

(c) Defendant Christine Tsingos was, during the Class Period, Treasurer of the Company.

10. The defendants named in 9(a)-(c) are the "Individual Defendants." They are liable for the false statements pleaded herein as those statements were each "group-published" information for which they were collectively responsible. Bartz and Herr, by reason of their stock ownership and positions with Autodesk, were controlling persons of Autodesk. Autodesk controlled each of the Individual Defendants. These controlling persons are liable under the 1934 Act §20(a).

11. Defendant Piper Jaffray is an investment banking firm which specializes, inter alia, in providing financial advice to public companies and underwriting public offerings of their securities. Piper Jaffray has served as Autodesk's financial advisor for years and was intimately involved in helping Autodesk pursue its acquisition strategy during the mid-90s, including acting as its financial advisor in the Discreet Logic acquisition and as one of its co-lead underwriters of three million shares of Autodesk stock to the public at an artificially inflated price and for which it received millions of dollars in fees if, but only if, the Discreet Logic acquisition and the three million share stock offering were actually completed. Piper Jaffray received fees as follows for the Discreet Logic acquisition:

Retainer                         $  100,000

Fee for fairness opinion         $  750,000

0.75% of total transaction
value (less above amounts)
contingent on deal closing
($410M * 0.75%)                  $2,225,000

TOTAL:                           $3,075,000

• During the summer and the fall of 97, the management of Discreet Logic and of Kinetix, the division of Autodesk which produced animation software, had meetings and telephone conversations during which they explored the possibility of a cooperative business relationship, including the pursuit of joint marketing opportunities.

• Beginning in 2/98, after signing a mutual nondisclosure and confidentiality agreement, Autodesk and Discreet Logic began sharing certain product development information in an effort to determine the feasibility of enhancing the interoperability of Kinetix's 3D Studio Max product with Discreet Logic's products for future releases of these products.

• During 3/98-5/98, the senior executives of Autodesk and Kinetix met with senior executives of Discreet Logic to discuss the ongoing relationship between Discreet Logic and Autodesk and explore the possibility of a merger or other combination of Autodesk and Discreet Logic.

• During 6/98-7/98, Bartz, Herr and Richard Szalwinski, Chairman and Chief Executive Officer of Discreet Logic, continued to meet and discuss the possibility of a strategic transaction or combination between the two companies.

• In early 7/98, Discreet Logic and Autodesk executed a new mutual nondisclosure and confidentiality agreement in anticipation of further discussions and a mutual exchange of information. At this time, Autodesk and Piper Jaffray commenced a detailed due diligence investigation of Discreet Logic, which continued until the execution of the acquisition agreement in 8/98.

• During the last two weeks of 7/98, Piper Jaffray advised Autodesk in detail on the appropriate transaction valuation ranges and potential deal terms for the Discreet Logic acquisition.

• On 7/28/98, Piper Jaffray met with Bartz, Herr and Tsingos to present the results of their Discreet Logic due diligence and to discuss valuation and deal structure.

• During late 7/98 to early 8/98, Bartz, Herr and Tsingos, with Piper Jaffray, discussed how the combined entity would be structured following the acquisition, the role of the Discreet Logic business unit in a combined organization, the growth potential of Discreet Logic as part of the combined entity and how Discreet Logic would dilute Autodesk's results during F00.

• Between 8/5-7/98, members of Autodesk's management and representatives from Piper Jaffray conducted additional and very detailed business due diligence in Montreal, Quebec on Discreet Logic. They conducted a detailed review of Discreet Logic's operations and financial outlook and met with senior management of Discreet Logic.

• During 8/11-20/98, Herr and Tsingos of Autodesk, together with Piper Jaffray personnel, completed work on the proposed acquisition of Discreet Logic, which was announced on 8/20/98.

12. During the 90s, Autodesk's business was very much dependent upon sales of its AutoCAD product line, which provided 80% of Autodesk's revenues. Autodesk's undue dependence on that one product was viewed negatively by analysts and investors. This was because the performance of Autodesk's stock tended to follow the AutoCAD "upgrade cycle," whereby Autodesk's stock would increase as it introduced a new upgraded version of AutoCAD which drove its revenue growth, but then decline as that upgraded product matured and revenue growth slowed. As a result of this "boom-and-bust" AutoCAD upgrade cycle phenomenon, plus Autodesk's botched and disastrous launch of its bug-ridden and technically flawed R13 AutoCAD upgrade in 95, Autodesk stock was unable to achieve any real growth during 95-97, as the chart below shows:

This erratic performance of Autodesk's stock was especially troubling as, during these years, the U.S. equity markets generally, and high-tech stocks in particular, had staged major and sustained advances. The chart below shows how badly Autodesk's stock underperformed the Dow Jones Software Index during 95-97:

As a result of this poor stock performance, Autodesk's top management team, led by Bartz (Chairman and Chief Executive Officer), Herr (President and Chief Operating Officer) and Tsingos (Treasurer), came under increasing pressure from Autodesk's Board, large investors and analysts who followed the Company to diversify Autodesk's business and revenue sources so as to lessen its dependence on the AutoCAD product line, eliminate or lessen the AutoCAD "boom-and-bust" cycle, successfully introduce new upgraded versions of its AutoCAD product line and enable Autodesk to reposition itself to be able to achieve consistent revenue and EPS growth so that its stock could achieve sustained, real gains.

13. In an effort to diversify Autodesk's business and revenue sources, during the mid-90s, with the help of its investment banker/financial advisor Piper Jaffray, Autodesk made several acquisitions of companies and software technologies so Autodesk could broaden its product line and lessen its dependency on AutoCAD revenues. However, most of these acquisitions were small and Autodesk still remained heavily dependent upon sales of the AutoCAD product line which, during 97, provided over 70% of Autodesk's revenues. Thus, by 98 Autodesk's top executives remained under pressure to make significant acquisitions which actually would materially lessen Autodesk's dependence upon AutoCAD.

14. Autodesk, Autodesk's top three executives and Piper Jaffray knew that any significant acquisition of the size that would enable Autodesk to really lessen its dependence on AutoCAD would be so expensive that Autodesk could only make such an acquisition by using Autodesk's common stock as currency to pay for the acquisition, as a cash purchase of that size was well beyond Autodesk's means. This meant they had to keep Autodesk's stock trading at a high price so as to reduce the number of Autodesk shares actually issued in any such acquisition, thus limiting the acquisition's dilutive impact. In addition, because a large stock-based acquisition would involve Autodesk paying millions of dollars more than the book value of the acquired company, the acquisition would potentially create millions of dollars of "goodwill," which, if Autodesk were required to capitalize on its balance sheet and then amortize going forward, would badly penalize Autodesk's EPS for years. Autodesk could avoid this negative accounting impact only by using "pooling of interests" accounting, which generally permits the acquiring company to avoid putting goodwill on its balance sheet. However, because Autodesk had engaged in substantial open market common stock repurchases during recent years, acquiring approximately three million shares of its common stock beyond those needed to provide shares for its stock option programs, Autodesk could not utilize "pooling of interests" accounting for an acquisition unless it re-issued those previously repurchased "tainted" three million shares in a public offering. This requirement placed additional pressure on defendants to keep Autodesk's stock trading at a high price because they did not want to sell three million additional shares of Autodesk stock to the public at anything other than a high price to avoid the dilutive impact of any such stock issuance and also because a higher stock price would generate larger amounts of capital for Autodesk.

15. By 2/98, defendants identified the large potential acquisition they hoped would help diversify Autodesk's business and reduce its dependence on AutoCAD revenues - Discreet Logic - a Canadian company which developed and marketed computer software which created sophisticated animation characters for movies - a product line which would be very compatible with Autodesk's Kinetix division. Bartz, Herr and Tsingos desperately wanted to acquire Discreet Logic as this large acquisition would finally diversify Autodesk's business and really reduce its dependence on AutoCAD revenues. By 2/98, Autodesk and Discreet Logic had signed a mutual nondisclosure and confidentiality agreement and were sharing information on how to integrate Discreet Logic's products with those of Autodesk's Kinetix division, as a precursor to a possible business combination. Fortunately for Autodesk's top executives, on 2/27/98, Autodesk stock hit $50-1/16, very near the stock's all-time high of $51-1/8 it reached in 10/97. In early 5/98, as Autodesk was actively considering launching its acquisition of Discreet Logic, Autodesk's stock was still trading at $48-$49.

16. Because of the size of Discreet Logic's business ($130 million in annual revenues), this would be by far the largest acquisition Autodesk had ever made. Thus, Autodesk could only afford to pay for the acquisition by issuing shares of its stock rather than paying cash. It was imperative to the acquisition that Autodesk obtain "pooling of interests" accounting treatment for the merger, as otherwise, Autodesk would have to write off millions of dollars of goodwill which would materially depress Autodesk's reported net income and EPS for several years. Because of its earlier open market purchases, Autodesk could use "pooling" accounting only if it sold at least three million new shares of Autodesk's stock to the public to cure the "taint" of Autodesk repurchasing that many shares in recent years. Thus, it was imperative to defendants that they keep Autodesk stock trading at high levels so it would be a valuable and desirable "currency" for acquisitions - specifically Discreet Logic - so as to limit the dilutive impact the Discreet Logic acquisition would have on Autodesk, as the higher Autodesk's stock price, the fewer shares Autodesk would have to issue to pay for the acquisition, and to keep the acquisition price high so Autodesk's shareholders would be more likely to vote to approve the merger and so Autodesk could sell three million shares of new stock to the public at a high price - raising more new capital. During early 98, Autodesk's stock reached $50-1/16, and by 5/98 was trading at $48-$49.

17. Unfortunately for defendants, during 5/98, Autodesk's stock began to plummet, falling from $49 on 5/12/98 to $40-7/8 on 6/15/98 and to $31-3/4 on 8/20/98. This decline was due to investors' fears that economic problems in Asia - an important Autodesk market - would adversely impact Autodesk's revenues, and concerns that Autodesk's current R14 AutoCAD product, which had now been on the market for six or seven quarters, had so matured that it was reaching the point of diminishing revenue growth as Autodesk customers awaited the release of Autodesk's next AutoCAD upgrade - R15/AutoCAD 2000 - and investors' concern that because certain key Autodesk insiders, including Herr, had unloaded over 142,000 shares of the Autodesk stock they owned in 5/98-6/98 at $41-$43, there must be serious undisclosed problems with Autodesk's business which would hurt its performance and its stock going forward. In fact, as the defendants knew, Autodesk was suffering problems in these key areas of its business.

18. As the top executives at Autodesk, Bartz, Herr and Tsingos ran the Company as "hands-on" managers, dealing daily with the important issues facing Autodesk's business, i.e., its acquisition of Discreet Logic, sales of its R14 AutoCAD product and completion of the final development and commercial introduction of its new R15/AutoCAD 2000 product upon which Autodesk's business - and future revenue and EPS growth - depended.

