ELECTRONICS FOR IMAGING, INC.
303 Velocity Way
Foster City, California 94404
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NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To be held on December 7, 2000
TO THE STOCKHOLDERS:
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders of
ELECTRONICS FOR IMAGING, INC., a Delaware corporation (the "Company"), will be
held on December 7, 2000 at 9:00 a.m., Pacific Standard Time, at the Company's
Corporate headquarters, 303 Velocity Way, Foster City, California 94404 for the
following purposes:
1. To approve an amendment to the Company's 1999 Equity Incentive Plan
to increase the number of shares of Common Stock authorized for issuance
thereunder by 4,500,000 shares.
2. To transact such other business as may properly come before the
meeting or any adjournment or postponement thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
Only stockholders of record at the close of business on November 3,
2000 are entitled to notice of and to vote at the Special Meeting and at any
adjournment or postponement thereof.
All stockholders are cordially invited to attend the Special Meeting in
person. However, to assure your representation at the Special Meeting, you are
urged to mark, sign, date and return the enclosed proxy for that purpose. Any
stockholder attending the Special Meeting may vote in person even if he or she
has returned a proxy.
Sincerely,
---------------
Joseph Cutts
Secretary
Foster City, California
November 9, 2000
YOUR VOTE IS IMPORTANT
IN ORDER TO ASSURE YOUR REPRESENTATION AT THE MEETING, YOU ARE
REQUESTED TO COMPLETE, SIGN AND DATE THE ENCLOSED PROXY AS PROMPTLY
AS POSSIBLE AND RETURN IT IN THE ENCLOSED ENVELOPE.
ELECTRONICS FOR IMAGING, INC.
PROXY STATEMENT
INFORMATION CONCERNING SOLICITATION AND VOTING
General
This Proxy Statement is furnished in connection with the solicitation
of proxies by the Board of Directors of ELECTRONICS FOR IMAGING, INC., a
Delaware corporation (the "Company"), for use at the Special Meeting of
Stockholders to be held Thursday, December 7, 2000 at 9:00 a.m., Pacific
Standard Time (the "Special Meeting"), or at any adjournment or postponement
thereof. The Special Meeting will be held at the Company's corporate
headquarters, 303 Velocity Way, Foster City, California 94404. The Company
intends to mail this proxy statement and accompanying proxy card on or about
November 9, 2000.
At the Special Meeting, the stockholders of the Company will be asked:
(1) to approve an amendment to the 1999 Equity Incentive Plan to increase the
number of shares authorized for issuance thereunder by 4,500,000 shares and (2)
to transact such other business as may properly come before the meeting. All
proxies which are properly completed, signed and returned to the Company prior
to the Special Meeting will be voted.
Voting Rights and Outstanding Shares
Only stockholders of record at the close of business on November 3,
2000 (the "Record Date") are entitled to notice of and to vote at the Special
Meeting. As of November 3, 2000, the Company had outstanding and entitled to
vote 53,722,062 shares of Common Stock. Each holder of record of Common Stock on
such date will be entitled to one vote per each share on all matters to be voted
upon by the stockholders.
All votes will be tabulated by the inspector of election appointed for
the meeting, who will separately tabulate affirmative and negative votes,
abstentions and broker non-votes. Abstentions will be counted towards the
tabulation of votes cast on proposals presented to the stockholders and will
have the same effect as negative votes. Broker non-votes are counted towards a
quorum, but are not counted for any purpose in determining whether a matter has
been approved.
In the event that sufficient votes in favor of the proposals are not
received by the date of the Special Meeting, the persons named as proxies may
propose one or more adjournments of the Special Meeting to permit further
solicitation of proxies. Any such adjournment will require the affirmative vote
of the holders of a majority of the outstanding shares present in person or by
proxy at the Special Meeting.
Solicitation
The cost of preparing, assembling, printing and mailing the Proxy
Statement, the Notice of Special Meeting and the enclosed proxy, as well as the
cost of soliciting proxies relating to the Special Meeting will be borne by the
Company. The Company will request banks, brokers, dealers and voting trustees or
other nominees to solicit their customers who are beneficial owners of shares
listed of record in names of nominees, and will reimburse them for the
reasonable out-of-pocket expenses of such solicitations. The original
solicitation of proxies by mail may be supplemented by telephone, telegram and
personal solicitation by directors, officers and regular employees of the
Company or, at the Company's request Corporate Investor Communications, Inc. No
additional compensation will be paid to directors, officers or other regular
employees of the Company for such services, but Corporate Investor
Communications, Inc. will be paid its customary fee, estimated to be about
$7,500, if it renders solicitation services.
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Revocability of Proxies
Any proxy given pursuant to this solicitation may be revoked by the
person giving it at any time before its use by delivering to the Secretary of
the Company at the Company's principal executive office, 303 Velocity Way,
Foster City, California 94404, a written notice of revocation or a duly executed
proxy bearing a later date or it may be revoked by attending the Special Meeting
and voting in person. Attendance at the Special Meeting will not, by itself,
revoke a proxy.
Stockholder Proposals To Be Presented at Next Annual Meeting
The deadline for submitting a stockholder proposal for inclusion in the
Company's proxy statement and form of proxy for the Company's annual meeting of
stockholders to be held in the year 2001, pursuant to Rule 14a-8 of the
Securities and Exchange Commission, is December 6, 2000. Unless a stockholder
who wishes to bring a matter before the stockholders at the Company's annual
meeting of stockholders notifies the Company of such matter prior to February
19, 2001, management will have discretionary authority to vote all shares for
which it has proxies in opposition to such matter.
