TABLE OF CONTENTS
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Notice of Annual Meeting . . . . . . . . . . . . . . . . . . . . . . 1
Proxy Vote . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Election of Directors
(Proposal 1) . . . . . . . . . . . . . . . . . . . . . . . . . 3
Management Development and
Compensation Committee Report . . . . . . . . . . . . . . . . . 7
Performance Graph . . . . . . . . . . . . . . . . . . . . . . . . . 14
Executive Agreements . . . . . . . . . . . . . . . . . . . . . . . . 14
Description of Benefit Plans . . . . . . . . . . . . . . . . . . . . 15
Amendments to Employee Stock Plan
(Proposal 2) . . . . . . . . . . . . . . . . . . . . . . . . . 17
Amendments to Non-Employee Director
Stock Option Plan (Proposal 3) . . . . . . . . . . . . . . . . 23
1999-2001 Annual Incentive Bonus Plan
(Proposal 4) . . . . . . . . . . . . . . . . . . . . . . . . . 26
Appendix A - 1999-2001 Annual Incentive
Bonus Plan . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Table I Principal Shareholders . . . . . . . . . . . . . . . . . . . 3
Table II Director and Officer Stock Ownership . . . . . . . . . . . 3
Table III Summary Compensation Table . . . . . . . . . . . . . . . . 11
Table IV Option Grants . . . . . . . . . . . . . . . . . . . . . . . 12
Table V Aggregated Option Exercises . . . . . . . . . . . . . . . . 13
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
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TIME 2:30 P.M. EDT ON FRIDAY,
SEPTEMBER 25, 1998
PLACE HEADQUARTERS OF GERBER TECHNOLOGY, INC.
24 INDUSTRIAL PARK ROAD WEST
TOLLAND, CT 06084
ITEMS OF BUSINESS (1) To elect three Directors;
(2) To obtain shareholder approval of certain
amendments to the Gerber Scientific, Inc.
1992 Employee Stock Plan;
(3) To obtain shareholder approval of certain
amendments to the Gerber Scientific, Inc.
1992 Non-Employee Director Stock Option Plan;
(4) To obtain shareholder approval of the Annual
Incentive Bonus Plan for fiscal years 1999
through 2001;
(5) To transact such other business as may
properly come before the meeting.
RECORD DATE Holders of common shares of record at close of
business on July 20, 1998.
ANNUAL REPORT The Annual Report of the Company for 1998, which
is not a part of this proxy solicitation, is enclosed.
PROXY VOTING It is important that your shares be represented and
voted at the meeting. YOUR SHARES MAY BE VOTED BY;
(I) RETURNING THE ENCLOSED PROXY CARD COMPLETED AND
SIGNED, OR (II) VOTING BY TELEPHONE IN ACCORDANCE
WITH THE INSTRUCTIONS ON THE PROXY CARD, OR (III)
ATTENDING THE MEETING IN PERSON. (SEE IMPORTANT
NOTE ON PAGE 2.)
REGISTRATION To register for this Meeting, simply complete and
return the enclosed postage-paid postcard or you may
call us at 1-800-811-4707, extension 8027.
A personalized admission badge will be available on
the day of the Meeting. Please let us know by
September 15th if you plan to attend.
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IMPORTANT GERBER SCIENTIFIC, INC.
83 GERBER ROAD WEST
SOUTH WINDSOR
CONNECTICUT 06074
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1. PROXY VOTE
We hope that shareholders will attend this meeting. Whether or not you presently
plan to attend the meeting, please complete, sign, and return the enclosed Proxy
Card or enter your vote by telephone as described on the Proxy Card. This early
proxy vote will assure that your shares are properly represented and reduce your
Company's proxy solicitation expenses. Any shareholder voting in advance of the
meeting by telephone or Proxy Card may, of course, revoke that proxy vote before
or at the meeting. Please see the section entitled "Voting Rights" on the next
page.
2. REGISTRATION
Please note the above regarding admission badges for the annual meeting.
