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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 1999 Commission File Number: 0-18805
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
ELECTRONICS FOR IMAGING, INC.
(Exact name of registrant as specified in its charter)
Delaware 94-3086355
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
303 Velocity Way, Foster City, CA 94404
(Address of principal executive offices) (Zip Code)
(650) 357-3500
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
None.
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 Par Value
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes X No
--- ---
The aggregate market value of the voting stock held by non-affiliates of
the registrant as of March 11, 2000.
Common Stock, $.01 par value: $1,370,167,760 **
The number of shares outstanding of each of the registrant's classes of
common stock as of March 11, 2000.
Common Stock, $.01 par value: 53,696,238
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement to be delivered to stockholders in
connection with the Annual Meeting of Stockholders to be held on May 11, 2000
are incorporated by reference into Part III hereof.
** Based upon the last trade price of the Common Stock reported on the NASDAQ
National Market on March 11, 2000. Excludes approximately 16,974,824 shares of
common stock held by Directors, Officer and holders of 5% or more of the
Registrant's outstanding Common Stock on December 31, 1999. Exclusion of shares
held by any person should not be construed to indicate that such person
possesses the power, direct or indirect, to direct or cause the direction of the
management or policies of the Registrant, or that such person is controlled by
or under common control with the Registrant.
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PART I
This Annual Report on Form 10-K includes certain registered trademarks and
trademarks of Electronics for Imaging, Inc. ("EFI or the Company") and others.
EFI, the EFI logo, Fiery, the Fiery logo, Fiery Driven, the Fiery Driven logo,
ColorWise, RIP-While-Print, PowerPage, the PowerPage logo, PowerBand,
PowerSmooth, PSClone, PSView, EDOX and Solitaire are registered trademarks of
Electronics for Imaging, Inc. with the U.S. Patent and Trademark Office, and
certain other foreign jurisdictions. Fiery Prints, Fiery ZX, Fiery LX, Fiery SI,
Fiery XJ, Fiery XJe, Fiery XJ-W, BookletMaker, Fiery Downloader, Fiery Scan,
Fiery Spooler, Fiery FreeForm, Fiery Link, Fiery Driver, PowerWise Architecture,
RIPChips, WebTools, WebSpooler, WebInstaller, WebStatus, Command Workstation,
Continuous Print, DocBuilder, EFICOLOR, EFICOLOR Works, FreeForm, Memory
Multiplier, NetWise, STARR Compression, Mousitometer, Spot-One, Check Mate, EDOX
Profile Manager, RIP Ahead, Instant Reprint, Document Recovery, Sapphire, Opal
and eBeam are trademarks of Electronics for Imaging, Inc. All other terms and
product names may be registered trademarks or trademarks of their respective
owners, and are hereby acknowledged.
Certain of the information contained in this Annual Report on Form 10-K,
including without limitation, statements made under this Part I, Item 1
"Business" and Part II, Item 7, "Management's Discussion and Analysis of
Financial Condition and Results of Operations and Item 7A, "Quantitative and
Qualitative Disclosures about Market Risk" which are not historical facts, may
include "forward-looking statements" within the meaning of Section 21E of the
Securities Exchange Act of 1934, as amended. When used herein, the words
"anticipate," "believe," "estimate," "expect," "intend," "will" and similar
expressions, as they relate to the Company or its management, are intended to
identify such statements as "forward-looking statements." Such statements
reflect the current views of the Company and its management with respect to
future events and are subject to certain risks, uncertainties and assumptions.
Should one or more of these risks or uncertainties materialize, or should
underlying assumptions prove incorrect, the Company's actual results,
performance or achievements could differ materially from the results expressed
in, or implied by, these forward-looking statements. Important factors that
could cause the Company's actual results to differ materially from those
included in the forward-looking statements made herein include, without
limitation, those factors discussed in Item 1 "Business -Competition," in "Item
7 Management's Discussion and Analysis of Financial Condition and Results of
Operations -Factors That Could Adversely Affect Performance" and elsewhere in
this Annual Report on Form 10-K and in the Company's other filings with the
Securities and Exchange Commission, including the Company's most recent
Quarterly Report on Form 10-Q. The Company assumes no obligation to update these
forward-looking statements to reflect actual results or changes in factors or
assumptions affecting such forward-looking statements.
Item 1: Business.
General
Electronics for Imaging, Inc., a Delaware corporation (the "Company" or "EFI")
was founded in 1989 by Efraim Arazi. EFI designs and markets products that
support color and black-and-white printing on a variety of peripheral devices.
Its Fiery(R) products incorporate hardware and software technologies that
transform digital copiers and printers from many leading copier manufacturers
into fast, high-quality networked printers. The Company's Fiery products include
stand-alone servers, which are connected to digital copiers and other peripheral
devices, and Fiery controllers, which are embedded in digital copiers and
desktop color laser printers. The Company sells its products primarily to
original equipment manufacturers in North America, Europe and Japan.
The Company was founded to develop innovative solutions to enable color desktop
publishing. In pursuit of this goal, the Company first developed the Fiery(R)
line of color servers ("Fiery Color Servers") to enable in-house,
short-production run color printing, together with application and system
software to facilitate color correction and device-independent color. Fiery
Color Servers are sophisticated, stand-alone computers that enable digital
copier machines to accept, process, and print digital images from personal
computers and computer networks. Historically, the Company primarily focused its
efforts on its stand-alone Fiery Color Servers that support printing on digital
color copiers and, until 1998, substantially all of its revenue resulted from
the development and sale of these stand-alone products. During 1998, the Company
expanded its focus to include several additional embedded solutions that support
printing on a broader range of devices, including digital black-and-white
copiers and desktop color laser and inkjet printers ("Fiery Controllers" and,
together with Fiery Color Servers, "Fiery Products"). In 1998, the Company also
developed stand-alone Fiery Color Servers for wide-format color inkjet printers
and restructured its sales model by entering into direct relationships with the
manufacturers of such wide-format printers rather than selling to sales
distributors.
In 1999, the Company continued to develop Fiery Products and new software
applications for existing and new generations of a variety of peripheral
devices. In 1999, the Company also expanded its line of digital color servers
through its acquisition of Management Graphics, Inc. ("MGI") and its EDOX(R)
line of digital color servers ("EDOX Color Servers"). In an effort to expand its
product lines and markets, the Company recently announced EFI Professional
Services in an effort to provide technical support, training and strategic
consulting to end users. See "-Growth and Expansion Strategies - Develop and
Expand Professional Services." Additionally, in 1999, the Company introduced its
first Internet appliance product, eBeamTM. See "-Growth and Expansion Strategies
- - Proliferate and Expand Product Lines."
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The Electronics for Imaging Solution
The Company develops products with a wide range of price and performance levels
designed to make high-quality color printing in short-run productions easier and
more accessible to the broader market. The Company believes that consumers
generally prefer color as evidenced by the migration of photographs, motion
pictures and television from black-and-white to color. In the personal computer
field, EFI believes this preference is shown by the almost exclusive use of
color monitors with color oriented graphical user interfaces, application
software and Internet content. In each of these cases, once the enabling
technology developed sufficiently, consumer adoption of color quickly followed.
The Company believes that consumers prefer color in documents created through
desktop publishing. Until recently, however, the technology was not available to
do this in a high quality, quick and cost-effective manner due to the complexity
of accurate color reproduction. EFI's Fiery Color Servers permit users of
digital color copiers to transmit and convert digital data from a computer to a
color copier so that the color copier can print color documents easily, quickly
and cost-effectively. As a result, Fiery Color Servers transform digital color
copiers into fast, high-quality networked color printers.
The Company also believes that the black-and-white copier market is migrating
toward the development and use of digital black-and-white copiers. Thus, in
addition to Fiery Color Servers and EDOX Color Servers for digital color
copiers, the Company has leveraged its technology to develop and manufacture
other products that support both color and black-and-white printing. These
products include: (i) Fiery servers for digital black-and-white copiers; (ii)
Fiery Color Servers for wide-format inkjet printers; and (iii) embedded Fiery
Controllers for digital black-and-white copiers and desktop color laser
printers. See "-Products and Technology."
Growth and Expansion Strategies
The Company's overall objective is to continue its pattern of growth in sales
and profitability by introducing new generations of Fiery Products, new software
applications, and other new product lines. With respect to its current products,
the Company's primary goal is to provide a range of processing and printing
solutions that address broad sections of the color printing market and to
continue to leverage its technology to enable digital black-and-white printing
on additional peripheral devices including digital black-and-white copiers and
multi-function devices. The Company's strategy to accomplish these goals
consists of five key elements.
Proliferate and Expand Product Lines
The Company intends to continue to develop new Fiery Products that are scalable
and offer a broad range of features and performance when connected to or
integrated with digital color and black-and-white copiers, as well as desktop
color laser printers. Historically, the Company sold products that supported
digital color copiers. In 1996 the Company expanded its line of color servers to
drive a wide range of output devices including desktop color laser printers and
wide-format color inkjet printers with poster-size output. In 1997, the Company
further expanded the use of its technology, shipping its first products that
support black-and-white printing systems and copiers. In 1998, the Company
introduced its next generation of products based upon EFI's Fiery ZX and Fiery
X2 platforms. In 1999, the Company again introduced its next generation of
products based upon EFI's new Fiery Z4 and Fiery X4 platforms. These new
platforms include more advanced hardware and EFI's latest technology
innovations, including ColorWise(R) 2.0, NetWiseTM 2.0, DocBuilderPro and
PowerWise Architecture which provide for advances in color performance,
networking capabilities and workflow productivity. By utilizing the advantages
of these new platforms, the Company intends to continue to develop new Fiery
Products. The Company also intends to continue to develop new software
applications that advance the performance and usability of its Fiery servers and
embedded controllers. The Company is currently developing a new line of software
designed to maximize workflow efficiencies which includes VelocityBalanceTM,
VelocitySplitTM and VelocityDesignTM. These new software applications are the
first of many Velocity software offerings from the Company.
On August 31, 1999, the Company acquired MGI in a stock-for-stock merger, valued
at approximately $30.1 million. MGI was a Minneapolis, Minnesota-based
corporation that developed and manufactured digital print on demand products and
other digital imaging products, including EDOX(R) Document Servers and
Solitaire(R), SapphireTM and OpalTM film recorders. The acquisition of MGI adds
to EFI's engineering talent and complements the Company's product strategy of
bringing high-performance, cost-effective digital printing technology to a wide
range of markets. EFI's Minnesota office will retain responsibility for MGI's
current product lines.
The Company also plans to expand its product line to include Internet appliance
products. In November, 1999, the Company introduced the first in a new family of
Internet appliance products, eBeamTM. eBeamTM converts any whiteboard into a
digital workspace, allowing users to capture meeting-notes and diagrams in real
time on their personal computers. Words and images can be viewed, edited and
shared across the world using a web browser. eBeamTM will be competing in a new
market for EFI: the market for office supplies and meeting-related services.
Currently, eBeamTM is being sold through resellers and distributers, as well as
directly to consumers via the Web and a toll-free number.
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Develop and Expand Professional Services
The Company recently announced EFI Professional Services. While contract-based
technical support has been available from EFI, an expanded-services group has
been formed and is offering end users greater options for technical support,
training with both standardized and customized curriculums, and strategic
consulting. EFI strategic consultants are offering large organizations expertise
in network print architecture and support, printer management, data
visualization, and document management. EFI believes that offering professional
services will help to lower the total cost of networked corporate printing, lead
to greater productivity, and improve the overall quality and visual appeal of
documents. EFI believes that offering professional services will also help
accelerate the migration of color printing in the corporate marketplace.
Develop and Expand Relationships with Key Industry Participants
The Company has established relationships with such companies as Canon, Danka
Business Systems, ENCAD, Epson, Fuji-Xerox, Hewlett-Packard, Hitachi, Ikon
Office Solutions, Konica, Minolta, Oce, Ricoh, Sharp, Toshiba, and Xerox
(collectively, the "Strategic Partners"). EFI seeks to expand its relationships
with its Strategic Partners in pursuit of the goal of offering Fiery and EDOX
products for additional digital color and black-and-white devices produced by
its Strategic Partners. The Company is also seeking to establish relationships
with other digital copier and printer companies for the distribution of Fiery
and EDOX products with their copiers and printers.
Establish Enterprise Coherence
In its development of new products and platforms, EFI seeks to establish
coherence across its entire product line by designing products that provide a
consistent "look and feel" to the end-user. EFI believes enterprise coherence
should create higher productivity levels as a result of shortened learning
curves. Additionally, enterprise coherence should lower the total cost of
ownership by providing one source for sales, support and training. The Company
believes that this effort to achieve enterprise coherence will continue to
engender goodwill among its Strategic Partners and the end-users of its products
and assist in the development of new strategic relationships and markets for the
Company.
Leverage Color Expertise to Expand the Scope of Products and Markets
The Company has assembled an experienced team of technical personnel with
backgrounds in color reproduction, electronic pre-press, image processing and
software and hardware engineering. By applying its expertise in color imaging,
the Company expects to continue to expand the scope and sophistication of its
products and gain access to new markets.
Products and Technology
The Company is a leader in enabling networked printing solutions. EFI technology
allows copiers, printers and digital presses to be shared across work groups,
the enterprise and the Internet. The Company develops products with a wide range
of price and performance levels designed to make high-quality, short-run color
and black and white digital printing easier and more accessible to the broader
market. The Company has a model for almost every major digital printing
technology today, including:
|X| desktop color laser printers,
|X| high-end desktop ink jet printers,
|X| wide-format printers,
|X| mid-range color copiers,
|X| mid-range digital black and white copiers,
|X| production color copiers and
|X| high-speed digital presses.
Thus, the Company's products are attractive to a variety of end users including,
a multimedia author, advertising agency, print-for-pay business, graphic
designer, pre-press provider or small to large business. The Company currently
has two main product lines that support color and black-and-white printing: (i)
stand-alone servers which are connected to digital copiers and other peripheral
devices and (ii) controllers which are embedded in digital copiers and desktop
laser printers. All of EFI's products incorporate EFI's proprietary software and
hardware features.
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EFI Technology
From its inception, EFI has invested heavily in research and development. EFI
has focused on developing technologies that could be implemented in a variety of
products. Examples of such technologies include Fiery DocBuilderTM, which
enables electronic collation, reverse order printing, job merging and editing,
and Fiery WebToolsTM which enables print job management from different computer
platforms via a JavaTM-enabled Web Browser. Fiery WebToolsTM also provides
remote access to the print queue so an administrator can obtain instant updates
on job status and error messages, allowing for a timely response to problems,
and provides job accounting and job security capabilities which are essential in
network printing environments. Other examples of EFI technologies include,
RIP-While-Print(R) which allows one page to be printed while subsequent pages
are simultaneously processed, and Continuous PrintTM which allows processed
pages to be stored in memory before printing, eliminating the need for the
copier or printer to cycle down between unique pages. In addition to such
software innovations, EFI custom designs its hardware to increase productivity.
For example, EFI's custom designed RipChipsTM, application specific integrated
circuit ("ASIC") chips, decrease overall print times by off-loading data
movement from the microprocessor. The Company continues to refine these printing
technologies.
In 1999, the Company continued its efforts to improve its products' performance,
features and ease of use. The Company developed and announced the new
PowerWiseTM architecture which combines the benefits of Fiery hardware, an
advanced Intel processor and a high-speed PCI bus to provide the throughput
required for maximum printing productivity. Software features developed by the
Company during 1999 include: (i) ColorWise(R)2.0, EFI's next-generation color
management system which simplifies color printing for beginners through features
like automatic Pantone-matching and the ability to process multiple files on the
same page while providing expert users with even greater color control and
accuracy; (ii) NetWiseTM 2.0, EFI's second generation networking architecture
which simplifies network installation, configuration and maintenance; (iii) the
next generation DocBuilder ProTM which provides users with all of the classic
DocBuilder ProTM capabilities but now at the pre-RIP stage; (iv) Fiery DriverTM
which is a unified printing interface that simplifies the printing process; (v)
Fiery LinkTM which provides users with information on print job status and
connected Fierys allowing users to monitor the status of any print job, its
position in the queue, as well as general information on the Fiery and paper and
toner levels from any workstation; and (vi) ECT compression, an improved and
more advanced compression scheme than EFI's previous STARRTM compression
technologies, which offers definite compression ratios and virtually lossless
image quality. Compression software decreases the amount of memory necessary to
store documents during processing and enables faster printing of documents.
Stand-Alone Servers
Fiery Color Servers and EDOX Color Servers permit users of digital color copiers
to transmit and convert digital data from a computer to a color copier so that
the color copier can print color documents easily, quickly and cost-effectively.
As a result, Fiery Color Servers and EDOX Color Servers transform digital color
copiers into fast, high-quality networked color printers. In addition to Fiery
Color Servers and EDOX Color Servers for digital color copiers, the Company has
leveraged its technology to develop and manufacture other products that support
both color and black-and-white printing. These products include Fiery servers
for digital black-and-white copiers and Fiery Color Servers for wide-format
inkjet printers. EDOX Color Servers also support wide-format inkjet printers.
Since the introduction of the first Fiery Color Server in 1991, the Company has
expanded its product line. In 1995, the Company introduced its third-generation
platform, the Fiery XJ. During 1996, the Company shifted the majority of its
product line to the XJ platform and later refined these products by
transitioning to a variation of the XJ platform known as the Fiery XJ+. During
1998, the Company introduced two new platforms, the Fiery ZX and the Fiery X2,
which included software features developed or further refined by the Company
during 1998, and began migrating its product line to these platforms. In 1999,
the Company again focused its development efforts on improvements to its
products' performance, features and ease of use and again introduced two new
server platforms, the Fiery Z4 and the Fiery X4. The Fiery Z4 and X4 product
lines incorporate several new technologies or enhancements from EFI including,
ColorWise(R)2.0, NetWiseTM 2.0, the PowerWiseTM architecture and the next
generation DocBuilder ProTM. The Fiery Z4 is approximately twice as fast as its
predecessor the Fiery ZX, is optimized for high-speed processing and
photographic-quality color and is designed for demanding graphic arts,
print-for-pay and advertising agency environments. The Fiery X4 is approximately
three times as fast as its predecessor the Fiery X2 and is designed for users in
a corporate environment. In 1999, the Company shipped stand-alone Fiery Color
Servers and EDOX Color Servers for use with color copiers, color inkjet printers
and wide-format color printers to be distributed by companies such as Canon,
Epson, Fuji-Xerox, Ikon Office Solutions, Minolta, Oce, Ricoh, Toshiba and
Xerox. In 1999, the Company also shipped Fiery servers for use with digital
black-and-white copiers to be distributed by Canon, ENCAD, Konica, Minolta, Oce
and Sharp.
Controllers
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Unlike Fiery and EDOX servers which are sold as stand-alone products to be
connected to copiers, Fiery Controllers are embedded inside copiers and desktop
printers. Fiery Controllers allow users to print documents directly from their
computers to the digital copier. Embedded Fiery Controllers support both color
and black-and-white printing for digital black-and-white copiers and desktop
color laser printers. The Company seeks to have printing solutions that include
an embedded Fiery Controller marketed with the "Fiery Driven(R)" logo. The
Company believes that the Fiery name and trademark, including the trademark
"Fiery Driven(R)," are associated with substantial goodwill and recognition in
the marketplace. In 1999, the Company shipped Fiery Controllers embedded in
color and digital black-and-white copiers and desktop color printers to be
distributed by companies such as Canon, Fuji-Xerox, Hewlett Packard, Konica,
Minolta, Ricoh and Xerox.
Significant Relationships
The Company has established, and continues to try to build and expand
relationships with its Strategic Partners and other leading copier and printer
companies (collectively, the "OEMs"), in order to benefit from the OEMs'
products, distribution channels and marketing resources. These OEMs include
domestic and international manufacturers, distributors and sellers of digital
copiers (both black-and-white and color), wide-format printers and desktop color
printers. The Company works closely with the OEMs with the aim of developing
solutions that incorporate leading technology and which are optimally suited to
work in conjunction with such companies' products. OEMs that the Company sold
products to in 1999 include, among others, Canon, ENCAD, Epson, Fuji-Xerox,
Hewlett-Packard, Ikon Office Solutions, Konica, Minolta, Oce, Ricoh, Sharp,
Toshiba and Xerox. Together, sales to Canon, Ricoh and Xerox accounted for
approximately 68% of the Company's 1999 revenue, with sales to each of these
customers accounting for more than 10% of the Company's revenue.
In 1999, the Company announced a strategic relationship with Hewlett-Packard
pursuant to which the Company developed the new Fiery X2-CP color server for
Hewlett Packard's newest graphics large-format printers. Hewlett-Packard also
distributes Fiery Controllers designed for use with their wide-format color
inkjet. Also in 1999, the Company announced a strategic relationship with
Toshiba, pursuant to which Toshiba has the right to sell the Company's Fiery Z4
server and Fiery Controller in support of Toshiba's full-color digital
copier/printer.
The Company customarily enters into development and distribution agreements with
its OEM customers. These agreements can be terminated under a range of
circumstances, and often upon relatively short notice. The circumstances under
which an agreement can be terminated vary from agreement to agreement and there
can be no assurance that the Company's OEM customers will continue to purchase
products from the Company in the future, despite such agreements. The Company
recognizes the importance of, and works hard to maintain, its good relationships
with its customers. However, the Company's relationships with its customers can
be affected by a number of factors including, among others: competition from
other suppliers, competition from internal development efforts by the customers
themselves (including the OEMs), and changes in general economic, competitive or
market conditions (such as changes in demand for the Company's or the OEM's
products, or fluctuations in currency exchange rates). There can be no assurance
that the Company will continue to maintain or build the relationships it has
developed to date.
In addition to its development and sales relationships with the OEMs, to
increase the distribution and presence of Fiery Color Servers connected to both
color and black-and-white copiers and wide-format printing devices, the Company
has developed strategic relationships with well-known print-for-pay companies,
including Kinko's, AlphaGraphics, the CopyMax operations of office products
superstore OfficeMax, the American Speedy group of franchised printing centers
(including Allegra Print and Imaging, American Speedy, Speedy Printer, Zippy
Print and Quik Print) and the SAMPA Corporation, franchiser of Signal Graphics
Printing Centers. In 1999, several of these print-for-pay companies, including,
American Speedy, OfficeMax and SAMPA Corporation, entered into worldwide
strategic alliances with the Company whereby they agreed to continue
standardization efforts on EFI's Fiery(R) Color Servers with respect to their
printing services.
The Company also has a continuing relationship pursuant to a license agreement
with Adobe and licenses PostScript(R) software from Adobe for use in many Fiery
Products. This relationship is important because each Fiery Product requires
page description language software in order to operate. Adobe's PostScript(R)
software is widely used to manage the geometry, shape and typography of hard
copy documents and Adobe is a recognized leader in providing page description
software. Pursuant to its October 1997 acquisition of the former Pipeline
Associates, Inc. and Pipeline Asia, Inc. (collectively, "Pipeline"), the Company
acquired software development expertise and certain intellectual property
associated with Pipeline's specialization in PostScript(R), HTML and PCL
interpreter technologies.
Distribution and Marketing
The Company's primary distribution method for its Fiery servers has been to sell
the Fiery servers to its OEMs. The Company's
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OEMs in turn sell these products to distributors and end-users for use with the
OEMs' copiers or printers as part of an integrated printing system. For Fiery
Controllers, the Company's primary distribution method has been to sell the
products to the OEMs that embed the products into their copiers and printers.
The Company's primary distribution method for its EDOX servers has been to sell
the EDOX servers directly to its distributors. There can be no assurance that
the risks of distributing the Company's products primarily through its OEM
customers will not negatively impact the Company in the future. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Factors That Could Adversely Affect Performance - Reliance on OEM
Resellers; Risks Associated With Significant OEM Group Concentration".
The Company promotes all of its products through public relations, direct mail,
advertising, promotional material, trade shows and ongoing customer
communication programs.
Research and Development
Research and development costs for 1999, 1998, and 1997 were $75.0 million,
$60.2 million, and $42.9 million, respectively. As of December 31, 1999, 386 of
the Company's 758 full-time employees were involved in research and development.
The Company believes that development of new products and enhancement of
existing products are essential to its continued success, and management intends
to continue to devote substantial resources to research and new product
development. The Company expects to make significant expenditures to support its
research and development programs for the foreseeable future.
The Company is developing products to support additional color and
black-and-white printing devices including desktop printers, high-end color
copiers, digital black-and-white copiers and multi-function devices. This
ongoing development work includes a multiprocessor architecture for high-end
systems and lower-cost designs for desktop color laser printers. The Company is
also developing new software applications designed to maximize workflow
efficiencies. This includes VelocityBalanceTM, VelocitySplitTM and
VelocityDesignTM.
The Company is also developing Internet appliance products. See "-Growth and
Expansion Strategies - Proliferate and Expand Product Lines". Substantial
additional work will be required to complete the development of these projects.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations - Factors That Could Adversely Affect Performance - Product
Transitions".
Manufacturing
The Company utilizes subcontractors to manufacture its products. These
subcontractors work closely with the Company to ensure low costs and high
quality in the manufacture of the Company's products. Subcontractors purchase
components needed for the Company's products from third parties. The Company is
totally reliant on the ability of its subcontractors to produce products sold by
the Company, and although the Company supervises its subcontractors, there can
be no assurance that such subcontractors will continue to perform for the
Company as well as they have in the past. There can also be no assurance that
difficulties experienced by the Company's subcontractors (such as interruptions
in a subcontractor's ability to make or ship the Company's products or quality
assurance problems) would not adversely affect the Company's operations.
Certain components necessary for the manufacture of the Company's products
including ASICs and certain other semiconductor components, are obtained from a
sole supplier or a limited group of suppliers. The purchase of certain of these
key components may involve significant lead times. Accordingly, in the event of
interruptions in the supply of these key components or unanticipated increases
in demand for the Company's products, the Company could be unable to manufacture
certain of its products in a quantity sufficient to meet customer demand. There
can be no assurance that such supply or manufacturing problems would not
adversely affect the Company's results of operations or financial condition.
Human Resources
As of December 31, 1999, the Company employed 758 employees. Of the 758 total
employees, approximately 213 were in sales and marketing, 91 were in management
and administration, 68 were in manufacturing, and 386 were in research and
development. Of the total number of employees, the Company had approximately 662
employees located in Canadian and U.S. offices, and 96 employees located in
international offices including employees based in The United Kingdom, The
Netherlands, Germany, Japan, France, Italy, Finland, Spain, Australia,
Singapore, Brazil, Sweden and Hong Kong. The Company's employees are not
represented by any collective bargaining organization and the Company has never
experienced a work stoppage.
7
<PAGE>
Competition
Competition in the Company's markets is intense and involves rapidly changing
technologies and frequent new product introductions. To maintain and improve its
competitive position, the Company must continue to develop and introduce, on a
timely and cost-effective basis, new products and features that keep pace with
the evolving needs of its customers. The principal competitive factors affecting
the markets for the Company's Fiery and EDOX products include, among others,
customer service and support, product reputation, quality, performance, price
and product features such as functionality, scalability, ability to interface
with OEM products and ease of use. The Company believes it has generally
competed effectively in the past against product offerings of its competitors on
the basis of such factors. However, there can be no assurance that the Company
will continue to be able to compete effectively in the future based on these or
any other competitive factors.
The Company competes directly with other independent manufacturers of color
servers, independent manufacturers of embedded solutions, copier manufacturers,
printer manufacturers and others. The Company also faces competition from
wide-format printer manufacturers that develop their own controllers and other
companies that develop controllers for wide-format printers. The Company also
faces competition from copier and printer manufacturers that offer internally
developed server products or that incorporate internally developed embedded
solutions or server features into their copiers and printers, thereby
eliminating the need for the Company's products and limiting future
opportunities for the Company. In addition, the Company faces competition from
manufacturers of desktop color laser printers which do not utilize a controller
(relying instead on host based processing of data) and which offer increasing
speed and color capability. The Company believes that it competes effectively
due to, among other things, its efforts to continually advance its technology,
name recognition, sizable installed base, number of products supported and
price. The Company expects that competition in its markets will increase due to,
among other factors, market demand for higher performance products at lower
prices, rapidly changing technology and product offerings from competitors and
customers. There can be no assurance that the Company will be able to continue
to compete effectively against other companies' product offerings, and any
failure to do so would have a material adverse effect upon the Company's
business, operating results and financial condition.
Intellectual Property Rights
The Company relies on a combination of patent, copyright, trademark and trade
secret laws, non-disclosure agreements and other contractual provisions to
establish, maintain and protect its intellectual property rights, all of which
afford only limited protection. As of December 31, 1999, the Company had 39
issued U.S. patents, 60 pending U.S. patent applications and various foreign
counterparts. There can be no assurance that patents will issue from these
pending applications or from any future applications or that, if issued, any
claims allowed will be sufficiently broad to protect the Company's technology.
The Company's issued patents expire between May 4, 2002 and January 19, 2019.
Failure of any patents to protect the Company's technology may make it easier
for the Company's competitors to offer equivalent or superior technology. In
addition, third parties may independently develop similar technology without
breach of the Company's trade secrets or other proprietary rights. Any failure
by the Company to take all necessary steps to protect its trade secrets or other
intellectual property rights may have a material adverse effect on the Company's
ability to compete in its markets.
The Company has registered certain trademarks, which include its EFI(R),
Fiery(R), Fiery and Design(R), Fiery Driven(R), Fiery Driven and Design(R),
ColorWise(R) and RIP-While-Print(R) trademarks, and has applied for registration
of certain additional trademarks. The Company will continue to evaluate the
registration of additional trademarks as appropriate. Any failure by the Company
to properly register or maintain its trademarks or to otherwise take all
necessary steps to protect its trademarks may diminish the value associated with
the Company's trademarks. The Company's products include software sold pursuant
to "shrink wrap" licenses that are not signed by the end user and, therefore,
may be unenforceable under the laws of certain jurisdictions. In addition, the
laws of some foreign countries, including several in which the Company operates
or sells its products, do not protect proprietary rights to as great an extent
as do the laws of the United States.
From time to time, litigation may be necessary to defend and enforce the
Company's proprietary rights. Such litigation, whether or not concluded
successfully for the Company, could involve significant expense and the
diversion of management's attention and other Company resources.
Risk Factors
In addition to the above information, a discussion of factors that may adversely
affect the Company's future performance and financial results can be found in
Item 7: Management's Discussion and Analysis of Financial Condition and Results
of Operation.
Financial Information About Foreign and Domestic Operations and Export Sales
8
<PAGE>
See Note 10 of the Company's Notes to Consolidated Financial Statements. See
also Item 7 "Management's Discussion and Analysis of Financial Condition and
Results of Operations -Factors That Could Adversely Affect Performance -We face
risks from our international operations and from currency fluctuations."
Item 2: Properties
The Company's principal offices are located at 303 Velocity Way, Foster City,
California. These offices are situated on approximately 35 acres of land which
the Company owns. In 1997, the Company entered into an agreement for a building
to be constructed on the Foster City property. Construction of this facility was
completed and an operating lease commenced in July, 1999. This facility, which
includes approximately 295,000 square feet of space, is used as a corporate
headquarters for the Company. The Company subleases its former facilities
located in San Mateo and Foster City, California. In 1999, the Company entered
into an agreement to lease additional facilities, for up to 543,000 square feet
of space, to be constructed on the Foster City property. Two parcels of land
remain undeveloped for future use on the Foster City property. Employees
formerly with Pipeline Associates, Inc., acquired by the Company in 1997, are
based in an office in Parsippany, New Jersey. Employees formerly with MGI are
based in an office in Minneapolis, Minnesota. The Company also leases a number
of domestic and international sales offices.
The Company believes that its facilities, in general, are adequate for its
present and currently foreseeable future needs.
Item 3: Legal Proceedings.
On December 15, 1997, a shareholder class action lawsuit, entitled Steele, et
al. v. Electronics for Imaging, Inc., et al., No. CV 403099, was filed against
the Company and certain of its officers and directors in the California Superior
Court, San Mateo County (the "San Mateo Superior Court"). Five virtually
identical class action complaints were subsequently filed in the San Mateo
Superior Court. On December 31, 1997, a putative shareholder class action
entitled Smith v. Electronics for Imaging, Inc., et al., No. C97-4739 was filed
against the Company and certain of its officers and directors in the United
States District Court for the Northern District of California. The state court
class actions allege that the Company made false and misleading statements
concerning its business during a putative class period of April 10, 1997 through
December 11, 1997 and allege violations of California Corporations Code Sections
25400 and 25500 and Civil Code Sections 1709 and 1710. The federal court class
action complaint makes the same factual allegations, but alleges violations of
certain United States federal securities laws. The complaints do not specify the
damages sought. The Company believes that these lawsuits are without merit and
intends to contest them vigorously, but there can be no assurance that if
damages are ultimately awarded against the Company, the litigation will not
adversely affect the Company's results of operations.
In addition, the Company is involved from time to time in litigation relating to
claims arising in the normal course of its business. The Company believes that
the ultimate resolution of such claims will not materially affect the Company's
business or financial condition. See "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations - Factors That Could
Adversely Affect Performance - Infringement and Potential Litigation."
Item 4: Submission of Matters to a Vote of Security Holders.
No matters were submitted to the Company's stockholders for a vote during the
fourth quarter of 1999.
<PAGE>
PART II
Item 5: Market for Registrant's Common Equity and Related Stockholder Matters.
<TABLE>
The Company's common stock was first traded on the Nasdaq National Market under
the symbol EFII on October 2, 1992. The table below lists the high and low
closing sales price during each quarter the stock was traded in 1999 and 1998.
<CAPTION>
1998 1999
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
High $28.00 $25.19 $22.38 $40.00 $41.56 $54.75 $62.69 $58.88
Low 15.66 18.69 13.75 15.63 32.75 41.13 51.41 36.19
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
9
<PAGE>
As of February 28, 2000, there were approximately 348 stockholders of record.
The Company has never paid cash dividends on its capital stock. The Company
currently anticipates that it will retain all available funds for business, and
does not anticipate paying any cash dividends in the foreseeable future.
10
<PAGE>
Item 6: Selected Financial Data.
<TABLE>
The following tables summarize selected consolidated financial data as of, and
for the five years ended December 31, 1999. This information should be read in
conjunction with the audited consolidated financial statements and related notes
thereto. All periods presented have been restated to include the financial
results of the company formerly known as Management Graphics Inc. that merged
with Electronics for Imaging, Inc. on August 31, 1999 in a pooling of interests
transaction, as if the acquired entity was a wholly-owned subsidiary of
Electronics for Imaging, Inc. since inception.
<CAPTION>
As of and for the years ended December 31,
(In thousands, except per share amounts) 1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operations
Revenue $570,752 $446,999 $373,404 $316,458 $208,934
Cost of revenue 290,636 249,179 171,138 155,171 105,415
- -----------------------------------------------------------------------------------------------------------------------------
Gross profit 280,116 197,820 202,266 161,287 103,519
- -----------------------------------------------------------------------------------------------------------------------------
Operating expenses
Research and development 74,971 60,150 42,868 25,388 15,380
Sales and marketing 59,373 60,615 46,776 34,275 26,149
General and administrative 18,403 16,637 13,578 11,142 7,937
In-process research and development * -- -- 9,400 -- --
Merger related expenses ** 1,422 -- -- -- --
------- ------- ------- ----- ------
Total operating expenses 154,169 137,402 112,622 70,805 49,466
- -----------------------------------------------------------------------------------------------------------------------------
Income from operations 125,947 60,418 89,644 90,482 54,053
- -----------------------------------------------------------------------------------------------------------------------------
Other income, net 16,250 9,859 10,309 7,426 5,542
------ ----- ------ ----- -----
Income before income taxes 142,197 70,277 99,953 97,908 59,595
Provision for income taxes (46,914) (22,456) (35,944) (35,211) (21,340)
- -----------------------------------------------------------------------------------------------------------------------------
Net income $95,283 $47,821 $64,009 $62,697 $38,255
======= ======= ======= ======= =======
- -----------------------------------------------------------------------------------------------------------------------------
Net income per basic common share *** $1.74 $0.89 $1.21 $1.23 $0.77
Net income per diluted common share *** $1.67 $0.87 $1.13 $1.13 $0.71
Shares used in computing net income
per basic common share *** 54,853 53,507 52,831 51,144 49,681
Shares used in computing net income per
diluted common share *** 56,963 54,972 56,713 55,338 53,581
- -----------------------------------------------------------------------------------------------------------------------------
Financial Position
Cash and short-term investments $470,328 $328,732 $246,764 $215,781 $146,345
Working capital 487,591 355,361 293,972 245,245 164,474
Long term liabilities, less current portion 3,467 4,142 4,267 398 448
Total assets 656,075 484,191 395,949 310,058 205,398
Stockholders' equity $551,187 $408,680 $346,727 $258,105 $172,162
- -----------------------------------------------------------------------------------------------------------------------------
Ratios and Benchmarks
Current ratio 5.8 6.0 7.5 5.8 6.0
Inventory turns 20.5 11.6 8.3 11.5 8.5
Full-time employees 758 660 614 456 322
- -----------------------------------------------------------------------------------------------------------------------------
<FN>
* Consists solely of a charge taken in connection with the acquisition of Pipeline Associates, Inc. and
Pipeline Asia, Inc. in October 1997.
** See Item 7: Management's Discussion and Analysis of Financial Condition and Results: - Results of Operations
- Operating expenses - Merger related expenses.
*** See Note 1 of Notes to Consolidated Financial Statements.
</FN>
</TABLE>
11
<PAGE>
Item 7: Management's Discussion and Analysis of Financial Condition and Results
of Operations.
The following discussion and analysis should be read in conjunction with the
audited consolidated financial statements and related notes thereto included in
this Annual Report on Form 10K. All periods presented have been restated to
include the financial results of the company formerly known as Management
Graphics Inc. that merged with Electronics for Imaging, Inc. on August 31, 1999
in a pooling of interests transaction as if the acquired entity was a
wholly-owned subsidiary of Electronics for Imaging, Inc. since inception.
All assumptions, anticipations, expectations and forecasts contained herein are
forward-looking statements that involve risks and uncertainties. The Company's
actual results could differ materially from those discussed here. For a
discussion of the factors that could impact the Company's results, readers are
referred to the section below entitled " - Factors that Could Adversely Affect
Performance. "
Results of Operations
<TABLE>
The following tables set forth items in the Company's consolidated statements of
income as a percentage of total revenue for 1999, 1998 and 1997, and the
year-to-year percentage change from 1999 over 1998 and from 1998 over 1997,
respectively. These operating results are not necessarily indicative of results
for any future period.
<CAPTION>
Years ended December 31, % change
1999 1998
over over
1999 1998 1997 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenue 100 % 100 % 100 % 28 % 20 %
Cost of revenue 51 % 56 % 46 % 17 % 46 %
- ---------------------------------------------------------------------------------------------------------------------------
Gross profit 49 % 44 % 54 % 42 % (2)%
- ---------------------------------------------------------------------------------------------------------------------------
Research and development 13 % 13 % 11 % 25 % 40 %
Sales and marketing 11 % 13 % 12 % (2)% 30 %
General and administrative 3 % 4 % 4 % 11 % 23 %
In-process research and development -- % -- % 3 % -- % (100)%
Merger related expenses -- % -- % -- % -- % -- %
Operating expenses 27 % 30 % 30 % 12 % 22 %
- ---------------------------------------------------------------------------------------------------------------------------
Income from operations 22 % 14 % 24 % 108 % (33)%
- ---------------------------------------------------------------------------------------------------------------------------
Other income, net 3 % 2 % 3 % 65 % (4)%
Income before income taxes 25 % 16 % 27 % 102 % (30)%
Provision for income taxes 8 % 5 % 10 % 109 % (38)%
- ---------------------------------------------------------------------------------------------------------------------------
Net income 17 % 11 % 17 % 99 % (25)%
</TABLE>
Revenue
Revenue increased to $570.8 million in 1999, compared to $447.0 million in 1998
and $373.4 million in 1997, which yielded a 28% increase in 1999 as compared to
1998 and a 20% increase in 1998 as compared to 1997. The corresponding unit
volume increased by 75% in 1999 over 1998 and by 164% in 1998 over 1997. The
increase in revenue in 1999 from 1998 and in 1998 from 1997 was primarily due to
significant increases in unit volumes, positive market acceptance of new product
introductions and the impact of new customers, partially offset by price
reductions on older product lines late in the year following new product
introductions and a decline in average selling prices due to changes in product
mix.
12
<PAGE>
The Company's revenue is principally derived from three major categories. The
first category was made up of stand-alone servers which connect digital color
copiers with computer networks. This category includes the Fiery X2, X4, ZX and
Z4 products and accounted for a majority of the Company's revenue prior to 1998.
The second category consisted of embedded desktop controllers, bundled color
solutions and chipsets primarily for the office market. The third category
consisted of controllers for digital black and white products.
<TABLE>
The following is a break-down of categories by revenue, both in terms of
absolute dollars and as a percentage (%) of total revenue. Also shown is volume
as a percentage (%) of total units shipped.
<CAPTION>
% change
1999 1998
Revenue 1999 1998 1997 over over
(in thousands) Revenue Revenue Revenue 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Stand-alone Servers Connecting
to Digital Color Copiers $244,028 43% $291,785 66% $293,708 79% (16)% (1)%
Embedded Desktop Controllers,
Bundled Color Solutions
& Chipset Solutions 149,899 26% 90,133 20% 34,133 9% 66% 164%
Controllers for Digital
Black and White Solutions 121,071 21% 19,196 4% -- -- 531% --
Spares, Licensing
& Other misc. sources 55,754 10% 45,885 10% 45,563 12% 22% 1%
- ---------------------------------------------------------------------------------------------------------------------------
Total Revenue $570,752 100% $446,999 100% $373,404 100% 28% 20%
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
1999 1998 1997
Volume Volume Volume Volume
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Stand-alone Servers Connecting
to Digital Color Copiers 14% 27% 73%
Embedded Desktop Controllers,
Bundled Color Solutions
& Chipset Solutions 50% 62% 26%
Controllers for Digital
Black and White Solutions 36% 11% --
Spares, Licensing
& Other misc. sources -- 0% 1%
- ---------------------------------------------------------------------------------------------------------------------------
Total Volume 100% 100% 100%
</TABLE>
Growth in 1999 primarily took place in the category of controllers for digital
black and white solutions as well as in the category of embedded desktop
controllers, bundled color solutions and chipset solutions.
The black and white product category made up 21% of total revenue and 36% of
total unit volume in 1999. In 1998, the year the product line was introduced, it
made up 4% of total revenue and 11% of total unit volume. This product category
can be characterized by much higher unit volumes and lower unit prices and
associated margins than the Company has experienced in its more traditional
stand-alone server line of products. The desktop product category made up 26% of
total revenue and 50% of total unit volume in 1999. It made up 20% of total
revenue and 62% of total unit volume in 1998 and 9% of total revenue and 26% of
total unit volume in 1997. These products, except for the chipset solutions, are
also generally characterized by much higher unit volumes but lower unit prices
and associated margins than the Company has experienced in its more traditional
stand-alone server line of products. The chipset solutions can be characterized
by lower unit prices but significantly higher per unit margins compared to the
traditional stand-alone server line of products. The Company anticipates further
growth in the black and white as well as in the desktop category as a
13
<PAGE>
percentage of total revenue. To the extent these categories do not grow over
time in absolute terms, or if the Company is not able to meet demand for higher
unit volumes, it could have a material adverse effect on the Company's operating
results. The Company believes that revenue for stand-alone server products
decreased in 1999 due to the fact that low-end products which previously shipped
as stand-alone products have been shipped as embedded products. There can be no
assurance that the new products for 2000 will be qualified by all the OEMs, or
that they will successfully compete, or be accepted by the market, or otherwise
be able to effectively replace the volume of revenue and / or income from the
older products.
The Company also believes that in addition to the factors described above, price
reductions for all of its products may affect revenues in the future. The
Company has made and may in the future make price reductions for its products.
Depending upon the price-elasticity of demand for the Company's products, the
pricing and quality of competitive products, and other economic and competitive
conditions, such price reductions may have an adverse impact on the Company's
revenues and profits. If the Company is not able to compensate for lower gross
margins that may result from price reductions with an increased volume of sales,
its results of operations could be adversely affected. In addition, if the
Company's revenue in the future depends more upon sales of products with
relatively lower gross margins than the Company obtained in 1999 (such as
embedded controllers for printers, embedded controllers for color and
black-and-white copiers, and stand-alone controllers for black-and-white
copiers), results of operations may be adversely affected.
<TABLE>
Shipments by geographic area for the years ended 1999, 1998 and 1997 were as
follows:
<CAPTION>
Years ended December 31, % change
1999 1998
over over
(In thousands) 1999 1998 1997 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
North America * $277,997 49% $221,638 50% $181,811 49% 25% 22%
Europe * 182,602 32% 144,076 32% 111,023 30% 27% 30%
Japan 90,781 16% 68,991 15% 64,323 17% 32% 7%
Rest of World 19,372 3% 12,294 3% 16,247 4% 58% (24)%
- ---------------------------------------------------------------------------------------------------------------------------
$570,752 100% $446,999 100% $373,404 100% 28% 20%
- ---------------------------------------------------------------------------------------------------------------------------
<FN>
* In the middle of the second quarter of 1997, one of the Company's major
customers began having its products for the European market shipped directly to
Europe rather than through the United States. The Company does not know the
dollar amount of the corresponding shipments that went through North America to
Europe for the periods prior to the second quarter of 1997. Therefore shipments
to North America in early 1997 are slightly overstated and shipments that went
to Europe in the same period are slightly understated when compared to 1998.
Consequently the above indicated revenue information and the increases and
decreases from 1998 over 1997 for North America and Europe should be read with
caution.
</FN>
</TABLE>
Shipments to each geographic area increased over 25% in 1999 compared to 1998,
with the largest increase of 58% in the Rest of the World region and the second
largest increase of 32% in Japan. The Rest of World region experienced a
decrease of 24% and Japan an increase of 7% in 1998 compared to 1997. The Rest
of World region is predominately represented by the Southeast Asian countries
and the increase in 1999 over 1998 in the Rest of World and Japan is a
reflection of the economic recovery in these regions. The Rest of World region
experienced a decrease in 1998 over 1997, which was a reflection of the
challenging economic situation in that region. Worldwide economic conditions may
have an adverse impact on the Company's results of operations in the future.
As shipments to some of the Company's OEM partners are made to centralized
purchasing and manufacturing locations which in turn sell through to other
locations, the Company believes that export sales of its products into each
region may differ from what is reported, though accurate data is difficult to
obtain. The Company expects that export sales will continue to represent a
significant portion of its total revenue.
Substantially all of the revenue for the last three years was attributable to
sales of products through the Company's OEM channels with such partners as
Canon, Encad, Epson, Fuji-Xerox, IBM, Hewlett-Packard, Kodak/Danka Business
Systems, Konica, Lanier, Minolta, Oce, Ricoh, Sharp, Xerox and others. During
1999, the Company has continued to work on both increasing the number of OEM
partners, and expanding the size of existing relationships with OEM partners.
The Company relied on three OEM customers, Canon, Xerox and Ricoh in aggregate
for 68%, 67%, and 85% of its revenue for 1999, 1998 and 1997, respectively. In
the event that any of these OEM relationships are scaled back or discontinued,
the Company may experience a significant negative impact on its consolidated
financial position and results of operations. In addition, no assurance can be
given that the Company's relationships with these OEM partners will continue.
14
<PAGE>
The Company continues to work on the development of products utilizing both the
Fiery architecture and other products and intends to continue to introduce new
generations of Fiery products and other new product lines with current and new
OEM's in 2000 and beyond. No assurance can be given that the introduction or
market acceptance of new, current or future products will be successful.
Cost of Revenue
Fiery color servers as well as embedded desktop controllers and digital black
and white products are manufactured by third-party manufacturers who purchase
most of the necessary components. The Company sources directly processors,
memory, certain ASICs, and software licensed from various sources, including
PostScript interpreter software, which the Company licenses from Adobe Systems,
Inc.
Gross Margins
The Company's gross margin was 49%, 44% and 54% for 1999, 1998 and 1997
respectively. The increase in gross margin from 44% to 49% from 1998 to 1999 was
attributable to volume driven economies of scale as well as increased
outsourcing of manufacturing operations to lower cost subcontract manufacturers.
The decrease in gross margin from 54% to 44% from 1997 to 1998 was due to a
combination of factors, including a higher mix of low-end products with
relatively lower margins and a different mix of OEM partners purchasing a
different mix of products during 1998 as compared to 1997. The Company also
initiated price reductions on older products during the first half of 1998 in
light of pending introductions of newer generations of products.
The Company expects that sales of products with relatively lower margins may
further increase as a percentage of revenue. Such products include embedded
products for both desktop printers and copiers, stand-alone servers, embedded
controllers for black-and-white copiers and older products for which prices are
reduced during product transitions. If such sales increase as a percentage of
the Company's revenue, gross margins may decline.
In addition to the factors affecting revenue described above, the Company
expects to be subject to pressures to reduce prices, and as a result, gross
margins for all of its products may be lower and therefore the Company's ability
to maintain current gross margins may not continue.
In general, the Company believes that gross margin will continue to be impacted
by a variety of factors. These factors include the market prices that can be
achieved on the Company's current and future products, the availability and
pricing of key components (including DRAM, Processors and Postscript interpreter
software), third party manufacturing costs, product, channel and geographic mix,
the success of the Company's product transitions and new products, competition,
and general economic conditions in the United States and abroad. Consequently,
the Company anticipates gross margins will fluctuate from period to period.
Operating Expenses
Operating expenses increased by 12% in 1999 over 1998 and by 22% in 1998 over
1997. Operating expenses as a percentage of revenue amounted to 27%, 30% and 30%
for 1999, 1998 and 1997, respectively. Increases in operating expenses in
absolute dollars of $16.8 million in 1999 compared to 1998 and $24.8 million in
1998 compared to 1997, were primarily caused by costs associated with the
development and introduction of new products and the hiring of additional full
time employees to support the growing business (a net increase of 98 people at
December 31, 1999 over December 31, 1998 and a net increase of 46 people at
December 31, 1998 over December 31, 1997). The Company has hired additional
employees to support product development as well as to support expanded
operations.
Operating expenses for 1999 included approximately $1.4 million of merger
related costs in connection with the acquisition of Management Graphics, Inc
("MGI") on August 31, 1999. Excluding the $1.4 million of expenses in 1999, the
increase in operating expenses in 1999 over 1998 would have been 11% or $15.4
million. In addition, the Company incurred additional non-recurring expenses
during 1999 in connection with the Company's move to a new central facility in
Foster City, California. Total moving costs amounted to $1.8 million of which
approximately $0.2 million related to cost of revenue.
15
<PAGE>
Operating expenses in 1997 include a $9.4 million charge for in-process
technology that was expensed in 1997 as part of the acquisition of Pipeline
Associates, Inc. and Pipeline Asia, Inc. (the "Pipeline Acquisition"). Excluding
the $9.4 million charge in 1997, the increase in operating expenses in 1998 over
1997 would have been 33% or $34.2 million.
The lower percentage increase in operating expenses in 1999 over 1998 of 12%
compared to 1998 over 1997 of 22% is the result of the Company's successful
spending control as well as the leverage realized from additional revenue in the
black and white and embedded, bundled and chipset categories which require less
support.
The Company anticipates that operating expenses will continue to grow and may
increase both in absolute dollars and as a percentage of revenue.
The components of operating expenses are detailed below.
Research and Development
Expenses for research and development consist primarily of personnel
expenses and, to a lesser extent, consulting, depreciation and costs
of prototype materials. Research and development expenses were $75.0
million or 13% of revenue in 1999 compared to $60.2 million or 13% of
revenue in 1998 and $42.9 million or 11% of revenue in 1997. The year
over year increase in research and development expenses was mainly
due to an increase in research and development projects. The majority
of the 25% increase in research and development expenses in 1999
compared to 1998 was due to a 21% growth in engineering headcount.
The 40% increase of research and development expenses in 1998 over
1997 was primarily due to headcount related costs as well as a
significant increase in costs of prototype materials used for
pre-production units on projects under development. The Company
believes that the development of new products and the enhancement of
existing products are essential to its continued success, and intends
to continue to devote substantial resources to research and new
product development efforts. Accordingly, the Company expects that
its research and development expenses may continue to increase in
absolute dollars and also as a percentage of revenue.
Sales and Marketing
Sales and marketing expenses include personnel expenses, costs for
trade shows, marketing programs and promotional materials, sales
commissions, travel and entertainment expenses, depreciation, and
costs associated with sales offices in the United States, Europe,
Japan and other locations around the world. Sales and marketing
expenses for 1999 were $59.4 million or 11% of revenue compared to
$60.6 million or 13% of revenue in 1998 and $46.8 million or 12% in
1997. Sales and marketing expenses decreased in 1999 over 1998 as a
percentage of revenue as well as in absolute dollars. The decrease is
due to successful spending control across the Company during 1999,
offset by increased salary expenses caused by an increased headcount
of 12%. In addition the gravitation toward desktop and embedded
products require less support from the Company as the OEMs take over
some of the financial responsibilities for the support. The 30%
increase of sales and marketing expenses in 1998 over 1997 is due to
a 9% increase in headcount, as well as costs required for the
introduction, promotion and support of a broader range of current
products with both existing and new OEMs and an increase in
technology alliance partners. The Company has also developed
strategic relationships with well known print-for-pay companies,
including Kinko's, AlphaGraphics, the CopyMax operations of office
products superstore OfficeMax, the American Speedy group of
franchised printing centers (including Allegra Print and Imaging,
American Speedy, Speedy Printer, Zippy Print and Quik Print) and the
SAMPA Corporation, franchiser of Signal Graphics Printing Centers.
Although these relationships increase the demand for Fiery products
they also increase the sales and marketing expenses.
The Company expects that its sales and marketing expenses may
increase in absolute dollars and possibly also as a percentage of
revenue as it continues to actively promote its products, launch new
products and continue to build its sales and marketing organization,
particularly in Europe and Asia Pacific, including Japan. This
increase might not proportionally increase with increases in volume,
if the Company's sales continue to gravitate toward desktop and
embedded products which require less support from the Company as the
OEM partners take over this role.
General and Administrative
General and administrative expenses consist primarily of personnel
expenses and, to a lesser extent, depreciation and facility costs,
professional fees and other costs associated with public companies.
General and administrative expenses were $18.4 million or 3% of
revenue in 1999, compared to $16.6 million or 4% of revenue in 1998
and $13.6 million or 4% of revenue in 1997. While general and
administrative expenses have remained relatively constant as a
percentage of total revenue over the three year period ended 1999,
these expenses have increased in absolute dollars. The increases in
1999 over 1998 and in 1998 over 1997 were primarily due to the
increase in headcount to support the needs of the
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growing Company's operations, including the use of outside
consultants. The Company expects that its general and administrative
expenses may continue to increase in absolute dollars and possibly
also as a percentage of revenue in order to support the Company's
efforts to grow its business.
In-process research and development
In October of 1997, the Company acquired Pipeline Associates, Inc.
and Pipeline Asia, Inc. for $12.6 million, net of cash received. The
Pipeline Acquisition was intended to expand the Company's core
technologies and thereby decrease its dependence on software licensed
from outside sources. In conjunction with the acquisition, the
Company recorded a charge of $9.4 million for in-process research and
development, representing the appraised value of product that was not
considered to have reached technological feasibility.
Merger related expenses
On August 31, 1999 the Company acquired MGI, a Minnesota-based
corporation that develops digital print on demand products and other
digital imaging products. The Company incurred approximately $1.4
million of non-recurring expenses related to the merger which
consisted primarily of professional fees, severance costs, and travel
expenses. Severance costs were incurred on 33 former employees of MGI
whose positions were eliminated due to duplication of resources
between the California and Minnesota locations. Functionally, the
Company eliminated 6 manufacturing, 15 service, 1 engineering, 6
sales and marketing, and 5 administrative positions. The terminations
were completed as of September 30, 1999.
Other Income
Other income relates mainly to interest income and expense, and gains and losses
on foreign currency transactions. Other income of $16.3 million in 1999
increased by 65% from $9.9 million in 1998. Other income of $9.9 million in 1998
decreased by 4% from $10.3 million in 1997. The increase in 1999 from 1998 is
due to a 39% increase in the average investment balance as well as a higher
return on investments as a result of more favorable market interest rates in
1999 compared to 1998. The decrease in 1998 from 1997 is mainly due to
approximately $1.3 million in losses suffered on Asian currency denominated
transactions in the first half of 1998. In response to currency fluctuations in
Asia, the Company began to implement a hedging program in June 1998. In
addition, the Company earned less interest in 1998 compared to 1997 due to a
decline in market interest rates in 1998.
Income Taxes
The Company's effective tax rate was 33% in 1999, 32% in 1998 and 36% in 1997,
respectively. In each of these years, the Company benefited from tax-exempt
interest income, foreign sales, and the utilization of the research and
development credits in achieving a consolidated effective tax rate lower than
that prescribed by the respective Federal and State taxing authorities. The
Company anticipates that the tax rate for 2000 will remain approximately 33%.
Liquidity and Capital Resources
Cash, cash equivalents and short-term investments increased by $141.6 million to
$470.3 million as of December 31, 1999, from $328.7 million as of December 31,
1998. Working capital increased by $132.2 million to $487.6 million as of
December 31, 1999, up from $355.4 million as of December 31, 1998. These
increases are primarily the result of net income, changes of balance sheet
components and the exercise of employee stock options.
Net cash provided by operating activities was $131.5 million, $81.1 million and
$72.9 million in 1999, 1998 and 1997, respectively. Cash provided by operating
activities increased in 1999 primarily due to a significant increase in net
income and an increase in income tax payables, partially offset by an increase
in deferred taxes and a decrease in receivables from subcontract manufacturers.
The Company has continued to invest cash in short-term investments, mainly
municipal securities. Purchases in excess of sales of short-term investments
were $38.0 million, $84.3 million and $45.4 million in 1999, 1998 and 1997,
respectively. The Company's
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capital expenditures generally consist of investments in computers and related
peripheral equipment and office furniture for use in the Company's operations.
The Company purchased approximately $15.6 million, $13.2 million and $11.3
million of such equipment and furniture during 1999, 1998 and 1997,
respectively. During 1997, the Company invested $12.6 million, net of cash
received, in the Pipeline Acquisition.
Also in 1997, the Company began development of a corporate campus on a 35-acre
parcel of land in Foster City, California. During 1997 the Company spent
approximately $27.0 million on the land and associated improvement costs. During
1998 the Company spent approximately $0.3 million on land improvement costs. In
addition to purchasing the land, the Company entered into an agreement to lease
a ten-story 295,000 square foot building to be constructed on the site. The
lessor of the building committed to fund the construction of the building which
amounted to $57.0 million. Rent payments for the building commenced in July
1999, the time the construction was completed. Rent payments bear a direct
relationship to the carrying cost of the commitment amount. The initial term of
the lease is 7 years with options to purchase at any time. Also in conjunction
with the lease, the Company has entered into a separate ground lease with the
lessor of the building for approximately 35 years. The Company has guaranteed a
residual value associated with the building to the lessor of 82% of the lessor's
funding. If the Company defaults on the lease, does not renew the lease, does
not purchase the building or does not arrange for a third party purchase of the
building at the end of the lease term, it may be liable to the lessor for the
amount of the residual guarantee. As part of the lease agreement the Company
must maintain a minimum tangible net worth. In addition, the Company has pledged
certain marketable securities ($69.1 million at December 31, 1999) to be held in
proportion to the amount drawn in order to secure a more favorable lease rate
and avoid other covenant restrictions. The Company may use these funds at any
time, but their release would also result in an increase to the lease rate and
the imposition of additional financial covenant restrictions.
On December 29, 1999, the Company entered into an agreement to lease additional
facilities, for up to 543,000 square feet, to be constructed on the property,
which the Company owns in Foster City, California. The lessor of the building
has committed to fund up to a maximum of $137.0 million for the construction of
the facilities, with the portion of the committed amount actually used for
construction to be determined by the Company. The construction of the additional
facilities is scheduled to be completed over the next 36 months. Rent
obligations for the building will bear a direct relationship to the carrying
cost of the commitments drawn down. As of December 31, 1999, the Company had not
begun construction and had not drawn any funds.
The lease associated with the additional Foster City facilities has a term of
seven years with an option to renew subject to certain conditions. The Company
may, at its option, purchase the facilities during or at the end of the term of
the lease for the amount expended by the lessor to construct the facilities. In
connection with the lease, the Company entered into a lease of the related
parcels of land in Foster City to the lessor of the buildings at a nominal rate
and for a term of 30 years. If the Company terminates or does not negotiate an
extension of its lease of the building, the ground lease to the lessor converts
to a market rate. The Company, at its option, may purchase the building during
or at the end of the term of the lease for the amount expended by the lessor to
construct the building. The Company has guaranteed a residual value associated
with the building to the lessor of 82% of the lessor's funding. If the Company
defaults on its lease, does not renew its lease, does not purchase the building
or arrange for a third party the purchase of the facility at the end of the
lease term, it may be liable to the lessor for the amount of the residual
guarantee.
As part of this agreement, the Company must maintain a minimum tangible net
worth. In addition, the Company has committed to pledge certain securities in
proportion to the amount drawn against the commitment to be held in a custodial
account as collateral to ensure fulfillment of the obligations to the lessor
under the lease agreement. No amounts were committed at December 31, 1999 as the
Company had not drawn any amounts under the arrangement. The Company may invest
these funds in certain securities and receive the full benefit of the
investment, however the funds are restricted as to withdrawal at all times.
Net cash provided by financing activities of $26.7 million, $14.2 million and
$9.7 million in 1999, 1998 and 1997, respectively, were primarily the result of
exercises of common stock options and the tax benefits to the Company associated
with those exercises. Net cash provided by financing activities in 1999, 1998
and 1997 includes approximately $892,000, $101,000 and $373,000 of cash used to
repay long-term obligations.