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PROPOSAL ONE
AMENDMENT TO THE 1999 EQUITY INCENTIVE PLAN
DESCRIPTION OF THE PLANS
The Company has previously adopted three stock plans, the 1989 Stock
Plan (the "1989 Plan"), the 1990 Stock Plan (the "1990 Plan") and the 1999
Equity Incentive Plan (the "1999 Plan" and, together with the 1989 Plan and the
1990 Plan, the "Stock Plans"). The Stock Plans are administered by the Board of
Directors or a committee appointed by the Board. The Stock Plans provide for
grants to employees, consultants and directors of the Company or any parent or
subsidiary (as defined in the Stock Plans) of the Company.
The 1989 Plan was terminated on May 6, 1999 upon approval by
stockholders of the 1999 Plan. No options or stock purchase rights have been
issued under the 1989 Plan since November 30, 1992. Any shares (plus any shares
that might in the future be returned to the 1989 Stock Plan as a result of
cancellations or expiration of awards) that remained available for future grants
under the 1989 Stock Plan have been returned to the total authorized but
unissued shares of Common Stock of the Company.
The 1990 Stock Plan by its terms expired in June 2000. All options
available under the 1990 plan have been issued. Any shares (plus any shares that
might in the future be returned to the 1990 Stock Plan as a result of
cancellations or expiration of awards) that remained available for future grants
under the 1990 Stock Plan have been returned to the total authorized but
unissued shares of Common Stock of the Company.
As of November 3, 2000, 13,241,088, 17,799,350, and 4,891,535 options
to purchase shares of Common Stock had been granted under the 1989 Plan, 1990
Plan and 1999 Plan, respectively, and a total of 14,395,784 options had been
exercised under all Stock Plans. As of November 3, 2000, 798,405 options were
available for grant under 1999 Plan. As of November 3, 2000, 10,126,385 options
were outstanding under the Plans at a weighted average per share exercise price
of $33.28.
Prior to this proposed increase, 5,100,000 shares of Common Stock had
been reserved for issuance under the 1999 Plan.
Proposed Amendment
On October 27, 2000 the Board of Directors approved an amendment to the
1999 Plan to increase the number of shares reserved for issuance thereunder for
an additional 4,500,000 shares. As a result of this amendment, the Board of
Directors has reserved an aggregate of 9,600,000 shares of Common Stock under
the 1999 Plan. This amendment is subject to stockholder approval.
The Stock Plans are long-term incentive plans for all employees. These
plans are intended to align stockholder and employee interests by creating a
direct link between long-term rewards and the value of the Company's shares. The
Board of Directors believes that long-term stock ownership by all employees,
including executive officers, is an important factor in achieving above-average
growth in share value and in retaining valued employees. Since the value of a
stock option bears a direct relationship to the Company's stock price, the Board
further believes that stock options motivate employees to manage the Company in
a manner which will benefit all stockholders.
A combination of events is straining our allocation of approved shares.
The Company has grown from 758 employees at the end of 1999 to a current level
of approximately 900 employees as a result of both internal growth and the
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recent acquisition of Splash Technology Holdings, Inc. More importantly, due to
recent market conditions and the impact on the Company's stock price,
approximately 60% of all options that have been issued and are outstanding have
a weighted average exercise price of $33 or higher and approximately 39% have a
weighted average exercise price of $45 or higher. As a result, most Company
employees currently hold stock options that have a zero valuation. While the
Company is continuously looking for opportunities to grow its business and
continue its success in the marketplace, its ability to continue to grow is
affected by its ability to recruit and retain qualified employees. The Company
faces extremely competitive hiring conditions in the Silicon Valley as both
large companies and small Internet startups offer prospective employees
significant equity opportunities. Therefore, in order to recruit and retain
qualified employees, the Company needs to provide meaningful equity
opportunities. Because the value of a stock option bears a direct relationship
to the Company's stock price, the Board believes that stock options motivate
employees to manage the Company in a manner which will benefit all
stockholders.. Stockholders are requested to approve the amendment to the 1999
Plan to increase the number of shares of Common Stock authorized for issuance
thereunder by 4,500,000 shares to enable us to provide employees with meaningful
equity opportunities while increasing shareholder value at the same time. The
affirmative vote of the holders of a majority of the shares present in person or
represented by proxy and entitled to vote at the meeting will be required to
approve the amendment to the 1999 Plan. Abstentions will be counted toward the
tabulation of votes cast on proposals presented to the stockholders and will
have the same effect as negative votes. Broker non-votes are counted towards a
quorum, but are not counted for any purpose in determining whether this matter
has been approved.
The Company's Board of Directors unanimously recommends a vote "FOR" the
amendment to the 1999 Plan.
The essential features of the 1999 Plan are outlined below.
GENERAL
The 1999 Plan provides for the grant of incentive stock options,
nonstatutory stock options, stock appreciation rights, stock bonuses and
restricted stock purchase awards (collectively "awards"). Incentive stock
options granted under the 1999 Plan are intended to qualify as "incentive stock
options" within the meaning of Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code"). Nonstatutory stock options granted under the 1999 Plan
are not intended to qualify as incentive stock options under the Code. Stock
appreciation rights granted under the 1999 Plan may be tandem rights, concurrent
rights or independent rights. See "Federal Income Tax Information" for a
discussion of the tax treatment of awards.
PURPOSE
The Board adopted the 1999 Plan, and amended the 1999 Plan to provide
for additional grants thereunder, to provide a means by which employees,
directors and consultants of the Company and its affiliates may be given an
opportunity to purchase stock in the Company, to assist in retaining the
services of such persons, to secure and retain the services of persons capable
of filling such positions and to provide incentives for such persons to exert
maximum efforts for the success of the Company and its affiliates. All of the
approximately 900 employees, directors and consultants of the Company and its
affiliates are eligible to participate in the 1999 Plan.
