Kevin J. Yourman (147159)
James E. Tullman (175008)
WEISS & YOURMAN
10940 Wilshire Blvd.
24th Floor
Los Angeles, CA 90024
(310) 208-2800

Joseph H. Weiss
WEISS & YOURMAN
551 Fifth Avenue
New York, NY 10176
(212) 682-3025

Attorneys for Plaintiffs

Plaintiffs, complaining of the defendants, by their attorneys, allege upon personal knowledge as to themselves and upon information and belief as to other matters, based upon an investigation by plaintiffs' counsel, including, among other things, a review and analysis of documents, including the SEC filings of Electronics for Imaging, Inc. ("EFI" or the "Company"), securities analysts reports and advisories about the Company, press releases issued by the Company, and media reports about the Company, as follows:

1. This Court has jurisdiction over this action pursuant to 28 U.S.C. §§ 1331 and 1337, and Section 27 of the Securities Exchange Act of 1934 (the "Exchange Act") (15 U.S.C. § 78aa).

2. This action arises under Section 10(b) and 20(a) of the Exchange Act (15 U.S.C. §§ 78j(b) and 78t(a)), and Rule 10b-5 promulgated thereunder (17 C.F.R. § 240.10b-5).

3. Venue is proper in this District pursuant to Section 27 of the Exchange Act and 28 U.S.C. § 1391(b). EFI has its corporate headquarters and principal place of business in this District, and many of the acts and much of the conduct constituting the violations of law set forth herein occurred in this District. Furthermore, as hereinafter alleged, one or more of the defendants resides in this District, and the claims herein stated either arose in or out of conduct occurring or emanating from this District. 

4. In connection with the acts alleged in this complaint, the defendants, directly or indirectly, used the means and instrumentalities of interstate commerce, including, but not limited to, interstate telephone communications, the mails and the national securities markets.

5. Plaintiff James C. Smith purchased 2000 shares of EFI common stock at $43.375 per share and 3000 shares of EFI common stock at $43.875 on December 8, 1997, and was assigned 5000 shares of EFI common stock at $45.00 per share on December 20, 1997, based on sale of a put option on December 9, 1997, and has been damaged thereby.

6. Plaintiff Efren Rivera purchased 500 shares of EFI common stock on October 27, 1997 at $49.00 per share and 500 shares of EFI common stock on December 9, 1997 at $44.50 per share and has been damaged thereby.

7. Defendant EFI is a Delaware corporation with its principal place of business located at 2855 Campus Drive, San Mateo, CA 94403. EFI is a public company whose shares are traded in an efficient market on the NASDAQ national market system under the symbol "EFII." EFI markets and develops products and technologies that enable digital color printing over computer networks. EFI's products are distributed by the Company's OEM partners -- Canon, Digital Equipment Corporation, Epson, IBM, Kodak/Danka Business Systems, Konica, Minolta, Oc, Ricoh, Sharp and Xerox. The Company's products are installed in corporations, advertising agencies, graphic design studios and print-for-pay businesses. During the Class Period, EFI issued and sold thousands of shares of stock via various stock option plans ("Option Plans") for proceeds to EFI of almost $7 million. The Option Plans also materially benefited EFI by providing a source of officer and employee compensation.

8. Defendant Dan Avida ("Avida") has served as EFI's President, Chief Operating Officer and Board member since October 1994. At all times relevant hereto, defendant Avida has also served as EFI's principal financial officer. During the Class Period, defendant Avida sold 65,000 shares of EFI stock for proceeds of $3,532,500.

9. Defendant Jeffrey Lenches ("Lenches") has served as Executive Vice President since October 1994. During the Class Period, defendant Lenches sold 90,008 shares of EFI stock for proceeds of $4,805,426.

10. Defendant Fred Rosenzweig ("Rosenzweig") has served as Vice President, Manufacturing and Support since January 1995. During the Class Period, defendant Rosenzweig sold 32,500 shares of EFI stock for proceeds of $1,706,250.

11. Defendant Eric Saltzman ("Saltzman") has served as Vice President, Strategic Relations, and General Counsel since October 1995. During the Class Period, defendant Saltzman sold 33,500 shares of EFI stock for proceeds of $l,742,000.