The Company's inventory consists primarily of memory subsystems, processors and
ASICs, which are sold to third-party contract manufacturers responsible for
manufacturing substantially all of the Company's products. Should the Company
decide to purchase components and do its own manufacturing, or should it become
necessary for the Company to purchase and sell components other than the
processors, ASICs or memory subsystems for its contract manufacturers, inventory
balances would increase significantly, thereby reducing the Company's available
cash resources. Further, these contract manufacturers produce substantially all
of the Company's products. The Company believes that, should the services of any
of these contract manufacturers become unavailable, a significant negative
impact on the Company's consolidated financial position and results of
operations could result. The Company is also reliant on several sole-source
suppliers for certain key components and could experience a further significant
negative impact on its consolidated financial position and results of operations
if such supply were reduced or not available.
The Company, along with its directors and certain officers and employees, has
been named in class action lawsuits filed in both the San Mateo County Superior
Court and the United States District Court for the Northern District of
California. The lawsuits are all
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related to the precipitous decline in the trading price of the Company's stock
that occurred in December 1997. The Company believes the lawsuits are without
merit and intends to contest them vigorously, but there can be no assurance that
if damages are ultimately awarded against the Company, the litigation will not
adversely affect the Company's results of operations. See Item 3 "Legal
proceedings."
The Company believes that its existing capital resources, together with cash
generated from continuing operations will be sufficient to fund its operations
and meet capital requirements through at least 2000.
Year 2000 Status
The Company, and to its knowledge the Company's third party suppliers did not
experience any significant problems associated with information systems and
other technology during the transition to the Year 2000. During 1999, the
Company spent approximately $700,000 out of a budget of $1.2 million for
external consulting on addressing and preparing for potential Year 2000 problems
and related issues. As the new year continues the Company will continue to
assess the potential effects of possible Year 2000 related problems; however, as
a result of the work performed previously the Company does not currently foresee
any problems in this area. There can be no assurance that such problems, if
incurred, will not have a materially adverse effect on the Company, its
financial condition, or results of operations.
Euro Assessment
Eleven of the fifteen member countries of the European Union have established
fixed conversion rates between their existing sovereign currencies and the Euro
and have adopted the Euro as a common currency as of January 1, 1999. The Euro
is trading on currency exchanges and is available for non-cash transactions. The
conversion to the Euro is not expected to have a material adverse effect on the
operating results of the Company as the Company predominantly invoices in US
Dollars. The Company is currently in the process of evaluating the reporting
requirements in the respective countries and the related system, legal and
taxation requirements. The Company expects that required modifications will be
made on a timely basis and that such modifications will not have a material
adverse impact on the Company's operating results. There can be no assurance,
however, the Company will be able to complete such modifications to comply with
Euro requirements, which could have a material adverse effect on the Company's
operating results.
Factors That Could Adversely Affect Performance
Our performance may be adversely affected by the following factors:
We rely on sales to a relatively small number of OEM partners, and the loss of
any of these customers could substantially decrease our revenues
Because we sell our products primarily to our OEM partners, we rely on high
sales volumes to a relatively small number of customers. We expect that we will
continue to depend on these OEM partners for a significant portion of our
revenues. If we lose an important OEM or we are unable to recruit additional
OEMs, our revenues may be materially and adversely affected. We cannot assure
you that our major customers will continue to purchase our products at current
levels or that they will continue to purchase our products at all. In addition,
our results of operations could be adversely affected by a decline in demand for
copiers or laser printers, other factors affecting our major customers, in
particular, or the computer industry in general.
We rely upon our OEM partners to develop new products, applications and product
enhancements in a timely and cost-effective manner. Our continued success
depends upon the ability of these OEMs to meet changing customer needs and
respond to emerging industry standards and other technological changes. However,
we cannot assure you that our OEMs will effectively meet these technological
challenges. These OEMs, who are not within our control, may incorporate into
their products the technologies of other companies in addition to, or instead of
our products. These OEMs may introduce and support products that are not
compatible with our products. We rely on these OEMs to market our products with
their products, and if these OEMs do not effectively market our products our
sales revenue may be materially and adversely affected. With the exception of
certain minimum purchase obligations, these OEMs are not obligated to purchase
products from us. We cannot assure you that our OEMs will continue to carry our
products.
Our OEMs work closely with us to develop products that are specific to each
OEM's copiers and printers. For many of the products we are developing, we need
to coordinate development, quality testing, marketing and other tasks with our
OEMs. We cannot control our OEMs' development efforts and coordinating with our
OEMs may cause delays that we cannot manage by ourselves. In addition, our sales
revenue and results of operations may be adversely affected if we cannot meet
our OEM's product needs for their specific
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copiers and printers, as well as successfully manage the additional engineering
and support effort and other risks associated with such a wide range of
products.
We are pursuing, and will continue to pursue, the business of additional copier
and printer OEMs. However, because there are a limited number of OEMs producing
copiers and printers in sufficient volume to be attractive customers for us, we
expect that customer concentration will continue to be a risk.
If we are unable to develop new products, or execute product introductions on a
timely basis, our future revenue and operating results may be harmed.
Our operating results will depend to a significant extent on continual
improvement of existing technologies and rapid innovation of new products and
technologies. Our success depends not only on our ability to predict future
requirements, but also to develop and introduce new products that successfully
address customer needs. Any delays in the launch or availability of new products
we are planning could harm our financial results. During transitions from
existing products to new products, customers may delay or cancel orders for
existing products. Our results of operations may be adversely affected if we
cannot successfully manage product transitions or provide adequate availability
of products after they have been introduced.
In this environment, we must continue to make significant investments in
research and development in order to enhance performance and functionality of
our products, including product lines different than our Fiery servers and
embedded controllers. We cannot assure you that we will successfully identify
new product opportunities, develop and introduce new products to market in a
timely manner, and achieve market acceptance of our products. Also, if we decide
to develop new products, our research and development expenses may increase in
the short term without a corresponding increase in revenue. Finally, we cannot
assure you that products and technologies developed by others will not render
our products or technologies obsolete or noncompetitive.
We license software used in most of our products from Adobe Systems
Incorporated, and the loss of this license would prevent us from shipping these
products
Under our license agreements with Adobe, a separate license must be granted from
Adobe to us for each type of copier or printer used with a Fiery Server or
Controller. If Adobe does not grant us such licenses or approvals, if the Adobe
license agreements are terminated, or if our relationship with Adobe is
otherwise impaired, our financial condition and results of operations may be
harmed. To date, we have successfully obtained licenses to use Adobe's
PostScript(TM) software for our products, where required. However, we cannot
assure you that Adobe will continue to grant future licenses to Adobe
PostScript(TM) software on reasonable terms, in a timely manner, or at all. In
addition, we cannot assure you that Adobe will continue to give us the quality
assurance approvals we are required to obtain from Adobe for the Adobe licenses.
If the demand for products that enable color printing of digital data decreases,
our sales revenue may decrease
Our products are primarily targeted at enabling the color printing of digital
data. If demand for this service declines, or if the demand for our OEMs'
specific printers or copiers that our products are designed for should decline,
our sales revenue may be adversely affected. Although demand for networked color
printers and copiers has increased in recent years, we cannot assure you that
such demand will continue, nor can we control whether the demand will continue
for the specific OEM printers and copiers that utilize our products will
continue. We believe that demand for our products may also be affected by a
variety of economic conditions and considerations, and we cannot assure you that
demand for our products will continue at current levels.
If we enter new markets or distribution channels this could result in delayed
revenues or higher operating expenses
We continue to explore opportunities to develop product lines different from our
Fiery servers and embedded controllers, such as our new line of software
products and EFI Professional Services that we announced on February 23, 2000.
We expect to invest funds to develop new distribution and marketing channels for
these new products and services. We do not know if we will be successful in
developing these channels or whether the market will accept any of our new
products or services. In addition, even if we are able to introduce new products
or services, these products and services may adversely impact the Company's
operating results.
We face competition from other suppliers as well as our own OEM customers, and
if we are not able to compete successfully then our business may be harmed
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Our industry is highly competitive and is characterized by rapid technological
changes. We compete against a number of other suppliers of imaging products. We
cannot assure you that products or technologies developed by competing suppliers
will not render our products or technologies obsolete or noncompetitive.
While many of our OEMs sell our products on an exclusive basis, we do not have
any formal agreements that prevent the OEMs from offering alternative products.
If an OEM offers products from alternative suppliers our market share could
decrease, which could reduce our revenue and negatively affect our financial
results.
Our OEM partners may themselves internally develop and supply products similar
to our current products. These OEMs may be able to develop similar products that
are compatible with their own products more quickly than we can. These OEMs may
choose to market their own products, even if these products are technologically
inferior, have lower performance or cost more. We cannot assure you that we will
be able to continue to successfully compete against similar products developed
internally by our OEMs or against their financial and other resources. If we
cannot compete successfully against our OEMs' internally developed products, our
business may be harmed.
If we are not able to hire and retain skilled employees, we may not be able to
develop products or meet demand for our products in a timely fashion
We depend upon skilled employees, such as software and hardware engineers,
quality assurance engineers and other technical professionals. We are located in
the Silicon Valley where competition among companies to hire engineering and
technical professionals is intense. It is difficult for us to locate and hire
qualified engineers and technical professionals and for us to retain these
people. There are many technology companies located nearby that may try to hire
our employees. The movement of our stock price may also impact our ability to
hire and retain employees. If we do not offer competitive compensation, we may
not be able to recruit or retain employees. If we cannot successfully hire and
retain employees, we may not be able to develop products timely or to meet
demand for our products in a timely fashion and our results of operations may be
adversely impacted.
Our operating results may fluctuate based upon many factors, which could
adversely affect our stock price
We expect our stock price to vary with our operating results and, consequently,
adverse fluctuations could adversely affect our stock price. Operating results
may fluctuate due to:
o demand for our products;
o success and timing of new product introductions;
o changes in interest rates and availability of bank or financing credit to
consumers of digital copiers and printers;
o price reductions by us and our competitors;
o delay, cancellation or rescheduling of orders;
o product performance;
o availability of key components, including possible delays in the deliveries
from suppliers;
o the status of our relationships with our OEM partners;
o the performance of third-party manufacturers;
o the status of our relationships with our key suppliers;
o potential excess or shortage of skilled employees; and
o general economic conditions.
Many of our products, and the related OEM copiers and printers, are purchased
utilizing lease contracts or bank financing. If prospective purchasers of
digital copiers and printers are unable to obtain credit, or interest rate
changes make credit terms undesirable, this may significantly reduce the demand
for digital copiers and printers, negatively impacting our revenues and
operating results.
Typically we do not have long-term volume purchase contracts with our customers,
and a substantial portion of our backlog is scheduled for delivery within 90
days or less. Our customers may cancel orders and change volume levels or
delivery times for product they have ordered from us without penalty. However, a
significant portion of our operating expenses are fixed in advance, and we plan
these expenditures based on the sales forecasts from our OEM customers and
product development programs. If we were unable to adjust our operating expenses
in response to a shortfall in our sales, it could harm our quarterly financial
results.
We attempt to hire additional employees to match growth in projected demand for
our products. If we project a higher demand than materializes, we will hire too
many employees and incur expenses that we need not have incurred and our margins
may be lower. If
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we project a lower demand than materializes, we will hire too few employees, we
may not be able to meet demand for our products and our sales revenue may be
lower. If we cannot successfully manage our growth, our results of operations
may be harmed.
The value of our investment portfolio will decrease if interest rates increase
We have an investment portfolio of mainly fixed income securities classified as
available-for-sale securities. As a result, our investment portfolio is subject
to interest rate risk and will fall in value if market interest rates increase.
We attempt to limit this exposure to interest rate risk by investing primarily
in short-term securities. We may be unable to successfully limit our risk to
interest rate fluctuations and this may cause our investment portfolio to
decrease in value.
Our stock price has been and may continue to be volatile
Our common stock, and the stock market generally, have from time to time
experienced significant price and volume fluctuations. The market prices for
securities of technology companies have been especially volatile, and
fluctuations in the stock market are often unrelated to the operating
performance of particular companies. These broad market fluctuations may
adversely affect the market price of our common stock. Our common stock price
may also be affected by the factors discussed above in this section as well as:
o Fluctuations in our results of operations, revenues or earnings or those of
our competitors;
o Failure of such results of operations, revenues or earnings to meet the
expectations of stock market analysts and investors;
o Changes in stock market analysts' recommendations regarding us;
o Real or perceived technological advances by our competitors;
o Political or economic instability in regions where our products are sold or
used; and
o General market and economic conditions.
We face risks from our international operations and from currency fluctuations
Approximately 51% and 50% of our revenue from the sale of products for the
twelve month periods ended December 31, 1999 and December 31, 1998,
respectively, came from sales outside North America, primarily to Europe and
Japan. We expect that sales to international destinations will continue to be a
significant portion of our total revenue. You should be aware that we are
subject to certain risks because of our international operations. These risks
include the regulatory requirements of foreign governments which may apply to
our products, as well as requirements for export licenses which may be required
for the export of certain technologies. The necessary export licenses may be
delayed or difficult to obtain, which could cause a delay in our international
sales and hurt our product revenue. Other risks include trade protection
measures, natural disasters, and political or economic conditions in a specific
country or region.
We believe that economic conditions in other parts of the world, such as Brazil,
may also limit demand for our products. The move to a single European currency,
the Euro, and the resulting central bank management of interest rates to
maintain fixed currency exchange rates among the member nations may lead to
economic conditions which adversely impact sales of our products.
Given the significance of our export sales to our total product revenue, we face
a continuing risk from the strengthening of the U.S. dollar versus the Japanese
yen, the Euro and other major European currencies, and numerous Southeast Asian
currencies, which could cause lower unit demand and the necessity that we lower
average selling prices for our products because of the reduced strength of local
currencies. Either of these events could harm our revenues and gross margin.
Although we typically invoice our customers in U.S. dollars, when we do invoice
our customers in local currencies, our cash flows and earnings are exposed to
fluctuations in interest rates and foreign currency exchange rates between the
currency of the invoice and the U.S. dollar. We attempt to limit or hedge these
exposures through operational strategies and financial market instruments where
we consider it appropriate. To date we have mostly used forward contracts to
reduce our risk from interest rate and currency fluctuations. However, our
efforts to reduce the risk from our international operations and from
fluctuations in foreign currencies or interest rates may not be successful,
which harm our financial condition and operating results.
We may be unable to adequately protect our proprietary information
We rely on a combination of copyright, patent and trade secret protection,
nondisclosure agreements, and licensing and cross-licensing arrangements to
establish and protect our proprietary rights. Any failure to adequately protect
our proprietary information could harm our financial condition and operating
results. We cannot be certain that any patents that may be issued to us, or
which we license from third parties, or any other of our proprietary rights will
not be challenged, invalidated or circumvented. In addition, we cannot be
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certain that any rights granted to us under any patents, licenses or other
proprietary rights will provide adequate protection of our proprietary
information.
We face risks from third party claims of infringement and potential litigation
Third parties may claim that our products infringe, or may infringe, their
proprietary rights. Such claims could result in lengthy and expensive
litigation. Such claims and any related litigation, whether or not we are
successful in the litigation, could result in substantial costs and diversion of
our resources. Although we may seek licenses from third parties covering
intellectual property that we are allegedly infringing, we cannot guarantee that
any such licenses could be obtained on acceptable terms, if at all.
Seasonal purchasing patterns of our OEM customers have historically caused lower
fourth quarter revenue, which may negatively impact the stock price
Our results of operations have typically followed a seasonal pattern reflecting
the buying patterns of our large OEM customers. In the past, our fiscal fourth
quarter results have been adversely affected because some or all of our OEM
customers wanted to decrease, or otherwise delay, fourth quarter orders. In
addition, the first fiscal quarter traditionally has been a weaker quarter
because our OEM partners focus on training of their sales forces. The primary
reasons for this seasonal pattern are:
o Fluctuation in demand for our products from our OEM partners, who have
historically sought to minimize year-end inventory investment (including
the reduction in demand following introductory "channel fill" purchases).
Fluctuation in demand is also caused by timing of new product releases and
training by our OEM partners; and
o The fact that our OEM partners have achieved their yearly sales targets and
consequently delayed further purchases into the next fiscal year, and the
fact that we do not know when our partners reach these sales targets as
they generally do not share them with us.
As a result of these factors, we believe that period to period comparisons of
our operating results are not meaningful, and you should not rely on such
comparisons to predict our future performance. We anticipate that future
operating results may fluctuate significantly due to this seasonal demand
pattern.
We may make future acquisitions and acquisitions involve numerous financial
risks
We seek to develop new technologies and products from both internal and external
sources. As part of this effort, we may make acquisitions of, or significant
investments in, other companies. Acquisitions involve numerous risks, including
the following:
o Difficulties in integration of operations, technologies, or products;
o Risks of entering markets in which we have little or no prior experience,
or entering markets where competitors have stronger market positions;
o Possible write-downs of impaired assets; and
o Potential loss of key employees of the acquired company.
Mergers and acquisitions of companies are inherently risky, and we cannot assure
you that our previous or future acquisitions will be successful and will not
harm our business, operating results, financial condition, or stock price.
The location and concentration of our facilities subjects us to the risk of
earthquakes, floods or other natural disasters
Our corporate headquarters, including most of our research and development
facilities and manufacturing operations, are located in the San Francisco Bay
Area of Northern California, an area known for seismic activity. This area has
also experienced flooding in the past. In addition, many of the components
necessary to supply our products are purchased from suppliers subject to risk
from natural disasters, based in areas including the San Francisco Bay Area,
Taiwan, and Japan. A significant natural disaster, such as an earthquake or a
flood, could harm our business, financial condition, and operating results.
We are dependent on sub-contractors to manufacture and deliver products to our
customers
We subcontract with other companies to manufacture our products. We are totally
reliant on the ability of our subcontractors to produce products sold to
customers, and while we closely monitor our subcontractors performance. We
cannot assure you that such
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subcontractors will continue to perform for us as well as they have in the past.
We also can not assure you that difficulties experienced by our subcontractors (
such as interruptions in a subcontractor's ability to make or ship our products,
or fix quality assurance problems ) would not harm our business, operating
results, or financial condition.
Item 7A:Quantitative and Qualitative Disclosures About Market Risk
Market Risk
The Company is exposed to various market risks, including the changes in foreign
currency exchange rates. Market risk is the potential loss arising from adverse
changes in market rates and prices, such as foreign currency exchange and
interest rates. The Company does not enter into derivatives or other financial
instruments for trading or speculative purposes. The Company enters into
financial instrument contracts to manage and reduce the impact of changes in
foreign currency exchange rates. The counterparties are major financial
institutions.
Foreign Exchange Contracts
During 1998, the Company began utilizing forward foreign exchange contracts to
hedge the currency fluctuations in transactions denominated in foreign
currencies, thereby limiting the Company's risk that would otherwise result from
changes in exchange rates. The transactions hedged were intercompany accounts
receivable and payable between the Company and its Japanese subsidiary. The
periods of the forward foreign exchange contracts correspond to the reporting
periods of the hedged transactions. Foreign exchange gains and losses on
intercompany balances and the offsetting losses and gains on forward foreign
exchange contracts are reflected in the income statement.
As of December 31, 1999, the Company had one outstanding forward foreign
exchange contract to sell Yen equivalent to approximately $1.8 million with an
expiration date of January 31, 2000. The estimated fair value of the foreign
currency contract represents the amount required to enter into offsetting
contracts with similar remaining maturities based on quoted market prices. As of
December 31, 1999, the difference between the fair value of the outstanding
contract and the contract amount was immaterial. Market risk was estimated as
the potential decrease in fair value resulting from a hypothetical 10% increase
of the amount of Yen to purchase one US Dollar. A 10% fluctuation in the
exchange rate for this currency would change the fair value by approximately
$0.2 million. However, since the contract hedges foreign currency denominated
transactions, any change in the fair value of the contract would be offset by
changes in the underlying value of the transactions being hedged.
Interest Rate Risk
The fair value of the Company's cash portfolio at December 31, 1999,
approximated carrying value. Market risk was estimated as the potential decrease
in fair value resulting from an instantaneous hypothetical 100 basis-point
increase in interest rates for any debt instruments in the Company's investment
portfolio. As of December 31, 1999, the Company's cash and short-term investment
portfolio includes debt securities of $424.9 million subject to interest rate
risk. A 100 basis-point increase in market interest rates would result in a
decrease of fair value of approximately $3.1 million.
The fair value of the Company's long-term debt, including current maturities,
was estimated to be $3.8 million as of December 31, 1999, and equaled the
carrying value. The Company's long-term debt requires interest payments based on
a variable rate and therefore is subject to interest rate risk. A 10%
fluctuation in interest rates would not have a material effect on the fair value
of the outstanding long-term debt of the Company as of December 31, 1999.
24
<PAGE>
<TABLE>
Item 8: Financial Statements and Supplementary Data
<CAPTION>
Electronics for Imaging, Inc.
Consolidated Balance Sheets
December 31,
(In thousands, except share and per share amounts) 1999 1998
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $163,824 $ 58,909
Short-term investments 306,504 269,823
Accounts receivable, net 81,904 59,660
Inventories 11,878 16,485
Other current assets 24,902 21,853
- -----------------------------------------------------------------------------------------------------
Total current assets 589,012 426,730
- -----------------------------------------------------------------------------------------------------
Property and equipment, net 49,776 47,632
Other assets 17,287 9,829
- -----------------------------------------------------------------------------------------------------
Total assets $656,075 $484,191
- -----------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 47,102 $ 32,849
Accrued and other liabilities 29,771 29,009
Income taxes payable 24,548 9,511
- -----------------------------------------------------------------------------------------------------
Total current liabilities 101,421 71,369
- -----------------------------------------------------------------------------------------------------
Long - term obligations, less current portion 3,467 4,142
Commitments and Contingencies (Note 6)
Stockholders' equity:
Preferred stock, $.01 par value; 5,000,000 shares
authorized; none
issued and outstanding -- --
Commonstock, $.01 par value; 150,000,000 shares
authorized; 55,722,214 and
53,984,484 shares issued and outstanding,
respectively 557 540
Additional paid-in capital 201,679 153,899
Accumulated other comprehensive income (loss) (772) (199)
Retained earnings 349,723 254,440
- -----------------------------------------------------------------------------------------------------
Total stockholders' equity 551,187 408,680
- -----------------------------------------------------------------------------------------------------
Total liabilities and
stockholders' equity $ 656,075 $ 484,191
- -----------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
25
<PAGE>
<TABLE>
Electronics for Imaging, Inc.
Consolidated Statements of Income
<CAPTION>
Years ended December 31,
(In thousands, except per share amounts) 1999 1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue $570,752 $446,999 $373,404
Cost of revenue 290,636 249,179 171,138
- -------------------------------------------------------------------------------------------------------------------
Gross profit 280,116 197,820 202,266
- -------------------------------------------------------------------------------------------------------------------
Operating expenses:
Research and development 74,971 60,150 42,868
Sales and marketing 59,373 60,615 46,776
General and administrative 18,403 16,637 13,578
In-process R&D -- -- 9,400
Merger related expenses 1,422 -- --
------- ------- -------
154,169 137,402 112,622
- -------------------------------------------------------------------------------------------------------------------
Income from operations 125,947 60,418 89,644
- -------------------------------------------------------------------------------------------------------------------
Other income, net 16,250 9,859 10,309
-------- -------- --------
Income before income taxes 142,197 70,277 99,953
Provision for income taxes (46,914) (22,456) (35,944)
- -------------------------------------------------------------------------------------------------------------------
Net income $95,283 $47,821 $64,009
- -------------------------------------------------------------------------------------------------------------------
Net income per basic common share $1.74 $0.89 $1.21
Shares used in per-share calculation 54,853 53,507 52,831
Net income per diluted common share $1.67 $0.87 $1.13
Shares used in per-share calculation 56,963 54,972 56,713
- -------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
26
<PAGE>
<TABLE>
Electronics for Imaging, Inc.
Consolidated Statements of Stockholders' Equity
<CAPTION>
Additional Accumulated Other Total
Common Stock Paid-In Comprehensive Retained Stockholders'
(In thousands) Shares Amount Capital Income (Loss) Earnings Equity
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances as of December 31, 1996 51,975 $520 $114,975 $-- $142,610 $258,105
- ---------------------------------------------------------------------------------------------------------------------------
Comprehensive income
Net income -- -- -- -- 64,009 64,009
------ ------
Comprehensive income -- -- -- -- 64,009 64,009
Exercise of common stock options 1,055 10 10,058 -- -- 10,068
Tax benefit related to stock plans -- -- 14,545 -- -- 14,545
- ---------------------------------------------------------------------------------------------------------------------------
Balances as of December 31, 1997 53,030 530 139,578 -- 206,619 346,727
- ---------------------------------------------------------------------------------------------------------------------------
Comprehensive income
Net income -- -- -- -- 47,821 47,821
Functional currency adjustment -- -- -- (199) -- (199)
----- -- -----
Comprehensive income (199) 47,821 47,622
Exercise of common stock options 954 10 8,683 -- -- 8,693
Tax benefit related to stock plans -- -- 5,638 -- -- 5,638
- ---------------------------------------------------------------------------------------------------------------------------
Balances as of December 31, 1998 53,984 540 153,899 (199) 254,440 408,680
- ---------------------------------------------------------------------------------------------------------------------------
Comprehensive income
Net income -- -- -- -- 95,283 95,283
Functional currency adjustment 71 -- 71
Market valuation adjustment
short-term investments -- -- -- (644) -- (644)
----- ----
Comprehensive income -- -- -- (573) 95,283 94,710
Exercise of common stock options 1,738 17 27,573 -- -- 27,590
Tax benefit related to stock plans -- -- 20,207 -- -- 20,207
- ---------------------------------------------------------------------------------------------------------------------------
Balances as of December 31, 1999 55,722 $557 $201,679 ($772) $349,723 $551,187
- ---------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
27
<PAGE>
<TABLE>
Electronics for Imaging, Inc.
Consolidated Statements of Cash Flows
<CAPTION>
Years ended December 31,
(In thousands) 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $95,283 $47,821 $64,009
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 14,464 14,051 7,489
Deferred taxes (13,304) (2,110) (4,300)
Change in reserve for bad debts (431) 250 (41)
In-process research and development -- -- 9,400
Other 71 (199) --
Changes in operating assets and liabilities:
Accounts receivable (21,813) (27,431) 10,752
Inventories 4,607 9,912 (11,493)
Receivable from subcontract manufacturers (407) 12,276 (5,854)
Other current assets 2,245 (38) (4,419)
Accounts payable and accrued liabilities 13,988 19,802 (2,870)
Income taxes payable 36,806 6,795 10,195
- ----------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 131,509 81,129 72,868
- ----------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchases of short-term investments (132,188) (327,483) (195,669)
Sales / maturities of short-term investments 94,171 243,196 150,287
Investment in property and equipment, net (15,622) (13,210) (38,317)
Business acquired, net of cash received -- -- (12,626)
Purchase of other assets 347 (181) (636)
- ----------------------------------------------------------------------------------------------------------------------
Net cash used for investing activities (53,292) (97,678) (96,961)
- ----------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Repayment of long-term obligations (892) (101) (374)
Issuance of common stock 27,590 14,331 10,068
- ----------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 26,698 14,230 9,694
- ----------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents 104,915 (2,319) (14,399)
Cash and cash equivalents at beginning of year 58,909 61,228 75,627
- ----------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $163,824 $58,909 $61,228
- ----------------------------------------------------------------------------------------------------------------------
Supplemental disclosures of Cash Flow Information:
Cash paid for interest $303 $369 $225
Cash paid for income taxes 22,591 11,448 30,225
Assumption of debt in conjunction with land acquisition -- -- 4,467
Equipment purchased under capital leases -- 430 73
- ----------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
28
<PAGE>
Electronics for Imaging, Inc.
Notes to Consolidated Financial Statements
Note 1: The Company and Its Significant Accounting Policies
The Company and Its Business
Electronics For Imaging, Inc., a Delaware corporation (the "Company"), designs
and markets products that support color and black-and-white printing on a
variety of peripheral devices. Its Fiery(R) products incorporate hardware and
software technologies that transform digital copiers and printers from many
leading copier manufacturers into fast, high-quality networked printers. The
Company's Fiery products include stand-alone servers, which are connected to
digital copiers and other peripheral devices, and Fiery controllers, which are
embedded in digital copiers and desktop color laser printers. The Company
operates in one industry and sells its products primarily to original equipment
manufacturers in North America, Europe and Japan. Substantially all of the
Company's revenue to date has resulted from the sale of Fiery products.
Basis of Presentation
The accompanying combined consolidated financial statements include the accounts
of the Company and its subsidiaries, including the company formerly known as
Management Graphics Inc. that merged with Electronics For Imaging, Inc. on
August 31, 1999 in a pooling of interests transaction. All periods presented
have been restated in order to include the financial results of Management
Graphics Inc. as if the acquired entity was a wholly-owned subsidiary of
Electronics For Imaging, Inc. since inception. All significant inter-company
accounts and transactions have been eliminated in consolidation.
Revenue Recognition
Revenue is recognized when the product is shipped, provided no significant
obligations remain and collectibility is reasonably probable. Provisions for
estimated warranty costs and potential sales returns are recorded when revenue
is recognized.
Fair Value of Financial Instruments
The carrying amounts of cash, cash equivalents, short-term investments, accounts
receivable, accounts payable, accrued liabilities and bonds payable as presented
in the financial statements, approximate fair value based on the nature of these
instruments and prevailing interest rates.
Concentration of Credit Risk
The Company is exposed to credit risk in the event of default by any of its
customers to the extent of amounts recorded on the consolidated balance sheet.
The Company performs ongoing evaluations of the collectibility of the accounts
receivable balances for its customers and maintains reserves for estimated
credit losses; such actual losses have been within management's expectations.
Cash, Cash Equivalents and Short-Term Investments
The Company generally invests its excess cash in deposits with major banks,
money market securities, municipal, U.S. government and corporate debt
securities. By policy, the Company invests primarily in high-grade marketable
securities. The Company is exposed to credit risk in the event of default by the
financial institutions or issuers of these investments to the extent of amounts
recorded on the consolidated balance sheet.
The Company considers all highly liquid investments, generally with a maturity
of three months or less at the time of purchase, to be cash equivalents. The
cost of these investments has generally approximated fair value. Investments
with longer maturities are classified as available-for-sale. Available-for-sale
securities are stated at fair value with unrealized gains and losses reported as
a separate component of stockholders' equity, net of deferred income taxes.
Realized gains and losses on sales of investments are included in other
revenues.
29
<PAGE>
Inventories
Inventories are stated at standard cost which approximates the lower of actual
cost using a first-in, first-out method, or market. The Company periodically
reviews its inventories for potential slow-moving or obsolete items and writes
down specific items to net realizable value as appropriate.
Property and Equipment
Property and equipment is recorded at cost. Depreciation on assets is computed
using the straight-line method over the estimated useful lives of the assets,
generally 10 to 60 months. Leasehold improvements are amortized using the
straight-line method over the estimated useful lives of the improvements or the
lease term, if shorter. Land improvements are amortized using the straight-line
method over the estimated useful lives of the improvements.
Amortization of Intangibles
Current goodwill and other intangible assets acquired to date are being
amortized on a straight-line basis over periods ranging from 1 to 5 years.
Income Taxes
The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards No. 109 (SFAS 109), "Accounting for Income
Taxes". Under SFAS 109, deferred tax liabilities and assets are determined based
on the differences between the financial statement and tax bases of assets and
liabilities, using enacted tax rates in effect for the year in which the
differences are expected to reverse. No provision for U.S. income tax is made
for undistributed earnings of the Company's foreign subsidiaries, to the extent
it is the Company's intention to indefinitely reinvest these earnings in the
respective subsidiaries.
Foreign Currency Translation
The functional currency for all of the Company's foreign operations, except for
Japan, is the U.S. dollar. The functional currency for Japan is the Japanese
Yen. Where the U.S. dollar is the functional currency, translation adjustments
are recorded in income. Where the Japanese Yen is the functional currency,
translation adjustments are recorded as a separate component of Stockholders'
Equity. Foreign currency translation and transaction gains and losses have not
been significant in any period presented.
Accounting for Derivative Instruments and Risk Management
The Company operates internationally, giving rise to exposure to market risk
from changes in foreign exchange rates. Derivative financial instruments are
used by the Company to reduce those risks. The Company does not hold or issue
financial or derivative financial instruments for trading or speculative
purposes. The magnitude and volume of such transactions were not material for
the periods presented. As of December 31, 1999, the Company had one outstanding
forward foreign exchange contract to sell Yen equivalent to approximately $1.8
million with an expiration date of January 31, 2000.
In June 1998, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards No. 133 (SFAS 133) "Accounting for
Derivative Instruments and Hedging". This statement establishes accounting and
reporting standards for derivative instruments and for hedging activities and
requires, among other things, that all derivatives be recognized as either
assets or liabilities in the statement of financial position and measure those
instruments at fair value. In June 1999, the FASB issued Statement of Financial
Accounting Standards No. 137 (SFAS 137), "Accounting for Derivative Instruments
and Hedging Activities - Deferral of Effective Date of FASB Statement No. 133".
SFAS 133, as amended by SFAS 137, is effective for fiscal quarters and fiscal
years beginning after June 15, 2000. The Company is currently studying the
provisions of the SFAS 133 and the potential impact it may have on its financial
statements.
Stock Options
In 1997, the Company adopted Statement of Financial Accounting Standards No. 123
(SFAS 123), "Accounting for Stock-Based Compensation". As permitted under this
standard, the Company has elected to follow Accounting Principles Board Opinion
No. 25
30
<PAGE>
(APB 25), "Accounting for Stock Issued to Employees" in accounting for its stock
options and other stock-based employee awards. Pro forma information regarding
net income and earnings per share, as calculated under the provisions of SFAS
123, are disclosed in Note 9.
Computation of Net Income per Common Share
Net income per basic common share is computed using the weighted average number
of common shares outstanding during the period. Net income per diluted common
share is computed using the weighted average number of common shares and
potential common shares outstanding during the period. Potential common shares
result from the assumed exercise, using the treasury stock method, of
outstanding common stock options having a dilutive effect.
Comprehensive Income
Effective January 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130 (SFAS 130), "Reporting Comprehensive Income". This Statement
requires that all items recognized under accounting standards as components of
comprehensive earnings be reported in an annual financial statement that is
displayed with the same prominence as other annual financial statements. This
Statement also requires that an entity classify items of other comprehensive
earnings by their nature in an annual financial statement. Comprehensive income
has been presented as part of the Consolidated Statements of Stockholder'
Equity. Accumulated other comprehensive income (losses), as presented in the
accompanying consolidated balance sheets, consists of the net unrealized gains
(losses) on available-for-sale investments, net of tax, and the cumulative
translation adjustment.
Reclassifications
Certain prior year balances have been reclassified to conform with the current
year presentation.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Note 2: Acquisitions
In October of 1997, the Company acquired Pipeline Associates, Inc. and Pipeline
Asia, Inc. (collectively, "Pipeline") - a leading software developer of
PostScript, HTML and PCL interpreter technologies. The acquisition cost, net of
cash received was $12.6 million and was accounted for as a purchase. The excess
of the acquisition cost over the fair market value of net tangible assets
acquired was $ 12.5 million, of which $ 9.4 million was allocated to in-process
research and development and expensed immediately. The allocation of the
purchase price to in-process research and development cost was based upon an
independent appraiser's evaluation and was determined by identifying research
projects in areas for which technological feasibility had not been established
and no alternative future uses existed. Substantially all of the in-process
research and development projects acquired were expected to be complete within
the 26 months following the acquisition date. However, development of these
projects remains a significant risk due to the remaining effort required to
achieve technological feasibility, rapidly changing customer markets and
significant competitive threats from numerous companies. Failure to bring any of
these products to market in a timely manner could adversely affect sales and
profitability of the Company in the future. Additionally, the value of net
assets and other intangible assets acquired may become impaired. The balance of
the excess acquisition cost was allocated to acquired technology and trademarks
- - $ 2.8 million, and goodwill - $0.3 million which are being amortized over 3
and 5 years respectively. The Pipeline acquisition was not deemed material to
the Company's financial condition or results of operations, accordingly, pro
forma disclosures associated with purchase accounting have not been provided.
On August 31, 1999 the Company acquired Management Graphics, Inc ("MGI"), a
Minnesota-based corporation that develops digital print on demand products and
other digital imaging products. The acquisition was accounted for as a tax free,
pooling of interests combination and, accordingly, the consolidated financial
statements have been restated to include the historical results of MGI for all
periods presented prior to the acquisition, as if the acquired entity was a
wholly-owned subsidiary of Electronics For Imaging, Inc.
31
<PAGE>
since inception. In connection with the acquisition, the Company issued a total
of 490,325 shares of its common stock to the existing shareholders of MGI as
consideration for all shares of capital stock of MGI. In addition, holders of
MGI options outstanding at the time of the acquisition will receive, upon
exercise of such options, in the aggregate up to 34,170 shares of the Company's
common stock. The combination was approved by a majority of shareholders from
MGI.
During the three month period ended September 30, 1999 the Company incurred
approximately $1.4 million of non-recurring expenses related to the merger.
These costs are included in operating expenses and consisted primarily of
professional fees, severance costs, and travel expenses. Severance costs related
to 33 former employees of MGI and the related positions were eliminated due to
duplication of resources between California and Minnesota locations.
Functionally, the Company eliminated 6 manufacturing, 15 service, 1 engineering,
6 sales and marketing, and 5 administrative positions. The terminations were
completed as of September 30, 1999.
<TABLE>
Components of the consolidated statements of EFI and MGI, prior to the
acquisition by EFI are as follows:
<CAPTION>
Six Twelve Twelve
Months Months Months
Ended Ended Ended
June 30, December 31, December 31,
(In thousands) 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net revenues
EFI $256,049 $430,723 $360,631
MGI 8,841 16,276 12,773
-------- -------- --------
$264,890 $446,999 $373,404
======== ======== ========
- ---------------------------------------------------------------------------------------------------------------------
Net income
EFI $40,442 $46,041 $64,882
MGI 368 1,780 (873)
-------- -------- --------
$40,810 $47,821 $64,009
======== ======== ========
- ---------------------------------------------------------------------------------------------------------------------
<FN>
Note: MGI revenue and net income for the eight month period ended August 31, 1999 amounted to $11,245 and $319,
respectively.
</FN>
</TABLE>
32
<PAGE>
<TABLE>
Note 3: Balance Sheet Components
<CAPTION>
December 31,
(In thousands) 1999 1998
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Accounts receivable:
Accounts receivable $83,170 $61,357
Less reserves and allowances (1,266) (1,697)
------- -------
$81,904 $59,660
- ----------------------------------------------------------------------------------------------------------------------
Inventories:
Raw materials $10,844 $15,289
Work in process 33 250
Finished goods 1,001 946
------- -------
$11,878 $16,485
- ----------------------------------------------------------------------------------------------------------------------
Other current assets:
Receivable from subcontract manufacturers $4,742 $4,335
Deferred income taxes, current portion 14,772 9,885
Other 5,388 7,633
------- -------
$24,902 $21,853
- ----------------------------------------------------------------------------------------------------------------------
Property and equipment:
Land and land improvements $27,681 $27,706
Equipment and purchased software 59,499 49,574
Furniture and leasehold improvements 13,261 7,753
------ -----
100,441 85,033
Less accumulated depreciation and amortization (50,665) (37,401)
------- -------
$49,776 $47,632
- ----------------------------------------------------------------------------------------------------------------------
Other assets:
Deferred income taxes, non-current portion $14,915 $6,124
Other 2,372 3,705
------- -------
$17,287 $9,829
- ----------------------------------------------------------------------------------------------------------------------
Accrued and other liabilities:
Accrued product-related obligations $7,809 $4,650
Accrued royalty payments 7,327 8,662
Accrued compensation and benefits 7,263 6,047
Other accrued liabilities 7,372 9,650
------- -------
$29,771 $29,009
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
33
<PAGE>
Note 4: Marketable Securities
<TABLE>
The following tables summarize the Company's investment in securities:
<CAPTION>
Amortized Gross Unrealized Gross Unrealized Fair
December 31, 1999 Cost Gains Losses Value
- ----------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C>
Municipal Securities $246,861 -- $(804) $246,057
U.S. Government Securities 54,636 -- (139) 54,497
U.S. Corporate Debt Securities 5,969 -- (19) 5,950
- ----------------------------------------------------------------------------------------------------------
Total investments $307,466 -- $(962) $306,504
- ----------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Amortized Gross Unrealized Gross Unrealized Fair
December 31, 1998 Cost Gains Losses Value
- ---------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C>
Municipal Securities $218,431 -- -- $218,431
U.S. Government Securities 16,457 -- -- 16,457
U.S. Corporate Debt Securities 34,935 -- -- 34,935
- ----------------------------------------------------------------------------------------------------------
Total debt securities $269,823 -- -- $269,823
- ----------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
The following table summarizes debt maturities as of December 31, 1999:
<CAPTION>
Amortized Fair
(In thousands) Cost Value
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Less than one year $123,243 $122,896
Due in 1-2 years 177,078 176,490
Due in 2-5 years 7,145 7,118
Due after 5 years -- --
- ----------------------------------------------------------------------------------------------------------
Total investments $307,466 $306,504
- ----------------------------------------------------------------------------------------------------------
</TABLE>
34
<PAGE>
Note 5: Long -Term Debt
<TABLE>
Long Term Debt consists of amounts due to the City of Foster City for certain
bonds assumed by the Company during the purchase of land (see Note 6). Principal
amounts owing under the bonds are as follows:
<CAPTION>
(In thousands) Year ending December 31, 1999
- ----------------------------------------------------------------------------------------------------------
<S> <C>
Total principal $3,775
Less: current portion (308)
- ----------------------------------------------------------------------------------------------------------
$3,467
- ----------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
The bonds are secured by the land and bear an annual interest rate of
approximately 7%. Interest and principal payments are due semi-annually with the
last payment occurring in June 2009. Principal payments under the bonds payable
are as follows:
<CAPTION>
(In thousands) Year ending December 31, 1999
- ----------------------------------------------------------------------------------------------------------
<S> <C>
2000 $308
2001 317
2002 332
2003 352
2004 373
Thereafter 2,093
- ----------------------------------------------------------------------------------------------------------
$3,775
- ----------------------------------------------------------------------------------------------------------
</TABLE>
Note 6: Commitments and Contingencies
Leases
On July 18, 1997, the Company entered into an agreement to lease a ten-story
295,000 square foot building to be constructed on 35 acres, which the Company
owns in Foster City, California. The construction of the building was completed
in July 1999. The lessor of the building committed to fund the construction of
the building which amounted to $57.0 million Rent obligations for the building
bear a direct relationship to the carrying cost of the commitment drawn. The
amount of this rent obligation is included in the future minimum lease
commitments under non-cancelable operating leases.
The lease associated with the Foster City building has a term of seven years
from the date of inception with an option to renew the lease for an additional
three to five years subject to certain conditions. In connection with the lease,
the Company entered into a lease of a portion of the land in Foster City to the
lessor of the building at a nominal rate and for a term of 34 years and 11
months. If the Company terminates or does not negotiate an extension of its
lease of the building, the ground lease to the lessor converts to a market rate.
The Company, at its option, may purchase the building during or at the end of
the terms of the lease at the amount expended by the lessor to construct the
building. The Company has guaranteed a residual value associated with the
building to the lessor of approximately 82% of the lessor's funding. If the
Company defaults on its lease, does not renew its lease, does not purchase the
building or arrange for a third party to purchase the building at the end of the
lease term, it may be liable to the lessor for the amount of the residual
guarantee. The lease has been classified as an operating lease.
As part of this agreement, the Company must maintain a minimum tangible net
worth. In addition, in order to obtain a favorable lease rate, the Company has
pledged certain securities ($69.1 million at December 31,1999) in a custodial
account as collateral to ensure fulfillment of the obligations to the lessor
under the lease agreement. The Company may invest these funds in certain
securities and receive the full benefit of the investment. However, if the
Company uses or transfers these funds, the rent on the building would increase
and the Company would be required to comply with certain additional financial
covenants.
On December 29, 1999, the Company entered into an agreement to lease additional
facilities, for up to 543,000 square feet, to be constructed on 35 acres, which
the Company owns in Foster City, California. The lessor of the building has
committed to fund up to a maximum of $137.0 million for the construction of the
facilities, with the portion of the committed amount actually used for
construction to be determined by the Company. The construction of the additional
facilities is scheduled to be completed over the
next 36 months. Rent obligations for the building bear a direct relationship to
the carrying cost of the commitments drawn. As of December 31, 1999, the Company
had not drawn any amounts under the arrangement.
The lease associated with the additional Foster City facilities has a term of
seven years with an option to renew subject to certain conditions. The Company
may, at its option, purchase the facilities during or at the end of the term of
the lease at the amount expended by the lessor to construct the facilities. In
connection with the lease, the Company entered into a lease of its land in
Foster City to the lessor of the buildings at a nominal rate and for a term of
30 years. If the Company terminates or does not negotiate an extension of its
lease of the building, the ground lease to the lessor converts to a market rate.
The Company, at its option, may purchase the building during or at the end of
the term of the lease at approximately the amount expended by the lessor to
construct the building. The Company has guaranteed a residual value associated
with the building to the lessor of 82% of the lessor's funding. If the Company
defaults on its lease, does not renew its lease, does not purchase the building
or arrange for a third party to purchase the facility at the end of the lease
term, it may be liable to the lessor for the amount of the residual guarantee.
As part of this agreement, the Company must maintain a minimum tangible net
worth. In addition, the Company has committed to pledge certain securities in
proportion to the amount drawn against the commitment to be held in a custodial
account as collateral to ensure fulfillment of the obligations to the lessor
under the lease agreement. No amounts were committed at December 31,1999 as the
Company had not drawn any amounts under the arrangement. The Company may invest
these funds in certain securities and receive the full benefit of the
investment, however the funds are restricted as to withdrawal at all times.
The Company has one operating lease commitment related to a previous corporate
facility. The operating lease expires in June 2000 and is currently earning
sublease income. The Company has also operating leases for facilities located
outside of California, expiring between May 2001 and October 2002.
<TABLE>
The following summarizes the future minimum lease payment under the
non-cancelable operating leases:
<CAPTION>
Fiscal Year (In thousands)
- ----------------------------------------------------------------------------------------------------------
<S> <C>
2000 $5,063
2001 4,188
2002 4,027
2003 3,839
2004 2,240
Thereafter --
- ----------------------------------------------------------------------------------------------------------
Total $19,357
Less: sublease income (912)
- ----------------------------------------------------------------------------------------------------------
Net lease obligation $18,445
- ----------------------------------------------------------------------------------------------------------
<FN>
Note: Lease obligation related to the principal corporate facility is estimated and is based on
current market interest rates (LIBOR) and based on collateralized assumptions.
</FN>
</TABLE>
The Company was assigned an agreement with a financing company for a line of
credit, to fund certain equipment additions, as part of the merger with
Management Graphics, Inc. All equipment purchases under this line of credit were
structured as capital leases. As of December 31, 1999, all obligations under the
line of credit have been satisfied.
Rental expense amounted to approximately $6.6 million, $4.6 million, and $3.4
million for the fiscal years ended 1999, 1998 and 1997, respectively.
Legal Proceedings
The Company and certain principal officers and directors were named as
defendants in class action complaints filed in both the California Superior
Court of the County of San Mateo on December 15, 1997, and the United States
District Court for the Northern District of California on December 31, 1997 on
behalf of purchasers of the common stock of the Company during the class period
36
<PAGE>
from April 10, 1997, through December 11, 1997. The complaints allege violations
of securities laws during the class period. Management believes the lawsuits are
without merit and that the outcome will not have a material adverse effect on
the financial position or overall trends in the results of operations of the
Company. However, due to the inherent uncertainties of litigation, the Company
cannot accurately predict the ultimate outcome of the litigation. Any
unfavorable outcome of the litigation could have an adverse impact on the
Company's financial condition and results of operations. In addition, the
Company is involved from time to time in litigation relating to claims arising
in the normal course of its business. The Company believes that the ultimate
resolution of such claims will not materially affect the Company's business or
financial condition.
Note 7: Income Taxes
<TABLE>
The provision (benefit) for income taxes is summarized as follows:
<CAPTION>
Years ended December 31,
(In thousands) 1999 1998 1997
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
U.S. Federal $51,085 $20,771 $34,231
State 8,044 3,749 5,741
Foreign 1,463 46 272
- --------------------------------------------------------------------------------------------------------------------
Total current 60,592 24,566 40,244
Deferred:
U.S. Federal (13,265) (2,348) (3,483)
State (408) 238 (817)
Foreign (5) 0 0
- --------------------------------------------------------------------------------------------------------------------
Total deferred (13,678) (2,110) (4,300)
- --------------------------------------------------------------------------------------------------------------------
Total provision (benefit) for income taxes $46,914 $22,456 $35,944
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
The tax effects of temporary differences that give rise to deferred tax assets
are as follows:
<CAPTION>
December 31,
(In thousands) 1999 1998
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Depreciation $1,901 $825
Inventory reserves 4,532 3,379
Other reserves and accruals 6,762 5,185
State taxes payable 1,568 672
Deferred revenue 496 631
Intangibles 4,636 3,803
Deferred tax on I/C transactions 8,148 --
Other 1,644 1,514
- --------------------------------------------------------------------------------------------------------------------
Total deferred tax assets $29,687 $16,009
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
A reconciliation between the income tax provision computed at the federal
statutory rate and the actual tax provision is as follows:
<CAPTION>
Years ended December 31,
(In thousands) 1999 1998 1997
---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
$ % $ % $ %
- -----------------------------------------------------------------------------------------------------------------------
37
<PAGE>
Tax expense at federal statutory rate $49,769 35.0 $24,572 35.0 $34,998 35.0
State income taxes, net of federal benefit 5,502 3.9 3,063 4.4 3,167 3.2
Tax-exempt interest income (3,601) (2.5) (2,717) (4.0) (2,245) (2.2)
Tax credits (2,725) (1.9) (1,874) (2.8) (1,129) (1.1)
FSC benefit (3,360) (2.4) (1,039) (1.5) (2,077) (2.1)
Other 1,329 0.9 451 0.9 3,230 3.2
- -----------------------------------------------------------------------------------------------------------------------
$46,914 33.0 $22,456 32.0 $35,944 36.0
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
Income before income taxes includes $2.0 million, $3.2 million and $1.0 million
of income relating to non -U.S. operations for 1999, 1998 and 1997,
respectively.
Note 8: Earnings Per Share
<TABLE>
The following table presents a reconciliation of basic and diluted earnings per
share for the three years in the period ended December 31, 1999:
<CAPTION>
Years ended December 31,
(In thousands) 1999 1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income available to common shareholders $95,283 $47,821 $64,009
Shares
Basic shares 54,853 53,507 52,831
Effect of Dilutive Securities 2,110 1,465 3,882
------ ------ ------
Diluted shares 56,963 54,972 56,713
- -------------------------------------------------------------------------------------------------------------------
Earnings per common share
Basic EPS $1.74 $0.89 $1.21
Diluted EPS $1.67 $0.87 $1.13
- -------------------------------------------------------------------------------------------------------------------
<FN>
Antidilutive Options. Options to purchase 349,791, 2,742,510 and 586,540 shares
of common stock outstanding as of December 31, 1999, 1998, and 1997,
respectively, were not included in the computations of diluted EPS because the
options' exercise prices were greater than the average market price of the
common shares for the years then ended.
</FN>
</TABLE>
Note 9: Employee Benefit Plans
Stock Option Plans
<TABLE>
As of December 31, 1999, the Company has four stock-based compensation plans,
described below. The Company applies APB 25 and related interpretations in
accounting for its plans. Accordingly, no compensation cost has been recognized
for its fixed stock option plans. Had compensation cost for options granted in
1999, 1998 and 1997 under the Company's option plans been determined based on
the fair value at the grant dates as prescribed by SFAS 123, the Company's net
income and pro forma net income per share would have been as follows:
<CAPTION>
Years ended December 31,
(In thousands, except per share amounts) 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income As reported $95,283 $47,821 $64,009
Pro forma $61,410 $18,543 $40,996
Earnings per basic As reported $1.74 $0.89 $1.21
38
<PAGE>
common share Pro forma $1.12 $0.35 $0.78
Earnings per diluted As reported $1.67 $0.87 $1.13
common share Pro forma $1.08 $0.34 $0.72
</TABLE>
The Company has four stock option plans: the 1989 Stock Plan (a "Predecessor
Plan") , the 1990 Stock Plan (a "Stock Plan"), the MGI 1985 Nonqualified Stock
Option Plan (a "Predecessor Plan") and the 1999 Equity Incentive Plan (a "Stock
Plan"). The Company does not grant any options under the Predecessor Plans,
however all outstanding options under the Predecessor Plans continue to be
governed by the terms and conditions of the existing option agreements for those
grants. Under the Stock Plans, the exercise price of each option equals the
market price of the Company's stock on the date of grant and an option's maximum
term is 10 years. Options are granted periodically throughout the year and
generally vest ratably over four years. At December 31, 1999, approximately 5.3
million shares were available for future grants to employees, directors or
consultants.
<TABLE>
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model, the attribution method with respect to
graded vesting and the following weighted-average assumptions:
<CAPTION>
Years Ended December 31,
Black Scholes Assumptions & Fair Value 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Expected Volatility 76.3% 76.0% 69.0%
Dividend Yield 0.0% 0.0% 0.0%
Risk Free Interest Rate 5.95% to 6.44% 4.49% to 4.65% 5.35% to 5.83%
Weighted Average Expected Option Term 4.5 years 4.4 years 5.2 years
Weighted Average Fair Value of Options Granted $19.35 $6.98 $25.22
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
A summary of the status of the Company's stock option activity is presented
below:
<CAPTION>
Years ended December 31,
(In thousands, except exercise price) 1999 1998 1997
- -------------------------------------------------------------------------------------------------------------------------------
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Beginning of Year 6,734 $21.04 6,401 $21.76 6,151 $13.19
Granted 2,955 36.81 1,931 16.05 1,615 45.24
Exercised (1,738) 16.06 (954) 9.19 (1,055) 9.51
Forfeited (616) 31.09 (644) 30.73 (310) 25.36
- -------------------------------------------------------------------------------------------------------------------------------
End of Year 7,335 $27.73 6,734 $21.04 6,401 $21.76
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
39
<PAGE>
<TABLE>
The following table summarizes information about stock options outstanding at
December 31, 1999:
<CAPTION>
Options Outstanding Options Exercisable
- --------------------------------------------------------------------------------------------------------------------------
Number Number
Range of Outstanding Weighted Avg. Weighted Avg. Exercisable Weighted Avg.
Exercise Prices (in thousands) Remaining Life Exercise Price in thousands) Exercise Price
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$0.01 to $5.63 897 3.48 $3.50 897 $3.50
$5.64 to $14.12 841 6.54 $12.98 610 $12.69
$14.13 to $15.64 76 6.00 $15.07 49 $15.06
$15.65 to $20.80 855 7.94 $16.10 279 $16.29
$20.81 to $26.80 670 6.65 $25.38 423 $25.54
$26.81to $34.37 2,177 9.12 $33.58 54 $29.88
$34.38 to $47.37 1,245 8.12 $43.27 402 $45.28
$47.38 to $58.37 562 8.87 $52.94 115 $52.67
$58.38 to $59.87 3 9.53 $58.38 0 $0.00
$59.88 to $59.88 9 9.68 $59.88 0 $0.00
- --------------------------------------------------------------------------------------------------------------------------
$0.01 to $59.88 7,335 7.55 $27.73 2,829 $18.68
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
Employee 401(k) Plan
As of 1999, the Company sponsors a 401 (k) Savings Plan (the "401 (k) Plan") to
provide retirement and incidental benefits for its employees. Employees may
contribute from 1% to 20% of their annual compensation to the Plan, limited to a
maximum annual amount as set periodically by the Internal Revenue Service. The
Company currently matches employee contributions 50 cents on the dollar, up to a
maximum of a 2% match on the first 4% of the employee's contribution. The
Company match is annually determined by the Board of Directors. All matching
contributions vest over four years starting with the hire date of the individual
employee. Company matching contributions to the Plan totaled $0.6 million in
1999.
Note 10: Information Concerning Business Segments and Major Customers
Information about Products and Services
The Company operates in a single industry segment, technology for high-quality
printing in short production runs. The Company does not have separate operating
segments for which discrete financial statements are prepared. The Company's
management makes operating decisions and assesses performance based on primarily
product revenues and related gross margins.
40
<PAGE>
<TABLE>
The following is a breakdown of revenues for the years ended December 31, 1999,
1998 and 1997 by product category:
<CAPTION>
1999 1998 1997
(In thousands) Revenue Revenue Revenue
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Stand-alone Servers Connecting
to Digital Color Copiers $244,028 $291,785 $293,708
Embedded Desktop Controllers,
Bundled Color Solutions
& Chipset Solutions 149,899 90,133 34,133
Controllers for Digital
Black and White Solutions 121,071 19,196 --
Spares, Licensing
& Other misc. sources 55,754 45,885 45,563
- ----------------------------------------------------------------------------------------------------------
Total Revenue
$570,752 $446,999 $373,404
- ----------------------------------------------------------------------------------------------------------
</TABLE>
Information about Geographic Areas
Except for Japan, all of the Company's sales are originated in the United
States. Shipments to some of the Company's OEM partners are made to centralized
purchasing and manufacturing locations, which in turn sell through to other
locations. As a result of these factors, the Company believes that sales to
certain geographic locations might be higher or lower, though accurate data is
difficult to obtain.
<TABLE>
The following is a breakdown of revenues by shipment destination for the years
ended 1999, 1998 and 1997, respectively:
<CAPTION>
Years ended December 31,
(In thousands) 1999 1998 1997
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
United States $267,885 $209,938 $175,835
Netherlands 94,727 79,878 62,149
Japan 90,781 68,991 64,323
Rest of World 117,359 88,192 71,097
- ----------------------------------------------------------------------------------------------------
$570,752 $446,999 $373,404
- ----------------------------------------------------------------------------------------------------
</TABLE>
Information about Major Customers
Two customers, with total revenues greater than 10%, accounted for approximately
42% and 18% of revenue in 1999 and 36% and 23% of revenue in 1998, respectively.
Three customers, with total revenues greater than 10%, accounted for
approximately 44%, 27% and 14% of revenue in 1997. Two customers, with accounts
receivable balances greater than 10%, accounted for approximately 61% of the
accounts receivable balance as of December 31, 1999. Three customers, with
accounts receivable balances greater than 10%, accounted for approximately 69%
and 85% of the accounts receivable balance as of December 31, 1998 and December
31, 1997, respectively.
41
<PAGE>
Report of Independent Accountants
To the Board of Directors and Stockholders of
Electronics For Imaging, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, of stockholders' equity and of cash flows
present fairly, in all material respects, the financial position of Electronics
For Imaging, Inc. and its subsidiaries at December 31, 1999 and 1998, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1999, in conformity with principles generally
accepted in the United States. These financial statements are the responsibility
of the Company's management; our responsibility is to express an opinion on
these financial statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally accepted in the
United States, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
San Jose, California
January 18, 2000
42
<PAGE>
Quarterly Consolidated Financial Information
(Unaudited)
(In thousands, except per share data)
<TABLE>
The following table presents the Company's operating results for each of the
eight quarters in the two-year period ended December 31, 1999. The information
for each of these quarters is unaudited but has been prepared on the same basis
as the audited consolidated financial statements appearing elsewhere in this
Annual Report. In the opinion of management, all necessary adjustments
(consisting only of normal recurring adjustments) have been included to present
fairly the unaudited quarterly results when read in conjunction with the audited
consolidated financial statements of the Company and the notes thereto appearing
in this Annual Report. These operating results are not necessarily indicative of
the results for any future period.
<CAPTION>
1999: Q1 Q2 Q3 Q4
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue $124,204 $140,686 $158,211 $147,651
Gross profit 58,655 69,260 78,975 73,226
Income from operations 22,694 31,644 38,743 32,866
Net income 17,286 23,524 29,358 25,115
Net income per basic common share 0.32 0.43 0.53 0.45
Net income per diluted common share $0.31 $0.41 $0.51 $0.44
Revenue by product
Stand-alone Servers Connecting to Digital Copiers $62,221 $58,106 $60,184 $63,517
Embedded Desktop Controllers, Bundled
Color Solutions & Chipset Solutions 31,664 36,913 43,940 37,382
Controllers for Digital Black and White Solutions 16,794 35,176 41,907 27,194
Spares, Licensing & other misc. sources 13,525 10,491 12,180 19,558
------ ------ ------ ------
Total revenue $124,204 $140,686 $158,211 $147,651
Shipments by geographic area
North America $56,784 $65,633 $77,762 $77,818
Europe 42,690 47,403 45,833 46,676
Japan 22,175 22,832 27,614 18,160
Rest of World 2,555 4,818 7,002 4,997
----- ----- ----- -----
Total $124,204 $140,686 $158,211 $147,651
1998: Q1 Q2 Q3 Q4
- ---------------------------------------------------------------------------------------------------------------------------
Revenue $85,572 $100,839 $129,804 $130,784
Gross profit 38,685 43,845 56,613 58,677
Income loss from operations 4,252 10,278 21,766 24,122
Net income loss 4,164 7,687 17,139 18,831
Net income loss per basic common share 0.08 0.14 0.32 0.35
Net income loss per diluted common share $0.08 $0.14 $0.31 $0.34
Revenue by product
Stand-alone Servers Connecting to Digital Copiers $65,188 $63,767 $87,169 $75,661
Embedded Desktop Controllers, Bundled
Color Solutions & Chipset Solutions 9,909 18,717 26,422 35,085
Controllers for Digital Black and White Solutions 1,128 7,710 4,319 6,039
Spares, Licensing & other misc. sources 9,347 10,645 11,894 13,999
----- ------ ------ ------
Total revenue $85,572 $100,839 $129,804 $130,784
Shipments by geographic area
North America $39,996 $49,118 $67,461 $65,063
Europe 30,194 34,849 39,868 39,165
Japan 12,852 13,181 18,886 24,072
Rest of World 2,530 3,691 3,589 2,484
----- ----- ----- -----
Total $85,572 $100,839 $129,804 $130,784
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
43
<PAGE>
PART III
Item 9: Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
Item 10: Directors and Executive Officers of the Registrant
Information regarding directors of the Company is incorporated by reference
from the information contained under the caption "Election of Directors" in
the Company's Proxy Statement for the Company's 2000 Annual Meeting of
Stockholders (the "2000 Proxy Statement"). Information regarding current
executive officers of the Registrant is incorporated by reference from
information contained under the caption "Executive Officers" in the
Company's 2000 Proxy Statement. Information regarding Section 16 reporting
compliance is incorporated by reference from information contained under
the caption "Section 16 (a) Beneficial Ownership Reporting Compliance" in
the Company's 2000 Proxy Statement.