19. The development and commercial release of Autodesk's new R15/AutoCAD 2000 product was the most important ongoing corporate priority in Autodesk's business during 98-99. Herr, as Chief Operating Officer, had the primary responsibility for the successful development and commercial launch of the R15/AutoCAD 2000 product. However, Bartz and Tsingos were also intimately involved in overseeing this activity - Bartz because she was Chief Executive Officer and Tsingos because Autodesk's financial plans and forecasts for F00, i.e., CY99, were completely dependent upon the successful introduction of the R15/AutoCAD 2000 product in early F00 and the revenue growth to be generated thereby. As a result, Herr, Bartz and Tsingos were involved on a day-to-day basis in monitoring the status of the development, testing, de-bugging and commercial introduction of the R15/AutoCAD 2000 product throughout the Class Period. During the time this product was involved in final development and internal and external testing, Bartz, Herr and Tsingos received regular reports on the status of the engineering and testing of the R15/AutoCAD 2000 product.

20. In 5/98-6/98, when the R15/AutoCAD 2000 product went into alpha-testing, and in 11/98-12/98, when the product went into beta-testing at thousands of customers' "seats," Autodesk's marketing and product development departments constantly gathered feedback information from users of the results of the alpha- and beta-testing and then accumulated and evaluated that information to forward it along to, inter alia, Bartz, Herr and Tsingos so that they were constantly informed of the precise status of the alpha- and beta-testing of this important new product. During the alpha- and beta-testing of the R15/AutoCAD 2000 product later in 98-99, it was demonstrating excessive "bugginess" due to Autodesk's efforts to add such a large number of new features to the product which required such extensive re-writes of the underlying software code that it could not be completed in the inadequate time Bartz, Herr and Tsingos allotted for pre-release testing and de-bugging. These alpha- and beta-testing field reports contained detailed information with regard to the excessive "bugginess" and technological shortcomings of the R15/AutoCAD 2000 product and Autodesk's inability to cure many important defects or "bugs." As a result of these reports and other communications with lower level Autodesk managers, Bartz, Herr and Tsingos knew that the R15/AutoCAD 2000 product could not be made ready for commercial release by 3/99 and that, in fact, to properly "de-bug" this complex product for proper commercial release, the product could not be released until at least 6/99-7/99, if not later. Because Autodesk's upgraded Mechanical Desktop product was dependent in significant part upon the R15/AutoCAD 2000 technology, these defendants also knew these problems would delay the release of the Mechanical Desktop and, in fact, that the problems with MCAD were so significant that Autodesk would not even be able in the case of this product to release it while hoping for the best, knowing that substantial in-field de-bugging and upgrades would be necessary, but rather, would have to hold this product back from release for some period of time for additional testing and de-bugging.

21. The Individual Defendants were each well aware of the disastrous impact on Autodesk of releasing an AutoCAD upgrade prematurely and without adequate testing and de-bugging. In early 95, Autodesk introduced a major new upgrade of its AutoCAD product line, the R13. This upgrade was a major product upgrade with extensive technological improvements which required a substantial re-writing of the AutoCAD product's underlying software code. Because Autodesk had been forced by competitive pressures to rush R13 to market before it had time to adequately test and de-bug the product, the late 95 launch of the R13 was a disaster for Autodesk, as the product was riddled with hundreds of software "bugs" and operational deficiencies. This resulted in massive consumer resistence to and dissatisfaction with the R13 product, customer complaints and disputes and the collapse of Autodesk's stock to as low as $18-1/2 in 8/96.

22. As a result of the R13 debacle, Bartz, Herr and Tsingos knew that analysts and investors would be very focused during 98 on Autodesk's pending R15/AutoCAD 2000 product upgrade, because as an "odd-numbered" upgrade, R15, like R13, was a major product upgrade involving a large number of new features which would thus carry a risk of technological problems or "bugs," which could adversely impact its commercial success. Thus, Bartz, Herr and Tsingos knew that it was absolutely imperative that they assure analysts and investors that, unlike the R13 upgrade release, with this "odd-numbered" R15 release Autodesk was taking all the necessary steps and time to properly evaluate and test the R15/AutoCAD 2000 product prior to its commercial release to assure that upon release the product would, in fact, deliver the increased levels of performance promised and not contain an excessive number of "bugs" and operational deficiencies. However, in fact, by 5/98-6/98, Autodesk's top executives, Bartz, Herr and Tsingos, knew that the development of Autodesk's R15/AutoCAD 2000 product was following a course eerily similar to the disastrous R13 upgrade release. They also knew, both from their review of Autodesk reports described in 25-26 and from discussions with Autodesk's top managers, that because of the success of Autodesk's R14 product, Autodesk's customers were showing very little interest in and would be reluctant to purchase an upgrade of the R14. Instead, what Autodesk's customers wanted was a Web-accessible, Internet-ready product,⁽¹⁾ which Autodesk's competitors were developing and promising to customers. Bartz and Herr were both specifically warned of this situation and that the R15/AutoCAD 2000's lack of Web/Internet readiness would doom the product to failure in the commercial marketplace, but nevertheless told other Autodesk employees they were going ahead with the R15/AutoCAD 2000 because investors were anticipating Autodesk's release of new products and because of the need to support Autodesk's stock price while the Discreet Logic acquisition and three million share stock sale were pending, i.e., the R15/AutoCAD 2000 product release was "investor-relations driven," done to "boost the stock price."

23. In order to push Autodesk stock higher, Bartz, Herr and Tsingos deliberately lied to investors and analysts, not only misrepresenting and concealing the adverse results of the alpha- and beta-testing of the R15/AutoCAD 2000 product and the extent of its "bugginess," but also stating that the success of Autodesk's R15/AutoCAD 2000 development activities and testing program was enabling Autodesk to advance the commercial introduction date of the product, a very positive development which would enhance Autodesk's F00 revenues and EPS. Bartz, Herr and Tsingos did this because they knew that the only way to inflate Autodesk stock to a level where they could force Discreet Logic to accept a lower exchange ratio for the Discreet Logic acquisition and, at the same time, sell off three million shares of Autodesk stock on a non-dilutive basis was to persuade investors that the R15/AutoCAD 2000 product development was proceeding so successfully that the product would be launched early and, as a result, Autodesk would achieve substantial revenue and EPS growth in F00-F02.

24. In addition, the defendants knew of the substantial decline in R14 sales. Both before and throughout the Class Period, Bartz, Herr and Tsingos continued to closely monitor the sales of Autodesk's products via reports which Autodesk's Finance Department generated on a weekly basis. There were "order reports," "sales reports" and "backlog reports" that summarized orders and dollar volume by product type, as well as unit "shipment" reports. Additionally, Autodesk kept its sales information on Epiphany, a software program that allowed the Company to prepare detailed reports and trailed Autodesk's sales by customer (reseller) and sales regions. Using this program, Autodesk's finance department compiled additional reports, including: "Revenue Cycles and Trends" (reports that identified revenue, cash receipts and DSO), "Allowance and General Reserve" (reports setting out the allowance for bad debt from resellers by region) and "Monthly and Pending Danger" (a breakdown, by customer, of the bad debt allowance). All of these reports were circulated to Bartz, Herr and Tsingos. Additionally, Autodesk conducted monthly sales meetings at its San Rafael headquarters or the Autodesk Cupertino office attended by the Individual Defendants every month during the week of the 15th (mid-month).

25. Thus, Bartz, Herr and Tsingos were apprised of the status of orders for and sales of every Autodesk product, including the R14 AutoCAD and R15/AutoCAD 2000 products, so that they knew where Autodesk stood in terms of the sale of and demand for its R14 AutoCAD and R15/AutoCAD 2000 products, as well as Autodesk's actual results compared to budget. They knew, therefore, that by the summer of 98 sales of the R14 were declining, that many of Autodesk's resellers were far below quota and that Autodesk would not make its revenue and earnings projections.

26. Despite the dramatic decline in Autodesk's stock, the problems with the R15 development and the declining sales of R14, Bartz, Herr and Tsingos were determined to go ahead with the Discreet Logic acquisition because they believed it represented an excellent "fit" with Autodesk's Kinetix division and would diversify Autodesk's business away from its dependence on AutoCAD. They also knew that Discreet Logic was being actively "shopped" by its investment banker (Volpe Brown) and if Autodesk did not move to acquire Discreet Logic now someone else would, and thus Autodesk's opportunity to make what they believed to be an extraordinarily desirable acquisition for Autodesk in the long term would be lost forever.

27. On 8/20/98, Autodesk announced it would acquire Discreet Logic, subject to the approval of Discreet Logic's shareholders, by issuing .525 shares of Autodesk stock for each of Discreet Logic's approximately 31 million outstanding shares, requiring Autodesk to issue about 16.3 million shares of its stock to complete the acquisition which, based on Autodesk's 8/19/98 closing price of $32-1/2, meant Discreet Logic's shareholders would get about $520-$530 million in Autodesk stock. However, this share issuance would increase Autodesk's outstanding shares from 46.6 to 63 million, and with the three million common share offering by Autodesk which was required to permit the use of "pooling" accounting,⁽²⁾ Autodesk's outstanding common shares would increase to 66 million.

28. Investors reacted very negatively to this announcement, believing that the issuance of over 19 million new shares of stock by Autodesk when its stock was trading at a low price would be unduly dilutive and badly impair Autodesk's EPS power going forward. Although Bartz and Herr assured investors that any dilutive impact of the Discreet Logic acquisition in F00 would be "minor" or "slight" and that the Discreet Logic acquisition would have substantial long-term benefits for Autodesk, investors remained skeptical and Autodesk's stock fell even further, to as low as $22-1/4 on 8/26/98 - a 10-point four-day decline - 30+% - on huge volume of 13 million shares. This sharp stock decline in Autodesk's stock during 98, from its 2/27/98 high of $50-1/16, is shown below:

This decline in Autodesk stock was a potential death-spiral which if not halted could prevent the Discreet Logic transaction from occurring because the more that the Autodesk stock price fell, the less valuable, i.e., attractive, the proposed acquisition became to Discreet Logic's shareholders and thus the less likely they were to approve it unless the exchange ratio was changed in Discreet Logic's favor and even more Autodesk shares had to be issued to do the deal. Also, a declining stock price only exacerbated the already excessively dilutive impact of the public stock offering to occur in connection with the acquisition.

29. In light of this collapse in Autodesk's stock, Bartz, Herr, Tsingos and Piper Jaffray realized that something had to be done, and quickly, to halt the decline in Autodesk stock and push the stock back up to much higher levels so that the acquisition would occur. This would also enable Autodesk to force Discreet Logic to agree to accept a much lower exchange ratio for the acquisition, which would greatly reduce the number of shares Autodesk had to issue and would enable Autodesk to complete the three million share stock offering at a much higher price, reducing if not eliminating its dilutive impact and raising millions more in capital for Autodesk and much more in fees for Piper Jaffray.