12. The individuals named as defendants above are referred to collectively herein as the "Individual Defendants."

13. At all times herein, defendants and each of them, undertook each and every action as set forth in this complaint as the agents, employees, aiders, abettors, co-conspirators of each and every other defendant herein and, in so doing, acted within the scope and authority of said relationship with each and every other defendant herein.

14. As officers, directors and/or controlling persons of a Company which is registered with the SEC under the federal securities laws, whose common stock is registered with the SEC, traded on the NASDAQ Stock Exchange, and governed by the provisions of the federal securities laws, the Individual Defendants, as officers and/or directors of a publicly-held company, and as controlling persons of EFI, each had a duty to disseminate promptly accurate and truthful information with respect to the Company's operations, business, products, markets, management, earnings and present and future business prospects, to correct any previously issued statements that had become materially misleading or untrue, and to disclose any trends that would materially affect earnings and the present and future results of EFI, so that the market price of the Company's publicity traded securities would be based upon truthful and accurate information. Under rules and regulations promulgated by the SEC under the Exchange Act, specifically Item 303 of Regulation S-K, the Individual Defendants also had a duty to report all trends, demands or uncertainties that were reasonably likely to impact (i) EFI's net sales, revenue and/or income; and/or (ii) previously reported financial information such that it would not be indicative of future operating results. The Individual Defendants' representations during the Class Period violated these specific requirements and obligations.

15. The Individual Defendants all participated in the drafting, preparation, and/or approval of the various public and shareholder and investor reports and other communications complained of herein and were aware of, or recklessly disregarded, the misstatements contained therein and omissions therefrom, and were aware of their materially misleading nature. Because of their Board membership and/or executive and managerial positions with EFI, each of the Individual Defendants had access to the adverse non-public information about the Company's business prospects within the above-referenced market as particularized herein and knew that these adverse facts rendered the positive statements made by and about EFI and its business and future sales materially false and misleading.

16. The Individual Defendants, because of their positions of control and authority as officers and/or directors of the Company, were able to, and did, control the contents of the various financial reports, press releases and presentations to securities analysts pertaining to the Company. As to each of the reports and/or filings that they issued and/or signed, each of the Individual Defendants is responsible for the accuracy of the public reports and releases detailed herein and is therefore primarily liable for the representations contained therein.

17. Each of the defendants is liable as a participant in a fraudulent scheme and common course of conduct that operated as fraud and deceit on purchases of EFI's stock, by disseminating materially false and misleading statements and/or concealing material, adverse facts. The scheme: (i) deceived the investing public regarding EFI's business, its performance and performance trends and the intrinsic value of the Company's shares; (ii) caused plaintiffs and other members of the Class to purchase EFI stock at artificially inflated prices; and (iii) permitted the Individual Defendants to profit handsomely from insider sales of the stock at highly inflated prices.

18. Each defendant had the opportunity and motive to commit the acts alleged herein. The Individual Defendants who, by their positions as officers and/or directors, controlled the dissemination of false and misleading information to the public through SEC filings, press releases and communications with analysts, benefitted from the positive public and industry-wide perception of EFI and from their sale of stock at artificially inflated prices. By virtue of their positions with EFI and because of the significant reputation and monetary benefit they stood to gain from a positive public perception of EFI and as a result of artificially inflated stock prices, the Individual Defendants had both the opportunity and motive to commit the acts alleged herein.

19. In light of the foregoing, the Individual Defendants throughout the Class Period knew or were reckless in disregarding that:

(a) Defendants had no reasonable basis for the belief that EFI's sales would continue to increase at the same rapid levels it had experienced in previous years because there was an excess amount of inventory already on hand at EFI's partner Japanese OEMs and in other distribution channels;

(b) Such partner OEMs represented "significantly more than half" of EFI's quarterly revenue;

(c) Future demand for EFI's products would, thus, be limited by the backlog of products already in the distribution channels;

(d) There was no basis for assuming such backlog would clear soon as EFI was still shipping products to OEMs and its distributors at a faster rate than was being resold to end-users;

(e) Both Japanese and other partner OEMs anticipated the launch of new products from EFI and were thus reducing their inventories of EFI's older products;

(f) Such launch of new products was going to be delayed due in part to internal problems at EFI and in part to additional quality controls imposed by EFI's customers;

(g) EFI's 1997 and early 1998 revenues were still highly dependent on sales of the older products, orders for which EFI knew were not materializing;

(h) EFI's own internal projections could not show that EFI was expecting to sustain the same growth rate it had experienced in prior quarters.

