February 25, 1997
Securities & Exchange Commission
Judiciary Plaza
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Gerber Scientific, Inc.
Commission File No. 1-5865
Gentlemen:
Pursuant to regulations of the Securities and Exchange
Commission, submitted herewith for filing on behalf of Gerber
Scientific, Inc. (the "Company") is the Company's Form 10-Q for
the quarter ended January 31, 1997.
This filing is being effected by direct transmission to the
Commission's EDGAR System.
Very truly yours,
/s/ Gary K. Bennett
Senior Vice President, Finance<PAGE>
<PAGE>1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE) QUARTERLY REPORT /X/ OR TRANSITION REPORT / /
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended
January 31, 1997 Commission File No. 1-5865
GERBER SCIENTIFIC, INC.
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
CONNECTICUT 06-0640743
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
83 Gerber Road West, South Windsor, Connecticut 06074
-------------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number, including area code (203) 644-1551
----------------
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed 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 / /.
At January 31, 1997, 23,294,150 shares of common stock of the Registrant
were outstanding.
<PAGE>2
GERBER SCIENTIFIC, INC.
AND SUBSIDIARIES
CONTENTS OF QUARTERLY REPORT ON FORM 10-Q
Quarter Ended January 31, 1997
PAGE
Part I - Financial Information
Item 1. Consolidated Financial Statements:
Statement of Earnings for the three months
ended January 31, 1997 and 1996 1
Statement of Earnings for the nine months
ended January 31, 1997 and 1996 2
Balance Sheet at January 31, 1997 and
April 30, 1996 3
Statement of Cash Flows for the nine months
ended January 31, 1997 and 1996 4
Notes to Financial Statements 5
Independent Accountants' Report 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
Part II - Other Information
Item 1. Legal Proceedings 12
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signature 13
Exhibit Index
<PAGE>3
GERBER SCIENTIFIC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF EARNINGS
------------------------------------------------------------------------
In Thousands
(except per share amounts)
------------------------------------------------------------------------
Three Months Ended January 31, 1997 1996
------------------------------------------------------------------------
Revenue:
Product sales $ 83,041 $ 75,522
Service 11,550 11,362
--------- ---------
94,591 86,884
--------- ---------
Costs and Expenses:
Cost of product sales 44,825 40,707
Cost of service 7,457 7,281
Selling, general and administrative 29,335 26,374
Research and development expenses 7,659 6,790
--------- ---------
89,276 81,152
--------- ---------
Operating income 5,315 5,732
Other income 717 1,558
Interest expense (88) (139)
--------- ---------
Earnings before income taxes 5,944 7,151
Provision for income taxes 1,800 2,000
--------- ---------
Net earnings $ 4,144 $ 5,151
========= =========
Net earnings per common share $ .18 $ .22
========= =========
Dividends paid per common share $ .08 $ .08
========= =========
Average common shares outstanding 23,357 23,516
========= =========
See Accompanying Notes
1
<PAGE>4
GERBER SCIENTIFIC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF EARNINGS
------------------------------------------------------------------------
In Thousands
(except per share amounts)
------------------------------------------------------------------------
Nine Months Ended January 31, 1997 1996
------------------------------------------------------------------------
Revenue:
Product sales $ 240,919 $ 231,294
Service 34,431 33,939
--------- ---------
275,350 265,233
--------- ---------
Costs and Expenses:
Cost of product sales 132,027 124,229
Cost of service 21,819 22,240
Selling, general and administrative 88,310 82,100
Research and development expenses 21,868 18,922
--------- ---------
264,024 247,491
--------- ---------
Operating income 11,326 17,742
Other income 4,017 3,871
Interest expense (261) (336)
--------- ---------
Earnings before income taxes 15,082 21,277
Provision for income taxes 4,200 6,100
--------- ---------
Net earnings $ 10,882 $ 15,177
========= =========
Net earnings per common share $ .47 $ .64
========= =========
Dividends paid per common share $ .24 $ .24
========= =========
Average common shares outstanding 23,352 23,808
========= =========
See Accompanying Notes
2
<PAGE>5
GERBER SCIENTIFIC, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
-------------------------------------------------------------------------
In Thousands
-------------------------------------------------------------------------
January 31, April 30,
1997 1996
-------------------------------------------------------------------------
ASSETS
Current Assets:
Cash and short-term cash investments $ 8,528 $ 8,704
Accounts receivable 83,766 74,035
Inventories 59,418 63,196
Prepaid expenses 14,318 12,021
---------- ----------
166,030 157,956
---------- ----------
Investments and long-term
receivables 47,393 59,594
---------- ----------
Property, plant and equipment 116,999 109,430
Less accumulated depreciation 56,651 54,692
---------- ----------
60,348 54,738
---------- ----------
Intangible assets 49,254 48,576
Less accumulated amortization 10,460 9,327
---------- ----------
38,794 39,249
---------- ----------
Other assets 2,070 1,451
---------- ----------
$ 314,635 $ 312,988
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Notes payable $ -- $ --
Current maturities of long-term debt 193 193
Accounts payable 11,522 12,895
Accrued compensation and benefits 11,314 13,673
Other accrued liabilities 18,795 18,351
Deferred revenue and litigation award 5,818 8,512
Advances on sales contracts 3,104 2,672
---------- ----------
50,746 56,296
---------- ----------
Noncurrent Liabilities:
Deferred income taxes 11,440 10,056