ADMINISTRATION
The Board administers the 1999 Plan. Subject to the provisions of the
1999 Plan, the Board has the power to construe and interpret the 1999 Plan and
to determine the persons to whom and the dates on which awards will be granted,
the number of shares of Common Stock to be subject to each award, the time or
times during the term of each option within which all or a portion of such
option may be exercised, the exercise price of each option, the type of
consideration and other terms of the option or award.
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The Board has the power to delegate administration of the 1999 Plan to
a committee composed of one or more members of the Board. In the discretion of
the Board, a committee may consist solely of two or more "non-employee
directors" within the meaning of Rule 16b-3 of the Securities Exchange Act of
1934, as amended (the "Exchange Act") or solely of two or more "outside
directors" within the meaning of Section 162(m) of the Code. For this purpose, a
"non-employee director" generally is a director who does not receive
remuneration from the Company other than compensation for service as a director
(except for amounts not in excess of specified limits applicable pursuant to
Rule 16b-3 under the Exchange Act). An "outside director" generally is a
director who is neither a current or former officer of the Company nor a current
employee of the Company, does not receive any remuneration from the Company
other than compensation for service as a director, and is not employed by or
have certain ownership interests in an entity that receives remuneration from
the Company (except within specified limits applicable under regulations issued
pursuant to Section 162(m) of the Code). If administration is delegated to a
committee, the committee has the power to delegate administrative powers to a
subcommittee. As used herein with respect to the 1999 Plan, the "Board" refers
to any committee the Board appoints or, if applicable, any such subcommittee, as
well as to the Board itself. In accordance with the foregoing provisions, the
Board has delegated administration of the 1999 Plan to the Compensation
Committee. Also in accordance with the foregoing provisions, on June 1, 1999,
the Board of Directors approved the delegation of administrative authority under
the 1999 Plan to a committee to consist of one director (the "Non-Officer Stock
Option Committee"), with the power and authority to grant stock awards to
eligible persons under the respective plans who are not subject to Section 16 of
the Exchange Act of 1934.
ELIGIBILITY
Incentive stock options and stock appreciation rights appurtenant
thereto may be granted under the 1999 Plan only to employees (including
officers) of the Company and its affiliates. Employees (including officers),
directors, and consultants of both the Company and its affiliates are eligible
to receive all other types of awards under the 1999 Plan.
No incentive stock option may be granted under the 1999 Plan to any
person who, at the time of the grant, owns (or is deemed to own) stock
possessing more than 10% of the total combined voting power of the Company or
any affiliate of the Company, unless the exercise price is at least 110% of the
fair market value of the stock subject to the option on the date of grant and
the term of the option does not exceed five years from the date of grant. In
addition, the aggregate fair market value, determined at the time of grant, of
the shares of Common Stock with respect to which incentive stock options are
exercisable for the first time by a participant during any calendar year (under
the 1999 Plan and all other such plans of the Company and its affiliates) may
not exceed $100,000.
No employee may be granted options and/or stock appreciation rights
under the 1999 Plan exercisable for more than (i) 2,000,000 shares of Common
Stock during any fiscal year if such shares are granted in connection with an
employee's initial employment with the Company or (ii) 1,000,000 shares of
Common Stock during any fiscal year if such shares are granted for reasons other
than an employee's initial employment with the Company (collectively, the
"Section 162(m) Limitations").
STOCK SUBJECT TO THE 1999 PLAN
Subject to this Proposal, an aggregate of 10,850,000 shares of Common
Stock is reserved for issuance under the 1999 Plan. The 1999 Plan provides that
the aggregate number of shares of Common Stock subject to awards granted in the
form of stock bonuses and restricted stock may not exceed 10% of the aggregate
shares reserved for issuance under the 1999 Plan. If awards granted under the
1999 Plan expire or otherwise terminate without being exercised, the shares of
Common Stock not acquired pursuant to such awards again becomes available for
issuance under the 1999 Plan. If the Company reacquires unvested stock issued
under the 1999 Plan, the reacquired stock will not again become available for
reissuance under the 1999 Plan.
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TERMS OF OPTIONS
The following is a description of the permissible terms of options
under the 1999 Plan. Individual option grants may be more restrictive as to any
or all of the permissible terms described below.
Exercise Price; Payment. The exercise price of incentive stock options
may not be less than 100% of the fair market value of the stock subject to the
option on the date of the grant and, in some cases (see "Eligibility" above),
may not be less than 110% of such fair market value. The exercise price of
nonstatutory options may not be less than 100% of the fair market value of the
stock on the date of grant. As of November 3, 2000 the closing price of the
Company's Common Stock as reported on the Nasdaq National Market System was
$15.625 per share.
The exercise price of options granted under the 1999 Plan must be paid
either in cash at the time the option is exercised or, at the discretion of the
Board, (i) by delivery of other Common Stock of the Company, (ii) pursuant to a
deferred payment arrangement, or (iii) in any other form of legal consideration
acceptable to the Board.
Option Exercise. Options granted under the 1999 Plan may become
exercisable in cumulative increments ("vest") as determined by the Board.