20. By and through the acts of its officers and/or directors, EFI also had both the opportunity and motive to commit the acts alleged herein. As a publicly held company, defendant EFI had the opportunity to disseminate false and misleading information to the public through SEC filings, press-releases and communications with analysts and in fact, took advantage of this opportunity by committing the acts alleged herein. Moreover, defendants benefitted from portraying EFI as a financially strong company who's future growth was unlimited because it made the Company look more attractive to potential investors. EFI was thus able to sell thousands of shares of stock via Option Plans for proceeds to EFI of almost $7 million. The Option Plans also materially benefited EFI by providing a means of officer and employee compensation at a perceived rate greater than that of the actual value of the stock.

21. All of the defendants identified above engaged in a common enterprise and common course of conduct to accomplish the wrongs complained of herein. The purpose and effect of the common enterprise and common course of conduct complained of herein was to artificially inflate the trading price of the common stock of EFI by means of material misrepresentations and/or omissions of material facts, by employing devices, schemes or artifices to defraud, and by engaging in acts, practices and courses of business which operate as a fraud and deceit upon plaintiffs and the other members of the Class.

22. Plaintiffs bring this action as a class action pursuant to Federal Rule of Civil Procedure 23(a) and (b)(3) on behalf of a Class, consisting of all persons who purchased or otherwise acquired shares of EFI common stock from April 10, 1997 through December 11, 1997, inclusive (the "Class Period"), and who were damaged thereby. Excluded from the Class are the defendants, officers and directors of the Company, members of their immediate families and their legal representatives, heirs, successors or assigns and any entity in which any defendant has or had a controlling interest.

23. The members of the Class are so numerous that joinder of all members is impracticable. Although the exact number of Class members is unknown to plaintiffs at this time and can only be determined through appropriate discovery, plaintiffs believe that there are at least hundreds of members in the Class. During the Class Period, there were over 50 million shares of EFI common stock outstanding and actively traded over-the-counter on NASDAQ, an efficient market in which millions of shares of the Company's stock were traded during the Class Period. Record owners and other members of the Class may be identified from records maintained by EFI or its transfer agent and may be notified of the pendency of this action by mail, using the form of notice similar to that customarily used in securities class actions.

24. Common questions of law and fact exist as to all members of the Class and predominate over any questions which may affect solely individual members of the Class. Among such common questions of law and fact are:

(a) Whether the federal securities laws were violated by defendants' acts as alleged herein;

(b) Whether defendants participated in and pursued the common course of conduct complained of herein;

(c) Whether financial statements and other documents, press releases and other statements disseminated to the investing public and the Company's shareholders during the Class Period misrepresented material facts about the business, results of operations, financial condition, and/or prospects of EFI;

(d) Whether statements made by defendants to the investing public during the Class Period misrepresented material facts about the business and finances of EFI;

(e) Whether the market price of EFI's common stock during the Class Period was artificially inflated due to the material misrepresentations and omissions complained of herein; and

(f) Whether the members of the Class have sustained damages and, if so, the proper measure of damages.

25. Plaintiffs' claims are typical of the claims of the Class. Plaintiffs and all members of the Class are similarly affected by defendants' wrongful conduct in violation of federal law as complained of herein.

26. Plaintiffs will fairly and adequately protect the interests of the members of the Class and have retained counsel competent and experienced in securities and class litigation.

27. A class action is superior to other available methods for the fair, efficient adjudication of this controversy, since joinder of all members of the Class is impracticable. There will be no difficulty in the management of this action and as a class action. Furthermore, the damages suffered by individual Class members may be relatively small, and the expense and burden of individual litigation make it impossible for members of the Class to individually address the wrongs done to them.