Long-term debt 7,194 7,338
---------- ----------
18,634 17,394
---------- ----------
Contingencies and Commitments
Shareholders' Equity:
Preferred stock, no par value; authorized
10,000,000 shares; no shares issued -- --
Common stock, $1.00 par value; authorized
65,000,000 shares; issued and outstanding
23,294,150 and 23,198,725 shares 23,294 23,199
Paid-in capital 35,863 35,218
Retained earnings 184,616 179,307
Cumulative translation component 1,482 1,574
---------- ----------
245,255 239,298
---------- ----------
$ 314,635 $ 312,988
========== ==========
See Accompanying Notes
3
<PAGE>6
GERBER SCIENTIFIC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
-----------------------------------------------------------------------
In Thousands
Nine Months Ended January 31, 1997 1996
-----------------------------------------------------------------------
CASH PROVIDED BY (USED FOR):
Operating Activities
Net earnings $ 10,882 $ 15,177
Adjustments to reconcile net earnings to
cash provided by operating activities:
Depreciation and amortization 8,876 7,979
Deferred income taxes 1,384 530
Changes in operating accounts, net of
effects from business acquisitions:
Receivables (9,914) (2,732)
Inventories 410 (7,364)
Prepaid expenses (2,297) 346
Accounts payable and accrued expenses (5,550) (11,811)
--------- ---------
Provided by Operating Activities 3,791 2,125
--------- ---------
Financing Activities
Purchase of common stock -- (11,334)
Repayments of long-term debt (144) (144)
Exercise of stock options 740 723
Dividends on common stock (5,573) (5,685)
--------- ---------
(Used for) Financing Activities (4,977) (16,440)
--------- ---------
Investing Activities
Long-term debt securities 11,751 22,781
Business acquisitions -- (486)
Additions to property, plant and equipment (9,861) (10,099)
Intangible and other assets (1,421) (1,758)
Other long-term investments 541 (1,334)
--------- ---------
Provided by Investing Activities 1,010 9,104
--------- ---------
(Decrease) in Cash and
Short-Term Cash Investments (176) (5,211)
Cash and Short-Term Cash Investments,
Beginning of Period 8,704 10,208
--------- ---------
Cash and Short-Term Cash Investments,
End of Period $ 8,528 $ 4,997
========= =========
See Accompanying Notes
4
<PAGE>7
GERBER SCIENTIFIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1
The consolidated balance sheet at January 31, 1997, the consolidated
statements of earnings for the three- and nine-month periods ended
January 31, 1997 and 1996, and the consolidated statement of cash
flows for the nine-month periods ended January 31, 1997 and 1996 are
unaudited but, in the opinion of the Company, include all adjustments,
consisting only of normal recurring accruals, necessary for a fair
statement of the results for the interim periods. The results of
operations for the nine-month period ended January 31, 1997 are not
necessarily indicative of the results to be expected for the full
fiscal year.
Note 2
The classification of inventories was as follows (in thousands):
January 31, 1997 April 30, 1996
---------------- --------------
Raw materials and
purchased parts $ 49,913 $ 51,493
Work in process 9,505 11,703
--------- ---------
$ 59,418 $ 63,196
========= =========
Note 3
Net earnings per common share were calculated on the basis of the
weighted average number of shares of common stock and common stock
equivalents outstanding during each period.
Note 4
Included in the nine months ended January 31, 1997 was a gain of
$1,032,000 ($.04 per share) resulting from life insurance benefits the
Company received upon the death of Mr. H. Joseph Gerber, the Company's
former Chairman and President.
Note 5
In December, 1996 the Court of Appeals for the United Kingdom reduced
the award to the Company from Lectra Systemes, S.A. of France and its
U.K. subsidiary (Lectra) in a patent infringement suit. The earlier
award to the Company by the High Court of Justice, Chancery Division,
had been for approximately $5.9 million, which was paid to the Company
but was not recognized as income pending the outcome of the appeals
process. As a result of the Court of Appeals decision, the Company
was required to pay back to Lectra approximately $3.1 million, which
included interest. The Company is pursuing further appeal of the
issues in this litigation and has deferred any income recognition
until such time as the uncertainty is resolved.
5
<PAGE>8
GERBER SCIENTIFIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 6
Subsequent to the end of the third quarter, the Company's wholly-owned
subsidiary, Gerber Garment Technology, Inc. (GGT), completed the
acquisition of Cutting Edge, Inc., of Marblehead, Massachusetts. On
February 12, 1997, GGT acquired all the outstanding stock of Cutting
Edge in exchange for cash of $7.5 million. Cutting Edge is a leading
supplier of high-performance, single-layer fabric cutting systems and
in its most recent year ended December 31, 1996 had annual sales of
approximately $16 million.<PAGE>
6
<PAGE>9
GERBER SCIENTIFIC, INC. AND SUBSIDIARIES
With respect to the unaudited consolidated financial statements of
Gerber Scientific, Inc. and subsidiaries at January 31, 1997 and for
the three- and nine-month periods ended January 31, 1997 and 1996,
KPMG Peat Marwick LLP has made a review (based on procedures adopted
by the American Institute of Certified Public Accountants) and not an
audit, as set forth in their separate report dated February 19, 1997
appearing on page 8. That report does not express an opinion on the
interim unaudited consolidated financial information. KPMG Peat
Marwick LLP has not carried out any significant or additional audit
tests beyond those which would have been necessary if their report had
not been included. Accordingly, such report is not a "report" or
"part of the Registration Statement" within the meaning of Sections 7
and 11 of the Securities Act of 1933 and the liability provisions of
Section 11 of such Act do not apply.