Vesting typically will occur during the optionholder's continued service with
the Company or an affiliate, whether such service is performed in the capacity
of employee, director or consultant (collectively, "service") and regardless of
any change in the capacity of such service. Shares covered by different options
granted under the 1999 Plan may be subject to different vesting terms. The Board
has the power to accelerate the time during which an option may vest or be
exercised. In addition, options granted under the 1999 Plan may permit exercise
prior to vesting, but in such event the participant may be required to enter
into an early exercise stock purchase agreement that allows the Company to
repurchase unvested shares, generally at their exercise price, should the
participant's service terminate before vesting. To the extent provided by the
terms of an option, a participant may satisfy any federal, state or local tax
withholding obligation relating to the exercise of such option by (i) a cash
payment upon exercise, (ii) authorizing the Company to withhold a portion of the
stock otherwise issuable to the participant, (iii) delivering already-owned
Common Stock of the Company, or (iv) combination of these means.
Term. The maximum term of options under the 1999 Plan is 10 years,
except that in certain cases (see "Eligibility") the maximum term is five years.
Options under the 1999 Plan generally terminate three months after termination
of the participant's service unless (i) such termination is due to the
participant's disability, in which case the option may, but need not, provide
that it may be exercised (to the extent the option was exercisable at the time
of the termination of service) at any time within 12 months of such termination;
(ii) the participant dies before the participant's service has terminated, or
within three months after termination of such service, in which case the option
may, but need not, provide that it may be exercised (to the extent the option
was exercisable at the time of the participant's death) within 18 months of the
participant's death by the person or persons to whom the rights to such option
have passed; or (iii) the option by its terms specifically provides otherwise. A
participant may designate a beneficiary who may exercise the option following
the participant's death. Individual option grants by their terms may provide for
exercise within a longer period of time following termination of service.
The option term may be extended in the event that exercise of the
option within these periods is prohibited by law, particularly applicable
securities law.
TERMS OF STOCK BONUSES AND PURCHASES OF RESTRICTED STOCK
Payment. The Board determines the purchase price under a restricted
stock purchase agreement but the purchase price may not be less than 50% of the
fair market value of the Company's Common Stock on the date of grant. The Board
may award stock bonuses in consideration of past services without a purchase
payment. See "Stock Subject to the 1999 Plan" regarding the limitation on the
aggregate number of shares eligible to be granted as restricted stock awards and
bonuses.
The purchase price of stock acquired pursuant to a restricted stock
purchase agreement under the 1999 Plan must be paid either in cash at the time
the award is exercised or at the discretion of the Board, (i) by delivery of
other Common
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Stock of the Company, (ii) pursuant to a deferred payment arrangement, or (iii)
in any other form of legal consideration acceptable to the Board.
Vesting. Shares of stock sold or awarded under the 1999 Plan may, but
need not be, subject to a repurchase option in favor of the Company in
accordance with a vesting schedule as determined by the Board. The Board has the
power to accelerate the vesting of stock acquired pursuant to a restricted stock
purchase agreement under the 1999 Plan.
Restrictions on Transfer. Rights under a stock bonus or restricted
stock bonus agreement may not be transferred except where such assignment is
required by law or expressly authorized by the terms of the applicable stock
bonus or restricted stock purchase agreement.
STOCK APPRECIATION RIGHTS
The 1999 Plan authorizes three types of stock appreciation rights.
Tandem Stock Appreciation Rights. Tandem stock appreciation rights are
tied to an underlying option and require the participant to elect whether to
exercise the underlying option or to surrender the option for an appreciation
distribution equal to the market price of the vested shares purchasable under
the surrendered option less the aggregate exercise price payable for such
shares. Appreciation distributions payable upon exercise of tandem stock
appreciation rights shall generally be made in cash.
Concurrent Stock Appreciation Rights. Concurrent stock appreciation
rights are tied to an underlying option and are exercised automatically at the
same time the underlying option is exercised. The participant receives an
appreciation distribution equal to the market price of the vested shares
purchased under the option less the aggregate exercise price payable for such
shares. Appreciation distributions payable upon exercise of concurrent stock
appreciation rights shall generally be made in cash.
Independent Stock Appreciation Rights. Independent stock appreciation
rights are not tied to any underlying option, but instead are denominated in
"share equivalents." A share equivalent for this purposes is equal to a share of
Common Stock. Independent stock appreciation rights entitle the participant to
receive, upon exercise, a distribution for each exercised share equivalent that
is equal to the current fair market value of a share of Common Stock, less the
value of the share on the original date of grant. Distributions payable upon
exercise of independent stock appreciation rights may, at the Board's
discretion, be made in cash, in shares of stock or a combination thereof.
RESTRICTIONS ON TRANSFER
The participant may not transfer an incentive stock option otherwise
than by will or by the laws of descent and distribution. A participant may
designate a beneficiary who may exercise the option following the participant's
death. During the lifetime of the participant, however, only the participant may
exercise an incentive stock option. The Board may grant nonstatutory stock
options that are transferable in certain limited instances. Shares subject to
repurchase by the Company under an early exercise stock purchase agreement may
be subject to restrictions on transfer that the Board deems appropriate.
ADJUSTMENT PROVISIONS
Transactions not involving receipt of consideration by the Company,
such as a merger, consolidation, reorganization, stock dividend, or stock split,
may change the class and number of shares of Common Stock subject to the 1999
Plan and outstanding awards. In that event, the 1999 Plan will be appropriately
adjusted as to the class and the maximum number of shares of Common Stock
subject to the 1999 Plan and the Section 162(m) Limitation, and outstanding
awards will be adjusted as to the class, number of shares and price per share of
Common Stock subject to such awards.