28. Plaintiffs will rely, in part, upon the presumption of reliance established by the fraud-on-the-market doctrine in that:

(a) Defendants made public misrepresentations and/or omitted material facts during the Class Period, as alleged herein;

(b) The misrepresentations and/or omissions were material;

(c) EFI's common stock was traded in an efficient market;

(d) The misrepresentations and/or omissions alleged herein tended to induce reasonable investors to misjudge the value of EFI shares; and

(e) Plaintiffs and members of the Class acquired their shares without knowledge of the falsity of defendants' representations and/or material omissions from their statements.

29. Based upon the foregoing, plaintiffs and members of the Class are entitled to a presumption of reliance upon the integrity of the market for, at least, purposes of class certification as well as for ultimate proof of the claims on their merit. Similarly, plaintiffs and members of the Class are entitled to a presumption of reliance with respect to the omissions alleged herein.

31. On April 10, 1997, defendants caused EFI to issue a press release announcing "record revenue and earnings for the first quarter of 1997." Reported revenue for the first quarter was a record $91 million, up 43% from $63.6 million recorded in the first quarter of the previous year, and up 0.9% from the fourth quarter of the previous year. Net income increased 62.2% to a record $20.4 million or $0.37 per share for the first quarter of 1997, compared to $12.6 million, or $0.23 per share for the same period of the previous year. In this release, defendant Avida stated that "[s]trong demand for EFI's full range of Fiery products and rapid adoption of the low cost Fiery controllers we introduced at the end of 1996, set the stage for our 23rd consecutive quarter of record revenue. . . . Our strategy of expanding the market for Fiery products is bearing fruit."

32. On or about May 7, 1997, defendants caused EFI to file its Report on Form 10-Q for the first quarter ended March 31, 1997 with the SEC. The first quarter 1997 Form 10-Q contained EFI's first quarter 1997 financial results as previously reported on April 10, 1997. The first quarter 1997 Form 10-Q also contained the following representations in the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations":

The increase in revenue reflects continued market acceptance of the Company's Fiery XJ Color Server and Fiery XJe Controller products, the expansion of the Company's sales and marketing organizations, and increased revenues from the Company' s OEM sales channels due to the above-mentioned market acceptance and an increase in the number of the Company's OEM partners. Substantially, all of the Company's sales in the first quarter of 1997 and 1996 were to its OEM partners. No assurance can be given that the Company's relationships with these OEM partners will continue; in the event that any of such relationships is discontinued or scaled back, the Company could experience a significant negative impact on its consolidated financial position and results of operations.

The first quarter 1997 Form 10-Q was signed by defendants Avida and Saltzman, who together with defendants Lenches and Rosenzweig prepared, drafted and caused the Form 10-Q to be filed with the SEC.

33. On July 10, 1997, defendants caused EFI to issue a press release announcing EFI "[b]reaks $ 100 million quarterly revenue milestone for Q2 1997; Record-Breaking income is also achieved." Reported revenue for the second quarter was $100.6 million, compared to $69 million in the second quarter of 1996, a 46% increase. Income from operations for the second quarter of 1997 was $32.6 million, compared to $20 million in the second quarter of 1996, a 63% increase. Net income also increased 63% to $22.6 million or $0.41 per share for the second quarter of 1997, compared to $13.9 million or $0.25 per share for the same period in 1996. For the six months ended June 30, 1997, revenue was $191.6 million compared to $132.7 million in the six month period a year earlier, a 44% increase. For the six months ended June 30, 1997, income from operations was $62 million compared to $38.1 million in the six month period a year earlier, a 63% increase. Net income for the six months ended June 30, 1997 increased 62% to $43 million or $0.77 per share, compared to $26.5 million, or $0.49 per share for the same period in 1996. Defendant Avida represented in the release that "[w] e are extremely pleased to have surpassed the $100 million quarterly revenue milestone within six years of shipping the first Fiery and to report our twenty-fourth consecutive record-breaking revenue quarter. . . . Our financial results demonstrate our success in developing the high-end of the market, continued strength in the mid-range, as well as expansion in the low-end desktop and embedded sectors."