Item 11: Executive Compensation
The information required by this item is incorporated by reference from the
information contained under the caption "Executive Compensation" in the
Company's 2000 Proxy Statement.
Item 12: Security Ownership of Certain Beneficial Owners and Management
The information required by this item is incorporated by reference from the
information contained under the caption "Security Ownership" in the
Company's 2000 Proxy Statement.
Item 13: Certain Relationships and Related Transactions
The information required by this item is incorporated by reference from the
information contained under the caption "Related Transactions" in the
Company's 2000 Proxy Statement.
44
<PAGE>
PART IV
Item 14: Exhibits, Financial Statement Schedules, and Reports on Form 10-K.
(a) Documents Filed as Part of Form 10-K
(1) Index to Financial Statements
The Financial Statements required by this item are submitted in Item 8
of this report as follows:
Report of Independent Accountants.
Consolidated Balance Sheets at December 31, 1999 and 1998
Consolidated Statements of Income for the three years ended
December 31, 1999 Consolidated Statements of Stockholders' Equity
for the three years ended December 31, 1999 Consolidated Statements
of Cash Flows for the three years ended December 31, 1999 Notes to
Consolidated Financial Statements
(2) Index to Financial Statement Schedule
Schedule II - Valuation and Qualifying Accounts
Report of Independent Accountants on Financial Statement Schedule
(All other schedules are omitted because of the absence of conditions
under which they are required or because the necessary information is
provided in the consolidated financial statements or notes thereto.)
(3) Exhibits
Exhibit
No. Description
--- -----------
2.2 Agreement and Plan of Merger and Reorganization, dated as of
July 14, 1999, among the Company, Redwood Acquisition Corp. and
Management Graphics, Inc. (5)
3.1 Amended and Restated Certificate of Incorporation. (2)
3.2 Bylaws as amended. (1)
4.1 See Exhibit 3.1
4.2 Specimen Common Stock certificate of the Company. (1)
10.1 Agreement of Lease dated as of July 30, 1992, by and between
the Company and The Joseph and Eda Pell Revocable Trust for the
Company's new executive office in San Mateo, California. (1)
10.2 First Addendum to Lease dated as of July 30, 1992, by and
between the Company and The Joseph and Eda Pell Revocable
Trust. (1)
10.3+ License Agreement, dated as of February 9, 1990, between the
Company and the Massachusetts Institute of Technology. (1)
10.4 Amendment to License Agreement dated December 31, 1990, between
the Company and the Massachusetts Institute of Technology. (1)
45
<PAGE>
Exhibit
No. Description
--- ------------
10.5 Amendment to License Agreement dated May 29, 1991 and March 19,
1991, by and between the Company and the Massachusetts
Institute of Technology. (1)
10.6+ Third Amendment to License Agreement dated June 1, 1992, by and
between the Company and the Massachusetts Institute of
Technology. (1)
10.7+ Custom PostScript Interpreter OEM License Agreement, dated as
of March 1, 1991, by and between the Company and Adobe Systems
Incorporated. (1)
10.8++ Postscript Support Source and Object Code Distribution License
Agreement, dated as of September 12, 1995, by and between the
Company and Adobe Systems Incorporated.
10.9 1989 Stock Plan of the Company. (1)
10.10 1990 Stock Plan of the Company. (1)
10.11 Management Graphics, Inc. 1985 Nonqualified Stock Option Plan.
10.12 The 1999 Equity Incentive Plan. (6)
10.13** Form of Indemnification Agreement.(1)
10.14 Employment Agreement dated January 11, 2000 by and between Dan
Avida and the Company.
10.15 Employment Agreement dated March 8, 2000, by and between Fred
Rosenzweig and the Company.
10.16 Employment Agreement dated March 8, 2000, by and between Eric
Saltzman and the Company.
10.17 Employment Agreement dated March 8, 2000, by and between Jan
Smith and the Company.
10.18 Employment Agreement dated March 8, 2000, by and between Guy
Gecht and the Company.
10.19** Master Lease and Open End Mortgages dated as of July 18, 1997
by and between the Company and FBTC Leasing Corp. for the lease
financing of the Company's corporate headquarters building to
be built in Foster City, California.(4)
10.20 Lease Financing of Properties Located in Foster City,
California, dated as of January 18, 2000 among the Company,
Societe Generale Financial Corporation and Societe Generale.
21.1 List of Subsidiaries.
23.1 Consent of PricewaterhouseCoopers LLP.
24.1 Power of Attorney (see signature page)
27 Financial Data Schedule
+ The Company has received confidential treatment with
respect to portions of these documents.
++ The Company has requested confidential treatment with
respect to portions of these documents.
(1) Filed as an exhibit to the Company's Registration
Statement on Form S-1 (No. 33-50966) and incorporated
herein by reference.
46
<PAGE>
(2) Filed as an exhibit to the Company's Registration
Statement on Form S-1 (File No. 33-57382) and incorporated
herein by reference.
(3) Filed as an exhibit to the Company's Annual Report on Form
10-K for the year ended December 31, 1995 (File No.
0-18805) and incorporated herein by reference.
(4) Filed as an exhibit to the Company's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1997 (File No.
0-18805) and incorporated herein by reference.
(5) Filed as an exhibit to the Company's Report of Unscheduled
Material Events on Form 8-K on September 8, 1999 (File No.
0-18805) and incorporated herein by reference.
(6) Filed as an exhibit to the Company's Registration
Statement on Form S-8 (File No. 333-88135) and
incorporated herein by reference.
(b) Reports on Form 8-K
None filed during the quarter ended December 31, 1999.
(c) List of Exhibits
See Item 14 (a).
(d) Consolidated Financial Statement Schedule II for the years ended
December 31, 1999, 1998 and 1997, respectively.
See Page 45 of this Annual Report on Form 10-K.
<TABLE>
ELECTRONICS FOR IMAGING, INC.
Schedule II
Valuation and Qualifying Accounts
<CAPTION>
Balance at Charged to Charged to Balance at
beginning costs and other end of
Description of period expenses accounts Deductions period
- ----------------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1999
Allowance for doubtful accounts and
sales-related reserves $1,697 $200 $-- $(631) $1,266
- ----------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1998
Allowance for doubtful accounts and
sales-related reserves $1,628 $250 $-- $(181) $1,697
- ----------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1997
Allowance for doubtful accounts and
sales-related reserves $2,046 $29 $(150) $(297) $1,628
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
47
<PAGE>
Report of Independent Accountants on
Financial Statement Schedule
To the Board of Directors and Stockholders
of Electronics for Imaging, Inc.
Our audits of the consolidated financial statement referred to in our report
dated January 18, 2000 appearing in this Form 10-K also included an audit of the
Consolidated Financial Statement Schedule listed in Item 14(a) of this Form
10-K. In our opinion, the Consolidated Financial Statement Schedule presents
fairly, in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements.
PRICEWATERHOUSECOOPERS LLP
San Jose, California
January 18, 2000
48
<PAGE>
SIGNATURES
Pursuant to the requirements of Sections 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
ELECTRONICS FOR IMAGING, INC.
March 17, 2000 By: /s/ Guy Gecht
-------------
Guy Gecht
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENT, that each person whose signature appears
below constitutes and appoints Guy Gecht and Eric Saltzman jointly and
severally, his attorneys-in-fact, each with the power of substitution, for him
in any and all capacities, to sign any amendments to the Form 10-K Annual
Report, and to file the same, with exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming all that each of said attorneys-in-fact, or his
substitute or substitutes, may do or cause to be done by virtue thereof.
<TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Guy Gecht Chief Executive Officer March 17, 2000
- ------------- (Principal Executive Officer)
Guy Gecht
/s/ Eric Saltzman Chief Financial Officer and Corporate Secretary March 17, 2000
----------------- (Principal Financial and Accounting Officer)
Eric Saltzman
/s/ Dan Avida Chairman of the Board March 17, 2000
-------------
Dan Avida
/s/ Gill Cogan Director March 17, 2000
--------------
Gill Cogan
/s/ Jean-Louis Gassee Director March 17, 2000
---------------------
Jean-Louis Gassee
/s/ Dan Maydan Director March 17, 2000
--------------
Dan Maydan
/s/ Thomas Unterberg Director March 17, 2000
--------------------
Thomas Unterberg
</TABLE>
49
<PAGE>
Exhibit Index
Exhibit
No. Description
--- -----------
2.2 Agreement and Plan of Merger and Reorganization, dated as of
July 14, 1999, among the Company, Redwood Acquisition Corp. and
Management Graphics, Inc. (5)
3.1 Amended and Restated Certificate of Incorporation. (2)
3.2 Bylaws as amended. (1)
4.1 See Exhibit 3.1
4.2 Specimen Common Stock certificate of the Company. (1)
10.1 Agreement of Lease dated as of July 30, 1992, by and between
the Company and The Joseph and Eda Pell Revocable Trust for the
Company's new executive office in San Mateo, California. (1)
10.2 First Addendum to Lease dated as of July 30, 1992, by and
between the Company and The Joseph and Eda Pell Revocable
Trust. (1)
10.3+ License Agreement, dated as of February 9, 1990, between the
Company and the Massachusetts Institute of Technology. (1)
10.4 Amendment to License Agreement dated December 31, 1990, between
the Company and the Massachusetts Institute of Technology. (1)
10.5 Amendment to License Agreement dated May 29, 1991 and March 19,
1991, by and between the Company and the Massachusetts
Institute of Technology. (1)
10.6+ Third Amendment to License Agreement dated June 1, 1992, by and
between the Company and the Massachusetts Institute of
Technology. (1)
10.7+ Custom PostScript Interpreter OEM License Agreement, dated as
of March 1, 1991, by and between the Company and Adobe Systems
Incorporated. (1)
10.8++ Postscript Support Source and Object Code Distribution License
Agreement, dated as of September 12, 1995, by and between the
Company and Adobe Systems Incorporated.
10.9 1989 Stock Plan of the Company. (1)
10.10 1990 Stock Plan of the Company. (1)
10.11 Management Graphics, Inc. 1985 Nonqualified Stock Option Plan.
10.12 The 1999 Equity Incentive Plan. (6)
10.13** Form of Indemnification Agreement.(1)
10.14 Employment Agreement dated January 11, 2000 by and between Dan
Avida and the Company.
10.15 Employment Agreement dated March 8, 2000, by and between Fred
Rosenzweig and the Company.
10.16 Employment Agreement dated March 8, 2000, by and between Eric
Saltzman and the Company.
10.17 Employment Agreement dated March 8, 2000, by and between Jan
Smith and the Company. Exhibit No. Description
50
<PAGE>
10.18 Employment Agreement dated March 8, 2000, by and between Guy
Gecht and the Company.
10.19** Master Lease and Open End Mortgages dated as of July 18, 1997
by and between the Company and FBTC Leasing Corp. for the lease
financing of the Company's corporate headquarters building to
be built in Foster City, California.(4)
10.20 Lease Financing of Properties Located in Foster City,
California, dated as of January 18, 2000 among the Company,
Societe Generale Financial Corporation and Societe Generale.
21.1 List of Subsidiaries.
23.1 Consent of PricewaterhouseCoopers LLP.
24.2 Power of Attorney (see signature page)
27 Financial Data Schedule
+ The Company has received confidential treatment with
respect to portions of these documents.
++ The Company has requested confidential treatment with
respect to portions of these documents.
(1) Filed as an exhibit to the Company's Registration
Statement on Form S-1 (No. 33-50966) and incorporated
herein by reference.
(2) Filed as an exhibit to the Company's Registration
Statement on Form S-1 (File No. 33-57382) and incorporated
herein by reference.
(3) Filed as an exhibit to the Company's Annual Report on Form
10-K for the year ended December 31, 1995 (File No.
0-18805) and incorporated herein by reference.
(4) Filed as an exhibit to the Company's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1997 (File No.
0-18805) and incorporated herein by reference.
(5) Filed as an exhibit to the Company's Report of Unscheduled
Material Events on Form 8-K on September 8, 1999 (File No.
0-18805) and incorporated herein by reference.
(6) Filed as an exhibit to the Company's Registration
Statement on Form S-8 (File No. 333-88135) and
incorporated herein by reference.
51
CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS,
HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
Exhibit 10.8
ADOBE CONFIDENTIAL
POSTSCRIPT SUPPORT SOURCE
AND OBJECT CODE DISTRIBUTION
LICENSE AGREEMENT
BETWEEN
ADOBE SYSTEMS INCORPORATED
AND
ELECTRONICS FOR IMAGING INCORPORATED
Dated as of September 12, 1995
<PAGE>
TABLE OF CONTENTS
Page
RECITALS .................................................................. 1.
AGREEMENT ................................................................. 1.
1. DEFINITIONS .......................................................... 1.
1.1 "Adobe Deliverables" ............................................ 1.
1.2 "Adobe Screening Test Suite" .................................... 1.
1.3 "Adobe Software" ................................................ 1.
1.3.1 "Abode Source" ........................................ 1.
1.4 "Adobe Support Information" ..................................... 2.
1.5 "Adobe Trademarks" .............................................. 2.
1.6 "Bitmap Font" ................................................... 2.
1.7 "Confidentiality Agreement" ..................................... 2.
1.8 "Clone Product" ................................................. 2.
1.9 "Development Site" .............................................. 2.
1.10 "EFI Hardware Product" .......................................... 2.
1.11 "EFI Modifications" ............................................. 2.
1.12.1 "Major Revisions to EFI Standard Controller" .......... 2.
1.12.2 "Major Revisions to EFI Standard Controller" .......... 3.
1.13 "End User" ...................................................... 3.
1.14 "Error" ......................................................... 3.
1.15 "First Commercial Shipment" ..................................... 3.
1.16 "Font Programs" ................................................. 3.
1.16.1 "Initial Installation Font Programs" .................. 3.
1.16.2 "Additional Font Programs" ............................ 3.
1.16.3 "Other Font Programs" ................................. 3.
1.17 "Licensed Systems" .............................................. 3.
1.17.1 "Licensed System Appendix" ............................ 3.
1.18 "PostScript Language Specification" ............................. 4.
1.19 "PostScript Language Specification Addendum" .................... 4.
1.20 "PPD File" ...................................................... 4.
1.21 "Reference Port" ................................................ 4.
1.21.1 "Reference Port Support Source" ....................... 4.
1.21.2 "Reference Port Appendix" ............................. 4.
1.21.3 "Reference System" .................................... 4.
1.21.4 "Unmodified Core" ..................................... 4.
1.22 "Reproduction Site" ............................................. 5.
1.23 "Revised Software" .............................................. 5.
1.23.1 "Revised Support Software" ............................ 5.
1.23.2 "Revised Object" ...................................... 5.
1.24 "Subsidiary" .................................................... 5.
i.
<PAGE>
TABLE OF CONTENTS
(continued)
Page
----
1.25 "Technical Coordinator" ......................................... 5.
1.26 "Typeface" ...................................................... 5.
1.27 "Typeface Trademarks" ........................................... 5.
1.28 "Update" ........................................................ 5.
1.29 "Upgrade" ....................................................... 6.
2. SCOPE OF EFI'S LICENSES .............................................. 6.
2.1 License to Use Reference Port Support Source and Adobe Support
Information ..................................................... 6.
2.2 License to Sublicense Certain Software .......................... 6.
2.2.1 Revised Object ........................................ 6.
2.2.2 Font Programs ......................................... 6.
2.3 PPD File License ................................................ 7.
2.4 PostScript Language Specification ............................... 7.
2.4.1 Addison-Wesley ........................................ 7.
2.4.2 License Grant ......................................... 7.
2.4.3 Right to Sublicense ................................... 8.
2.4.4 Proprietary Rights With Respect to PostScript Language
Specification ......................................... 8.
2.5 PostScript Language Specification Addendum License .............. 8.
2.6 Limitations on License to EFI ................................... 9.
2.6.1 No Right to Sublicense ................................ 9.
2.6.2 Changes to the Adobe Software ......................... 9.
2.6.3 EFI Modifications ..................................... 9.
2.7 End User License ................................................ 9.
2.8 No Other Rights ................................................. 9.
2.9 Subsidiaries and Contractors .................................... 10.
3. SCOPE OF ADOBE'S LICENSES ............................................ 10.
3.1 License to EFI Revised Support Software ......................... 10.
3.2 PPD File License ................................................ 10.
3.3 PostScript Language Specification Addendum ...................... 10.
4. REFERENCE PORT APPENDICES ............................................ 10.
4.1 Initial Adobe Reference Port Delivery ........................... 10.
4.2 Future Reference Ports .......................................... 10.
4.3 Technical Coordinators .......................................... 11.
5. LICENSED SYSTEM APPENDICES ........................................... 11.
ii.
<PAGE>
TABLE OF CONTENTS
(continued)
Page
----
5.1 Future Licensed Systems ......................................... 11.
5.1.1 Revised Software for Major Revisions to EFI Standard
Controller ............................................ 11.
5.1.2 Revised Software for Minor Revisions to EFI Standard
Controller ............................................ 11.
5.1.3 EFI Responsibilities .................................. 11.
5.2 Technical Coordinators .......................................... 12.
5.3 Licensed System Appendices for Revised Software ................. 12.
5.3.1 PPD File .............................................. 12.
5.3.2 PostScript Language Specification Addendum ............ 12.
6. ACCEPTANCE ........................................................... 12.
6.1 Acceptance of Reference Ports ................................... 12.
6.2 Acceptance of Revised Software .................................. 13.
7. LOANED EQUIPMENT ..................................................... 13.
7.1 EFI Revised Software Versions ................................... 13.
7.2 Terms of Loan ................................................... 13.
7.3 Restrictions on Use ............................................. 14.
8. PROPRIETARY RIGHTS AND LEGENDS ....................................... 14.
8.1 Proprietary Notices ............................................. 14.
8.2 Restricted Rights ............................................... 14.
8.3 Foreign Government Agreements ................................... 15.
9. MARKETING AND LICENSE TO USE TRADEMARKS .............................. 15.
9.1 Marketing ....................................................... 15.
9.2 Trademark License ............................................... 15.
10. PAYMENTS ............................................................. 16.
10.1 Source Payments ................................................. 16.
10.2 Licensed System Payments ........................................ 16.
10.3 Font Program Royalties .......................................... 16.
10.5 Other Payments .................................................. 16.
10.6 Taxes ........................................................... 16.
10.7 Payment of Royalties ............................................ 17.
10.8 Right of Audit .................................................. 17.
10.9 When Royalties Earned ........................................... 17.
iii.
<PAGE>
TABLE OF CONTENTS
(continued)
Page
----
11. PERFORMANCE WARRANTY ................................................. 18.
11.1 Reference Port Warranties ....................................... 18.
11.2 Update Warranties ............................................... 18.
11.3 Limitations on Warranties ....................................... 18.
12. TRAINING AND SUPPORT ................................................. 19.
12.1 Adobe Training .................................................. 19.
12.2 EFI Support ..................................................... 19.
13. PROPRIETARY RIGHTS INDEMNITY ......................................... 19.
13.1 By Adobe ........................................................ 19.
13.2 By EFI .......................................................... 20.
14. TERM AND CANCELLATION ................................................ 21.
14.1 Term ............................................................ 21.
14.2 Cancellation by Adobe for Cause ................................. 21.
14.3 Cancellation by EFI for Cause ................................... 21.
14.4 Termination by EFI for Convenience .............................. 21.
14.5 Bankruptcy ...................................................... 21.
14.6 Obligations on Cancellation, Termination or Expiration .......... 21.
14.6.1 Licenses Terminated ................................... 21.
14.6.2 Safeguarding of Proprietary Rights .................... 21.
14.6.3 Return or Destruction of Adobe Information ............ 21.
14.6.4 Payment ............................................... 22.
14.6.5 Continued Use by End Users ............................ 22.
14.6.6 Assignment on Default ................................. 22.
14.6.7 Support and Maintenance: No Right to Sublicense ....... 22.
14.6.8 Right to Sell-Off Inventory ........................... 22.
15. LIMITATION OF LIABILITY .............................................. 22.
15.1 Adobe ........................................................... 22.
15.2 EFI ............................................................. 22.
16. GENERAL .............................................................. 23.
16.1 Governing Law ................................................... 23.
16.2 Attorneys' Fees ................................................. 23.
16.3 Forum ........................................................... 23.
16.4 Notices ......................................................... 23.
16.5 Injunctive Relief ............................................... 23.
iv.
<PAGE>
TABLE OF CONTENTS
(continued)
Page
----
16.6 No Agency ...................................................... 24.
16.7 Force Majeure .................................................. 24.
16.8 Waiver ......................................................... 24.
16.9 Severability ................................................... 24.
16.10 Headings ....................................................... 24.
16.11 No Patent License .............................................. 24.
16.11.1 Definitions ........................................... 24.
16.11.2 Adobe Patents ......................................... 24.
16.11.3 EFI Patents ........................................... 25.
16.12 Assignment ..................................................... 25.
16.13 Export ......................................................... 25.
16.14 Full Power ..................................................... 25.
16.15 Confidential Agreement ......................................... 25.
16.16 Counterparts ................................................... 25.
16.17 Entire Agreement ............................................... 25.
v.
<PAGE>
EXHIBITS
Title Exhibit Paragraph References
Adobe Deliverables A 1.1
Confidentiality Agreements B 1.7, EXHIBIT J
Development and Reproduction Sites C 1.9, 1.22
Sample Format for Licensed System Appendix D 1.17.1, 5.1
Reference Port Training and Support E 1.21, 1.28, 5.1.3, 11.2, 12.1,
EXHIBIT H, EXHIBIT J
Sample Format for Reference Port Appendix F 1.21.2, 4.2
Minimum Terms of End User Agreements G 2.7
Payments H 4.1, 4.2, 10.1, 10.2,
EXHIBIT E
Revised Software Test Procedures I 5.1.1, 5.1.2, 5.3, 5.3.1, 6.2,
7.1, EXHIBIT E, EXHIBIT H
Secure Procedures for Handling Adobe
Support Information J 8, 14.6.2, EXHIBIT E
Use of Adobe Trademarks K 9.2
vi.
<PAGE>
ADOBE SYSTEMS INCORPORATED
POSTSCRIPT SUPPORT SOURCE
AND OBJECT CODE DISTRIBUTION LICENSE AGREEMENT
This Agreement is between Adobe Systems Incorporated, a California
corporation having its principal place of business at 1585 Charleston Road, P.O.
Box 7900, Mountain View, California 94039-7900 ("Adobe"), and Electronics for
Imaging, Inc., a Delaware corporation, having its principal place of business at
2855 Campus Drive, San Mateo, California 94403 ("EFl"). This Agreement is
effective as of September 12, 1995 (the "Effective Date").
RECITALS
A. Adobe owns certain computer programs which are useful in controlling
raster devices including, but not limited to, CRT displays, dot-matrix printers,
and laser printers, known collectively as the PostScript software.
B. EFI has requested that Adobe license portions of the PostScript
software (in source code form as defined below) to EFI that EFI will be able to
adapt and develop such source code for use with Licensed Systems (as defined
below) specified in Licensed System Appendices attached to this Agreement and
distribute object code versions thereof in accordance with the terms and
conditions set forth in this Agreement.
AGREEMENT
1. DEFINITIONS. Capitalized terms shall have the meaning set forth below.
1.1 "Adobe Deliverables" means the deliverables set forth in Exhibit A
("Adobe Deliverables").
1.2 "Adobe Screening Test Suite" means the test programs, procedures
and accompanying documentation developed by Adobe, and subject to change by
Adobe in its sole discretion, to be used by EFl to test implementations of
Licensed Systems and Revised Object for conformity to the PostScript Language
Specification.
[*] CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
<PAGE>
1.3 "Adobe Software" means (a) all or any portion of the unmodified
computer programs, both in source and object code form, and compilations
thereof, as described in the applicable Reference Port Appendix provided by
Adobe to EFI and (b) any changes to such software which Adobe may supply to EFI.
1.3.1 "Adobe Source" means the source code of the Adobe
Software and any corresponding source documentation described in the applicable
Reference Port Appendix.
1.4 "Adobe Support Information" means any (a) Adobe Software, Font
Programs, Adobe Screening Test Suite, and other documentation and computer
recorded data related to any of the above, and (b) any other software and
accompanying documentation, including utility tools, which Adobe may supply to
EFI. Adobe Support Information shall not include any EFI Modifications made
pursuant to this Agreement.
1.5 "Adobe Trademarks" means (a) the registered trademarks "Adobe" and
"PostScript", (b) the respective stylistic marks and distinctive logotypes for
such trademarks, and (c) other marks and logotypes as Adobe may from time to
time designate during the course of this Agreement.
1.6 "Bitmap Font" means the applicable digitally encoded machine
readable data in bitmap form for screen display having a resolution of less than
150 dots per inch for use with the associated Font Program. Bitmap Fonts shall
be made available in the plurality of sizes for single Typefaces deliverable by
Adobe to EFI when such Bitmap Fonts become generally available to Adobe for
distribution to its OEM licensees.
1.7 "Confidentiality Agreement" means individually and collectively the
agreements in writing, substantially in the form attached as Exhibit B-1
("Employee Nondisclosure Agreement"), Exhibit B-2 ("Contractor Agreement") and
Exhibit B-3 ("Notice Regarding Confidentiality").
1.8 "Clone Product" means a product having page description
capabilities that are substantially compatible with the PostScript language.
1.9 "Development Site" means a site specified in Exhibit C
("Development and Reproduction Sites") at which EFI may use the Adobe Support
Information, including the Reference Port Support Source.
1.10 "EFI Hardware Product" means a device consisting of a marking
engine or other output device and EFI-Standard Controller (if any) which
executes or operates with the Revised Object and which is described in a
Licensed System Appendix.
1.11 "EFI Modifications" means all modifications made by EFI to the
Adobe Source in creating Revised Software pursuant to this Agreement.
[*] CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
<PAGE>
1.12 "EFI Standard Controller" means a controller for color output
devices manufactured by or for EFI and distributed by EFI, consisting of (i) a
RIP processing system, which includes connectivity and I/O (Disk, Ethernet,
parallel, SCSI), CPU coprocessors, ASICs, DRAM and Video Bus, and (ii) a video
interface board, which provides the interface between the controller and the
print engine.
1.12.1 "Major Revisions to EFI Standard Controller" means
revisions to the RIP processing system, hardware core architecture changes, CPU
co-processor changes, Video Bus Changes and ASIC functionality changes.
1.12.2 "Minor Revisions to EFI Standard Controller" means (i)
revisions to the video controller for the purpose of adding new engines to those
supported by the RIP processing system, (ii) different DRAM configurations,
(iii) software updates that are not directly linked to any of the Adobe
Deliverables (e.g., new scan functionality, additional reporting capabilities,
updated/additional protocol stacks), and (iv) minor hardware revisions (e.g.,
faster CPUs, enlarged Cache).
1.13 "End User" means a third party using a Licensed System for its
ordinary and customary business or personal purposes, but not for redistribution
or resale.
1.14 "Error" means a defect in a Reference Port which causes the
Reference Port, when compiled and run in the Reference System, not to operate
substantially in accordance with the PostScript Language Specification.
1.15 "First Commercial Shipment" as to each Licensed System Appendix
means the earlier of (a) EFI's first internal use of a Licensed System described
in a Licensed System Appendix other than for development or testing, and (b)
shipment of such Licensed System to a third party.
1.16 "Font Programs" means the digitally encoded, machine readable
outline programs for the Typefaces identified as Initial Installation Font
Programs, Additional Font Programs (if any) and Other Font Programs (if any)
encoded in a special format.
1.16.1 "Initial Installation Font Programs" means the Font
Programs for the Roman Typefaces specified as Initial Installation Font Programs
in a Reference Port or Licensed System Appendix, bundled with the Adobe
Software, and shipped as a part of a Licensed System.
1.16.2 "Additional Font Programs" means the Font Programs for
any Roman Typefaces specified as Additional Font Programs in a Reference Port or
Licensed System Appendix, bundled with the Adobe Software, and shipped as a part
of a Licensed System.
1.16.3 "Other Font Programs" means the Font Programs (which
may include, but are not limited to, Font Programs for Japanese Typefaces) for
non-Roman-Typefaces
[*] CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
<PAGE>
which are specified in a Reference Port or Licensed System Appendix, bundled
with the Adobe Software, and shipped as a part of, or for use with, a Licensed
System.
1.17 "Licensed System" means the collective term for a final product
comprising Revised Object, the EFI Hardware Product(s) (if any), and any Font
Programs, bundled as a single commercial product and described in a Licensed
System Appendix.
1.17.1 "Licensed System Appendix" means any Licensed System
Appendix added to this Agreement in a form similar to EXHIBIT D ("Sample Format
for Licensed System Appendix") hereto.
1.18 "PostScript Language Specification" means the PostScript Language
Reference Manual, Second Edition, as printed in English by Addison-Wesley,
current as of April 1991, and any Adobe Supplement thereto provided to EFI by
Adobe, but shall not include any PostScript Language Specification Addendum.
1.19 "PostScript Language Specification Addendum" means a supplement to
the PostScript Language Specification for each Licensed System to be written by
EFI that describes the features specific to a Licensed System and the means of
accessing those features via the Adobe Software. PostScript Language
Specification Addenda will be based on a template provided by Adobe, with
technical content approved by Adobe.
1.20 "PPD File" means a human readable, machine parseable, PostScript
printer description file containing device-specific information as to how to
invoke the features of a particular Licensed System, as described in the
PostScript Printer Description File Specification (which specification is
available from Adobe and subject to change by Adobe, in its sole discretion,
from time to time).
1.21 "Reference Port" means a release of the Adobe Software, consisting
of source code and object code modules as defined in a Reference Port Appendix,
ported by Adobe to a controller platform and printer engine specified by Adobe,
from which EFI develops Licensed Systems. A "Reference Port" refers to the
Reference Port Support Source and the object code version thereof, the
Unmodified Core and any Update to a Reference Port described in Exhibit E
("Reference Port Training and Support"), which is provided to EFI pursuant to
this Agreement.
1.21.1 "Reference Port Support Source" means those portions of
the source code version of the Reference Port, supplied to EFI on agreed-upon
media, identified in a Reference Port Appendix as Adobe Reference Support
Source, and which may be modified to adapt the Reference Port for use as part of
Licensed Systems.
1.21.2 "Reference Port Appendix" means any Reference Port
Appendix added to this Agreement in a form similar to Exhibit F ("Sample Format
for Reference Port Appendix") hereto, pursuant to which Adobe delivers a
Reference Port to EFI, ported to a controller platform and printer engine
specified by Adobe, from which EFI will develop Licensed Systems pursuant to one
or more Licensed System Appendices.
[*] CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
<PAGE>
1.21.3 "Reference System" means a compiled Reference Port,
together with the controller and printer engine that the Reference Port
supports, which is identified in a Reference Port Appendix.
1.21.4 "Unmodified Core" means those portions of the Reference
Port which Adobe identifies in a Reference Port Appendix that it will supply on
agreed-upon media in object code form only, and which may be supplied in either
binary object or linkable object code form, as determined by Adobe.
1.22 "Reproduction Site" means the Site(s) designated in Exhibit C
("Development and Reproduction Sites") at which EFI can reproduce (or have
reproduced) the Revised Object and Font Programs.
1.23 "Revised Software" means collectively, the Revised Support
Software, Reference Port Support Source (if any), and Unmodified Core which is
intended to be implemented for use as part of a Licensed System. All versions of
the Revised Software shall be deemed to be derivative works based upon the Adobe
Software and shall be subject to all provisions of this Agreement applicable to
the Adobe Software.
1.23.1 "Revised Support Software" means the source and object
code versions of any portions of the Reference Port Support Source that are
modified by EFI to create a new version which is intended to be compatible with,
and used with, a Licensed System.
1.23.2 "Revised Object" means the machine readable object code
version of the Revised Software.
1.24 "Subsidiary" means any corporation, partnership or other entity as
to which EFI: (a) owns or controls, directly or indirectly, at least fifty
percent (50%) by nominal value or number of units of the outstanding stock or of
the outstanding stock conferring the right to vote at a general meeting, or (b)
has the right to elect a majority of the Board of Directors or its equivalent,
or (c) has the right, directly or indirectly, to appoint or remove the
management.
1.2.5 "Technical Coordinator" means a technically qualified person
identified by EFI or Adobe to serve as primary contact for information requests
by the other party, who, when so requested, shall use his or her best efforts to
respond promptly after receipt of such request.
1.26 "Typeface" means a human readable set of glyphs, including letters
of the alphabet, upper and/or lower case, the numerals 0-9 and additional
special characters and punctuation marks as may be offered by Adobe in
conjunction with such letters and numerals of one typeface design and identified
in a Reference Port or Licensed System Appendix. Each weight or version of a
single typeface design (such as Roman or Italic or in an expanded or condensed
form) marketed by Adobe as a separate typeface will be considered a separate
Typeface.
[*] CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
<PAGE>
1.27 "Typeface Trademarks" means the trademarks, if any, used by Adobe
to identify the Font Programs and Typefaces.
1.28 "Update" means updated versions of a Reference Port, in source
code form for Reference Port Support Source and in object code for Unmodified
Core, which include all changes, alterations, corrections and enhancements to
such Reference Port which Adobe makes generally available to OEM licensees
receiving Adobe Support (as defined in Exhibit E ("Reference Port Training and
Support")) for that particular Reference Port.
1.29 "Upgrade" means the installation of Revised Object and, if
required, Font Programs in a Licensed System which contains an earlier version
of the Revised Object and Font Programs for the purpose of updating, enhancing,
or extending the Licensed System.
2. SCOPE OF EFI'S LICENSES.
2.1 License to Use Reference Port Support Source and Adobe Support
Information. Subject to EFI's compliance with the terms of this Agreement, Adobe
hereby grants to EFI a non-exclusive, non-transferable license (except as
provided in PARAGRAPH 16.12 ("Assignment")) to use each version of the Reference
Port Support Source and Adobe Support Information solely at the Development Site
for the sole purpose of designing, developing, adapting, testing and maintaining
Revised Software which is (a) implemented as part of present or future Licensed
Systems set forth in Licensed System Appendices and (b) is in conformance with
the specifications set forth in the PostScript Language Specification.
2.2 License to Sublicense Certain Software.
2.2.1 Revised Object. EFI's right to distribute commercially
or use the Revised Object is contingent upon execution of a Licensed System
Appendix to this Agreement that authorizes such commercial distribution or
internal use. All such commercial distribution or use of Revised Object shall be
limited to versions in ROM, EPROM or PROM form, or encrypted versions
downloadable to RAM (which shall be encrypted in a manner approved by Adobe in
writing), as set forth in a Licensed System Appendix. Subject to the foregoing
and to EFI's compliance with the terms of this Agreement, Adobe hereby grants to
EFI a worldwide, non-exclusive, non-transferable (except as provided in
PARAGRAPH 16.12 ("Assignment")) license to use, reproduce (or have reproduced)
at the Development Site and Reproduction Site, sublicense and distribute
directly and indirectly, through EFI's usual distribution channels, each copy of
Revised Object only as a part of a Licensed System or as an Upgrade on the terms
set forth in this Agreement.
2.2.2 Font Programs. Subject to EFI's compliance with the
terms of this Agreement, Adobe hereby grants to EFI a worldwide, non-exclusive,
non-transferable (except as provided in PARAGRAPH 16.12 ("Assignment")) license,
(a) to reproduce (or have reproduced) the Font Programs set forth in each
Licensed System Appendix provided by Adobe at the Development Site and
Reproduction Site and to distribute the Font Programs, directly and
[*] CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
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indirectly, through EFI's usual distribution channels, only as part of the
applicable Licensed System; (b) to sublicense the Font Programs to End Users for
the reproduction and display of Typefaces on the Licensed Systems; (c) to use
the Font Programs to reproduce and display the Typefaces on the Licensed Systems
for purposes of test, evaluation, demonstration or development of applications;
and (d) to use, and to sublicense each End User to use, the Typeface Trademarks
used by Adobe to identify the Font Programs. EFI's license under this paragraph
will terminate upon termination of the agreement between Adobe and the Typeface
Trademark owner, if any, pertaining to such Font Program, and Adobe shall have
the right at such time to substitute a Font Program for an equivalent Typeface.
(a) Initial Installation Font Programs. EFI agrees
that the Revised Object will contain, at a minimum, the Initial Installation
Font Programs.
(b) Bitmap Fonts. EFI agrees that the Bitmap Fonts
provided by Adobe will be distributed only in conjunction with the associated
Font Programs at a price not to exceed the direct and allocable costs associated
with the production of such Bitmap Fonts. EFI acknowledges that the Bitmap Fonts
will be available in a limited number of point sizes and may not be available at
all for some Font Programs. All of the terms and conditions applicable to the
Font Programs herein apply to the Bitmap Fonts. Notwithstanding the foregoing,
so long as the Bitmap Fonts are distributed in conjunction with the Font
Programs, no additional royalty is due Adobe under the terms of PARAGRAPH 10.3
("Font Program Royalties") for distribution of Bitmap Fonts.
2.3 PPD File License. Subject to EFI's compliance with the terms of
this Agreement, Adobe hereby grants to EFI a worldwide, non-exclusive,
non-transferable (except as provided in PARAGRAPH 16.12 ("Assignment")) license
to reproduce and distribute any PPD Files, and updates thereto, for Adobe
Revised Software contained in each Licensed System and the right to sublicense
all such licensed rights through multiple tiers of distribution.
2.4 PostScript Language Specification.
2.4.1 Addison-Wesley. Adobe has entered into a Publishing
Agreement ("Publishing Agreement") with the Addison-Wesley Publishing Company
Inc. ("AddisonWesley") whereby Addison-Wesley publishes the PostScript Language
Specification. The Publishing Agreement provides that Addison-Wesley will be
available to negotiate with OEM customers concerning publication of special
versions of the PostScript Language Specification for inclusion with shipments
of Licensed Systems.
2.4.2 License Grant. Notwithstanding the above, subject to
EFI's compliance with the terms of this Agreement, Adobe hereby grants EFI a
worldwide, non-exclusive, non-transferable (except as provided in PARAGRAPH
16.12 ("Assignment")) license (a) to translate the English version of the
PostScript Language Specification into a language other than English, in whole
or in part, and (b) to reproduce and distribute the PostScript Language
Specification and any EFI translations thereof, which may include supplemental
information regarding the EFI
[*] CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
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Hardware Product, solely in hard copy format to EFI's customers, provided that
such PostScript Language Specification shall not be made available for general
distribution or resale through the retail trade, either through EFI or EFI's
publisher and provided further that EFI can only provide two (2) copies of such
EFI produced PostScript Language Specification (the English version or any
EFI-translated version) for any one (1) Licensed System. Any such EFI
translation will be performed only by EFI's employees or Subsidiaries in
accordance with the terms of this Agreement. EFI agrees that no right is granted
herein to reproduce Addison-Wesley's foreign language versions of the PostScript
Language Specification other than the English version.
2.4.3 Right to Sublicense. Adobe further grants EFI the right
to sublicense its OEM customers to reproduce, in whole in part, and distribute
the PostScript Language Specification solely in hard-copy format to their
customers in accordance with the same terms and conditions imposed on EFI in
this paragraph. Such EFI customers shall not have the right to modify the
PostScript Language Specification received from EFI.
2.4.4 Proprietary Rights With Respect to PostScript Language
Specification. EFI agrees that Adobe will own the original PostScript Language
Specification as included in any version or translation of the PostScript
Language Specification created by EFI and that EFI will take commercially
reasonable steps to assure that all right, title and interest to the PostScript
Language Specification (including the versions and translations created by EFI)
remain with Adobe. EFI's own version of the PostScript Language Specification is
a derivative work created from the PostScript Language Specification, and
reproduction and distribution by EFI of EFI's own version or translation of the
PostScript Language Specification shall be subject to the terms and conditions
herein, including but not limited to the prohibition against distribution or
resale through the retail trade described in PARAGRAPH 2.4.2 ("License Grant")
above. EFI's own translation or version of the PostScript Language Specification
shall be made faithfully and accurately, shall be of good literary quality, and
shall consist of the whole of the textual, pictorial and diagrammatic material
constituting the PostScript Language Specification, without alteration,
abridgment or supplement except as provided herein or with the express written
permission of Adobe. EFI grants Adobe permission to: (a) make any EFI
translations of the PostScript Language Specification public; (b) place Adobe's
name and copyright notice on any EFI translation of the PostScript Language
Specification; and (c) make any necessary modification or alteration to the EFI
translation of the PostScript Language Specification. Adobe reserves the right
to approve the final manuscript of EFI's (or its Subsidiaries') own version or
any translation before its publication provided that EFI gives Adobe thirty (30)
days prior written notice of the date on which it will deliver the final
manuscript to Adobe, Adobe shall review the manuscript within fourteen (14) days
of its submission to Adobe. Adobe's failure to provide EFI with notice of
disapproval of the final manuscript within such fourteen (14) day period shall
constitute approval for purposes of this paragraph. Nothing herein shall prevent
Adobe or any of its OEMs from creating their own derivative works or
translations of the PostScript Language Specification.
2.5 PostScript Language Specification Addendum License. Subject to
EFI's compliance with the terms of this Agreement, Adobe hereby grants to EFI a
worldwide, non-exclusive, non-transferable (except as provided in PARAGRAPH
16.12 ("Assignment")) license
[*] CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
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to use the PostScript Language Specification Addendum template provided by Adobe
to create, reproduce and distribute (with technical content approved by Adobe
pursuant to PARAGRAPH 5.3.2 ("PostScript Language Specification Addendum"))
PostScript Language Specification Addenda for Licensed Systems.
2.6 Limitations on License to EFI.
2.6.1 No Right to Sublicense. Except as set forth in PARAGRAPH
2.2 ("License to Sublicense Certain Software"), PARAGRAPH 2.3 ("PPD File
License"), PARAGRAPH 2.4 ("PostScript Language Specification") and PARAGRAPH 2.5
("PostScript Language Specification Addendum License"), with respect to Revised
Object and Font Programs, EFI shall have no right to sublicense any rights to a
third party.
2.6.2 Changes to the Adobe Software.
(a) In view of the desire of EFI and Adobe to
establish and maintain an industry standard PostScript interpreter, EFI shall
not make, without the express written permission of Adobe, any changes or
additions to, enhancements in, or deletions from, the Adobe Software (including
Reference Port Support Source), if such changes or enhancements would in any way
(i) change the PostScript language imaging model, syntax, semantics, or
functionality of the PostScript language, or (ii) change or disable use of
Adobe's Type 1 font rendering code.
(b) EFI agrees not to distribute to third parties any
version of the Revised Object containing any symbol table information with
respect to external variables or procedure entry points.
2.6.3 EFI Modifications. EFI shall own the EFI Modifications,
provided that any Revised Object containing EFI Modifications shall be subject
to the terms and conditions of this Agreement.
2.7 End User License. EFI will take the same steps to protect Adobe's
proprietary rights in the Adobe Software and Font Programs which it takes to
protect its own software, but in no event will it use less than reasonable care
to protect Adobe's proprietary rights. Except as provided below, EFI shall
ensure that each copy of the Revised Object or any Font Programs distributed by
EFI will be accompanied by a copy of EFI's standard software license agreement.
The terms of such license will be drafted so as to apply to the Revised Object
and Font Programs. In addition, such license will include terms and conditions
substantially equivalent to those set forth in Exhibit G ("Minimum Terms of End
User Agreements") to this Agreement. Notwithstanding the foregoing, in the
United States and in other jurisdictions where an enforceable copyright covering
the Revised Object and Font Programs exists, the license specified above may be
a written agreement in the package containing the Revised Object and Font
Programs, or the user documentation for the Revised Object and Font Programs,
that is fully visible to the End User and that the End User accepts by opening
the package.
[*] CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
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2.8 No Other Rights. EFI specifically acknowledges that, other than as
expressly set forth in PARAGRAPH 2.1 ("License to Use Reference Port Support
Source and Adobe Support Information") above, no -rights to the Reference Port
Support Source are granted to it.
2.9 Subsidiaries and Contractors. This Agreement applies to EFI and to
any Subsidiaries of EFI which agree with EFI in writing to be bound by the terms
and conditions imposed on EFI hereunder. Notwithstanding the foregoing, EFI
agrees to make all payments due Adobe under the terms of this Agreement. The
exercise of any right granted under this Agreement by any such Subsidiary (or
the contractor of EFI or such Subsidiary) is subject to EFI's guaranty of the
performance by such Subsidiary and contractors of all of EFI's obligations
hereunder.
3. SCOPE OF ADOBE'S LICENSES.
3.1 License to EFI Revised Support Software. EFI shall use best efforts
to provide to Adobe those portions of the source code of any Revised Software
which have been modified by EFI to correct Errors found in the Reference Port
Support Source supplied to EFI hereunder. EFI may, in its sole discretion,
provide to Adobe any other source code of any Revised Software. If, at any time,
EFI provides source code of any Revised Software to Adobe, EFI shall be deemed
to have granted to Adobe a perpetual, worldwide, royalty-free, fully paid-up
license to use, modify, reproduce and distribute such source code, and any
object code versions thereof, and the right to sublicense all such licensed
rights through multiple tiers of distribution.
3.2 PPD File License. EFI hereby grants to Adobe a perpetual,
worldwide, royalty-free, fully paid-up license to use, modify, reproduce and
distribute any PPD Files and updates thereto which EFI creates for Revised
Software contained in each Licensed System, and the right to sublicense all such
licensed rights through multiple tiers of distribution, in order to facilitate
access to such files by End Users and software developers to enhance the use of
the Licensed Systems by such End Users and software developers.
3.3 PostScript Language Specification Addendum. EFI grants to Adobe a
perpetual, worldwide, royalty-free, fully paid license to use, modify,
reproduce, and distribute the PostScript Language Specification Addenda for
Revised Software, and the right to sublicense all such licensed rights through
multiple tiers of distribution.
4. REFERENCE PORT APPENDICES.
4.1 Initial Adobe Reference Port Delivery. Upon execution of this
Agreement and payment by EFI of the source license fee described in PARAGRAPH 1
of Exhibit H ("Payments"), and upon a mutually agreeable schedule, Adobe will
provide EFI with the Adobe Deliverables.
[*] CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
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4.2 Future Reference Ports. Adobe will supply the Reference Port and
deliverables described in each Reference Port Appendix in a form similar to
Exhibit F ("Sample Format for Reference Port Appendix") in accordance with the
schedule set forth therein and EFI shall pay to Adobe fees in accordance with
EXHIBIT H ("Payments") for each such additional delivery of a Reference Port.
4.3 Technical Coordinators. EFI and Adobe agree to designate a
Technical Coordinator in each Reference Port Appendix.
5. LICENSED SYSTEM APPENDICES.
5.1 Future Licensed Systems. The initial version of the Revised
Software developed by EFI pursuant to this Agreement for each EFI Standard
Controller will be added by way of a Licensed System Appendix in a form similar
to Exhibit D ("Sample Format for Licensed System Appendix"). Each EFI Hardware
Product which uses that EFI Standard Controller shall be added by an amendment
to such Licensed System Appendix.
5.1.1 Revised Software for Major Revisions to EFI Standard
Controller. EFI shall notify Adobe in writing of its intention to develop a
Revised Software version for each new EFI Standard Controller or each Major
Revision to EFI Standard Controller at least four (4) months in advance of the
First Commercial Shipment of such Revised Software; provided, however, that
Adobe will, in good faith, approve exceptions to the four (4) month notice
period. Promptly following such notice, the parties will meet to negotiate and
sign a Licensed System Appendix for each new EFI Standard Controller upon
mutually acceptable terms. The Revised Software for each new EFI Standard
Controller or each Major Revision of EFI Standard Controller shall be tested in
accordance with PARAGRAPHS 1. 2. 3 and 4 of Exhibit I ("Revised Software Test
Procedures").
5.1.2 Revised Software for Minor Revisions to EFI Standard
Controller. EFI shall notify Adobe in writing of its intention to ship a Revised
Software version for each Minor Revision of an EFI Standard Controller which has
been tested and approved by Adobe in accordance with PARAGRAPH 5.1.1 ("Revised
Software for Major Revisions to EFI Standard Controller") at least two (2)
months in advance of First Commercial Shipment of such Revised Software;
provided, however, that Adobe will accept a less than two (2) month advance
notice in the case of minor bug fixes as long as the notice period is
reasonable. If EFI's intention is to include such modified EFI Standard
Controller in a new EFI Hardware Product, concurrent with such notice, EFI will
deliver a product description of the Licensed System to Adobe QA, from which a
test plan will be created by Adobe QA within one (1) week and submitted to EFI.
EFI shall test the Revised Software in accordance with PARAGRAPH 2 of Exhibit I
("Revised Software Test Procedures") and Adobe will have one (1) week to
evaluate the test results. If the test results for the Revised Software running
on the new EFI Hardware Product are acceptable, Adobe will provide certification
of the Licensed System and will add the new EFI Hardware Product to the list of
permitted output devices in the Licensed System Appendix for the
[*] CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
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applicable EFI Standard Controller.
5.1.3 EFI Responsibilities. EFI shall be responsible for
modifying the Reference Port Support Source to create the Revised Software
versions pursuant to either PARAGRAPH 5.1.1 ("Revised Software for Major
Revisions to EFI Standard Controller") or PARAGRAPH 5.1.2 ("Revised Software for
Minor Revisions to EFI Standard Controller") to create the Revised Software
version, to the extent permitted by PARAGRAPH 2.1 ("License To Use Reference
Port Support Source and Adobe Support Information") above; compiling and linking
the foregoing to produce Revised Object fully adapted to Licensed Systems and
suitable for distribution to End Users; and promptly merging with the Revised
Software any Updates which it receives as a result of its decision to purchase
support services as described in Exhibit E ("Reference Port Training and
Support"). EFI may elect not to merge any such Update into the Revised Software
for a Licensed System that is undergoing development at the time of delivery of
such Update, provided Adobe is consulted and consents, such consent not to be
unreasonably withheld, to the decision to continue the development effort
without including the Update. Adobe shall have no responsibility in connection
with any such modifications, including the development and bundling of the PPD
Files with each Licensed System, except as expressly provided in a Reference
Port Appendix.
5.2 Technical Coordinators. EFI and Adobe agree to designate a
Technical Coordinator in each Licensed System Appendix.
5.3 Licensed System Appendices for Revised Software. EFI will promptly
provide Adobe with two (2) copies of the machine readable version of any Revised
Object and any updated versions thereof in a timely manner as the updated
versions become available, and at EFI's sole option, with two (2) copies of the
source code version of the Revised Software (collectively, the "EFI
Deliverables") for evaluation and testing in accordance with Exhibit I ("Revised
Software Test Procedures").
5.3.1 PPD File. EFI shall also create and deliver to Adobe one
(1) master copy of the PPD File for each Revised Object contained in a Licensed
System at the time EFI provides the Revised Object to Adobe for testing pursuant
to Exhibit I ("Revised Software Test Procedures") and any updated version
thereof in a timely manner following the availability of any updated version.
EFI shall include with each Licensed System a copy of the corresponding PPD
File.
5.3.2 PostScript Language Specification Addendum. EFI shall
provide Adobe with a draft version of a PostScript Language Specification
Addendum for Revised Software contained in a Licensed System prior to execution
of the applicable Licensed System Appendix and any updated versions in a timely
manner following the availability of any updated version. The contents of the
PostScript Language Specification Addendum and any updated versions shall be
reviewed and approved by Adobe for compliance with Adobe's PostScript language
standards before the PostScript Language Specification Addendum is distributed
with a Licensed System. Adobe's failure to provide EFI with notice of
disapproval of the PostScript Language
[*] CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
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Specification Addendum within fourteen (14) days after its submission to Adobe
shall constitute approval for purposes of this paragraph. EFI shall include with
each Licensed System a copy of the corresponding PostScript Language
Specification Addendum.
6. ACCEPTANCE.
6.1 Acceptance of Reference Ports. For each Reference Port, EFI shall
have forty-five (45) days (or such other time as may be specified in the
applicable Reference Port
Appendix) from the date on which Adobe meets the final delivery milestone, as
contained in the applicable Reference Port Appendix, to examine and test the
Reference Port to determine that the Reference Port, when compiled, will execute
as part of the appropriate Reference System or Licensed System in accordance
with the PostScript Language Specification and in accordance with any other
acceptance criteria in the appendix. Within such period EFI shall provide Adobe
with written acceptance or a statement of any Errors to be corrected. The
Reference Port will be deemed to have been accepted by EFI if Adobe does not
receive such written acceptance or statement of Errors within such forty-five
(45) day time period. Adobe shall use reasonable commercial efforts to correct
any such reproducible Errors and redeliver the Reference Port to EFI, and EFI
shall within fifteen (15) days of such redelivery provide Adobe with written
acceptance or a statement of Errors. Should the Reference Port not conform to
the PostScript Language Specification or other acceptance criteria, or in the
event Adobe is not able to deliver the Reference Port in accordance with the
milestone schedule set forth in the applicable appendix, EFI's sole and
exclusive remedy shall be to elect one of the following remedies by giving Adobe
notice thereof (including a statement of Errors where applicable) within fifteen
(15) days: (a) to extend the correction period for a mutually agreeable time,
(b) to revise the acceptance criteria in a mutually agreeable manner, or (c) to
terminate the applicable Reference Port Appendix and obtain a refund of one-half
of the fee or advance paid to Adobe for such Reference Port, provided that EFI
has returned all existing copies of the Reference Port and related documentation
and certified in writing that it has no right to use, market or distribute such
Reference Port (or any Adobe Revised Software based on such Reference Port).
6.2 Acceptance of Revised Software. EFI and Adobe will test each
Revised Software version in accordance with Exhibit I ("Revised Software Test
Procedures"). Upon successful completion of acceptance testing pursuant to
Exhibit I ("Revised Software Test Procedures"), EFI shall have the right to
distribute the Revised Object in accordance with the terms of this Agreement.
7. LOANED EQUIPMENT.
7.1 EFI Revised Software Versions. EFI shall loan Adobe all necessary
equipment as specified in the applicable Licensed System Appendix for any
Revised Software in order to permit Adobe to conduct adequate and thorough
testing of such EFI Deliverables in accordance with Exhibit I ("Revised Software
Test Procedures").
7.2 Terms of Loan. All equipment loaned by EFI to Adobe shall remain
the property
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BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
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of EFI, shall be fully insured by Adobe, and shall be returned to EFI at its
request after termination of Adobe's development, warranty, and maintenance
activities hereunder. EFI shall pay shipping costs for delivery of such loaned
equipment to Adobe. Any loaned equipment shall be returned to EFI by Adobe,
shipping and insurance costs prepaid by EFI. While in the possession of Adobe,
the loaned equipment shall be maintained by EFI in good working order. During
the term of this Agreement for as long as Adobe is performing testing, warranty,
and maintenance services, if any, hereunder, EFI will continue to ensure that at
least one unit on loan to Adobe is the then current production unit which EFI is
actually shipping.
7.3 Restrictions on Use. Adobe agrees that it will not reverse engineer
any hardware or software provided by EFI in object code form pursuant to the
terms of this paragraph and that it shall not use any equipment provided by EFI
pursuant to this paragraph for any purpose other than testing, warranty and
maintenance as required under this Agreement. Adobe further agrees that it will
only provide access to software to its authorized employees and contractors with
a need to know and that it will not copy such software except for backup and
archival purposes. (The foregoing restriction shall not preclude legitimate
reverse engineering of such hardware or software which Adobe purchases
commercially.) The confidentiality provisions of this Agreement and the Mutual
Confidentiality Agreement entered into by Adobe and EFI on February 27, 1990
(the "Confidentiality Agreement") shall apply to any hardware or software
provided under this provision for so long as such hardware or software is not
yet commercially available.
8. PROPRIETARY RIGHTS AND LEGENDS. Adobe and its suppliers are the sole and
exclusive owners of all rights, title and interest, including all trademarks,
copyrights, patents, trade names, trade secrets, and other intellectual property
rights to the Adobe Support Information. Except for the rights expressly
enumerated herein, EFI is not granted any rights to patents, copyrights, trade
secrets, trade names, trademarks (whether or not registered), or any other
rights, franchises or licenses with respect to the Adobe Support Information.
EFI agrees to protect the Adobe Support Information in accordance with EXHIBIT J
("Secure Procedures for Handling Adobe Support Information"). EFI agrees that it
will not attempt to reverse engineer the Font Programs or any portions of the
Unmodified Core or other Adobe Support Information which is provided to EFI
solely in object code form.
8.1 Proprietary Notices. EFI agrees that as a condition of its rights
hereunder, each copy of the Adobe Software, Font Programs, PostScript Language
Specification (both the English version and any EFI-translated version, if any)
and any other Adobe Support Information shall contain the same proprietary
notices which appear on or in such Adobe Software, Font Programs, PostScript
Language Specification and any other Adobe Support Information delivered by
Adobe to EFI and as otherwise reasonably required by Adobe. More specifically,
EFI agrees that a valid Adobe copyright notice for the Adobe Software and Font
Programs will appear on the media.
8.2 Restricted Rights. EFI will (a) identify and license the Adobe
Software, Font Programs and related documentation in all proposals and
agreements with the United States Government or any contractor therefor; and (b)
legend or mark the Adobe Software, Font
[*] CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
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Programs and related documentation provided pursuant to any agreement with the
United States Government or any contractor therefor, as follows:
(i) For acquisition by or on behalf of civilian agencies, as
necessary to obtain protection substantially equivalent to that afforded to
restricted computer software and related documentation developed at a private
expense and which is existing computer software no part of which was developed
with government funds and provided with' Restricted Rights in accordance with
subparagraphs (a) through (d) of the "Commercial Computer Software - Restricted
Rights" clause at 48 C.F.R. 52.227-19 of the Federal Acquisition Regulations and
its successors;
(ii) For acquisition by or on behalf of units of the
Department of Defense ("DoD") as necessary to obtain protection substantially
equivalent to that afforded to commercial computer software and related
documentation developed at private expense and provided with Restricted Rights
as defined in DoD FAR Supplement 48 C.F.R. 252.227-7013(c)(l)(ii) and its
successors in effect for all solicitations and resulting contracts issued on or
after May 18, 1987.
8.3 Foreign Government Agreements. EFI will take all reasonable steps
in making proposal/and agreements with foreign governments other than the United
States which involve the Adobe Software, Font Programs, and related
documentation to ensure that Adobe's proprietary rights in such Adobe Software,
Font Programs and related documentation receive the maximum protection available
from such foreign government for commercial computer software and related
documentation developed at private expense.
9. MARKETING AND LICENSE TO USE TRADEMARKS.
9.1 Marketing. EFI shall use reasonable efforts, in connection with the
First Commercial Shipment of each Revised Object version, to (a) provide sales
and technical training to relevant EFI dealers, field sales representatives,
sales support engineers, systems engineers and customer support personnel; (b)
consult with Adobe in the development of applicable product brochures,
announcements to the trade press and other marketing materials related to
Licensed Systems; (c) permit Adobe participation in EFI's press conferences,
dealer roll-outs and similar activities involving Licensed Systems; and (d)
promote the Licensed Systems at trade shows at which other EFI products are
displayed. EFI shall use reasonable efforts, in connection with the First
Commercial Shipment of each Revised Object version, to (a) provide the contract
representative designated in the applicable Licensed System Appendix with a copy
of announcements and press releases pertaining to Licensed Systems prior to
their release to the public or the press, and (b) incorporate all changes that
Adobe may reasonably request to ensure correct Adobe Trademark usage and
accuracy of content, so long as Adobe has provided EFI with such reasonably
requested changes within five (5) business days following EFI's submission of
each such press release.
9.2 Trademark License. Subject to this Agreement and Exhibit K ("Use of
Adobe Trademarks") hereto, Adobe hereby grants to EFI a non-exclusive, limited
license to use the
[*] CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
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Adobe Trademarks and the Typeface Trademarks, on Licensed Systems and in EFI's
advertising and printed materials for the Revised Object, Font Programs and
Licensed Systems.
10. PAYMENTS.
10.1 Source Payments. EFI shall pay Adobe the fees and royalties set
forth in Exhibit H ("Payments") or in any Reference Port Appendix hereto.
10.2 Licensed System Payments. EFI shall pay to Adobe the development
fees, if any, and royalties as set forth in each Licensed System Appendix for
each Licensed System which is used internally or distributed by EFI.
Notwithstanding the foregoing, EFI shall have no obligation to pay royalties on
units of Licensed Systems which are used solely for development and/or testing
purposes. Adobe agrees that EFI shall be entitled to receive a volume-based
percentage discount to be applied against royalties owed to Adobe by EFI
hereunder for Licensed Systems and Font Programs distributed or used under a
Licensed System Appendix. Such volume discounts shall be as reflected in, and
shall be granted in accordance with the terms and conditions of Paragraph 17
("Qualifying for Royalty Discounts") of the Custom PostScript Interpreter OEM
License Agreement, effective March 1, 1991, between EFI and Adobe (the "CPSI
Agreement"). Quarterly revenue received by Adobe under this Agreement and the
CPSI Agreement shall be aggregated for the purpose of determining applicable
discount levels. In addition, Adobe agrees that the pricing for Licensed Systems
developed and distributed under this Agreement shall be consistent with the
pricing for the Licensed Systems (as defined in the CPSI Agreement) developed
and distributed under the CPSI Agreement.
10.3 Font Program Royalties. EFI shall also pay to Adobe the royalties
for the Roman Initial Installation Font Programs and Additional Font Programs
distributed with each Licensed System as set forth in the applicable Licensed
System Appendix hereto. Adobe agrees that the pricing and any applicable
discounts for the Font Programs distributed under this Agreement shall be
consistent with the pricing and discounts for the Coded Font Programs
distributed under the CPSI Agreement.
10.4 Upgrade Payments. EFI shall pay Adobe a royalty as set forth in
each Licensed System Appendix for each Upgrade for which EFI charges a fee in
excess of the costs of the media and handling. EFI shall not be obligated to pay
Adobe a royalty for any Upgrades for which EFI charges a fee which covers only
the costs of the media and handling. To qualify for the pricing set forth in
this paragraph, EFI will use commercially reasonable efforts to ensure that the
prior version of the Revised Object and Font Programs is destroyed.