7
<PAGE>10
INDEPENDENT ACCOUNTANTS' REPORT
To the Board of Directors and Shareholders of
Gerber Scientific, Inc.
We have made a review of the consolidated statement of earnings
of Gerber Scientific, Inc. and subsidiaries for the three-month
and nine-month periods ended January 31, 1997 and 1996, the
consolidated statement of cash flows for the nine-month periods
ended January 31, 1997 and 1996, and the consolidated balance
sheet as of January 31, 1997 in accordance with standards
established by the American Institute of Certified Public
Accountants. We have previously audited, in accordance with
generally accepted auditing standards, and expressed our
unqualified opinion dated May 23, 1996 on the consolidated
financial statements for the year ended April 30, 1996 (not
presented herein). The aforementioned financial statements are
the responsibility of the Company's management.
A review of interim financial information consists principally
of applying analytical review procedures to financial data and
making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an
examination in accordance with generally accepted auditing
standards, the objective of which is the expression of an
opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material
modifications that should be made to the accompanying
consolidated statement of earnings for the three-month and nine-
month periods ended January 31, 1997 and 1996, the consolidated
statement of cash flows for the nine-month periods ended January
31, 1997 and 1996, or the consolidated balance sheet as of
January 31, 1997 for them to be in conformity with generally
accepted accounting principles. Also, in our opinion the
information in the accompanying consolidated balance sheet as of
April 30, 1996 is fairly presented, in all material respects, in
relation to the consolidated balance sheet from which it has
been derived.
/s/ KPMG PEAT MARWICK LLP
Hartford, Connecticut
February 19, 1997
8
<PAGE>11
GERBER SCIENTIFIC, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
The Company's ratio of current assets to current liabilities was
3.3 to 1 at January 31, 1997, compared with 2.8 to 1 at April 30,
1996. Net working capital increased $13.6 million from the
beginning of the current fiscal year to $115.3 million at
January 31, 1997.
The Company's cash and short-term investments totalled $8.5
million at January 31, 1997, substantially the same as of the
beginning of the fiscal year, and adequate for the Company's
normal operating requirements. The Company's liquidity continued
to be supplemented by a portfolio of longer-term debt securities,
primarily tax-exempt municipal bonds, which totalled $47.1 million
at January 31, 1997. This longer-term portfolio has declined from
$58.9 million as of the beginning of the current fiscal year for
the reasons discussed below.
Operating activities provided $3.8 million in cash in the first
nine months of the current fiscal year. Cash generated by
earnings and the non-cash charges for depreciation and
amortization was partially offset by growth in accounts
receivable. The growth in receivables was related to the higher
volume of business and partly to extended payment terms for
certain sales of computer-to-plate imaging systems for the
printing industry.
During the quarter ended January 31, 1997, the Company was
required to return approximately $3.1 million to Lectra Systemes,
S.A. (Lectra) as a result of a Court of Appeals decision in a U.K.
patent infringement suit. In fiscal year 1995, a lower court
awarded the Company a $5.9 million judgment against Lectra in this
litigation. Income recognition of the amounts involved in this
litigation has been deferred until the appeals process is
resolved. The $3.1 million payment to Lectra reduced the cash
provided by operations for the nine months ended January 31, 1997.
The principal non-operating uses of cash in the nine months ended
January 31, 1997 were additions to property, plant, and equipment
of $9.9 million and the payment of dividends on common stock of
$5.6 million. The Company anticipates that capital expenditures
for the current fiscal year will be in the range of $12 to $13
million and expects to fund these additions with cash on hand and
cash from operations.
Subsequent to January 31, 1997, the Company's wholly-owned
subsidiary, Gerber Garment Technology, Inc. (GGT), completed the
acquisition of Cutting Edge, Inc., of Marblehead, Massachusetts.
On February 12, 1997, GGT acquired all the outstanding stock of
Cutting Edge in exchange for cash of $7.5 million. Cutting Edge
is a leading supplier of high-performance, single-layer fabric
cutting systems and in its most recent year ended December 31,
1996 had annual sales of approximately $16 million.
9
<PAGE>12
The Company's total debt at January 31, 1997 was $7.4 million
compared with $7.5 million at the beginning of the fiscal year.
The ratio of total debt to shareholders' equity also declined
slightly over this period to 3.0 percent at January 31, 1997. The
Company believes that its low debt-to-equity ratio is an important
indicator of its ability to borrow funds should needs arise.
RESULTS OF OPERATIONS
For the third quarter and nine months ended January 31, 1997,
combined product sales and service revenue increased $7.7 million
and $10.1 million, respectively, from the comparable periods of
the prior year. These represented increases of 9 percent and
4 percent, respectively. Both product sales and service revenue
were higher in each period this year.