34. On or about August 7, 1997, defendants caused EFI to file its Report on Form 10-Q for the second quarter ended June 30, 1997 with the SEC. The second quarter 1997 Form 10-Q contained EFI's second quarter 1997 financial results as previously reported on July 10, 1997. The second quarter 1997 Form 10-Q also contained the following representations in the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations":

The increases in revenue are a result of ongoing expansion of the Company's sales and marketing organizations and corresponding new market penetration, as well as introductions of new features on the Company's Fiery XT Color Server and Fiery XJe Controller products. In addition, as the color print market continues to expand, the Company benefits from the industry expansion. Substantially all of the Company's sales in the three and six month periods ending June 30, 1997 and June 30, 1996 were to its OEM partners. No assurance can be given that the Company's relationships with these OEM partners will continue. In the event that any of such relationships is discontinued or scaled back, the Company could experience a significant negative impact on its consolidated financial position and results of operation.

The second quarter 1997 Form 10-Q was signed by defendants Avida and Saltzman, who together with defendants Lenches and Rosenzweig prepared, drafted and caused the Form 10-Q to be filed with the SEC.

35. On August 21, 1997, defendants caused EFI to issue a press release announcing that EFI had been selected to receive the National Association of Investors Corporations ("NAIC") prestigious "Growth Company of the Year" award. Defendants represented that the Company was "honored as an outstanding example of 'American Free Enterprise' for its excellent sales and earnings growth, service, management, and public/employee relations." In this release, defendants represented that "[w]ith 24 consecutive record-breaking revenue quarters, the company showed $298 in sales revenue and $1.13 earnings per share for FY 96, an increase of 56 percent over the previous year." Defendant Avida represented in this release that "[t]his award acknowledges the extraordinary degree of employee commitment that has resulted in EFI's steady growth since 1989."

36. On October 9, 1997, defendants caused EFI to issue a press release announcing its "25th Consecutive Quarter of Revenue Growth" for the third quarter of fiscal 1997, ended September 30, 1997. Revenue for the third quarter was $107.3 million in the third quarter of 1997 compared to $75.1 million in the third quarter of 1996, a 43% increase. Income from operations for the third quarter of 1997 was $34.8 million, compared to $22.6 million in the third quarter of 1996, a 54% increase. Net income also increased 54% to $23.9 million or $0.43 per share for the third quarter of 1997, compared to $15.6 million or $0.28 per share for the same period in 1996. For the nine months ended September 30, 1997, revenue was $299 million compared to $207.8 million in the nine month period a year earlier, a 44% increase. For the nine months ended September 30, 1997, income from operations was $96.8 million compared to $60.6 million in the nine month period a year earlier, a 60% increase. Net income for the nine months ended September 30, 1997 increased 59% to $67 million or $1.20 per share, compared to $42.1 million, or $0.77 per share for the same period in 1996. Defendant Avida represented in the release that "[t]he strong demand for our wide range of products has again been demonstrated by our 25th consecutive quarter of revenue growth."

37. On November 3, 1997, defendants caused EFI to issue a press release announcing that it had been named a "Top Five Growth Company" by the American Electronics Association ("AEA") at AEA's annual financial conference. In this release, defendants represented that "[t]he 'Top Five Growth Company' honor is awarded annually by the AEA to five outstanding high tech companies, based on stock price growth over the past five years." Defendants further represented that "[w]ith 25 consecutive record-breaking revenue quarters, the company' s stock price increased from an adjusted price of $3.19 per share (as of the IPO 10/2/92) to $51. 00 per share (as of 9/30/97) , a rise of 47.81 points, or 1600 percent." Defendant Avida represented in this release that "[t]he award acknowledges the extraordinary degree of employee commitment that has resulted in EFI's steady growth since 1989."

38. On or about November 13, 1997, defendants caused EFI to file its Report on Form 10-Q for the third quarter ended June 30, 1997 with the SEC. The third quarter 1997 Form 10-Q contained EFI's third quarter 1997 financial results as previously reported on July 10, 1997. The third quarter 1997 Form 10-Q also contained the following representations in the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations":

Revenue growth has been generated by ongoing expansion of the Company's sales and marketing organizations and corresponding new market penetration, as well as introductions of new features on the Company's Fiery XJ color Server and Fiery XJe Controller products. Additionally, the company continues to benefit from the ongoing expansion of the color print market worldwide.