30. Thus, beginning with an Autodesk securities analyst conference in Philadelphia on 9/14/98, Bartz, Herr, Tsingos and Autodesk, along with Piper Jaffray, implemented their scheme and course of conduct to artificially inflate Autodesk's stock to much higher levels through a series of false and misleading statements, set out below, about Autodesk's business.

The Scheme to Defraud

31. Beginning as early as July 31, 1998, but by at least the beginning of the Class Period, the defendants were determined to ensure that Autodesk reported revenue and earnings growth in an effort to prop up the Company's stock price. Autodesk's R14 product, released in 5/97, was a very well-engineered and throughly tested and debugged product that was extremely successful - in fact, the most successful product in Autodesk's history - benefitting in significant part from the "pent-up" demand resulting from failure of the R13 to sell well or to satisfy Autodesk's customers' needs. However, by the summer of 98, sales of the Autodesk line across the board began to decline, and because the R14 was Autodesk's principal product, and the R15 was not ready for release, this decline was potentially devastating to the Company's sales. In order to achieve the desired results, defendants engaged in a scheme and wrongful course of business that revolved around misrrrepresenting the status of the $15, as set forth in 23, supra, and reviving flagging R14 sales to make it appear that the Company was growing its business. Autodesk accomplished this by implementing a strategy of giving undisclosed incentives to its resellers, in the form of upgrades, earn-back credits, and pushing excessive inventory, in order to encourage them to take more R14. The methods used were included the following:

(a) "VIP Upgrade program." This program involved a subscription, sold as part of the R14 package, that allowed the end user to upgrade to the AutoCAD 2000 (R15). The VIP subscription sold for $295 retail but if sold with the R14, its price was discounted to $100. The suggested retail price for new R15 software was $3,750. Because the end user community believed that the AutoCAD 2000 (R15) release was just a month or two away, end users purchased R14 with the VIP Upgrade subscription instead of waiting for the R15 release as a way to pre-purchase R15 at an extreme discount. By 4thQ F99, the reseller's price for the R14 had dropped to cost ($2,200 to $2,400). Purchasing the VIP Upgrade subscription, assured end users of at least a $500 to $1,000 discount on obtaining the AutoCAD 2000.

(b) "Product over quota/extra earn back credits." Autodesk's Authorized Dealer Agreements, which were renewed annually, contained a "Product Requirement Sheet" which set out a minimum amount of software that the dealer (reseller) was required to purchase per quarter (quota). The contract provided for incentives when the reseller reached quota - under the contract resellers could receive up to 3% "quota discount" or earn-back credits if they bought their quota. Under the Agreement, failure to purchase the requisite amount of software could result in termination of the Agreement by Autodesk. In order to get resellers to purchase additional R14 during 3rdQ and 4thQ, Autodesk gave resellers additional earn-back credits of 5%+ percent if the reseller met quota. Additionally, during 3rdQ and 4thQ many of the largest Autodesk dealers had not yet purchased quota for the quarter, but large orders in excess of quota were pushed through in order for Autodesk to "make the numbers." For example, some purchases were as much as $200,000, even though the reseller had only purchased $50,000 worth of their $100,000 quota. Not only would the purchase be $150,000 over the resellers' credit limit, but it was obvious from performance trends that the defendants knew the reseller was not going to be able to move that volume of product. When employees questioned their manager about these orders, they were consistently told in substance to "go ahead, they want it released" referring to communications with upper management - primarily defendants Herr and Bartz.

32. As a result of Autodesk's pushing product on its resellers, resellers made significant purchases at the end of both 3rdQ and 4thQ F99, to receive both VIP Upgrade the added percentage in earn back credits, and for an additional reason as well. About halfway through 4thQ, the resellers learned that the new annual reseller agreement that Autodesk would require resellers to execute included a 20% to 30% wholesale price hike spanning the entire Autodesk product line. Thus, there were strong incentives to load up on the R14 before the price increase.

33. These "plans" effectively bolstered 3rdQ and 4thQ revenue and income, and enabled the defendants to raise Autodesk's stock price and reduce the number of shares needed for the Discreet Logic acquisition.

34. The transactions described above were typical of the transactions engaged in throughout the Class Period in order to artificially inflate Autodesk's revenue and income in order to meet or exceed Wall Street analyst expectations and, to make it appear that demand for the Company's product was constantly growing. Defendants Bartz, Herr, and Tsingos knew of and, indeed, directed these programs. As stated above, the defendants were very "hands-on," and their focus was always on the sales and revenues. Because of their top executive positions with Autodesk and involvement in the day-to-day management of its business and these issues, Bartz, Herr and Tsingos actually knew the adverse non-public information about the slowing sales of the R14 AutoCAD product, the serious delays in the development of and defects revealed during the alpha- and beta-testing of Autodesk's R15/AutoCAD 2000 product, the 15+% dilutive impact of the Discreet Logic acquisition during F00 and Autodesk's deteriorating revenue and EPS prospects. Thus, Bartz, Herr and Tsingos actually knew the public statements about Autodesk pleaded at 44, 45, 48-49, 52-53, 57-61, 63, 65-67 and 69 were false when made.

35. Thus, as defendants knew, it was inevitable that sales of Autodesk products would slow dramatically right around the end of 1stQ F00, because there was simply no demand for the AutoCAD 2000 release. In fact, by then, resellers had so oversold the market with R14 that they were largely forced to survive on service revenue for the following quarters. In fact, the ratio of sales for the basic AutoCAD program versus "verticals" dramatically changed whereas during 98 R14 sales were approximately 75% AutoCAD and 25% the specialized verticals, by mid-1999, the sales of the verticals constituted approximately 40% of sales.

36. In addition, to their knowledge of the R14 and R15 sales and problems, defendants also had strong financial motives to disseminate false and misleading financial information, had opportunities because of their positions with the Company to act on those motives, and did indeed act to take advantage of such opportunities. Each of the defendants had the motive and the opportunity to perpetrate the fraudulent scheme and course of business. Autodesk was actively engaged in making acquisitions to diversify its business away from dependence on AutoCAD. However, Autodesk had to use stock for making an acquisition large enough to really reduce its dependence on AutoCAD. This put tremendous pressure on Autodesk's executives to present Autodesk's business in a very favorable light to the investment community to inflate Autodesk's stock, thereby increasing or at least maintaining its value for use as consideration in acquisitions. A rising per-share price would induce stockholders of other companies (like Discreet Logic) to approve an acquisition by Autodesk. Also, the higher Autodesk's stock price rose, the fewer shares Autodesk would have to issue to complete any such acquisition, making the acquisition much less dilutive to Autodesk's EPS.

37. Autodesk's executive compensation structure also provided an additional motive for the Individual Defendants to participate in the fraud. Autodesk's executive compensation program provided for Bartz and Herr to receive a cash bonus each year, the size of which depended upon whether or not Bartz and Herr had caused Autodesk to achieve specific corporate goals during the year. Because of Autodesk's erratic - even poor - performance in recent years, Bartz and Herr had received small cash bonuses - and none at all in 97. During calendar 98, i.e., Autodesk's F99, Autodesk's number one corporate objective was to make a large, diversifying acquisition, i.e., Discreet Logic, and to do so on advantageous terms. Because of how Bartz pulled off the Discreet Logic acquisition, Autodesk's Board rewarded her with an $800,000 cash bonus for F99 - by far the largest cash bonus Bartz or any Autodesk executive ever received. By comparison, during the prior five fiscal years, Bartz received total cash bonuses of $916,120 - an average of $183,224 per year. This extraordinarily large F99 cash bonus was a reward to Bartz for pushing Autodesk's stock up to such a high level that Autodesk was able to cut the exchange ratio almost in half and drastically cut the number of shares to be issued, and so that the sale of the three million shares of Autodesk stock would be at very high and non-dilutive prices as well. Herr got a $420,000 cash bonus in F99 for the same reason Bartz got her $800,000 bonus. This was also Herr's largest-ever cash bonus and, by comparison, Herr's cash bonuses in the prior five fiscal years totaled $505,000, or an average of $101,000 per year.

38. Autodesk, Bartz, Herr and Tsingos used Piper Jaffray as their financial advisor and investment banker during the Class Period. Piper Jaffray agreed to participate in the scheme to inflate Autodesk stock, including helping write false research reports on Autodesk to artificially inflate Autodesk stock. But before Piper Jaffray would go along with the scheme, they extracted from Autodesk what they knew was an illegal agreement that Autodesk would indemnify Piper Jaffray against any cost or liability from any suit for their participation in the scheme, knowing that the millions of dollars Autodesk would get from the three million share stock offering and Autodesk's D&O insurance would provide a huge buffer and protect them from any adverse consequences of their illegal conduct, thus permitting them to participate in the scheme with impunity.

39. Piper Jaffray was a key part of the scheme to commit the fraud. By virtue of its participation in the Discreet Logic acquisition, Autodesk's stock offering and its issuance of analyst reports on Autodesk, Piper Jaffray was allowed to participate in the scheme, getting millions in risk-free underwriting and advisory fees if, but only if, the Discreet Logic acquisition went through and the stock offering was completed.

40. Piper Jaffray assisted Autodesk in planning and arranging the stock offering and the Discreet Logic acquisition, purportedly conducting a "due diligence" investigation into Discreet Logic's and Autodesk's operations and future prospects. Piper Jaffray had intimate access to Autodesk's confidential corporate information and also constantly communicated with Bartz, Herr and Tsingos about intimate details of Autodesk's business. As a result, Piper Jaffray learned of, or consciously or deliberately disregarded, Autodesk's existing problems as detailed in 46, 51, 56, 62 and 70, and thus knew or consciously or deliberately disregarded that the statements made during the Class Period detailed at 44, 45, 48-49, 52-53, 57-61, 63, 65-67 and 69 including those made in the Piper Jaffray reports and statements by Nada, were false.

41. Piper Jaffray assisted Autodesk in planning the Discreet Logic acquisition and purportedly conducted investigations into the business, operations, products and future business prospects of Discreet Logic, known as a "due diligence" investigation, which was required of them in order to engage in the acquisition. During the course of its "due diligence" on Discreet Logic, Piper Jaffray had access to confidential corporate information concerning Discreet Logic's business, financial condition, products and future business plans and prospects and learned how seriously dilutive the Discreet Logic acquisition would actually be to Autodesk's results during F00, i.e., 15+%, far more than the "3%" or "high single-digits" disclosed during most of the Class Period.

42. During the Class Period, Piper Jaffray worked closely with Bartz, Herr and Tsingos to publish highly positive internal advisories and public research reports concerning Autodesk, creating the false impression that the repositioning of Autodesk's business had proved highly successful, that Autodesk had several competitive advantages and would achieve increasing revenues and EPS in F00-F01, without disclosing the numerous problems which were then actually adversely impacting Autodesk's business as more fully detailed in this Complaint. Based on the negative and adverse internal documents and reports of the Company's actual business performance, Piper Jaffray knew or consciously or deliberately disregarded that those public statements, and those of its securities analysts for which it is responsible, were false when made and were helping to inflate the price of Autodesk's common stock.