The year-to-year growth in product sales in the third quarter
resulted primarily from increased shipments of the Company's
computerized signmaking equipment and aftermarket supplies, and
computer-to-plate imaging systems for the printing industry. On a
nine-month basis, the Company also recorded higher year-to-year
sales of its optical lens manufacturing equipment. These
increases were partially offset by a decline in sales of automated
fabric cutting and spreading systems for the apparel and related
industries.
Gross profit margins on product sales were 46 percent in this
year's third quarter, substantially unchanged from 46.1 percent in
the same period last year. On a nine-month basis, gross profit
margins on product sales were 45.2 percent this year compared with
46.3 percent last year. Year-to-date product margins were
pressured by lower sales volume in fabric cutting systems in the
first six months of the current fiscal year. Service gross
margins were slightly lower in the third quarter but higher for
the first nine months of the current year.
Selling, general, and administrative expenses were higher in this
year's third quarter and first nine months, reflecting higher
marketing and other expenses associated with the growth in sales.
As a percentage of revenue, SG&A expenses increased to 31 percent
in this year's third quarter from 30.4 percent in the same period
last year. For the first nine months, SG&A expenses were 32.1
percent of revenue this year compared with 31 percent in the
corresponding period last year. These increases reflected
advertising campaigns, exhibition costs, and post-sales expenses
associated with the promotion of certain new products,
particularly the Company's line of computer-to-plate imaging
systems for the printing industry.
The Company's investment in research and the development of new
products was higher in the current year. For the third quarter
and first nine months of the current year, R&D expenses
represented 8.1 percent and 7.9 percent of revenue, respectively,
compared with 7.8 percent and 7.1 percent in the same periods last
year. The higher level of expenditure in the current year
reflected, in part, the Company's efforts to broaden the line of
computer-to-plate imaging systems and related products.
10
<PAGE>13
Interest expense for this year's third quarter and first nine
months ended January 31, 1997 was slightly lower than in the same
periods last year as a result of lower debt levels. Other income
in this year's first nine months was higher than last year due to
a second quarter gain of $1 million ($.04 per share) from life
insurance benefits the Company received upon the death of Mr. H.
Joseph Gerber, the Company's former Chairman and President.
Excluding this item, other income was lower in the current year
periods reflecting lower interest income from a smaller investment
portfolio of tax-exempt municipal bonds.
The income tax provision rate for the quarter ended January 31,
1997 was approximately 30 percent, but was lower for the nine
months ended January 31, 1997 as a result of the tax-exempt life
insurance benefits noted above. Without this item, the tax
provision rate would have been approximately 30 percent in this
year's first nine months. The comparable tax rates for the third
quarter and first nine months of last year were 28 percent and 29
percent, respectively. The Company's effective income tax rate
continued to be lower than the 35 percent statutory U.S. Federal
tax rate principally because of tax-exempt interest income, the
tax benefits of the Company's foreign sales corporation, and, in
the current year, the tax-exempt life insurance benefits.
As a result of the aforementioned, net earnings for this year's
third quarter ended January 31, 1997 were $4.1 million or $.18 per
share compared with $5.2 million or $.22 in last year's third
quarter. For the nine months ended January 31, 1997 net earnings
totalled $10.9 million or $.47 per share compared with
$15.2 million or $.64 per share in the same period last year.
FORWARD-LOOKING STATEMENTS
This report includes forward-looking statements that describe the
Company's business prospects. Readers should keep in mind factors
that could have an adverse impact on those prospects. These
include political, economic, or other conditions, such as
recessionary or expansive trends, inflation rates, currency
exchange rates, taxes and regulations and laws affecting the
business, as well as product competition, pricing, the degree of
acceptance of new products to the marketplace, and the difficulty
of forecasting sales at various times in various markets.
11
<PAGE>14
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
In December, 1996 the Court of Appeals for the United Kingdom
reduced the award to the Company from Lectra Systemes, S.A. of
France and its U.K. subsidiary (Lectra) in a patent infringement
suit. The earlier award to the Company by the High Court of
Justice, Chancery Division, had been for approximately $5.9
million, which was paid to the Company but was not recognized as
income pending the outcome of the appeals process. As a result of
the Court of Appeals decision, the Company was required to pay
back to Lectra approximately $3.1 million, which included
interest. The Company is pursuing further appeal of the issues in
this litigation and has deferred any income recognition until such
time as the uncertainty is resolved.
Item 5. Other Information
On February 17, 1997, Michael J. Cheshire was appointed President,
Chief Operating Officer, and a Director of the Company pending
shareholder approval of an expansion of the Board. Mr. Cheshire
has responsibility for managing the Company's operations, which
are conducted primarily through four wholly owned subsidiaries.
Mr. Cheshire was formerly the President of General Signal
Corporation's Electrical Group. George M. Gentile, who formerly
held the titles of President and Chief Operating Officer, will
continue to serve as Chairman of the Board of Directors and Chief
Executive Officer of the Company.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(10) Employment Agreement dated as of January 29, 1997
between the Company and Michael J. Cheshire.
(11) Statement regarding computation of per share
earnings.
(15) Letter regarding unaudited interim financial
information.
(b) Reports on Form 8-K
No Form 8-K was filed during the quarter for which this
report is filed.
12
<PAGE>15
SIGNATURE
Pursuant to the requirements 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.