International revenue continued to grow in the third quarter of 1997 and was affected by sales mix and certain OEM product requirements and shipping requirements. Direct sales into Japan accounted for approximately 19% and 23% of revenue in the third quarter of 1997 and 1996, respectively. This decline is due to some softness in the Japanese economy that has shifted the company's geographic mix more toward the European, Domestic and Rest-of-World regions. Sales into Japan were 19% and 23% of revenue for the nine months ended September 30, 1997 and 1996, respectively. This also is a result of the mix shift mentioned above as well as a large product launch and the resultant pipeline fill in the second quarter of 1996.

* * *

The Company continues to derive the substantial majority of its revenue from OEM agreements with its partners. No assurance can be given that the Company's relationships with these OEM partners will continue. In the event that any of such relationships is discontinued or scaled back, the Company could experience a significant negative impact on its consolidated financial position and results of operations.

The third quarter 1997 Form 10-Q was signed by defendants Avida and Saltzman, who together with defendants Lenches and Rosenzweig prepared, drafted and caused the Form 10-Q to be filed with the SEC.

39. Each of the statements made above was materially false and/or misleading when made as defendants already knew at the time and misrepresented and/or failed to disclose that:

(a) Defendants had no reasonable basis for the belief that EFI's sales would continue to increase at the same rapid levels it had experienced in previous years because there was an excess amount of inventory already on hand at EFI's partner Japanese OEMs and in other distribution channels;

(b) Such partner OEMs represented "significantly more than half" of EFI's quarterly revenue;

(c) Future demand for EFI's products would, thus, be limited by the backlog of products already in the distribution channels;

(d) There was no basis for assuming such backlog would clear soon as EFI was still shipping products to OEMs and its distributors at a faster rate than was being resold to end-users;

(e) Both Japanese and other partner OEMs anticipated the launch of new products from EFI and were thus reducing their inventories of EFI's older products;

(f) Such launch of new products was going to be delayed due in part to internal problems at EFI and in part to additional quality controls imposed by EFI's customers;

(g) EFI's 1997 and early 1998 revenues were still highly dependent on sales of the older products, orders for which EFI knew were not materializing;

(h) EFI's own internal projections could not show that EFI was expecting to sustain the same growth rate it had experienced in prior quarters.

40. After the close of the stock market on December 11, 1997, EFI stunned the market by revealing that it expected its revenues for the fourth quarter, ended December 31, 1997, to be in the range of $60 million, half of the $120 million in revenues defendants knew the market had been forecasting for the fourth quarter, and compared with $107 million in the third quarter of 1997. EFI also revealed that it expected to report earnings per share of $.06 (excluding charges for the Pipeline acquisition) , compared with the market's expectation that the Company would earn $0.49, and compared with earnings per share of $0.43 in the third quarter of 1997. The Company blamed the revenue and earnings shortfall to aggressive reductions of inventory by its customers, delays in purchases associated with product transitions, and weakness in the Asian economies. As a result of these revelations, EFI's stock price plunged 60% from a close of $39 on December 11, 1997, to as low as $14.50 on December 12, 1997, before closing at $14.88 on huge volume of more than 32 million shares traded.

41. Immediately following the December 11, 1997, press release, EFI held a conference call to explain the quarterly results. In that call, defendants admitted that during 1997, EFI's OEM customers in Japan had up to two months of inventory on hand; that these Japanese OEMs equaled significantly more than half of the Company's quarterly revenue; that these customers were aggressivly cutting their inventories; that such inventory reduction was caused in part by the OEMs' anticipation of new products from EFI, which new products were not expected to ship until mid to late 1998; that EFI's margins were or are declining and will continue to decline in 1998 as EFI's product mix shifts to lower-end products with significantly lower margins than existing products; that EFI's 1997 revenues were highly dependent upon sales of the Company' s older XJ products, of which EFI's Japanese OEMs had two months of inventory; and the Company expected its first quarter 1998 revenue to be "flat to slightly up."

42. On or about November 13, 1997, EFI filed its Report on Form 10-Q for the quarter ended September 30, 1997. The report stated in part:

Factors That Could Adversely Affect Performance

The following may impact the Company's future performance and financial results.