Admission badges for you and your guests may be reserved in accordance with the
above instructions. Registering early will enable the Company to properly plan
to accommodate you and your guests at the meeting and at subsequent events, such
as the tour of this Gerber Technology facility.
By order of the Board of Directors,
/s/Richard F. Treacy, Jr.
Richard F. Treacy, Jr.
Secretary
Dated at South Windsor, Connecticut this 10th day of August, 1998.
PROXY STATEMENT
This Proxy Statement is furnished in connection with the solicitation of proxies
by the Board of Directors of Gerber Scientific, Inc. (the "Company"), for use at
the annual meeting of shareholders to be held on Friday, September 25, 1998, and
at any adjournment thereof. The cost of solicitation of proxies will be borne by
the Company. In addition to use of the mails, proxies may be solicited by
Directors, officers, and employees of the Company by telephone or otherwise,
without additional compensation. The Company also intends to use the services of
Georgeson & Company, Inc., of New York, New York, to aid in the solicitation of
proxies. It is estimated that their charges and expenses will not exceed
$20,000. The Company expects to reimburse brokers and other custodians,
nominees, and fiduciaries for their reasonable expenses in forwarding proxy
material to beneficial owners of shares and soliciting their proxies.
VOTING RIGHTS
Abstentions and broker non-votes are not counted in the calculation of the vote
but do count toward a quorum. A proxy may be revoked at any time prior to
voting, but no revocation will be effective until written notice thereof or a
properly executed proxy bearing a later date has been received by the Company's
Secretary. The Company's mailing address is 83 Gerber Road West, South Windsor,
Connecticut 06074. Proxies will be voted as directed, and in the absence of such
direction will be voted FOR the nominees for Director described herein; FOR
approval of certain amendments to the Gerber Scientific, Inc. 1992 Employee
Stock Plan, FOR approval of certain amendments to the Gerber Scientific, Inc.
1992 Non-Employee Director Stock Option Plan, and FOR approval of the Gerber
Scientific, Inc. 1999 through 2001 Annual Incentive Bonus Plan.
The Board of Directors has fixed the close of business on July 20, 1998, as
the record date for the determination of shareholders entitled to notice of and
the right to vote at the annual meeting. On the record date there were
22,707,547 shares of the Company's Common Stock, $1.00 par value, issued,
outstanding, and entitled to vote. Each shareholder of record at the close of
business on July 20, 1998, will be entitled to one vote for each share of Common
Stock then held.
This Proxy Statement and the accompanying form of proxy are being first
mailed to shareholders on or about August 10, 1998.
Table I on page 3 presents certain information regarding the beneficial and
record owners of more than five percent of the Company's Common Stock who were
known to the Company as of July 20, 1998.
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PRINCIPAL SHAREHOLDERS
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TABLE I
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Name and Address of Number of Percent
Beneficial Owner Shares Owned of Class
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Members of Family of 2,529,252 11.1%
H. Joseph Gerber (1)
c/o David J. Gerber
83 Gerber Road West
South Windsor, CT 06074
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David L. Babson & Co. 1,919,375 8.5%
One Memorial Drive
Cambridge, MA 02124
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Schroder Capital 1,307,800 5.8%
Management, Inc.
787 Seventh Avenue
New York, NY 10019
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(1) The Gerber family consists of Mrs. Sonia K. Gerber, Melisa T. Gerber
and David J. Gerber. As a group, the family holds the total number of shares
indicated either directly or in trusts where various members of the family are
trustees. The above total also includes the share ownership of David J. Gerber
as reported in Table II.
