<PAGE>
EXHIBIT 7
MILBERG WEISS BERSHAD FILED
HYNES & LERACH LLP 2000 AUG 31 PM 1:34
WILLIAM S. LERACH (68581) STEPHEN V LOVE, CEO
DARREN J. ROBBINS (168593) SUPERIOR COURT OF CA.
600 West Broadway, Suite 1800 CO. OF SANTA CLARA
San Diego, CA 92101 <ILLEGIBLE SIGNATURE>
Telephone: 619/231-1058
J Paura
Attorneys for Plaintiff
SUPERIOR COURT OF THE STATE OF CALIFORNIA
COUNTY OF SANTA CLARA
GERALD W. BURR, On Behalf of Himself and ) BY FAX
All Others Similarly Situated, )
) Case No. CV792276
Plantiff, )
) CLASS ACTION
vs ) ------------
)
SPLASH TECHNOLOGY HOLDINGS, INC., ) COMPLAINT FOR BREACH OF
KEVIN K. MACGILLIVRAY, MARK HILL, ) FIDUCIARY DUTIES
PETER Y. CHUNG, CHARLES W. BERGER, )
IAN L. GULLETT, GREG M. AVIS, ) FILE BY FAX
HAROLD COVERT and DOES 1-25, inclusive, )
)
Defendants, ) DEMAND FOR JURY TRIAL
------------------------------------------) ---------------------
--------------------------------------------------------------------------------
COMPLAINT FOR BREACH OF FIDUCIARY DUTIES
<PAGE>
Plaintiff, by his attorneys, alleges as follows:
SUMMARY OF THE ACTION
1. This is a stockholder class action brought by plaintiff on behalf of
the holders of Splash Technology Holdings, Inc. ("Splash" or the "Company")
common stock against Splash and its directors arising out of defendants' efforts
to complete the sale of Splash at a grossly inadequate and unfair price and
their efforts to provide certain insiders and directors with preferential
treatment at the expense of, and which is unfair to, the public shareholders.
2. On August 31, 2000, Splash announced that Electronics for Imaging
("Electronics for Imaging") had submitted an offer to the Splash Board to
purchase the outstanding shares of Splash for $10.00 per share (the
"Acquisition"), and that Splash's Board of Directors had agreed to the terms of
the $10.00 offer.
3. In pursuing the unlawful plan to cash out Splash's public stockholders
for grossly inadequate consideration, each of the defendants violated applicable
law by directly breaching and/or aiding the other defendants' breaches of their
fiduciary duties of loyalty, due care, independence and good faith and fair
dealing.
4. The proposed Acquisition is the product of a hopelessly flawed process
that was designed to ensure the sale of Splash to one buyer and one buyer only
on terms preferential to Electronics for Imaging and to subvert the interests
of plaintiff and the other public stockholders of Splash. Plaintiff seeks to
enjoin the proposed transaction or, alternatively, rescind the transaction in
the event that the transaction is consummated.
JURISDICTION AND VENUE
5. This Court has jurisdiction over Splash because Splash conducts
business in California and is a citizen of California, as its principal place of
business is in Sunnyvale, California. Likewise, certain of the Individual
Defendants, including defendant Kevin Macgillivray, are citizens of California.
This action is not removable.
6. Venue is proper in this Court because the conduct at issue took place
and had an effect in this County.
-1-
--------------------------------------------------------------------------------
COMPLAINT FOR BREACH OF FIDUCIARY DUTIES
<PAGE>
PARTIES
7. Plaintiff Gerald W. Burr is a resident and citizen of Bothell,
Washington and at all times relevant hereto, was a shareholder of Splash.
8. Defendant Splash is a corporation with its principal place of business
located in Sunnyvale, California. Splash operates in this County and develops,
produces, and markets color servers. The Company's products provide an
integrated link between desktop computers and digital color laser copiers and
enable such copiers to provide networked color printing and scanning. Splash
sells its products to Xerox Corporation and Fuji Xerox Company Ltd.
9. Defendant Kevin K. Macgillivray ("Macgillivray") is the Chairman, CEO
and President of Splash.