10.5 Other Payments. Certain payments to Adobe, including but not
limited to advances against royalties, will be designated in the specific
Licensed System Appendix. Advances against royalties for a specified Licensed
System are recoupable only against royalties for that Licensed System during the
eighteen (18) month period following Adobe's delivery of the Final Release as
defined in the applicable Licensed System Appendix.
[*] CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
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10.6 Taxes. In addition to any other payments due under this Agreement,
EFI agrees to pay, and to indemnify and hold Adobe harmless from, any sales,
use, excise, import or export, value added or similar tax or duty not based on
Adobe's net income, including any penalties and interest, as well as any costs
associated with the collection or withholding thereof, and all governmental
permit fees, license fees and customs and similar fees levied upon the delivery
by Adobe of the Adobe Deliverables to EFI hereunder, which Adobe may incur in
respect of this Agreement. If a resale certificate or other certificate or
document of exemption is required in order to exempt all or any of the Adobe
Software or other deliverables from any such tax liability, EFI will promptly
furnish it to Adobe.
10.7 Payment of Royalties. All royalties due in accordance with the
terms of the Agreement shall be paid within forty-five (45) days after the end
of each calendar quarter. With each royalty payment EFI shall include a written
summary broken out by month of sale and country category (U.S., Canada, Europe,
Far East, Rest of World), of (a) the number and type of Licensed Systems sold or
used internally by EFI during the quarter; and (b) the number and type of
Additional Font Programs by Typeface bundled as a part of such Licensed Systems
and licensed to End Users or used internally by EFI during the quarter; and (c)
any other information which may be required to determine whether EFI is paying
the correct royalty amount hereunder. Licensed Systems that are returned for
which refunds are made by EFI shall be credited by EFI against royalties due to
Adobe for such Licensed Systems. Notwithstanding the foregoing, in the event
that EFI provides a partial refund of the price of a returned Licensed System,
EFI shall be entitled to obtain a partial credit against royalties due for such
Licensed System. At Adobe's request, EFI shall orally advise Adobe each month of
its estimate of the number of copies of the Licensed Systems and Additional Font
Programs shipped by EFI during the previous month and the royalties accrued
thereby. Such oral communication shall be subject to final adjustment by EFI at
the end of each accounting period.
10.8 Right of Audit. EFI shall maintain a complete, clear, accurate
record of: (a) the number and type of Licensed Systems shipped or used
internally by EFI, (b) a designation of which of the Additional Font Programs,
if any, were bundled as a part of such Licensed System and whether they were
licensed to End Users or used internally by EFI during the quarter, and (c) any
other information which may be required to determine whether EFI is paying the
correct royalty amount hereunder. To ensure compliance with the terms of this
Agreement, Adobe shall have the right to have an inspection and audit of all the
relevant accounting and sales books and records of EFI conducted by an
independent audit firm reasonably acceptable to both parties whose fee is paid
by Adobe, and shall be conducted during regular business hours at EFI's offices
and in such a manner as not to interfere with EFI's normal business activities.
In no event shall audits be made hereunder more frequently than once per year.
If such inspections should disclose any underreporting, EFI shall promptly pay
Adobe such amount, together with interest thereon at the rate of one and
one-half percent (1 1/2%) per month or the highest interest rate allowed by law,
whichever is lower from the date on which such amount became due.
10.9 When Royalties Earned. All royalties due hereunder shall be earned
on the date EFI ships a Licensed System to its customer, except for the shipment
of a Licensed System
[*] CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
<PAGE>
between EFI and its Subsidiary or between Subsidiaries for resale. Such
royalties shall be earned when the Licensed System is first shipped to a
customer other than EFI or any Subsidiary.
11. PERFORMANCE WARRANTY.
11.1 Reference Port Warranties. Adobe warrants that for a period of
ninety (90) days from the date of delivery of a Reference Port to EFI
(hereinafter the "Warranty Period"), the Reference Port Support Source and
Unmodified Core contained in a Reference Port will compile, assemble, and link
as part of the Reference System to yield the corresponding object code version
of the Reference Port. Additionally, subject to any exceptions specified by
Adobe at the time of delivery, the object code version of the Reference Port
will execute substantially in accordance with the PostScript Language
Specification (excluding any portions of the PostScript Language Specification
not applicable to the specified Reference System) when used as part of the
Reference System specified in the Reference Port Appendix. If EFI reports to
Adobe a failure of such Reference Port to conform to the foregoing warranties
during the applicable Warranty Period, and provides such detail as Adobe may
require to permit Adobe to reproduce such failure, Adobe, at its expense, shall
use reasonable commercial efforts to modify or replace the Reference Port in a
timely manner to correct such failure.
11.2 Update Warranties. Adobe warrants that, for a period of ninety
(90) days from the date of delivery of an Update to EFI hereunder, subject to
EFI's purchase of support services as described in Exhibit E ("Reference Port
Training and Support") (the "Warranty Period"), the Reference Port Support
Source and Unmodified Core contained in an Update to a Reference Port will
compile, assemble, and link as part of the Reference System to yield the
corresponding object code version of the Update. Additionally, subject to any
exceptions specified by Adobe at the time of delivery, the object code version
of the Update will execute substantially in accordance with the PostScript
Language Specification (excluding any portions of the PostScript Language
Specification not applicable to the specified Reference System) as part of the
applicable Reference System. If EFI reports to Adobe a failure of such Update to
conform to the foregoing warranties during the applicable Warranty Period, and
provides such detail as Adobe may require to permit Adobe to reproduce such
failure, Adobe, at its expense, shall use reasonable commercial efforts to
modify or replace the Update in a timely manner to correct such failure.
11.3 Limitations on Warranties. EFI acknowledges that the Reference
Ports delivered by Adobe to EFI hereunder will require adaptation by EFI or
Adobe for compatibility with EFI platforms and configurations, which platforms
and configurations will generally be different from the development environment
and Reference System specified by Adobe. EFI acknowledges that the Adobe
Software is of such complexity that it may have inherent defects, and agrees
that Adobe makes no other warranty, either express or implied, as to any matter
whatsoever. THE FOREGOING STATES ADOBE'S SOLE AND EXCLUSIVE WARRANTY TO EFI
CONCERNING THE ADOBE SOFTWARE AN]) EFI'S SOLE AND EXCLUSIVE REMEDY FOR BREACH OF
WARRANTY. EXCEPT AS EXPRESSLY SET FORTH
[*] CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
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ABOVE, THE ADOBE SUPPORT INFORMATION AND ANY OTHER ADOBE DELIVERABLES ARE
PROVIDED STRICTLY "AS IS." EXCEPT FOR THE EXPRESS WARRANTIES STATED IN THIS
AGREEMENT, ADOBE MAKES NO ADDITIONAL WARRANTIES, EXPRESS, IMPLIED, ARISING FROM
COURSE OF DEALING OR USAGE OF TRADE, OR STATUTORY, AS TO THE ADOBE SUPPORT
INFORMATION OR ANY OTHER ADOBE DELIVERABLES, OR ANY MATTER WHATSOEVER. IN
PARTICULAR, ANY AND ALL WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR
PURPOSE AND NONINFRINGEMENT ARE EXPRESSLY EXCLUDED. THIS IS A LIMITED WARRANTY
AND IS THE ONLY WARRANTY MADE BY ADOBE. EFI SHALL NOT HAVE THE RIGHT TO MAKE OR
PASS ON, AN]) SHALL TAKE ALL MEASURES NECESSARY TO ENSURE THAT NEITHER IT NOR
ANY OF ITS AGENTS OR EMPLOYEES SHALL MAKE OR PASS ON, ANY EXPRESS OR IMPLIED
WARRANTY OR REPRESENTATION ON BEHALF OF ADOBE TO ANY EFI CUSTOMER, END USER, OR
THIRD PARTY.
12. TRAINING AND SUPPORT.
12.1 Adobe Training. Adobe agrees to provide the training and technical
assistance described in Exhibit E ("Reference Port Training and Support") or in
any Reference Port or Licensed System Appendix.
12.2 EFI Support. EFI will have the sole responsibility for supporting
its End Users and will provide End Users with reasonable End User documentation,
warranty service, and telephone support for the use of Licensed Systems and Font
Programs consistent with good industry practice.
13. PROPRIETARY RIGHTS INDEMNITY.
13.1 By Adobe. Adobe agrees to indemnify and defend EFI from any costs,
damages, and reasonable attorneys' fees resulting from any claims by third
parties that the uses permitted hereunder of the Adobe Software infringe any
U.S. patents, U.S. copyrights, or U.S. trademarks or any patents, copyrights or
trademarks of Japan, Germany, France, Italy, The United Kingdom, Denmark,
Ireland, Greece, Spain, Portugal, Sweden, Norway, Finland, Switzerland,
Australia, Austria, Belgium, Canada, Luxembourg or The Netherlands (the "Foreign
Jurisdictions"), provided that EFI gives Adobe prompt written notice of any such
claim, tenders to Adobe the defense or settlement of such a claim at Adobe's
expense, and cooperates with Adobe, at Adobe's expense, in defending or settling
such claim. Adobe's aggregate cumulative liability for infringement of patents,
copyrights or trademarks of each Foreign Jurisdiction shall not exceed the
greater of (i) One Million Five Hundred Thousand Dollars ($1,500,000.00) less
any amounts previously paid or then currently payable by Adobe to EFI under this
clause (i) of this PARAGRAPH 13.1 for infringement of patents, copyrights, or
trademarks of any of the Foreign Jurisdictions, or (ii) the aggregate amount of
royalty payments actually received by Adobe from EFI for the Licensed Systems
distributed in such Foreign Jurisdiction up to a maximum of Five Million Dollars
($5,000,000.00).
[*] CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
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If Adobe receives notice of an alleged infringement or if EFI's use of
the Adobe Software shall be prevented by permanent injunction, Adobe may, at its
sole option and expense, procure for EFI the right to continued use of the Adobe
Software as provided hereunder, modify the Adobe Software so that it is no
longer infringing, or replace the Adobe Software with computer software of equal
or superior functional capability. THE RIGHTS GRANTED TO EFI UNDER THIS
PARAGRAPH SHALL BE EFI'S SOLE AND EXCLUSIVE REMEDY AND ADOBE'S SOLE OBLIGATION
FOR ANY ALLEGED INFRINGEMENT OF ANY PATENT, COPYRIGHT, TRADEMARK, OR OTHER
PROPRIETARY RIGHT. ADOBE WILL HAVE NO LIABILITY TO EFI IF ANY ALLEGED
INFRINGEMENT OR CLAIM OF INFRINGEMENT IS BASED UPON (A) THE MODIFICATION OF THE
ADOBE SOFTWARE BY EFI OR ANY THIRD PARTY, (B) USE OF THE ADOBE SOFTWARE IN
CONNECTION OR IN COMBINATION WITH EQUIPMENT, DEVICES, OR SOFTWARE NOT DELIVERED
BY ADOBE (IF SUCH INFRINGEMENT OR CLAIM COULD HAVE BEEN AVOIDED BY THE USE OF
THE UNMODIFIED ADOBE SOFTWARE WITH OTHER EQUIPMENT, DEVICES OR SOFTWARE), OR (C)
THE USE OF ANY ADOBE SOFTWARE OTHER THAN AS PERMITTED UNDER THIS AGREEMENT OR IN
A MANNER FOR WHICH IT WAS NOT INTENDED OR USE OF OTHER THAN THE MOST CURRENT
RELEASE OF THE ADOBE SOFTWARE (IF SUCH CLAIM WOULD HAVE BEEN PREVENTED BY THE
USE OF SUCH RELEASE).
13.2 By EFI. EFI agrees to indemnify and defend Adobe from any costs,
damages, and reasonable attorneys' fees resulting from all claims by third
parties arising from the use, manufacture, and distribution of Licensed Systems
by EFI and its direct and indirect customers in any country, worldwide, provided
that Adobe gives EFI prompt written notice of any such claim, tenders to EFI the
defense or settlement of any such claim at EFI's expense, and cooperates with
EFI, at EFI's expense, in defending or settling such claim. EFI WILL HAVE NO
LIABILITY TO ADOBE WITH RESPECT TO ANY CLAIM BY THIRD PARTIES THAT THE USES
PERMITTED HEREUNDER OF THE ADOBE SOFTWARE INFRINGE ANY PATENTS, COPYRIGHTS OR
TRADEMARKS OF ANY COUNTRY SO LONG AS SUCH CLAIM OF INFRINGEMENT DOES NOT ARISE
FROM (A) THE MODIFICATION OF THE ADOBE SOFTWARE BY EFI OR ANY THIRD PARTY, (B)
USE OF THE ADOBE SOFTWARE IN CONNECTION OR IN COMBINATION WITH EQUIPMENT,
DEVICES, OR SOFTWARE NOT DELIVERED BY ADOBE (IF SUCH INFRINGEMENT OR CLAIM COULD
HAVE BEEN AVOIDED BY THE USE OF THE UNMODIFIED ADOBE SOFTWARE WITH OTHER
EQUIPMENT, DEVICES OR SOFTWARE), OR (C) THE USE OF ANY ADOBE SOFTWARE OTHER THAN
AS PERME[TED UNDER THIS AGREEMENT OR IN A MANNER FOR WHICH IT WAS NOT INTENDED
OR USE OF OTHER THAN THE MOST CURRENT RELEASE OF THE ADOBE SOFTWARE (IF SUCH
CLAIM WOULD HAVE BEEN PREVENTED BY THE USE OF SUCH RELEASE).
14. TERM AND CANCELLATION.
[*] CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
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14.1 Term. The initial term of this Agreement is for five (5) years
from the Effective Date, unless this Agreement is terminated for cause. This
Agreement may be renewed annually on its anniversary date at the option of
either party (subject to the written consent of the other party), provided that
(a) EFI has made all the payments required by this Agreement, (b) there has been
no uncured breach of this Agreement, or any Reference Port or Licensed System
Appendix, and (c) the Revised Object is still supported by EFI for use as part
of Licensed Systems.
14.2 Cancellation by Adobe for Cause. This Agreement shall terminate in
the event of any material breach by EFI which continues after thirty (30) days
written notice of said breach (which notice shall, in reasonable detail, specify
the nature of the breach) by Adobe to EFI.
14.3 Cancellation by EFI for Cause. If any material breach under this
Agreement by Adobe continues after thirty (30) days written notice of said
breach (which notice shall, in reasonable detail, specify the nature of the
breach) by EFI to Adobe, EFI may seek any damages arising under this Agreement,
and (a) continue this Agreement in full force and effect, or (b) terminate this
Agreement on written notice to Adobe.
14.4 Termination by EFI for Convenience. This Agreement may be
terminated by EFI for its convenience upon thirty (30) days prior written notice
to Adobe.
14.5 Bankruptcy. In addition to any material breach of this Agreement,
the application for, or adjudication in, bankruptcy by EFI, the insolvency of
EFI, or the dissolution of EFI, shall terminate this Agreement.
14.6 Obligations on Cancellation, Termination or Expiration. Upon
cancellation, termination, or expiration of this Agreement:
14.6.1 Licenses Terminated. The licenses granted pursuant to
PARAGRAPH 2 ("Scope of EFI's Licenses") shall terminate immediately.
14.6.2 Safeguarding of Proprietary Rights. EFI shall continue
to be responsible for safeguarding the proprietary rights of Adobe and Adobe's
suppliers in accordance with PARAGRAPH 8 ("Proprietary Rights and Legends") and
Exhibit J ("Secure Procedures for Handling Adobe Support Information") of this
Agreement after such cancellation, termination, or expiration.
14.6.3 Return or Destruction of Adobe Information. EFI will
immediately discontinue use and distribution of, and return or destroy all
copies of, Adobe Support Information and other Adobe Deliverables in its
possession (including copies placed in any storage device under EFI's control).
Upon Adobe's request, EFI shall warrant in writing to Adobe its return or
destruction of all of Adobe's proprietary information within thirty (30) days of
cancellation, termination or expiration.
14.6.4 Payment. The payment date of all monies due Adobe shall
[*] CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
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automatically be accelerated so that they shall become due and payable on the
effective date of termination, even if longer terms had been provided
previously.
14.6.5 Continued Use by End Users. End Users shall be
permitted the continued and uninterrupted use of the Revised Object and Font
Programs for the balance of the term of their End User agreements, as specified
in such agreements, provided that and so long as the End Users are not in
default of their End User agreements.
14.6.6 Assignment on Default. EFI's rights upon default of the
End Users relating to the Revised Object and Font Programs as specified in the
End User agreement shall automatically be assigned to Adobe.
14.6.7 Support and Maintenance: No Right to Sublicense.
Notwithstanding the foregoing, EFI shall have the right to retain five (5)
copies of the Revised Object and use such Revised Object to the extent required
for support and maintenance purposes but EFI shall have no right to sublicense
or otherwise distribute the Revised Object or Font Programs or any other rights
with respect to such software except as specifically set forth in this
paragraph.
14.6.8 Right to Sell-Off Inventory. In the event of
termination or expiration of this Agreement (except for termination by Adobe due
to a breach of this Agreement by EFI), EFI shall have six (6) months from the
effective date of termination to distribute its inventory of Licensed Systems
and Upgrades in existence at the time of such termination provided that EFI
continues to make all payments and provide all reports to Adobe in accordance
with PARAGRAPH 10 ("Payments") and to observe all other terms and conditions
imposed on EFI hereunder with respect to distribution of the Revised Object.
15. LIMITATION OF LIABILITY.
15.1 Adobe. ADOBE WILL NOT BE LIABLE TO EFI OR ANY OTHER PARTY FOR ANY
INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES. The foregoing limitation of
liability is independent of any exclusive remedies for breach of warranty set
forth in this Agreement.
15.2 EFI. EFI WILL NOT BE LIABLE TO ADOBE OR ANY OTHER PARTY FOR ANY
INCIDENTAL, SPECIAL, OR CONSEQUENTIAL DAMAGES ARISING OUT OF ANY BREACH OF THIS
AGREEMENT, EXCEPT FOR ANY BREACH OF PARAGRAPHS 2 ("SCOPE OF EFI'S LICENSES"), 8
("PROPRIETARY RIGHTS AND LEGENDS"), AND 9 ("MARKETING AND LICENSE TO USE
TRADEMARKS"). EFI'S LIABILITY TO ADOBE FOR DAMAGES CAUSED BY EFI'S BREACH OF THE
PROVISIONS OF THIS AGREEMENT SHALL NOT EXCEED TWENTY FIVE MILLION DOLLARS
($25,000,000) UNLESS SUCH BREACH RESULTS FROM INTENTIONAL OR GROSSLY NEGLIGENT
CONDUCT BY EFI, IN WHICH CASE EFI'S LIABIUTY SHALL NOT BE SUBJECT TO SUCH
LIMITATION. To establish "intentional conduct," Adobe must show that EFI's
breach of this Agreement was authorized by EFI management or reckless under the
circumstances. To establish "gross negligence," Adobe must show that there
[*] CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
<PAGE>
was a substantial departure by EFI from the standard of conduct required by this
Agreement.
16. GENERAL.
16.1 Governing Law. This Agreement shall be governed in all respects by
the laws of the United States of America and the State of California as such
laws are applied to agreements entered into and to be performed entirely within
California between California residents. The parties agree that the United
Nations Convention on Contracts for the International Sale of Goods is
specifically excluded from application to this Agreement.
16.2 Attorneys' Fees. In the event any proceeding or lawsuit is brought
by Adobe, its suppliers or EFI in connection with this Agreement, the prevailing
party in such proceeding shall be entitled to receive its costs, expert witness
fees and reasonable attorneys' fees, including costs and fees on appeal.
16.3 Forum. All disputes arising under this Agreement may be brought in
Superior Court of the State of California in Santa Clara County or the Federal
District Court of San Jose, California, as permitted by law. The Superior Court
of Santa Clara County and the Federal District Court of San Jose shall each have
non-exclusive jurisdiction over disputes under this Agreement. EFI consents to
the personal jurisdiction of the above courts.
16.4 Notices. All notices or reports permitted or required under this
Agreement shall be in writing and shall be delivered by personal delivery,
telegram, telex, telecopier, facsimile transmission, or by certified or
registered mail, return receipt requested, and shall be deemed given upon
personal delivery, five (5) days after deposit in the mail, or upon
acknowledgment of receipt of electronic transmission. Notices shall be sent to:
(i) the contract representative designated in the specific Licensed System
Appendix if the notice or report relates to one or more specific Licensed
Systems and (ii) a copy to the signatory of this Agreement at the address set
forth at the end of this Agreement or such other address as either party may
specify in writing. If the notice is to Adobe, a copy shall also be sent to the
attention of its General Counsel.
16.5 Injunctive Relief. It is understood and agreed that,
notwithstanding any other provisions of this Agreement, breach of the provisions
of this Agreement by EFI may cause Adobe irreparable damage for which recovery
of money damages would be inadequate, and that Adobe shall therefore be entitled
to seek timely injunctive relief to protect Adobe's rights under this Agreement
in addition to any and all remedies available at law.
16.6 No Agency. Nothing contained herein shall be construed as creating
any agency, partnership, or other form of joint enterprise between the parties.
16.7 Force Majeure. Neither party shall be liable hereunder by reason
of any failure or delay in the performance of its obligations hereunder (except
for the payment of money) on account of strikes, shortages, riots, insurrection,
fires, flood, storm, explosions, acts of God, war, governmental action, labor
conditions, earthquakes, material shortages or any other cause which
[*] CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
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is beyond the reasonable control of such party.
16.8 Waiver. The failure of either party to require performance by the
other party of any provision hereof shall not affect the full right to require
such performance at any time thereafter; nor shall the waiver by either party of
a breach of any provision hereof be taken or held to be a waiver of the
provision itself.
16.9 Severability. In the event that any provision of this Agreement
shall be unenforceable or invalid under any applicable law or be so held by
applicable court decision, such unenforceability or invalidity shall not render
this Agreement unenforceable or invalid as a whole, and, in such event, such
provision shall be changed and interpreted so as to best accomplish the
objectives of such unenforceable or invalid provision within the limits of
applicable law or applicable court decisions.
16.10 Headings. The paragraph headings appearing in this Agreement are
inserted only as a matter of convenience and in no way define, limit, construe,
or describe the scope or extent of such paragraph or in any way affect this
Agreement.
16.11 No Patent License.
16.11.1 Definitions. As used herein, "Adobe Patent Right"
means any patent right arising under any United States or foreign patent now
owned by, or later issued or assigned to Adobe, applicable to the Adobe Software
or any other items licensed by Adobe to EFI hereunder. "EFI Patent Right" means
any patent right arising under any United States or foreign patent issued or
assigned to EFI and having a first effective filing date after an inventor
listed on such patent had access to the Adobe Support Information and in which
an inventor listed on such patent is (a) an employee or contractor of EFI who
has reviewed and used the Adobe Support Information and (b) the Adobe Support
Information contributed to and is a substantial part of the claimed invention.
16.11.2 Adobe Patents. Adobe covenants that, to the extent
that EFI, EFI's End Users and EFI's Subsidiaries, sublicensees, and other direct
and indirect customers of Licensed Systems (collectively "Customers") exercise
the rights expressly granted to EFI or which EFI is authorized to grant to
Customers herein, Adobe will not (a) assert any Adobe Patent Right against EFI
or its Customers, or (b) require any additional fee or royalty from EFI or its
Customers based upon any Adobe Patent Right.
16.11.3 EFI Patents. EFI agrees that it will not (a) assert
any EFI Patent Right against Adobe or against any Adobe sublicensees or
customers with respect to products containing software sold or licensed to them
by Adobe, or (b) require any fee or royalty from Adobe or such sublicensees or
customers based upon any EFI Patent Right.
This PARAGRAPH 16.11 shall survive termination or expiration of this
Agreement.
[*] CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
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16.12 Assignment. Neither this Agreement nor any rights or obligations
of EFI hereunder may be assigned by EFI in whole or in part without the prior
written approval of Adobe; provided that EFI may assign its rights and
obligations under this Agreement without Adobe's consent in the event of a
merger in which EFI is not the surviving corporation or a sale of all or
substantially all of the assets of EFI to any company that (i) is not an Adobe
competitor and (ii) has its primary place of business in a country in which at
least one other Adobe OEM has its principal place of business, and such OEM has
a license agreement with Adobe for support source code of the PostScript
software. Any assignment in breach of the foregoing shall be void and of no
effect. Adobe's rights and obligations, in whole or in part, under this
Agreement may be assigned by Adobe. Adobe may exercise full transfer and
assignment rights in any manner at Adobe's discretion and specifically may sell,
pledge, or otherwise transfer its right to receive royalties under this
Agreement.
16.13 Export. EFI acknowledges that the laws and regulations of the
United States restrict the export and re-export of commodities and technical
data of United States origin, including the Adobe Support Information. EFI
agrees that it will not export or re-export the Adobe Support Information in any
form, without the appropriate United States and foreign governmental licenses.
EFI agrees that its obligations pursuant to this paragraph shall survive and
continue after any termination or expiration of rights under this Agreement.
16.14 Full Power. Each party warrants that it has full power to enter
into and perform this Agreement, and the person signing this Agreement on each
party's behalf has been duly authorized and empowered to enter into this
Agreement. EFI further acknowledges that it has read this Agreement, understands
it and agrees to be bound by it.
16.15 Confidential Agreement. Neither party will disclose any terms or
the existence of this Agreement, except pursuant to a mutually agreeable press
release or as otherwise required by law.
16.16 Counterparts. This Agreement may be executed simultaneously in
two or more counterparts, each of which will be considered an original, but all
of which together will constitute one and the same instrument.
16.17 Entire Agreement. This Agreement together with the exhibits
completely and exclusively states the agreement of the parties regarding its
subject matter. It supersedes, and its terms govern, all prior proposals,
agreements, or other communications between the parties, oral or written,
regarding such subject matter. This Agreement shall not be modified except by a
subsequently dated written amendment or appendix signed on behalf of Adobe and
EFI by their duly authorized representative and any provision or a purchase
order purporting to supplement or vary the provisions hereof shall be void.
Notwithstanding the foregoing, the Confidentiality Agreement shall remain in
full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this PostScript
Support Source and Object Code Distribution License Agreement to be executed by
their duly authorized representatives.
[*] CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
<PAGE>
ADOBE: EFI
ADOBE SYSTEMS INCORPORATED ELECTRONICS FOR IMAGING, INC.
By: /s/ Stephen A. MacDonald By: /s/ Dan Avida
Print Print
Name: Stephen A. MacDonald Name:Dan Avida
Title: Senior Vice President Title: President and CEO
and General Manager
Date: 09/12/95 Date: 09/08/95
Address for Notice: Address for Notice:
1585 Charleston Road 2855 Campus Drive
P.O. Box 7900 San Mateo, CA 94403
Mountain View, CA 94039-7900
[*] CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
<PAGE>
EXHIBIT A
ADOBE DELIVERABLES
(POSTSCRIPT SUPPORT SOURCE WITH OBJECT)
The Adobe Deliverables for the initial or any subsequent Reference Port
shall consist of: one (1) master copy of the Reference Port, Adobe Screening
Test Suite and the documentation of the Adobe Screening Test Suite, as described
on the Reference Port Appendix and one (1) master copy of the Reference Port in
object code-form suitable for execution on a Reference System, including the
appropriate controller and printer engine required to verify that the compiled
Object code version of the Reference Port executes as part of the Reference
System in accordance with the warranty provisions set forth in PARAGRAPH 11.1
("Reference Port Warranties") of the Agreement.
The Adobe Deliverables may also include Example Source, which are those
portions of the Adobe Software which are provided in source code form by Adobe
to EFI for the sole purpose of demonstrating an example of software development
that implements certain functions which EFI may wish to emulate in its own
implementation of a Licensed System. Example Source shall not be included
within, or as part of, the definition of a Reference Port for purposes of this
Agreement.
Adobe will provide the "page pipeline" portion of the Adobe Software in
source code form and any mutually agreeable changes to this code.
Adobe will also supply whatever utility tools it may deem are needed by
EFI to facilitate EFI's use of the Reference Port to develop a Licensed System.
[*] CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
<PAGE>
EXHIBIT B-I
EMPLOYEE NONDISCLOSURE AGREEMENT
[*] CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
<PAGE>
ELECTRONICS FOR IMAGING, INC.
EMPLOYMENT, CONFIDENTIAL INFORMATION AND
INVENTION ASSIGNMENT AGREEMENT
As a condition of my employment with Electronics for Imaging, Inc., its
subsidiaries, affiliates, successors or assigns (together the "Company"), and in
consideration of my employment with the Company and my receipt of the
compensation now and hereafter paid to me by the Company, I agree to the
following:
1. At-Will Employment. I understand and acknowledge that my employment
with the Company is for an unspecified duration and constitutes an "at-will"
employment. I acknowledge that this employment relationship may be terminated at
any time, with or without cause at the option of either the Company or myself,
with or without notice.
2. Confidential Information.
(a) Company and Third Party Information. I agree that at all
times during the term of my employment and thereafter, to hold in strictest of
confidence, and not to use, except for the benefit of the Company, or to
disclose to any person, firm or corporation without written authorization of the
Board of Directors of the Company, any Confidential Information of the Company.
I understand that "Confidential Information" means any Company proprietary
information, technical data, trade secrets or know-how, including, but not
limited to, information relating to products, services, software, research,
developments, technology, hardware configuration information, marketing,
finances or other business information disclosed to me by the Company either
directly or indirectly in writing, orally or by drawings or observation of parts
or equipment. I recognize that the Company has received and in the future will
receive from third parties their confidential or proprietary information subject
to a duty on the Company's part to maintain the confidentiality of such
information and to use it only for certain limited purposes, and I understand
that such information is also Confidential Information. I further understand
that Confidential Information does not include any of the foregoing items that
has become publicly known and made generally available through no wrongful act
of mine or of others who were under confidentiality obligations as to the item
or items involved.
(b) Former Employer Information. I agree that I will not, during
my employment with the Company, improperly use or disclose any proprietary
information or trade secrets of any former or concurrent employer or any other
person or entity and that I will not bring onto the premises of the Company any
unpublished document or proprietary information belonging to any such employer,
person or entity unless consented to in writing by such employer, person or
entity.
[*] CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
<PAGE>
3. Inventions.
(a) Inventions Retained and Licensed. I have attached hereto,
as Exhibit A, a list describing all inventions, original works of authorship,
developments, improvements, and trade secrets that were made to me prior to my
employment with the Company (collectively referred to as "Prior Inventions"),
that belong to me , that relate to the Company's proposed business, products or
research and development, and that are not assigned to the Company hereunder;
or, if no such list is attached, I represent that there are no such Prior
Inventions. If in the course of my employment with the Company, I incorporate
into the Company product, process or machine a Prior Invention owned by me or in
which I have an interest, the Company is hereby granted and will have a
nonexclusive, royalty-free, irrevocable, perpetual, worldwide license, with the
right to grant sublicenses, to make, have made, modify, use and sell such Prior
Invention as part of or in connection with such product, process or machine.
(b) Assignment of Inventions. I agree that I will promptly
make full written disclosure to the Company, and will hold in trust for the sole
right and benefit of the Company, and hereby assign to the Company, or its
designee, all my right, title, and interest in and to any and all inventions,
original works of authorship, developments. concepts, improvements or trade
secrets, whether or not patentable or registrable under patent, copyright or
similar laws, that I may solely or jointly conceive or develop or reduce to
practice, or cause to be conceived, developed or reduced to practice, during the
period of time I am in the employ of the Company (collectively referred to as
"Inventions"), except as provided in Section 3(e) below. I further acknowledge
that all original works of authorship that are made by me (solely or jointly
with others) within the scope of and during the period of my employment with the
Company and that are protectable by copyright are "works made for hire," as that
term is defined in the United States Copyright Act."
(c) Maintenance of Records. I agree to keep and maintain
adequate and current written records of all Inventions made by me (solely or
jointly with others) during the term of my employment with the Company. The
records will be in the form of notes, sketches, drawings. and any other format
that may be specified by the Company. The records will be available to and
remain the sole property of the Company at all times.
(d) Patent and Copyright Registrations. I agree to assist the
Company, or its designee, at the Company's expense, in every way to secure the
Company's rights in the Inventions and any copyrights, patents, mask work rights
or other intellectual property rights relating thereto, in any and all
countries, including disclosing to the Company all pertinent information and
data with respect thereto, and executing all applications, specifications,
oaths, assignments and all other instruments that the Company shall deem
necessary in order to apply for and obtain such rights and in order to assign
and convey to the Company, its successors, assigns and nominees the sole and
exclusive rights, title and interest in and to such Inventions, and any
copyrights, patents, mask work rights or other intellectual property rights
relating thereto. I further agree that my obligation to execute or cause to be
executed, when it is in my power to do so, any such instrument or papers will
continue after the termination of this Agreement. If the Company is unable
because of my mental or physical incapacity or for any other reason to secure my
signature to apply for or to pursue any application for any United States or
foreign patents or copyright registrations covering Inventions or original works
of authorship assigned to the Company as above, then I hereby irrevocably
designate and appoint to the Company and its duly
[*] CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
<PAGE>
authorized officers and agents as my agent and attorney in fact, to act for and
in my behalf and stead to execute and file any such applications and to do all
other lawfully permitted acts to further the prosecution and issuance of letters
patent or copyright registrations thereon with the same legal force and effect
as if executed by me.
(e) Exception to Assignments. I understand that the provisions
of this Agreement requiring assignment of Inventions to the Company do not apply
to any invention that qualifies fully under the provisions of the California
Labor Code Section 2870 (attached hereto as Exhibit B). I will advise the
Company promptly in writing of any inventions that I believe meet the criteria
in California Labor Code Section 2870 and that are not otherwise disclosed on
Exhibit A.
4. Conflicting Employment. I agree that, during the term of my
employment with the Company, I will not engage in any other employment,
occupation, consulting or other business activity directly related to the
business in which the Company is now involved or becomes involved during the
term of my employment, nor will I engage in any other activities that conflict
with my obligations to the Company.
5. Returning Company Documents. I agree that, at the time of leaving
the employ of the Company, I will deliver to the Company (and will not keep in
my possession, recreate or deliver to anyone else) any and all devices, records,
data, notes, reports. proposals, lists, correspondence, specifications,
drawings, blueprints, sketches, materials, equipment, other documents or
property, or reproductions of any aforementioned items developed by me pursuant
to my employment with the Company or otherwise belonging to the Company, its
successors or assigns.
6. Solicitation of Employees. I agree that for a period of twelve (12)
months immediately following the termination of my relationship with the Company
for any reason, whether with or without cause, I will not either directly or
indirectly solicit, induce, recruit or encourage any of the Company's employees
to leave their employment, or take away such employees, or attempt to solicit,
induce, recruit, encourage or take away employees of the Company, either for
myself or for any other person or entity.
7. Representations. I agree to execute any proper oath or verify any
proper document required to carry out the terms of this Agreement. I represent
that my performance of all the terms of this Agreement will not breach any
agreement to keep in confidence proprietary information acquired by me in
confidence or in trust prior to my employment by the Company. I have not entered
into, and I agree I will not enter into, any oral or written agreement in
conflict herewith.
8. Arbitration and Equitable Relief.
(a) Arbitration. Except as provided in Section 8(b) below, I
agree that any dispute or controversy arising out of or relating to any
interpretation, construction, performance or breach of this Agreement will be
settled by arbitration to be held in Santa Clara County, California, in
accordance with the rules then in affect of the American Arbitration
Association. The arbitrator may grant injunctions or other relief in such
dispute or controversy. The decision of the arbitrator will be final, conclusive
and binding on the parties to the arbitration. Judgement may be entered on the
arbitrator's decision in any court
[*] CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
<PAGE>
having jurisdiction. The Company and I will pay one-half of the costs and
expenses of such arbitration, and each of us will separately pay our counsel
fees and expenses.
(b) Equitable Remedies. I agree that it would be impossible or
inadequate to measure and calculate the Company's damages from any breach of the
covenants set forth in Sections 2, 3, and 5 herein. Accordingly, I agree that if
I breach any such Sections, the Company will have, in addition to any other
right or remedy available, the right to obtain an injunction from a court of
competent jurisdiction restraining such breach or threatened breach and to
specific performance of any such provisions of this Agreement. I further agree
that no bond or other security will be required in obtaining such equitable
relief and I hereby consent to the issuance of such injunction and to the
ordering of specific performance. I hereby further consent to the personal
jurisdiction of the state and federal courts located in California for any
lawsuit filed there against me by the Company arising from or relating to this
Agreement.
9. General Provisions
(a) Governing Law. This Agreement will be governed by the laws
of the State of California.
(b) Entire Agreement. This Agreement sets forth the entire
agreement and understanding between the Company and me relating to the subject
matter hereof and merges all prior discussions between us. No modification of or
amendment to this Agreement, or any waiver of any rights under this Agreement,
will be effective unless in writing and signed by the party to be charged. Any
subsequent change or changes in my duties, salary or compensation will not
affect the validity or scope of this Agreement.
(c) Severability. If one or more of the provisions in this
Agreement are deemed void by law, then the remaining provisions will continue in
full force and effect.
(d) Successors and Assigns. This Agreement will be binding
upon my heirs, executors, administrators and other legal representatives and
will be for the benefit of the Company, its successors, and its assigns.
Date: _________________________________________
Signature
_________________________________________
Name of Employee (typed or printed)
Witness
_________________________________________
[*] CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
<PAGE>
EXHIBIT A
LIST OF PRIOR INVENTIONS
AND WORKS OF AUTHORSHIP
Identifying Number
Title Date or Brief Description
________ No Inventions or Improvements
________ Additional Sheets Attached
Signature of Employee:
Print Name of Employee:
Date:
[*] CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
<PAGE>
EXHIBIT B
CALIFORNIA LABOR CODE SECTION 2870
EMPLOYMENT AGREEMENTS; ASSIGNMENT OF RIGHTS
"(a) Any provision in an employment agreement which provides that an
employee shall assign, or offer to assign, any of his or her rights in an
invention to his or her employer shall not apply to an invention that the
employee developed entirely on his or her own time without using the employer's
equipment, supplies, facilities, or trade secret information except for those
inventions that either:
(1) Relate at the time of conception or reduction to practice
of the invention to the employer's business, or actual or demonstrably
anticipated research or development of the employer.
(2) Result from any work performed by the employee for the
employer.
(b) To the extent a provision in an employment agreement purports to
require an employee to assign an invention otherwise excluded from being
required to be assigned under a subdivision (a), the provision is against the
public policy of this state and is unenforceable."
[*] CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
<PAGE>
EXHIBIT B-2
CONTRACTOR AGREEMENT
[*] CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
<PAGE>
ELECTRONICS FOR IMAGING, INC.
CONSULTING AGREEMENT
This Consulting Agreement ("Agreement") is made and entered into as of
the ________ day of _________________________, 19__ by and between
_______________________________ a ___________________________________
Corporation, (the "Company"), and ___________________________________
("Consultant"). The Company desires to retain Consultant as an independent
contractor to perform consulting services for the Company and Consultant is
willing to perform such services, on terms set forth more fully below. In
consideration of the mutual promises contained herein, the parties agree as
follows:
1. SERVICES AND COMPENSATION
(a) Consultant agrees to perform for the Company the services
described in Exhibit A ("Services"),
(b) The Company agrees to pay Consultant the compensation set
forth in Exhibit A for the performance of the Services.
2. CONFIDENTIALITY
(a) "Confidential Information" means any Company proprietary
information, technical data, trade secrets or know-how, including, but not
limited to, research, product plans, products, services, customers, customer
lists, markets, software, developments, inventions; processes, formulas,
technology, designs, drawings, engineering, hardware configuration information,
marketing Finances or other business information disclosed by the Company either
directly or indirectly in writing, orally or by drawings or inspection of parts
or equipment.
(b) Consultant will not, during or subsequent to the term of
this Agreement, use the Company's Confidential Information for any purpose
whatsoever other than the performance of the Services on behalf of the Company
or disclose the Company's Confidential Information to any third party. and it is
understood that said Confidential Information shall remain the sole property of
the Company. Consultant further agrees to take all reasonable precautions to
prevent any unauthorized disclosure of such Confidential Information including,
but not limited to, having each employee of Consultant, if any, with access to
any Confidential Information. execute a nondisclosure agreement containing
provisions in the Company's favor substantially similar to Sections 2, 3 and 5
of this Agreement. Confidential Information does not include information which
(i) is know to Consultant at the time of disclosure to Consultant by the Company
as evidenced by written records of Consultant, (ii) has become publicly known
and made generally available through no wrongful act of Consultant, or (iii) has
been rightfully received by Consultant from a third party who is authorized to
make such disclosure. Without the Company's prior written approval, Consultant
will not directly or indirectly disclose to anyone
[*] CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
<PAGE>
the existence of this Agreement or the fact that Consultant has this arrangement
with the Company.
(c) Consultant agrees that Consultant will not, during the
term of this Agreement, improperly use or disclose any proprietary information
or trade secrets of any former or current employer or other person or entity
with which Consultant has an agreement or duty to keep in confidence information
acquired by Consultant in confidence, if any, and that Consul cant will not
bring onto the premises of the Company any unpublished document or proprietary
information belonging to such employer, person or entity unless consented to in
writing by such employer, person or entity. Consultant will indemnify the
Company and hold it harmless from and against all claims, liabilities, damages
and expenses, including reasonable attorneys fees and costs of suit, arising out
of or in connection with any violation or claimed violation of a third party's
rights resulting in whole or in part from the Company's use of the work product
of Consultant under this Agreement.
(d) Consultant recognizes that the Company has received and in
the future will receive from third parties their confidential or proprietary
information subject to a duty on the Company's part to maintain the
confidentiality of such information and to use it only for certain limited
purposes. Consultant agrees that Consultant owes the Company and such third
parties, during the term of this Agreement and thereafter, a duty to hold all
such confidential or proprietary information in the strictest confidence and nor
to disclose it to any person, firm or corporation or to use it except as
necessary in carrying out the Services for the Company consistent with the
Company's agreement with such third party.
(e) Upon the termination of this Agreement, or upon Company's
earlier request, Consultant will deliver to the Company all of the Company's
property or Confidential Information in tangible. form that Consultant may have
in Consultant's possession or control.
3. OWNERSHIP
(a) Consultant agrees that all copyrightable material, notes,
records, drawings, designs, inventions, improvements. developments, discoveries
and trade secrets (collectively, "Inventions") conceived, made or discovered by
Consultant, solely or in collaboration with others, during the period of this
Agreement which relate in any manner to the business of the Company that
Consultant may be directed to undertake, investigate or experiment with, or
which Consultant may become associated with in work, investigation or
experimentation in the line of business of Company in performing the Services
hereunder, are the sole property of the Company. Iii addition, any Inventions
which constitute copyrightable subject matter shall be considered "works made
for hire" as that term is defined in the United States Copyright Act. Consultant
Further agrees to assign (or muse to be assigned) and does hereby assign fully
to the Company all such Inventions and any copyrights, patents, mask work rights
or other intellectual property rights relating thereto.
(b) Consultant agrees to assist Company, or its designee, at
the Company's expense, in every proper way to secure the Company's rights in the
Inventions and any copyrights, patents, mask work rights or other intellectual
property rights relating thereto in any and all countries, including the
disclosure to the Company- of all pertinent information and data with respect
thereto the execution of all applications, specifications, oaths, assignments
and all
[*] CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
<PAGE>
other instruments which the Company shall deem necessary in order to apply for
and obtain such rights and in order to assign and convey to the Company, its
successors, assigns and nominees the sole and exclusive rights, title and
interest in and to such Inventions, and any copyrights, patents, mask work
rights or other intellectual property rights relating thereto. Consultant
further agrees that Consultant's obligation to execute or cause to be executed,
when it is in Consultant's power to do so, any such instrument or papers shall
continue after the termination of this Agreement.
(c) Consultant agrees that if in the course of performing the
Services, Consultant incorporates into any Invention developed hereunder any
invention, improvement, development. Concept, discovery or other proprietary
information owned by Consultant or in which Consultant has an interest, the
Company is hereby granted and shall have a non-exclusive, royalty-free.
perpetual. irrevocable, worldwide license to make, have made, modify, use and
sell such item as part of or in connection with such Invention.
(d) Consultant agrees that if the Company is unable because of
Consultant's unavailability, dissolution, mental or physical incapacity, or for
any other reason, to secure Consultant's signature to apply for or to pursue any
application for any United States or foreign patents or mask work or copyright
registrations covering the Inventions assigned to the Company above, then
Consultant hereby irrevocably designates and appoints the Company and its duly
authorized officers and agents as Consultant's agent and attorney in fact, to
act for and in Consultant's behalf and stead to execute and file any such
applications and to do all other lawfully permitted acts to further the
prosecution and issuance of patents, copyright and mask work registrations
thereon with the same legal force and effect as if executed by Consultant.
4. REPORTS
Consultant agrees that it will from time to time during the
term of this Agreement or any execution thereof keep the Company advised as to
Consultant's progress in performing the Services hereunder and that Consultant
will, as requested by the Company, prepare written reports with respect thereto.
It is understood that the time required in the preparation of such written
reports shall be considered time devoted to the performance of Consultant's
Services.
5. CONFLICTING OBLIGATIONS
(a) Consultant certifies that Consultant has no outstanding
agreement or obligation that is in conflict with any of the provisions of this
Agreement. or that would preclude Consultant from complying with the provisions
hereof, and further certifies that Consultant will not enter into any such
conflicting Agreement during the term of this Agreement.
(b) In view of Consultant's access to the Company's trade
secrets and proprietary know-how, Consultant further agrees that Consultant will
not, without Company's prior written consent, design identical or substantially
similar designs as those developed under this Agreement for any third party
during the term of this Agreement and for a period of twelve (12) months after
chic termination of this Agreement.
[*] CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
<PAGE>
6. TERM AND TERMINATION
(a) This Agreement will commence on the date first written
above and will continue until final completion of the Services or termination as
provided below.
(b) The Company may terminate this Agreement upon giving two
(2) weeks prior written notice thereof to Consultant. Ally such notice shall be
addressed to Consultant at the address shown below or such other address as
either party may notify the other of and shall be deemed given upon delivery if
personally delivered, or forty-eight (48) hours after deposited in the United
States mail postage prepaid. registered or certified mail, return receipt
requested. The Company may terminate this Agreement immediately and without
prior notice if Consultant refuses to or is unable to perform the Services or is
in breach of any material provision of this Agreement.
(c) Upon such termination, all rights and duties of the
parties toward each other shall cease except:
(i) that the Company shall be obliged to pay, within
thirty (30) days of the effective date of termination. all amounts owing to
Consultant for unpaid Services and related expenses, if any, in accordance with
the provisions of Section 1 (Services and Compensation) hereof; and
(ii) Sections 2 (Confidentiality), 3 (Ownership) and
8 (Independent Contractors) shall survive termination of this Agreement.
7. ASSIGNMENT
Neither this Agreement nor any right hereunder or interest
herein may be assigned or transferred by Consultant without the express written
consent of the Company.
8. INDEPENDENT CONTPACTOR
Nothing in this Agreement shall in any way be construed to
constitute Consultant as an agent, employee or representative of the Company.
but Consultant shall perform the Services hereunder as an independent
contractor. Consultant agrees to furnish (or reimburse the Company for) all
tools and materials necessary to accomplish this contract, and shall incur all
expenses associated with performance. except as expressly provided on Exhibit A
of this Agreement. Consultant acknowledges and agrees that Consultant is
obligated to report as income all compensation received by Consultant pursuant
to this Agreement. and Consultant agrees to and acknowledges the obligation to
pay all self-employment and other taxes thereon. Consultant further agrees to in
indemnify the Company and hold it harmless to the extent of any obligation
imposed on Company (i) to pay in withholding taxes or similar items or (ii)
resulting from Consultant's being determined not to be an independent
contractor.
[*] CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
<PAGE>
9. ARBITRATION AND EQUITABLE RELIEF
(a) Except as provided iii Section 9 (b) below, the Company
and Consultant agree that any dispute or controversy arising out of or relating
to any interpretation, construction, performance or breach of this Agreement.
shall be settled by arbitration to be held in ________________________________
County. California, in accordance with the rules then in effect of the American
Arbitration Association. The arbitrator may grant injunctions or other relief in
such dispute or controversy. The decision of the arbitrator shall be final,
conclusive and binding on the parties to the arbitration. Judgment may be
entered on the arbitrator's decision in any court of competent jurisdiction. The
Company and Consultant shall each pay one-half of the costs and expenses of such
arbitration, and each shall separately pay its respective counsel fees and
expenses.
(b) Consultant agrees that it would be impossible or
inadequate to measure and calculate the Company's damages from any breach of the
covenants set forth in Sections 2 or 3 herein. Accordingly, Consultant agrees
that if Consultant breaches Section 2 or 3, the Company will have available, in
addition to any other right or remedy available, the right to obtain from any
court of competent jurisdiction, an injunction restraining such breach or
threatened breach and specific performance of any such provision. Consultant
further agrees that no bond or other security shall be required in obtaining
such provision. Consultant further agrees that no bond or other security shall
be required in obtaining such equitable relief and Consultant hereby consents to
the issuances of such injunction and to the ordering of such specific
performance.
10. GOVERNING LAW
This Agreement shall be governed by the laws of the State of
California.
11. ENTIRE AGREEMENT
This Agreement is the entire Agreement of the parties and
supersedes any prior Agreements between them with respect to the subject matter
hereof.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
CONSULTANT (Name of Company)
By: By:
Title:_________________________ Title: __________________________
Address: ______________________ Address: ________________________
[*] CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
<PAGE>
EXHIBIT A
SERVICES AND COMPENSATION
I. Contact Consultants principal Company contact:
Name:
Title:
2. Services Consultant will render to the Company the following Services:
3. Compensation
(a) The Company shall pay Consultant $ _______________ per
(b) The Company shall reimburse Consultant for all reasonable
travel and living expenses incurred by Consultant in
performing Services pursuant to this Agreement, provided
Consultant receives prior written consent from an authorized
agent of the Company prior to incurring such expenses.
(c) Consultant shall submit all statements for services and
expenses in prescribed by the Company and such statement shall
be approved by the contact listed above or by his or her
supervisor.
[*] CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
<PAGE>
EXHIBIT C
Development and Reproduction Site
Electronics for Imaging, Inc.
2855 Campus Drive
San Mateo, CA 94403
Solectron Corporation
890 Yosemite Drive
Milpitas, CA 95035
Micron Custom Manufacturing Services, Inc.
8455 Westpark Street
Boise, ID 83704-8366
[*] CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
<PAGE>
EXHIBIT B-3
NOTICE REGARDING CONFIDENTIALITY
(POSTSCRIPT SUPPORT SOURCE)
1. Recipient has previously signed an agreement with EF[ pursuant to
which Recipient has agreed to maintain the confidentiality of confidential
information of EFI and its suppliers (the "Confidential Information") and to use
the Confidential Information solely for EFI's benefit. The purpose of this
notice is to apprise Recipient that Recipient will be receiving certain
proprietary information of Adobe, including internal source code, interface
specifications, and related source documentation for the PostScript software and
related Adobe information, all of which is of a confidential nature and which
contains valuable trade secrets, know-how, and proprietary information of Adobe
(the "Adobe Support Information") and which constitutes Confidential Information
under Recipient's agreement with EFI.
2. This is to inform Recipient that the Adobe Support Information
cannot be used for any purpose except for the specific purposes which EFI or
Adobe authorize in writing and that Recipient is not authorized to disclose the
Adobe Support Information to any person at any time except to employees of Adobe
and to those Authorized Employees and Authorized Contractors which EFI informs
Recipient are authorized to receive such Adobe Support Information.
3. All materials including, without limitation, programs, recorded
information, documents, drawings, models, apparatus, sketches, designs, and
lists furnished to Recipient by EFI or Adobe which are designated in writing to
be the property of Adobe remain the property of Adobe and must be returned to
Adobe promptly at its request, together with any copies or modifications
thereof.
[*] CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
<PAGE>
EXHIBIT C
DEVELOPMENT AND REPRODUCTION SITES
(POSTSCRIPT SUPPORT SOURCE WITH OBJECT)
EFI's use and storage of the Adobe Support Information shall be
restricted to the Following Development Site:
Name of Development Site: Address:
Electronics for Imaging, Inc 2855 Campus Drive
San Mateo, CA 94403
EFI's reproduction of the Revised Object and Font Programs shall be restricted
to the following Reproduction Sites:
Name of Reproduction Sites: Address:
Solectron Corporation 890 Yosemite Drive
Milpitas, CA 95035
Micron Custom Manufacturing Services, Inc. 8455 Westpark Street
Boise, ID 83704-8366
[*] CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
<PAGE>
EXHIBIT D
SAMPLE FORMAT FOR
LICENSED SYSTEM APPENDIX
To THE
ADOBE SYSTEMS INCORPORATED
POSTSCRIPT SUPPORT SOURCE AND OBJECT CODE DISTRLBTJTION
LICENSE AGREEMENT
Name of EFI:_____________
Name of Licensed System:
Effective Date:_________________
This Appendix sets forth additional and different terms and conditions
particular to the Licensed System described below and shall be incorporated by
reference into the PostScript Support Source and Object Code Distribution
License Agreement ("Agreement") between ________________ and Adobe Systems
Incorporated effective as of _______________ Such different or additional terms
are applicable only to the Licensed System described below and in no way alter
the terms and conditions applicable to other Licensed Systems incorporated into
the Agreement by addition of an appendix.
All the terms used in this Appendix shall retain the same meaning as
defined in the Agreement and such definitions are incorporated herein by
reference.
A. Licensed System:
1. Software: See PARAGRAPH 1.3 ("Adobe Software") of the
Agreement.
2. EFI Hardware:
B. Media for the Software as distributed by EFI:
C. Development Schedule and Testing Expectations:
1. Development Schedule: (This section should contain information
on Adobe hardware training including the location, number of
days, number of persons and scope of training.)
Milestone Description Schedule
[*] CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
<PAGE>
D. Definition of Development Schedule Terms:
1. Alpha Release:
2. Beta Release:
3. Final Report:
4. Final Release:
E. Loaned Equipment:
F. Applicable Royalties:
1. Licensed System.
a. Advance Against Royalties.
b. Licensed System Royalties.
c. Font Programs.
G. Roman Initial Installation Font Programs:
Identifying Trademark Typeface Trademark Owner
H. Additional Font Programs: List all Additional Font Programs which are
not set forth in the Roman Initial Installation Font Programs section
(Section G above) which will be bundled as a part of the Licensed
System, and describe the media for such Additional Font Programs.
Media:
Identifying Trademark Typeface Trademark Owner
I. Software Training: (Include the location, number of days, number of
persons and scope of training.
J. Designated Persons:
[*] CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
<PAGE>
1. Technically qualified EFI representative who will respond to
information requests by Adobe:
(name and telephone number)
2. Technically qualified Adobe representative who will respond to
infonnation requests by EFI:
(name and telephone number)
3. EFI's designated representative for Continuing Support:
(name and telephone number)
4. Adobe Contract Representative:
(name and telephone number)
5. EFI Contract Representative:
(name and telephone number)
6. EFI financial contact for invoicing and payment:
(name, telephone number and fax number)
[*] CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Appendix No. by their
duly authorized representative.
ADOBE: EFI:
ADOBE SYSTEMS INCORPORATED
By: SAMPLE FORMAT/NOT FOR SIGNATURE
Print
Name:
Title:
Date:
Address for Notice:
1585 Charleston Road
P.O. Box 7900
Mountain View, CA 94039-7900
[*] CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
<PAGE>
EXHIBIT E
REFERENCE PORT TRAINING AND SUPPORT
(POSTSCRIPT SUPPORT SOURCE WITH OBJECT)
1. Training.
a. Adobe agrees to permit a mutually agreeable number of
Authorized Employees and Authorized Contractors (as defined in PARAGRAPH 1 of
Exhibit J ("Secure Procedures for Handling Adobe Support Information")) of EFI
to attend an Adobe-provided Adobe Support Source training class for up to two
(2) days during the term of this Agreement at no additional charge (other than
the travel and living expenses described below).
b. If EFI and Adobe agree that Adobe should provide any
additional training, technical, or development assistance, EFI shall pay Adobe,
at Adobe's then current standard hourly rates, for time expended by Adobe
personnel in providing such training, technical, or development assistance. EFI
shall also bear all reasonable travel and living expenses of Adobe personnel who
provide services or training at an EFI site outside of the greater San Francisco
Bay Area.
2. Support.
a. Support Services. If EFI purchases the support services for
a particular Reference Port and pays the applicable Annual Fee, set forth in
Exhibit H ("Payments"), Adobe shall provide EFI with the Adobe Support (as
defined in PARAGRAPH 2(D) ("General Description of Adobe Support") below)
commencing upon the date of this Agreement or the applicable Reference Port
Appendix. Adobe Support shall include delivery to EFI of Updates of that
Reference Port.
b. Discontinuance. Adobe Support may, at Adobe's option, be
discontinued if EFI fails to pay in a timely manner any Annual Fee (as defined
in PARAGRAPH 2 of Exhibit H ("Payments")). The foregoing services, if
discontinued, may be reinstated by EFI, at any time during the term hereof, upon
EFI's payment to Adobe of an Annual Fee to be mutually agreed upon by the
parties for each intervening year for which such payment was not made. The same
provision for reinstatement shall apply in the event that EFI chooses to begin
purchasing Adobe Support in the second or any subsequent year following the year
in which EFI received the initial delivery of that particular Reference Port
from Adobe hereunder.
c. Modifications Resulting from Updates. Any modifications to
the Revised Support Software necessitated by the release of an Update of a
Reference Port to EFI hereunder shall be the sole responsibility of EFI, and
Adobe shall have no responsibility to assist EFI in such effort except to test
the modified Revised Object in accordance with the provisions of Exhibit I
("Revised Software Test Procedures").
d. General Description of Adobe Support. "Adobe Support" means
(i) the delivery of Updates of a Reference Port and (ii) the problem resolution
services described below with respect to Problems (as defined below) in the
Reference Port.
[*] CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
<PAGE>
e. Description of Problem Resolution Services Provided by
Adobe.
(1) Product Problem Reports (PPRs). EFI shall submit
to Adobe, by electronic mail, facsimile, or personal delivery, Product Problem
Reports ("PPR") in the form attached hereto as ATTACHMENT 1 TO Exhibit E
("Product Problem Report") to identify any Problems (as defined in PARAGRAPH
(E)2 ("Classification of Problems") below). Adobe may modify the form of PPR
from time to time and shall provide the new form to EFI.
(2) Classification of Problems. "Problem" means any
problem in the Reference Port which causes the Reference Port (including the
Unmodified Core) not to execute as part of the designated Reference System or
otherwise not to operate substantially in accordance with the PostScript
Language Specification or any other problem that EFI discovers in the Reference
Port or the Adobe Support Information. EFI will use its reasonable business
judgment to classify Problems (in accordance with the classifications set forth
below) in the PPR which EFI submits to Adobe.
(3) Level 4 Severity. Level 4 is the classification
used in any PPR that demonstrates that (i) there is a Problem that causes the
Reference Port to fail to operate in a material manner or to produce
substantially incorrect results, and (ii) there is no workaround solution to the
Problem.
(4) Level 3 Severity. Level 3 is the classification
used in any PPR that demonstrates that (i) there is a Problem that causes the
Reference Port to fail to operate in a material manner or to produce
substantially incorrect results, and (ii) there is a difficult or no workaround
solution to the Problem. Problems which are not demonstrable with a PostScript
Software-supporting application or driver (i.e., are reproducible only with
hand-generated PostScript software) are generally classified as Level 3 and not
Level 4 Severity Problems.
(5) Level 2 Severity. Level 2 is the classification
used in any PPR that exhibits a Problem which produces an inconvenient situation
in which the Reference Port is usable but does not provide a function in the
most convenient or expeditious manner; and the use or value of the Reference
Port suffers no significant impact. Level 2 Problems will generally be corrected
in a subsequent release of the Reference Port.
(6) Level 1 Severity. Level 1 is the classification
used in any PPR that exhibits a Problem which is minor or that is cosmetic in
nature. Generally, a Level 1 Problem is reasonably correctable by a PostScript
Language Specification change or by a subsequent release of the Reference Port.
(7) Level 0 Severity. This level will be used for new
features in a Reference Port (including Unmodified Core) requested by EFI.
f. Adobe's Response to PPRS. Within five (5) business days
after receipt by
[*] CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
<PAGE>
Adobe of a PPR involving a classification of a Level 3 or 4 Severity Problem or
ten (10) days after receipt of a PPR involving a classification of a Level 2, 1,
or 0 Severity Problem, Adobe shall acknowledge receipt of the PPR. If, in
Adobe's judgment, a PPR correctly identifies a Level 3 or 4 Severity Problem,
Adobe shall use reasonable commercial efforts to correct the identified Problem
and issue and deliver to EFI a release with such correction implemented, or take
such other corrective action as Adobe deems necessary to correct the Problem.
Adobe acknowledges that it shall give priority to and take corrective actions as
expeditiously as possible in connection with any Severity 3 or 4 Problem that
prevents EFI from shipping a Licensed System. Adobe may choose, in its sole
discretion, to implement a Level 0 request, but it is not required to do so.
g. Special Services. EFI may request that Adobe perform
special support services with respect to the Reference Port not covered by
services provided under Adobe Support as described herein. Adobe shall negotiate
in good faith with EFI with respect to any such request for special support
services and Adobe shall use reasonable commercial efforts to accommodate any
such request by EFI at Adobe's then current prices and upon terms and conditions
to be mutually agreed upon by the parties.
[*] CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
<PAGE>
ATTACHMENT 1
TO
EXHIBIT E
PRODUCT PROBLEM REPORT
Title: (OEM internal tracking no.) - (short one line title of problem)
A single line, short description of the problem. This line may be
prefixed by an OEM's internal problem tracking code for cross reference
purposes.