43. Because of the dilutive impact in the short term of the Discreet Logic acquisition, continued strong sales of Autodesk's R14 AutoCAD product and the successful development and early 99 commercial introduction and substantial sales of Autodesk's new R15/AutoCAD 2000 product were indispensable elements to Autodesk succeeding with its diversification program to lessen its dependence on AutoCAD and meeting its publicly disseminated F00 revenue and EPS forecasts. Bartz, Herr and Tsingos constantly monitored and discussed each of these key factors affecting Autodesk's business.

44. On 9/14/98, Autodesk was to hold a major conference for securities analysts in Philadelphia during Autodesk's "Design World Conference." Bartz, Herr, Tsingos and Piper Jaffray realized this was a critical opportunity for them to halt the decline in and stabilize Autodesk's stock and begin the process of pushing the stock back up to much higher levels. On 9/14/98, Autodesk executives Bartz and Tsingos appeared at the Autodesk analyst conference in Philadelphia. In a formal presentation and in break-out sessions, they told the assembled analysts, money and portfolio managers and institutional investors that:

• Due to Autodesk's reorganization into vertical product lines, Autodesk was seeing unusually strong continuing demand for its R14 AutoCAD product, even though that product was entering the later part of its life-cycle.

• Because of Autodesk's reorganization into vertical product lines, more of its customers were willing to purchase vertical products based on the R14 AutoCAD technology, rather than wait for the next generation's technology, i.e., R15/AutoCAD 2000.

• The success of Autodesk's reorganization into vertical product lines was enabling the Company to smooth out its revenue and EPS growth and, with the initiation of the R15/AutoCAD 2000 product cycle, would allow Autodesk to achieve more consistent revenue and EPS growth going forward than had historically been the case.

• Autodesk was successfully completing the development and testing of the R15/AutoCAD 2000 product. R15/AutoCAD 2000 was now in alpha-testing at thousands of customers' "seats" and was performing exceedingly well. This indicated that there would be strong demand for this product upon its commercial release.

• Because of the successful development of the R15/AutoCAD 2000 product, including the enthusiastic response it was receiving in alpha-testing, Autodesk was likely going to be able to advance the commercial release date of this product to earlier in CY99 than originally planned.

• Any advanced commercial release date of R15/AutoCAD 2000 would significantly benefit Autodesk's revenue and EPS growth during F00.

• Autodesk's acquisition of Discreet Logic would only be slightly dilutive, i.e., not more than 3%, and thus would not materially dilute Autodesk's EPS during F00.

• Autodesk's new VIP Upgrade program, which allowed customers to purchase the right to receive any product upgrades issued by Autodesk during the following two years, would benefit Autodesk's financial performance as, in many instances, customers purchasing the VIP Upgrade privilege would ultimately end up purchasing at full price product upgrades issued after the two-year period.

• As a result of the foregoing, Autodesk was forecasting 20%-25% EPS growth over the next three to five years and F00 EPS of $2.45-$2.55, respectively.

Autodesk held an analyst meeting yesterday highlighted by the following key points:

- Current Business Strong - ADSK's current business appears strong, with Autodesk's product mix shift driving an increase in sales visibility. AutoCAD cycles are becoming less pronounced ....

- Buckle Up - AutoCAD R15 Expected "Early CY99"....

* * *

- Discreet Logic Opportunity - Autodesk defined an impressive list of technology sharing opportunities and further defined the product path and growth opportunities which could result from the upcoming Discreet Logic acquisition.... Importantly, the Company stated that the transaction would at most be 3% dilutive.

* * *

With a stronger more diversified business model, appealing new product shipment schedule, upcoming new market opportunities from the Discreet merger, lean channel inventories, favorable upside given the R15 upgrade is expected to ship early FY00, and cost saving opportunities could further drive earnings growth.... We believe these factors could generate substantial revenue gains in the next four quarters....

Details

Core Business Strong - ADSK's current business appears strong, with Autodesk's product mix shift driving an increase in sales visibility. AutoCAD cycles are becoming less pronounced due to robust (60%) growth in ADSK's vertical applications.... The Company continues to benefit from the longevity in the AutoCAD R14 upgrade ....

* * *

Discreet Logic Opportunity - The Company quantified "slightly" dilutive as "at the most 3%" or roughly $0.08 from our original $2.70 EPS estimate for fiscal 2000....

* * *

R15 - Odd Cycle Versus Even Cycle - We believe this odd cycle will be strong. Many may believe that AutoCAD's even upgrade cycles are the only successful cycles. Even though we believe that these cycles will become less important over time, it is important to discuss the dynamics of the even/odd cycle. Most of AutoCAD's odd numbered AutoCAD releases included a major rewrite of the core code base, and most of the even releases were feature and performance enhancements. With each rewrite of the code base, software quality issues arise. These issues were most pronounced with R13. One-half of the code base was rewritten with AutoCAD R13, which created a "buggy" release and fell short of everyone's expectations. R14 was also a major rewrite of the code base, but with a careful and planned beta program, it has been one of the most successful upgrades in the Company's history. Given the feedback from some of the early Alpha R15 users, the program is solid with a substantial number of new features and better performance.... And, with only one-third of the installed base upgrading to R14, we believe that R12 and R13 users will flock to R15.

(a) Autodesk's business remained almost completely dependent upon its AutoCAD upgrade cycle and, in fact, Autodesk was seeing the same type of drop-off in demand for its existing R14 AutoCAD product line as it entered the latter part of its life-cycle as it had historically seen in the past as it upgraded its existing AutoCAD product line. The only reason that its R14 was showing strong sales was the incentive programs set out in 31-43 and these sales were at the expense of the R15;

(b) Autodesk's "vertical reorganization" had nothing to do with the unusually strong continuing demand for its R14 AutoCAD product, rather, it was the incentive programs set out in 31-43;

(c) In order to conceal the true impact of the decline in demand for its R14 products, Autodesk had been selling the so-called VIP Upgrade package to Autodesk's customers, which would enable to get the R14 and upgrade to the R15 at a discount of nearly 30%;

(d) Autodesk's VIP Upgrade program was certain to have a very negative impact on Autodesk's revenues and EPS in the first half of F00 as Autodesk's accountants had told it it had to book the revenue from the VIP Upgrade contracts monthly over the life of the contracts;

(e) While Autodesk's new VIP Upgrade program was boosting Autodesk's F99 revenues and EPS, it was doing so only by materially adversely affecting Autodesk's revenues and EPS in at least the first two quarters of F00 because, while the program had the effect of creating some additional revenue in F99, it was deferring substantial amounts of revenue that would otherwise have been recognized in the first two quarters of F00, throughout the balance of F00 and even into F01;

(f) Because Autodesk was encountering delays in completing the final development and testing of its R15/AutoCAD 2000 product due to technological problems and "bugs," Autodesk was, in fact, rushing the R15/AutoCAD 2000 product to market before it had been adequately tested and de-bugged, and as a result, many customers were avoiding the R15 altogether in favor of the R14 or deferring acceptance of the R15/AutoCAD 2000 upgrade package until it was further tested and de-bugged which was materially adversely affecting Autodesk's sales;

(g) The results of Autodesk's alpha-testing of the R15/AutoCAD 2000 product were not as positive as Autodesk was publicly representing; in fact, during the product's alpha- and beta-testing, hundreds of serious substantial and persistent "bugs" and other technical deficiencies had been uncovered which Autodesk was unable to fix, which was resulting in many Autodesk customers indicating that they would defer purchase of the R15/AutoCAD 2000 upgrade until those bugs and deficiencies could be fixed;

(h) Autodesk was encountering severe and persistent difficulties in integrating the Genius CAD mechanical design software acquired from a German company during 98 into its Mechanical Desktop, Architectural Desktop and AutoCAD Map products, and because of these ongoing difficulties, the commercial release of these important products would be substantially delayed following the initial release of the R15/AutoCAD 2000 upgrade package - a delay that would materially, adversely impact Autodesk's F00 revenues and EPS;

(i) Due to the problems in Discreet Logic's business which defendants had learned of during Autodesk's pre-purchase due diligence, defendants knew that while Discreet Logic might provide substantial long-term EPS benefits to Autodesk, the acquisition would substantially dilute Autodesk's EPS by at least 15%-20% during F00; and

(j) As a result of the foregoing negative factors, each of the defendants actually knew that the forecasts of 20%-25% EPS growth for Autodesk over the next three to five years and of F00 EPS of $2.45-$2.55 were false, because in light of these adverse facts and conditions, it would be impossible for Autodesk to achieve those forecasted results.

47. By late 10/98 Autodesk stock had advanced sharply from its late 8/98 low of $22-1/4, reaching $32-1/4 on 10/30/98. In late 10/98 and early 11/98, Autodesk told analysts it was likely that Autodesk would restructure the terms of the Discreet Logic acquisition and cut the number of shares it would issue in that acquisition. Then, on 11/18/98, with Autodesk stock trading as high as $31-7/8, Autodesk announced that the terms of its acquisition of Discreet Logic had been changed and that Autodesk would now issue .48 shares of its stock for each share of Discreet Logic stock - reducing the number of shares to be issued by about two million shares.

48. On 11/19/98, Autodesk reported its 3rdQ F99 results and held a conference call for analysts, money and portfolio managers, institutional investors and large Autodesk shareholders to discuss Autodesk's 3rdQ F99 results, its business and its prospects. During the call - and in follow-up one on one conversations with analysts - Bartz, Herr and Tsingos stated:

• Autodesk was seeing unusually strong continuing demand for its R14 AutoCAD product, even though that product was in the last half of its life-cycle.

• More of Autodesk's customers were willing to purchase vertical products based on the R14 AutoCAD technology, rather than wait for the next generation's technology, i.e., the R15/AutoCAD 2000.

• Autodesk was successfully completing the final development and testing of the R15/AutoCAD 2000 product. R15/AutoCAD 2000 was now in "alpha-gold" phase, wherein key customers were using the product in production, and there would be a brief beta phase, setting the stage for a successful formal release.

• Because of the successful development of the R15/AutoCAD 2000 product, including the enthusiastic response it was receiving in beta-testing, Autodesk had been able to advance the final release date of this product to early 99.

• The early release date of R15/AutoCAD 2000 would significantly benefit Autodesk's revenue and EPS growth during F00.

• Autodesk's acquisition of Discreet Logic would not materially dilute Autodesk's EPS during F00, costing at most $.20 per share.