10. Defendant Mark Hill ("Hill") is a director of Splash.
11. Defendant Peter Y. Chung ("Chung") is a director of Splash.
12. Defendant Charles W. Berger ("Berger") is a director of Splash.
13. Defendant Jan L. Gullett ("Gullett") is a director of Splash.
14. Defendant Greg M. Avis ("Avis") is a director of Splash.
15. Defendant Harold Covert ("Covert") is a director of Splash.
16. The defendants named above, Macgillivray, Hill, Chung, Berger, Gullett,
Avis and Covert are sometimes collectively referred to herein as the "Individual
Defendants."
17. The true names and capacities of defendants sued herein under
California Code of Civil Procedure (S)474 as Does 1 through 25, inclusive, are
presently not known to plaintiff, who therefore sues these defendants by such
fictitious names. Plaintiff will seek to amend this Complaint and include these
Doe defendants' true names and capacities when they are ascertained. Each of the
fictitiously named defendants is responsible in some manner for the conduct
alleged herein and for the injuries suffered by the Class.
Defendants' Fiduciary Duties
18. In any situation where the directors of a publicly traded corporation
undertake a transaction that will result in either (i) a change in corporate
control, or (ii) a break-up of the corporation's assets, the directors have an
affirmative fiduciary obligation to obtain the highest value
-2-
--------------------------------------------------------------------------------
COMPLAINT FOR BREACH OF FIDUCIARY DUTIES
<PAGE>
reasonably available for the corporation's shareholders, and if such
transaction will result in a change of corporate control, the shareholders are
entitled to receive a significant premium. To diligently comply with these
duties, the directors may not take any action that:
(a) adversely affects the value provided to the corporation's
shareholders,
(b) will discourage or inhibit alternative offers to purchase control
of the corporation or its assets;
(c) contractually prohibits them from complying with their fiduciary
duties,
(d) will otherwise adversely affect their duty to search and secure
the best value reasonably available under the circumstances for the
corporation's shareholders; and/or
(e) will provide them with preferential treatment at the expense of,
or separate from, the public shareholders
19. In accordance with their duties of loyalty and good faith, the
defendants as directors and/or officers of Splash are obligated to retrain from
(a) participating in any transaction where the directors' or
officers' loyalties are divided,
(b) participating in any transaction where the directors or officers
receive or are entitled to receive a personal financial benefit not equally
shared by the public shareholders of the corporation; and/or
(c) unjustly enriching themselves at the expense or to the detriment
of the public shareholders.
20. Plaintiff alleges herein that the Individual Defendants, separately
and together, in connection with the Acquisition, violated the fiduciary duties
owed to plaintiff and the other public shareholders of Splash, including their
duties of loyalty, good faith and independence, insofar as they stood on both
sides of the transaction and engaged in self-dealing and obtained for themselves
personal benefits, including personal financial benefits, not shared equally by
plaintiff or the Class
21. Because the Individual Defendants have breached their duties of
loyalty, good faith and independence in connection with the Acquisition, the
burden of proving the inherent or entire
-3-
--------------------------------------------------------------------------------
COMPLAINT FOR BREACH OF FIDUCIARY DUTIES
<PAGE>
fairness of the Acquisition, including all aspects of its negotiation,
structure, price and terms, is placed upon the Individual Defendants as a matter
of law.
CLASS ACTION ALLEGATIONS
22. Plaintiff brings this action pursuant to California Code of Civil
Procedure (SS)382 on his own behalf and as a class action on behalf of all
holders of Splash stock who are being and will be harmed by defendants' actions
described below (the "Class"). Excluded from the Class are defendants herein and
any person, firm, trust, corporation or other entity related to or affiliated
with any defendants.
23. This action is properly maintainable as a class action.
24. The Class is so numerous that joinder of all members is impracticable.
According to Splash's SEC filings, there were more than 14.32 million shares of
Splash common stock outstanding as of July 31, 2000.
25. There are questions of law and fact which are common to the Class and
which predominate over questions affecting any individual Class member. The
common questions include, inter alia, the following
(a) whether defendants have breached their fiduciary duties of
undivided loyalty, independence or due care with respect to plaintiff and the
other members of the Class in connection with the Acquisition;
(b) whether the Individual Defendants are engaging in self-dealing
in connection with the Acquisition;
(c) whether the Individual Defendants have breached their fiduciary
duty to secure and obtain the best price reasonable under the circumstances for
the benefit of plaintiff and the other members of the Class in connection with
the Acquisition;
(d) whether the Individual Defendants are unjustly enriching
themselves and other insiders or affiliates of Splash;
(e) whether defendants have breached any of their other fiduciary
duties to plaintiff and the other members of the Class in connection with the
Acquisition, including the duties of good faith, diligence, honesty and fair
dealing;
-4-
--------------------------------------------------------------------------------
COMPLAINT FOR BREACH OF FIDUCIARY DUTIES
<PAGE>
(f) whether the defendants, in bad faith and for improper motives,
have impeded or erected barriers to discourage other offers for the Company or
its assets;
(g) whether the Acquisition compensation payable to plaintiff and the
Class is unfair and inadequate, and
(h) whether plaintiff and the other members of the Class would be
irreparably damaged were the transactions complained of herein consummated.