Severity: (4.0)
OEM's proposed severity code. The severity code is based on a general
understanding of the nature and effect of the reported problem. Adobe
maintains the right to alter the severity code submitted by the OEM
after consulting with the OEM. The severity code is based on the
following general considerations:
4- most severe, no work-around, must be fixed
3- fairly severe, difficult to work-around, must be fixed
2- easy work-around, should be fixed in a subsequent release
1- cosmetic or minor problem 0- enhancement or request for
design change
Priority: (A-C)
OEM' s requested priority for resolving the report problem. This will
help Adobe's Codevelopment engineering support personal when
prioritizing the OEM's support needs. The priority code is based on the
following general considerations:
A- move to the top of the priority queue - may result in
priority B and C items being delayed
B- respond to when not working on priority A issues
C- as time permits
Date: (date report sent to Adobe)
Name: (OEM's project name)
The OEM's project name. This is most applicable if the OEM has,
multiple on-going projects with Adobe.
Version: (PostScript/documentation version, date)
The version of the PostScript interpreter in question. For
documentation, the document's date should also be included.
[*] CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
<PAGE>
Contact: (contact OEM company/e-mail/phone number)
The primary contact for technical communications at the OEM's site.
Include the person's name and appropriate method of contact.
Description: (multi-line detailed description of the issue/problem)
A detailed description of the problem or issue. There is no set limit
to the length of the description which may include small sections of C
language code [or PostScript] language code. If it becomes necessary to
send multiple pages of C or PostScript language code, these should be
transferred electronically by UNIX UUCP file transfer and referenced in
the Files entry below.
To facilitate replication of the reported problem, the following
additional information should also be supplied:
Host computer,
Operating system, application, driver and their
respective version numbers,
Exact error message text,
Front panel configuration,
Communications protocol in use (i.e. serial, baud,
rate, etc.)
Files. (list of files that have been UUCP'D to Adobe)
List of files referenced in the above Description of problem section.
[*] CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
<PAGE>
EXHIBIT F
SAMPLE FORMAT FOR REFERENCE PORT APPENDIX
(POSTSCRIPT SUPPORT SOURCE WITH OBJECT)
I. Description of Reference Port.
II. Description of Reference System.
m. Schedule for Delivery of Adobe Deliverables.
IV. Description of Adobe Screening Test Suite.
V. Technical Support.
VI. Font Programs.
[*] CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
<PAGE>
EXHIBIT G
ADOBE SYSTEMS INCORPORATED
MINIMUM TERMS OF END USER AGREEMENTS
(1) Licensor grants Licensee a non-exclusive sublicense to use the
PostScript"' software ("Software") and the digitally-encoded machine-readable
outline data ("Font Programs") encoded in the special format and in the
encrypted form ("Coded Font Programs") provided by Adobe Systems Incorporated
("Adobe") to Licensor to reproduce weights, styles, and versions of letters,
numerals, characters and symbols ("Typefaces") on a single output device; and to
use the trademarks used by Licensor to identify the Coded Font Programs and
Typefaces produced therefrom ("Trademarks"). Licensee may assign its rights
under this Agreement to a licensee of all of Licensee's right and interest to
such Software and Coded Font Programs provided Licensee transfers to licensee
all copies of such Software and Coded Font Programs and licensee agrees to be
bound by all of the terms and conditions of this Agreement. Trademarks, if used
by Licensee, shall be used in accordance with accepted trademark practice,
including identification of the trademark owner's name.
(2) Licensee agrees not to alter, reverse engineer or disassemble the
Software or Coded Font Programs. Licensee will not copy the Software or Coded
Font Programs except as necessary to use them on the single output device.
Licensee agrees that any such copies of the Software or Coded Font Programs
shall contain the same proprietary notices which appear on and in the Software
or Coded Font Programs.
(3) Except as stated above, this Agreement does not grant Licensee any
right (whether by license, ownership or otherwise) in or to intellectual
property with respect to the Software or Coded Font Programs.
(4) Licensee will not export or re-export the Software or Coded Font
Programs without the appropriate United States or foreign government licenses.
(5) Title to and ownership of the Software, Coded Font Programs and
documentation
[*] CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
<PAGE>
and any reproductions thereof shall remain with Licensor and its suppliers.
(6) The Trademarks can only be used to identify printed output produced
by the Coded Font Programs. The Trademarks are the property of the Trademark
Owners identified herein.
(7) NEITHER LICENSOR NOR ANY OF ITS REPRESENTATIVES MAKES OR PASSES ON
TO LICENSEE OR OTHER THIRD PARTY, ANY WARRANTY OR REPRESENTATION ON BEHALF OF
LICENSOR'S THIRD PARTY SUPPLIERS.
(8) Licensee is hereby notified that Adobe Systems Incorporated, a
California corporation located at 1585 Charleston Road, Mountain View,
California 94039-7900 ("Adobe") is a third-party beneficiary to this agreement
to the extent that this agreement contains provisions which relate to Licensee's
use of the Software, the Fonts, the Coded Font Programs, the Typefaces and the
Trademarks licensed hereby. Such provisions are made expressly for the benefit
of Adobe and are enforceable by Adobe in addition to Licensor.
[*] CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
<PAGE>
EXHIBIT H
PAYMENTS
(POSTSCRIPT SUPPORT SOURCE)
1. Source License Fees. Adobe has waived the source license fee for the
Adobe Software provided hereunder. EFI shall pay Adobe a Reference Port fee of
[*] for the initial delivery of a Reference Port and accompanying Adobe
Deliverables due and payable upon execution of this Agreement. EFI shall pay a
source license fee of [*], or such other amount as specified in an applicable
Reference Port Appendix, for each additional Reference Port and accompanying
Adobe Deliverables from Adobe's then currently available Reference Port
offerings, and specified in a Reference Port Appendix attached hereto, due and
payable upon final execution of the Reference Port Appendix.
2. Reference Port Support Fees. Adobe has waived the "Annual Fee" for
Adobe support services, as described in Exhibit E ("Reference Port Training and
Support") hereto, for the initial Reference Port for the initial year. The
"Annual Fee" for subsequent years and Other Reference Ports during the term of
this Agreement shall be Adobe's then current annual fee per Reference Port and
shall be payable within thirty (30) days after the anniversary date of this
Agreement or the applicable Reference Port Appendix.
3. Per Copy License Fees for Use of Reference Port Support Source. EFI
will not be required to pay Adobe an additional per copy source license fee for
the right to use the Reference Port Support Source, provided that (i) use of the
Reference Port Support Source is limited to one (1) copy at one (1) Development
Site, (ii) EFI monitors the maximum number of copies of Reference Port Support
Source being used concurrently on multiple CPUs at each Development Site and
reports that number to Adobe upon request, and (iii) EFI maintains appropriate
records to permit Adobe to verify the accuracy of the number of multiple copies
in concurrent use at each Development Site reported to Adobe by EFI as required
under subitem (ii) above. For purposes of this paragraph, multiple users sharing
the use of a single copy of the Reference Port Support Source located on a
server with download capability to workstations, terminals, etc. constitutes a
single user. In the event that EFI's use of the Reference Port Support Source
exceeds the limitation, as specified above in this Paragraph, EFI shall report
such usage to Adobe hereunder and EFI shall pay Adobe a source license fee equal
to the actual amount of the license fee, payable by Adobe to its third party
supplier of software directly resulting from EFI's use of the Reference Port
Support Source.
4. Fees for Testing. EFI shall pay Adobe a retesting fee of [*] for
each instance of such resubmission and retesting of Revised Object pursuant to
Exhibit I ("Revised Software Test Procedures"). This process shall continue
until Adobe accepts the EFI Deliverables. Adobe shall charge EFI a testing fee
of [*] for each initial instance of resubmission and testing of the modified EFI
Deliverables pursuant to Exhibit I, PARAGRAPH 3(D) ("Revised Software Test
Procedures") following Adobe's initial acceptance of the final release version
of the Revised Object. EFI shall pay to Adobe an additional [*] per instance of
resubmission and retesting pursuant to EXHIBIT I, PARAGRAPH 3D ("Revised
Software Test Procedures"). Notwithstanding the above-stated requirements for
payment of testing fees, EFI shall not be charged for any instance of retesting
(whether of the initial final release version or any subsequent modified version
of the Revised Object) if retesting is made necessary by Adobe's change to the
Unmodified Core or to the Adobe Screening Test Suite. In addition, there will be
no charge for retesting if EFI can show that the EFI Deliverables when initially
tested by EFI satisfied the specified tests in the Adobe Screening Test Suite.
[*] CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
<PAGE>
EXHIBIT I
REVISED SOFTWARE TEST PROCEDURES
(POSTSCRIPT SUPPORT SOURCE WITH OBJECT)
1. Adobe Screening Test Suite. Adobe shall provide EFI with a special
version, if any, of the Adobe Screening Test Suite to be utilized by EFI in
testing each Licensed System in accordance with the milestones set forth in the
applicable Licensed System Appendix.
2. EFI Testing. Prior to submission of each Revised Object to Adobe for
testing in accordance with the terms hereof, EFI shall verify that the Revised
Object satisfies all tests in the Adobe Screening Test Suite (or such subject
thereof as is specified in the applicable Licensed System Appendix). EFI shall
not make the First Commercial Shipment of a Licensed System, and any updated
version thereof until acceptance by Adobe of the EFI Deliverables. To permit
testing by Adobe of the final release version of the Revised Object, EFI shall,
at Adobe's option, in accordance with a mutually agreeable schedule to be
specified in the applicable Licensed System Appendix, provide Adobe with a
comprehensive report of the test results of such EFI testing which will include
all printer out-put and test results of the Adobe Screening Test Suite, output
samples thereof, and a preproduction release of the EFI Deliverables.
3. Adobe Testing.
a. Adobe shall be entitled to test the machine readable
version of the Revised Object for each Licensed System prior to First Commercial
Shipment and prior to First Commercial Shipment of a Licensed System containing
an engineering change order (ECO) or prior to effectiveness of a field change
order (FCO) affecting such Revised Object for a Licensed Systems previously
approved by Adobe.
b. Unless otherwise specified in the applicable Licensed
System Appendix, (i) EFI shall notify Adobe at least ninety (90) days in advance
of the estimated date of delivery of the EFI Deliverables to Adobe for testing
and (ii) EFI shall give Adobe at least thirty (30) days advance notice of its
anticipated delivery of the EFI Deliverables for testing, and Adobe shall have
thirty (30) days, or such other period as specified in an applicable Licensed
System Appendix, following EFI's timely delivery of the EFI Deliverables (and
all necessary Loaned Equipment) to do the following: (i) to test the quality of
the EFI Deliverables for conformity with
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the Adobe Screening Test Suite developed by Adobe and, at Adobe's option, with
any other tests and procedures or any updated or enhanced versions of the Adobe
Screening Test Suite, to verify that EFI has not modified the Adobe Software
beyond the scope of modifications permitted by PARAGRAPH 2.1. ("License to Use
Reference Port Support Source and Adobe Support Information") of the Agreement,
and (ii) to verify that the overall quality of the EFI Deliverables complies
with the quality level for Adobe products, as reasonably determined by Adobe
from time to time.
c. Adobe shall conduct the initial testing of the final
release version of the Revised Object free of charge. Adobe shall inform EFI of
the results of such testing and, if Adobe is unable to accept the EFI Revised
Object, the basis for a finding of nonconformity or failure of the Revised
Object to conform to the criteria specified above. In the event that the EFI
Deliverables do not conform to the above criteria, EFI shall use reasonable
effort to promptly correct any nonconformity and resubmit the same for retesting
by Adobe. This process shall continue until Adobe accepts the EFI Deliverables.
d. Thereafter, if EFI modifies the EFI Deliverables, EFI shall
retest the EFI Deliverables pursuant to PARAGRAPH 2 ("EFI Testing") above and
resubmit the same as modified to Adobe for testing pursuant to this paragraph.
Notwithstanding the foregoing, Adobe shall not have the right to require
retesting of EFI Deliverables if EFI has not modified the Adobe Software.
e. Should the modified EFI Deliverables not conform to Adobe's
acceptance criteria, as described above, EFI shall use reasonable efforts to
promptly correct any nonconformity and resubmit the same for retesting by Adobe.
f. EFI shall, within a commercially reasonable time following
Adobe's acceptance of EFI Deliverables, update pre-production units shipped for
beta or evaluation purposes prior to First Commercial Shipment.
g. The parties intend that the Adobe testing procedure set
forth in this PARAGRAPH 3 be applicable to the Revised Object for the first
several Licensed Systems distributed by EFI under this Agreement. With
successful certification of these first several Licensed Systems, Adobe and EFI
will work together to develop QA test procedures that will streamline the QA
process. The goal of this streamlined QA process is for EFI to perform
self-testing of Licensed Systems, with Adobe auditing the EFI QA results, on
Licensed Systems that are created by modifications other than to the Adobe
Source.
4. Adobe Retesting Waived. Under certain circumstances such as, when
EFI makes modifications to the EFI Deliverables to correct a minor
non-conformance or to implement a minor feature enhancement for its customers,
Adobe may request and EFI shall provide Adobe with the comprehensive test
results from EFI's testing of the modified EFI Deliverables using the Adobe
Screening Test Suites. If Adobe determines from its review of the test results
that the modified EFI Deliverables meet all of the tests in the Adobe Screening
Test Suite and if it is able to verify to its satisfaction that the overall
quality of the modified EFI Deliverables complies
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with Adobe's quality standards, Adobe may, in its sole discretion, waive the
requirement for its retesting of the EFI Deliverables. If requested by Adobe,
EFI shall supply Adobe with a declaration signed by an authorized representative
of EFI attesting to the accuracy of such test results supplied to Adobe
hereunder.
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AMENDED.
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EXHIBIT J
SECURE PROCEDURES FOR HANDLING
ADOBE SUPPORT INFORMATION
(POSTSCRIPT SUPPORT SOURCE WITH OBJECT DISTRIBUTION)
1. Authorized Employees and Contractors. EFI agrees that it will not
disclose all or any portion of the Adobe Support Information to third parties,
with the exception of authorized employees ("Authorized Employees") and
authorized contractors ("Authorized Contractors") (subject to EFI's having
obtained authorization for use of such contractors in accordance with PARAGRAPH
2 ("Prior Approval of Contractors") below) who (i) require access thereto for a
purpose authorized by this Agreement, (ii) have signed the appropriate employee
or contractor agreement substantially in the form attached as Exhibit B-1
("Employee Nondisclosure Agreement") or EXHIBIT B-2 ("Contractor Agreement"), as
applicable and (iii) in the case of disclosure of Adobe Support Information,
have received a notice of confidentiality prior to access to Adobe Support
Information, and again upon any termination of such access, that contains, at a
minimum (a) provisions substantially in accordance with the provisions set out
in Exhibit B-3 ("Notice Regarding Confidentiality") and (b) specific references
to the Employee Nondisclosure Agreement (Exhibit B-1) or the Contractor
Agreement (Exhibit B-2) as appropriate. EFI guarantees the compliance of all
such Authorized Employees and Authorized Contractors with their obligations
under such Confidentiality Agreements.
2. Prior Approval of Contractors. Notwithstanding the provisions in
this Exhibit J permitting Authorized Contractors to have access to Adobe Support
Information, EFI may not permit a contractor to come into contact with Adobe
Support Information, or engage in the development of Licensed System products
hereunder unless EFI has first obtained such authorization in writing from
Adobe. Adobe, in its sole discretion, may withhold such approval in the event
that a contractor (or contractor's employer) to whom EFI intends to disclose
Adobe Support Information is engaged in Clone Product development, either for
its own benefit or for the benefit of a third party, or if Adobe believes that
the contractor may be engaged in similar product development, and EFI cannot
assure Adobe to its satisfaction that contractor, while engaged in supporting
such development activities, will be able to refrain from commingling or sharing
any portion of the Adobe Support Information with any such Clone Product
development. Notwithstanding the foregoing, Adobe shall be deemed to have
approved any contractor if it does not notify EFI of its rejection of such
contractor within seven (7) days after EFI notifies Adobe of its intent to
permit such contractor to obtain access to the Adobe Support Information.
3. Adobe Support Information.
a. EFI shall ensure that all Adobe Support Information
received from Adobe, and
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copies made thereof, will be properly marked or otherwise appropriately
identified as Adobe Support Information before being made available to
Authorized Employees and Authorized Contractors hereunder.
b. EFI shall ensure that the same degree of care is used to
prevent the unauthorized use, dissemination, or publication of the Adobe Support
Information as EFI uses to protect its own confidential information of a like
nature, but in no event shall the safeguards for protecting such Adobe Support
Information be less than a reasonably prudent business would exercise under
similar circumstances. EFI shall take prompt and appropriate action to prevent
unauthorized use or disclosure of Adobe Support Information.
c. Authorized Employees and Authorized Contractors shall be
instructed not to copy Adobe Support Information on their own, and not to
disclose Adobe Confidential Information to anyone not authorized to receive it.
d. Adobe Support Information shall be handled, used, and
stored solely at the Development Site.
4. Trade Secrets. Adobe Support Information in object code, source code
and hard copy printout form, the PostScript Screening Test Suites, the
techniques, ,algorithms, and processes contained in the Adobe Software, and Font
Programs which have been developed, acquired, or licensed by Adobe, or any
modification or extraction thereof, constitute trade secrets of Adobe and/or its
suppliers, and will be used by EFI only in accordance with the terms of this
Agreement. EFI will take all measures reasonably required to protect the
proprietary rights of Adobe and its suppliers in the Adobe Support Information
and will promptly notify Adobe of any lost or missing items and take all
reasonable steps to recover such items.
5. Marketing of Clone Products. If at any time during the term of this
Agreement EFI chooses to market a Clone Product, it may do so, provided however,
that Adobe may in its sole discretion, and without liability to EFI, terminate
its license grant pursuant to PARAGRAPH 2.1 ("License to Use Reference Port
Support Source and Adobe Support Information") of the Agreement and any
obligation to provide updates to such Reference Port Support Source pursuant to
Exhibit E ("Reference Port Training and Support") of the Agreement effective
sixty (60) days after notice of termination. In the event of such termination,
EFI shall return all copies and portions of copies of Reference Port Support
Source and all other Adobe Support Information, and an officer of EFI will
certify in writing to Adobe that it has no further right to use any such code or
information.
6. Clone Product Development.
a. The terms of PARAGRAPH 5 ("Marketing of Clone Products")
above do not preclude EFI from developing a Clone Product; however, if EFI
engages in such Clone Product development during the term of this Agreement, it
shall ensure that there is no sharing with such Clone Product development any of
the following: (i) design documents or schematics supplied by Adobe; (ii)
Reference Port Support Source or other information based upon or derived from
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the Reference Port Support Source; (iii) any other portions of Adobe Support
Information; or (iv) any facilities (including, but not limited to, disks,
computer systems, workstations and networks) or personnel with access to any of
(i)-(iii) above.
b. EFI shall ensure that, except as set forth in subparagraph
(c) below, all Authorized Employees and Authorized Contractors who have had
previous access to Adobe Support Information will be precluded for a period of
twelve (12) months after their latest access to such Adobe Support Information,
including Reference Port Support Source, from being employed in any Clone
Product development (either internal or external) by or for EFI. "Employment in
any Clone Product Development" shall be defined as having direct access to, or
producing any specifications, documentation, or source code for, components of a
Clone Product. EFI shall further ensure that each such employee or contractor
shall, concurrent with the commencement of work on such Clone Product
development within EN, sign a written affirmation to EFI on a form provided by
EFI which states that each such employee or contractor (a) has neither retained
nor had access for a minimum period of twelve (12) months to any Adobe Support
Information, and (b) will not utilize, or facilitate use of, any Adobe Support
Information in such Clone Product development.
c. Adobe agrees that EFI will continue to engage in the
development of its own controller technology and the underlying environment for
the controller. In the event that EFI wishes to integrate a portion of the Adobe
Software into EFI's controller technology without subjecting the EFI employees
and contractors working on EFI's controller technology to the restriction
against Employment in any Clone Product Development set forth in subparagraph
(b) above, EFI may request Adobe to provide EFI with an opaque interface which
does not disclose any Adobe Support Information or, if the foregoing is not
possible, to provide EFI with a portion of the Adobe Support Information which
would enable EFI to accomplish the integration (such information will hereafter
be referred to as the "Adobe Interfaces"). In the event that Adobe, in its
discretion, provides one or more Adobe Interfaces to EFI, EFI's only obligation
with respect to the Adobe Interfaces shall be not to disclose it outside EFI.
The interfaces ("EFI Interfaces") developed by EN prior to the Effective Date
that do not contain any Adobe Support Information are listed on Attachment J-1
to this Exhibit J ("EFI Interfaces"), as may be amended pursuant to the
procedure set forth below. Upon request of EFI, the parties will amend
Attachment J-1 to include additional interfaces or new versions of EFI
Interfaces developed by EFI after the Effective date (which may be based on the
Adobe Interfaces); provided that Adobe shall have thirty (30) days from receipt
of EFI's request to approve such interfaces for inclusion on Attachment J-1,
which approval shall not be unreasonably withheld. Adobe agrees that Authorized
Employees or Authorized Contractors who had access solely to EFI Interfaces
shall not be subject to the restriction against Employment in any Clone Product
Development set forth in subparagraph (b) above.
d. The prohibition relating to Clone Product development set
forth in this PARAGRAPH 6 ("Clone Product Development") shall apply equally to
raster-output devices, to display or screen output devices, or to any other
peripheral devices.
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7. Certification. At Adobe's request, EFI will provide Adobe with
written certification by an officer of EFI of EFI's compliance with its
obligations under PARAGRAPH 1 ("Authorized Employees and Contractors") and
PARAGRAPH 6 ("Clone Product Development") above.
8. Proprietary Notices. In order to protect Adobe's copyright and other
ownership interests, EFI agrees that as a condition of its rights hereunder,
each copy of the Adobe Support Information, or any portion thereof or
documentation therefor, shall contain a valid copyright notice and any other
proprietary notices, including the copyright notices of Adobe's suppliers, which
appear on or in the Adobe Support Information and documentation delivered to EN
hereunder or as Adobe may require from time to time. Presence of a copyright
notice does not constitute an acknowledgment of publication.
9. Font Programs. EFI agrees to hold any unencrypted outline
information relating to the Font Programs in confidence, disclosing such
information only to Authorized Employees and Authorized Contractors having a
need to use such information as permitted by this Agreement, and to take all
reasonable precautions to prevent disclosure of such information to other
parties.
10. Proprietary Rights Audit. During the term of the Agreement and for
a period of eighteen (18) months thereafter, an independent auditor selected by
Adobe shall have access to such portion of EFI's records and premises to allow
Adobe to determine whether EFI is substantially in compliance with this Exhibit
J, and PARAGRAPH 8 ("Proprietary Rights and Legends") of the Agreement. In no
event shall audits be made hereunder more frequently than once per year. Such
access shall be (a) during EFI's regular business hours, (b) arranged so that,
to the extent possible, EFI's regular business activities are minimally
disrupted and (c) under the terms of an appropriate confidentiality agreement
executed by the individual(s) conducting such audit. If Adobe determines, after
conducting such audit, that EFI is not substantially in compliance with its
obligations to protect Adobe's proprietary rights, EFI shall pay the costs of
such audit. Otherwise, Adobe shall pay the costs of such audit. Such payment
will not preclude Adobe from exercising any right which it may have under the
Agreement. EFI shall immediately correct any deficiencies discovered in the
course of the audit.
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AMENDED.
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ATTACHMENT J-1
EFI INTERFACES
The purpose of this Attachment J-1 is to specify an API for PostScript
interpreter setup, execution and page delivery mechanisms. The idea is to
clearly define the "current" interface used by EN in the Fiery SW. This will
allow EFI to continue to develop front-end SW (Communications, Networking,
Spooling, Job Dispatch) & Back-end (Page Delivery) without triggering the
application of the restriction against Employment in any Clone Product
Development set forth in PARAGRAPH 6(B) of EXHIBIT J.
Interpreter Setup & Execution
For simplicity EFI would like to maintain a "CPSI like" wrapper external to the
clean room. EN would leave the CPSI computational model as is:
CPSIlnitialize(init)
CPSStartlnterpreter( configuration record, &interpreter)
foreach (job) {
foreach(buffer in job)
CPSlExecutePostScript{ interpreter, Buffer, Length);
}
CPSIEndOfFile(Interpreter);
}
CPSlStoplnterpreter(Interpreter);
CPSIFinalizeO;
Data required for initialization of the Interpreter is available in the
configuration record and includes all machine attributes (such as resolutions,
Color Spaces, Engine capabilities etc.).
Additional calls supported are:
o CPSIInterrupt(Lnterpreter) - Invoking the Interrupt Error.
o CPSlTimeout(Interpreter) - Invoking the Timeout Error.
o CPSIGetParameter (Interpreter, +setname, +parameter)
Retrieves current value of the specified parameter from "system" or
"user" parameter sets.
The CPSI model of call-back functions would be maintained as well:
o CPSIOutput(Interpreter, *Buffer, Length, *handle) - to transfer output from
%stdout
o CPSIErrorlnterpreter, *Buffer, Length, *handle) - to transfer output from
%stderr
o CPSISetPageDevice
o CPSIGetTrayDetails
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o CPSIGetConfirmation
o CPSIInitRaster
o CPSIExtemalCommand
o CPSIProgress
o CPSIRender
For a complete description of the CPSI interfaces please refer to the
"Configurable PostScript Interpreter Functional Specifications" Version 2013.
Page Delivery Interface
The main interface for the page delivery mechanism is the CPSIRender callback.
The purpose of this call in EFI's setup is to deliver a page (or a band) to a
pipeline mechanism which will send the data to the marking head. Upon completing
the rendering of a band (or frame) the PostScript co-development integration
team will accompany each page with a "Page Dictionary".
The page dictionary is read only for the video interface. This dictionary will
be used by the video driver to set-up various engine parameter and complete the
print job.
A dictionary is defined as keyword/value pair. All keyword/value pairs are
stored as ASCII text or Strings. A partial list of keys in the page dictionary
includes:
ManualFeed Yes/No
ColorModel DeviceGray/DeviceRGB/DeviceCMYK
BitesPerPixel 1/8
BufferSize Unsigned long
BufferAddress Unsigned long
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EXHIBIT K
USE OF ADOBE TRADEMARKS
1. Ownership of Trademarks. EFI acknowledges the ownership of the Adobe
Trademarks in Adobe and the ownership of the Typeface Trademarks in the entities
identified as "Trademark Owner" in a Reference Port or Licensed System Appendix
hereto. Adobe and such Typeface Trademark owners are referred to as the
"Trademark Owners". EFI agrees that it will do nothing inconsistent with such
ownership and that all use of the Adobe Trademarks by EFI shall inure to the
benefit of and be on behalf of Adobe. EFI acknowledges that EFI's utilization of
the Trademarks will not create any right, title or interest in or to such
trademarks. EFI acknowledges Trademark Owners' exclusive right to use of the
Trademarks and agrees not to do anything contesting or impairing the trademark
rights of the Trademark Owners. Any use of the Trademarks must identify the
applicable "Trademark Owner" as the owner of such Trademarks. EFI agrees that it
will notify or require notification of sublicensees who receive Font Programs
that (i) Typeface Trademarks can only be used to identify printed output
produced by the Font Programs, and (ii) the Typeface Trademarks are the property
of the Trademark Owners. EFI will maintain a high quality standard in producing
copies of Font Programs and Typefaces. At the request of Adobe, EFI must supply
samples of any Typeface identified by a Typeface Trademark.
2. Quality Standards. Adobe shall review and approve or disapprove in
writing the quality of the Revised Object, Font Programs, and EFI's
documentation relating to the Revised Object and Font Program packages and the
use of the Trademarks on such products and authorize the commencement of
demonstration, commercial distribution and marketing of the Revised Object or
Font Programs. At least thirty (30) days prior to the date scheduled by EFI for
commencing such demonstration, commercial distribution and marketing, directly
or indirectly to End Users, EFI shall submit to Adobe for its approval,
sufficient samples of the Revised Object, EN's documentation and Font Programs
together with or including the containers, packages, cartons, wrappers and the
like. Unless otherwise agreed in writing by Adobe, EFI shall not make any change
in such products or their containers, packages, cartons, wrappers or the like
from that approved by Adobe. EFI agrees, at any time as requested by Adobe to
provide Adobe with a reasonable number of the samples of the packages of such
products and use of the Trademarks to allow Adobe to review the quality thereof.
Where Trademarks are used in connection with the execution of any software on a
computer system, EFI agrees to provide Adobe with access to such software and
computer system, and reasonable assistance in the operation of same, to
facilitate Adobe's review. If, at any time, any sample is disapproved by Adobe,
Adobe shall so advise EFI and, upon EFI's receipt of such notice by any means,
EFI shall have sixty (60) days to improve the quality to the standard previously
approved by Adobe. EFI shall comply with all applicable laws and regulations and
obtain all appropriate government approvals pertaining to the sublicensing,
transfer and advertising of the Revised Object and Font Programs.
3. Infringement Proceeding. EFI agrees to notify Adobe of any
unauthorized use or
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the Trademarks by others promptly as it comes to EFI's attention. Adobe shall
have the sole right and discretion to bring infringement or unfair competition
proceedings involving the Trademarks.
4. EFI's Use of Trademarks. EFI agrees that it will permanently include
the Adobe Trademarks on all copies of the Revised Object and in any advertising
or printed materials concerning the Revised Object and that it will use the
applicable Trademarks on all copies, advertisements, brochures, manuals and
other appropriate uses made in the promotion, distribution or use of the Revised
Object, Font Programs and PostScript Language Specification including any EFI
translated version. EFI shall make specific reference to the Revised Object or
Font Programs in any advertisement concerning the Licensed Systems which also
contains specific names of other software products. All such uses shall be in
accordance with Adobe's then current trademark manual.
5. Trademark Registrations. EFI, at Adobe's request and expense, shall
(i) promptly provide Adobe with any specimens, (ii) execute all applications for
trademark -registrations, assignments or other applicable documents and (iii)
perform any other act reasonably necessary for any Trademark Owner to secure or
maintain any and all Trademark rights in any country, provided that EFI is
marketing the Revised Object, Font Programs and Licensed Systems in association
with a Trademark and in such country.
6. No Unitary or Composite Marks. EFI agrees not to use any other
trademark or service mark in close proximity to any of the Adobe Trademarks or
combine the marks so as to effectively create a unitary composite mark without
the prior written approval of Adobe.
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AMENDED.
MANAGEMENT GRAPHICS, INC.
NONQUALIFIED STOCK OPTION PLAN
FOR KEY EMPLOYEES
1. Purpose. The purpose of this Nonqualified Stock Option Plan
(the "Plan") is to promote the interests of Management Graphics, Inc. (the
"Corporation"), and its shareholders by providing a method to encourage key
employees of the Corporation and its subsidiaries (if any) to invest in the
Corporation's common stock on reasonable terms and thereby increase their
proprietary interest in the Corporation's business, to encourage such key
employees to remain in the employment of the Corporation and to increase their
personal interest in its continued success and progress.
2. Administration.
(a) The Plan shall be administered by the Board of Directors
who may from time to time issue orders or adopt
resolutions, not inconsistent with the provisions of the
Plan, to interpret the provisions and supervise the
administration of the Plan. All determinations shall be
made by the Board of Directors in accordance with the
Minnesota Business Corporation Act (the "Act"). A
majority of the Directors acting on any matter involving
the interpretation or administration of the Plan shall
not be eligible to participate in the Plan. Subject to
the foregoing, the Corporation's Bylaws and any
applicable provisions of the Act, all decisions made by
the directors in selecting optionees, establishing the
number of shares and terms applicable to each option, and
in construing the provisions of the Plan shall be final,
conclusive and binding on all persons, including the
Corporation, shareholders, employees and optionees.
(b) The Board of Directors may from time to time appoint a
Stock Option Plan Committee (the "Committee"), consisting
of not less than three (3) directors, none of whom shall
be eligible to participate in the Plan while a member of
the Committee. The Board of Directors may delegate to the
Committee power to select the particular employees who
are to receive options and to determine the number of
shares to be optioned to each such employee.
(c) Each option shall be evidenced by an option agreement
substantially in the form of the option agreement which
is attached to the Plan as an Exhibit. The day on which
the Board of Directors or the Committee approves the
granting of an option shall be considered the date on
which such option is granted.
<PAGE>
(d) If the laws relating to nonqualified stock options
are changed during the term of the Plan, the Board
of Directors shall have the power to alter the Plan
in accordance with section 13 hereof, to conform to
such changes in the law.
3. Eligibility. Options shall be granted only to key
employees, in the judgement of the Board of Directors (or the Committee) who, at
the time of the grant, are employees of the Corporation or any subsidiary. The
term "employees" means employees of the Corporation, or any subsidiary,
including salaried officers of the Corporation.
4. Shares Subject to Plan. The Board of Directors (or the
Committee) may from time to time provide for the option and sale in the
aggregate of up to 350,000 shares of the Corporation's Class A common stock,
$0.01 par value, under the Plan subject to adjustments required by section 10 of
the Plan. Shares may be authorized unissued or reacquired shares of common
stock. The Corporation shall not be required, upon the exercise of any option,
to issue or deliver any shares of stock prior to the completion of such
registration or other qualification of such shares under any state or federal
law, rule or regulation as the Corporation shall determine to be necessary or
desirable.
5. Price. The purchase price of the stock under each option
shall be determined by the Board of Directors. The purchase price of each share
on the exercise of any option shall be paid in full in cash at the time of
exercise or, at the discretion of the Board of Directors or the Committee, by
the surrender of other shares of stock of the Corporation having a fair market
value equal to the purchase price, and a certificate representing shares so
purchased shall be delivered to the person entitled thereto.
6. Duration of Option. The option period shall not be more
than fifteen (15) years from the date the option is granted.
7. Exercise of Option. The Board of Directors shall have
full and complete authority to determine, at the time of granting of any option,
whether the option will be exercisable in full at any time or from time to time
during the term of the option, or to provide for the exercise thereof in such
installments and at such times during the term of the option, or upon the
satisfaction of such conditions, as the Board of Directors may determine.
<PAGE>
8. Nontransferability of Option. Each option granted under
the Plan shall by its terms be nontransferable by the optionee other than by
will or the laws of descent and distribution and shall be exercisable during his
lifetime only by the optionee.
9. Other Terms and Conditions. The Board of Directors shall
have power, subject to the limitations contained herein, to fix any terms and
conditions for the granting or exercise of any option under the Plan. Nothing
contained in the Plan, or in any option granted pursuant to the Plan, shall
confer upon any optionee any right to continued employment by the Corporation,
nor limit in any way the right of the Corporation to terminate the optionee's
employment at any time.
10. Adjustment of Shares Subject to Option. In the event
there is any change in the common stock of the Corporation through the
declaration of stock dividends, or through recapitalization resulting in stock
split-ups, or combinations or exchanges of shares, or otherwise, the number of
shares available for option and the shares subject to any option and exercise
price thereof shall be appropriately adjusted. The Corporation shall give notice
of such adjustment to each holder of an option under the Plan, and such
adjustment shall be effective and binding on the optionee. In the event of the
proposed dissolution or liquidation of the Corporation, or in the event of a
proposed sale of substantially all of the assets of the Corporation, the Board
of Directors may declare that each option granted under the Plan shall terminate
as of a date to be fixed by the Board of Directors; provided that not less than
thirty (30) days' written notice of the date so fixed shall be given to each
optionee, and each optionee shall have the right, during the period of thirty
(30) days preceding such termination, to exercise any options owned by such
optionee as to all or any part of the shares covered thereby, including shares
as to which such option would not otherwise be exercisable.
11. Death of Optionee. If an optionee dies while an
employee of the Corporation or of any subsidiary or within ninety (90) days
after the termination of such employment, any option may be exercised without
regard to the restrictions on exercise set forth in section 7 within twelve (12)
months after the optionee's death by the optionee's personal representative or
the person or persons to whom the optionee's rights under the option shall pass
by the optionee's will or by the applicable laws of descent and distribution;
provided, however, that no such option may be exercised after the expiration
date specified therein.
12. Termination of Employment; Retirement and Disability.
If an optionee shall cease to be employed by the Corporation for any reason
(including retirement and disability and, with respect to an optionee under an
option, death) after the optionee has continuously been so employed for one (1)
year from the date of granting of the option, the optionee, or the oprionee's
personal representative or legatees, as the case may be, may, but only within
the three (3) month
-3-
<PAGE>
period immediately following such termination of employment and in no event
later than the expiration date specified in the option, exercise the optionee's
option to the extent the optionee was entitled to exercise it at the date of
such termination.
13. Modification of Plan. The Board of Directors may amend,
suspend or discontinue the Plan, at any time, by the act of the Board of
Directors. No such action may prejudice the right of any employee who has prior
thereto been granted an option or options of the Plan.
14. Termination of Plan. The Plan shall terminate on
December 31, 1990. Options may be granted under the Plan at any time and from
time to time prior to its termination. Any option outstanding under the Plan, at
the time of its termination, shall remain in effect until the option shall have
been exercised or shall have expired.
14. Effective Date of Plan. The effective date of the Plan
is November 26, 1985, the date on which the Plan was adopted by the Board of
Directors of the Corporation.
-4-
Exhibit 10.14
January 11, 2000
Dan Avida
2312 Casa Bona Avenue
Belmont, Ca 94002
Dear Dan:
This letter agreement (the "Agreement") will memorialize and constitute the
agreement between you and Electronics for Imaging, Inc. (the "Company")
concerning your employment status with the Company.
1. Employment As a Part-Time Employee: Effective January 1, 2000, you
will transition your employment from your current position as the Company's
Chairman and Chief Executive Officer to a part-time employee. Unless this
Agreement is earlier terminated as provided in Section 2, for the period of
January 1, 2000 through December 31, 2001 (the "Part-Time Employment Period"),
you will continue to remain employed by the Company, in the position of
Part-Time Employee. As a Part-Time Employee to the Company, you will undertake
such duties commensurate with this position as set forth below and as agreed
between you and the Board. Your duties will include making yourself available
for consultation with the Board, the Chief Executive Officer, and such other
officers of the Company as reasonably necessary to facilitate in the transition
of your former responsibilities. Your duties as a Part-Time Employee also will
entail acting in an advisory capacity regarding the organizations and people
representing new technology sources and the Company's clients and competitors.
To that end you will, at your reasonable discretion, network, travel, and liase
as appropriate so that you may convey to the Company's management and Board your
insights and recommendations on the Company's operations and business. The
timing of your performance of these duties, which are expected to be performed
on a part-time basis, will be coordinated between the Company and you. The
Company shall provide reasonable advance notice of specific requests for your
services. For your services rendered during the Part-Time Employment Period, the
Company will pay you an annual base salary of four hundred twenty five thousand
dollars ($425,000), subject to standard payroll deductions and withholdings and
paid on the Company's normal payroll schedule ("Base Salary"). You will not be
eligible to receive any bonus or to participate in any Company bonus plan during
the Part-Time Employment Period, with the sole exception that you will receive a
bonus for 1999 pursuant to the Company's executive bonus plan. During the
Part-Time Employment Period, you will be entitled to the following benefits:
(i) reimbursement for all reasonable travel and other expenses
(including internet access charges, telephone, telex and telecopier service)
incurred by you in connection with the performances of your duties under this
Agreement, provided that you comply with the Company's business expense
reimbursement policy, including the requirement of providing appropriate
documentation of such expenses;
1.
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(ii) an annual automobile allowance of four thousand eight
hundred dollars ($4,800) per year, paid on a monthly basis;
(iii) participation in any employee benefit and group
insurance programs including life insurance, long-term disability insurance and
comprehensive health insurance programs, developed by the Company for its
officers or employees generally (but in any event not less than those in effect
immediately prior to commencement of the Part-Time Employment Period) (the
"Company's Benefit Plans");
(iv) accrual of vacation pay at an annual rate of four (4)
weeks per year; and
(v) you will be eligible to receive counsel on tax matters as
offered to the Company's executive officers by Price Waterhouse Coopers LLP.
2. Termination: Your employment during the Part-Time Employment Period
is at-will, and either you or the Company can terminate your employment and this
Agreement for any reason whatsoever, either with or without cause, by providing
thirty (30) days advance written notice of such termination to the other.
(a) Unless earlier terminated by either party as provided
above, this Agreement and your employment by the Company will automatically
terminate upon the earliest of the following: (i) expiration of the Part-Time
Employment Period; (ii) your Incapacity (as defined herein); or (iii) your
death.
(b) In the event this Agreement terminates due to your death
or Incapacity, or if the Company terminates your employment prior to the
expiration of the Part-Time Employment Period, the Company shall pay to either
you or your estate, as appropriate, a lump sum payment, subject to standard
payroll deductions and withholdings, equal to the total Base Salary that would
have been paid to you if the Agreement and your employment had continued from
the Agreement termination date through the expiration of the Part-Time
Employment Period. Notwithstanding the preceding sentence, as a condition of
your receiving the lump sum payment referred to in this paragraph in the event
this Agreement terminates at the Company's request or due to your Incapacity,
you must first execute a full release of any and all claims you may have against
the Company, which release shall be in a form acceptable to the Company.
(c) For the purposes of this Agreement, your "Incapacity"
shall mean that you are physically or mentally unable to regularly perform your
essential duties hereunder with or without reasonable accommodation for a period
in excess of four (4) consecutive months, or for more than one hundred eighty
(180) days in any consecutive twelve (12) month period.
(d) Subject to Section 6 of this Agreement, in the event this
Agreement terminates due to your death or Incapacity, or if the Company
terminates your employment prior to the expiration of the Part-Time Employment
Period, all unvested stock options you hold will accelerate immediately, such
that all shares in such options will be fully vested and exercisable.
(e) Except as provided in this Agreement, the Company shall
have no obligation to continue to pay your Base Salary or to provide any
compensation or benefits upon termination of this Agreement for any reason.
2.
<PAGE>
3. Benefits After Part-Time Employment Period: To the fullest extent
permitted by law, you will be entitled to participate in the Company's Benefit
Plans for a period of up to ten (10) years following the termination of this
Agreement for any reason; provided, however, that the Company's obligation to
allow your continued participation in the Benefit Plans shall immediately cease
if you secure comparable benefits from another employer. If the Company cannot
provide coverage for you through its employee benefits plans, the Company will
reimburse you the actual and direct costs of your benefits premiums for benefits
coverage you obtain elsewhere, at a coverage level that is equivalent to the
coverage that had been provided to you as a full-time employee of the Company.
The Company's payments on your and your dependents' behalf under the Benefit
Plans or as reimbursement for other coverage after the termination of this
Agreement will be considered taxable income to you.
4. Confidential Information, Company Property and Change in Control:
(a) Confidential Information: You agree to continue to
maintain the confidentiality of all confidential and proprietary information of
the Company. Your continuing obligations do not apply to information that,
without any breach of your obligations to the Company, has entered into the
public domain. In addition, you acknowledge your continuing obligations under
your Agreement Not To Reexport Technology dated February 2, 1990, a copy of
which is attached hereto as Exhibit A.
(b) Company Property: As part of this Agreement, the Company
will transfer to you ownership of the laptop computer and cellular telephones
that were provided by the Company for your use. This property shall be given to
you without warranty of any kind.
(c) Change in Control: Subject to Section 6 of this Agreement,
in the event of a Change of Control (as defined herein) prior to the termination
of this Agreement, any unvested shares in stock options that you hold shall
automatically accelerate and become fully exercisable on the effective date of
the Change of Control (the "Acceleration"), provided that you first execute a
full release of any and all claims you may have against the Company, which
release shall be in a form acceptable to the Company. Upon the Acceleration, you
shall have the right to exercise all or any portion of such options in
accordance with your stock option agreements. Notwithstanding the foregoing, if
any unvested shares of the options are not subject to the Acceleration by reason
of Section 6 and this Agreement has been terminated, you shall continue to be
employed as a Part-Time Employee of the successor of the Company at an hourly
rate of two hundred dollars ($200) for the period necessary to allow the
remaining unvested shares to vest in full, but in no event shall such Part-Time
employment extend beyond the Part-Time Employment Period. As a Part-Time
Employee of the Company's successor, you agree to make yourself available for up
to ten (10) hours per month to provide advice in any area of your expertise, as
reasonably requested by the successor. For the purposes of this Agreement, a
"Change in Control" shall mean any of the following: (i) if any person (as this
term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934)
becomes the beneficial owner, directly or indirectly, of fifty percent (50%) or
more of the total voting power represented by the Company's outstanding
securities; (ii) if the individuals who, at the beginning of any period of two
(2) consecutive years, constitute the Board of Directors of the Company (the
"Incumbent Directors") cease for any reason during such period to constitute at
least a majority of the Board
3.
<PAGE>
of Directors (unless the election or the nomination for election by the
Company's stockholders of a Director first elected during such period was
approved by the vote of a majority of the Incumbent Directors, whereupon such
Director shall also be classified as an Incumbent Director); or (iii) a merger
or consolidation of the Company with another corporation (other than a merger
which would result in the Company's stockholders before the merger continuing to
hold more than fifty percent (50%) of the total voting power of the Company or
the entity controlling the Company after the merger).
5. Stock Options: Except as otherwise provided herein, vesting of your
current stock options or any other stock compensation award will continue during
the Part-Time Employment Period pursuant to the terms of your grant agreements.
6. Limitation on Payments:
(a) To the extent that any payments or benefits (including
shares that vest as a result of accelerated vesting under Sections 2(d) and/or
4(c)) provided for in this Agreement or otherwise payable to you constitute
"parachute payments" within the meaning of Section 280G of the Internal Revenue
Code of 1986, as amended (the "Code"), and, but for this section, would be
subject to the excise tax imposed by Section 4999 of the Code, the aggregate
amount of such payments and benefits shall be reduced such that the present
value thereof (as determined under the Code and the applicable regulations), is
equal to 2.99 times your "base amount" (as defined in Section 28OG(b)(3) of the
Code).
(b) Within sixty (60) days after the Change of Control, the
Company shall notify you in writing if it believes that any reduction in the
payments and benefits that would otherwise be paid or provided to you under the
terms of this Agreement is required to comply with the provisions of Subsection
6(a). If the Company determines that any such reduction is required, it will
provide you with copies of the information used and calculations made by the
Company to determine the amount of such reduction. If the Company gives no
notice to you of a required reduction as provided in this Subsection 6(b), you
may unilaterally determine the amount of reduction required, if any, and, upon
written notice to the Company, that amount will be conclusive and binding on
both parties.
(c) Within thirty (30) days after your receipt of the
Company's notice pursuant to Subsection 6(b), you shall notify the Company in
writing if you disagree with the amount of reduction determined by the Company.
As part of such notice, you shall also advise the Company of the amount of
reduction, if any, that you have determined, in good faith, to be necessary to
comply with the provisions of Subsection 6(a). Failure by you to provide this
notice within the time allowed will be treated as acceptance by you of the
amount of reduction determined by the Company. If any differences regarding the
amount of the reduction have not been resolved by mutual agreement within sixty
(60) days after your receipt of the Company's notice pursuant to Subsection
6(b), the amount of reduction determined by you will be conclusive and binding
on both parties unless, prior to the expiration of the sixty (60) day period,
the Company notifies you in writing of the Company's intention to have the
matter submitted to arbitration for final and binding resolution, and proceeds
to do so promptly. If the Company gives no notice to you of a required reduction
as provided in Subsection 6(b), you may
4.
<PAGE>
unilaterally determine the amount of required reduction, if any, and, upon
written notice to the Company, that amount will be conclusive and binding on
both parties.
(d) If a reduction in the payments and benefits that would
otherwise be paid or provided to you under the terms of this Agreement is
necessary to comply with the provisions of Subsection 6(a), so long as the
requirements of Subsection 6(a) are met, you shall be entitled to select which
payments or benefits will be reduced including, without limitation, determining
the number of shares subject to accelerated vesting. To the greatest extent
permissible under the applicable stock option plan, your grant agreement(s), and
applicable law, you will continue to vest all shares not subject to accelerated
vesting by virtue of application of this Section 6, according to their original
vesting schedule(s). Within thirty (30) days after the amount of any required
reduction in payments and benefits is finally determined in accordance with the
provisions of Subsection 6(c), you will notify the Company in writing regarding
which payments or benefits are to be reduced. If no notification is given by
you, the Company will determine which amounts to reduce. If, as a result of the
reductions required by Subsection 6(a), any amounts previously paid to you
exceed the amount to which you are entitled, you will promptly return the excess
amount to the Company.
7. Administrative Assistance: While this Agreement is in effect, the
Company will provide you with an office and shared administrative assistance,
including secretarial assistance, to aid you in the performance of your duties
hereunder; such secretarial services will be provided by Gina Farrugia while she
remains employed by the Company.
8. Non-Competition, Non-Interference and Non-Disclosure:
(a) You covenant and agree that during the Part-Time
Employment Period, unless you first obtain the advance written authorization of
the Company:
(i) neither you nor any Executive Entity (as defined
herein) will, anywhere in the Market, either directly or indirectly, own,
manage, operate, control, or participate, whether as a proprietor, partner,
stockholder, director, officer, "Key Employee" (defined herein to include any
person who is employed in a management, executive, supervisory, marketing or
sales capacity), joint venturer, investor or other participant (except as the
holder of not more than one percent (1%) of the outstanding stock of a publicly
held company), in any business which competes with the Business ("Competitive
Business"). For the purposes of this Agreement, "Executive Entity" is defined as
any entity in which you and/or any of your immediate family members (including
your spouse, parents, siblings or children) at any time during the Part-Time
Employment Period: (a) own five percent (5%) or more of the beneficial interest;
or (b) hold five percent (5%) or more of a controlling interest;
(ii) neither you nor any Executive Entity will
directly or indirectly solicit, or induce any person who is a customer,
supplier, lender, or lessor of the Company, or any other person with a business
relationship with the Company, at any time during the Part-Time Employment
Period, to discontinue or reduce the extent of such relationship with the
Company; and
5.
<PAGE>
(iii) neither you nor any Executive Entity will (a)
directly or indirectly recruit, solicit or otherwise induce any employee of the
Company to discontinue such employment with the Company, or (b) cause any
Competitive Business to recruit, solicit or induce any person who is employed by
the Company during the Part-Time Employment Period to discontinue such
employment relationship with the Company.
(b) For the purposes of this Agreement, (i) the "Business"
refers to the business conducted by the Company and its subsidiaries in the
design and manufacture of printer controllers as of the Effective Date hereof,
and (ii) the "Market" refers to the State of California and any other State of
the United States in which a material amount of Business is conducted at such
time. For purposes hereof, "a material amount of Business" shall mean that ten
percent (10%) or more of the Company's gross sales for the last completed fiscal
year were made from, to or in such State.
9. Company's Successors:
(a) Any successor to the Company (whether direct or indirect
and whether by purchase, lease, merger, consolidation, liquidation or otherwise)
to all or substantially all of the Company's business and assets shall assume
the obligations under this Agreement and the Company shall take all necessary
steps to ensure that any successor shall agree expressly to perform the
obligations under this Agreement in the same manner and to the same extent as
the Company would be required to perform such obligations in the absence of a
succession. As used throughout this Agreement, the term "Company" shall include
any successor to the Company's business and assets which executes and delivers
the assumption agreement described in this subsection (a) or which becomes bound
to the terms of this Agreement by operation of law.
(b) Executive's Successors: The terms of this Agreement and
all of your rights hereunder shall inure to the benefit of, and be enforceable
by, your personal or legal representatives, executors, administrators,
successors, heirs, devisees and legatees, except that your duties hereunder may
not be assigned without the written consent of the Company.
10. Release by Dan Avida: You acknowledge that you have carefully read
and understand this Agreement and have been offered the opportunity to consider
this Agreement before signing it. In exchange for the consideration provided to
you under this Agreement, including but not limited to your continued
employment, and except as otherwise set forth in this Agreement, you release,
acquit and forever discharge the Company, and its officers, directors, agents,
employees, shareholders, successors, assigns and affiliates, of and from any and
all claims, liabilities, demands, causes of action, costs, expenses, attorneys
fees, damages, obligations of every kind and nature, in law, equity or
otherwise, known or unknown, suspected or unsuspected, disclosed and
undisclosed, arising out of or in any way related to agreements, events, acts or
conduct at any time prior to and including the date you sign this Agreement,
including but not limited to all such claims and demands directly or indirectly
arising out of or in any way connected with or related to your employment with
the Company. Notwithstanding anything to the contrary stated herein, you are not
releasing any rights under the Indemnification Agreement between you and the
Company dated July 30, 1992 (the "Indemnification Agreement"), a copy of which
is attached hereto as Exhibit B and which shall continue in full force and
effect in accordance with its terms.
6.
<PAGE>
(a) You acknowledge that the above waiver and release extends
to any and all claims you may have under Title VII of the Civil Rights Act of
1964, the federal Americans with Disabilities Act of 1990, the Age
Discrimination in Employment Act of 1967, as amended, and the California Fair
Employment and Housing Act. You acknowledge that this waiver and release is
knowing and voluntary. You agree that this waiver and release does not apply to
any rights or claims that may arise after the date you sign this Agreement. You
acknowledge that the consideration given for this waiver and release is in
addition to anything of value to which you were already entitled. You further
acknowledge that you have been advised by this Agreement that: (i) you should
consult with an attorney prior to executing this agreement; (ii) you had at
least twenty-one (21) days within which to consider this Agreement (although you
may choose to execute it earlier); (iii) you have seven (7) days following your
execution of this Agreement in which to revoke this Agreement; and (iv) this
Agreement shall not be effective until the revocation period has expired, which
will be the eighth day after this Agreement is executed by you ("Effective
Date").
11. Release by The Company: Except as otherwise set forth in this
Agreement, the Company hereby releases, acquits, and forever discharges you and
your heirs, assigns, agents, representatives and attorneys of and from any and
all claims, liabilities, demands, causes of action, costs, expenses, attorneys
fees, damages, indemnities and obligations of every kind and nature, in law,
equity or otherwise, known and unknown, suspected and unsuspected, disclosed and
undisclosed, arising out of or in any way related to agreements, events, acts or
conduct at any time prior to and including the date the Company executes this
Agreement, with the exception of any claim arising out of your obligations under
this Agreement, your proprietary information obligations, criminal misconduct,
regulatory violations, or fraud.
12. Section 1542 Waiver: In granting the releases herein, which include
claims that may be unknown to you or the Company at present, both you and the
Company acknowledge that each has read and understands section 1542 of the Civil
Code of the State of California, which reads as follows:
A general release does not extend to claims which the creditor
does not know or suspect to exist in his favor at the time of
executing the release, which if known by him must have
materially affected his settlement with the debtor.
Both you and the Company hereby expressly waive and relinquish all rights and
benefits under that section and any law or legal principle of similar effect in
any jurisdiction with respect to the release of unknown and unsuspected claims
granted in this Agreement. Both you and the Company acknowledge that each has
been advised by their counsel of the meaning and consequences of Section 1542,
and their waiver of said section is knowing and voluntary.
11. Binding Arbitration To Resolve Disputes: In the event of a dispute
concerning application, interpretation or enforcement of any provision or aspect
of this Agreement, the parties agree that any such dispute shall be resolved by
final and binding confidential arbitration in lieu of proceeding before a state
or federal agency or court to the fullest extent permitted by law. Such
arbitration will take place in the City and County of San Francisco, California,
and shall be conducted by an arbitrator mutually agreed upon between the parties
from a panel of
7.
<PAGE>
arbitrators from JAMS/Endispute. The arbitration will be conducted in accordance
with the JAMS/Endispute rules regarding arbitration for employment disputes then
in effect. The parties further agree that, notwithstanding any rule to the
contrary, the Company shall pay the costs and fees of the arbitration
proceeding, including the arbitrator's fees.
12. Miscellaneous: This Agreement, including its exhibits, constitutes
the complete, final and exclusive embodiment of the entire agreement between you
and the Company regarding your employment with the Company. It is entered into
without reliance on any agreement, promise or representation, written or oral,
express or implied, other than as expressly contained herein. Except as
otherwise provided herein, this Agreement wholly replaces and supersedes any and
all agreements, whether written, oral, express or implied, with respect to your
employment with the Company, including but not limited to that certain
Employment Agreement dated July 17, 1995, and that certain Amendment No. 1 To
Employment Agreement dated October 15, 1995 (both of which are attached hereto
as Exhibit C), which, as of the Effective Date, shall terminate and have no
further force or effect. Notwithstanding the preceding sentence, nothing
contained in this Agreement shall in any way amend, modify or supersede the
provisions of the Indemnification Agreement (Exhibit B) and the Agreement Not To
Reexport Technology (Exhibit A), which shall continue in full force and effect
in accordance with their terms. This Agreement may not be modified or amended
except in a writing signed by both you and a duly authorized officer of the
Company. If any provision of this Agreement is determined to be invalid or
unenforceable, in whole or in part, this determination will not affect any other
provision of this Agreement and the provision in question shall be modified so
as to be rendered enforceable consistent with the general intent of the parties
insofar as possible. This Agreement will be deemed to have been entered into and
will be construed and enforced in accordance with the laws of the State of
California as applied to contracts made and to be performed entirely within
California.
If this letter correctly sets forth the parties' agreement, please sign below
and return a copy to me.
Sincerely,
ELECTRONICS FOR IMAGING, INC.
/s/ Guy Gecht
- -------------------------
[Name] Guy Gecht
[Title] Chief Executive Officer
UNDERSTOOD AND AGREED:
/s/ Dan Avida
- -------------------------
Dan Avida
Date: 01/11/00
---------------------
Exhibit A - Agreement Not To Reexport Technology
8.
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Exhibit B - Indemnification Agreement
Exhibit C - Employment Agreement and Amendment No. 1
9.
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Exhibit A
Agreement Not To Reexport Technology
10.
<PAGE>
Exhibit B
Indemnification Agreement
11.
<PAGE>
Exhibit C
Employment Agreement and Amendment No. 1
12.
Exhibit 10.15
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is made and entered into
effective as of March 8, 2000 by and between Fred Rosenzweig (the "Executive")
and Electronics for Imaging, Inc., a Delaware corporation (the "Company").
RECITALS
A. It is expected that the Company from time to time will consider the
possibility of an acquisition by another company or other change of control. The
Board of Directors of the Company (the "Board") recognizes that such
consideration can be a distraction to the Executive and can cause the Executive
to consider alternative employment opportunities. The Board has determined that
it is in the best interests of the Company and its stockholders to assure that
the Company will have the continued dedication and objectivity of the Executive,
notwithstanding the possibility, threat or occurrence of a Change of Control (as
defined below) of the Company.
B. The Board believes that it is in the best interests of the Company
and its stockholders to provide the Executive with an incentive to continue his
employment and to motivate the Executive to maximize the value of the Company
upon a Change of Control for the benefit of its stockholders.
C. The Board believes that it is imperative to provide the Executive
with certain benefits upon a Change of Control and, under certain circumstances,
upon termination of the Executive's full-time employment in connection with a
Change of Control, which benefits are intended to provide the Executive with
financial security and provide sufficient incentive and encouragement to the
Executive to remain with the Company notwithstanding the possibility of a Change
of Control.
D. Further, the Board believes that it is in the best interest of the
Company and its stockholders to provide additional benefits to the Executive in
the event the Executive's employment terminates for any reason other than a
Change in Control. Such benefits are intended to provide the Executive with
financial security and provide sufficient incentive and encouragement to the
Executive to remain with the Company notwithstanding the possible termination of
employment.
E. To accomplish the foregoing objectives, the Board of Directors has
directed the Company, upon execution of this Agreement by the Executive, to
agree to the terms provided herein.
F. Certain capitalized terms used in the Agreement are defined in
Section 6 below.
In consideration of the mutual covenants herein contained, and in
consideration of the continuing employment of the Executive by the Company, the
parties agree as follows:
<PAGE>
1. Duties and Scope of Employment.
(a) Position. The Company shall employ the Executive in the
position of President and Chief Operating Officer, as such position is defined
in terms of responsibilities and compensation as of the effective date of this
Agreement; provided, however, that the Board of Directors by mutual agreement
with the Executive shall have the right, at any time prior to the occurrence of
a Change of Control, to revise such responsibilities and compensation. The
Executive shall continue to devote his full business efforts and time to the
Company and its subsidiaries. The Executive shall comply with and be bound by
the Company's operating policies, procedures and practices from time to time in
effect during his employment. During the term of the Executive's employment with
the Company, the Executive shall devote his full-time, skill and attention to
his duties and responsibilities, and shall perform them faithfully, diligently
and competently, and the Executive shall use his best efforts to further the
business of the Company and its affiliated entities. Subject to the Executive's
fiduciary duties to the Company, this Agreement shall not prohibit the Executive
from serving on the board of directors or any advisory board of other companies.
2. Base Compensation.
(a) Annual Salary. The Company shall pay the Executive as
compensation for his services a base salary at an annualized rate that is not
less than his base salary as of the effective date of this Agreement (the
"Annual Salary"). The Annual Salary may be subject to annual increases as the
Board may authorize from time to time in connection with Executive's annual
review. The Annual Salary shall be paid periodically in accordance with normal
Company payroll procedures. The Annual Salary (together with bonus amounts as
specified in Section 2), and any increases in such compensation that the Board
of Directors may grant from time to time, is referred to in this Agreement as
"Base Compensation."
(b) Bonus. In addition to the Annual Salary, the Executive
will be eligible to receive an annual bonus under the Company's Executive Bonus
Plan as determined by the Board in its discretion.
3. Executive Benefits. The Executive shall be eligible to participate
in the employee benefit plans and executive compensation programs maintained by
the Company applicable to other key executives of the Company, including
(without limitation) retirement plans, savings or profit-sharing plans, stock
option, incentive or other bonus plans, life, disability, health, accident and
other insurance programs, paid vacations, and similar plans or programs, subject
in each case to the generally applicable terms and conditions of the applicable
plan or program in question and to the determination of any committee
administering such plan or program. In addition, the Executive shall continue to
be entitled to receive any other benefits currently received by the Executive
such as automobile and car phone allowance benefits.
4. At-Will Employment. The Company and the Executive acknowledge that
the Executive's employment is and shall continue to be at-will, as defined under
applicable law. If the Executive's employment terminates for any reason,
including, without limitation, any termination prior to and not in connection
with a Change of Control, the Executive shall not be entitled to any
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payments, benefits, damages, awards or compensation other than as provided by
this Agreement, or as may otherwise be available in accordance with the
Company's established employee plans and policies at the time of termination.