• The success of Autodesk's reorganization into vertical product lines was enabling the Company to smooth out its revenue and EPS growth and, with the initiation of the R15/AutoCAD 2000 product cycle, would allow Autodesk to achieve more consistent revenue and EPS growth going forward than had historically been the case.

• Autodesk's new VIP Upgrade program would benefit Autodesk's financial performance as, in many instances, customers purchasing the VIP Upgrade privilege would ultimately end up purchasing at full price product upgrades issued after the two-year period.

• As a result of the favorable factors benefiting Autodesk's business, Autodesk was forecasting 20%-25% EPS growth over the next three to five years and F00 revenues and EPS of $1+ billion and $2.45-$2.55 per share, respectively.

- Stellar Growth In Vertical Product Line - Autodesk's vertical products (or non-AutoCAD) have come of age, accounting for 50% of sales, compared to 45% in the previous quarter, up from 25% at the end of last year. This growth in non-AutoCAD business is testimony that Autodesk's vertical product strategy is working, adding greater revenue growth opportunities.

* * *

- R15 On The Horizon - ... R15 has been in alpha testing since July, and has just begun aggressive beta testing. We believe the R15 opportunity is substantial given 60% of the $2 million plus AutoCAD users have yet to even upgrade to R14. Considering a conservative assumption that only 50% of R12 and R13 users upgrade to R15 (or 25% of total installed base), translates to potentially a $150 million to $180 million in upgrade revenue opportunity in the initial five to six quarters of R15 shipment.

* * *

- Discreet Logic - Synergies and opportunities between Autodesk and Discreet Logic are becoming more evident.... The Company suggested Discreet Logic ... will be dilutive at first but turning earnings neutral by end of fiscal 2000. Overall, we expect the deal to be about $0.20 dilutive for fiscal 2000, unchanged from our previous expectations.

51. The positive statements about Autodesk's business made between 11/19/98-11/20/98 were false when issued. The true but concealed facts were:

(a) Autodesk's business remained almost completely dependent upon its AutoCAD upgrade cycle and, in fact, Autodesk was seeing the same type of drop-off in demand for its existing R14 AutoCAD product line, as it entered the latter part of its life-cycle as it had historically seen in the past as it upgraded its existing AutoCAD product line. The only reason that its R14 was showing strong sales was the incentive programs set out in 31-43 and these sales were at the expense of the R15;

(b) Autodesk's "vertical reorganization" had nothing to do with the unusually strong continuing demand for its R14 AutoCAD product, rather, it was the incentive progress set out in 31-43;

(c) In order to conceal the true impact of the decline in demand for its R14 products, Autodesk had been selling the so-called VIP Upgrade package to Autodesk's customers, which would enable them to get the R14 and upgrade to the R15 at a discount of nearly 30%;

(d) Autodesk's VIP Upgrade program was certain to have a very negative impact on Autodesk's revenues and EPS in the first half of F00 as Autodesk's accountants had told it it had to book the revenue from the VIP Upgrade contracts monthly over the life of the contracts, and thus Autodesk would not be able to record any significant amount of revenue when it actually shipped R15/AutoCAD 2000 to customers with VIP Upgrade contracts;

(e) While Autodesk's new VIP Upgrade program was boosting Autodesk's F99 revenues and EPS, it was doing so only by materially adversely affecting Autodesk's revenues and EPS in at least the first two quarters of F00 because this program had the effect of creating some additional revenue in F99, which concealed the true decline in R14 revenues, while eliminating future revenues that would otherwise have been earned on upgrades in the first two quarters of F00, throughout the balance of F00 and even into F01;

(f) Because Autodesk was encountering delays in completing the final development and testing of its R15/AutoCAD 2000 product due to technological problems and "bugs," Autodesk was, in fact, rushing the R15/AutoCAD 2000 product to market before it had been adequately tested and de-bugged, and as a result, many customers had advised Autodesk that they would defer acceptance of the R15/AutoCAD 2000 upgrade package until it was further tested and de-bugged which was materially adversely affecting Autodesk's sales;

(g) The results of Autodesk's alpha-testing of the R15/AutoCAD 2000 product were not as positive as Autodesk was publicly representing; in fact, during the product's alpha-testing, hundreds of serious substantial and persistent "bugs" and other technical deficiencies had been uncovered which Autodesk was unable to fix, which was resulting in many Autodesk customers indicating that they would defer acceptance or purchase of the R15/AutoCAD 2000 upgrade until those bugs and deficiencies could be fixed;

(h) Autodesk was encountering severe and persistent difficulties in integrating the Genius CAD mechanical design software acquired from a German company during 98 into its Mechanical Desktop, Architectural Desktop and AutoCAD Map products, and because of these ongoing difficulties, the commercial release of these important products would be substantially delayed following the initial release of the R15/AutoCAD 2000 upgrade package - a delay that would materially, adversely impact Autodesk's F00 revenues and EPS;

(i) Due to the problems in Discreet Logic's business which defendants had learned of during Autodesk's pre-purchase due diligence, defendants knew that while Discreet Logic might provide substantial long-term EPS benefits to Autodesk, the acquisition would substantially dilute Autodesk's EPS by at least 15%-20% during F00; and

(j) As a result of the foregoing negative factors, each of the defendants actually knew that the forecasts of 20%-25% EPS growth for Autodesk over the next three to five years and the forecasts of F00 EPS of $2.45-$2.55 were false, because in light of these adverse facts and conditions, it would be impossible for Autodesk to achieve those forecasted results.

52. On 12/28/98, Piper Jaffray issued a report on Autodesk by Nada, after discussions with Bartz, Herr or Tsingos, which was based on and repeated information provided by them. Bartz, Herr or Tsingos reviewed this report before it was issued. The report forecast F00 EPS of $2.50 and a 20%-25% three- to five-year EPS growth rate for Autodesk. It also stated:

- R14 Continues To Sell Well - Despite the aging R14 cycle ... the product continues to sell well ....

- Europe Looks Strong .... Europe appears to be doing very well.... Domestic - No surprises.

* * *

Looking At Calendar 1999 And Beyond

R15 On The Horizon - We continue to expect R15 to ship sometime in the April 1999 quarter. R15 has been in alpha testing since July, and will soon begin to see aggressive beta testing. We believe the R15 opportunity is substantial given 60% of the $2 million-plus AutoCAD users are on R13 or prior versions. Considering a conservative assumption that only 50% of R12 and R13 users upgrade to R15 (or 25% of total installed base) translates to potentially a $150 million to $180 million in upgrade revenue opportunity in the initial five to six quarters of R15 shipment.

Calendar 1998 Moderated CAD Cycle; Breaking Cycle In Calendar 1999 - In Calendar 1998, Autodesk moderated the boom and bust AutoCAD cycles. Historically, at the beginning of the AutoCAD upgrade cycle, Autodesk enjoyed a steep ramp up in earnings, and ended the cycle with a sharp decline in earnings. As a result, shares of ADSK "boomed" early in the AutoCAD cycle and "busted" at the end of the cycle. In calendar 1998, Autodesk extended its reach into new markets, thereby diversifying its product line beyond AutoCAD. Specifically, non-AutoCAD related revenue accounted for 50% of sales exiting calendar 1998 up dramatically from only 25% of revenue at the end of calendar 1997. The result, while the cycle somewhat existed in calendar 1998, Autodesk successfully moderated the "boom" and "bust" AutoCAD earnings cycle.

Breaking The Cycle With Sequential Earnings Growth In Calendar 1999 - We believe in calendar 1999 Autodesk is well positioned to successfully diversify its business, and break the boom and bust AutoCAD earnings cycle. Importantly, for the first time in five years, we are modeling for sequential earnings improvement in each of the quarters in calendar 1999. In calendar 1999 non-AutoCAD business should continue to grow, including the impact of the growth in vertical products, in combination with the addition of Discreet business, we estimate non-AutoCAD revenue could account for between 65% to 70% of revenue. The result, smooth sequential earnings growth and more predictable share price growth.

* * *

Conclusion - ... In the coming year, the Autodesk story should begin to unfold with a stronger and a more diversified business model, the integration of the Discreet product line, increased vertical product strength, appealing product shipment schedule, and the R15 cycle, we believe normalized revenue growth of 20% is conservative.

"On our last conference call, we affirmed the marketplace consensus and we still do that today"....

54. Due to these favorable comments and forecasts, Autodesk stock continued to move higher and reached over $45 by early 1/99. This upsurge in the stock, which the defendants had engineered, now put the value of the Autodesk shares to be issued in the Discreet Logic acquisition at over $630 million and put Autodesk in a position to further cut the number of shares it had to issue to acquire Discreet Logic, as well as to complete the crucial three million share public offering of Autodesk stock on very favorable terms, i.e., at a high per-share price.

55. On 1/19/99, Autodesk stock hit $49-7/16, back to its earlier 98 high and within $2 per share of its all-time high price. Autodesk then announced it was cutting the number of shares it would issue to acquire Discreet Logic to .33 shares of Autodesk stock for each Discreet Logic share - reducing the number of Autodesk shares to be issued to 10 million compared to the 16.3 million to have been issued under the original acquisition terms. Based on Autodesk's $48-1/2 per share closing price on 1/19/99, this put the value of the Discreet Logic acquisition at $485-$500 million.

56. The positive statements about Autodesk's business made between 12/28/98-1/5/99 were false when issued. The true but concealed facts were:

(a) Autodesk's business remained almost completely dependent upon its AutoCAD upgrade cycle and, in fact, Autodesk was seeing the same type of drop-off in demand for its existing R14 AutoCAD product line as it entered the latter part of its life-cycle as it had historically seen as it upgraded its existing AutoCAD product line. The only reason that its R14 was showing strong sales was the incentive programs set out in 31-43 and these sales were at the expense of the R15. Autodesk had not "broken the boom/bust" cycle, but, had through undisclosed incentive, extended the R14 sales cycle.