26. Plaintiff's claims are typical of the claims of the other members of
the Class and plaintiff does not have any interests adverse to the Class.
27. Plaintiff is an adequate representative of the Class, has retained
competent counsel experienced in litigation of this nature and will fairly and
adequately protect the interests of the Class.
28. The prosecution of separate actions by individual members of the Class
would create a risk of inconsistent or varying adjudications with respect to
individual members of the Class which would establish incompatible standards of
conduct for the party opposing the Class.
29. Plaintiff anticipates that there will be no difficulty in the
management of this litigation. A class action is superior to other available
methods for the fair and efficient adjudication of this controversy.
30. Defendants have acted on grounds generally applicable to the Class
with respect to the matters complained of herein, thereby making appropriate the
relief sought herein with respect to the Class as a whole.
BACKGROUND TO THE PROPOSED ACQUISITION
31. On July 20, 2000, Splash reported second quarter results. The press
release issued in connection with the second quarter report stated:
Splash Technology Holdings, Inc., a leading international supplier
of color servers that transform printing engines into powerful
networked printers, today reported operating results for the second
quarter ended June 30, 2000.
Net revenue increased by 32% in the 2000 second quarter to
$22.4 million from $16.9 million in the 1999 second quarter. Net
income for the second quarter 2000 was $2.0 million, or $0.14 per
share, as compared to $2.1 million, or $0.15 per share, for the
similar period last year.
* * *
-5-
--------------------------------------------------------------------------------
COMPLAINT FOR BREACH OF FIDUCIARY DUTIES
<PAGE>
"We're pleased with our second quarter and first half results," stated
Kevin Macgillivray, Splash chief executive officer. "We need to continue
that momentum and bring additional new products to market to have a
successful second half 2000."
During the quarter, the Company announced the Splash G620 color
server, the latest in Splash's benchmark product line for the graphic arts
market. This new server, featuring many exclusive first-to-market
innovations, currently drives the Xerox DocuColor 12 copier/printer. As
part of a special offer, all Splash G610 customers receive the Splash G620
software features free of charge in the form of a software upgrade kit.
* * *
"We have brought the G620 and T200 to market the first half of the
year as planned, and initial results are positive," continued Mr.
Macgillivray. "We have not yet begun shipping ColorPort and, in addition to
continued sales success with our already shipping lines, it's important we
get this new high-end product to market to help drive our second half 2000
success. Longer term, we have more development underway to broaden our
product offerings and business partnerships as part of our overall
corporate growth strategy."
32. On August 31, 2000, Electronics for Imaging announced it would acquire
Splash. The press release issued in connection with the announcement stated:
Electronics for Imaging, Inc. -- the world leader in enabling networked
printing solutions, and Splash Technology Holdings, Inc. (Nasdaq. SPLH)
today announced that they had entered into a merger agreement. The
transaction positions EFI as a technology powerhouse to capitalize on
substantial growth opportunities in emerging color imaging markets.
EFI will pay Splash stockholders $10.00 per share in cash, effectively
valuing the transaction at $146 million. The acquisition will be structured
as a tender offer to be commenced within ten business days for any and all
outstanding shares of Splash's common stock followed by a merger cashing
out any untendered shares at the same $10.00 per share price. Consummation
of the tender offer is subject to receipt of required regulatory
approvals, the valid tender of at least 50% of the Splash common stock and
other conditions.
"This deal provides substantial technological and financial benefits
to EFI," said Guy Gecht, Chief Executive Officer of EFI. "Splash has
developed several high-quality technologies to advance digital color
printing. Combining Splash's and EFI's high-caliber teams will allow our
company to more quickly address new market opportunities and to better
serve the needs of our partners on a wider range of projects."
SELF-DEALING
33. The self-dealing, conflicts of interest and conduct harmful to the
interests of the shareholders results from at least the following.