The terms of this Agreement shall terminate upon the earlier of (i) the date
that all obligations of the parties hereunder have been satisfied, or (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. A termination of the terms of this Agreement pursuant to the
preceding sentence shall be effective for all purposes, except that such
termination shall not affect the payment or provision of compensation or
benefits on account of a termination of employment occurring prior to the
termination of the terms of this Agreement.
5. Severance Benefits.
(a) Termination in Connection with a Change of Control.
Subject to Section 7 below, if the Company terminates the Executive's employment
at any time during the period beginning upon the earlier to occur of (i) the
execution of a binding letter of intent regarding a Change of Control, and (ii)
ninety (90) days before a Change of Control, and ending eighteen (18) months
after a Change of Control, and the Executive signs and does not revoke a
standard release of claims with the Company attached hereto as Exhibit A, then
the Executive shall be entitled to receive severance benefits as follows:
(i) Involuntary or Constructive Termination. If the
Executive's employment terminates as a result of Involuntary or Constructive
Termination other than for Cause, then the Executive shall be entitled to
receive severance pay in an amount equal to two (2) times the Executive's Base
Compensation for the year coinciding with the year of termination, plus an
amount equal to the bonus the Executive would have earned had he been employed
by the Company at the end of such year multiplied by a fraction (x) the
numerator of which is the number of completed months in that year, and (y) the
denominator of which is twelve (12) (the "Current Bonus"). Any severance
payments except for the Current Bonus to which the Executive is entitled
pursuant to this Section shall be paid in a lump sum within thirty (30) days of
the Executive's termination. The Current Bonus to which the Executive is
entitled pursuant to this Section shall be paid in a lump sum within thirty (30)
days of the date that the Company's audit is complete for such year.
(ii) Voluntary Resignation; Termination For Cause. If
the Executive voluntarily resigns from the Company (other than as an Involuntary
or Constructive Termination described in subsection 5(a)(i)), or if the Company
terminates the Executive's employment for Cause, then the Executive shall not be
entitled to receive severance or other benefits except for those (if any) as may
then be established under the Company's then existing benefit plans at the time
of such termination.
(iii) Disability; Death. If the Company terminates
the Executive's employment as a result of the Executive's Disability, or such
Executive's employment is terminated due to the death of the Executive, then the
Executive or the Executive's estate, as the case may be, shall be entitled to
receive (i) severance pay in an amount equal to one-half (1/2) of the
Executive's Base Compensation for the year coinciding with the year of
termination plus his Current Bonus, (ii) in addition to the Executive's stock
options that were exercisable immediately prior to such
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termination, the vesting of additional options shall accelerate and become
exercisable as to that number of shares that would have vested if the Executive
had remained continuously employed for a period of six (6) months following such
termination (and if any of such options vest on an annual basis, the appropriate
credit shall be given as if the vesting accrued monthly), and such options shall
remain exercisable for the period prescribed in Executive's stock option
agreements, and (iii) such other benefits (if any) as may then be established
under the Company's then existing benefit plans at the time of such Disability
or death. Any severance payments except for the Current Bonus to which the
Executive is entitled pursuant to this Section shall be paid in a lump sum
within thirty (30) days of the Executive's termination. The Current Bonus to
which the Executive is entitled pursuant to this Section shall be paid in a lump
sum within thirty (30) days of the date that the Company's audit is complete for
such year.
(b) Termination Apart from Change of Control. Subject to
Section 7 below, if the Company terminates the Executive's employment at any
time, either before the earlier to occur of (i) the execution of a binding
letter of intent regarding a Change of Control, and (ii) ninety (90) days before
a Change of Control, or after the 18-month period following a Change of Control,
and the Executive signs and does not revoke a standard release of claims with
the Company attached hereto as Exhibit A, then the Executive shall be entitled
to receive severance benefits as follows:
(i) Voluntary Resignation; Termination for Cause. If
the Executive voluntarily resigns from the Company (other than as an Involuntary
or Constructive Termination), or if the Company terminates the Executive's
employment for Cause, then the Executive shall be entitled to receive severance
and any other benefits only as may then be established under the Company's then
exiting benefit plans at the time of such termination.
(ii) Termination other than Voluntary Resignation or
Termination for Cause. In the event the Executive's employment is terminated for
any reason (including as a result of the Executive's Disability or due to the
death of the Executive) except for termination as described in Section 5(b)(i)
above, then the Executive or the Executive's estate, as the case may be, shall
be entitled to receive (i) severance pay in an amount equal to one-half (1/2) of
the Executive's Base Compensation for the year coinciding with the year of
termination plus his Current Bonus, (ii) in addition to Executive's stock
options that were exercisable immediately prior to such termination, the vesting
of additional options shall accelerate and become exercisable by the Executive
or the Executive's estate, as the case may be, as to that number of shares that
would have vested if the Executive had remained continuously employed for a
period of six (6) months following such termination (and if any of such options
vest on an annual basis, the appropriate credit shall be given as if the vesting
accrued monthly), and such options shall remain exercisable for the period
prescribed in Executive's stock option agreements, and (iii) the same level of
health (i.e., medical, vision and dental) coverage and benefits as in effect for
the Executive on the day immediately preceding the day of Executive's
termination of employment; provided, however, that (i) the Executive constitutes
a qualified beneficiary, as defined in Section 4980B(g)(1) of the Internal
Revenue Code of 1986, as amended (the "Code"); and (ii) Executive elects
continuation coverage pursuant to the Consolidated Omnibus Budget Reconciliation
Act of 1985, as amended ("COBRA"), within the time period prescribed pursuant to
COBRA. The Company shall continue to provide Executive with health coverage
until the earlier to occur of (i) the date Executive is no longer
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eligible to receive continuation coverage pursuant to COBRA, or (ii) eighteen
(18) months from the termination date. In addition to the foregoing, Executive
shall also be paid such other benefits (if any) as may then be established under
the Company's then existing benefit plans at the time of such termination. Any
severance payments except for the Current Bonus to which the Executive is
entitled pursuant to this Section shall be paid in a lump sum within thirty (30)
days of the Executive's termination. The Current Bonus to which the Executive is
entitled pursuant to this Section shall be paid in a lump sum within thirty (30)
days of the date that the Company's audit is complete for such year.
(c) Options. Subject to Section 7 hereof, upon a Change of
Control, the unvested portion of any stock option held by the Executive shall
automatically be accelerated and the Executive or the Executive's
representative, as the case may be, shall have the right to exercise all or any
portion of such stock option, in addition to any portion of the option
exercisable prior to the Change of Control and in accordance with the
Executive's stock option agreement.
6. Definition of Terms. The following terms referred to in this
Agreement shall have the following meanings:
(a) Cause. "Cause" shall mean (i) any act of personal
dishonesty taken by the Executive in connection with his responsibilities as an
employee and intended to result in substantial personal enrichment of the
Executive, (ii) committing a felony or an act of fraud against the Company or
its affiliates, and (iii) acts by the Executive which constitute gross
misconduct, are injurious to the Company, and which are demonstrably willful and
deliberate on the Executive's part after there has been delivered to the
Executive a written demand of cessation of such acts from the Company which
describes the basis for the Company's belief that the Executive has engaged or
committed such acts.
(b) Change of Control. "Change of Control" shall mean the
occurrence of any of the following events:
(i) Any "person" (as such term is used in Sections
13(d) and 14(d) of the Securities Exchange Act of 1934, as amended) becomes the
"beneficial owner" (as defined in Rule 13d-3 under said Act), directly or
indirectly, of securities of the Company representing fifty percent (50%) or
more of the total voting power represented by the Company's then outstanding
voting securities; or
(ii) A change in the composition of the Board of
Directors of the Company occurring within a two-year period, as a result of
which fewer than a majority of the directors are Incumbent Directors. "Incumbent
Directors" shall mean directors who either (A) are directors of the Company as
of the date hereof, or (B) are elected, or nominated for election, to the Board
of Directors of the Company with the affirmative votes of at least a majority of
the Incumbent Directors at the time of such election or nomination (but shall
not include an individual whose election or nomination is in connection with an
actual or threatened proxy contest relating to the election of directors to the
Company); or
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(iii) A merger or consolidation of the Company with
any other corporation, other than a merger or consolidation which would result
in the voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity) at least sixty percent (60%) of
the total voting power represented by the voting securities of the Company or
such surviving entity outstanding immediately after such merger or
consolidation.
(c) Involuntary or Constructive Termination. "Involuntary or
Constructive Termination" shall mean (i) without the Executive's express written
consent, the assignment to the Executive of any duties or the significant
reduction of the Executive's duties, either of which is inconsistent with the
Executive's position with the Company and responsibilities in effect immediately
prior to such assignment, or the removal of the Executive from such position and
responsibilities; (ii) without the Executive's express written consent, a
substantial reduction, without good business reasons, of the facilities and
perquisites (including office space and location) available to the Executive
immediately prior to such reduction; (iii) a reduction by the Company in the
Base Compensation of the Executive as in effect immediately prior to such
reduction; (iv) a material reduction by the Company in the kind or level of
employee benefits to which the Executive is entitled immediately prior to such
reduction with the result that the Executive's overall benefits package is
significantly reduced; (v) the relocation of the Executive to a facility or a
location more than 30 miles from the Executive's then present location, without
the Executive's express written consent; (vi) any purported termination of the
Executive by the Company which is not effected for Disability or for Cause, or
any purported termination for which the grounds relied upon are not valid; or
(vii) the failure of the Company to obtain the assumption of this agreement by
any successors contemplated in Section 8 below.
(d) Disability. "Disability" shall mean that the Executive has
been unable to perform his duties under this Agreement as the result of his
incapacity due to physical or mental illness, and such inability, at least 26
weeks after its commencement, is determined to be total and permanent by a
physician selected by the Company or its insurers and acceptable to the
Executive or the Executive's legal representative (such agreement as to
acceptability not to be unreasonably withheld). Termination resulting from
Disability may only be effected after at least 30 days' written notice by the
Company of its intention to terminate the Executive's employment. In the event
that the Executive resumes the performance of substantially all of his duties
hereunder before the termination of his employment becomes effective, the notice
of intent to terminate shall automatically be deemed to have been revoked.
7. Limitation on Payments. In the event that the severance and other
benefits provided for in this Agreement or otherwise payable to the Executive
(i) constitute "parachute payments" within the meaning of Section 280G of the
Code, and (ii) would be subject to the excise tax imposed by Section 4999 of the
Code (the "Excise Tax"), then Executive's benefits under this Agreement shall be
either:
(i) delivered in full, or
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(ii) delivered as to such lesser extent which would result in
no portion of such benefits being subject to the Excise Tax,
whichever of the foregoing amounts, taking into account the
applicable federal, state and local income taxes and the Excise Tax, results in
the receipt by Executive on an after-tax basis, of the greatest amount of
benefits, notwithstanding that all or some portion of such benefits may be
taxable under Section 4999 of the Code.
Unless the Company and the Executive otherwise agree in writing, any
determination required under this Section 7(a) shall be made in writing in good
faith by the accounting firm serving as the Company's independent public
accountants immediately prior to the Change of Control (the "Accountants"). In
the event of a reduction in benefits hereunder, the Executive shall be given the
choice of which benefits to reduce. For purposes of making the calculations
required by this Section 7(a), the Accountants may make reasonable assumptions
and approximations concerning applicable taxes and may rely on reasonable, good
faith interpretations concerning the application of the Code. The Company and
the Executive shall furnish to the Accountants such information and documents as
the Accountants may reasonably request in order to make a determination under
this Section. The Company shall bear all costs the Accountants may reasonably
incur in connection with any calculations contemplated by this Section 7(a).
8. Successors.
(a) Company's Successors. Any successor to the Company
(whether direct or indirect and whether by purchase, lease, merger,
consolidation, liquidation or otherwise) to all or substantially all of the
Company's business and assets shall assume the obligations under this Agreement
and agree expressly to perform the obligations under this Agreement in the same
manner and to the same extent as the Company would be required to perform such
obligations in the absence of a succession. For all purposes under this
Agreement, the term "Company" shall include any successor to the Company's
business and assets which executes and delivers the assumption agreement
described in this subsection (a) or which becomes bound by the terms of this
Agreement by operation of law.
(b) Executive's Successors. The terms of this Agreement and
ail rights of the Executive hereunder shall inure to the benefit of, and be
enforceable by, the Executive's personal or legal representatives, executors,
administrators, successors, heirs, devisees and legatees.
9. Notice.
(a) General. Notices and all other communications contemplated
by this Agreement shall be in writing and shall be deemed to have been duly
given when personally delivered or when mailed by U.S. registered or certified
mail, return receipt requested and postage prepaid. In the case of the
Executive, mailed notices shall be addressed to him at the home address which he
most recently communicated to the Company in writing. In the case of the
Company, mailed notices shall be addressed to its corporate headquarters, and
ail notices shall be directed to the attention of its Secretary.
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(b) Notice of Termination. Any termination by the Company
shall be communicated by a notice of termination to the other party hereto given
in accordance with Section 9 of this Agreement. Such notice shall indicate the
specific termination provision in this Agreement relied upon, shall set forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination under the provision so indicated, and shall specify the termination
date (which shall be not more than 15 days after the giving of such notice). The
failure by the Executive to include in the notice any fact or circumstance which
contributes to a showing of Involuntary or Constructive Termination shall not
waive any right of the Executive hereunder or preclude the Executive from
asserting such fact or circumstance in enforcing his rights hereunder.
10. Arbitration.
(a) Any dispute or controversy arising out of, relating to, or
in connection with this Agreement, or the interpretation, validity,
construction, performance, breach, or termination thereof, shall be settled by
binding arbitration to be held in California, in accordance with the National
Rules for the Resolution of Employment Disputes then in effect of the American
Arbitration Association (the "Rules"). The arbitrator may grant injunctions or
other relief in such dispute or controversy. The decision of the arbitrator
shall be final, conclusive and binding on the parties to the arbitration.
Judgment may be entered on the arbitrator's decision in any court having
jurisdiction.
(b) The arbitrator(s) shall apply California law to the merits
of any dispute or claim, without reference to conflicts of law rules. The
arbitration proceedings shall be governed by federal arbitration law and by the
Rules, without reference to state arbitration law. Executive hereby consents to
the personal jurisdiction of the state and federal courts located in California
for any action or proceeding arising from or relating to this Agreement or
relating to any arbitration in which the parties are participants.
(c) Executive understands that nothing in this Section
modifies Executive's at-will employment status. Either Executive or the Company
can terminate the employment relationship at any time, with or without Cause.
(d) EXECUTIVE HAS READ AND UNDERSTANDS THIS SECTION, WHICH
DISCUSSES ARBITRATION. EXECUTIVE UNDERSTANDS THAT SUBMITTING ANY CLAIMS ARISING
OUT OF, RELATING TO, OR IN CONNECTION WITH THIS AGREEMENT, OR THE
INTERPRETATION, VALIDITY, CONSTRUCTION, PERFORMANCE, BREACH OR TERMINATION
THEREOF TO BINDING ARBITRATION, CONSTITUTES A WAIVER OF EMPLOYEE'S RIGHT TO A
JURY TRIAL AND RELATES TO THE RESOLUTION OF ALL DISPUTES RELATING TO ALL ASPECTS
OF THE EMPLOYER/EMPLOYEE RELATIONSHIP, INCLUDING BUT NOT LIMITED TO, THE
FOLLOWING CLAIMS:
(i) ANY AND ALL CLAIMS FOR WRONGFUL DISCHARGE OF
EMPLOYMENT; BREACH OF CONTRACT, BOTH EXPRESS AND IMPLIED; BREACH OF THE COVENANT
OF GOOD FAITH AND FAIR DEALING, BOTH EXPRESS AND IMPLIED;
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NEGLIGENT OR INTENTIONAL INFLICTION OF EMOTIONAL DISTRESS; NEGLIGENT OR
INTENTIONAL MISREPRESENTATION; NEGLIGENT OR INTENTIONAL INTERFERENCE WITH
CONTRACT OR PROSPECTIVE ECONOMIC ADVANTAGE; AND DEFAMATION;
(ii) ANY AND ALL CLAIMS FOR VIOLATION OF ANY FEDERAL
STATE OR MUNICIPAL STATUTE, INCLUDING, BUT NOT LIMITED TO, TITLE VII OF THE
CIVIL RIGHTS ACT OF 1964, THE CIVIL RIGHTS ACT OF 1991, THE AGE DISCRIMINATION
IN EMPLOYMENT ACT OF 1967, THE AMERICANS WITH DISABILITIES ACT OF 1990, THE FAIR
LABOR STANDARDS ACT, THE CALIFORNIA FAIR EMPLOYMENT AND HOUSING ACT, AND LABOR
CODE SECTION 201, et seq;
(iii) ANY AND ALL CLAIMS ARISING OUT OF ANY OTHER
LAWS AND REGULATIONS RELATING TO EMPLOYMENT OR EMPLOYMENT DISCRIMINATION.
11. Miscellaneous Provisions.
(a) No Duty to Mitigate. The Executive shall not be required
to mitigate the amount of any payment contemplated by this Agreement (whether by
seeking new employment or in any other manner), nor shall any such payment be
reduced by any earnings that the Executive may receive from any other source.
(b) Waiver. No provision of this Agreement shall be modified,
waived or discharged unless the modification, waiver or discharge is agreed to
in writing and signed by the Executive and by an authorized officer of the
Company (other than the Executive). No waiver by either party of any breach of,
or of compliance with, any condition or provision of this Agreement by the other
party shall be considered a waiver of any other condition or provision or of the
same condition or provision at another time.
(c) Whole Agreement. No agreements, representations or
understandings (whether oral or written and whether express or implied) which
are not expressly set forth in this Agreement have been made or entered into by
either party with respect to the subject matter hereof.
(d) Choice of Law. The validity, interpretation, construction
and performance of this Agreement shall be governed by the laws of the State of
California.
(e) Severability. The invalidity or unenforceability of any
provision or provisions of this Agreement shall not affect the validity or
enforceability of any other provision hereof, which shall remain in full force
and effect.
(f) No Assignment of Benefits. The rights of any person to
payments or benefits under this Agreement shall not be made subject to option or
assignment, either by voluntary or involuntary assignment or by operation of
taw, including (without limitation) bankruptcy, garnishment, attachment or other
creditor's process, and any action in violation of this subsection (f) shall be
void.
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(g) Employment Taxes. All payments made pursuant to this
Agreement will be subject to withholding of applicable income and employment
taxes.
(h) Assignment by Company. The Company may assign its rights
under this Agreement to an affiliate, and an affiliate may assign its rights
under this Agreement to another affiliate of the Company or to the Company;
provided, however, that no assignment shall be made if the net worth of the
assignee is less than the net worth of the Company at the time of assignment. In
the case of any such assignment, the term "Company" when used in a Section of
this Agreement shall mean the corporation that actually employs the Executive.
(i) Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of which
together will constitute one and the same instrument.
IN WITNESS WHEREOF, each of the parties has executed this
Agreement, in the case of the Company by its duly authorized officer, as of the
day and year first above written.
ELECTRONICS FOR IMAGING, INC. EXECUTIVE:
/s/ Guy Gecht /s/ Fred Rosenzweig
- ---------------------------------- ---------------------------
Chief Executive Officer Fred Rosenzweig
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Exhibit 10.16
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is made and entered into
effective as of March 8, 2000, by and between Eric Saltzman (the "Executive")
and Electronics for Imaging, Inc., a Delaware corporation (the "Company").
RECITALS
A. It is expected that the Company from time to time will consider the
possibility of an acquisition by another company or other change of control. The
Board of Directors of the Company (the "Board") recognizes that such
consideration can be a distraction to the Executive and can cause the Executive
to consider alternative employment opportunities. The Board has determined that
it is in the best interests of the Company and its stockholders to assure that
the Company will have the continued dedication and objectivity of the Executive,
notwithstanding the possibility, threat or occurrence of a Change of Control (as
defined below) of the Company.
B. The Board believes that it is in the best interests of the Company
and its stockholders to provide the Executive with an incentive to continue his
employment and to motivate the Executive to maximize the value of the Company
upon a Change of Control for the benefit of its stockholders.
C. The Board believes that it is imperative to provide the Executive
with certain benefits upon a Change of Control and, under certain circumstances,
upon termination of the Executive's full-time employment in connection with a
Change of Control, which benefits are intended to provide the Executive with
financial security and provide sufficient incentive and encouragement to the
Executive to remain with the Company notwithstanding the possibility of a Change
of Control.
D. Further, the Board believes that it is in the best interest of the
Company and its stockholders to provide additional benefits to the Executive in
the event the Executive's employment terminates for any reason other than a
Change in Control. Such benefits are intended to provide the Executive with
financial security and provide sufficient incentive and encouragement to the
Executive to remain with the Company notwithstanding the possible termination of
employment.
E. To accomplish the foregoing objectives, the Board of Directors has
directed the Company, upon execution of this Agreement by the Executive, to
agree to the terms provided herein.
F. Certain capitalized terms used in the Agreement are defined in
Section 6 below.
In consideration of the mutual covenants herein contained, and in
consideration of the continuing employment of the Executive by the Company, the
parties agree as follows:
<PAGE>
1. Duties and Scope of Employment.
(a) Position. The Company shall employ the Executive in the
position of Chief Financial Officer, as such position is defined in terms of
responsibilities and compensation as of the effective date of this Agreement;
provided, however, that the Board of Directors by mutual agreement with the
Executive shall have the right, at any time prior to the occurrence of a Change
of Control, to revise such responsibilities and compensation. The Executive
shall continue to devote his full business efforts and time to the Company and
its subsidiaries. The Executive shall comply with and be bound by the Company's
operating policies, procedures and practices from time to time in effect during
his employment. During the term of the Executive's employment with the Company,
the Executive shall devote his full-time, skill and attention to his duties and
responsibilities, and shall perform them faithfully, diligently and competently,
and the Executive shall use his best efforts to further the business of the
Company and its affiliated entities. Subject to the Executive's fiduciary duties
to the Company, this Agreement shall not prohibit the Executive from serving on
the board of directors or any advisory board of other companies.
2. Base Compensation.
(a) Annual Salary. The Company shall pay the Executive as
compensation for his services a base salary at an annualized rate that is not
less than his base salary as of the effective date of this Agreement (the
"Annual Salary"). The Annual Salary may be subject to annual increases as the
Board may authorize from time to time in connection with Executive's annual
review. The Annual Salary shall be paid periodically in accordance with normal
Company payroll procedures. The Annual Salary (together with bonus amounts as
specified in Section 2), and any increases in such compensation that the Board
of Directors may grant from time to time, is referred to in this Agreement as
"Base Compensation."
(b) Bonus. In addition to the Annual Salary, the Executive
will be eligible to receive an annual bonus under the Company's Executive Bonus
Plan as determined by the Board in its discretion.
3. Executive Benefits. The Executive shall be eligible to participate
in the employee benefit plans and executive compensation programs maintained by
the Company applicable to other key executives of the Company, including
(without limitation) retirement plans, savings or profit-sharing plans, stock
option, incentive or other bonus plans, life, disability, health, accident and
other insurance programs, paid vacations, and similar plans or programs, subject
in each case to the generally applicable terms and conditions of the applicable
plan or program in question and to the determination of any committee
administering such plan or program. In addition, the Executive shall continue to
be entitled to receive any other benefits currently received by the Executive
such as automobile and car phone allowance benefits.
4. At-Will Employment. The Company and the Executive acknowledge that
the Executive's employment is and shall continue to be at-will, as defined under
applicable law. If the Executive's employment terminates for any reason,
including, without limitation, any termination prior to and not in connection
with a Change of Control, the Executive shall not be entitled to any
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payments, benefits, damages, awards or compensation other than as provided by
this Agreement, or as may otherwise be available in accordance with the
Company's established employee plans and policies at the time of termination.
The terms of this Agreement shall terminate upon the earlier of (i) the date
that all obligations of the parties hereunder have been satisfied, or (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. A termination of the terms of this Agreement pursuant to the
preceding sentence shall be effective for all purposes, except that such
termination shall not affect the payment or provision of compensation or
benefits on account of a termination of employment occurring prior to the
termination of the terms of this Agreement.
5. Severance Benefits.
(a) Termination in Connection with a Change of Control.
Subject to Section 7 below, if the Company terminates the Executive's employment
at any time during the period beginning upon the earlier to occur of (i) the
execution of a binding letter of intent regarding a Change of Control, and (ii)
ninety (90) days before a Change of Control, and ending eighteen (18) months
after a Change of Control, and the Executive signs and does not revoke a
standard release of claims with the Company attached hereto as Exhibit A, then
the Executive shall be entitled to receive severance benefits as follows:
(i) Involuntary or Constructive Termination. If the
Executive's employment terminates as a result of Involuntary or Constructive
Termination other than for Cause, then the Executive shall be entitled to
receive severance pay in an amount equal to two (2) times the Executive's Base
Compensation for the year coinciding with the year of termination, plus an
amount equal to the bonus the Executive would have earned had he been employed
by the Company at the end of such year multiplied by a fraction (x) the
numerator of which is the number of completed months in that year, and (y) the
denominator of which is twelve (12) (the "Current Bonus"). Any severance
payments except for the Current Bonus to which the Executive is entitled
pursuant to this Section shall be paid in a lump sum within thirty (30) days of
the Executive's termination. The Current Bonus to which the Executive is
entitled pursuant to this Section shall be paid in a lump sum within thirty (30)
days of the date that the Company's audit is complete for such year.
(ii) Voluntary Resignation; Termination For Cause. If
the Executive voluntarily resigns from the Company (other than as an Involuntary
or Constructive Termination described in subsection 5(a)(i)), or if the Company
terminates the Executive's employment for Cause, then the Executive shall not be
entitled to receive severance or other benefits except for those (if any) as may
then be established under the Company's then existing benefit plans at the time
of such termination.
(iii) Disability; Death. If the Company terminates
the Executive's employment as a result of the Executive's Disability, or such
Executive's employment is terminated due to the death of the Executive, then the
Executive or the Executive's estate, as the case may be, shall be entitled to
receive (i) severance pay in an amount equal to one-half (1/2) of the
Executive's Base Compensation for the year coinciding with the year of
termination plus his Current Bonus, (ii) in addition to the Executive's stock
options that were exercisable immediately prior to such
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termination, the vesting of additional options shall accelerate and become
exercisable as to that number of shares that would have vested if the Executive
had remained continuously employed for a period of six (6) months following such
termination (and if any of such options vest on an annual basis, the appropriate
credit shall be given as if the vesting accrued monthly), and such options shall
remain exercisable for the period prescribed in Executive's stock option
agreements, and (iii) such other benefits (if any) as may then be established
under the Company's then existing benefit plans at the time of such Disability
or death. Any severance payments except for the Current Bonus to which the
Executive is entitled pursuant to this Section shall be paid in a lump sum
within thirty (30) days of the Executive's termination. The Current Bonus to
which the Executive is entitled pursuant to this Section shall be paid in a lump
sum within thirty (30) days of the date that the Company's audit is complete for
such year.
(b) Termination Apart from Change of Control. Subject to
Section 7 below, if the Company terminates the Executive's employment at any
time, either before the earlier to occur of (i) the execution of a binding
letter of intent regarding a Change of Control, and (ii) ninety (90) days before
a Change of Control, or after the 18-month period following a Change of Control,
and the Executive signs and does not revoke a standard release of claims with
the Company attached hereto as Exhibit A, then the Executive shall be entitled
to receive severance benefits as follows:
(i) Voluntary Resignation; Termination for Cause. If
the Executive voluntarily resigns from the Company (other than as an Involuntary
or Constructive Termination), or if the Company terminates the Executive's
employment for Cause, then the Executive shall be entitled to receive severance
and any other benefits only as may then be established under the Company's then
exiting benefit plans at the time of such termination.
(ii) Termination other than Voluntary Resignation or
Termination for Cause. In the event the Executive's employment is terminated for
any reason (including as a result of the Executive's Disability or due to the
death of the Executive) except for termination as described in Section 5(b)(i)
above, then the Executive or the Executive's estate, as the case may be, shall
be entitled to receive (i) severance pay in an amount equal to one-half (1/2) of
the Executive's Base Compensation for the year coinciding with the year of
termination plus his Current Bonus, (ii) in addition to Executive's stock
options that were exercisable immediately prior to such termination, the vesting
of additional options shall accelerate and become exercisable by the Executive
or the Executive's estate, as the case may be, as to that number of shares that
would have vested if the Executive had remained continuously employed for a
period of six (6) months following such termination (and if any of such options
vest on an annual basis, the appropriate credit shall be given as if the vesting
accrued monthly), and such options shall remain exercisable for the period
prescribed in Executive's stock option agreements, and (iii) the same level of
health (i.e., medical, vision and dental) coverage and benefits as in effect for
the Executive on the day immediately preceding the day of Executive's
termination of employment; provided, however, that (i) the Executive constitutes
a qualified beneficiary, as defined in Section 4980B(g)(1) of the Internal
Revenue Code of 1986, as amended (the "Code"); and (ii) Executive elects
continuation coverage pursuant to the Consolidated Omnibus Budget Reconciliation
Act of 1985, as amended ("COBRA"), within the time period prescribed pursuant to
COBRA. The Company shall continue to provide Executive with health coverage
until the earlier to occur of (i) the date Executive is no longer
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eligible to receive continuation coverage pursuant to COBRA, or (ii) eighteen
(18) months from the termination date. In addition to the foregoing, Executive
shall also be paid such other benefits (if any) as may then be established under
the Company's then existing benefit plans at the time of such termination. Any
severance payments except for the Current Bonus to which the Executive is
entitled pursuant to this Section shall be paid in a lump sum within thirty (30)
days of the Executive's termination. The Current Bonus to which the Executive is
entitled pursuant to this Section shall be paid in a lump sum within thirty (30)
days of the date that the Company's audit is complete for such year.
(c) Options. Subject to Section 7 hereof, upon a Change of
Control, the unvested portion of any stock option held by the Executive shall
automatically be accelerated and the Executive or the Executive's
representative, as the case may be, shall have the right to exercise all or any
portion of such stock option, in addition to any portion of the option
exercisable prior to the Change of Control and in accordance with the
Executive's stock option agreement.
6. Definition of Terms. The following terms referred to in this
Agreement shall have the following meanings:
(a) Cause. "Cause" shall mean (i) any act of personal
dishonesty taken by the Executive in connection with his responsibilities as an
employee and intended to result in substantial personal enrichment of the
Executive, (ii) committing a felony or an act of fraud against the Company or
its affiliates, and (iii) acts by the Executive which constitute gross
misconduct, are injurious to the Company, and which are demonstrably willful and
deliberate on the Executive's part after there has been delivered to the
Executive a written demand of cessation of such acts from the Company which
describes the basis for the Company's belief that the Executive has engaged or
committed such acts.
(b) Change of Control. "Change of Control" shall mean the
occurrence of any of the following events:
(i) Any "person" (as such term is used in Sections
13(d) and 14(d) of the Securities Exchange Act of 1934, as amended) becomes the
"beneficial owner" (as defined in Rule 13d-3 under said Act), directly or
indirectly, of securities of the Company representing fifty percent (50%) or
more of the total voting power represented by the Company's then outstanding
voting securities; or
(ii) A change in the composition of the Board of
Directors of the Company occurring within a two-year period, as a result of
which fewer than a majority of the directors are Incumbent Directors. "Incumbent
Directors" shall mean directors who either (A) are directors of the Company as
of the date hereof, or (B) are elected, or nominated for election, to the Board
of Directors of the Company with the affirmative votes of at least a majority of
the Incumbent Directors at the time of such election or nomination (but shall
not include an individual whose election or nomination is in connection with an
actual or threatened proxy contest relating to the election of directors to the
Company); or
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(iii) A merger or consolidation of the Company with
any other corporation, other than a merger or consolidation which would result
in the voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity) at least sixty percent (60%) of
the total voting power represented by the voting securities of the Company or
such surviving entity outstanding immediately after such merger or
consolidation.
(c) Involuntary or Constructive Termination. "Involuntary or
Constructive Termination" shall mean (i) without the Executive's express written
consent, the assignment to the Executive of any duties or the significant
reduction of the Executive's duties, either of which is inconsistent with the
Executive's position with the Company and responsibilities in effect immediately
prior to such assignment, or the removal of the Executive from such position and
responsibilities; (ii) without the Executive's express written consent, a
substantial reduction, without good business reasons, of the facilities and
perquisites (including office space and location) available to the Executive
immediately prior to such reduction; (iii) a reduction by the Company in the
Base Compensation of the Executive as in effect immediately prior to such
reduction; (iv) a material reduction by the Company in the kind or level of
employee benefits to which the Executive is entitled immediately prior to such
reduction with the result that the Executive's overall benefits package is
significantly reduced; (v) the relocation of the Executive to a facility or a
location more than 30 miles from the Executive's then present location, without
the Executive's express written consent; (vi) any purported termination of the
Executive by the Company which is not effected for Disability or for Cause, or
any purported termination for which the grounds relied upon are not valid; or
(vii) the failure of the Company to obtain the assumption of this agreement by
any successors contemplated in Section 8 below.
(d) Disability. "Disability" shall mean that the Executive has
been unable to perform his duties under this Agreement as the result of his
incapacity due to physical or mental illness, and such inability, at least 26
weeks after its commencement, is determined to be total and permanent by a
physician selected by the Company or its insurers and acceptable to the
Executive or the Executive's legal representative (such agreement as to
acceptability not to be unreasonably withheld). Termination resulting from
Disability may only be effected after at least 30 days' written notice by the
Company of its intention to terminate the Executive's employment. In the event
that the Executive resumes the performance of substantially all of his duties
hereunder before the termination of his employment becomes effective, the notice
of intent to terminate shall automatically be deemed to have been revoked.
7. Limitation on Payments. In the event that the severance and other
benefits provided for in this Agreement or otherwise payable to the Executive
(i) constitute "parachute payments" within the meaning of Section 280G of the
Code, and (ii) would be subject to the excise tax imposed by Section 4999 of the
Code (the "Excise Tax"), then Executive's benefits under this Agreement shall be
either:
(i) delivered in full, or
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(ii) delivered as to such lesser extent which would result in
no portion of such benefits being subject to the Excise Tax,
whichever of the foregoing amounts, taking into account the
applicable federal, state and local income taxes and the Excise Tax, results in
the receipt by Executive on an after-tax basis, of the greatest amount of
benefits, notwithstanding that all or some portion of such benefits may be
taxable under Section 4999 of the Code.
Unless the Company and the Executive otherwise agree in writing, any
determination required under this Section 7(a) shall be made in writing in good
faith by the accounting firm serving as the Company's independent public
accountants immediately prior to the Change of Control (the "Accountants"). In
the event of a reduction in benefits hereunder, the Executive shall be given the
choice of which benefits to reduce. For purposes of making the calculations
required by this Section 7(a), the Accountants may make reasonable assumptions
and approximations concerning applicable taxes and may rely on reasonable, good
faith interpretations concerning the application of the Code. The Company and
the Executive shall furnish to the Accountants such information and documents as
the Accountants may reasonably request in order to make a determination under
this Section. The Company shall bear all costs the Accountants may reasonably
incur in connection with any calculations contemplated by this Section 7(a).
8. Successors.
(a) Company's Successors. Any successor to the Company
(whether direct or indirect and whether by purchase, lease, merger,
consolidation, liquidation or otherwise) to all or substantially all of the
Company's business and assets shall assume the obligations under this Agreement
and agree expressly to perform the obligations under this Agreement in the same
manner and to the same extent as the Company would be required to perform such
obligations in the absence of a succession. For all purposes under this
Agreement, the term "Company" shall include any successor to the Company's
business and assets which executes and delivers the assumption agreement
described in this subsection (a) or which becomes bound by the terms of this
Agreement by operation of law.
(b) Executive's Successors. The terms of this Agreement and
ail rights of the Executive hereunder shall inure to the benefit of, and be
enforceable by, the Executive's personal or legal representatives, executors,
administrators, successors, heirs, devisees and legatees.
9. Notice.
(a) General. Notices and all other communications contemplated
by this Agreement shall be in writing and shall be deemed to have been duly
given when personally delivered or when mailed by U.S. registered or certified
mail, return receipt requested and postage prepaid. In the case of the
Executive, mailed notices shall be addressed to him at the home address which he
most recently communicated to the Company in writing. In the case of the
Company, mailed notices shall be addressed to its corporate headquarters, and
ail notices shall be directed to the attention of its Secretary.
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(b) Notice of Termination. Any termination by the Company
shall be communicated by a notice of termination to the other party hereto given
in accordance with Section 9 of this Agreement. Such notice shall indicate the
specific termination provision in this Agreement relied upon, shall set forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination under the provision so indicated, and shall specify the termination
date (which shall be not more than 15 days after the giving of such notice). The
failure by the Executive to include in the notice any fact or circumstance which
contributes to a showing of Involuntary or Constructive Termination shall not
waive any right of the Executive hereunder or preclude the Executive from
asserting such fact or circumstance in enforcing his rights hereunder.
10. Arbitration.
(a) Any dispute or controversy arising out of, relating to, or
in connection with this Agreement, or the interpretation, validity,
construction, performance, breach, or termination thereof, shall be settled by
binding arbitration to be held in California, in accordance with the National
Rules for the Resolution of Employment Disputes then in effect of the American
Arbitration Association (the "Rules"). The arbitrator may grant injunctions or
other relief in such dispute or controversy. The decision of the arbitrator
shall be final, conclusive and binding on the parties to the arbitration.
Judgment may be entered on the arbitrator's decision in any court having
jurisdiction.
(b) The arbitrator(s) shall apply California law to the merits
of any dispute or claim, without reference to conflicts of law rules. The
arbitration proceedings shall be governed by federal arbitration law and by the
Rules, without reference to state arbitration law. Executive hereby consents to
the personal jurisdiction of the state and federal courts located in California
for any action or proceeding arising from or relating to this Agreement or
relating to any arbitration in which the parties are participants.
(c) Executive understands that nothing in this Section
modifies Executive's at-will employment status. Either Executive or the Company
can terminate the employment relationship at any time, with or without Cause.
(d) EXECUTIVE HAS READ AND UNDERSTANDS THIS SECTION, WHICH
DISCUSSES ARBITRATION. EXECUTIVE UNDERSTANDS THAT SUBMITTING ANY CLAIMS ARISING
OUT OF, RELATING TO, OR IN CONNECTION WITH THIS AGREEMENT, OR THE
INTERPRETATION, VALIDITY, CONSTRUCTION, PERFORMANCE, BREACH OR TERMINATION
THEREOF TO BINDING ARBITRATION, CONSTITUTES A WAIVER OF EMPLOYEE'S RIGHT TO A
JURY TRIAL AND RELATES TO THE RESOLUTION OF ALL DISPUTES RELATING TO ALL ASPECTS
OF THE EMPLOYER/EMPLOYEE RELATIONSHIP, INCLUDING BUT NOT LIMITED TO, THE
FOLLOWING CLAIMS:
(i) ANY AND ALL CLAIMS FOR WRONGFUL DISCHARGE OF
EMPLOYMENT; BREACH OF CONTRACT, BOTH EXPRESS AND IMPLIED; BREACH OF THE COVENANT
OF GOOD FAITH AND FAIR DEALING, BOTH EXPRESS AND IMPLIED;
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NEGLIGENT OR INTENTIONAL INFLICTION OF EMOTIONAL DISTRESS; NEGLIGENT OR
INTENTIONAL MISREPRESENTATION; NEGLIGENT OR INTENTIONAL INTERFERENCE WITH
CONTRACT OR PROSPECTIVE ECONOMIC ADVANTAGE; AND DEFAMATION;
(ii) ANY AND ALL CLAIMS FOR VIOLATION OF ANY FEDERAL
STATE OR MUNICIPAL STATUTE, INCLUDING, BUT NOT LIMITED TO, TITLE VII OF THE
CIVIL RIGHTS ACT OF 1964, THE CIVIL RIGHTS ACT OF 1991, THE AGE DISCRIMINATION
IN EMPLOYMENT ACT OF 1967, THE AMERICANS WITH DISABILITIES ACT OF 1990, THE FAIR
LABOR STANDARDS ACT, THE CALIFORNIA FAIR EMPLOYMENT AND HOUSING ACT, AND LABOR
CODE SECTION 201, et seq;
(iii) ANY AND ALL CLAIMS ARISING OUT OF ANY OTHER
LAWS AND REGULATIONS RELATING TO EMPLOYMENT OR EMPLOYMENT DISCRIMINATION.
11. Miscellaneous Provisions.
(a) No Duty to Mitigate. The Executive shall not be required
to mitigate the amount of any payment contemplated by this Agreement (whether by
seeking new employment or in any other manner), nor shall any such payment be
reduced by any earnings that the Executive may receive from any other source.
(b) Waiver. No provision of this Agreement shall be modified,
waived or discharged unless the modification, waiver or discharge is agreed to
in writing and signed by the Executive and by an authorized officer of the
Company (other than the Executive). No waiver by either party of any breach of,
or of compliance with, any condition or provision of this Agreement by the other
party shall be considered a waiver of any other condition or provision or of the
same condition or provision at another time.
(c) Whole Agreement. No agreements, representations or
understandings (whether oral or written and whether express or implied) which
are not expressly set forth in this Agreement have been made or entered into by
either party with respect to the subject matter hereof.
(d) Choice of Law. The validity, interpretation, construction
and performance of this Agreement shall be governed by the laws of the State of
California.
(e) Severability. The invalidity or unenforceability of any
provision or provisions of this Agreement shall not affect the validity or
enforceability of any other provision hereof, which shall remain in full force
and effect.
(f) No Assignment of Benefits. The rights of any person to
payments or benefits under this Agreement shall not be made subject to option or
assignment, either by voluntary or involuntary assignment or by operation of
taw, including (without limitation) bankruptcy, garnishment, attachment or other
creditor's process, and any action in violation of this subsection (f) shall be
void.
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(g) Employment Taxes. All payments made pursuant to this
Agreement will be subject to withholding of applicable income and employment
taxes.
(h) Assignment by Company. The Company may assign its rights
under this Agreement to an affiliate, and an affiliate may assign its rights
under this Agreement to another affiliate of the Company or to the Company;
provided, however, that no assignment shall be made if the net worth of the
assignee is less than the net worth of the Company at the time of assignment. In
the case of any such assignment, the term "Company" when used in a Section of
this Agreement shall mean the corporation that actually employs the Executive.
(i) Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of which
together will constitute one and the same instrument.
IN WITNESS WHEREOF, each of the parties has executed this
Agreement, in the case of the Company by its duly authorized officer, as of the
day and year first above written.
ELECTRONICS FOR IMAGING, INC. EXECUTIVE:
/s/ Guy Gecht /s/ Eric Saltzman
- ----------------------------------- ---------------------------
Chief Executive Officer Eric Saltzman
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Exhibit 10.17
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is made and entered into
effective as of March 8, 2000, by and between Jan Smith (the "Executive") and
Electronics for Imaging, Inc., a Delaware corporation (the "Company").
RECITALS
A. It is expected that the Company from time to time will consider the
possibility of an acquisition by another company or other change of control. The
Board of Directors of the Company (the "Board") recognizes that such
consideration can be a distraction to the Executive and can cause the Executive
to consider alternative employment opportunities. The Board has determined that
it is in the best interests of the Company and its stockholders to assure that
the Company will have the continued dedication and objectivity of the Executive,
notwithstanding the possibility, threat or occurrence of a Change of Control (as
defined below) of the Company.
B. The Board believes that it is in the best interests of the Company
and its stockholders to provide the Executive with an incentive to continue her
employment and to motivate the Executive to maximize the value of the Company
upon a Change of Control for the benefit of its stockholders.
C. The Board believes that it is imperative to provide the Executive
with certain benefits upon a Change of Control and, under certain circumstances,
upon termination of the Executive's full-time employment in connection with a
Change of Control, which benefits are intended to provide the Executive with
financial security and provide sufficient incentive and encouragement to the
Executive to remain with the Company notwithstanding the possibility of a Change
of Control.
D. Further, the Board believes that it is in the best interest of the
Company and its stockholders to provide additional benefits to the Executive in
the event the Executive's employment terminates for any reason other than a
Change in Control. Such benefits are intended to provide the Executive with
financial security and provide sufficient incentive and encouragement to the
Executive to remain with the Company notwithstanding the possible termination of
employment.
E. To accomplish the foregoing objectives, the Board of Directors has
directed the Company, upon execution of this Agreement by the Executive, to
agree to the terms provided herein.
F. Certain capitalized terms used in the Agreement are defined in
Section 6 below.
In consideration of the mutual covenants herein contained, and in
consideration of the continuing employment of the Executive by the Company, the
parties agree as follows:
<PAGE>
1. Duties and Scope of Employment.
(a) Position. The Company shall employ the Executive in the
position of Vice President of Human Resources and Corporate Communications, as
such position is defined in terms of responsibilities and compensation as of the
effective date of this Agreement; provided, however, that the Board of Directors
by mutual agreement with the Executive shall have the right, at any time prior
to the occurrence of a Change of Control, to revise such responsibilities and
compensation. The Executive shall continue to devote her full business efforts
and time to the Company and its subsidiaries. The Executive shall comply with
and be bound by the Company's operating policies, procedures and practices from
time to time in effect during her employment. During the term of the Executive's
employment with the Company, the Executive shall devote her full-time, skill and
attention to her duties and responsibilities, and shall perform them faithfully,
diligently and competently, and the Executive shall use her best efforts to
further the business of the Company and its affiliated entities. Subject to the
Executive's fiduciary duties to the Company, this Agreement shall not prohibit
the Executive from serving on the board of directors or any advisory board of
other companies.
2. Base Compensation.
(a) Annual Salary. The Company shall pay the Executive as
compensation for her services a base salary at an annualized rate that is not
less than her base salary as of the effective date of this Agreement (the
"Annual Salary"). The Annual Salary may be subject to annual increases as the
Board may authorize from time to time in connection with Executive's annual
review. The Annual Salary shall be paid periodically in accordance with normal
Company payroll procedures. The Annual Salary (together with bonus amounts as
specified in Section 2), and any increases in such compensation that the Board
of Directors may grant from time to time, is referred to in this Agreement as
"Base Compensation."
(b) Bonus. In addition to the Annual Salary, the Executive
will be eligible to receive an annual bonus under the Company's Executive Bonus
Plan as determined by the Board in its discretion.
3. Executive Benefits. The Executive shall be eligible to participate
in the employee benefit plans and executive compensation programs maintained by
the Company applicable to other key executives of the Company, including
(without limitation) retirement plans, savings or profit-sharing plans, stock
option, incentive or other bonus plans, life, disability, health, accident and
other insurance programs, paid vacations, and similar plans or programs, subject
in each case to the generally applicable terms and conditions of the applicable
plan or program in question and to the determination of any committee
administering such plan or program. In addition, the Executive shall continue to
be entitled to receive any other benefits currently received by the Executive
such as automobile and car phone allowance benefits.
4. At-Will Employment. The Company and the Executive acknowledge that
the Executive's employment is and shall continue to be at-will, as defined under
applicable law. If the Executive's employment terminates for any reason,
including, without limitation, any termination
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prior to and not in connection with a Change of Control, the Executive shall not
be entitled to any payments, benefits, damages, awards or compensation other
than as provided by this Agreement, or as may otherwise be available in
accordance with the Company's established employee plans and policies at the
time of termination. The terms of this Agreement shall terminate upon the
earlier of (i) the date that all obligations of the parties hereunder have been
satisfied, or (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. A termination of the terms of this
Agreement pursuant to the preceding sentence shall be effective for all
purposes, except that such termination shall not affect the payment or provision
of compensation or benefits on account of a termination of employment occurring
prior to the termination of the terms of this Agreement.
5. Severance Benefits.
(a) Termination in Connection with a Change of Control.
Subject to Section 7 below, if the Company terminates the Executive's employment
at any time during the period beginning upon the earlier to occur of (i) the
execution of a binding letter of intent regarding a Change of Control, and (ii)
ninety (90) days before a Change of Control, and ending eighteen (18) months
after a Change of Control, and the Executive signs and does not revoke a
standard release of claims with the Company attached hereto as Exhibit A, then
the Executive shall be entitled to receive severance benefits as follows:
(i) Involuntary or Constructive Termination. If the
Executive's employment terminates as a result of Involuntary or Constructive
Termination other than for Cause, then the Executive shall be entitled to
receive severance pay in an amount equal to two (2) times the Executive's Base
Compensation for the year coinciding with the year of termination, plus an
amount equal to the bonus the Executive would have earned had he been employed
by the Company at the end of such year multiplied by a fraction (x) the
numerator of which is the number of completed months in that year, and (y) the
denominator of which is twelve (12) (the "Current Bonus"). Any severance
payments except for the Current Bonus to which the Executive is entitled
pursuant to this Section shall be paid in a lump sum within thirty (30) days of
the Executive's termination. The Current Bonus to which the Executive is
entitled pursuant to this Section shall be paid in a lump sum within thirty (30)
days of the date that the Company's audit is complete for such year.
(ii) Voluntary Resignation; Termination For Cause. If
the Executive voluntarily resigns from the Company (other than as an Involuntary
or Constructive Termination described in subsection 5(a)(i)), or if the Company
terminates the Executive's employment for Cause, then the Executive shall not be
entitled to receive severance or other benefits except for those (if any) as may
then be established under the Company's then existing benefit plans at the time
of such termination.
(iii) Disability; Death. If the Company terminates
the Executive's employment as a result of the Executive's Disability, or such
Executive's employment is terminated due to the death of the Executive, then the
Executive or the Executive's estate, as the case may be, shall be entitled to
receive (i) severance pay in an amount equal to one-half (1/2) of the
Executive's Base Compensation for the year coinciding with the year of
termination plus her Current Bonus, (ii)
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in addition to the Executive's stock options that were exercisable immediately
prior to such termination, the vesting of additional options shall accelerate
and become exercisable as to that number of shares that would have vested if the
Executive had remained continuously employed for a period of six (6) months
following such termination (and if any of such options vest on an annual basis,
the appropriate credit shall be given as if the vesting accrued monthly), and
such options shall remain exercisable for the period prescribed in Executive's
stock option agreements, and (iii) such other benefits (if any) as may then be
established under the Company's then existing benefit plans at the time of such
Disability or death. Any severance payments except for the Current Bonus to
which the Executive is entitled pursuant to this Section shall be paid in a lump
sum within thirty (30) days of the Executive's termination. The Current Bonus to
which the Executive is entitled pursuant to this Section shall be paid in a lump
sum within thirty (30) days of the date that the Company's audit is complete for
such year.
(b) Termination Apart from Change of Control. Subject to
Section 7 below, if the Company terminates the Executive's employment at any
time, either before the earlier to occur of (i) the execution of a binding
letter of intent regarding a Change of Control, and (ii) ninety (90) days before
a Change of Control, or after the 18-month period following a Change of Control,
and the Executive signs and does not revoke a standard release of claims with
the Company attached hereto as Exhibit A, then the Executive shall be entitled
to receive severance benefits as follows:
(i) Voluntary Resignation; Termination for Cause. If
the Executive voluntarily resigns from the Company (other than as an Involuntary
or Constructive Termination), or if the Company terminates the Executive's
employment for Cause, then the Executive shall be entitled to receive severance
and any other benefits only as may then be established under the Company's then
exiting benefit plans at the time of such termination.
(ii) Termination other than Voluntary Resignation or
Termination for Cause. In the event the Executive's employment is terminated for
any reason (including as a result of the Executive's Disability or due to the
death of the Executive) except for termination as described in Section 5(b)(i)
above, then the Executive or the Executive's estate, as the case may be, shall
be entitled to receive (i) severance pay in an amount equal to one-half (1/2) of
the Executive's Base Compensation for the year coinciding with the year of
termination plus her Current Bonus, (ii) in addition to Executive's stock
options that were exercisable immediately prior to such termination, the vesting
of additional options shall accelerate and become exercisable by the Executive
or the Executive's estate, as the case may be, as to that number of shares that
would have vested if the Executive had remained continuously employed for a
period of six (6) months following such termination (and if any of such options
vest on an annual basis, the appropriate credit shall be given as if the vesting
accrued monthly), and such options shall remain exercisable for the period
prescribed in Executive's stock option agreements, and (iii) the same level of
health (i.e., medical, vision and dental) coverage and benefits as in effect for
the Executive on the day immediately preceding the day of Executive's
termination of employment; provided, however, that (i) the Executive constitutes
a qualified beneficiary, as defined in Section 4980B(g)(1) of the Internal
Revenue Code of 1986, as amended (the "Code"); and (ii) Executive elects
continuation coverage pursuant to the Consolidated Omnibus Budget Reconciliation
Act of 1985, as amended ("COBRA"), within the time period prescribed pursuant to
COBRA. The Company shall continue to provide
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Executive with health coverage until the earlier to occur of (i) the date
Executive is no longer eligible to receive continuation coverage pursuant to
COBRA, or (ii) eighteen (18) months from the termination date. In addition to
the foregoing, Executive shall also be paid such other benefits (if any) as may
then be established under the Company's then existing benefit plans at the time
of such termination. Any severance payments except for the Current Bonus to
which the Executive is entitled pursuant to this Section shall be paid in a lump
sum within thirty (30) days of the Executive's termination. The Current Bonus to
which the Executive is entitled pursuant to this Section shall be paid in a lump
sum within thirty (30) days of the date that the Company's audit is complete for
such year.
(c) Options. Subject to Section 7 hereof, upon a Change of
Control, the unvested portion of any stock option held by the Executive shall
automatically be accelerated and the Executive or the Executive's
representative, as the case may be, shall have the right to exercise all or any
portion of such stock option, in addition to any portion of the option
exercisable prior to the Change of Control and in accordance with the
Executive's stock option agreement.
6. Definition of Terms. The following terms referred to in this
Agreement shall have the following meanings:
(a) Cause. "Cause" shall mean (i) any act of personal
dishonesty taken by the Executive in connection with her responsibilities as an
employee and intended to result in substantial personal enrichment of the
Executive, (ii) committing a felony or an act of fraud against the Company or
its affiliates, and (iii) acts by the Executive which constitute gross
misconduct, are injurious to the Company, and which are demonstrably willful and
deliberate on the Executive's part after there has been delivered to the
Executive a written demand of cessation of such acts from the Company which
describes the basis for the Company's belief that the Executive has engaged or
committed such acts.
(b) Change of Control. "Change of Control" shall mean the
occurrence of any of the following events:
(i) Any "person" (as such term is used in Sections
13(d) and 14(d) of the Securities Exchange Act of 1934, as amended) becomes the
"beneficial owner" (as defined in Rule 13d-3 under said Act), directly or
indirectly, of securities of the Company representing fifty percent (50%) or
more of the total voting power represented by the Company's then outstanding
voting securities; or
(ii) A change in the composition of the Board of
Directors of the Company occurring within a two-year period, as a result of
which fewer than a majority of the directors are Incumbent Directors. "Incumbent
Directors" shall mean directors who either (A) are directors of the Company as
of the date hereof, or (B) are elected, or nominated for election, to the Board
of Directors of the Company with the affirmative votes of at least a majority of
the Incumbent Directors at the time of such election or nomination (but shall
not include an individual whose election or nomination is in connection with an
actual or threatened proxy contest relating to the election of directors to the
Company); or
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(iii) A merger or consolidation of the Company with
any other corporation, other than a merger or consolidation which would result
in the voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity) at least sixty percent (60%) of
the total voting power represented by the voting securities of the Company or
such surviving entity outstanding immediately after such merger or
consolidation.
(c) Involuntary or Constructive Termination. "Involuntary or
Constructive Termination" shall mean (i) without the Executive's express written
consent, the assignment to the Executive of any duties or the significant
reduction of the Executive's duties, either of which is inconsistent with the
Executive's position with the Company and responsibilities in effect immediately
prior to such assignment, or the removal of the Executive from such position and
responsibilities; (ii) without the Executive's express written consent, a
substantial reduction, without good business reasons, of the facilities and
perquisites (including office space and location) available to the Executive
immediately prior to such reduction; (iii) a reduction by the Company in the
Base Compensation of the Executive as in effect immediately prior to such
reduction; (iv) a material reduction by the Company in the kind or level of
employee benefits to which the Executive is entitled immediately prior to such
reduction with the result that the Executive's overall benefits package is
significantly reduced; (v) the relocation of the Executive to a facility or a
location more than 30 miles from the Executive's then present location, without
the Executive's express written consent; (vi) any purported termination of the
Executive by the Company which is not effected for Disability or for Cause, or
any purported termination for which the grounds relied upon are not valid; or
(vii) the failure of the Company to obtain the assumption of this agreement by
any successors contemplated in Section 8 below.
(d) Disability. "Disability" shall mean that the Executive has
been unable to perform her duties under this Agreement as the result of her
incapacity due to physical or mental illness, and such inability, at least 26
weeks after its commencement, is determined to be total and permanent by a
physician selected by the Company or its insurers and acceptable to the
Executive or the Executive's legal representative (such agreement as to
acceptability not to be unreasonably withheld). Termination resulting from
Disability may only be effected after at least 30 days' written notice by the
Company of its intention to terminate the Executive's employment. In the event
that the Executive resumes the performance of substantially all of her duties
hereunder before the termination of her employment becomes effective, the notice
of intent to terminate shall automatically be deemed to have been revoked.
7. Limitation on Payments. In the event that the severance and other
benefits provided for in this Agreement or otherwise payable to the Executive
(i) constitute "parachute payments" within the meaning of Section 280G of the
Code, and (ii) would be subject to the excise tax imposed by Section 4999 of the
Code (the "Excise Tax"), then Executive's benefits under this Agreement shall be
either:
(i) delivered in full, or
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(ii) delivered as to such lesser extent which would result in
no portion of such benefits being subject to the Excise Tax,
whichever of the foregoing amounts, taking into account the
applicable federal, state and local income taxes and the Excise Tax, results in
the receipt by Executive on an after-tax basis, of the greatest amount of
benefits, notwithstanding that all or some portion of such benefits may be
taxable under Section 4999 of the Code.
Unless the Company and the Executive otherwise agree in writing, any
determination required under this Section 7(a) shall be made in writing in good
faith by the accounting firm serving as the Company's independent public
accountants immediately prior to the Change of Control (the "Accountants"). In
the event of a reduction in benefits hereunder, the Executive shall be given the
choice of which benefits to reduce. For purposes of making the calculations
required by this Section 7(a), the Accountants may make reasonable assumptions
and approximations concerning applicable taxes and may rely on reasonable, good
faith interpretations concerning the application of the Code. The Company and
the Executive shall furnish to the Accountants such information and documents as
the Accountants may reasonably request in order to make a determination under
this Section. The Company shall bear all costs the Accountants may reasonably
incur in connection with any calculations contemplated by this Section 7(a).
8. Successors.
(a) Company's Successors. Any successor to the Company
(whether direct or indirect and whether by purchase, lease, merger,
consolidation, liquidation or otherwise) to all or substantially all of the
Company's business and assets shall assume the obligations under this Agreement
and agree expressly to perform the obligations under this Agreement in the same
manner and to the same extent as the Company would be required to perform such
obligations in the absence of a succession. For all purposes under this
Agreement, the term "Company" shall include any successor to the Company's
business and assets which executes and delivers the assumption agreement
described in this subsection (a) or which becomes bound by the terms of this
Agreement by operation of law.
(b) Executive's Successors. The terms of this Agreement and
ail rights of the Executive hereunder shall inure to the benefit of, and be
enforceable by, the Executive's personal or legal representatives, executors,
administrators, successors, heirs, devisees and legatees.
9. Notice.
(a) General. Notices and all other communications contemplated
by this Agreement shall be in writing and shall be deemed to have been duly
given when personally delivered or when mailed by U.S. registered or certified
mail, return receipt requested and postage prepaid. In the case of the
Executive, mailed notices shall be addressed to her at the home address which he
most recently communicated to the Company in writing. In the case of the
Company, mailed notices shall be addressed to its corporate headquarters, and
ail notices shall be directed to the attention of its Secretary.
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(b) Notice of Termination. Any termination by the Company
shall be communicated by a notice of termination to the other party hereto given
in accordance with Section 9 of this Agreement. Such notice shall indicate the
specific termination provision in this Agreement relied upon, shall set forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination under the provision so indicated, and shall specify the termination
date (which shall be not more than 15 days after the giving of such notice). The
failure by the Executive to include in the notice any fact or circumstance which
contributes to a showing of Involuntary or Constructive Termination shall not
waive any right of the Executive hereunder or preclude the Executive from
asserting such fact or circumstance in enforcing her rights hereunder.
10. Arbitration.
(a) Any dispute or controversy arising out of, relating to, or
in connection with this Agreement, or the interpretation, validity,
construction, performance, breach, or termination thereof, shall be settled by
binding arbitration to be held in California, in accordance with the National
Rules for the Resolution of Employment Disputes then in effect of the American
Arbitration Association (the "Rules"). The arbitrator may grant injunctions or
other relief in such dispute or controversy. The decision of the arbitrator
shall be final, conclusive and binding on the parties to the arbitration.
Judgment may be entered on the arbitrator's decision in any court having
jurisdiction.
(b) The arbitrator(s) shall apply California law to the merits
of any dispute or claim, without reference to conflicts of law rules. The
arbitration proceedings shall be governed by federal arbitration law and by the
Rules, without reference to state arbitration law. Executive hereby consents to
the personal jurisdiction of the state and federal courts located in California
for any action or proceeding arising from or relating to this Agreement or
relating to any arbitration in which the parties are participants.
(c) Executive understands that nothing in this Section
modifies Executive's at-will employment status. Either Executive or the Company
can terminate the employment relationship at any time, with or without Cause.