(b) Autodesk was encountering a material slowdown in demand for its R14 product line in anticipation of the release of the R15 product line - thus this product was not "sell[ing] well" and given the savings the VIP program would have provided would not sell well;

(c) Autodesk's VIP Upgrade program was certain to have a very negative impact on Autodesk's revenues and EPS in the first half of F00 as Autodesk's accountants had told it it had to book the revenue from the VIP Upgrade contracts monthly over the life of the contracts, and thus Autodesk would not be able to record any significant amount of revenue when it actually shipped R15/AutoCAD 2000 to customers with VIP contracts;

(d) While Autodesk's new VIP Upgrade program was boosting Autodesk's F99 revenues and EPS, it was doing so only by materially adversely affecting Autodesk's revenues and EPS in at least the first two quarters of F00 because this program had the effect of creating some additional revenue in F99, which concealed the true decline in R14 revenues, while eliminating future revenues that would otherwise have been earned on upgrades in the first two quarters of F00, throughout the balance of F00 and even into F01;

(e) Because Autodesk was encountering delays in completing the final development and testing of its R15/AutoCAD 2000 product due to technological problems and "bugs," Autodesk was, in fact, rushing the R15/AutoCAD 2000 product to market before it had been adequately tested and de-bugged, and as a result, many customers were deferring acceptance of the R15/AutoCAD 2000 upgrade package until it was further tested and de-bugged which was materially adversely affecting Autodesk's sales;

(f) The results of Autodesk's alpha-testing of the R15/AutoCAD 2000 product were not as positive as Autodesk was publicly representing; in fact, during the product's alpha-testing, hundreds of serious substantial and persistent "bugs" and other technical deficiencies had been uncovered which Autodesk was unable to fix, which was resulting in many Autodesk customers indicating that they would defer purchase of the R15/AutoCAD 2000 upgrade until those bugs and deficiencies could be fixed;

(g) Autodesk was encountering severe and persistent difficulties in integrating the Genius CAD mechanical design software acquired from a German company during 98 into its Mechanical Desktop, Architectural Desktop and AutoCAD Map products, and because of these ongoing difficulties, the commercial release of these important products would be substantially delayed following the initial release of the R15/AutoCAD 2000 upgrade package - a delay that would materially, adversely impact Autodesk's F00 revenues and EPS;

(h) Autodesk was encountering a substantial slowdown in demand for its products in Europe, which was adversely affecting its revenues from Europe and its profits;

(i) Due to the problems in Discreet Logic's business which defendants had learned of during Autodesk's pre-purchase due diligence, defendants knew that while Discreet Logic might provide substantial long-term EPS benefits to Autodesk, the acquisition would substantially dilute Autodesk's EPS by at least 15%-20% during F00; and

(j) As a result of the foregoing negative factors, each of the defendants actually knew that the forecasts of 20% revenue growth for Autodesk and 20%-25% EPS growth for Autodesk over the next three to five years and the forecasts of F00 revenues and EPS of $1+ billion and $2.45-$2.50, respectively, were false because, in light of these adverse facts and conditions, it would be impossible for Autodesk to achieve those forecasted results.

57. On 2/11/99, Autodesk's President, Herr, was interviewed by Dow Jones News Service and for the first time revealed that: "Autodesk expects the [Discreet Logic] acquisition to have high single-digit percentage dilution for fiscal year 2000...."

58. On 2/24/99, Autodesk reported its 4thQ F99 and F99 results. On 2/24/99, Dow Jones News Service ran an article about Autodesk that stated:

Driven by strong sales of its design software, Autodesk Inc. matched Wall Street's targets for its fourth-quarter earnings.

... AutoCAD software also continued to generate strong sales, suggesting that the company's product cycle may be expanding.

"Historically, the company's revenue tended to wane at the end of every product cycle," said Piper Jaffray Inc. analyst Hany Nada. "This time it's not waning because they've got these products that are doing extremely well."

Welcome to the Bloomberg Forum. I'm Greg Chang.... My guest ... is Carol Bartz, she's Chief Executive of Autodesk.

* * *

Bartz: Well, we had a great quarter. We had a great year. We brought in 740 million for the year, 20% growth, feel really good about that. All of our segments were strong. Our mechanical segments, architectural, GIS, a really strong quarter in Europe....

Chang: Okay, one thing people are looking forward to is the latest version of your flagship AutoCAD product. What's your outlook for that?

Bartz: Yeah, we've got our next release of our AutoCAD 2000 shipping this quarter as well as a whole series of products in the ... market groups and already it's in the hands of 20,000 daily users around the world who are pretty enthusiastic about it, so again, looking forward to a nice Q1 and a great fiscal year that we just started, based on a nice new product cycle.

* * *

Chang: Alright, and as far as your outlook for the first quarter, are you giving any forecasts or anything like that or a sense of what you're expecting?

Bartz: The guidance that we're giving is in the 195-200 range for the first quarter. Again, we only have a partial time in the first quarter to take advantage of the new releases and at the same time, by the second quarter we'll have all of the other products shipping and also in many of the languages. We shipped most of our products in 18 languages, so once the rest of the world rolls on, then the engine really starts.

Chang: Okay, so you're expecting revenues of about 195 million to 200 million?

Bartz: Yes, that's in the base AutoCAD business.

Chang: Okay, do you have a forecast for your EPS or earnings?

Bartz: Earnings about flat.

* * *

Chang: ... So are there any other comments on your outlook or trends in your business that you're seeing?

Bartz: You know, we're pretty excited about it, I guess maybe you caught that thread already, excited about new product cycles, geographically, things look great .... I guess I close by saying this fiscal year will be our first billion-dollar year and hey, that's pretty exciting, a lot of zeros.

• Autodesk was seeing unusually strong continuing demand for its R14 AutoCAD product.

• Autodesk was successfully completing the final development and testing of the R15/AutoCAD 2000 product. R15/AutoCAD 2000 was now in beta-testing and performing exceedingly well. There would be strong demand for this product upon its commercial release.

• Because of the successful development of the R15/AutoCAD 2000 product, including the enthusiastic response it was receiving in beta-testing, Autodesk would release the product during 3/99.

• The early release date of R15/AutoCAD 2000 would significantly benefit Autodesk's revenue and EPS growth during F00.

• Autodesk expected F00 dilution of 13%-15% from the Discreet Logic acquisition.

• The success of Autodesk's reorganization into vertical product lines was enabling the Company to smooth out its revenue and EPS growth and, with the initiation of the R15/AutoCAD 2000 product cycle, would allow Autodesk to achieve more consistent revenue and EPS growth going forward than had historically been the case.

• Autodesk's new VIP Upgrade program, which allowed customers to purchase the right to receive any product upgrades issued by Autodesk during the following two years, would likely benefit Autodesk's financial performance as, in many instances, customers purchasing the VIP Upgrade privilege would ultimately end up purchasing at full price product upgrades issued after the two-year period.

• As a result of the foregoing, Autodesk was forecasting 20%-25% EPS growth over the next three to five years and F00 revenues and EPS of $1+ billion and $2.45-$2.50 per share, respectively.

       EPS/F00  Revenue/F00 (millions)
QTR
1st     $ .43        $ 221.6
2nd     $ .68        $ 259.9
3rd     $ .61        $ 259.0
4th     $ .74        $ 275.6
        $2.45        $1,016.1

- Autodesk reported a solid fourth (January 1999) quarter .... Results are particularly impressive given the quarter was the final quarter before the AutoCAD 2000 upgrade, and the pre-AutoCAD upgrade quarter typically experiences a dramatic sales drop off....

- Autodesk is transforming from a one product company to a company with an arsenal of products in fiscal 2000 including the AutoCAD 2000 ....

* * *

- Discreet Logic is expected to dilute EPS by approximately 13% to 15% for the full year and become neutral by the fourth quarter.

(a) Autodesk's business remained almost completely dependent upon its AutoCAD upgrade cycle and, in fact, Autodesk was seeing the same type of drop-off in demand for its existing R14 AutoCAD product line as it entered the latter part of its life-cycle as it had historically seen in the past as it upgraded its existing AutoCAD product line. The only reason that its R14 was showing strong sales was the incentive programs set out in 31-43 and these sales were at the expense of the R15;

(b) Autodesk's "vertical reorganization" had nothing to do with the unusually strong continuing demand for its R14 AutoCAD product, rather, it was the incentive programs set out in 31-43;

(c) In order to conceal the true impact of the decline in demand for its R14 products, Autodesk had been selling the so-called VIP Upgrade package to Autodesk's customers, which would enable to get the R14 and upgrade to the R15 at a discount of nearly 30%;

(d) Autodesk's VIP Upgrade program was certain to have a very negative impact on Autodesk's revenues and EPS in the first half of F00 as Autodesk's accountants had told it it had to book the revenue from the VIP Upgrade contracts monthly over the life of the contracts, and thus Autodesk would not be able to record any significant amount of revenue when it actually shipped R15/AutoCAD 2000 to customers with VIP contracts;

(e) While Autodesk's new VIP Upgrade program was boosting Autodesk's F99 revenues and EPS, it was doing so only by materially adversely affecting Autodesk's revenues and EPS in at least the first two quarters of F00 because this program had the effect of creating some additional revenue in F99, which concealed the true decline in R14 revenues, while eliminating future revenues that would otherwise have been earned on upgrades in the first two quarters of F00, throughout the balance of F00 and even into F01;

(f) Because Autodesk was encountering delays in completing the final development and testing of its R15/AutoCAD 2000 product due to technological problems and "bugs," Autodesk was, in fact, rushing the R15/AutoCAD 2000 product to market before it had been adequately tested and de-bugged, and as a result, many customers were indicating to Autodesk they would defer acceptance of the R15/AutoCAD 2000 upgrade package until it was further tested and de-bugged which was materially adversely affecting Autodesk's sales;

(g) The results of Autodesk's alpha- and beta-testing of the R15/AutoCAD 2000 product were not as positive as Autodesk was publicly representing; in fact, during the product's alpha- and beta-testing, hundreds of serious substantial and persistent "bugs" and other technical deficiencies had been uncovered which Autodesk was unable to fix, which was resulting in many Autodesk customers indicating that they would defer purchase of the R15/AutoCAD 2000 upgrade until those bugs and deficiencies could be fixed;

(h) Autodesk was encountering severe and persistent difficulties in integrating the Genius CAD mechanical design software acquired from a German company during 98 into its Mechanical Desktop, Architectural Desktop and AutoCAD Map products, and because of these ongoing difficulties, the commercial release of these important products would be substantially delayed following the initial release of the R15/AutoCAD 2000 upgrade package - a delay that would materially, adversely impact Autodesk's F00 revenues and EPS;

(i) By 1/99, Autodesk's average selling prices were plunging due to a combination of adverse factors, i.e., the R14 product line had aged and was losing its customer appeal and Autodesk's R15/AutoCAD 2000 product line was technologically flawed and "bug-filled"; thus, to induce customer purchases of these products, Autodesk was finding it necessary to slash prices or grant artificial incentives and concessions to customers to get them to accept both products;

(j) Due to the problems in Discreet Logic's business which defendants had learned of during Autodesk's pre-purchase due diligence, defendants knew that while Discreet Logic might provide substantial long-term EPS benefits to Autodesk, the acquisition would substantially and materially dilute Autodesk's EPS by at least 15%-20% during F00;

(k) Autodesk was encountering a substantial slowing of demand for its products due to Y2K issues, as many Autodesk customers were deferring purchases or product upgrades because their information technology budgets were committed to software purchases or upgrades to become Y2K-compliant or because they had decided to defer any significant software purchases until after Y2K; and

(l) As a result of the foregoing negative factors, each of the defendants actually knew that the forecasts of 20%-25% EPS growth for Autodesk over the next three to five years and the forecasts of F00 revenues and EPS of $1+ billion and $2.45-$2.50, respectively, were false because, in light of the adverse facts and conditions inside Autodesk's business, it would be impossible for Autodesk to achieve those forecasted results.