(a) The $10.00 price offered to the public shareholders is
inadequate.
-6-
--------------------------------------------------------------------------------
COMPLAINT FOR BREACH OF FIDUCIARY DUTIES
<PAGE>
(b) The realizable value from growth and the Company's investment
into, among other things, the ColorPort line is far in excess of $10.00 per
share. The $10.00 per share price does not reflect this fact nor the fact that
the offer is a substantial discount to where the shares traded just 3 months
earlier.
34. The Acquisition is designed to essentially freeze Splash's public
stockholders out of a large portion of the valuable assets, including its
ColorPort line, which defendants expect will produce substantial revenue and
earnings, and these assets are being sold for grossly inadequate consideration
to Electronics for Imaging.
35. If the Acquisition is consummated, plaintiff and the other members of
the Class will no longer own shares in a "growth" company, but rather will be
cashed out of their Splash shares for just $10.00 per share.
36. The shareholders have been denied the fair process and arm's-length
negotiated terms to which they are entitled in a sale of their Company. The
officers and directors are obligated to maximize shareholder value, not
structure a preferential deal for themselves.
37. The director defendants are obligated to maximize the value of Splash
to its shareholders. The Class members are being deprived of their right to a
fair and unbiased process to sell the Company, and the opportunity to obtain
maximum value and terms for their interests, without preferential treatment to
the insiders.
38. By reason of their positions with Splash, the Individual Defendants
are in possession of non-public information concerning the financial condition
and prospects of Splash, and especially the true value and expected increased
future value of Splash and its assets, including its ColorPort line, the
development of which has caused Splash's EPS to be artificially depressed, which
they have not disclosed to Splash's public stockholders, including, but not
limited to, Splash's expected third quarter 2000 results.
39. The Acquisition is an attempt to deny plaintiff and the other member
of the Class their right to share proportionately in the true value of Splash's
valuable assets, and future growth in profits and earnings.
-7-
--------------------------------------------------------------------------------
COMPLAINT FOR BREACH OF FIDUCIARY DUTIES
<PAGE>
40. As a result of defendants' unlawful actions, plaintiff and the other
members of the Class will be damaged in that they will not receive their fair
portion of the value of Splash's assets and business and will be prevented from
obtaining the real value of their equity ownership of the Company.
41. In light of the foregoing, the Individual Defendants must, as their
fiduciary obligations require:
. Undertake an appropriate evaluation of Splash's worth as an
acquisition candidate,
. Act independently so that the interests of Splash's public
stockholders will be protected, including, but not limited to, the
retention of truly independent advisors and/or the appointment of a truly
independent Special Committee;
. Adequately ensure that no conflicts of interest exist between
defendants' own interests and their fiduciary obligation to maximize
stockholder value or, if such conflicts exist, to ensure that all conflicts
be resolved in the best interests of Splash's public stockholders, and
. If an acquisition transaction is to go forward, require that it be
approved by a majority of Splash's minority stockholders and require that
Splash's expected third quarter 2000 results be revealed to the
shareholders.
42. The Individual Defendants have also approved the Acquisition so that
it transfers 100% of Splash's revenues and profits to Electronics for Imaging
and certain of the defendants. By contrast, plaintiff and the Class will be
frozen out of all these revenues, earnings and profits.
CAUSE OF ACTION
Claim for Breach of Fiduciary Duties
43. Plaintiff repeats and realleges each allegation set forth herein.
44. The defendants have violated fiduciary duties of care, loyalty, candor
and independence owed to the public shareholders of Splash and have acted to put
their personal interests ahead of the interests of Splash shareholders.
45. By the acts, transactions and courses of conduct alleged herein,
defendants, individually and acting as a part of a common plan, are attempting
to unfairly deprive plaintiff and other members of the Class of the true value
of their investment in Splash.
46. The Individual Defendants have violated their fiduciary duties by
entering into a transaction with Electronics for Imaging without regard to the
fairness of the transaction to Splash
-8-
--------------------------------------------------------------------------------
COMPLAINT FOR BREACH OF FIDUCIARY DUTIES
<PAGE>
shareholders. Defendant Splash directly breached and/or aided and abetted the
other defendants' breaches of fiduciary duties owed to plaintiff and the other
holders of Splash stock.