* * *

Product Transitions. Delays in the launch or availability of new product models could have an adverse effect on the Company's financial results. Product transitions also carry the risk that customers will delay or cancel orders for existing models pending shipments of new models. If the Company is not able to successfully manage future product transitions or cannot guarantee the availability of products its results of operations could be adversely affected.

* * *

Competition. The Company has seen competition in the market from companies and products that provide similar functionality and believes that such competition will continue and may intensify. In addition, the marketplace for printer controllers and black and white servers involves competitors with significant resources. There can be no assurance that the Company will be able to continue to successfully compete against other companies, product offerings or their financial and other resources.

* * *

Reliance on OEM partners. No assurance can be given that the Company will continue to supply products to each of its current OEM partners. In the event that an OEM partner discontinues or reduces its level of purchases of Fiery XJ Color Servers, the Company would experience a significant negative impact on its consolidated financial position and results of operations.

Fluctuations in Operating Results. Operating results may fluctuate due to factors such as demand for the Company's products, success and timing of the introduction of new products, price reductions by the Company and its competitors, delay, cancellation or rescheduling of orders, product performance, seasonal purchasing patterns of its OEM partners, performance of third-party manufacturers, product inventory levels, availability of key components for the Company' s products, the status of the Company's relationships with its OEM partners and Adobe, among others, and the Company' s ability to develop and market new products, the timing and amount of sales and marketing expenditures, costs of developing new product offerings and the general demand for color copiers and color laser printers.

Limited Backlog. The Company typically does not obtain long-term volume purchase contracts from its customers, and a substantial portion of the Company's backlog is scheduled for delivery within 90 days or less. Customers may cancel orders and change volume levels or delivery times without penalty. Quarterly sales and operating results, therefore depend on the volume and timing of the backlog as well as bookings received during the quarter. A significant portion of the Company' a operating expenses are fixed, and planned expenditures are based primarily on sales forecasts and product development programs. If sales do not meet the Company's expectations in any given period, the adverse impact on operating results may be magnified by the Company's inability to adjust operating expenses sufficiently or quickly enough to compensate for such a shortfall.

Volatility of Stock Price. Due to various factors, including those noted above, the Company's future earnings and stock price may be subject to significant volatility, particularly on a quarterly basis. Any shortfall in revenue or earnings from levels expected by securities analysts could have an immediate and significant adverse effect on the trading price of the Company's common stock in any given period. The Company participates in a highly dynamic industry, which often results in a significant volatility for the Company's common stock price.

43. Similar boilerplate warnings were included in EFI's Reports on Form 10-Q for the quarters ended March 31 and June 30, 1997. However, the warnings in the Reports on Form 10-Q were nothing but generic statements of the kind of risks that affect any rapidly growing manufacturer of high-tech products and contained no specific factual disclosure of any of the adverse factors which were then actually negatively impacting EFI's business as set forth above. The language in the risk factor section of EFI's third quarter 1997 Form 10-Q did not change in any meaningful or material way from the first or second quarter 1997 Form 10-Qs despite the fact that the state of EFI's business, and the risks affecting it, materially changed for the worse over that time period. In fact, EFI omitted one of the most important factors affecting its business -- the large amount of unsold product accumulating in the channel, which had the potential of dramatically reducing short-term future results.

44. While EFI's insiders were issuing false and misleading statements about EFI's business and finances, the Individual Defendants sold 221,000 shares of EFI stock for proceeds of almost $12 million in profit from the artificial inflation in EFI's stock price their misleading statements had created. Notwithstanding their access to non-public information as a result of their positions with the Company, the Individual Defendants made the following sales of their EFI stock:

45. The chart below shows EFI's stock prices during the class period, defendants' stock sales at inflated prices, and the stock's stunning collapse as the true facts were revealed on December 11, 1997:

46. As a result of the foregoing misrepresentations, Plaintiffs and the Class suffered damages resulting from their purchases of common stock of EFI at artificially inflated prices, including the over 7 million new shares issued by EFI during the Class Period. During the Class Period, the common stock of EFI traded as high as $56 per share.

47. This action is brought (i) within three years of the purchases and sales of the EFI common stock which are the subject of this action and within three years of the misrepresentations which are the basis of this action and (ii) within one year of the discovery of the misrepresentations which are the basis of this action and within one year of the date that such misrepresentations could have been discovered with the exercise of reasonable diligence.