(d) EXECUTIVE HAS READ AND UNDERSTANDS THIS SECTION, WHICH
DISCUSSES ARBITRATION. EXECUTIVE UNDERSTANDS THAT SUBMITTING ANY CLAIMS ARISING
OUT OF, RELATING TO, OR IN CONNECTION WITH THIS AGREEMENT, OR THE
INTERPRETATION, VALIDITY, CONSTRUCTION, PERFORMANCE, BREACH OR TERMINATION
THEREOF TO BINDING ARBITRATION, CONSTITUTES A WAIVER OF EMPLOYEE'S RIGHT TO A
JURY TRIAL AND RELATES TO THE RESOLUTION OF ALL DISPUTES RELATING TO ALL ASPECTS
OF THE EMPLOYER/EMPLOYEE RELATIONSHIP, INCLUDING BUT NOT LIMITED TO, THE
FOLLOWING CLAIMS:
(i) ANY AND ALL CLAIMS FOR WRONGFUL DISCHARGE OF
EMPLOYMENT; BREACH OF CONTRACT, BOTH EXPRESS AND IMPLIED; BREACH OF THE COVENANT
OF GOOD FAITH AND FAIR DEALING, BOTH EXPRESS AND IMPLIED;
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NEGLIGENT OR INTENTIONAL INFLICTION OF EMOTIONAL DISTRESS; NEGLIGENT OR
INTENTIONAL MISREPRESENTATION; NEGLIGENT OR INTENTIONAL INTERFERENCE WITH
CONTRACT OR PROSPECTIVE ECONOMIC ADVANTAGE; AND DEFAMATION;
(ii) ANY AND ALL CLAIMS FOR VIOLATION OF ANY FEDERAL
STATE OR MUNICIPAL STATUTE, INCLUDING, BUT NOT LIMITED TO, TITLE VII OF THE
CIVIL RIGHTS ACT OF 1964, THE CIVIL RIGHTS ACT OF 1991, THE AGE DISCRIMINATION
IN EMPLOYMENT ACT OF 1967, THE AMERICANS WITH DISABILITIES ACT OF 1990, THE FAIR
LABOR STANDARDS ACT, THE CALIFORNIA FAIR EMPLOYMENT AND HOUSING ACT, AND LABOR
CODE SECTION 201, et seq;
(iii) ANY AND ALL CLAIMS ARISING OUT OF ANY OTHER
LAWS AND REGULATIONS RELATING TO EMPLOYMENT OR EMPLOYMENT DISCRIMINATION.
11. Miscellaneous Provisions.
(a) No Duty to Mitigate. The Executive shall not be required
to mitigate the amount of any payment contemplated by this Agreement (whether by
seeking new employment or in any other manner), nor shall any such payment be
reduced by any earnings that the Executive may receive from any other source.
(b) Waiver. No provision of this Agreement shall be modified,
waived or discharged unless the modification, waiver or discharge is agreed to
in writing and signed by the Executive and by an authorized officer of the
Company (other than the Executive). No waiver by either party of any breach of,
or of compliance with, any condition or provision of this Agreement by the other
party shall be considered a waiver of any other condition or provision or of the
same condition or provision at another time.
(c) Whole Agreement. No agreements, representations or
understandings (whether oral or written and whether express or implied) which
are not expressly set forth in this Agreement have been made or entered into by
either party with respect to the subject matter hereof.
(d) Choice of Law. The validity, interpretation, construction
and performance of this Agreement shall be governed by the laws of the State of
California.
(e) Severability. The invalidity or unenforceability of any
provision or provisions of this Agreement shall not affect the validity or
enforceability of any other provision hereof, which shall remain in full force
and effect.
(f) No Assignment of Benefits. The rights of any person to
payments or benefits under this Agreement shall not be made subject to option or
assignment, either by voluntary or involuntary assignment or by operation of
taw, including (without limitation) bankruptcy, garnishment, attachment or other
creditor's process, and any action in violation of this subsection (f) shall be
void.
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(g) Employment Taxes. All payments made pursuant to this
Agreement will be subject to withholding of applicable income and employment
taxes.
(h) Assignment by Company. The Company may assign its rights
under this Agreement to an affiliate, and an affiliate may assign its rights
under this Agreement to another affiliate of the Company or to the Company;
provided, however, that no assignment shall be made if the net worth of the
assignee is less than the net worth of the Company at the time of assignment. In
the case of any such assignment, the term "Company" when used in a Section of
this Agreement shall mean the corporation that actually employs the Executive.
(i) Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of which
together will constitute one and the same instrument.
IN WITNESS WHEREOF, each of the parties has executed this
Agreement, in the case of the Company by its duly authorized officer, as of the
day and year first above written.
ELECTRONICS FOR IMAGING, INC. EXECUTIVE:
/s/ Guy Gecht /s/ Jan Smith
- ------------------------------------ ---------------------------
Chief Executive Officer Jan Smith
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Exhibit 10.18
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is made and entered into
effective as of March 8, 2000, by and between Guy Gecht (the "Executive") and
Electronics for Imaging, Inc., a Delaware corporation (the "Company").
RECITALS
A. It is expected that the Company from time to time will consider the
possibility of an acquisition by another company or other change of control. The
Board of Directors of the Company (the "Board") recognizes that such
consideration can be a distraction to the Executive and can cause the Executive
to consider alternative employment opportunities. The Board has determined that
it is in the best interests of the Company and its stockholders to assure that
the Company will have the continued dedication and objectivity of the Executive,
notwithstanding the possibility, threat or occurrence of a Change of Control (as
defined below) of the Company.
B. The Board believes that it is in the best interests of the Company
and its stockholders to provide the Executive with an incentive to continue his
employment and to motivate the Executive to maximize the value of the Company
upon a Change of Control for the benefit of its stockholders.
C. The Board believes that it is imperative to provide the Executive
with certain benefits upon a Change of Control and, under certain circumstances,
upon termination of the Executive's full-time employment in connection with a
Change of Control, which benefits are intended to provide the Executive with
financial security and provide sufficient incentive and encouragement to the
Executive to remain with the Company notwithstanding the possibility of a Change
of Control.
D. Further, the Board believes that it is in the best interest of the
Company and its stockholders to provide additional benefits to the Executive in
the event the Executive's employment terminates for any reason other than a
Change in Control. Such benefits are intended to provide the Executive with
financial security and provide sufficient incentive and encouragement to the
Executive to remain with the Company notwithstanding the possible termination of
employment.
E. To accomplish the foregoing objectives, the Board of Directors has
directed the Company, upon execution of this Agreement by the Executive, to
agree to the terms provided herein.
F. Certain capitalized terms used in the Agreement are defined in
Section 6 below.
In consideration of the mutual covenants herein contained, and in
consideration of the continuing employment of the Executive by the Company, the
parties agree as follows:
<PAGE>
1. Duties and Scope of Employment.
(a) Position. The Company shall employ the Executive in the
position of Chief Executive Officer, as such position is defined in terms of
responsibilities and compensation as of the effective date of this Agreement;
provided, however, that the Board of Directors by mutual agreement with the
Executive shall have the right, at any time prior to the occurrence of a Change
of Control, to revise such responsibilities and compensation. The Executive
shall continue to devote his full business efforts and time to the Company and
its subsidiaries. The Executive shall comply with and be bound by the Company's
operating policies, procedures and practices from time to time in effect during
his employment. During the term of the Executive's employment with the Company,
the Executive shall devote his full-time, skill and attention to his duties and
responsibilities, and shall perform them faithfully, diligently and competently,
and the Executive shall use his best efforts to further the business of the
Company and its affiliated entities. Subject to the Executive's fiduciary duties
to the Company, this Agreement shall not prohibit the Executive from serving on
the board of directors or any advisory board of other companies.
2. Base Compensation.
(a) Annual Salary. The Company shall pay the Executive as
compensation for his services a base salary at an annualized rate that is not
less than his base salary as of the effective date of this Agreement (the
"Annual Salary"). The Annual Salary may be subject to annual increases as the
Board may authorize from time to time in connection with Executive's annual
review. The Annual Salary shall be paid periodically in accordance with normal
Company payroll procedures. The Annual Salary (together with bonus amounts as
specified in Section 2), and any increases in such compensation that the Board
of Directors may grant from time to time, is referred to in this Agreement as
"Base Compensation."
(b) Bonus. In addition to the Annual Salary, the Executive
will be eligible to receive an annual bonus under the Company's Executive Bonus
Plan as determined by the Board in its discretion.
3. Executive Benefits. The Executive shall be eligible to participate
in the employee benefit plans and executive compensation programs maintained by
the Company applicable to other key executives of the Company, including
(without limitation) retirement plans, savings or profit-sharing plans, stock
option, incentive or other bonus plans, life, disability, health, accident and
other insurance programs, paid vacations, and similar plans or programs, subject
in each case to the generally applicable terms and conditions of the applicable
plan or program in question and to the determination of any committee
administering such plan or program. In addition, the Executive shall continue to
be entitled to receive any other benefits currently received by the Executive
such as automobile and car phone allowance benefits.
4. At-Will Employment. The Company and the Executive acknowledge that
the Executive's employment is and shall continue to be at-will, as defined under
applicable law. If the Executive's employment terminates for any reason,
including, without limitation, any termination prior to and not in connection
with a Change of Control, the Executive shall not be entitled to any
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payments, benefits, damages, awards or compensation other than as provided by
this Agreement, or as may otherwise be available in accordance with the
Company's established employee plans and policies at the time of termination.
The terms of this Agreement shall terminate upon the earlier of (i) the date
that all obligations of the parties hereunder have been satisfied, or (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. A termination of the terms of this Agreement pursuant to the
preceding sentence shall be effective for all purposes, except that such
termination shall not affect the payment or provision of compensation or
benefits on account of a termination of employment occurring prior to the
termination of the terms of this Agreement.
5. Severance Benefits.
(a) Termination in Connection with a Change of Control.
Subject to Section 7 below, if the Company terminates the Executive's employment
at any time during the period beginning upon the earlier to occur of (i) the
execution of a binding letter of intent regarding a Change of Control, and (ii)
ninety (90) days before a Change of Control, and ending eighteen (18) months
after a Change of Control, and the Executive signs and does not revoke a
standard release of claims with the Company attached hereto as Exhibit A, then
the Executive shall be entitled to receive severance benefits as follows:
(i) Involuntary or Constructive Termination. If the
Executive's employment terminates as a result of Involuntary or Constructive
Termination other than for Cause, then the Executive shall be entitled to
receive severance pay in an amount equal to two (2) times the Executive's Base
Compensation for the year coinciding with the year of termination, plus an
amount equal to the bonus the Executive would have earned had he been employed
by the Company at the end of such year multiplied by a fraction (x) the
numerator of which is the number of completed months in that year, and (y) the
denominator of which is twelve (12) (the "Current Bonus"). Any severance
payments except for the Current Bonus to which the Executive is entitled
pursuant to this Section shall be paid in a lump sum within thirty (30) days of
the Executive's termination. The Current Bonus to which the Executive is
entitled pursuant to this Section shall be paid in a lump sum within thirty (30)
days of the date that the Company's audit is complete for such year.
(ii) Voluntary Resignation; Termination For Cause. If
the Executive voluntarily resigns from the Company (other than as an Involuntary
or Constructive Termination described in subsection 5(a)(i)), or if the Company
terminates the Executive's employment for Cause, then the Executive shall not be
entitled to receive severance or other benefits except for those (if any) as may
then be established under the Company's then existing benefit plans at the time
of such termination.
(iii) Disability; Death. If the Company terminates
the Executive's employment as a result of the Executive's Disability, or such
Executive's employment is terminated due to the death of the Executive, then the
Executive or the Executive's estate, as the case may be, shall be entitled to
receive (i) severance pay in an amount equal to one-half (1/2) of the
Executive's Base Compensation for the year coinciding with the year of
termination plus his Current Bonus, (ii) in addition to the Executive's stock
options that were exercisable immediately prior to such
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termination, the vesting of additional options shall accelerate and become
exercisable as to that number of shares that would have vested if the Executive
had remained continuously employed for a period of six (6) months following such
termination (and if any of such options vest on an annual basis, the appropriate
credit shall be given as if the vesting accrued monthly), and such options shall
remain exercisable for the period prescribed in Executive's stock option
agreements, and (iii) such other benefits (if any) as may then be established
under the Company's then existing benefit plans at the time of such Disability
or death. Any severance payments except for the Current Bonus to which the
Executive is entitled pursuant to this Section shall be paid in a lump sum
within thirty (30) days of the Executive's termination. The Current Bonus to
which the Executive is entitled pursuant to this Section shall be paid in a lump
sum within thirty (30) days of the date that the Company's audit is complete for
such year.
(b) Termination Apart from Change of Control. Subject to
Section 7 below, if the Company terminates the Executive's employment at any
time, either before the earlier to occur of (i) the execution of a binding
letter of intent regarding a Change of Control, and (ii) ninety (90) days before
a Change of Control, or after the 18-month period following a Change of Control,
and the Executive signs and does not revoke a standard release of claims with
the Company attached hereto as Exhibit A, then the Executive shall be entitled
to receive severance benefits as follows:
(i) Voluntary Resignation; Termination for Cause. If
the Executive voluntarily resigns from the Company (other than as an Involuntary
or Constructive Termination), or if the Company terminates the Executive's
employment for Cause, then the Executive shall be entitled to receive severance
and any other benefits only as may then be established under the Company's then
exiting benefit plans at the time of such termination.
(ii) Termination other than Voluntary Resignation or
Termination for Cause. In the event the Executive's employment is terminated for
any reason (including as a result of the Executive's Disability or due to the
death of the Executive) except for termination as described in Section 5(b)(i)
above, then the Executive or the Executive's estate, as the case may be, shall
be entitled to receive (i) severance pay in an amount equal to one-half (1/2) of
the Executive's Base Compensation for the year coinciding with the year of
termination plus his Current Bonus, (ii) in addition to Executive's stock
options that were exercisable immediately prior to such termination, the vesting
of additional options shall accelerate and become exercisable by the Executive
or the Executive's estate, as the case may be, as to that number of shares that
would have vested if the Executive had remained continuously employed for a
period of six (6) months following such termination (and if any of such options
vest on an annual basis, the appropriate credit shall be given as if the vesting
accrued monthly), and such options shall remain exercisable for the period
prescribed in Executive's stock option agreements, and (iii) the same level of
health (i.e., medical, vision and dental) coverage and benefits as in effect for
the Executive on the day immediately preceding the day of Executive's
termination of employment; provided, however, that (i) the Executive constitutes
a qualified beneficiary, as defined in Section 4980B(g)(1) of the Internal
Revenue Code of 1986, as amended (the "Code"); and (ii) Executive elects
continuation coverage pursuant to the Consolidated Omnibus Budget Reconciliation
Act of 1985, as amended ("COBRA"), within the time period prescribed pursuant to
COBRA. The Company shall continue to provide Executive with health coverage
until the earlier to occur of (i) the date Executive is no longer
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eligible to receive continuation coverage pursuant to COBRA, or (ii) eighteen
(18) months from the termination date. In addition to the foregoing, Executive
shall also be paid such other benefits (if any) as may then be established under
the Company's then existing benefit plans at the time of such termination. Any
severance payments except for the Current Bonus to which the Executive is
entitled pursuant to this Section shall be paid in a lump sum within thirty (30)
days of the Executive's termination. The Current Bonus to which the Executive is
entitled pursuant to this Section shall be paid in a lump sum within thirty (30)
days of the date that the Company's audit is complete for such year.
(c) Options. Subject to Section 7 hereof, upon a Change of
Control, the unvested portion of any stock option held by the Executive shall
automatically be accelerated and the Executive or the Executive's
representative, as the case may be, shall have the right to exercise all or any
portion of such stock option, in addition to any portion of the option
exercisable prior to the Change of Control and in accordance with the
Executive's stock option agreement.
6. Definition of Terms. The following terms referred to in this
Agreement shall have the following meanings:
(a) Cause. "Cause" shall mean (i) any act of personal
dishonesty taken by the Executive in connection with his responsibilities as an
employee and intended to result in substantial personal enrichment of the
Executive, (ii) committing a felony or an act of fraud against the Company or
its affiliates, and (iii) acts by the Executive which constitute gross
misconduct, are injurious to the Company, and which are demonstrably willful and
deliberate on the Executive's part after there has been delivered to the
Executive a written demand of cessation of such acts from the Company which
describes the basis for the Company's belief that the Executive has engaged or
committed such acts.
(b) Change of Control. "Change of Control" shall mean the
occurrence of any of the following events:
(i) Any "person" (as such term is used in Sections
13(d) and 14(d) of the Securities Exchange Act of 1934, as amended) becomes the
"beneficial owner" (as defined in Rule 13d-3 under said Act), directly or
indirectly, of securities of the Company representing fifty percent (50%) or
more of the total voting power represented by the Company's then outstanding
voting securities; or
(ii) A change in the composition of the Board of
Directors of the Company occurring within a two-year period, as a result of
which fewer than a majority of the directors are Incumbent Directors. "Incumbent
Directors" shall mean directors who either (A) are directors of the Company as
of the date hereof, or (B) are elected, or nominated for election, to the Board
of Directors of the Company with the affirmative votes of at least a majority of
the Incumbent Directors at the time of such election or nomination (but shall
not include an individual whose election or nomination is in connection with an
actual or threatened proxy contest relating to the election of directors to the
Company); or
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(iii) A merger or consolidation of the Company with
any other corporation, other than a merger or consolidation which would result
in the voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity) at least sixty percent (60%) of
the total voting power represented by the voting securities of the Company or
such surviving entity outstanding immediately after such merger or
consolidation.
(c) Involuntary or Constructive Termination. "Involuntary or
Constructive Termination" shall mean (i) without the Executive's express written
consent, the assignment to the Executive of any duties or the significant
reduction of the Executive's duties, either of which is inconsistent with the
Executive's position with the Company and responsibilities in effect immediately
prior to such assignment, or the removal of the Executive from such position and
responsibilities; (ii) without the Executive's express written consent, a
substantial reduction, without good business reasons, of the facilities and
perquisites (including office space and location) available to the Executive
immediately prior to such reduction; (iii) a reduction by the Company in the
Base Compensation of the Executive as in effect immediately prior to such
reduction; (iv) a material reduction by the Company in the kind or level of
employee benefits to which the Executive is entitled immediately prior to such
reduction with the result that the Executive's overall benefits package is
significantly reduced; (v) the relocation of the Executive to a facility or a
location more than 30 miles from the Executive's then present location, without
the Executive's express written consent; (vi) any purported termination of the
Executive by the Company which is not effected for Disability or for Cause, or
any purported termination for which the grounds relied upon are not valid; or
(vii) the failure of the Company to obtain the assumption of this agreement by
any successors contemplated in Section 8 below.
(d) Disability. "Disability" shall mean that the Executive has
been unable to perform his duties under this Agreement as the result of his
incapacity due to physical or mental illness, and such inability, at least 26
weeks after its commencement, is determined to be total and permanent by a
physician selected by the Company or its insurers and acceptable to the
Executive or the Executive's legal representative (such agreement as to
acceptability not to be unreasonably withheld). Termination resulting from
Disability may only be effected after at least 30 days' written notice by the
Company of its intention to terminate the Executive's employment. In the event
that the Executive resumes the performance of substantially all of his duties
hereunder before the termination of his employment becomes effective, the notice
of intent to terminate shall automatically be deemed to have been revoked.
7. Limitation on Payments. In the event that the severance and other
benefits provided for in this Agreement or otherwise payable to the Executive
(i) constitute "parachute payments" within the meaning of Section 280G of the
Code, and (ii) would be subject to the excise tax imposed by Section 4999 of the
Code (the "Excise Tax"), then Executive's benefits under this Agreement shall be
either:
(i) delivered in full, or
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<PAGE>
(ii) delivered as to such lesser extent which would result in
no portion of such benefits being subject to the Excise Tax,
whichever of the foregoing amounts, taking into account the
applicable federal, state and local income taxes and the Excise Tax, results in
the receipt by Executive on an after-tax basis, of the greatest amount of
benefits, notwithstanding that all or some portion of such benefits may be
taxable under Section 4999 of the Code.
Unless the Company and the Executive otherwise agree in writing, any
determination required under this Section 7(a) shall be made in writing in good
faith by the accounting firm serving as the Company's independent public
accountants immediately prior to the Change of Control (the "Accountants"). In
the event of a reduction in benefits hereunder, the Executive shall be given the
choice of which benefits to reduce. For purposes of making the calculations
required by this Section 7(a), the Accountants may make reasonable assumptions
and approximations concerning applicable taxes and may rely on reasonable, good
faith interpretations concerning the application of the Code. The Company and
the Executive shall furnish to the Accountants such information and documents as
the Accountants may reasonably request in order to make a determination under
this Section. The Company shall bear all costs the Accountants may reasonably
incur in connection with any calculations contemplated by this Section 7(a).
8. Successors.
(a) Company's Successors. Any successor to the Company
(whether direct or indirect and whether by purchase, lease, merger,
consolidation, liquidation or otherwise) to all or substantially all of the
Company's business and assets shall assume the obligations under this Agreement
and agree expressly to perform the obligations under this Agreement in the same
manner and to the same extent as the Company would be required to perform such
obligations in the absence of a succession. For all purposes under this
Agreement, the term "Company" shall include any successor to the Company's
business and assets which executes and delivers the assumption agreement
described in this subsection (a) or which becomes bound by the terms of this
Agreement by operation of law.
(b) Executive's Successors. The terms of this Agreement and
ail rights of the Executive hereunder shall inure to the benefit of, and be
enforceable by, the Executive's personal or legal representatives, executors,
administrators, successors, heirs, devisees and legatees.
9. Notice.
(a) General. Notices and all other communications contemplated
by this Agreement shall be in writing and shall be deemed to have been duly
given when personally delivered or when mailed by U.S. registered or certified
mail, return receipt requested and postage prepaid. In the case of the
Executive, mailed notices shall be addressed to him at the home address which he
most recently communicated to the Company in writing. In the case of the
Company, mailed notices shall be addressed to its corporate headquarters, and
ail notices shall be directed to the attention of its Secretary.
-7-
<PAGE>
(b) Notice of Termination. Any termination by the Company
shall be communicated by a notice of termination to the other party hereto given
in accordance with Section 9 of this Agreement. Such notice shall indicate the
specific termination provision in this Agreement relied upon, shall set forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination under the provision so indicated, and shall specify the termination
date (which shall be not more than 15 days after the giving of such notice). The
failure by the Executive to include in the notice any fact or circumstance which
contributes to a showing of Involuntary or Constructive Termination shall not
waive any right of the Executive hereunder or preclude the Executive from
asserting such fact or circumstance in enforcing his rights hereunder.
10. Arbitration.
(a) Any dispute or controversy arising out of, relating to, or
in connection with this Agreement, or the interpretation, validity,
construction, performance, breach, or termination thereof, shall be settled by
binding arbitration to be held in California, in accordance with the National
Rules for the Resolution of Employment Disputes then in effect of the American
Arbitration Association (the "Rules"). The arbitrator may grant injunctions or
other relief in such dispute or controversy. The decision of the arbitrator
shall be final, conclusive and binding on the parties to the arbitration.
Judgment may be entered on the arbitrator's decision in any court having
jurisdiction.
(b) The arbitrator(s) shall apply California law to the merits
of any dispute or claim, without reference to conflicts of law rules. The
arbitration proceedings shall be governed by federal arbitration law and by the
Rules, without reference to state arbitration law. Executive hereby consents to
the personal jurisdiction of the state and federal courts located in California
for any action or proceeding arising from or relating to this Agreement or
relating to any arbitration in which the parties are participants.
(c) Executive understands that nothing in this Section
modifies Executive's at-will employment status. Either Executive or the Company
can terminate the employment relationship at any time, with or without Cause.
(d) EXECUTIVE HAS READ AND UNDERSTANDS THIS SECTION, WHICH
DISCUSSES ARBITRATION. EXECUTIVE UNDERSTANDS THAT SUBMITTING ANY CLAIMS ARISING
OUT OF, RELATING TO, OR IN CONNECTION WITH THIS AGREEMENT, OR THE
INTERPRETATION, VALIDITY, CONSTRUCTION, PERFORMANCE, BREACH OR TERMINATION
THEREOF TO BINDING ARBITRATION, CONSTITUTES A WAIVER OF EMPLOYEE'S RIGHT TO A
JURY TRIAL AND RELATES TO THE RESOLUTION OF ALL DISPUTES RELATING TO ALL ASPECTS
OF THE EMPLOYER/EMPLOYEE RELATIONSHIP, INCLUDING BUT NOT LIMITED TO, THE
FOLLOWING CLAIMS:
(i) ANY AND ALL CLAIMS FOR WRONGFUL DISCHARGE OF
EMPLOYMENT; BREACH OF CONTRACT, BOTH EXPRESS AND IMPLIED; BREACH OF THE COVENANT
OF GOOD FAITH AND FAIR DEALING, BOTH EXPRESS AND IMPLIED;
-8-
<PAGE>
NEGLIGENT OR INTENTIONAL INFLICTION OF EMOTIONAL DISTRESS; NEGLIGENT OR
INTENTIONAL MISREPRESENTATION; NEGLIGENT OR INTENTIONAL INTERFERENCE WITH
CONTRACT OR PROSPECTIVE ECONOMIC ADVANTAGE; AND DEFAMATION;
(ii) ANY AND ALL CLAIMS FOR VIOLATION OF ANY FEDERAL
STATE OR MUNICIPAL STATUTE, INCLUDING, BUT NOT LIMITED TO, TITLE VII OF THE
CIVIL RIGHTS ACT OF 1964, THE CIVIL RIGHTS ACT OF 1991, THE AGE DISCRIMINATION
IN EMPLOYMENT ACT OF 1967, THE AMERICANS WITH DISABILITIES ACT OF 1990, THE FAIR
LABOR STANDARDS ACT, THE CALIFORNIA FAIR EMPLOYMENT AND HOUSING ACT, AND LABOR
CODE SECTION 201, et seq;
(iii) ANY AND ALL CLAIMS ARISING OUT OF ANY OTHER
LAWS AND REGULATIONS RELATING TO EMPLOYMENT OR EMPLOYMENT DISCRIMINATION.
11. Miscellaneous Provisions.
(a) No Duty to Mitigate. The Executive shall not be required
to mitigate the amount of any payment contemplated by this Agreement (whether by
seeking new employment or in any other manner), nor shall any such payment be
reduced by any earnings that the Executive may receive from any other source.
(b) Waiver. No provision of this Agreement shall be modified,
waived or discharged unless the modification, waiver or discharge is agreed to
in writing and signed by the Executive and by an authorized officer of the
Company (other than the Executive). No waiver by either party of any breach of,
or of compliance with, any condition or provision of this Agreement by the other
party shall be considered a waiver of any other condition or provision or of the
same condition or provision at another time.
(c) Whole Agreement. No agreements, representations or
understandings (whether oral or written and whether express or implied) which
are not expressly set forth in this Agreement have been made or entered into by
either party with respect to the subject matter hereof.
(d) Choice of Law. The validity, interpretation, construction
and performance of this Agreement shall be governed by the laws of the State of
California.
(e) Severability. The invalidity or unenforceability of any
provision or provisions of this Agreement shall not affect the validity or
enforceability of any other provision hereof, which shall remain in full force
and effect.
(f) No Assignment of Benefits. The rights of any person to
payments or benefits under this Agreement shall not be made subject to option or
assignment, either by voluntary or involuntary assignment or by operation of
taw, including (without limitation) bankruptcy, garnishment, attachment or other
creditor's process, and any action in violation of this subsection (f) shall be
void.
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<PAGE>
(g) Employment Taxes. All payments made pursuant to this
Agreement will be subject to withholding of applicable income and employment
taxes.
(h) Assignment by Company. The Company may assign its rights
under this Agreement to an affiliate, and an affiliate may assign its rights
under this Agreement to another affiliate of the Company or to the Company;
provided, however, that no assignment shall be made if the net worth of the
assignee is less than the net worth of the Company at the time of assignment. In
the case of any such assignment, the term "Company" when used in a Section of
this Agreement shall mean the corporation that actually employs the Executive.
(i) Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of which
together will constitute one and the same instrument.
IN WITNESS WHEREOF, each of the parties has executed this
Agreement, in the case of the Company by its duly authorized officer, as of the
day and year first above written.
ELECTRONICS FOR IMAGING, INC. EXECUTIVE:
/s/ Dan Avida /s/ Guy Gecht
- ------------------------------- ---------------------------
Chairman of the Board Guy Gecht
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Exhibit 10.20
EXECUTION COPY
MASTER LEASE
THIS DOCUMENT SECURES FUTURE ADVANCES
Dated as of December 29, 1999
between
ELECTRONICS FOR IMAGING, INC.,
as the Lessee,
and
SOCIETE GENERALE FINANCIAL CORPORATION,
as the Lessor.
This Master Lease is subject to a lien in favor of the Lender under the
Loan Agreement. This Master Lease has been executed in several counterparts. To
the extent, if any, that this Master Lease constitutes chattel paper (as such
term is defined in the Uniform Commercial Code as in effect in any applicable
jurisdiction), no lien on this Master Lease may be created through the transfer
or possession of any counterpart other than the original counterpart containing
the receipt therefor executed by SOCIETE GENERALE, acting through its New York
Branch, as the Lender, on or following the signature page hereof.
This counterpart is not the original counterpart.
<PAGE>
<TABLE>
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS
<CAPTION>
<S> <C> <C>
1.1 Definitions; Interpretation.........................................................................1
ARTICLE II
MASTER LEASE
2.1 Acceptance and Lease of Property....................................................................2
2.2 Acceptance Procedure................................................................................2
2.3 Lease Term..........................................................................................2
2.4 Title...............................................................................................2
ARTICLE III
PAYMENT OF RENT
3.1 Rent................................................................................................3
3.2 Payment of Rent.....................................................................................3
3.3 Supplemental Rent...................................................................................3
3.4 Method of Payment...................................................................................3
3.5 Certain Payments....................................................................................4
ARTICLE IV
QUIET ENJOYMENT; RIGHT TO INSPECT
4.1 Quiet Enjoyment.....................................................................................4
4.2 Right to Inspect....................................................................................4
ARTICLE V
NET LEASE, ETC.
5.1 Net Lease...........................................................................................4
5.2 No Termination or Abatement.........................................................................5
ARTICLE VI
SUBLEASES
6.1 Subletting..........................................................................................6
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ARTICLE VII
LESSEE ACKNOWLEDGMENTS
7.1 Condition of the Properties.........................................................................7
7.2 Risk of Loss........................................................................................7
ARTICLE VIII
POSSESSION AND USE OF THE PROPERTIES, ETC.
8.1 Utility Charges.....................................................................................8
8.2 Possession and Use of the Property..................................................................8
8.3 Compliance with Requirements of Laws and Insurance Requirements.....................................8
8.4 Assignment by Lessee................................................................................8
ARTICLE IX
MAINTENANCE AND REPAIR; RETURN
9.1 Maintenance and Repair; Return.....................................................................9
ARTICLE X
MODIFICATIONS, ETC.
10.1 Modifications, Substitutions and Replacements......................................................10
ARTICLE XI
WARRANT OF TITLE; EASEMENTS
11.1 Warrant of Title...................................................................................11
11.2 Grants and Releases of Easements; Lessor's Waivers.................................................11
ARTICLE XII
PERMITTED CONTESTS
12.1 Permitted Contests in Respect of Applicable Law Other Than Impositions.............................13
ARTICLE XIII
INSURANCE
13.1 Public Liability and Workers' Compensation Insurance...............................................13
ARTICLE XIV
CASUALTY AND CONDEMNATION; ENVIRONMENTAL MATTERS
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14.1 Casualty and Condemnation..........................................................................14
14.2 Environmental Matters..............................................................................16
14.3 Notice of Environmental Matters....................................................................17
ARTICLE XV
TERMINATION OF LEASE
15.1 Partial Termination upon Certain Events............................................................17
15.2 Termination Procedures.............................................................................18
ARTICLE XVI
EVENTS OF DEFAULT
16.1 Lease Events of Default............................................................................18
16.2 Remedies...........................................................................................21
16.3 Waiver of Certain Rights...........................................................................26
ARTICLE XVII
LESSOR'S RIGHT TO CURE
17.1 The Lessor's Right to Cure the Lessee's Lease Defaults.............................................26
ARTICLE XVIII
PURCHASE PROVISIONS
18.1 Purchase of the Properties.........................................................................27
ARTICLE XIX
EXTENSION OF EXPIRATION DATE
19.1 Extension of Expiration Date.......................................................................28
ARTICLE XX
REMARKETING OPTION
20.1 Option to Remarket.................................................................................28
20.2 Certain Obligations Continue.......................................................................31
ARTICLE XXI
PROCEDURES RELATING TO PURCHASE OR REMARKETING
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21.1 Provisions Relating to the Exercise of Purchase Option or Obligation and
Conveyance Upon Remarketing and Conveyance Upon Certain Other
Events...........................................................................................31
ARTICLE XXII
ESTOPPEL CERTIFICATES
22.1 Estoppel Certificates..............................................................................32
ARTICLE XXIII
ACCEPTANCE OF SURRENDER
23.1 Acceptance of Surrender............................................................................32
ARTICLE XXIV
NO MERGER OF TITLE
24.1 No Merger of Title.................................................................................33
ARTICLE XXV
INTENT OF THE PARTIES
25.1 Nature of Transaction..............................................................................33
ARTICLE XXVI
MISCELLANEOUS
26.1 Survival; Severability; Etc........................................................................34
26.2 Amendments and Modifications.......................................................................34
26.3 No Waiver..........................................................................................34
26.4 Notices............................................................................................35
26.5 Successors and Assigns.............................................................................35
26.6 Headings and Table of Contents.....................................................................35
26.7 Counterparts.......................................................................................35
26.8 GOVERNING LAW......................................................................................35
26.9 Liability Limited..................................................................................35
26.10 Original Lease.....................................................................................36
</TABLE>
iv
<PAGE>
MASTER LEASE
THIS DOCUMENT SECURES FUTURE ADVANCES
THIS MASTER LEASE (this "Master Lease"), dated as of December 29, 1999,
between SOCIETE GENERALE FINANCIAL CORPORATION, a Delaware corporation, as
Lessor (in such capacity, the "Lessor") and ELECTRONICS FOR IMAGING, INC., a
Delaware corporation, as Lessee (in such capacity, the "Lessee").
W I T N E S S E T H:
WHEREAS, pursuant to the Participation Agreement dated as of the date
hereof (as amended, modified, restated or supplemented from time to time, the
"Participation Agreement"), among the Lessee, as Lessee and Construction Agent,
the Lessor and Societe Generale, acting through its New York Branch, as Lender
(the "Lender") under the Loan Agreement, the Lender and the Lessor have agreed
to finance the Construction of Improvements on the Properties;
WHEREAS, the Lessor, on each Funding Date, will finance the
Construction of Improvements on the Properties;
WHEREAS, the Lessee, as Construction Agent for the Lessor, will cause
the Construction of said Improvements to be effected on the Properties;
WHEREAS, the Lessor desires to lease to the Lessee, and the Lessee
desires to lease from the Lessor, the Lessor's interest in the Land and the
Improvements constructed thereon; and
WHEREAS, each Property will be subject to the terms of this Master
Lease;
NOW, THEREFORE, in consideration of the foregoing, and of other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
I.1 Definitions; Interpretation. Capitalized terms used but not
otherwise defined in this Master Lease have the respective meanings specified in
Appendix A to this Master Lease (as the same may be amended, supplemented,
amended and restated or otherwise modified from time to
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<PAGE>
time, "Appendix A to this Master Lease"); and the rules of interpretation set
forth in Appendix A to this Master Lease shall apply to this Master Lease.
ARTICLE II
MASTER LEASE
II.1 Acceptance and Lease of Property. Subject to the conditions set
forth in the Participation Agreement, including without limitation the
satisfaction or waiver of the conditions set forth in Article VI thereof, the
Lessor hereby covenants and agrees to acquire a leasehold interest in and
simultaneously to lease to the Lessee hereunder and under the Lease Supplements
for the Lease Term, the Lessor's interest in the Land together with any
Improvements which thereafter may be constructed on such Land pursuant to the
Construction Agency Agreement or this Master Lease, and the Lessee hereby
agrees, expressly for the direct benefit of the Lessor, to lease from the Lessor
for the Lease Term, the Lessor's interest in such Parcels of Land and in such
Improvements together with any Improvements so acquired by Lessor, which
thereafter may be constructed on such Land pursuant to the Construction Agency
Agreement and this Master Lease.
II.2 Acceptance Procedure. The Lessee hereby agrees that the execution
and delivery by the Lessee on each applicable Funding Date of an appropriately
completed Lease Supplement in the form of Exhibit A-1 hereto covering any
Property shall, without further act, constitute the acceptance by the Lessee of
the Property which is the subject of such Lease Supplement for all purposes of
this Master Lease and the other Operative Documents on the terms set forth
therein and herein.
II.3 Lease Term. Unless otherwise specified in the Lease Supplement,
the Basic Lease Term (the "Basic Lease Term") of this Master Lease with respect
to any Property shall begin on the Completion Date for such Property and shall
end on the Expiration Date. In the event the Basic Lease Term commences on any
day other than the day following the last day of the then effective Interest
Period, the Lessee shall pay any Break Costs associated with the early
termination of the Interest Period.
II.4 Title. Each Property is leased to the Lessee without any
representation or warranty, express or implied, by the Lessor and subject to the
rights of parties in possession, the existing state of title (including, without
limitation, all Liens other than Lessor Liens) and all applicable Requirements
of Law. The Lessee shall in no event have any recourse against the Lessor for
any defect in or exception to title to any Property other than resulting from
Lessor Liens.
2
<PAGE>
ARTICLE III
PAYMENT OF RENT
III.1 Rent.
(a) During the Basic Lease Term for a Property, the Lessee
shall pay Basic Rent for such Property to the Lessor on each Basic Rent
Payment Date, on the date required under Section 20.1(g) in connection
with the Lessee's exercise of the Remarketing Option and on any date on
which this Master Lease shall terminate with respect to such Property.
At least 10 days prior to each Basic Rent Payment Date, the Lessor
shall deliver to the Lessee a notice of the amount of the Basic Rent
due on such date (the "Invoice"). For the purposes of this Section 3.1,
delivery of the Invoice by facsimile transmission, receipt confirmed,
will be sufficient.
(b) The Lessee's inability or failure to take possession of
all or any portion of any Property upon Completion shall not delay or
otherwise affect the Lessee's obligation to pay Rent for such Property
in accordance with the terms of this Master Lease.
III.2 Payment of Rent. Rent shall be paid absolutely net to each Person
entitled thereto, so that this Master Lease shall yield to such Person the full
amount thereof, without setoff, deduction or reduction.
III.3 Supplemental Rent. The Lessee shall pay to the Lessor or any
other Person entitled thereto any and all Supplemental Rent promptly as the same
shall become due and payable, and if the Lessee fails to pay any Supplemental
Rent, the Lessor and such other Persons entitled to the receipt of such payment
shall have all rights, powers and remedies provided for herein or by law or
equity or otherwise. The Lessee shall pay to the Lessor, as Supplemental Rent,
among other things, on demand, to the extent permitted by applicable
Requirements of Law, interest at the applicable Overdue Rate on any installment
of Basic Rent not paid when due for the period for which the same shall be
overdue and on any payment of Supplemental Rent not paid when due or demanded by
the Lessor for the period from the due date or the date of any such demand, as
the case may be, until the same shall be paid. The expiration or other
termination of the Lessee's obligations to pay Basic Rent hereunder shall not
limit or modify the obligations of the Lessee with respect to Supplemental Rent.
Unless expressly provided otherwise in this Master Lease, in the event of any
failure on the part of the Lessee to pay and discharge any Supplemental Rent as
and when due, the Lessee shall also promptly pay and discharge any fine,
penalty, interest or cost which may be assessed or added under any agreement to
which Lessee is a party or which is authorized in writing by the Lessee with a
third party for nonpayment or late payment of such Supplemental Rent, all of
which shall also constitute Supplemental Rent.
3
<PAGE>
III.4 Method of Payment. Each payment of Rent payable by the Lessee to
the Lessor under this Lease or any other Operative Document shall be made by the
Lessee to the Lender as assignee of the Lessor under the Assignment of Lease
(or, if all Loans and all other amounts owing to the Lender under the Loan
Agreement and the other Operative Documents have been paid in full and all
Commitments of the Lender have been permanently terminated, to the Lessor) prior
to 2:00 p.m., New York City time, to the Account in immediately available funds
consisting of lawful currency of the United States of America on the date when
such payment shall be due. Payments received after 2:00 p.m., New York City
time, on the date due shall for the purpose of Section 16.1 hereof be deemed
received on such day; provided, however, that for the purposes of the second
sentence of Section 3.3 hereof, such payments shall be deemed received on the
next succeeding Business Day and, unless the Lender (or the Lessor, as
applicable) is otherwise able to invest or employ such funds on the date
received, subject to interest at the Overdue Rate as provided in such Section
3.3.
III.5 Certain Payments. Payments of Basic Rent, Supplemental Rent and
other amounts hereunder are, as applicable, subject to netting and offset as
provided pursuant to Section 7.12 of the Participation Agreement.
ARTICLE IV
QUIET ENJOYMENT; RIGHT TO INSPECT
IV.1 Quiet Enjoyment. Subject to Sections 2.4 and 4.2, and subject to
the rights of the Lessor contained in Article XV and the other terms of the
Operative Documents to which the Lessee is a party, the Lessee shall peaceably
and quietly have, hold and enjoy the Property for the Lease Term, free of any
claim or other action by the Lessor or anyone claiming by, through or under the
Lessor (other than the Lessee) with respect to any matters arising from and
after the applicable Completion Date. Such right of quiet enjoyment is
independent of, and shall not affect the Lessor's rights otherwise to initiate
legal action to enforce the obligations of the Lessee under this Master Lease.
IV.2 Right to Inspect. During the Lease Term, the Lessee shall upon
reasonable notice from the Lessor, permit the Lessor, the Lender, and their
respective authorized representatives to inspect any Property subject to this
Master Lease during normal business hours, provided that such inspections shall
not unreasonably interfere with the Lessee's business operations at such
Property.
ARTICLE V
NET LEASE, ETC.
4
<PAGE>
V.1 Net Lease. This Master Lease shall constitute a net lease. Any
present or future law to the contrary notwithstanding, this Master Lease shall
not terminate, nor shall the Lessee be entitled to any abatement, suspension,
deferment, reduction, setoff, counterclaim, or defense with respect to the Rent,
nor shall the obligations of the Lessee hereunder be affected (except as
expressly herein permitted and by performance of the obligations in connection
therewith) by reason of: (i) any defect in the condition, merchantability,
design, construction, quality or fitness for use of any Property or any part
thereof, or the failure of any Property to comply with all Requirements of Law,
including any inability to occupy or use such Property by reason of such
non-compliance; (ii) any damage to, removal, abandonment, salvage, loss,
contamination of or Release from, scrapping or destruction of or any requisition
or taking of any Property or any part thereof; (iii) any restriction, prevention
or curtailment of or interference with the construction on or any use of any
Property or any part thereof including eviction; (iv) any defect in title to or
rights to any Property or any Lien on such title or rights or on any Property
(other than Lessor Liens); (v) any change, waiver, extension, indulgence or
other action or omission or breach in respect of any obligation or liability of
or by the Lessor or the Lender; (vi) to the extent permitted by Applicable Law,
any bankruptcy, insolvency, reorganization, composition, adjustment,
dissolution, liquidation or other like proceedings relating to the Lessee, the
Lessor, the Lender or any other Person, or any action taken with respect to this
Master Lease by any trustee or receiver of the Lessee, the Lessor, the Lender or
any other Person, or by any court, in any such proceeding; (vii) any claim that
the Lessee has or might have against any Person, including without limitation
the Lessor, the Lender, or any vendor, manufacturer, contractor of or for any
Property; (viii) any failure on the part of the Lessor to perform or comply with
any of the terms of this Master Lease (other than performance by the Lessor of
its obligations set forth in Section 2.1 hereof), of any other Operative
Document or of any other agreement; (ix) any invalidity or unenforceability or
illegality or disaffirmance of this Master Lease against or by the Lessee or any
provision hereof or any of the other Operative Documents or any provision of any
thereof; (x) the impossibility or illegality of performance by the Lessee, the
Lessor or both; (xi) any action by any court, administrative agency or other
Governmental Authority; or (xii) any other cause or circumstances whether
similar or dissimilar to the foregoing and whether or not the Lessee shall have
notice or knowledge of any of the foregoing. The Lessee's agreement in the
preceding sentence shall not affect any claim, action or right the Lessee may
have against the Lessor or any other Participant, and notwithstanding the
foregoing provisions, nothing contained in this Section 5.1 shall provide Lessor
with any right to payment by the Lessee with respect to any Property prior to
the Completion Date for such Property which is contrary to Lessor's rights under
the Construction Agency Agreement including the limitations set forth in Section
5.4 thereof; it being the express intention of the parties to this Master Lease
that Lessee shall have no liability hereunder with respect to any Construction
Period Property. The parties intend that the obligations of the Lessee hereunder
shall be covenants and agreements that are separate and independent from any
obligations of the Lessor hereunder or under any other Operative Documents and
the obligations of the Lessee shall continue unaffected unless such obligations
5
<PAGE>
shall have been modified or terminated in accordance with an express provision
of this Master Lease.
V.2 No Termination or Abatement. The Lessee shall remain obligated
under this Master Lease in accordance with its terms and shall not take any
action to terminate, rescind or avoid this Master Lease (except as provided
herein), notwithstanding any action for bankruptcy, insolvency, reorganization,
liquidation, dissolution, or other proceeding affecting the Lessor or any
Participant, or any action with respect to this Master Lease which may be taken
by any trustee, receiver or liquidator of the Lessor or any Participant or by
any court with respect to the Lessor or any Participant. The Lessee hereby
waives all right to terminate or surrender this Master Lease (except as provided
herein) or except as a consequence of a reduction in the Lease Balance as a
result of Casualty or Condemnation proceeds pursuant to the terms of Section
14.1 of this Master Lease, or as a result of a purchase of any or all of the
Properties pursuant to Section 18.1 of this Master Lease, to avail itself of any
abatement, suspension, deferment, reduction, setoff, counterclaim or defense
with respect to the Lease Balance. The Lessee shall remain obligated under this
Master Lease in accordance with its terms and the Lessee hereby waives any and
all rights now or hereafter conferred by statute or otherwise to modify or to
avoid strict compliance with its obligations under this Master Lease and the
Operative Documents. Notwithstanding any such statute or otherwise, the Lessee
shall be bound by all of the terms and conditions contained in this Master
Lease.
ARTICLE VI
SUBLEASES
VI.1 Subletting. (a) The Lessee may from time to time, sublease any
Property or any portion thereof to any Person and extend, modify or renew any
sublease without the approval of Lessor or Lender; provided, however, that: (i)
no sublease or other relinquishment of possession of any Property shall in any
way discharge or diminish any of the Lessee's obligations to the Lessor
hereunder, and the Lessee shall remain directly and primarily liable under this
Master Lease as to the Properties, or portion thereof, so sublet and (ii) each
sublease to an Affiliate of the Lessee shall be made subject and subordinate to
this Master Lease and to the rights of the Lessor hereunder.
(b) Lessor hereby agrees, that, in the event of the early termination
of this Master Lease from any cause whatsoever, and while any sublease is in
full force and effect, such termination of this Master Lease shall not act as a
merger or other termination of such sublease, and Lessee's interest as sublessor
in such sublease shall be deemed automatically assigned, transferred, and
conveyed to Lessor; and, from and after such termination, Lessor shall be bound
by the provisions of the sublease then in full force and effect on the part of
the Lessee, as sublessor; and that the sublessee shall be deemed thereupon and
without further act to have attorned to Lessor.
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It is the intention hereof to provide that the termination of this Lease while
such sublease is in full force and effect shall not, in any way, by reason
thereof, terminate such sublease or affect the rights of such sublessee. The
foregoing is subject to the right of Lessee (or Lessor, if this Master Lease has
terminated) to terminate any sublease which is in default (notice thereof, if
any required, having been given and the time for curing such default having
expired) and any other rights and remedies reserved to Lessee in such sublease,
and any other rights and remedies afforded to a lessor of real property against
a defaulting lessee.
ARTICLE VII
LESSEE ACKNOWLEDGMENTS
VII.1 Condition of the Properties. THE LESSEE ACKNOWLEDGES AND AGREES
THAT ALTHOUGH THE LESSOR WILL OWN AND HOLD TITLE TO THE IMPROVEMENTS, THE
LESSEE, ACTING AS CONSTRUCTION AGENT, IS SOLELY RESPONSIBLE UNDER THE TERMS OF
THE CONSTRUCTION AGENCY AGREEMENT FOR THE DESIGN, DEVELOPMENT, BUDGETING AND
CONSTRUCTION OF THE IMPROVEMENTS AND ANY ALTERATIONS OR MODIFICATIONS. THE
LESSEE FURTHER ACKNOWLEDGES AND AGREES THAT IT IS LEASING EACH PROPERTY AND EACH
OF THE IMPROVEMENTS CONSTRUCTED THEREON "AS IS" WITHOUT REPRESENTATION, WARRANTY
OR COVENANT (EXPRESS OR IMPLIED) BY THE LESSOR OR THE LENDER AND IN EACH CASE
SUBJECT TO (A) THE EXISTING STATE OF TITLE (EXCLUDING LESSOR LIENS), (B) THE
RIGHTS OF ANY PARTIES IN POSSESSION THEREOF, (C) ANY STATE OF FACTS WHICH AN
ACCURATE SURVEY OR PHYSICAL INSPECTION MIGHT SHOW, AND (D) VIOLATIONS OF
REQUIREMENTS OF LAW WHICH MAY EXIST ON THE DATE HEREOF. NEITHER THE LESSOR NOR
THE LENDER HAS MADE OR SHALL BE DEEMED TO HAVE MADE ANY REPRESENTATION, WARRANTY
OR COVENANT (EXPRESS OR IMPLIED) OR SHALL BE DEEMED TO HAVE ANY LIABILITY
WHATSOEVER AS TO THE TITLE (OTHER THAN FOR LESSOR LIENS), VALUE, HABITABILITY,
USE, CONDITION, DESIGN, OPERATION, OR FITNESS FOR USE OF ANY PROPERTY (OR ANY
PART THEREOF), OR ANY OTHER REPRESENTATION, WARRANTY OR COVENANT (EXCEPT SECTION
4.1 HEREOF) WHATSOEVER, EXPRESS OR IMPLIED, WITH RESPECT TO ANY PROPERTY (OR ANY
PART THEREOF) AND NEITHER THE LESSOR NOR THE LENDER SHALL BE LIABLE FOR ANY
LATENT, HIDDEN, OR PATENT DEFECT THEREIN (OTHER THAN FOR LESSOR LIENS) OR THE
FAILURE OF ANY PROPERTY, OR ANY PART THEREOF, TO COMPLY WITH ANY REQUIREMENT OF
LAW.
VII.2 Risk of Loss. Subject to the terms of Section 14.1 of this Master
Lease, during the Lease Term the risk of loss of or decrease in the enjoyment
and beneficial use of the Properties
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as a result of the damage or destruction thereof by fire, earthquake, the
elements, casualties, thefts, riots, wars or otherwise is assumed by the Lessee,
and except for loss or damages arising from the gross negligence or willful
misconduct of Lessor or Lender or their respective agents, employees or
contractors, neither the Lessor nor the Lender shall in any event be answerable
or accountable to Lessee therefor.
ARTICLE VIII
POSSESSION AND USE OF THE PROPERTIES, ETC.
VIII.1 Utility Charges. The Lessee shall pay or cause to be paid all
charges for electricity, power, gas, oil, water, telephone, sanitary sewer
service and all other rents and utilities used in or on the Properties during
the Lease Term. The Lessee shall be entitled to receive any credit or refund
with respect to any utility charge paid by the Lessee and the amount of any
credit or refund received by the Lessor on account of any utility charges paid
by the Lessee, net of the costs and expenses reasonably incurred by the Lessor
in obtaining such credit or refund, shall be promptly paid over to the Lessee.
VIII.2 Possession and Use of the Property. After the Completion Date
for each Property, each Property shall be used in a manner consistent with this
Master Lease for any lawful purpose in accordance with Applicable Law now or
hereafter in effect; provided, that such use does not (i) result in a diminution
in the value of the Property from that projected in the original Appraisal
delivered with respect to such Property or (ii) violate any restriction with
respect to Hazardous Materials as they relate to such Property pursuant to the
Operative Documents. The Lessee shall pay, or cause to be paid, all charges and
costs required in connection with the use of the Properties as contemplated by
this Master Lease. The Lessee shall not commit or permit any waste of the
Properties or any part thereof.
VIII.3 Compliance with Requirements of Laws and Insurance Requirements.
Subject to the terms of Article XII relating to permitted contests, the Lessee,
at its sole cost and expense, shall (a) comply in all material respects with all
Requirements of Law (including all Hazardous Materials Laws) and Insurance
Requirements relating to the Properties, including the use, construction,
operation, maintenance, repair and restoration thereof and the remarketing
thereof pursuant to Article XX, whether or not compliance therewith shall
require structural or extraordinary changes in the Improvements or interfere
with the use and enjoyment of the Properties, and (b) procure, maintain and
comply with all licenses, permits, orders, approvals, consents and other
authorizations required for the construction, use, maintenance and operation of
the Properties and for the use, operation, maintenance, repair and restoration
of the Improvements. Notwithstanding the preceding sentence, the Lessee shall be
deemed to be in compliance with all Hazardous Materials Laws for purposes of
this Master Lease notwithstanding any Environmental Violation if the severity of
such Environmental Violation is less
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than Federal, state or local standards requiring remediation or removal or, if
such standards are exceeded, remediation or removal is proceeding in accordance
with all applicable Hazardous Materials Laws.
VIII.4 Assignment by Lessee. The Lessee may not assign this Master
Lease or any of its rights or obligations hereunder in whole or in part to any
Person. Notwithstanding the foregoing sentence, the Lessee may, so long as no
Event of Default has occurred and is continuing or would result therefrom, upon
prior written notice to each of the Lessor and the Lender, assign this Master
Lease and all of the Lessee's rights and obligations hereunder to an Affiliate
of the Lessee pursuant to an assignment and assumption agreement and such other
documentation, including opinions of counsel, all in form and substance
reasonably satisfactory to the Lessor and the Lender; provided, that, in any
event of such assignment, the Lessee shall deliver a guaranty of such
Affiliate's obligation hereunder in form and substance and in all respects
satisfactory to the Lessor and the Lender.
ARTICLE IX
MAINTENANCE AND REPAIR; RETURN
IX.1 Maintenance and Repair; Return.
(a) From and after the Completion Date for a Property, the
Lessee, at its sole cost and expense, shall maintain such Property in
good condition (ordinary wear and tear excepted) and make all necessary
repairs thereto, of every kind and nature whatsoever, whether interior
or exterior, ordinary or extraordinary, structural or nonstructural or
foreseen or unforeseen, in each case as required by all Requirements of
Law and Insurance Requirements and in no event less than the standards
applied by the Lessee in the operation and maintenance of other
comparable properties owned or leased by the Lessee or its Affiliates.
(b) The Lessor shall under no circumstances be required to
build any improvements on any Property, make any repairs, replacements,
alterations or renewals of any nature or description to any Property,
make any expenditure whatsoever in connection with this Master Lease
(other than for Advances made in accordance with and pursuant to the
terms of the Participation Agreement and the Construction Agency
Agreement) or maintain any Property in any way. The Lessee waives any
right to (i) require the Lessor to maintain, repair, or rebuild all or
any part of any Property or (ii) make repairs at the expense of the
Lessor pursuant to any Requirement of Law, Insurance Requirement,
contract, agreement, or covenant, condition or restriction in effect at
any time during the Lease Term.
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(c) The Lessee shall, upon the expiration or earlier
termination of this Master Lease with respect to any Property (other
than as a result of the Lessee's purchase of such Property from the
Lessor as provided herein), vacate and surrender such Property to the
Lessor in its then-current, "AS IS" condition, without any express or
implied warranty subject to the Lessee's obligations under Sections
8.3, 9.1(a), 10.1, 11.1, 14.1, 14.2 and 20.1. Title to all
improvements, furnishings, furniture, fixtures and any personal
property of the Lessee which were not funded by the Lessor and the
Lender pursuant to the Participation Agreement, located on or about a
Property whether or not affixed to the realty, shall, subject to the
following sentence, be and remain the property of the Lessee throughout
the Lease Term, and at any time during the Lease Term, and within
thirty (30) days following the expiration or earlier termination date,
may be removed by the Lessee or, at the Lessee's election surrendered
with the Property, in which event title to such surrendered property
shall, if the Lessor so elects, be deemed transferred to the Lessor.
Notwithstanding the foregoing, any fixture constituting part of the
Property which is required by Applicable Law or which cannot be removed
without causing Material damage to or the diminution in the Fair Market
Sales Value of the applicable Property shall at all times remain part
of the Property.
ARTICLE X
MODIFICATIONS, ETC.
X.1 Modifications, Substitutions and Replacements. During the Lease
Term, the Lessee, at its sole cost and expense, may at any time and from time to
time make alterations, renovations, improvements and additions to any Property
or any part thereof and substitutions and replacements therefor (collectively,
"Modifications"); provided, however, that:
(i) except for any Modification required to be made
pursuant to a Requirement of Law (a "Required Modification"),
no Modification shall adversely affect the Fair Market Sales
Value of such Property below the Property Balance of such
Property as a whole following the completion of such
Modification;
(ii) such Modifications shall be (and shall be done
in a manner) consistent with the Plans and Specifications for
such Property;
(iii) such Modifications shall comply with Sections
8.3 and 9.1(a); and
(iv) the Lessee shall have provided notice to the
Lessor of any structural Modification the cost of which
exceeds 10% of the Improvements Budget for such Property.
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All Modifications shall remain part of the realty and shall be subject
to this Master Lease; provided, however, that Modifications that (x) are not
Required Modifications, (y) were not financed by the Participants and (z) can be
removed without causing material damage to or diminution in the Fair Market
Sales Value of the Property below the Property Balance shall be the property of
the Lessee or other third party and may be removed by Lessee during the Lease
Term and up to 30 days following the expiration or earlier termination thereof
and shall not be subject to this Master Lease. The Lessee may place upon the
Properties any trade fixtures, machinery, equipment, inventory or other property
belonging to the Lessee or third parties and may remove the same, subject,
however, to the terms of Section 9.1(a); provided, however, that such trade
fixtures, machinery, equipment, inventory or other property can be removed
without causing material damage to or diminution in the Fair Market Sales Value
of the Property below the Property Balance; provided, further, however, that the
Lessee shall keep and maintain at the Properties and shall not remove from the
Properties any Equipment financed or otherwise paid for by the Participants
pursuant to the Participation Agreement.
ARTICLE XI
WARRANT OF TITLE; EASEMENTS
XI.1 Warrant of Title.
(a) The Lessee agrees that except as otherwise provided herein
and subject to the terms of Article 12 relating to permitted contests,
the Lessee shall not directly or indirectly create or allow to remain,
and shall (subject to the limitations of Section 5.4 of the
Construction Agency Agreement which shall apply to Lessee's liability
under this Section 11.1 prior to the Completion Date) promptly
discharge at its sole cost and expense, any Lien (other than any Lessor
Lien or any Permitted Property Lien), defect, attachment, levy, title
retention agreement or claim upon any Property or any Lien, attachment,
levy or claim with respect to the Rent or with respect to any amounts
held by the Lessor or the Lender pursuant to the Loan Agreement or the
other Operative Documents, other than Permitted Property Liens and
Liens on machinery, equipment, general intangibles and other personal
property not financed by the proceeds of the Loans or the Lessor
Amounts.
(b) Nothing contained in this Master Lease shall be construed
as constituting the consent or request of the Lessor or any other
Participant, expressed or implied, to or for the performance by any
contractor, mechanic, laborer, materialman, supplier or vendor of any
labor or services or for the furnishing of any materials for any
construction, alteration, addition, repair or demolition of or to any
Property or any part thereof. NOTICE IS HEREBY GIVEN THAT NEITHER THE
LESSOR NOR THE LENDER IS
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OR SHALL BE LIABLE FOR ANY LABOR, SERVICES OR MATERIALS FURNISHED OR TO
BE FURNISHED TO THE LESSEE, OR TO ANYONE HOLDING A PROPERTY OR ANY PART
THEREOF THROUGH OR UNDER THE LESSEE, AND THAT NO MECHANIC'S OR OTHER
LIENS FOR ANY SUCH LABOR, SERVICES OR MATERIALS SHALL ATTACH TO OR
AFFECT THE INTEREST OF THE LESSOR OR THE LENDER IN AND TO ANY PROPERTY.
XI.2 Grants and Releases of Easements; Lessor's Waivers.
(a) Provided that no Lease Event of Default shall have
occurred and be continuing, and subject to the provisions of Articles
VII, IX and X and Section 8.3, the Lessor hereby consents in each
instance to the following actions by the Lessee as the Lessor's agent,
and the Lessor hereby appoints the Lessee the Lessor's
attorney-in-fact, with full authority in the place and stead of the
Lessor to take such action or actions from time to time during the
Lease Term, but at the Lessee's sole cost and expense: (i) the granting
of easements, licenses, rights-of-way and other rights and privileges
in the nature of easements reasonably necessary or desirable for the
use, repair, or maintenance of any Property as herein provided; (ii)
the release of existing easements or other rights in the nature of
easements which are for the benefit of any Property; (iii) if required
by applicable Governmental Authority in connection with the
Construction, the dedication or transfer of unimproved portions of any
Property for road, highway or other public purposes; (iv) the
imposition of and the execution of amendments to any covenants and
restrictions; (v) the filing and processing of Site Development Permit
Amendments, Parcel Maps, Tentative Maps, Development Agreements and any
and all other permit applications, authorizations, entitlement,
agreements with any government or regulatory agency or amendments
thereof, or other documents reasonably required or beneficial for
construction or Modification of the Improvements, or amendments to
Permitted Property Liens or governmental permits or approvals affecting
any Property; and (vi) the execution and filing of tract or parcel maps
subdividing the Land into lots or parcels or reconfiguring existing
lots or parcels; provided, however, that in each case (A) such grant,
release, dedication, transfer, imposition or amendment does not reduce
the Fair Market Sales Value of the applicable Property, (B) such grant,
release, dedication, transfer or amendment that in the Lessee's
judgment is reasonably necessary or beneficial in connection with the
use, maintenance, alteration or improvement of the applicable Property,
(C) such grant, release, dedication, transfer, imposition or amendment
will not cause the applicable Property or any portion thereof to fail
to comply with the provisions of this Master Lease or any other
Operative Documents and all Requirements of Law (including, without
limitation, all applicable zoning, planning, building and subdivision
ordinances, all applicable restrictive covenants and all applicable
architectural approval requirements); (D) any and all governmental
consents or approvals required prior to such grant, release,
dedication, transfer, imposition, annexation or amendment have been
obtained, and any and all filings required prior to
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such action have been made; (E) the Lessee shall remain obligated under
this Master Lease and under any instrument executed by the Lessee
consenting to the assignment of the Lessor's interests in this Master
Lease as security for indebtedness, in each such case in accordance
with their terms, substantially as though such grant, release,
dedication, transfer or amendment had not been effected and (F) the
Lessee shall pay and perform any obligations of the Lessor under such
grant, release, dedication, transfer, imposition or amendment. Without
limiting the effectiveness of the foregoing, the Lessor shall, upon the
request of the Lessee, and at the Lessee's sole cost and expense,
execute and deliver any instruments necessary or appropriate to confirm
any such grant, release, dedication, transfer, imposition or amendment
to any Person permitted under this Section 11.2(a) including landlord
waivers with respect to any of the foregoing.