GERBER SCIENTIFIC, INC.
-------------------------------
(Registrant)
Dated: February 25, 1997 By: /s/ Gary K. Bennett
------------------- -------------------------------
Senior Vice President, Finance
and Principal Financial Officer<PAGE>
13
<PAGE>16
EXHIBIT INDEX
Exhibit Index
Number Exhibit Page
------------- ------- ----
10 Employment Agreement dated as
of January 29, 1997 between the
Company and Michael J. Cheshire* 18
11 Statement Regarding Computation
of Per Share Earnings* 28
15 Letter Regarding Unaudited Interim
Financial Information* 29
*Filed herewith
<PAGE>17
EXHIBIT 10
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (the "Agreement") dated as of
January 29, 1997 between GERBER SCIENTIFIC, INC., a Connecticut
corporation (the "Company") and MICHAEL J. CHESHIRE (the
"Executive") (the Company and the Executive may collectively be
referred to as the "Parties");
WHEREAS, the Board of Directors of the Company has
determined that it is to the advantage and interest of the
Company to employ the Executive, upon the terms and conditions
hereinafter provided; and
WHEREAS, the Executive desires to accept employment
with the Company, upon the terms and conditions hereinafter
provided;
NOW, THEREFORE, in consideration of the promises and
the mutual covenants contained herein, the Parties, intending
legally to be bound, agree as follows:
ARTICLE I.
Definitions
1.1 As used in this Employment Agreement, the
following terms shall have the meanings set forth below:
"Affiliate" shall mean a corporation which, directly or
indirectly, controls, is controlled by or is under common control
with the Company, or which is a successor in interest to the
Company, and for purposes hereof, "control" shall mean the
ownership of 20% or more of the voting shares of the corporation
in question.
"Change of Control" shall mean (a) the acquisition by
any person (including a group within the meaning of Section 13(d)
(3) or 14 (d) (2) of the Exchange Act but excluding the Company
or any of its subsidiaries) of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) of 30%
or more of the combined voting power of the Company's then
outstanding voting securities; (b) the first purchase of Common
Stock of the Company pursuant to a tender offer or exchange
offer, other than an offer by the Company or any of its
subsidiaries; or (c) approval by shareholders of the Company of a
merger, consolidation, liquidation or dissolution of the Company,
or of the sale of all or substantially all of the assets of the
Company.
"Effective Date" shall mean February 17, 1997.
"Former Employer" shall mean the employer of the
Executive immediately prior to the execution and delivery of this
Agreement.
<PAGE>18
"Performance Unit" shall have the meaning set forth in
the Gerber Scientific, Inc. 1992 Employee Stock Plan as Amended
and Restated as of April 28, 1995.
"Person" shall mean any individual, sole
proprietorship, partnership, joint venture, trust, unincorporated
organization, association, corporation, institution, public
benefit corporation, entity or government.
"Subsidiary" shall mean a corporation, 50% or more of
the outstanding voting shares of which is owned or controller
directly or indirectly by the Company.
Wherever from the context it appears appropriate, each
word or phrase stated in either the singular or the plural shall
include the singular and the plural, and each pronoun stated in
the masculine, feminine or neuter gender shall include the
masculine, feminine and neuter.
ARTICLE II.
Employment and Duties of Executive
2.1 Employment; Titles; Duties. The Company hereby
agrees to employ the Executive and the Executive hereby accepts
his appointment as President and Chief Operating Officer of the
Company, commencing on the Effective Date. As President and
Chief Operating Officer, the Executive shall perform all of the
duties normally associated with that position in a corporation
generally comparable in size and nature of the Company, acting,
in all instances, under the supervision and direction of and in
accordance with the policies set by the Board of Directors and by
the Chief Executive Officer of the Company (the "CEO"). The
Company shall use its best efforts to cause the Executive to be a
member of its Board of Directors for so long as he is employed by
the Company and during such period of employment shall include
him in the management slate for election as a director at any
stockholders' meeting at which his term would otherwise expire.
If elected or appointed as a director, the Executive will serve
in such capacity without any additional compensation.
2.2 Performance of Duties. The Executive shall devote
his full working time and efforts to the performance of his
duties as an executive of the Company and to the performance of
such other duties as are assigned to him by the Board of
Directors of the Company or the CEO.
ARTICLE III.
Compensation and Benefits
The Company shall pay the Executive as compensation for
all of the services to be rendered by him hereunder the
compensation and other benefits as provided for and determined
pursuant to this Article III.
<PAGE>19
3.1 Base Compensation. The Company shall pay the
Executive a base salary of $350,000 per annum (the "Base
Compensation"), payable in accordance with the regular payroll
practices of the Company for executives, less such deductions or
amounts as are required to be deducted or withheld from such
compensation by applicable laws or regulations and less such
other deductions or amounts, if any, as are authorized by the
Executive. The Base Compensation of the Executive shall be
subject to review on the same schedule and following the same
process as employed, from time to time, for principal officers of
the Company.
3.2 Benefits.
(a) Standard Existing Company Benefits. The Executive
shall be entitled to participate in all of the benefit plans made
generally available to the Company's employees (including
medical, dental, life and disability insurance, and pension
benefits) as described in the brochure attached as Exhibit A
hereto; provided, however, nothing contained in this Section 3.2
shall be deemed to limit in any way the Company's right to
modify, amend or terminate any plan now or hereafter in
existence. Notwithstanding the foregoing or any language to the
contrary, Company benefits as described in Exhibit A shall
commence on the first day of Executive's employment.