47. As demonstrated by the allegations above, the defendant directors
failed to exercise the care required, and breached their duties of loyalty, good
faith, candor and independence owed to the shareholders of Splash because, among
other reasons:
(a) they failed to take steps to maximize the value of Splash to its
public shareholders and they took steps to avoid competitive bidding, to cap the
price of Splash's stock and to give the Individual Defendants an unfair
advantage, by, among other things, failing to solicit other potential acquirers
or alternative transactions;
(b) they failed to properly value Splash, and
(c) they ignored or did not protect against the numerous conflicts of
interest resulting from the directors' own interrelationships, or connections
with the Acquisition.
48. Because the Individual Defendants dominate and control the business
and corporate affairs of Splash, and are in possession of private corporate
information concerning Splash's assets, including its ColorPort line, businesses
and future prospects, there exists an imbalance and disparity of knowledge and
economic power between them and the public shareholders of Splash which makes it
inherently unfair for them to pursue any proposed transaction wherein they will
reap disproportionate benefits to the exclusion of maximizing stockholder
value.
49. By reason of the foregoing acts, practices and course of conduct, the
defendants have failed to exercise ordinary care and diligence in the exercise
of their fiduciary obligations toward plaintiff and the other members of the
Class.
50. As a result of the actions of defendants, plaintiff and the Class have
been and will be irreparably damaged in that they have not and will not receive
their fair portion of the value of Splash's assets and business.
51. Unless enjoined by this Court, the defendants will continue to breach
their fiduciary duties owed to plaintiff and the Class, and may consummate the
proposed Acquisition which will exclude the Class from its fair share of
Splash's valuable assets and business, and/or benefit defendants in the unfair
manner complained of herein, all to the irreparable harm of the Class, as
aforesaid.
-9-
--------------------------------------------------------------------------------
COMPLAINT FOR BREACH OF FIDUCIARY DUTIES
<PAGE>
52. Defendants are engaging in self-dealing, are not acting in good faith
toward plaintiff and the other members of the Class, and have breached and are
breaching their fiduciary duties to the members of the Class.
53. Unless the proposed Acquisition is enjoined by the Court, defendants
will continue to breach their fiduciary duties owed to plaintiff and the members
of the Class, will not engage in arm's-length negotiations on the Acquisition
terms, and will not supply to Splash's minority stockholders sufficient
information to enable them to cast informed votes on the proposed Acquisition
and may consummate the proposed Acquisition, all to the irreparable harm of the
members of the Class.
54. Plaintiff and the members of the Class have no adequate remedy at law.
Only through the exercise of this Court's equitable powers can plaintiff and the
Class be fully protected from the immediate and irreparable injury which
defendants' actions threaten to inflict.
PRAYER FOR RELIEF
WHEREFORE, plaintiff demands preliminary and permanent relief, including
injunctive relief, in his favor and in favor of the Class and against defendants
as follows:
A. Declaring that this action is properly maintainable as a class action;
B. Declaring and decreeing that the Acquisition agreement was entered
into in breach of the fiduciary duties of the defendants and is therefore
unlawful and unenforceable;
C. Enjoining defendants, their agents, counsel, employees and all persons
acting in concert with them from consummating the Acquisition, unless and until
the Company adopts and implements a procedure or process that is free from
conflicts of interest;
D. Directing the Individual Defendants to exercise their fiduciary duties
to obtain a transaction which is in the best interests of Splash's shareholders
until the process for the sale or auction of the Company is completed;
E. Rescinding, to the extent already implemented, the Acquisition or any
of the terms thereof;
F. Awarding plaintiff the costs and disbursements of this action,
including reasonable attorneys' and experts' fees; and
-10-
--------------------------------------------------------------------------------
COMPLAINT FOR BREACH OF FIDUCIARY DUTIES
<PAGE>
G. Granting such other and further relief, including equitable relief, as
this Court may deem just and proper.
JURY DEMAND
Plaintiff demands a trial by jury.
DATED August 31, 2000 MILBERG WEISS BERSHAD
HYNES & LERACH LLP
WILLIAM S. LERACH
DARREN J. ROBBINS
/s/ DARREN J. ROBBINS
-----------------------------------
DARREN J. ROBBINS
600 West Broadway, Suite 1800
San Diego, CA 92101
Telephone. 619/231-1058
Attorneys for Plaintiff
-11-
-------------------------------------------------------------------------------
COMPLAINT FOR BREACH OF FIDUCIARY DUTIES