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EFFECT OF CERTAIN CORPORATE EVENTS
The 1999 Plan provides that, in the event of a sale of substantially all of the
assets of the Company, specified types of merger, or other corporate
reorganization ("change in control"), any surviving corporation will be required
to either assume or continue awards outstanding under the 1999 Plan or
substitute similar awards for those outstanding under the 1999 Plan. If any
surviving corporation declines to assume or continue awards outstanding under
the 1999 Plan, or to substitute similar awards, then, with respect to
participants whose service has not terminated, the vesting and the time during
which their options may be exercised will be accelerated and, for all awards,
any repurchase rights or acquisition rights shall lapse. In such event, an
outstanding option will terminate if the optionholder does not exercise it
before the deadline established by the Board at or following the occurrence of
the change in control. The acceleration of vesting or lapse of restrictions on
an award in the event of an acquisition or similar corporate event may be viewed
as an anti-takeover provision, which may have the effect of discouraging a
proposal to acquire or otherwise obtain control of the Company.
DURATION, AMENDMENT AND TERMINATION
The Board may suspend or terminate the 1999 Plan without stockholder
approval or ratification at any time or from time to time. Unless sooner
terminated, the 1999 Plan will terminate on March 28, 2009.
The Board may also amend the 1999 Plan at any time or from time to
time. However, no amendment will be effective unless approved by the
stockholders of the Company if the amendment would (i) modify the requirements
as to eligibility for participation (to the extent such modification requires
stockholder approval in order for the 1999 Plan to satisfy Section 422 of the
Code, if applicable, or Rule 16b-3 of the Exchange Act); (ii) change the 1999
Plan in any other way if such change requires stockholder approval in order to
comply with Rule 16b-3 of the Exchange Act or to satisfy the requirements of
Section 422 of the Code or any Nasdaq National Market or other applicable
securities exchange listing requirements. The Board may submit any other
amendment to the 1999 Plan for stockholder approval, including, but not limited
to, amendments intended to satisfy the requirements of Section 162(m) of the
Code regarding the exclusion of performance-based compensation from the
limitation on the deductibility of compensation paid to certain employees.
FEDERAL INCOME TAX INFORMATION
Long-term capital gains currently are generally subject to lower tax
rates than ordinary income or short-term capital gains. The maximum long-term
capital gains rate for federal income tax purposes is currently 20% while the
maximum ordinary income rate and short-term capital gains rate is effectively
39.6%. Slightly different rules may apply to participants who acquire stock
subject to certain repurchase options or who are subject to Section 16(b) of the
Exchange Act.
Incentive Stock Options. Incentive stock options under the 1999 Plan
are intended to be eligible for the favorable federal income tax treatment
accorded "incentive stock options" under the Code.
There generally are no federal income tax consequences to the
participant or the Company by reason of the grant or exercise of an incentive
stock option. However, the exercise of an incentive stock option may increase
the participant's alternative minimum tax liability, if any.
If a participant holds stock acquired through exercise of an incentive
stock option for at least two years from the date on which the option is granted
and more than one year from the date on which the shares are transferred to the
participant upon exercise of the option, any gain or loss on a disposition of
such stock will be a long-term capital gain or loss.
Generally, if the participant disposes of the stock before the
expiration of either of these holding periods (a "disqualifying disposition"),
then at the time of disposition the participant will realize taxable ordinary
income equal to
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the lesser of (i) the excess of the stock's fair market value on the date of
exercise over the exercise price, or (ii) the participant's actual gain, if any,
on the purchase and sale. The participant's additional gain or any loss upon the
disqualifying disposition will be a capital gain or loss, which will be
long-term or short-term depending on whether the stock was held for more than
one year.
To the extent the participant recognizes ordinary income by reason of a
disqualifying disposition, the Company will generally be entitled (subject to
the requirement of reasonableness, the provisions of Section 162(m) of the Code
and the satisfaction of a tax reporting obligation) to a corresponding business
expense deduction in the tax year in which the disqualifying disposition occurs.
Nonstatutory Stock Options, Restricted Stock Purchase Awards and Stock
Bonuses. Nonstatutory stock options, restricted stock purchase awards and stock
bonuses granted under the 1999 Plan generally have the following federal income
tax consequences:
There are no tax consequences to the participant or the Company by
reason of the grant. Upon acquisition of the stock, the participant normally
will recognize taxable ordinary income equal to the excess, if any, of the
stock's fair market value on the acquisition date over the purchase price.
However, to the extent the stock is subject to certain types of vesting
restrictions, the taxable event will be delayed until the vesting restrictions
lapse unless the participant elects to be taxed on receipt of the stock. With
respect to employees, the Company is generally required to withhold from regular
wages or supplemental wage payments an amount based on the ordinary income
recognized. Subject to the requirement of reasonableness, the provisions of
Section 162(m) of the Code and the satisfaction of a tax reporting obligation,
the Company will generally be entitled to a business expense deduction equal to
the taxable ordinary income realized by the participant.
Upon disposition of the stock, the participant will recognize a capital
gain or loss equal to the difference between the selling price and the sum of
the amount paid for such stock plus any amount recognized as ordinary income
upon acquisition (or vesting) of the stock. Such gain or loss will be long-term
or short-term depending on whether the stock was held for more than one year.
Slightly different rules may apply to participants who acquire stock subject to
certain repurchase options or who are subject to Section 16(b) of the Exchange
Act.
Stock Appreciation Rights. No taxable income is realized upon the
receipt of a stock appreciation right, but upon exercise of the stock
appreciation right the fair market value of the shares (or cash in lieu of
shares) received must be treated as compensation taxable as ordinary income to
the participant in the year of such exercise. Generally, with respect to
employees, the Company is required to withhold from the payment made on exercise
of the stock appreciation right or from regular wages or supplemental wage
payments, an amount based on the ordinary income recognized. Subject to the
requirement of reasonableness, Section 162(m) of the Code and the satisfaction
of a reporting obligation, the Company will be entitled to a business expense
deduction equal to the taxable ordinary income recognized by the participant.