(b) Additional Benefits. In addition to the benefits
listed in Section 3.2(a), the Company shall provide to the
Executive:
(i) Four weeks vacation in each calendar year (It
is understood that the Company's then existing policy on vacation
not taken in any year shall apply to any unused vacation.);
(ii) Use of a Company car similar in style and cost
as that afforded to the Company's other senior executive
officers;
(iii) Financial counseling services of up to
$10,000 per year; and
(iv) Participation in the Company's Supplemental
Pension Benefit Plan ("SERP").
3.3 Sign-on Awards and Bonus Reimbursement.
(a) The Company shall pay the Executive a one-time
sign-on award of $400,000 in cash in accordance with the
following schedule:
(i) $200,000 one year from the Effective Date
(except that $100,000 of the foregoing amount shall be payable on
the Effective Date in the event that the Company is not required
to make the Bonus Reimbursement specified in Section 3.3(b)
below; and
(ii) $200,000 two years from the Effective Date.
<PAGE>20
Any award required to be paid by the Company to the Executive
under this Section 3.3 is hereinafter referred to as a "Sign-on
Award."
(b) In the event the Executive forfeits and does not
receive the cash bonus he would normally be entitled to receive
from his Former Employer for his performance in 1996 because of
his acceptance of employment with the Company, the Company shall,
promptly after the Effective Date, reimburse the Executive an
additional amount ("Bonus Reimbursement") equal to the amount of
the cash bonus the Executive would have received from his Former
Employer. The Bonus Reimbursement payable by the Company under
this Section shall not exceed $185,000. The Executive shall
furnish the Company such documentation as may be reasonably
requested by the Company to support his request for payment of
any amount pursuant to this Section 3.3(b).
3.4 Bonuses.
(a) Bonus for Fiscal Year Ending April 30, 1998. In
addition to any Sign-on Award provided by the Company to the
Executive pursuant to Section 3.3 above, the Executive shall be
eligible to receive a bonus for the Company's fiscal year ending
April 30, 1998 ("1998 Fiscal Year") of up to a maximum of 75
percent of his Base Compensation, which bonus shall be calculated
and determined on the same basis and terms as are set forth in
the Company's annual bonus plan for executives for the 1998
Fiscal Year ("1998 Bonus Plan"); provided, however, the
Executive's bonus for the 1998 Fiscal Year shall not, in any
event, be less than $175,000. The Executive's bonus for the 1998
Fiscal Year shall be paid to the Executive in cash on or before
July 15, 1998.
(b) Bonuses for Fiscal Years Subsequent to the 1998
Fiscal Year. The Executive shall be entitled to participate in
the bonus plans adopted by the Management Development and
Compensation Committee of the Company's Board of Directors and
approved by the Company's Board of Directors for fiscal years
ending after the 1998 Fiscal Year in the same manner and on the
same terms as other executives of the Company.
3.5 Options and Performance Units.
(a) Pursuant to the Gerber Scientific, Inc. 1992
Employee Stock Plan, as Amended and Restated as of April 28,
1995, (the "Performance Plan") attached hereto as Exhibit B, the
Executive shall be granted (i) options to purchase 30,000 shares
of the Company's Common Stock and (ii) 7,500 Performance Units.
Such options will vest and become exercisable after six
years in accordance with the terms of the Performance Plan, but
the terms of grant will provide that vesting will be accelerated
as provided in the table below in the event that annual
compounded growth in the Company's earnings per share ("EPS"),
measured from the EPS ($.076) for the Company's fiscal year ended
April 30, 1995 ("1995 Fiscal Year") to the end of the 1998 Fiscal
Year (April 30, 1998) or to the end of each successive fiscal
<PAGE>21
year thereafter through April 30, 2000, equals or exceeds the
Annual Compounded EPS growth rates set forth below:
Annual Compound Percent of Options as to which
EPS Growth Vesting is Accelerated
18% 100%
17% 80%
16% 60%
15% 40%
14% 20%
To the extent that options vest early because of the
achievement of the foregoing EPS growth performance criteria,
Performance Units shall also vest and be payable in accordance
with the terms of the Performance Plan, to the extent of one
Performance Unit for each four options vesting. Under the
Performance Plan, each employee selected to receive a grant
("Participant") is required to execute an Agreement which will
set forth the terms of the grant ("Grant Agreement") and each
such Grant Agreement is required to provide that payment under a
Performance Unit, if earned, is subject to the condition that a
participant has previously exercised or simultaneously exercises
a related option (i.e., an option granted to a Participant at the
same time as the Performance Units are granted and which vests at
the same time as, or earlier than, such Performance Unit vests).
The Performance Plan also provides that, subject to certain
exceptions set forth in such Plan, a Performance Unit will be
paid only while a Participant remains employed by the Company or
one of its Subsidiaries. All options and Performance Units
granted to the Executive will be subject to and governed by the
terms of the Performance Plan.
(b) Additional Options. In May 1997, the Executive
shall be granted options to purchase 120,000 shares of the
Company's Common Stock under the Performance Plan on the same
terms as options will be granted at such time, to other executive
officers of the Company under such Plan.