63. On 3/9/99, Autodesk issued a release headlined and stating:

Autodesk Announces a Family of Products Based on the New AutoCAD 2000 Platform

The Company Outlines Design 2000 Initiative - A Framework for Competitive Design in the New Millennium

... Building on its position as the industry's leading provider of design software, Autodesk Inc. today announced six new products for design professionals in a wide range of disciplines. At the core of the announcement is AutoCAD 2000, a landmark release of the leading PC design software tool and the base technology platform for five new vertical products. The new software is part of a broader Autodesk Design 2000 campaign - an initiative for the development of integrated products that span the process of creating, detailing and delivering design solutions. Through the Design 2000 initiative, Autodesk will ensure that customers in an increasing number of markets and disciplines can leverage the full power of its software in a simply intuitive way.

"Today signals a big leap forward for Autodesk, as we start to unveil our products and strategy for the next millennium," said Carol Bartz, Chairman and CEO of Autodesk. "The Design 2000 initiative is about Autodesk continuing to push into new markets and making our products more accessible to customers. As companies around the world are turning to design as the vehicle for maintaining their competitive edge, we're offering a family of integrated, scalable solutions for any design project - from architecture and mechanical engineering to GIS and the virtual world of 3D animation."

* * *

The Right Platform: AutoCAD 2000

Autodesk is kicking off its Design 2000 initiative this month with a new release of AutoCAD, the world's most widely-used PC design software. AutoCAD 2000 maintains the superior standards of previous releases and raises the bar for design software with over 400 new and enhanced productivity tools aimed at shortening design cycles and connecting customers to their project teams and their design data. Significant new features include MDE (Multiple Design Environment), which allows users to open, edit and design within multiple drawings in a single session of AutoCAD; and AutoCAD Design Center, a central repository that enables users to both browse their existing designs and to "mine" design ideas and content from existing drawings. In addition, AutoCAD 2000 will serve as a powerful, intelligent foundation for the next generation of integrated solutions that support the design needs of a wide spectrum of industries.

65. On 3/14/99, Dow Jones ran the following article on Autodesk:

Autodesk Inc.'s $410 million acquisition of Discreet Logic Inc. takes the company further along its goals of diversifying its product revenue beyond its AutoCAD design software, Autodesk Chief Financial Officer Christine Tsingos told Dow Jones.

* * *

Tsingos said the transaction is 15% dilutive to fiscal 2000 earnings. The $2.41 per share consensus estimate from First Call Corp. factors in the dilution, she said.

* * *

The combination will lower Autodesk's overall fiscal 2000 revenue growth to the high-teens as a percentage, she said.

... Excluding Discreet, Autodesk's revenue continues to grow in the low 20% range, Tsingos said.

• AutoCAD had successfully completed the final development and testing of the R15/AutoCAD 2000 product. R15/AutoCAD 2000 was now released and selling exceedingly well. There was strong demand for this product. The R15/AutoCAD 2000 upgrade would be at least as successful as the R14 upgrade.

• The successful early release date of R15/AutoCAD 2000 would significantly benefit Autodesk's revenue and EPS growth during F00.

• While the F00 dilution of the Discreet Logic acquisition would be larger than originally anticipated, this would not prevent Autodesk from achieving its publicly forecasted revenue and EPS growth for F00, due to the early commercial release of the R15/AutoCAD 2000 product and the unusually strong continuing demand for Autodesk's vertical products utilizing its R14 technology.

• The success of Autodesk's reorganization was enabling the Company to smooth out its revenue and EPS growth and, with the initiation of the R15/AutoCAD 2000 product cycle, would allow Autodesk to achieve more consistent revenue and EPS growth going forward than had historically been the case.

• Y2K issues were not adversely impacting demand for or sales of Autodesk's R14 AutoCAD or R15/AutoCAD 2000 products.

• As a result of the foregoing, Autodesk was forecasting 20%-25% EPS growth over the next three to five years and F00 revenues and operating EPS of $1+ billion and $2.45-$2.55 per share, respectively.

• Autodesk was not seeing any adverse impact on demand for its products due to Y2K problems, diversion of customer information technology budgets or purchasing decisions due to Y2K issues or compliance spending.

       F00 EPS   F00 Revenue (millions)
Q1      $ .43         $ 221.6
Q2      $ .68         $ 259.9
Q3      $ .61         $ 259
Q4      $ .74         $ 275.6
Year    $2.45         $1,016

Autodesk held an upbeat analyst meeting last week, outlining plans for 1999. Autodesk has shipped upgraded AutoCAD 2000 early last week. Early indications of the upgrade are this cycle should [be] successful....

... [T]his cycle will be as strong if not strong[er] than the R14 cycle.

* * *

Outlook/Conclusion - We believe this is the year Autodesk can break the AutoCAD cycle. The Company has historically grown in a step function with each new cycle creating a sharp rise then a long plateau, with the stock price going from 20's to the high 40's in the sharp rise and to the 20's during the plateaus. While the Company has grown revenue at a CGR of 20% since 1995, the stock has not done much. The stock volatility was due in part to the volatility of earnings during those periods and general Wall Street expectations.

69. On 4/9/99, Piper Jaffray issued a report on Autodesk by Nada, after discussions with Bartz, Herr and Tsingos, which was based on and repeated information provided by them. The report reiterated the F00 revenue and EPS forecasts for Autodesk contained in Piper Jaffray's 4/5/99 report, and also stated:

ADSK shares have been crushed in recent days.... [W]e believe the magnitude of the share price decline is unwarranted ....

* * *

It should be no surprise Autodesk's April quarter is backend loaded.... Overall, we believe that this cycle will be as strong if not stronger than the R14 cycle....

R14 Weak Before AutoCAD 2000 Shipped - Similar to each of Autodesk's previous upgrade cycles, the sales of the incumbent version of AutoCAD (R14 in this case) decline in the months prior to the upgrade. The AutoCAD 2000 upgrade is somewhat unique given R14 sales decline did not begin until two months prior to AutoCAD 2000 shipment.

* * *

Dealer Checks Bullish On AutoCAD 2000 - Our dealer checks indicate the first 10 days of shipment for AutoCAD 2000 has [sic] been a success. While difficult to project the products [sic] long-term success on just two weeks of sales, we note the following themes from dealers.

- The Product is Reliable - Autodesk's 20,000 seat AutoCAD 2000 beta program appears to have paid off.... We believe if AutoCAD 2000 reliability and performance was an issue, dealers would begin to be aware by now.

* * *

- VIP Subscriptions - Autodesk has already shipped the AutoCAD 2000 upgrade to a large number of VIP customers. Autodesk VIP customers have already purchased a two-year subscription ($500) entitling two years of software upgrades.

70. The positive statements about Autodesk's business made between 3/9/99-4/9/99 were false when issued. The true but concealed facts were:

(a) Autodesk's business remained almost completely dependent upon its AutoCAD upgrade cycle and, in fact, Autodesk was seeing the same type of drop-off in demand for its existing R14 AutoCAD product line as it entered the latter part of its life-cycle as it had historically seen in the past as it upgraded its existing AutoCAD product line. The only reason that its R14 was showing strong sales was the incentive programs set out in 31-43 and these sales were at the expense of the R15;

(b) Autodesk's "vertical reorganization" had nothing to do with the concurrently strong continuing demand for its R14 AutoCAD product, rather, it was the incentive progress set out in 31-43;

(c) In order to conceal the true impact of the decline in demand for its R14 products, Autodesk had been selling the so-called VIP Upgrade package to Autodesk's customers, which would enable to get the R14 and upgrade to the R15 at a. discount of nearly 30%;

(d) Autodesk's VIP Upgrade program was certain to have a very negative impact on Autodesk's revenues and EPS in the first half of F00 as Autodesk's accountants had told it it had to book the revenue from the VIP Upgrade contracts monthly over the life of the contracts;

(e) While Autodesk's new VIP Upgrade program was boosting Autodesk's F99 revenues and EPS, it was doing so only by materially adversely affecting Autodesk's revenues and EPS in at least the first two quarters of F00 because this program had the effect of creating some additional revenue in F99, which concealed the true decline in R14 revenues, while eliminating future revenues that would otherwise have been earned on upgrades in the first two quarters of F00, throughout the balance of F00 and even into F01;

(f) Because Autodesk was encountering delays in completing the final development and testing of its R15/AutoCAD 2000 due to technological problems and "bugs," Autodesk was, in fact, rushing the R15/AutoCAD 2000 product to market before it had been adequately tested and de-bugged, and as a result, many customers were deferring acceptance of the R15/AutoCAD 2000 upgrade package until it was further tested and de-bugged which was materially adversely affecting Autodesk's sales;

(g) The results of Autodesk's alpha- and beta-testing of the R15/AutoCAD 2000 product had not been as positive as Autodesk publicly represented; in fact, during the product's alpha- and beta-testing, hundreds of serious substantial and persistent "bugs" and other technical deficiencies had been uncovered which Autodesk was unable to fix, which was resulting in many Autodesk customers indicating that they would defer purchase of the R15/AutoCAD 2000 upgrade until those bugs and deficiencies could be fixed;

(h) The initial release of R15/AutoCAD 2000 was not successful. Due to the "bugs" and other deficiencies in the product, customers were refusing to purchase it or deferring acceptance of it until further testing and de-bugging had occurred; in order to induce customers to accept or commit to purchase the R15/AutoCAD 2000, Autodesk was slashing prices and offering other financial incentives which were causing Autodesk's revenues, average selling prices and profits to plunge;

(i) Autodesk was encountering severe and persistent difficulties in integrating the Genius CAD mechanical design software acquired from a German company during 98 into its Mechanical Desktop, Architectural Desktop and AutoCAD Map products, and because of these ongoing difficulties, the commercial release of these important products would be substantially delayed following the initial release of the R15/AutoCAD 2000 upgrade package - a delay that would materially, adversely impact Autodesk's F00 revenues and EPS;

(j) By 1/99, Autodesk's average selling prices were plunging due to a combination of adverse factors, i.e., the R14 product line had aged, was losing its customer appeal and Autodesk's R15/AutoCAD 2000 product line was technologically flawed and "bug-filled"; thus, to induce customer purchases of these products, Autodesk was finding its necessary to slash prices or grant artificial incentives and concessions to customers to get them to accept either product;

(k) Autodesk was encountering a substantial slowing of demand for its products due to Y2K issues, as many Autodesk customers were deferring purchases or product upgrades because their information technology budgets were committed to software purchases or upgrades to become Y2K-compliant or because they had decided to defer any significant software purchases until after Y2K; and

(l) As a result of the foregoing negative factors, each of the defendants actually knew that the forecasts of 20%-25% EPS growth for Autodesk over the next three to five years and the forecasts of F00 revenues and EPS of $1+ billion and $2.45-$2.55, respectively, were false because, in light of these adverse facts and conditions, it would be impossible for Autodesk to achieve those forecasted results.