(b) The Lessor acknowledges the Lessee's (and any permitted
sublessee's) right to finance and to secure under the Uniform
Commercial Code, inventory, furnishings, furniture, equipment,
machinery, leasehold improvements and other personal property located
at the Properties other than Equipment, and the Lessor agrees to
execute Lessor waiver forms and release of Lessor Liens in favor of any
purchase money seller, lessor or lender which has financed or may
finance in the future such items.
ARTICLE XII
PERMITTED CONTESTS
XII.1 Permitted Contests in Respect of Applicable Law Other Than
Impositions. Except to the extent otherwise provided in Section 13.5(b) of the
Participation Agreement regarding Taxes and other Impositions, if, to the extent
and for so long as (a) a test, challenge, appeal or proceeding for review of any
Applicable Law relating to any Property shall be prosecuted diligently and in
good faith in appropriate proceedings by the Lessee or (b) compliance with such
Applicable Law shall have been excused or exempted by a valid nonconforming use,
variance permit, waiver, extension or forbearance, the Lessee shall not be
required to comply with such Applicable Law but only if and so long as any such
test, challenge, appeal, proceeding, waiver, extension, forbearance or
noncompliance shall not, in the reasonable opinion of the Lessor and the Lender,
involve (A) any risk of criminal liability being imposed on the Lessor or the
Lender or (B) any risk of (1) foreclosure, forfeiture or loss of such Property,
or any material part thereof, or (2) the nonpayment of Rent or (C) any
substantial risk of (1) the sale of, or the creation of any Lien (other than a
Permitted Property Lien) on, any part of such Property, (2) civil liability
being imposed on the Lessor, the Lender, or such Property, or (3) enjoinment of,
or interference with, the use, possession or disposition of such Property in any
material respect. Lessor, at Lessee's sole cost and expense, shall execute and
deliver to Lessee such authorizations and other documents as may reasonably be
required in connection with any such permitted contest.
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The Lessor will not be required to join in any proceedings pursuant to
this Section 12.1 unless a provision of any Applicable Law requires that such
proceedings be brought by or in the name of the Lessor; and in that event the
Lessor will join in the proceedings or permit them or any part thereof to be
brought in its name if and so long as (i) the Lessee has not elected the
Remarketing Option and (ii) the Lessee pays all related expenses and indemnifies
the Lessor and the Lender with respect to such proceedings.
ARTICLE XIII
INSURANCE
XIII.1 Public Liability and Workers' Compensation Insurance.
(a) During the Lease Term, the Lessee shall procure and carry, at the
Lessee's sole cost and expense, commercial general liability insurance for
claims for injuries or death sustained by persons or damage to property while on
the Properties and such other public liability coverages as are ordinarily
procured by the Lessee or its Affiliates who own or operate similar properties,
but in any case shall provide liability coverage of at least $2,000,000 per
person and $1,000,000 for property damage per occurrence. Such insurance shall
be on terms and in amounts that are no less favorable than insurance maintained
by the Lessee or such Affiliates with respect to similar properties that they
own and that are in accordance with normal industry practice. The policy shall
be endorsed to include the Lessor and the Lender as additional insureds. The
policy shall also specifically provide that the policy shall be considered
primary insurance which shall apply to any loss or claim before any contribution
by any insurance which the Lessor or the Lender may have in force.
(b) During the Basic Lease Term, the Lessee shall have the right to
self-insure with respect to any of the insurance required under this Master
Lease so long as (i) the Lessee is a publicly traded domestic corporation whose
stock is traded on a nationally recognized exchange; (ii) the Lessee has not
assigned this Master Lease; (iii) the Lessee maintains a consolidated net worth
(determined as provided in Section 10.2.1 of the Participation Agreement) of at
least $400 million according to its most recent audited financial statement; and
(iv) the Lessee governs and manages its self-insurance program in a manner
consistent with programs managed by prudent businesses whose stock is publicly
traded on nationally recognized exchanges. Upon request, the Lessee shall supply
the Lessor from time to time with evidence reasonably satisfactory to the Lessor
of the Lessee's net worth and the satisfaction of the condition set forth above.
If the Lessee elects to self-insure, the Lessee shall be responsible for losses
or liabilities which would have been assumed by the insurance companies which
would have issued the insurance required of the Lessee under the Master Lease.
The Lessee will notify the Lessor in advance of any period for which it intends
to self-insure and shall provide Lessor with satisfactory evidence that it
complies with these requirements in order to give the Lessor an opportunity to
confirm the
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satisfaction of the conditions set forth above. For so long as the Lessee
self-insures, the Lessee, for applicable periods, shall and does hereby
indemnify and hold harmless the Lessor, its officers, directors, agents,
employees and representatives from and against all costs, damages, or expenses
(including reasonable attorneys' fees) incurred or paid by the Lessor as a
result of any claim customarily covered by a broad-form policy of commercial
general liability insurance, including a contractual liability endorsement.
ARTICLE XIV
CASUALTY AND CONDEMNATION; ENVIRONMENTAL MATTERS
XIV.1 Casualty and Condemnation.
(a) Subject to the provisions of this Article XIV, if all or
a portion of any Property is damaged or destroyed in whole or in part
by a Casualty or if the use, access, occupancy, easement rights or
title to any Property or any part thereof, is the subject of a
Condemnation, then
(i) any insurance proceeds payable with respect to
such Casualty shall be paid directly to the Lessee (or if
received by the Lessor, shall be paid over to the Lessee) for
the sole purpose of reconstruction, refurbishment and repair
of such Property; provided, that such reconstruction,
refurbishment or repair can be completed prior to the end of
the Lease Term; provided, further, that in the event that
either (i) such reconstruction, refurbishment or repair cannot
be completed prior to the end of the Lease Term or (ii) the
Lessee shall elect not to use such proceeds for the
reconstruction, refurbishment or repair of such Property, then
all such insurance proceeds payable with respect to such
Casualty shall be paid to the Lessor to be applied towards the
payment of the Lease Balance in accordance with Section 7.2 of
the Participation Agreement, and
(ii) (x) in the case of a Condemnation (that is not a
Significant Condemnation) of any part of any Land (not
including the applicable Improvements), any award or
compensation relating thereto shall be paid to the Lessee for
the sole purpose of restoration of such Property (provided,
that such restoration can be completed prior to the end of the
Lease Term) or else shall be paid to the Lessor to be applied
in the Lessor's and the Lender's reasonable discretion to the
partial restoration of such Property or towards the payment of
the applicable Lease Balance, and (y) in the case of a
Significant Condemnation, such award or compensation shall be
paid to the Lessor to be applied in the Lessor's and the
Lender's reasonable discretion to the restoration of such
Property or
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toward the payment of the applicable Lease Balance in
accordance with Article VII of the Participation Agreement;
provided, however, that, in each case, if a Lease Event of Default
shall have occurred and be continuing, such award, compensation or
insurance proceeds shall be paid directly to the Lessor or, if received
by the Lessee, shall be held in trust for the Lessor and the Lender,
and shall be paid by the Lessee to the Account to be distributed in
accordance with Article VII of the Participation Agreement. All amounts
held by the Lessor or the Lender when a Lease Event of Default exists
hereunder on account of any award, compensation or insurance proceeds
either paid directly to the Lessor or the Lender or turned over to the
Lessor or the Lender shall at the option of the Lessor either be (i)
paid to the Lessee for the repair of damage caused by such Casualty or
Condemnation in accordance with clause (d) of this Section 14.1, or
(ii) applied to the repayment of the Lease Balance of such Property on
the Termination Date with respect to such Property in accordance with
Article XV.
(b) The Lessee may appear in any proceeding or action to
negotiate, prosecute, adjust or appeal any claim for any award,
compensation or insurance payment on account of any such Casualty or
Condemnation and shall pay all expenses thereof. At the Lessee's
reasonable request, and at the Lessee's sole cost and expense, the
Lessor and the Lender shall participate in any such proceeding, action,
negotiation, prosecution or adjustment. The Lessor and the Lessee agree
that this Master Lease shall control the rights of the Lessor and the
Lessee in and to any such award, compensation or insurance payment.
(c) If the Lessor or the Lessee shall receive notice of a
Casualty or of an actual, pending or threatened Condemnation of any
Property or any interest therein, the Lessor or the Lessee, as the case
may be, shall give notice thereof to the other and to the Lender
promptly after the receipt of such notice.
(d) If pursuant to this Section 14.1 and Section 15.1 this
Master Lease shall continue in full force and effect following a
Casualty or Condemnation with respect to any Property, the Lessee
shall, at its sole cost and expense (and, without limitation, if any
award, compensation or insurance payment is not sufficient to restore
such Property in accordance with this clause (d), the Lessee shall pay
the shortfall), promptly and diligently repair any damage to such
Property caused by such Casualty or Condemnation in conformity with the
requirements of Sections 8.3 and 9.1, to restore such Property to at
least the same condition, operative value and useful life as existed
immediately prior to such Casualty or Condemnation. Upon completion of
such restoration, the Lessee shall furnish to the Lessor (which, in
turn, shall furnish to the Lender) an architect's certificate of
substantial completion and a Responsible Officer's Certificate
confirming that such restoration has been completed pursuant to this
Master Lease.
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(e) In no event shall a Casualty or Condemnation affect the
Lessee's obligations to pay Rent pursuant to Section 3.1 or to perform
its obligations and pay any amounts due on the Expiration Date or
pursuant to Articles XVIII and XXI.
(f) Any Excess Casualty/Condemnation Proceeds received by the
Lessor or the Lender in respect of a Casualty or Condemnation shall be
turned over to the Lessee.
XIV.2 Environmental Matters. Promptly upon the Lessee's knowledge of
the existence of an Environmental Violation with respect to any Property, the
Lessee shall notify the Lessor in writing of such Environmental Violation. If
the Lessor elects not to terminate this Master Lease with respect to such
Property pursuant to Section 15.1, at the Lessee's sole cost and expense, the
Lessee shall promptly and diligently commence any response, clean up, remedial
or other action necessary to remove, clean up or remediate the Environmental
Violation in accordance with the terms of Section 8.3 (including the last
sentence thereof). The Lessee shall, upon completion of remedial action by the
Lessee, cause to be prepared by an environmental consultant reasonably
acceptable to the Lessor a report describing the Environmental Violation and the
actions taken by the Lessee (or its agents) in response to such Environmental
Violation, and a statement by the consultant that the Environmental Violation
has been remedied in compliance in all material respects with applicable
Hazardous Materials Laws. Each such Environmental Violation shall be remedied
prior to the Expiration Date unless each Property with respect to which an
Environmental Violation has occurred but has not been remedied has been
purchased by the Lessee in accordance with Section 18.1. Nothing in this Article
XIV shall reduce or limit the Lessee's obligations under Sections 13.1, 13.2 or
13.3 of the Participation Agreement.
XIV.3 Notice of Environmental Matters. Promptly, but in any event
within thirty (30) Business Days from the date the Lessee has actual knowledge
thereof pursuant to written notice from any Governmental Authority, the Lessee
shall provide to the Lessor written notice of any pending or threatened claim,
action or proceeding involving any Hazardous Materials Laws or any Release on or
in connection with any Property. All such notices shall describe in reasonable
detail the nature of the claim, action or proceeding and the Lessee's proposed
response thereto. In addition, the Lessee shall provide to the Lessor, within
thirty (30) Business Days of receipt, copies of all written communications with
any Governmental Authority relating to any Environmental Violation in connection
with any Property. The Lessee shall also promptly provide such detailed reports
of any such material environmental claims. In the event that the Lessor receives
written notice of any pending or threatened claim, action or proceeding
involving any Hazardous Materials Laws or any Release on or in connection with
the Property, the Lessor shall promptly give notice thereof to the Lessee. For
purposes of this paragraph, "actual knowledge" of the Lessee shall mean the
actual knowledge of the Lessee's Senior Director of Facilities and Real Estate,
who is responsible for the day to day operations of the Properties.
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ARTICLE XV
TERMINATION OF LEASE
XV.1 Partial Termination upon Certain Events. If any of the following
occurs during the Basic Lease Term with respect to any Parcel of Land or related
Improvements:
(i) a Significant Casualty occurs;
(ii) a Significant Condemnation occurs; or
(iii) an Environmental Violation occurs or is
discovered the cost of remediation of which would exceed
$5,000,000 (x) and such violation has not been remediated
within 180 days after the occurrence or discovery or (y) the
Lessee has notified the Lessor prior to the expiration of such
180 day period that the violation will not be remediated
within such period;
and the Lessor shall have given written notice (a
"Termination Notice") to the Lessee that, as a consequence of
such event (x) the Lease Supplement relating to such Parcel of
Land and related Improvements is to be terminated and (y) this
Master Lease is to be terminated with respect to such Parcel
of Land and related Improvements, then the Lessee shall be
obligated to purchase the Lessor's interest in such affected
Parcel of Land and related Improvements within 30 days after
Lessee's receipt of the Termination Notice, by paying to the
Lessor an amount equal to the Lease Balance allocable to such
affected Parcel of Land and related Improvements.
XV.2 Termination Procedures. On the date of the payment by the Lessee
of the portion of the Lease Balance allocable to the affected Parcel of Land and
related Improvements in accordance with Section 15.1 (such date, the
"Termination Date"), the Lease Supplement relating to each such affected Parcel
of Land and related Improvements shall terminate and this Master Lease shall
terminate with respect to each such Parcel of Land and related Improvements and,
concurrent with the Lessor's receipt of such payment,
(a) each such Parcel of Land and related Improvements shall be
conveyed to the Lessee (or to the Lessee's designee) "AS IS" and in its
then present physical condition free of Lessor Liens and the Lessor
shall execute and deliver a termination of Ground Lease and an
assignment of the Lessor's entire interest in the Parcel of Land and
the Improvements thereon with respect to such Land in recordable form;
and
(b) in the case of a termination pursuant to clause (i) or
(ii) of Section 15.1, the Lessor shall convey to the Lessee any Net
Proceeds with respect to the Significant
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Casualty or Significant Condemnation giving rise to the termination of
this Master Lease with respect to such Parcel of Land and related
Improvements theretofore received by the Lessor or, at the request of
the Lessee, such amounts shall be applied towards payment of the Lease
Balance allocable to the affected Parcel of Land and related
Improvements.
ARTICLE XVI
EVENTS OF DEFAULT
XVI.1 Lease Events of Default. The occurrence of any one or more of the
following events (whether such event shall be voluntary or involuntary or come
about or be effected by operation of law or pursuant to or in compliance with
any judgment, decree or order of any court or any order, rule or regulation of
any administrative or governmental body) shall constitute a "Lease Event of
Default":
(a) the Lessee shall fail to make payment of (i) any Basic
Rent within three (3) Business Days after the same shall be due and
payable, (ii) any Supplemental Rent due and payable within five (5)
Business Days after receipt of written notice thereof, or (iii) any
Property Balance, Lease Balance, Purchase Option Price or Maximum
Recourse Amount on the date due therefor; or
(b) the Lessee shall fail to deposit with the Collateral
Agent, on the Business Day next succeeding the occurrence of a
Deficiency Date, the Deficiency Collateral;
(c) the Lessee shall not be in compliance with Section 10.2 of
the Participation Agreement (which breach shall constitute an Event of
Default hereunder even if the Basic Lease Term has not commenced with
respect to any Property);
(d) the Lessee shall fail to observe or perform any term,
covenant or condition of the Lessee under this Master Lease or the
other Operative Documents to which it is party other than those
described in the foregoing clauses (a), (b) or (c) of this Section
16.1, and, in each such case, such failure shall have continued
unremedied for thirty (30) days after written notice; provided, that
such cure period shall be extended from thirty (30) days to one-hundred
and twenty (120) days if such term, covenant or condition is, without
prejudice to the Lessor and/or the Lender, curable or remediable and
the Lessee is at all times during such extended period diligently
taking action reasonably satisfactory to the Lessor and the Lender to
so cure or remedy default; provided, further, that failure by the
Lessee to fully comply with the requirements of Section 20.1 hereof
shall not be subject to any cure period; provided, further, that, for
purposes of clarification, the failure by the Lessee to comply with the
foregoing clauses (a), (b) or (c) of this Section 16.1 shall not be
subject to any cure period except as expressly set forth in such
clauses (a), (b) or (c);
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(e) any representation or warranty made or deemed made by the
Lessee herein or in any Operative Document or which is contained in any
certificate, document or financial or other statement furnished at any
time under or in connection with any Operative Document shall prove to
have been incorrect, false or misleading in any material respect on or
as of the date made or deemed made, unless the fact or condition which
made such representation of warranty incorrect, false or misleading is,
without prejudice to the Lessor and/or the Lender, curable or
remediable and the Lessee is at all times diligently taking action
reasonably satisfactory to the Lessor and the Lender to so cure or
remedy such fact or condition in order to make such representation
and/or warranty true and correct in all material respects, in which
event the Lessee shall have one-hundred and eighty (180) days from the
date such representation or warranty was made or deemed made to cure or
remedy such default;
(f) a Construction Agency Agreement Event of Default for which
the Lessor shall have full recourse against the Lessee in its capacity
as Construction Agent shall have occurred and be continuing:
(g) any Operative Document or any Lien granted under any
Operative Document shall, taken as a whole, terminate, cease to be
effective against, or cease to be the legal, valid, binding and
enforceable obligation of the Lessee;
(h) the Lessee shall directly or indirectly contest the
effectiveness, validity, binding nature of enforceability of any
Operative Document or any Lien granted under any Operative Document;
(i) any member of the ERISA Group shall fail to pay when due
an amount or amounts aggregating in excess of $5,000,000 which it shall
have become liable to pay under Title IV of ERISA; or notice of intent
to terminate a Material plan shall be filed under Title IV of ERISA by
any member of the ERISA Group, any plan administrator or any
combination of the foregoing; or the PBGC shall institute proceedings
under Title IV of ERISA to terminate, to impose liability (other than
for premiums under Section 4007 of ERISA) in respect of, or to cause a
trustee to be appointed to administer any Material Plan; or a condition
shall exist by reason of which the PBGC would be entitled to obtain a
decree adjudicating that any Material Plan must be terminated; or there
shall occur a complete or partial withdrawal from, or a default, within
the meaning of Section 4219(c)(5) of ERISA, with respect to, one or
more Multiemployer plans which could cause one or more members of the
ERISA Group to incur a current payment obligation in excess of
$5,000,000;
(j) any judgements or orders for the payment of money, in any
case not covered by insurance, individually or in the aggregate in
excess of $10,000,000 shall be rendered
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against the Lessee and such judgment or order shall continue
unsatisfied and unstayed (pursuant to laws, rules or court orders) for
a period of thirty (30) days;
(k) a default shall occur in the payment when due (subject to
any applicable grace period), whether by acceleration or otherwise, of
any Indebtedness of the Lessee or any of its Consolidated Subsidiaries
having a principal amount, individually or in the aggregate, in excess
of $10,000,000, or a default shall occur in the performance or
observance of any obligation or condition with respect to such
Indebtedness if the effect of such default is to accelerate the
maturity of any such Indebtedness or such default shall continue
unremedied for any applicable period of time sufficient to permit the
holder or holders of such Indebtedness, or any trustee or agent for
such holders, to cause such Indebtedness to become due and payable
prior to its expressed maturity;
(l) [Intentionally Omitted]
(m) the Lessee shall fail to maintain the insurance required
under Article XIII hereof or shall fail to observe or perform any term,
covenant on condition to be performed by it under Section 20.1 of this
Master Lease;
(n) the Lessee shall (i) admit in writing its inability to pay
its debts generally as they become due, (ii) file a petition under the
United States bankruptcy laws or any other applicable insolvency law or
statute of the United States of America or any State or Commonwealth
thereof, (iii) make a general assignment for the benefit of its
creditors, (iv) consent to the appointment of a receiver of itself or
the whole or any substantial part of its property, (v) fail to cause
the discharge of any custodian, trustee or receiver appointed for the
Lessee or the whole or a substantial part of its property within sixty
(60) days after such appointment, or (vi) file a petition or answer
seeking or consenting to reorganization under the United States
bankruptcy laws or any other applicable insolvency law or statute of
the United States of America or any State or Commonwealth thereof; or
(o) insolvency proceedings or a petition under the United
States bankruptcy laws or any other applicable insolvency law or
statute of the United States of America or any State or Commonwealth
thereof shall be filed against the Lessee and not dismissed within
sixty (60) days from the date of its filing (provided, that the Lessee,
hereby expressly authorizes the Lessor and each Lender to appear in any
court conducting any such proceeding during such sixty (60) day period
to preserve, protect and defend their respective rights under the
Operative Documents), or a court of competent jurisdiction shall enter
an order or decree appointing, without the consent of the Lessee, a
receiver of the Lessee or the whole or a substantial part of any of its
property, and such order or decree shall not be vacated or set aside
within sixty (60) days from the date of the entry thereof.
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XVI.2 Remedies. Upon the occurrence of any Lease Event of Default and
the declaration thereof, the Lease Balance due hereunder without further act
shall be accelerated and be deemed to be due and payable hereunder, and at any
time thereafter, the Lessor may, subject to the last three paragraphs of this
Section 16.2 and so long as such Lease Event of Default is continuing, do one or
more of the following as the Lessor in its sole discretion shall determine,
without limiting any other right or remedy the Lessor may have on account of
such Lease Event of Default.
(a) The Lessor may, by notice to the Lessee, rescind or
terminate this Master Lease as to any Property or all of the Properties
as of the date specified in such notice; provided, however (i) no
reletting, reentry or taking of possession of any Property (or any
portion thereof) by the Lessor will be construed as an election on the
Lessor's part to terminate this Master Lease unless a written notice of
such intention is given to the Lessee, (ii) notwithstanding any
reletting, reentry or taking of possession, the Lessor may at any time
thereafter elect to terminate this Master Lease for a continuing Lease
Event of Default and (iii) no act or thing done by the Lessor or any of
its agents, representatives or employees and no agreement accepting a
surrender of the Properties shall be valid unless the same be made in
writing and executed by the Lessor;
(b) The Lessor may (i) demand that the Lessee, and the Lessee
shall upon the written demand of the Lessor, return any Property
promptly to the Lessor in the manner and condition required by, and
otherwise in accordance with all of the provisions of, Articles VII and
IX and Section 8.3 hereof as if such Property were being returned at
the end of the Lease Term, and the Lessor shall not be liable for the
reimbursement of the Lessee for any costs and expenses incurred by the
Lessee in connection therewith and (ii) without prejudice to any other
remedy which the Lessor may have for possession of any Property, and to
the extent and in the manner permitted by Applicable Law, enter upon
such Property and take immediate possession of (to the exclusion of the
Lessee) such Property or any part thereof and expel or remove the
Lessee and any other Person who may be occupying such Property, by
summary proceedings or otherwise, all without liability to the Lessee
for or by reason of such entry or taking of possession, whether for the
restoration of damage to property caused by such taking or otherwise
and, in addition to the Lessor's other damages, the Lessee shall be
responsible for all costs and expenses incurred by the Lessor and/or
the Lender in connection with any reletting, including, without
limitation, reasonable brokers' fees and all costs of any alterations
or repairs made by the Lessor or the Lender;
(c) As more fully set forth in each Lease Supplement, the
Lessor may sell all or any part of any one or more Properties, subject
in each case to the Ground Lease, at public or private sale, as the
Lessor may determine and upon any such sale the Lessee's obligation to
pay Basic Rent with respect to the Property sold shall terminate;
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(d) The Lessor may, at its option, elect not to terminate this
Master Lease with respect to any Property or all of the Properties and
continue to collect all Basic Rent, Supplemental Rent, and all other
amounts due to the Lessor (together with all costs of collection) and
enforce the Lessee's obligations under this Master Lease as and when
the same become due, or are to be performed, and at the option of the
Lessor, upon any abandonment of any Property by the Lessee or re-entry
of same by the Lessor, the Lessor may enforce, by suit or otherwise,
all other covenants and conditions hereof to be performed or complied
with by the Lessee hereunder and to exercise all other remedies
permitted by Section 1951.4 of the California Civil Code or any
amendments thereof or any successor laws which replace such Section
1951.4;
(e) Unless all of the Properties have been sold in their
entirety, the Lessor may, whether or not the Lessor shall have
exercised or shall thereafter at any time exercise any of its rights
under clause (b), (c) or (d) of this Section 16.2 with respect to the
Properties or any portions thereof, demand, by written notice to the
Lessee specifying a date (a "Termination Date") not earlier than five
(5) days after the date of such notice, that the Lessee purchase, on
such Termination Date for a price equal to the Lease Balance the
Properties subject to the Master Lease, in accordance with the
provisions of Article XXI;
(f) The Lessor may exercise any other right or remedy that may
be available to it under Applicable Law, including any and all rights
or remedies under the Pledge Agreement, or proceed by appropriate court
action (legal or equitable) to enforce the terms hereof or to recover
damages for the breach hereof. Separate suits may be brought to collect
any such damages for any period(s), and such suits shall not in any
manner prejudice the Lessor's right to collect any such damages for any
subsequent period(s), or the Lessor may defer any such suit until after
the expiration of the Lease Term, in which event such suit shall be
deemed not to have accrued until the expiration of the Lease Term;
(g) The Lessor may retain and apply against the Lease Balance
all sums which the Lessor would, absent such Lease Event of Default, be
required to pay to, or turn over to, the Lessee pursuant to the terms
of this Master Lease and upon payment in full of the Lease Balance from
such sums, the Properties shall be conveyed to Lessee in accordance
with Section 21.1 of the Master Lease;
(h) If a Lease Event of Default shall have occurred and be
continuing, the Lessor, to the extent permitted by Applicable Law, as a
matter of right and with notice to the Lessee, shall have the right to
apply to any court having jurisdiction to appoint a receiver or
receivers of any Property, and the Lessee hereby irrevocably consents
to any such appointment. Any such receiver(s) shall have all of the
usual powers and duties of receivers in like or similar cases and all
of the powers and duties of the Lessor in case of
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entry, and shall continue as such and exercise such powers until the
date of confirmation of the sale of such Property unless such
receivership is sooner terminated;
(i) To the maximum extent permitted by law, the Lessee hereby
waives the benefit of any appraisement, valuation, stay, extension,
reinstatement and redemption laws now or hereafter in force and all
rights of marshalling in the event of any sale of any Property or any
interest therein;
(j) The Lessor shall be entitled to enforce payment of the
indebtedness and performance of the obligations secured hereby and to
exercise all rights and powers under this instrument or under any of
the other Operative Documents or other agreement or any laws now or
hereafter in force, notwithstanding some or all of the obligations
secured hereby may now or hereafter be otherwise secured, whether by
mortgage, security agreement, pledge, lien, assignment or otherwise.
Neither the acceptance of this instrument nor its enforcement, shall
prejudice or in any manner affect the Lessor's right to realize upon or
enforce any other security now or hereafter held by the Lessor, it
being agreed that the Lessor shall be entitled to enforce this
instrument and any other security now or hereafter held by the Lessor
in such order and manner as the Lessor may determine in its absolute
discretion. No remedy herein conferred upon or reserved to the Lessor
is intended to be exclusive of any other remedy herein or by law
provided or permitted, but each shall be cumulative and shall be in
addition to every other remedy given hereunder or now or hereafter
existing at law or in equity or by statute. Every power or remedy given
by any of the Operative Documents to the Lessor or to which it may
otherwise be entitled, may be exercised, concurrently or independently,
from time to time and as often as may be deemed expedient by the
Lessor. In no event shall the Lessor, in the exercise of the remedies
provided in this instrument (including, without limitation, in
connection with the assignment of rents to Lessor, or the appointment
of a receiver and the entry of such receiver onto all or any part of
the Properties), be deemed a "mortgagee in possession", and the Lessor
shall not in any way be made liable for any act, either of commission
or omission, in connection with the exercise of such remedies, except
for the exercise of the remedies set forth in clauses (c), (j) or (k)
of this Section 16.2 within thirty (30) days after the declaration of
the occurrence of an Event of Default in contravention of Lessee's
purchase right set forth in the last paragraph of this Section 16.2;
(k) Foreclosure; Power of Sale. The Lessee hereby grants to
Chicago Title Insurance Company, as trustee (together with all
successor trustees, the "Trustee"), IN TRUST, WITH POWER OF SALE, all
of the Lessee's right, title and interest in and to the Properties and,
upon the occurrence of a Lease Event of Default and following
termination of this Master Lease by the Lessor, the Lessor shall have
the power and authority, after proper notice and lapse of such time as
may be required by law and by the
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Master Lease, to cause the Trustee to sell any Property or the
Properties by notifying the Trustee of that election and depositing
with the Trustee this instrument and receipts and evidence of
expenditures made and secured hereby as the Trustee may reasonably
require. Upon receipt of any such notice from the Lessor, the Trustee
shall cause to be recorded, published and delivered to Lessee such
Notice of Default and Election to Sell as is then required by
applicable statutory authority and by this instrument, which notice
shall set forth, among other things, the nature of the breach(es) or
default(s), the action(s) required to effect a cure thereof and the
time period within which that cure may be effected. If no cure is
effected within the statutory time limits following recordation of the
Notice of Default and Election to Sell and after Notice of Sale has
been given as required by the above-referenced statutes, the Trustee
may without further notice or demand sell and convey any Property or
the Properties in accordance with the above-referenced statutes. Each
Property may be sold as a whole or in separate lots, parcels or items
and in such order as the Lessor may direct, at public auction to the
highest bidder for cash in lawful money of the United States payable at
the time of sale. The Trustee shall deliver to such purchaser(s) a good
and sufficient deed or deeds conveying the property so sold, but
without any covenant or warranty express or implied. The recitals in
such deed of any matter or fact shall be conclusive proof of the
truthfulness thereof. Any Person, including the Lessee, the Trustee or
the Lessor, may purchase at any sale. After deducting all costs, fees
and expenses of the Lessor and the Trustee, including costs of evidence
of title in connection with any sale, the Lessor shall apply the
proceeds of sale, in the following order of priority, to payment of the
following (collectively referred to herein as the "Obligated Amounts"):
(i) first, all amounts expended by or for the account of the Lessor
under the terms hereof and not then repaid, with accrued interest at
the Overdue Rate; and (ii) second, all other amounts then due and owing
hereunder including, without limitation, all Basic Rent, Supplemental
Rent, the full amount of the Lease Balance as of the date of sale as if
this Lease had been terminated with respect to all of the Properties
then subject to this Lease under Section 18.1, and all other amounts
then payable by the Lessee under this Lease and the other Operative
Documents, with the Lessor having the right to apply the proceeds of
sale to the amounts described above in this clause (ii) in such order,
proportion and priority as the Lessor may elect in its sole and
absolute discretion. To the extent permitted by applicable statutes,
the Trustee may postpone the sale of all or any portion of any Property
or the Properties by public announcement at the time and place of sale,
and from time to time thereafter may again postpone that sale by public
announcement or subsequently noticed sale, and without further notice
may make such sale at the time fixed at the last postponement or may,
in its discretion, give a new notice of sale. A sale of less than all
of any Property or the Properties or any defective or irregular sale
made hereunder shall not exhaust the power of sale provided for herein,
and subsequent sales may be made hereunder until all of the Obligated
Amounts have been satisfied or all the Properties have been sold,
without defect or irregularity. No action of the Lessor or the Trustee
based upon the provisions contained herein or contained in the
applicable statutes, including, without limitation, the giving of the
Notice of Default and
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Election to Sell or the Notice of Sale, shall constitute an election of
remedies which would preclude the Lessor from pursuing judicial
foreclosure before a completed sale pursuant to the power of sale
contained herein. The Lessor shall have the right, with the irrevocable
consent of the Lessee hereby given and evidenced by the execution of
this instrument, to obtain appointment of a receiver by any court of
competent jurisdiction without further notice to the Lessee, which
receiver shall be authorized and empowered to enter upon and take
possession of any Property or the Properties, including all personal
property used upon or in connection with the real property herein
conveyed, to let any Property or the Properties, to receive all the
rents, issues and profits, if any, which may be due or become due in
respect to the leasing of any Property or the Properties to another
party (herein, "Property Rents"), and apply the Property Rents after
payment of all necessary charges and expenses to reduction of the
Obligated Amounts in such order, proportion and priority as the Lessor
may elect. At the option of the Lessor, the receiver shall accomplish
entry and taking possession of any Property or the Properties by actual
entry and possession or by notice to the Lessee. The receiver so
appointed by a court of competent jurisdiction shall be empowered to
issue receiver's certificates for funds advanced by the Lessor for the
purpose of protecting the value of any Property or the Properties as
security for the Obligated Amounts. The amounts evidenced by receiver's
certificates shall bear interest at the Overdue Rate and may be added
to the Obligated Amounts if the Lessee or a junior lienholder purchases
any Property or the Properties at the trustee's sale. The Trustee or
any successor acting hereunder may resign and thereupon be discharged
of the trusts hereunder upon thirty (30) days' prior written notice to
the Lessor. Regardless of whether the Trustee resigns, the Lessor may,
from time to time, substitute a successor or successors to any Trustee
named herein or acting hereunder in accordance with any statutory
procedure for such substitution; or if Lessor, in its sole and absolute
discretion, so elects, and if permitted by law, the Lessor may
substitute such successors or successors by recording, in the office of
the recorder of the county or counties where such Property is located,
a document executed by the Lessor and containing the name of the
original Lessee and Lessor hereunder, the book and page where this
instrument (or a memorandum hereof) is recorded (and/or instrument
number, as applicable) and the name of the new Trustee, which
instrument shall be conclusive proof of proper substitution of such
successor Trustee or Trustees, who shall, without conveyance from the
predecessor Trustee, succeed to the rights, powers and duties
hereunder. It is acknowledged that A POWER OF SALE HAS BEEN GRANTED IN
THIS INSTRUMENT; A POWER OF SALE MAY ALLOW LESSOR TO TAKE THE
PROPERTIES AND SELL THEM WITHOUT GOING TO COURT IN A FORECLOSURE ACTION
UPON DEFAULT BY THE LESSEE UNDER THIS INSTRUMENT.
The Lessor acknowledges and agrees that upon the declaration of an
Event of Default, to the maximum extent permitted by law, the Lessee waives any
right to contest the sum of the
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Lessor Balance and the Loan Balance as the liquidated sum due upon acceleration
of this instrument.
If, pursuant to the exercise by the Lessor of its remedies pursuant to
this Section 16.2, the Lease Balance and all other amounts due and owing from
the Lessee under this Master Lease and the other Operative Documents have been
paid in full, then the Lessor shall remit to the Lessee any excess amounts
received by the Lessor. The obligation to deliver such excess to the Lessee
shall survive this Master Lease.
The Lessor agrees that for thirty (30) days after the declaration of
the occurrence of an Event of Default, Lessor shall forebear from exercising the
remedies set forth in clauses (c), (j) or (k) of this Section 16.2 during which
time Lessee may tender to the Lessor in immediately available funds the Lease
Balance and all past due and accrued and unpaid Rent upon the receipt of which
Lessor shall transfer all Parcels of Land and related Improvements to the Lessee
or its designee in accordance with Article XXI hereof.
XVI.3 Waiver of Certain Rights. Subject to the foregoing, if this
Master Lease shall be terminated pursuant to Section 16.2, the Lessee waives, to
the fullest extent permitted by law, (a) any notice of re-entry or the
institution of legal proceedings to obtain re-entry or possession; (b) any right
of redemption, re-entry or repossession except as expressly provided herein; (c)
the benefit of any laws now or hereafter in force exempting property from
liability for rent or for debt or limiting the Lessor with respect to the
election of remedies; and (d) any other rights which might otherwise limit or
modify any of the Lessor's rights or remedies under this Article XVI.
ARTICLE XVII
LESSOR'S RIGHT TO CURE
XVII.1 The Lessor's Right to Cure the Lessee's Lease Defaults. The
Lessor, without waiving or releasing any obligation or Lease Event of Default,
may (but shall be under no obligation to) remedy any Lease Event of Default for
the account and at the sole cost and expense of the Lessee, including the
failure by the Lessee to maintain the insurance required by Article XIII, and
may, to the fullest extent permitted by law, and notwithstanding any right of
quiet enjoyment in favor of the Lessee, enter upon any Property for such purpose
and take all such action thereon as may be necessary or appropriate therefor. No
such entry shall be deemed an eviction of the Lessee. All reasonable
out-of-pocket costs and expenses so incurred (including fees and expenses of
counsel), together with interest thereon at the Overdue Rate from the date on
which such sums or expenses are paid by the Lessor, shall be paid by the Lessee
to the Lessor as Supplemental Rent.
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ARTICLE XVIII
PURCHASE PROVISIONS
XVIII.1 Purchase of the Properties.
(a) Subject to the conditions contained herein, the Lessee
shall have the irrevocable option on any Business Day to purchase all
or subject, however, to clause (b) of this Section 18.1, certain of the
Properties subject to this Master Lease at a price (the "Purchase
Price") equal to that portion of the Lease Balance allocable to the
applicable Property or Properties on the date of such purchase, plus
Break Costs (if any). The Lessee's exercise of its option pursuant to
this Section 18.1 shall be subject to the following conditions:
(i) the Lessee shall have delivered a Purchase Notice
to the Lessor not less than thirty (30) days prior to such
purchase, specifying the date of such purchase;
(ii) the Lessee shall not have given notice of its
intention to exercise the Remarketing Option;
(iii) notwithstanding any other provision contained
herein, if any Environmental Violation shall not be remedied
by the Lessee with respect to any Property in accordance with
Section 14.2, the Lessee shall be deemed to have made a timely
election of its option to purchase such Property in accordance
with this Section 18.1.
(b) If the Lessee elects to purchase less than all of the
Properties, it may do so provided that if only two buildings are
subject to separate Lease Supplements, the Lessee may purchase only one
such building together with the parking garage, if any, then subject to
a separate Lease Supplement. If three buildings have been constructed
and are subject to separate Lease Supplements, the Lessee may purchase
one building with or without the parking garage or any two building
together with the parking garage; provided, however, that in each case
the Lessee must demonstrate to the reasonable satisfaction of the
Lessor that adequate adjacent parking complying with Applicable Law
remains available for the building(s) retained by the Lessor and that
such partial purchase has not materially diminished the Fair Market
Sales Value of such retained building(s).
(c) If the Lessee exercises its option pursuant to this
Section 18.1 then, upon the Lessor's receipt of all amounts due in
connection therewith, the Lessor shall transfer to the Lessee or its
designee all of the Lessor's right, title and interest in and to the
applicable Properties in accordance with the procedures set forth in
Section 21.1(a), such transfer to be effective as of the date specified
in the Purchase Notice. The Lessee may
28
<PAGE>
designate, in a notice given to the Lessor not less than ten (10)
Business Days prior to the closing of such purchase (time being of the
essence), the transferee or transferees to whom the conveyance shall be
made (if other than to the Lessee), in which case such conveyance shall
(subject to the terms and conditions set forth herein) be made to such
designee; provided, however, that such designation of a transferee or
transferees shall not cause the Lessee to be released, fully or
partially, from any of its obligations under this Master Lease,
including, without limitation, the obligation to pay to the Lessor that
portion of the Lease Balance allocable to the applicable Properties on
the date specified in the applicable Purchase Notice. The Lessee shall
have the right to elect by written notice to the Lessor and the Lender
to have all or part of any such Purchase Price paid by liquidation of
the Collateral so long as, in the case of a purchase of less than all
the Properties, Sufficient Collateral remains subject to the Pledge
Agreement.
ARTICLE XIX
EXTENSION OF EXPIRATION DATE
XIX.1 Extension of Expiration Date. The Lessee may extend the
Expiration Date subject to, and in accordance with, the terms and conditions of
Section 11.2 of the Participation Agreement.
ARTICLE XX
REMARKETING OPTION
XX.1 Option to Remarket. Subject to the fulfillment of each of the
conditions set forth in this Section 20.1, the Lessee shall have the option (the
"Remarketing Option") to market all of the Property on behalf of the Lessor.
The Lessee's effective exercise and consummation of the Remarketing
Option shall be subject to the due and timely fulfillment of each of the
following provisions as to the Property as of the dates set forth below:
(a) No earlier than twelve months and not later than six
months prior to the Scheduled Basic Lease Term Termination Date, the
Lessee shall give to the Lessor written notice of the Lessee's exercise
of the Remarketing Option, which exercise shall be irrevocable. Failure
by the Lessee to give timely notice shall be deemed to be an election
by the Lessee, without further act thereby, of its Purchase Option for
all of the Properties.
29
<PAGE>
(b) Not later than ninety (90) days prior to the Scheduled
Basic Lease Term Termination Date, the Lessee shall deliver to the
Lessor an Environmental Audit for the Properties. Such Environmental
Audit shall be prepared by an environmental consultant selected by the
Lessor in the Lessor's reasonable discretion and shall contain
conclusions reasonably satisfactory to the Lessor as to the
environmental status of the Properties. If any such Environmental Audit
indicates any exceptions, the Lessee shall have also delivered prior to
the Scheduled Basic Lease Term Termination Date, a Phase Two
environmental assessment by such environmental consultant and a written
statement by such environmental consultant indicating that all such
exceptions have been remedied in compliance with Applicable Law. As of
the Scheduled Basic Lease Term Termination Date, any Permitted Property
Liens (other than (x) Liens of the type described in clause (iii) of
the definition of "Permitted Property Liens" to the extent, but only to
the extent, the Lessor is in its opinion fully indemnified therefrom,
and (y) Liens of the type described in clause (vii) of the definition
of "Permitted Property Liens") on any Property that were contested by
the Lessee shall have been removed.
(c) No Event of Default shall have occurred and be continuing
that shall not have been cured on or prior to the Expiration Date.
(d) During the Marketing Period, the Lessee shall, as
nonexclusive agent for the Lessor, use reasonable commercial efforts to
sell the Lessor's interest in the Properties on or before the Scheduled
Basic Lease Term Termination Date and will attempt to obtain the
highest purchase price therefor and for not less than the Fair Market
Sales Value.
(e) The Lessee shall have obtained, at its cost and expense,
all required governmental and regulatory consents and approvals and
shall have made all filings as required by Applicable Law in order to
carry out and complete the transfer of each of the Properties. As to
the Lessor, any such sale shall be made on an "as is, with all faults"
basis without representation or warranty by the Lessor other than the
absence of Lessor Liens.
(f) The Lessee shall pay directly, and not from the sale
proceeds, all prorations and credits, whether incurred by the Lessor or
the Lessee, including without limitation, the cost of all environmental
reports, appraisals required under Section 13.2 of the Participation
Agreement and the Lessee's attorneys' fees.
(g) The Lessee shall pay to the Lessor on or prior to the
Scheduled Basic Lease Term Termination Date (or in the case of
Supplemental Rent, to the Person entitled thereto) an amount equal to
the Maximum Recourse Amount plus all accrued and unpaid Rent and all
other amounts hereunder which have accrued or will accrue prior to or
as of the Scheduled Basic Lease Term Termination Date, in the type of
funds specified in Section 3.1(b) hereof;
30
<PAGE>
(h) The gross proceeds (the "Gross Remarketing Proceeds") of
the sale of the Properties (less any marketing, closing or other costs,
prorations or commissions related to the marketing of the Properties),
shall be paid directly to the Lessor; provided, however, that if the
sum of (x) the Gross Remarketing Proceeds from such sale plus (y) the
Maximum Recourse Amount received by the Lessor pursuant to Section
20.1(g) creates an excess over the Lease Balance, then the excess shall
be paid to the Lessee promptly after receipt thereof by the Lessor. The
obligations of the Lessor under this paragraph shall survive the
expiration or termination of this Master Lease.
(i) No subleases affecting any Property shall be in effect on
the Scheduled Basic Lease Term Termination Date.
If the Lessee effectively elects the Remarketing Option and the sale of
any Property is not consummated prior to the end of the Marketing
Period, the Lessee shall, in addition to making the payment required
pursuant to Section 20.1(g) above, at its own cost and expense, do each
of the following:
(i) execute and deliver to the Lessor and the
Lessor's title insurance company an affidavit as to the
absence of any Liens (other than Permitted Property Liens of
the type described in clause (i), (vii), (viii), (ix) or (x)
Liens for taxes not yet due and Lessor Liens), and shall
execute and deliver to the Lessor a statement of termination
of this Master Lease to the extent relating to such Property;
(ii) on the Expiration Date, transfer possession of
such Property to the Lessor or any Person designated by the
Lessor, by surrendering the same into the possession of the
Lessor or such Person, as the case may be, in the condition
required by this Section 20.1 and in compliance with
Applicable Law; and
(iii) for a period of up to one year after the
Expiration Date, cooperate reasonably with the Lessor and/or
any Person designated by the Lessor to receive such Property,
which cooperation shall include reasonable efforts with
respect to the following, all of which the Lessee shall do on
or before the Expiration Date for such Property or as soon
thereafter as is reasonably practicable: providing copies of
all books and records regarding the maintenance and ownership
of such Property and all know-how, data and technical
information relating thereto, providing a current copy of the
applicable Plans and Specifications, granting or assigning all
assignable licenses necessary for the operation and
maintenance of such Property and cooperating reasonably in
seeking and obtaining all necessary Governmental Action. The
obligations of the Lessee under this paragraph shall survive
the expiration or termination of this Master Lease.
31
<PAGE>
Lessor shall have no obligation to approve any bid for the Properties
except for bona fide all-cash bids which, together with amounts payable by the
Lessee under clause (g) hereof, in the aggregate is at least equal to the Lease
Balance and the acceptance of which will not subject the Lessor to any
additional liability. Except as expressly set forth herein, the Lessee shall
have no right, power or authority to bind the Lessor or any Participant in
connection with any proposed sale of any Property.
If one or more of the foregoing provisions (a) through (i) shall not
be fulfilled as of the Expiration Date with respect to any Property, then the
Remarketing Option shall be null and void (whether or not it has been
theretofore exercised by the Lessee) as to all of the Properties, in which event
all of the Lessee's rights under this Section 20.1 shall immediately terminate
and the Lessee shall purchase from the Lessor, and the Lessor shall convey to
the Lessee, on the Expiration Date all of the Lessor's interest in all of the
Properties for an amount equal to the Lease Balance.
XX.2 Certain Obligations Continue. During the Marketing Period, the
obligation of the Lessee to pay Rent with respect to each Property (including
the installment of Rent due on the Expiration Date) shall continue undiminished
until payment in full of the Loan Balance plus any unpaid Supplemental Rent due
to the Lessor with respect to the Properties under the Operative Documents to
which the Lessee is a party. The Lessor shall have the right, but shall be under
no duty, to solicit bids, to inquire into the efforts of the Lessee to obtain
bids or otherwise to take action in connection with any such sale.
ARTICLE XXI
PROCEDURES RELATING TO PURCHASE OR REMARKETING
XXI.1 Provisions Relating to the Exercise of Purchase Option or
Obligation and Conveyance Upon Remarketing and Conveyance Upon Certain Other
Events.
(a) In connection with any termination of this Master Lease
with respect to any Property pursuant to the terms of Article XV, in
connection with any purchase or in connection with the Lessee's
purchase of any Property in accordance with Section 18.1 or in
connection with the Lessee's exercise of the purchase right under
Section 16.2, then, upon the date on which this Master Lease is to
terminate with respect to the applicable Property and upon the payment
of all amounts due under Section 5.1 of the Construction Agency
Agreement, as applicable, and upon tender by the Lessee of the amounts
set forth in Article XV, Sections 16.2 or 18.1, as applicable:
(i) the Lessor shall execute and deliver to the
Lessee (or to the Lessee's designee) at the Lessee's cost and
expense an instrument of transfer relating to the Lessor's
entire interest in such Property or Properties (which shall
include a
32
<PAGE>
termination of the Ground Lease and an assignment of all of
the Lessor's right, title and interest in and to any Net
Proceeds with respect to such Property or Properties not
previously received by the Lessor and an assignment of leases
of the Properties), in each case in recordable form and
otherwise in conformity with local custom and free and clear
of the Lien of the Lessor Mortgage and any Lessor Liens;
(ii) such Property or Properties shall be conveyed to
the Lessee "AS IS" and in its then present physical condition;
and
(iii) the Lessor shall execute and deliver to Lessee
and the Lessee's title insurance company an affidavit as to
the Lessor's title and release Lessor Liens and the Lessor
Mortgage and shall execute and deliver to Lessee a statement
of termination of this Master Lease to the extent this Master
Lease relates to such Property or Properties.
(b) If the Lessee properly exercises the Remarketing Option
and the Properties are sold, then the Lessee shall, on the Expiration
Date, and at its own cost, transfer possession of all of the Properties
to the independent purchaser(s) thereof, in each case by surrendering
the same into the possession of the Lessor or such purchaser(s), as the
case may be, free and clear of all Liens, in good condition (as
modified by Modifications permitted by this Master Lease), ordinary
wear and tear excepted, and in compliance with Applicable Law.
ARTICLE XXII
ESTOPPEL CERTIFICATES
XXII.1 Estoppel Certificates. At any time and from time to time upon
not less than thirty (30) Business Days' prior request by the Lessor or the
Lessee (the "Requesting Party"), the other party (whichever party shall have
received such request, the "Certifying Party") shall furnish to the Requesting
Party a certificate signed by an individual having the office of vice president
or higher in the Certifying Party certifying that this Master Lease is in full
force and effect (or that this Master Lease is in full force and effect as
modified and setting forth the modifications); the dates to which the Basic Rent
and Supplemental Rent have been paid; to the best knowledge of the signer of
such certificate, whether or not the Requesting Party is in default under any of
its obligations hereunder (and, if so, the nature of such alleged default); and
such other matters under this Master Lease as the Requesting Party may
reasonably request. Any such certificate furnished pursuant to this Article XXII
may be relied upon by the Requesting Party, and any existing or prospective
mortgagee, purchaser or lender, and any accountant or auditor, of, from or to
the Requesting Party (or any Affiliate thereof).
33
<PAGE>
ARTICLE XXIII
ACCEPTANCE OF SURRENDER
XXIII.1 Acceptance of Surrender. No surrender to the Lessor of this
Master Lease or of all or any of the Properties or of any part of any thereof or
of any interest therein shall be valid or effective unless agreed to and
accepted in writing by the Lessor and, prior to the payment or performance of
all obligations under the Loan Agreement and termination of the Commitments, the
Lender, and no act by the Lessor or the Lender or any representative or agent of
the Lessor or the Lender, other than a written acceptance, shall constitute an
acceptance of any such surrender.
ARTICLE XXIV
NO MERGER OF TITLE
XXIV.1 No Merger of Title. There shall be no merger of this Master
Lease or of the leasehold estate created hereby by reason of the fact that the
same Person may acquire, own or hold, directly or indirectly, in whole or in
part, (a) this Master Lease or the leasehold estate created hereby or any
interest in this Master Lease or such leasehold estate, (b) the fee or ground
leasehold estate in any Property, except as may expressly be stated in a written
instrument duly executed and delivered by the appropriate Person or (c) a
beneficial interest in the Lessor.
34
<PAGE>
ARTICLE XXV
INTENT OF THE PARTIES
XXV.1 Nature of Transaction.
(a) It is the intent of the parties that: (i) the Lease
constitutes an operating lease from Lessor to the Lessee for purposes
of the Lessee's financial reporting, (ii) the Lease and other
transactions contemplated will result in the Lessee being recognized as
the owner of the Properties for Federal and state income tax and
bankruptcy purposes, (iii) each Lease Supplement grants to Lessor a
Lien on the Lessee's interest in the Property (exclusive of Lessee's
fee interest in the Land) covered thereby, and (iv) the obligations of
the Lessee to pay Basic Rent and any part of the Lease Balance shall be
treated as payments of interest and principal, respectively, for
Federal and state income tax and bankruptcy purposes. The Lessor shall
be deemed to have a valid and binding security interest in and Lien on
the Lessee's interest in the Properties, free and clear of all Liens
other than Permitted Property Liens, as security for the obligations of
the Lessee under the Operative Documents (it being understood and
agreed that the Lessee does hereby grant a Lien, and convey, transfer,
assign, mortgage and warrant to Lessor and its successors, transferees
and assigns, for the benefit of the Lessor and its successors,
transferees and assigns, the Properties and any proceeds or products
thereof, to have and hold the same as collateral security for the
payment and performance of the obligations of the Lessee under the
Operative Documents), each of the parties hereto agrees that it will
not, nor will it permit any Affiliate to at any time, take any action
or fail to take any action with respect to the preparation or filing of
any income tax return, including an amended income tax return, to the
extent that such action or such failure to take action would be
inconsistent with the intention of the parties expressed in this
Section 25.1.
(b) Specifically, without limiting the generality of clause
(a) of this Section 25.1, the parties hereto intend and agree that in
the event of any insolvency or receivership proceedings or a petition
under the United States bankruptcy laws or any other applicable
insolvency laws or statute of the United States of America or any State
or Commonwealth thereof affecting Lessee, Lessor, any Participant or
any collection actions, the transactions evidenced by the Operative
Documents shall be regarded as loans made by the Participants to the
Lessee.
35
<PAGE>
ARTICLE XXVI
MISCELLANEOUS
XXVI.1 Survival; Severability; Etc. Anything contained in this Master
Lease to the contrary notwithstanding, all claims against and liabilities of the
Lessee or the Lessor arising from events commencing prior to the expiration or
earlier termination of this Master Lease shall survive such expiration or
earlier termination for a period of one year except as to indemnification which
shall continue to survive. If any term or provision of this Master Lease or any
application thereof shall be declared invalid or unenforceable, the remainder of
this Master Lease and any other application of such term or provision shall not
be affected thereby. If any right or option of the Lessee provided in this
Master Lease, including any right or option described in Article XIV, XV, XVIII
or XX, would, in the absence of the limitation imposed by this sentence, be
invalid or unenforceable as being in violation of the rule against perpetuities
or any other rule of law relating to the vesting of an interest in or the
suspension of the power of alienation of property, then such right or option
shall be exercisable only during the period which shall end twenty-one (21)
years after the date of death of the last survivor of the descendants of
Franklin D. Roosevelt, the former President of the United States, Henry Ford,
the deceased automobile manufacturer, and John D. Rockefeller, the founder of
the Standard Oil Company, known to be alive on the date of the execution,
acknowledgment and delivery of this Master Lease.
XXVI.2 Amendments and Modifications. Subject to the requirements,
restrictions and conditions set forth in the Participation Agreement, neither
this Master Lease nor any provision hereof may be amended, waived, discharged or
terminated except by an instrument in writing in recordable form signed by the
Lessor and the Lessee.
XXVI.3 No Waiver. No failure by the Lessor, any Participant or the
Lessee to insist upon the strict performance of any term hereof or to exercise
any right, power or remedy upon a default hereunder, and no acceptance of full
or partial payment of Rent during the continuance of any such default, shall
constitute a waiver of any such default or of any such term. To the fullest
extent permitted by law, no waiver of any default shall affect or alter this
Master Lease, and this Master Lease shall continue in full force and effect with
respect to any other then existing or subsequent default.
XXVI.4 Notices. All notices, demands, requests, consents, approvals and
other communications hereunder shall be in writing and directed to the address
described in, and deemed received in accordance with the provisions of, Section
15.3 of the Participation Agreement.
XXVI.5 Successors and Assigns. All the terms and provisions of this
Master Lease shall inure to the benefit of the parties hereto and their
respective successors and permitted assigns.
36
<PAGE>
XXVI.6 Headings and Table of Contents. The headings and table of
contents in this Master Lease are for convenience of reference only and shall
not limit or otherwise affect the meaning hereof.
XXVI.7 Counterparts. This Master Lease may be executed in any number of
counterparts, each of which shall be an original, but all of which shall
together constitute one and the same instrument.
XXVI.8 GOVERNING LAW. THIS MASTER LEASE SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK,
WITHOUT REGARD TO CONFLICTS OF LAW PRINCIPLES, EXCEPT AS TO MATTERS RELATING TO
THE CREATION OF THE LEASEHOLD ESTATES HEREUNDER AND THE EXERCISE OF RIGHTS AND
REMEDIES WITH RESPECT THERETO, WHICH SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAW OF THE STATE OF CALIFORNIA. WITHOUT LIMITING THE
FOREGOING, IN THE EVENT THAT THIS MASTER LEASE IS DEEMED TO CONSTITUTE A
FINANCING WHICH IS THE INTENTION OF THE PARTIES, THE LAWS OF THE STATE OF NEW
YORK, WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES, SHALL GOVERN THE CREATION,
TERMS AND PROVISIONS OF THE INDEBTEDNESS EVIDENCED HEREBY, BUT THE LIEN CREATED
HEREBY AND THE CREATION AND THE ENFORCEMENT OF SAID LIEN SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATES IN WHICH SUCH ESTATES ARE
LOCATED.
XXVI.9 Liability Limited. The parties hereto agree that except as
specifically set forth in this Master Lease or in any other Operative Document,
the Lessor shall have no personal liability whatsoever to the Lessee or the
Lender or their respective successors and assigns for any claim based on or in
respect of this Master Lease or any of the other Operative Documents or arising
in any way from the transactions contemplated hereby or thereby and the recourse
shall be solely had against the Lessor's interest in the Properties; provided,
however, that Lessor shall be liable in its individual capacity (a) for its own
willful misconduct or gross negligence, (b) breach of any of its
representations, warranties or covenants under the Operative Documents, or (c)
for any Tax based on or measured by any fees, commission or compensation
received by it for acting as the Lessor as contemplated by the Operative
Documents; and further provided nothing therein shall impair or limit the rights
of Lessee against the Lender or Lessor relating to any Collateral held by either
of them from time to time under the Operative Documents.
XXVI.10 Original Lease. The single executed original of this Master
Lease marked "THIS COUNTERPART IS THE ORIGINAL EXECUTED COUNTERPART" on the
signature page thereof and containing the receipt thereof of Societe Generale,
New York Branch, as the Lender therefor on or following the signature page
thereof shall be the Original Executed
37
<PAGE>
Counterpart of this Master Lease (the "Original Executed Counterpart"). To the
extent that this Master Lease constitutes chattel paper, as such term is defined
in the Uniform Commercial Code as in effect in any applicable jurisdiction, no
security interest in this Master Lease may be created through the transfer or
possession of any counterpart other than the Original Executed Counterpart.
38
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Master Lease be duly executed
and delivered as of the date first above written.
ELECTRONICS FOR IMAGING, INC.,
as Lessee
By /s/ Eric Saltzman
---------------------------------
Name: Eric Saltzman
Title: CFO
39
<PAGE>
SOCIETE GENERALE FINANCIAL
CORPORATION, as Lessor
By /s/ Powell Robinson III
---------------------------------
Name: Powell Robinson III
Title: First Vice President
40
<PAGE>
THIS COUNTERPART IS THE ORIGINAL EXECUTED COUNTERPART.
Receipt of this original counterpart of the foregoing Lease is hereby
acknowledged as of the date hereof.
SOCIETE GENERALE, acting through its New York Branch,
as Lender
By /s/ Jay Sands
---------------------------------
Name: Jay Sands
Title: Managing Director
41
<TABLE>
EFI Subsidaries
As of December 31, 1999
<CAPTION>
Name Jurisdiction of Organization Doing Business As*
<S> <C> <C>
Electronics for Imaging Australia Pty Ltd Australia
EFI Brazil LTDA Brazil Electronics for
Imaging do Brazil
EFI (Canada), Inc. Canada
Electronics for Imaging, International Cayman Islands
Electronics for Imaging France SARL France EPLI
Electronics for Imaging GmbH Germany EFI Deutschland
Electronics for Imaging Italia SRL Italy
EFI KK Japan Electronics for
Imaging KK
Electronics for Imaging, B.V. Netherlands
Electronics for Imaging Singapore Pte Ltd Singapore
Electronics for Imaging AB Sweden Electronics for
Imaging Sweden
Electronics for Imaging (Europe) Limited UK Electronics for
Imaging UK
EFI Foreign Sales Corporation, Inc. US Virgin Islands
Electronics for Imaging (Israel) Ltd Israel
<FN>
* "Doing Business As" names have been listed only where they differ from the name of the subsidiary.
</FN>
</TABLE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Forms S-8 (Nos. 33-56422, 33-80523, 33-85762, 33-93602, 333-11685
and 33-88135) of Electronics for Imaging, Inc. of our report dated January 18,
2000 appearing in this Form 10-K. We also consent to the incorporation by
reference of our report dated January 18, 2000 relating to the consolidated
financial statement schedules, which appears in this Annual Report on Form 10-K.
PRICEWATERHOUSECOOPERS LLP
San Jose, California
March 16, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
condensed balance sheet, condensed statement of operations and condensed
statement of cash flows included in the Company's Form 10-K for the year ended
December 31, 1999 and is qualified in its entirety by reference to such
financial statements and the notes thereto.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 163,824
<SECURITIES> 306,504
<RECEIVABLES> 83,170
<ALLOWANCES> 1,266
<INVENTORY> 11,878
<CURRENT-ASSETS> 589,012
<PP&E> 100,441
<DEPRECIATION> 50,665
<TOTAL-ASSETS> 656,075
<CURRENT-LIABILITIES> 101,421
<BONDS> 3,467
0
0
<COMMON> 557
<OTHER-SE> 550,630
<TOTAL-LIABILITY-AND-EQUITY> 656,075
<SALES> 570,752
<TOTAL-REVENUES> 570,752
<CGS> 290,636
<TOTAL-COSTS> 290,636
<OTHER-EXPENSES> 154,169
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 142,197
<INCOME-TAX> 46,914
<INCOME-CONTINUING> 95,283
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 95,283
<EPS-BASIC> 1.74
<EPS-DILUTED> 1.67
</TABLE>