Potential Limitation on Company Deductions. Section 162(m) of the Code
denies a deduction to any publicly-held corporation for compensation paid to
certain "covered employees" in a taxable year to the extent that compensation to
such covered employee exceeds $1 million. It is possible that compensation
attributable to awards, when combined with all other types of compensation
received by a covered employee from the Company, may cause this limitation to be
exceeded in any particular year.
Certain kinds of compensation, including qualified "performance-based
compensation," are disregarded for purposes of the deduction limitation. In
accordance with Treasury regulations issued under Section 162(m), compensation
attributable to stock options and stock appreciation rights will qualify as
performance-based compensation if the award is granted by a compensation
committee comprised solely of "outside directors" and either (i) the plan
contains a per-employee limitation on the number of shares for which such awards
may be granted during a specified period, the per-employee limitation is
approved by the stockholders, and the exercise price of the award is no less
than the fair market value of the stock on the date of grant, or (ii) the award
is granted (or exercisable) only upon the achievement (as certified
10
in writing by the compensation committee) of an objective performance goal
established in writing by the compensation committee while the outcome is
substantially uncertain, and the award is approved by stockholders.
Compensation attributable to restricted stock purchases will qualify as
performance-based compensation, provided that: (i) the award is granted by a
compensation committee comprised solely of "outside directors," (ii) the number
of shares subject to the award is within the per-employee limitation described
above, and (iii) the purchase price of the award is no less than the fair market
value of the stock on the date of grant. Stock bonuses and restricted stock
purchases with a purchase price below fair market value qualify as
performance-based compensation under the Treasury regulations only if (i) the
award is granted by a compensation committee comprised solely of "outside
directors," (ii) the award is granted (or exercisable) only upon the achievement
of an objective performance goal established in writing by the compensation
committee while the outcome is substantially uncertain, (iii) the compensation
committee certifies in writing prior to the granting (or exercisability) of the
award that the performance goal has been satisfied and (iv) prior to the
granting (or exercisability) of the award, stockholders have approved the
material terms of the award (including the class of employees eligible for such
award, the business criteria on which the performance goal is based, and the
maximum amount - or formula used to calculate the amount - payable upon
attainment of the performance goal).
11
SECURITY OWNERSHIP
Except as otherwise indicated below, the following table sets forth
certain information regarding beneficial ownership of Common Stock of the
Company as of November 3, 2000 by (i) each person known by the Company to be the
owner of more than 5% of the outstanding shares of Common Stock, (ii) each
director, (iii) each executive officer listed in the Summary Compensation Table,
and (iv) all executive officers and directors as a group.
Common Stock
----------------------
No. of Percent
Name of Beneficial Owner (1) Shares Owned
- --------------------------------------------------------- --------- -------
J&W Seligman & Company .................................. 8,179,600 15.2%
100 Park Avenue
New York, New York 10017
T. Rowe Price Associates, Inc. .......................... 5,064,700 9.4%
100 East Pratt Street
Baltimore, Maryland 21202
FMR Corporation ......................................... 2,993,200 5.6%
82 Devonshire Street
Boston, Massachusetts 02109
Dan Avida (2) ........................................... 1,134,300 2.1%
Fred Rosenzweig (3) ..................................... 357,000 *
Guy Gecht (4) ........................................... 288,063 *
Thomas Unterberg (5) .................................... 162,000 *
Eric Saltzman (6) ....................................... 146,000 *
Dan Maydan (7) .......................................... 59,760 *
Gill Cogan (5) .......................................... 58,000 *
Jean-Louis Gassee (5) ................................... 58,000 *
James S. Greene ......................................... 25,000 *
Mark Lee ................................................ -- --
All executive officers and directors as a group (11
persons) (8) ....................................... 1,363,153 2.5%
- -------------------
* Less than one percent.
(1) This table is based upon information supplied by officers, directors and
principal stockholders and Schedules 13D and 13G filed with the Commission.
Unless otherwise indicated in the footnotes to this table and subject to
community property laws where applicable, each of the stockholders named in
this table has sole voting and investment power with respect to the shares
indicated as beneficially owned. Applicable percentages are based on
53,722,062 shares outstanding on November 3, 2000, adjusted as required by
rules promulgated by the Securities and Exchange Commission (the "SEC").
12
(2) Includes 349,091 shares of Common Stock issuable upon exercise of options
granted under the 1990 Stock Plan which are exercisable within 60 days of
November 3, 2000.
(3) Includes 173,958 shares of Common Stock issuable upon exercise of options
granted under the 1990 Stock Plan which are exercisable within 60 days of
November 3, 2000.
(4) Consists solely of 107,250 shares of Common Stock issuable upon the
exercise of options granted under the 1990 Stock Plans which are
exercisable within 60 days of November 3, 2000.
(5) Includes 25,291 shares of Common Stock issuable upon exercise of options
granted under the 1990 Stock Plan which are exercisable within 60 days of
November 3, 2000.
(6) Includes 15,550 shares of Common Stock issuable upon exercise of options
granted under the 1990 Stock Plan which are exercisable within 60 days of
November 3, 2000.
