Officials at Electronics For Imaging Inc. (EFI) said the company demoted its chief operating officer and one-time chief financial officer Joseph Cutts in response to the findings and recommendations of an internal investigation. The probe, carried out by a special board committee was investigating the company’s stock option grant process.
EFI, which makes printers and printer supplies, also said it will restate previously issued financial statements. However, it still has not determined the amount of the affected periods.
Cutts served as CFO from April 2000 to April 2006 and, more recently, as chief operating officer and corporate secretary. The company said he will no longer serve in the role of chief operating officer or other executive officer capacity. However, he will continue with EFI as a vice president, with new responsibilities to be determined.
At press time, the company had not responded to calls asking for comment about Cutts’ involvement in the matter.
The special committee investigation focused on its stock option practices from EFI’s initial public offering on October 2, 1992 through 2006. During that period, EFI granted options on 867 separate dates. The committee concluded, among other things, that EFI “lacks contemporaneous evidence” supporting a substantial number of the recorded option grant dates.
The affected grants include grants to newly-hired employees, employees joining EFI as a result of acquisitions, and existing employees, officers, and directors. Prior to mid-1999, grants to new and current non-officer employees were approved by the members of the compensation committee of the board of directors.
The committee found that a substantial number of the grants to existing officers, directors, and employees were priced on dates coinciding with the low EFI stock price for the month, and—in some instances—the quarter. In addition to Cutts’ demotion, EFI took a number of other remedial actions. For example, it will reprice any unexercised options requiring adjustment to the measurement date held by current executive officers, board members, and general counsel.
In addition, current executive officers, board members, and general counsel who exercised options requiring adjustment to the measurement date will be required to pay EFI an amount equal to the after-tax difference between the initial exercise price and the closing price on the adjusted measurement date for the options. EFI also said it is splitting the position of chief executive officer and chairman—which will be held by an independent member of the board.
“The board believes that the separation of the offices of chairman and chief executive is consistent with recent trends in corporate governance, and demonstrates EFI’s commitment to best governance practices,” the company noted in a statement. Independent board member Gill Cogan has been elected by the board as its interim chairman, effective immediately. Guy Gecht will continue as EFI’s chief executive officer.
Last December, the law firm of Stull, Stull & Brody filed a shareholder lawsuit against EFI, alleging that certain current and prior officers and directors manipulated the prices of executive and director stock-option grants. At the time, Stull, Stull & Brody also stated that it was looking into more than 50 companies concerning their stock-option practices.