According to the closing Order, dated November 25, 1997 from U.S. District Judge Edward F. Harrington of the United States District Court, District of Massachusetts, a settlement of three shareholder class actions received final court approval. On May 29, 1996, June 13, 1996 and April 29, 1997, certain of Discreet's shareholders filed class action lawsuits alleging violations of federal securities laws and other claims against Discreet and certain of its officers and directors, among others. The three lawsuits were filed in the Superior Court of the State of California, the United States District Court, District of Massachusetts and the United States District Court, Northern District of California, respectively. Under the $10,800,000 settlement, Discreet contributed approximately $7,400,000 from its own funds, with the remainder provided by insurance.

Another similar purported class action complaint was filed in the Northern District of California on April 28, 1997, entitled Anton Paparella, Sandra Esner and
Geoffrey L. Sherwood, On Behalf of Themselves and All Others Similarly
Situated vs. Discreet Logic Inc., et al., Case No. C-97-1570. The complaint alleges that Discreet Logic and certain of its officers and directors and its underwriters violated federal securities laws by making misrepresentations regarding Discreet's successful development and introduction of new products, its expert management team and forecasts of strong revenue and earnings growth. The complaint alleges that this permitted Discreet and its insiders to complete a stock sale in November 1995 in which they sold 3.6 million shares of Discreet stock at $30.25 per share for $109 million. Then, the complaint alleges, two months later, Discreet's President and CEO resigned and Discreet reported earnings well below defendants' prior forecasts, causing Discreet stock to decline from $25 1/4 to $9 3/4. The complaint alleges that defendants' made further misrepresentations which caused Discreet stock to rise to $18 5/8 by late April 1996. However, then on May 1, 1996, Discreet revealed that its CFO had resigned, that its revenues for third quarter 1996 had fallen sharply, that Discreet expected to incur a loss for all of fiscal 1996, and that Discreet could not state when it would return to profitability. The complaint alleges that this caused Discreet's stock to decline to 8 3/4 per share from 17 3/8 in one day.

The original complaint filed in the U.S. District Court for the District of Massachusetts charges Discreet Logic and certain of its officers and directors with violations of the federal securities laws by, among other things, making false and misleading statements and omissions in connection with a secondary public offering effective November 14, 1995, and in subsequent public statements, concerning the Company's purported ability to maintain leading-edge technology and the performance and prospects of its visual effects products. These false statements and omissions served to inflate the market price of Discreet Logic common stock both in connection with its secondary public offering and thereafter on the open market until the true facts about Discreet Logic's business and ability to compete were ultimately disclosed. Plaintiff specifically alleges defendants knew, but withheld from the public, materially adverse facts which revealed that one of the Company's primary customers, Silicon Graphics, Inc. ("SGI"), was finalizing the introduction of a new workstation that would render the Company's principal product obsolete. As a result of the developments with and new product introductions by SGI,
Discreet Logic's customers would stop purchasing the Company's existing products, thus having a material adverse effect on the Company's performance. Historically, revenues derived from the sale of SGI workstations accounted for over 40% of the Company's revenues. Plaintiff further alleges that before the true facts about SGI's new product introductions were announced, corporate insiders sold significant amounts of Discreet Logic common stock realizing proceeds of in excess of $55 million, taking advantage of the inflated market price of Discreet Logic's common shares. Thus, when the true facts about the Company's business were finally disclosed on February 13, 1996, the price of Discreet Logic's common stock plummeted $12.50 per share to $11.25, a market loss of approximately 53%, on volume of 6.3 million shares trading.

The first complaint filed against Discreet Logic was filed on May 29, 1996, in the Superior Court of the State of California, City and County of San Francisco. Named as defendants are the Company, certain of the Company's former and existing directors, officers, and affiliates, and certain underwriters and financial analysts. The plaintiffs purport to represent a class of all persons who purchased the Company's common stock between September 13, 1995, and May 1, 1996. The complaint alleges violations of California law through material misrepresentations and omissions, among other things.