71. After the close of trading on 5/4/99, Autodesk revealed that its 1stQ F00 results - the quarter ended 4/30/99 - would be far below the levels previously forecast due, in significant part, to the failure of Autodesk's new R15/AutoCAD 2000 product to achieve commercial success. Upon this revelation, Autodesk stock collapsed from a high of $29-1/8 on 5/4/99 to a low of $22-1/4 on 5/5/99. As calendar 99 - Autodesk's F00 - has unfolded, Autodesk has continued to report horrible results, while revealing further serious problems with its products that are completely inconsistent with the representations defendants made during the Class Period. Autodesk's 1stQ F00 results showed a very substantial decline in revenues - to just $194 million, compared to $122 in the comparable F99 quarter, resulting in huge $17 million or $.29 per share loss. Thus, for the first three quarters of F99, Autodesk managed to report revenues of only $598 million, while suffering a large $15+ million loss and obviously will fall far short of the F00 revenues of $1 billion and EPS of $2.45-$2.55 forecast by it for the combined Autodesk/Discreet Logic entities during the Class Period. Autodesk's 1stQ F00 results showed a very substantial decline in revenues - to just $194 million, compared to $222 million in the comparable F99 quarter, resulting in a huge $17 million or $.29 per share loss. Thus, for the first three quarters of F00, Autodesk managed to report revenues of only $598 million, while suffering a large $15+ million loss, and obviously will fall far short of the F00 revenues of $1 billion and EPS of $2.45-$2.55 forecast by it for the combined Autodesk/Discreet Logic entities during most of the Class Period.

72. Autodesk has admitted that one of the reasons for its poor financial results during F00 has been the negative financial impact of its VIP subscription program which required Autodesk to spread out the recognition of the revenue on the VIP contracts over the life of the contract, which had a negative impact (to the tune of millions of dollars) on Autodesk's reported F00 revenues. Further, Bartz has admitted that Autodesk's dismal F00 results have been due to Autodesk's "failure to get products out the door in a timely manner." She has also admitted that Autodesk was "caught off-guard as customers shifted their focus from packaged software to tools to help them beef-up their web presence." It has also been revealed that Autodesk failed to "Webify" its biggest product, the R15/AutoCAD 2000, and it had no e-commerce strategy for selling its products into its installed base. Autodesk has also admitted that one of the reasons for its poor financial results during F00 has been the negative financial impact of its VIP Upgrade program which requires Autodesk to spread out the recognition of the revenue on the VIP Upgrade contracts over the life of the contract, which had a dramatically negative impact (to the tune of millions of dollars) on Autodesk's F00 revenues. It has also been revealed that in order to try to sell R15/AutoCAD 2000, in light of the technological and performance problems with the product, Autodesk was forced to slash prices and grant other financial incentives to buyers, which has resulted in average selling prices for Autodesk's products falling by approximately 21% during F00. Autodesk has also admitted that demand for its products in Europe was poor/soft, not strong and growing, and that sales of R15/AutoCAD 2000 were negatively impacted by Y2K issues among Autodesk's customers, many of whom deferred any significant software upgrade purchases until Y2K had come. In addition, Autodesk revealed that its most important new vertical product associated with R15/AutoCAD 2000, the "Mechanical Desktop," was also suffering from significant technological problems and development delays due to an inability of Autodesk to successfully integrate the new Genius technology it had purchased from a German company during 98 into that product, and that these technological problems and bugs were so severe that Autodesk could not ship this product on time and its release date would be delayed by at least two quarters during F00, which would further adversely impact Autodesk's results during the period. Finally, as Autodesk's horrible F00 graphically demonstrates, Autodesk had not successfully diversified its business to materially lessen its dependence on the success of its AutoCAD product line or eliminated, or for that matter even diminished, the "boom-or-bust" cycle associated with the upgrade cycle of that product, and unfortunately, Autodesk's earnings ability remains almost completely dependent upon the AutoCAD product line and thus the commercial failure of its R15/AutoCAD 2000 product launch has resulted in a devastating financial decline for the Company and, of course, a collapse of its stock price.

73. Instead of the F00 revenues and EPS of $1+ billion and $2.45-$2.55 forecast during the Class Period, Autodesk reported revenues of less than $600 million during the first nine months while suffering a large loss! Autodesk's horrible F00 financial performance is set forth below:

                04/30      07/31      10/31      01/31      Year

Net Revenues    $136,281   $128,745   $116,647   $115,020   $496,693
Net Income      $ 19,060   $ 10,645   $ 5,873    $ 5,993    $ 41,571
EPS             $.39       $.22       $.13       $.13       $.88

                04/30      07/31      10/31      01/31       Year

Net Revenues    $118,984   $154,096   $162,195   $181,851    $617,126
Net Income     ($52,745)   $ 17,835   $ 20,956   $ 29,318    $ 15,364
EPS            ($1.15)**   $.34       $.41       $.60        $.31**

                04/30      07/31      10/31      01/31       Year

Net Revenues    $187,206   $186,638   $177,178   $189,145    $740,167
Net Income      $ 25,815   $ 21,317   $ 18,374   $ 25,133    $ 90,639
EPS             $.51       $.43       $.39       $.50        $1.85

                04/30      07/31      10/31

Net Revenues    $222,918   $226,811   $204,609
Net Income      $ 28,733   $ 27,530   $ 17,624
EPS             $.48       $.46       $.31

                04/30      07/31      10/31

Net Revenues    $194,939   $202,945   $202,072
Net Income     ($17,144)   $ 389      $ 1,393
EPS            ($.29)      $.01       $.02

* All pre-F00 amounts were later restated to reflect "pooling of interests" accounting for the merger with Discreet Logic. The amounts above do not reflect the restatement.

** 1stQ F98 and F98 results were subsequently restated to reduce the amount charged as "in-process" research and development.

74. The statutory safe harbor provided for forward-looking statements ("FLS") does not apply to the false FLS pleaded. None of the FLS were identified as "forward-looking statements" when made, it was not stated that actual results "could differ materially from those projected," nor did meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those in the FLS accompany those FLS. None of the particular oral FLS in Autodesk's 11/19/98 and 2/24/99 conference calls and 9/14/98 and 4/1/99 analyst conferences 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 FLS was authorized and/or approved by an executive officer of Autodesk who knew that the FLS was false. None of the historic or present-tense statements made by defendants were assumptions underlying or relating to any plan, projection or statement of future economic performance, as they 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 defendants expressly related to or stated to be dependent on those historic or present-tense statements when made.

75. This is a class action on behalf of persons who purchased or otherwise acquired Autodesk stock between 9/14/98 and 5/4/99, excluding defendants (the "Class"). Class members are so numerous that joinder of them is impracticable.

76. Common questions of law and fact predominate and include whether defendants: (i) violated the 1934 Act; (ii) omitted and/or misrepresented material facts; (iii) knew or recklessly disregarded that their statements were false; and (iv) artificially inflated Autodesk's stock price and the extent of and appropriate measure of damages.

77. Plaintiffs' claims are typical of those of the Class. Prosecution of individual actions would create a risk of inconsistent adjudications. Plaintiffs will adequately protect the interests of the Class. A class action is superior to other available methods for the fair and efficient adjudication of this controversy.

78. Plaintiffs repeat and reallege each and every allegation contained in all of the foregoing paragraphs as if fully set forth herein.

79. Defendants violated §10(b) and Rule 10b-5 by:

(a) Employing devices, schemes and artifices to defraud;

(b) Making untrue statements of material facts and omitting to state material facts necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading; and

(c) Engaging in acts, practices and a course of business that operated as a fraud or deceit upon the Class in connection with their purchases of Autodesk stock.

80. Class Members were damaged. In reliance on the integrity of the market, they paid artificially inflated prices for Autodesk stock.

81. Plaintiffs repeat and reallege each and every allegation contained in all of the foregoing paragraphs as if full set forth herein.

82. The Individual Defendants, by virtue of their offices and specific acts described above, were, at the time of the wrongs alleged herein, controlling persons of Autodesk within the meaning of §20(a) of the 1934 Act.

83. The Individual Defendants had the power and the influence and exercised the same to cause Autodesk to engage in the illegal conduct and practices complained of herein.

84. By reason of the conduct alleged in Count I of the Complaint, the Individual Defendants are liable for the aforesaid wrongful conduct and are liable to plaintiffs and the other members of the Class for the substantial damages they suffered in connection with their purchases of Autodesk securities during the Class Period.

WHEREFORE, plaintiffs pray for judgment as follows: declaring this action to be a proper class action; awarding damages, including interest; and such other relief as the Court may deem proper.

Plaintiffs demand a trial by jury.

DATED this 11th day of August, 2000.
 

MILBERG WEISS BERSHAD  HYNES & LERACH LLP PATRICK J. COUGHLIN JEFFREY W. LAWRENCE MICHAEL R. R. REESE           __________________________ JEFFREY W. LAWRENCE 100 Pine Street, Suite 2600 San Francisco, CA 94111 Telephone: 415/288-4545 MILBERG WEISS BERSHAD HYNES & LERACH LLP WILLIAM S. LERACH 600 West Broadway, Suite 1800 San Diego, CA 92101 Telephone: 619/231-1058 Lead Counsel for Plaintiffs

K:\CASES\Autodesk2\MMM80424.CPT

I, the undersigned, declare:

1. That declarant is and was, at all times herein mentioned, a citizen of the United States and employed in the County of San Francisco, over the age of 18 years, and not a party to or interested in the within action; that declarant's business address is 100 Pine Street, 26th Floor, San Francisco, California 94111.

2. That on August 11, 2000, declarant served the CONSOLIDATED AMENDED COMPLAINT FOR VIOLATION OF THE SECURITIES EXCHANGE ACT OF 1934 by depositing a true copy thereof in a United States mailbox at San Francisco, California in a sealed envelope with postage thereon fully prepaid and addressed to the parties listed on the attached Service List and that this document was forwarded to the following designated Internet site at:

http://securities.milberg.com

3. That there is a regular communication by mail between the place of mailing and the places so addressed.

I declare under penalty of perjury that the foregoing is true and correct. Executed this 11th day of August, 2000, at San Francisco, California.
 

______________________________
MARCY MEDEIROS

1. A Web-accessible or Internet-ready product is one that, unlike traditional software products that are loaded on the user's individual computer, is available to a user over the Web, i.e., the Internet, via a confidential user number. This allows the licensor, i.e., Autodesk, to constantly and instantly upgrade the product, provide software "patches," i.e., fixes of bugs, and to remain in constant and immediate contact with the user, vastly improving product performance and customer satisfaction.

2. Without "pooling," Autodesk would have been required to recognize at least $200 million in goodwill on the Discreet Logic acquisition and write off this amount over the next several years, incurring a very serious earnings penalty.