<PAGE>22
ARTICLE IV.
Termination and Severance Payments
4.1 Termination Without Cause. Either party may
terminate this Agreement at any time for any reason; provided,
however:
(a) if Executive terminates his employment by the
Company, for whatever reason, Executive shall be entitled to his
Base Compensation up to the date of his termination and, further,
shall be entitled to retain all amounts previously paid by the
Company prior to such termination date including, without
limitation, Sign-on Bonuses and Bonus Reimbursement. Executive
shall not be entitled to any amounts payable by the Company under
this Agreement or otherwise after the termination date.
(b) if the Company terminates the Executive's
employment under this Agreement for any reason other than for
cause as described in Section 4.2 herein, the Executive shall be
entitled to receive:
(i) his Base Compensation through the date of
termination and for an additional eighteen (18) months following
the date of termination;
(ii) any unpaid portion of any bonus earned by the
Executive for any then completed fiscal year of the Company, plus
the pro-rata portion of the Executive's target bonus for any
portion of a fiscal year completed prior to termination of
employment, plus the pro-rata portion of his target bonus for a
period of eighteen (18) months from the date of such termination.
For purposes of this Article IV, the Executive's target bonus for
any particular year shall equal fifty (50) percent of his Base
Compensation for such year or if the Executive's Base
Compensation has not then been set for a particular year, the
target bonus for such year shall be fifty (50) percent of his
then current Base Compensation;
(c) the balance of any unpaid Sign-on Award; and
(d) medical benefits for a period of eighteen (18)
months following the date of termination.
4.2 Termination for Cause. If the Executive engages
in (a) fraud, (b) embezzlement, (c) any other crime involving
moral turpitude, (d) gross or willful neglect of duty, (e) such
conduct as results or as is likely to result in material damage
to the reputation of the Company or any of the Subsidiaries or
Affiliates of the Company, or (f) if the Executive declines to
follow any significant instruction or policy (which is both legal
and reasonable) of the CEO or of the Board of Directors of the
Company which instruction or policy is formally communicated to
the Executive, or if the Executive adheres to such persistent
refusal or neglect to follow such instructions or policy, the
Company may at any time thereafter terminate the Executive's
employment hereunder by written notice to him, effective
immediately and the date of the notice shall be the Termination
<PAGE>23
Date hereunder. Any such termination shall be deemed to be
termination for cause, for purposes of this Agreement. If the
Executive's employment is terminated for cause hereunder, then
the Executive shall be entitled to receive only the following
payments: (a) any portion of his Base Compensation accrued to
the date of such termination and not theretofore paid to him; and
(b) reimbursement for any expenses properly incurred by the
Executive, and supported by appropriate vouchers, which expenses
have been incurred prior to the date of such termination and
which have not theretofore been reimbursed. Except as set forth
in the immediately preceding sentence, all of the Executive's
rights to compensation and benefits hereunder shall be
terminated, in the event of termination for cause, as of the date
the Executive is terminated.
4.3 Termination Following Change of Control. If the
Executive's employment under this Agreement is terminated by the
Company or his position as described in Section 2.1 herein is
reduced by the Company, at any time within twenty-four (24)
months following a change in control, Executive shall be entitled
to receive:
(a) his Base Compensation through the date of
Termination and for an additional twenty-four (24) months
following the date of termination;
(b) any unpaid portion of any bonus earned by the
Executive for any then completed fiscal year of the Company, plus
the pro-rata portion of the Executive's target bonus for any
portion of a fiscal year completed prior to termination of
employment, plus the pro-rata portion of his target bonus for a
period of twenty-four (24) months from the date of such
termination;
(c) the balance of any unpaid Sign-on Award; and
(d) medical benefits for a period of twenty-four (24)
months following the date of termination.
4.4 Death or Disability. If the Executive dies or
becomes partially or totally disabled during his employment under
this Agreement and is thus unable to fulfill his assigned
responsibilities, he shall be entitled to receive the balance of
any unpaid Sign-on Award and such other death and/or disability
benefits as employees of the Company are then entitled to
receive. Except as herein provided, all of the Executive's
rights to compensation and benefits hereunder shall terminate
upon such death or disability.
4.5 Other Termination of Employment by the Executive.
If the Executive voluntarily terminates his employment, then he
shall be entitled to receive only those payments set forth in
Section 4.2 hereof.
<PAGE>24
ARTICLE V.
Representations and Warranties by the Executive
5.1 To induce the Company to enter into this
Agreement, the Executive hereby represents and warrants that, as
of the Effective Date, he is not a party to any agreement,
contract or understanding, which would in any way restrict or
prohibit him from undertaking or performing any of his
obligations under this Agreement, and that no facts or
circumstances exist which would prohibit him from doing so.
ARTICLE VI.
Confidential Information and Proprietary Interests
6.1 Confidentiality and Inventions Agreement. The
Executive agrees to execute and deliver, immediately upon
execution and delivery of this Agreement, that certain
Confidentiality and Inventions Agreement in the same form as
signed by other employees of the Company, a copy of which is
attached hereto as Exhibit C.
ARTICLE VII.