(7) Includes 25,491 shares of Common Stock issuable upon exercise of options
granted under the 1990 Stock Plan which are exercisable within 60 days of
November 3, 2000
(8) Includes an aggregate of 527,852 shares of Common Stock issuable upon the
exercise of options granted to executive officers and directors
collectively under 1990 Stock Plans which are exercisable within 60 days of
November 3, 2000.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires the Company's officers,
directors and persons who beneficially own more than ten percent of a registered
class of the Company's equity securities, to file reports of security ownership
and changes in such ownership with the SEC. Officers, directors and greater than
ten percent beneficial owners also are required by rules promulgated by the SEC
to furnish the Company with copies of all Section 16(a) forms they file.
Based solely upon a review of the copies of such forms furnished to the
Company, or written representations that no Form 5 filings were required, the
Company believes that during the period from January 1, 1999 to December 31,
1999, all Section 16(a) filing requirements applicable to officers, directors or
greater than ten percent beneficial owners were complied with.
13
EXECUTIVE COMPENSATION
Compensation of Executive Officers
The following table sets forth certain summary information regarding
compensation paid by the Company for services rendered during the fiscal years
ended December 31, 1999, 1998 and 1997 to all individuals serving as the
Company's Chief Executive Officer during the last complete fiscal year and its
four most highly compensated executive officers other than the Chief Executive
Officer.
Summary Compensation Table
Long-Term
Compensation
Annual Compensation Awards
------------------------ ---------- All Other
Salary Bonus Number Of Compensation
Name and Principal Position Year ($) (1) ($) (1) Options ($)
- --------------------------- ---- --------- ----------- ---------- ------------
Dan Avida 1999 425,000 372,894 (2) 130,000 9,200 (8)
Former Chairman of the Board 1998 400,000 451,713 (3) 100,000 6,000 (5)
of Directors and former Chief 1997 375,000 212,810 (4) 90,000 179,876 (6)
Executive Officer (9)
Guy Gecht (10) 1999 257,500 216,016 (2) 110,000 5,600 (8)
Chief Executive Officer and
former President of the Company
Mark Lee (11) 1999 218,750 127,954 (2) 50,000 8,000 (8)
Former Vice President, Worldwide Sales 1998 164,500 140,341 (7) 25,000 4,800 (5)
Fred Rosenzweig 1999 306,250 263,951 (2) 110,000 8,000 (8)
President and 1998 242,500 202,167 (3) 37,000 4,800 (5)
Chief Operating Officer 1997 210,000 85,124 (4) 26,000 4,600 (5)
Eric Saltzman (12) 1999 248,750 143,601 (2) 60,000 8,000 (8)
Former Chief Financial Officer and 1998 212,500 143,750 (3) 30,000 4,800 (5)
former Corporate Secretary 1997 185,000 59,992 (4) 17,000 4,800 (5)
<FN>
(1) Amounts shown include cash and non-cash compensation earned and received by
executive officers as well as amounts earned but deferred at the election
of those officers.
(2) Represents bonuses accrued in 1999 under the Executive Bonus Plan and paid
in February 2000.
(3) Represents bonuses accrued in 1998 under the Executive Bonus Plan and paid
January 1999.
(4) Represents bonuses accrued in 1997 under the Executive Bonus Plan and paid
in March 1999.
(5) Automobile allowance.
(6) Consists of a $173,876 payment to compensate for personal tax consequences
on conversion of previously granted incentive stock options to
non-statutory stock options at the Company's request and a $6,000
automobile allowance.
(7) Consists of a $49,891 commission and a $90,450 bonus accrued in 1998 under
the Executive Bonus Plan and paid in January 1999.
(8) Represents the matching contribution which the Company made on behalf of
each Named Officer to the Company's 401(k) Plan and automobile allowance.
(9) Mr. Avida resigned as Chief Executive Officer as of January 1, 2000.
(10) Mr. Gecht was appointed Chief Executive Officer of the Company on January
1, 2000. During fiscal year 1999 Mr. Gecht served as President of the
Company.
(11) Mr. Lee resigned from the Company in January 2000. During fiscal year 1999
Mr. Lee served as Vice President, Worldwide Sales.
(12) Mr. Saltzman resigned from the Company in April 2000.
</FN>
14
Compensation of Directors
In 1999, outside members of the Board of Directors received cash
compensation in the amount of $15,000 per year plus $1,000 per Board of
Directors meeting or $500 per Board of Directors meeting attended by telephone
and $1,000 per Committee meeting, in addition to reimbursement of reasonable
expenses incurred in attending meetings. In 1999, all outside members of the
Board of Directors were granted 18,000 options to purchase shares of the
Company's Common Stock. The options were granted on March 24, 1999 and are
exercisable starting approximately one year after the grant date, with 25% of
the option shares becoming exercisable on April 20, 2000, and then quarterly
(ratably), with full vesting on April 20, 2003.
15
STOCK OPTION GRANTS AND EXERCISES
The following table sets forth information regarding stock option
grants made during the fiscal year ended December 31, 1999 to each of the
executive officers named in the Summary Compensation Table.
Option Grants in Fiscal Year Ended December 31, 1999
Individual Grants
------------------------------------------------ Potential Realizable
Number % of Total Value at Assumed Annual Rates
Of Shares Options of Stock Price Appreciation for
Underlying Granted to Exercise Option Term (3)
Options Employees Price Expiration ---------------------------
Granted (1) in 1999 Per Share Date (2) 5% 10%
------------ ---------- ----------- ------------- ---------- ------------
Dan Avida 130,000 4.4% $33.81 3/23/09 $2,763,428 $7,005,517
Guy Gecht 110,000 3.7% 33.81 3/23/09 2,338,285 5,925,207
Mark Lee 50,000 1.7% 33.81 3/23/09 1,062,857 2,693,276
Fred Rosenzweig 110,000 3.7% 33.81 3/23/09 2,338,285 5,925,207
Eric Saltzman 60,000 2.0% 33.81 3/23/09 1,275,428 3,231,931
<FN>
(1) Options granted on March 24, 1999 are exercisable starting approximately
one year after the grant date, with 25% of the option shares becoming
exercisable on April 20, 2000, and then quarterly thereafter (ratably),
with full vesting on April 20, 2003. Each grant was made at an exercise
price equal to the fair market value on the date of grant.