48. Plaintiffs repeat and reallege the allegations set forth above as though fully set forth herein.

49. During the Class Period, the defendants, and each of them, carried out a plan, scheme and course of conduct which was intended to and did: (i) deceive the investing public, including the plaintiffs and the other Class members; (ii) artificially inflate and maintain the market price of EFI securities; and (iii) cause plaintiffs and other members of the Class to purchase EFI securities at inflated prices. In furtherance of this unlawful scheme, plan and course of conduct, defendants, and each of them, took the actions set forth herein.

50. Defendants (a) employed devices, schemes and artifices to defraud; (b) made untrue statements of material fact and/or omitted to state material facts necessary to make the statements not misleading; and (c) engaged in acts, practices and a course of business which operated as a fraud and deceit upon the purchasers of the Company's stock in an effort to maintain artificially high market prices for EFI's securities in violation of Section 10(b) of the Exchange Act and Rule 10b-5.

51. The statements made by defendants during the Class Period were materially false and misleading, as set forth herein. As is shown by the facts set forth in this Complaint, at the time the statements were made, the defendants knew that they were materially false and misleading or recklessly ignored facts indicating that such statements were materially false and misleading, yet they failed to disclose the matters set forth herein.

52. In ignorance of the artificially high market prices of EFI's publicly traded securities, and relying directly or indirectly on the false and misleading statements made by defendants during the Class Period, plaintiffs and other members of the Class acquired EFI securities during the Class Period at artificially high prices and were damaged thereby.

53. Had plaintiffs and the other members of the Class and the marketplace known of the true condition and business prospects of EFI, which were not disclosed by defendants, plaintiffs and other members of the Class would not have purchased or otherwise acquired their EFI securities during the Class Period, or, if they had acquired such securities during the Class Period, they would not have done so at the artificially inflated prices which they paid. Hence, plaintiffs and the Class were damaged by defendants' violations of Section 10(b) and Rule 10b-5.

54. Plaintiffs incorporate by reference the paragraphs set forth above as if set forth fully herein. This Count is asserted against the Individual Defendants.

55. Some or all of the Individual Defendants acted as controlling persons of EFI within the meaning of Section 20 of the Exchange Act as alleged herein. By virtue of their high level positions, participation in, and awareness of the Company's operations and knowledge of the Company's condition, the Individual Defendants had the power to influence and control and did influence and control, directly or indirectly, the decision making of the Company, including the content and dissemination of the various statements which plaintiffs contend are false and misleading. Each of the Individual Defendants was provided with or had unlimited access to copies of the Company's reports, press releases, public filings and other statements alleged by plaintiffs to be misleading prior to and/or shortly after these statements were issued and had the ability to prevent the issuance of the statements or cause the statements to be corrected.

56. The defendants had direct involvement in the day-to-day operations of the Company and therefore are presumed to have the power to control or influence the particular transactions giving rise to the securities violations as alleged herein.

57. The Individual Defendants had a duty to promptly disseminate truthful information that would be material to investors in compliance with the integrated disclosure provisions of the SEC as embodied in SEC Regulation S-X (17 C.F.R. Sections 210.01 et seq.) and S-K (17 C.F.R. Sections 229.10 et seq.) and other SEC regulations, including accurate and truthful information with respect to the Company's condition, so that the market price of the Company's common stock would be based on truthful, complete and accurate information.

58. By reason of such wrongful conduct, defendants are liable pursuant to Section 20(a) of the Exchange Act. As a direct and proximate result of defendants' wrongful conduct, plaintiffs and the other members of the Class suffered damages in connection with their purchases of the Company's securities during the Class Period.

WHEREFORE, plaintiffs pray for relief and judgment, as follows:

(i) Determining that this action is a proper class action;

(ii) Awarding compensatory damages in favor of plaintiffs and the other Class members against all defendants, jointly and severally, for all damages sustained as a result of the defendants' wrongdoing, in an amount to be proven at trial, including interest thereon;

(iii) Awarding plaintiffs and the Class their reasonable costs and expenses incurred in this action, including counsel fees and expert fees; and

(iv) Granting other and further relief as the Court may deem just and proper.

Plaintiffs hereby demand a trial by jury.