Notices
7.1 Notice. Notices and all other communications
provided for hereunder shall be in writing and shall be
sufficient in all respects if delivered or sent by certified
mail, return receipt requested, addressed, in the case of the
Company, to the Company at 83 Gerber Road West, South Windsor,
Connecticut 06074, Attention: Chairman of the Board of
Directors, with a copy to the Secretary, or, in the case of the
Executive, to the Executive at 164 Main Street, Farmington,
Connecticut 06032 or, in either case to such other address as
either party may have furnished to the other in writing in
accordance herewith; except that notice of change of address
shall be effective only upon receipt.
ARTICLE VIII.
Assignment and Successors
8.1 Neither this Agreement nor any of his rights or
duties hereunder may be assigned or delegated by the Executive.
This Agreement shall be binding upon and, except as aforesaid,
shall inure to the benefit of the Parties and their respective
successors and permitted assigns.
<PAGE>25
ARTICLE IX.
Entire Agreement and Waiver
9.1 Integration. This Agreement and the Exhibits
hereto contain the entire agreement of the Parties hereto and
supersede all previous agreements between the Parties hereto,
written or oral, express or implied, covering the subject matter
hereof. No representations, inducements, promises or agreements,
oral or otherwise, not embodied herein shall be of any force or
effect. This Agreement may not be amended, supplemented or
rescinded except by instrument in writing signed by both Parties
hereto.
9.2 No Waiver. No waiver or modification of any of
the provisions of this Agreement shall be valid unless in writing
and signed by or on behalf of the Party granting such waiver or
modification. No waiver by any Party of any breach or default
hereunder shall be deemed a waiver of any repetition of such
breach or default or shall be deemed a waiver of any other breach
or default, nor shall it in any way affect any of the other terms
or conditions of this Agreement or the enforceability thereof.
No failure of the Company to exercise any power given it
hereunder or to insist upon strict compliance by the Executive
with any obligation hereunder, and no custom or practice at
variance with the terms hereof, shall constitute a waiver of the
right of the Company to demand strict compliance with the terms
hereof.
ARTICLE X.
Governing Law
10.1 This Agreement shall be governed by and construed,
and the rights and obligations of the Parties hereto enforced, in
accordance with the laws of the State of Connecticut.
ARTICLE XI.
Headings
11.1 The Article and Section headings contained herein
are for reference purposes only and shall not in any way affect
the meaning or interpretation of this Agreement.
<PAGE>26
IN WITNESS WHEREOF, the Parties have executed this
Agreement as of the date first written above, which shall be
deemed to be the Effective Date.
GERBER SCIENTIFIC, INC.
By: _____________________
George M. Gentile
MICHAEL J. CHESHIRE
________________________
<PAGE>27
EXHIBIT NO. 11
GERBER SCIENTIFIC, INC. AND SUBSIDIARIES
COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
January 31 January 31
--------------------------- ---------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C. <C>
Net earnings $ 4,144,000 $ 5,151,000 $ 10,882,000 $ 15,177,000
============ ============ ============ ============
Weighted average shares of
common stock outstanding
during the period 23,260,861 23,294,950 23,234,334 23,559,975
Common stock equivalents:
Common stock attributable
to stock options (treasury
stock method) 95,925 221,007 118,003 247,867
------------ ------------ ------------ ------------
Average common shares
outstanding 23,356,786 23,515,957 23,352,337 23,807,842
============ ============ ============ ============
Net earnings per common share $ .18 $ .22 $ .47 $ .64
============ ============ ============ ============
</TABLE>
<PAGE>28
EXHIBIT NO. 15
To the Board of Directors and Shareholders of
Gerber Scientific, Inc.
Re: Registration Statements on Form S-8
File No. 2-93695 and No. 33-58668
Registration Statement on Form S-3,
File No. 33-58670
With respect to the subject Registration Statements, we
acknowledge our awareness of the use therein of our report dated
February 19, 1997 related to our review of interim financial
information.
Pursuant to Rule 436(c) under the Securities Act, such reports
are not considered a part of a Registration statement prepared or
certified by an accountant or a report prepared or certified by
an accountant within the meaning of Sections 7 and 11 of the Act.
Very truly yours,
/s/ KPMG PEAT MARWICK LLP
Hartford, Connecticut
February 19, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheet and statement of earnings of Gerber Scientific, Inc.
as of and for the the nine-month period ended January 31, 1997 and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> APR-30-1997
<PERIOD-END> JAN-31-1997
<CASH> 8,528
<SECURITIES> 0
<RECEIVABLES> 83,766
<ALLOWANCES> 0
<INVENTORY> 59,418
<CURRENT-ASSETS> 166,030
<PP&E> 116,999
<DEPRECIATION> 56,651
<TOTAL-ASSETS> 314,635
<CURRENT-LIABILITIES> 50,746
<BONDS> 0
0
0
<COMMON> 23,294
<OTHER-SE> 221,961
<TOTAL-LIABILITY-AND-EQUITY> 314,635
<SALES> 275,350
<TOTAL-REVENUES> 275,350
<CGS> 153,846
<TOTAL-COSTS> 110,178
<OTHER-EXPENSES> (4,017)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 261
<INCOME-PRETAX> 15,082
<INCOME-TAX> 4,200
<INCOME-CONTINUING> 10,882
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,882
<EPS-PRIMARY> .47
<EPS-DILUTED> .47
</TABLE>
