According to the Company’s FORM 10-Q For The Quarterly Period Ended June 30, 2006, effective October 9, 2002, the claims against Digitas Inc.’s officers and directors were dismissed without prejudice. Effective February 19, 2003, the Section 10(b) claims against Digitas Inc. were dismissed. The terms of a settlement have been tentatively reached between the plaintiffs in the suits and most of the defendants, including Digitas Inc., with respect to the remaining claims. A court hearing on the fairness of the proposed settlement to the plaintiff class was held on April 24, 2006. To date the court has not issued its opinion on the proposed settlement. If the settlement is approved by the court, the settlement would resolve those claims against Digitas Inc. and is expected to result in no material liability to it.

The complaint alleges that defendants Digitas, Inc. and certain individuals violated the federal securities laws by issuing and selling Digitas common stock pursuant to the March 13, 2000 IPO without disclosing to investors that some of the underwriters in the offering, including the lead underwriters, had solicited and received excessive and undisclosed commissions from certain investors. The complaint alleges that, in exchange for the excessive commissions, joint lead underwriters Morgan Stanley & Co. Incorporated, Deutsche Bank Securities Inc., Salomon Smith Barney Inc., Banc of America Securities LLC and Bear, Stearns & Co. Inc. allocated Digitas shares to customers at the IPO price of $24.00 per share. To receive the allocations (i.e., the ability to purchase shares) at $24.00, the underwriters' brokerage customers had to agree to purchase additional shares in the aftermarket at progressively higher prices. The requirement that customers make additional purchases at progressively higher prices as the price of Digitas stock rocketed upward (a practice known on Wall Street as ``laddering'') was intended to (and did) drive Digitas's share price up to artificially high levels. This artificial price inflation, the complaint alleges, enabled both the underwriters and their customers to reap enormous profits by buying stock at the $24.00 IPO price and then selling it later for a profit at inflated aftermarket prices, which rose as high as $40 on March 14, 2000, its first day of trading, to close that day at $29.50. Rather than allowing their customers to keep their profits from the IPO, the complaint alleges, the underwriters required their customers to ``kick back'' some of their profits in the form of secret commissions. These secret commission payments were sometimes calculated after the fact based on how much profit each investor had made from his or her IPO stock allocation. The complaint further alleges that defendants violated the Securities Act of 1933 because the Prospectus distributed to investors and the Registration Statement filed with the SEC in order to gain regulatory approval for the Digitas offering contained material misstatements regarding the commissions that the underwriters would derive from the IPO transaction and failed to disclose the additional commissions and ``laddering'' scheme discussed above.