(2) The options have a term of 10 years, subject to earlier termination in
certain events related to termination of employment.
(3) The 5% and 10% assumed rates of appreciation are mandated by the rules of
the SEC and do not represent the Company's estimate or projection of its
future Common Stock price.
</FN>
16
The following table sets forth information regarding exercises of stock
options during the fiscal year ended December 31, 1999 by each of the executive
officers named in the Summary Compensation Table.
Aggregated Option Exercises in Fiscal Year Ended
December 31, 1999 and Fiscal Year End Option Values
Number of Value of Unexercised
Shares Unexercised Options In-the-Money Options
Acquired on Value at 12/31/99 at 12/31/99 (2)
------------------------------- -------------------------------
Name Exercise Realized(1) Exercisable Unexercisable Exercisable Unexercisable
- ---- ------------- ----------- ----------- ------------- ----------- -------------
Dan Avida 223,000 10,446,362 727,236 287,500 $32,561,288 $8,196,875
Guy Gecht 29,187 667,666 14,250 138,813 $289,031 $3,588,546
Mark Lee 12,750 439,398 5,000 73,250 54,375 2,046,641
Fred Rosenzweig 64,500 2,433,240 60,250 161,750 1,850,906 4,404,656
Eric Saltzman 72,000 2,743,403 8,500 98,500 92,438 2,793,375
<FN>
(1) This amount represents the market value of the underlying securities on
the exercise date minus the exercise price of such options.
(2) This amount represents the market value of the underlying securities
relating to "in-the-money" options at December 31, 1999 minus the
exercise price of such options.
</FN>
EMPLOYMENT AGREEMENTS
The Company entered into employment agreements with Mr. Avida in
January 2000 and with Mr. Gecht, Mr. Rosenzweig, and Ms. Smith in March 2000,
whereby each executive's employment shall continue to be "at will." The
employment agreements state an annual base salary, subject to any increases
annually as the Company's Board shall authorize from time to time in connection
with an annual review and provides for such performance bonus amounts as the
Company's Board authorizes. In addition, the employment agreements contain
certain provisions that take effect upon a change of control of the Company. If
the executive's employment is involuntarily or constructively terminated other
than for cause within a period beginning 90 days before and ending 18 months
after a change of control, the executive will be entitled to a lump sum
severance payment in an amount equal to one-half of his then current annual
salary and bonus. Mr. Avida's employment agreement terminates upon the earlier
(i) December 31, 2001, (ii) incapacity, or (iii) death. All other employment
agreements terminate upon the earlier of (i) the date that all obligations of
the parties thereunder have been satisfied, (ii) March 8, 2003 or (iii) eighteen
(18) months after a change of control unless the Executive's employment
terminates as a result of involuntary or constructive termination.
17
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Jean-Louis Gassee has served on the Compensation Committee of the Board of
Directors from its formation in August 1992 through December 31, 1999. Thomas I.
Unterberg has served on the Compensation Committee of the Board of Directors
from his appointment in February 1995 through December 31, 1999. No member of
this Committee was at any time during the 1999 fiscal year or at any other time
an officer or employee of the Company.
No executive officer of Electronics For Imaging, Inc. served on the board of
directors or compensation committee of any entity that includes one or more
members of the Board of Directors of Electronics for Imaging, Inc.
RELATED TRANSACTIONS
The Company has entered into employment agreements with certain of its
executive officers. See "Employment Agreements."
COMPLIANCE WITH SECTION 162(M) OF THE INTERNAL REVENUE CODE
Section 162(m) of the Internal Revenue Code, enacted in 1993, generally
disallows a tax deduction to public companies for compensation of over $1
million paid to any one of the corporation's chief executive officer and four
other most highly compensated executive officers for any single fiscal year.
Qualifying performance-based compensation is not subject to such limitation if
certain requirements are met. Because the Company's 1989 Stock Plan, 1990 Stock
Plan and 1999 Equity Incentive Plan may not satisfy the requirements of Section
162(m) with respect to the options granted thereunder, the Compensation
Committee may take action in the future to comply with these requirements. Given
the current levels of cash compensation paid to the Company's executive
officers, the Compensation Committee is not expected to take any action with
respect to the cash elements of the Company's executive compensation program at
this time, but will evaluate possible action, to the extent consistent with
other objectives of the Company's compensation program, if the cash compensation
of any executive officer approaches the $1 million level in the future.
18
[The following descriptive data is supplied in accordance with Rule 304(d) of
Regulation S-T]
<PLOT POINTS TO COME>
OTHER MATTERS
The Company knows of no other matters to be submitted at the meeting.
If any other matters properly come before the meeting, it is the intention of
the persons named in the enclosed form of proxy to vote the shares they
represent as the Board of Directors may recommend.
By Order of the Board of Directors
----------------------------------
Joseph Cutts
Secretary
Dated: April 5, 2000
19
A copy of the Company's Annual Report on Form 10-K for the year ended
December 31, 1999 is available without charge upon written request to: Corporate
Secretary, Electronics for Imaging, Inc., 303 Velocity Way, Foster City CA
94404.
20
SKU # 1149-PS1-00
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