TABLE II
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Name of Number of Percent of
Beneficial Owner Shares Owned(1) Class
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George M. Gentile 188,365 (2) *
David J. Gerber 2,017,613 (3) 8.9%
A. Robert Towbin 28,700 (4)(5)(6) *
Edward E. Hood, Jr. 5,000 (4)(5)(7) *
William Jerome Vereen 8,700 (5)(8) *
David J. Logan 1,682 (5)(9) *
Carole F. St. Mark 1,000 (4)(5) *
Donald P. Aiken 2,000 (4)(5) *
Michael J. Cheshire 46,188 (10) *
Fredric K. Rosen 64,016 (11) *
Ronald B. Webster 116,220 (12) *
Richard F. Treacy, Jr. 40,702 (13) *
All Directors and current and 2,616,106 (4)(5)(14) 11.5%
former executive officers
as a group (16 persons)
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*Less than 1%
(1) Unless otherwise indicated below, each Director and Executive Officer
has sole voting and investment power with respect to such shares.
(2) Includes 139,167 shares covered by stock options which are exercisable
within 60 days.
(3) Includes 70,239 shares owned directly; 30,746 shares held in trust
where Mr. Gerber, as beneficiary, directs voting rights; 1,803,408 shares held
in various family trusts where Mr. Gerber, as trustee, participates in common
voting rights with other trustees; 8,000 shares covered by stock options of Mr.
Gerber exercisable within 60 days; and 105,220 shares covered by immediately
exercisable stock options held by the Estate of H. Joseph Gerber where Mr.
Gerber is a joint executor.
(4) Excludes Director fees deferred in the form of Gerber shares which are
not issued until termination of the selected deferral date.
(5) Excludes options for 1,000 shares due and accrued as of May 1, 1998
under the terms of the Non-Employee Director Stock Option Plan; if shareholders
at the annual meeting approve the amendments to the plan this would increase
that annual award to 3,000 options per year.
(6) Includes 5,000 shares covered by stock options which are exercisable
within 60 days.
(7) Includes 3,000 shares covered by stock options which are exercisable
within 60 days.
(8) Includes 1,000 shares which he holds as trustee for his children and
3,000 shares covered by stock options which are exercisable within 60 days.
(9) Includes 1,000 shares covered by stock options which are exercisable
within 60 days.
(10) Includes 40,000 shares covered by stock options exercisable
within 60 days, 400 shares under 401(k) Plan, and 1,248 shares under Deferred
Compensation Plan.
(11) Includes 4,000 shares owned beneficially by his wife, as to which he
disclaims any beneficial ownership, and options to purchase 31,667 shares which
are exercisable within 60 days.
(12) Includes 90,000 shares covered by stock options which are exercisable
within 60 days.
(13) Includes 32,625 shares covered by stock options which are exercisable
within 60 days.
(14) Includes 434,546 shares covered by stock options exercisable within
60 days, 448 shares under 401(k) Plan, 1,644 under Deferred Compensation Plan
and, as to David J. Gerber, 105,220 immediately exercisable options held by the
Estate of H. Joseph Gerber.
ELECTION OF DIRECTORS
(Proposal 1)
Three (3) Directors are to be elected at the annual meeting. The Board of
Directors of the Company is divided into three classes, and one class is elected
each year for a three-year term. The term of the Class II Directors expires this
year. The terms of the three Class I Directors expire in the year 2000 and the
terms of the three Class III Directors expire in 1999. The Certificate of
Incorporation and the By-Laws of the Company presently provide for a Board of
Directors of not less than three (3) nor more than eleven (11) Directors. While
the Board presently believes that the number of current Directors is adequate to
carry on the
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affairs of the Board, the Board will, as an on-going effort, continue to
identify and consider qualified candidates to join the Board of Directors.
The following information is provided for the nominees for the Class II
Directors, who, if elected, will serve for a term expiring at the annual meeting
in the year 2001. Information is also provided for the Class I and Class III
Directors whose terms are continuing. A Director receiving a plurality of the
votes will be elected. Unless otherwise directed in the proxy, it is intended
that all shares represented by proxies will be voted for the election of the
nominees named below. In the event that any nominee is unable to stand for
election (which is not anticipated), it is intended that all proxies, unless
otherwise specified, will be voted for such substitute nominees as the Board of
Directors may propose, or the Board may reduce the number of Directors to
eliminate the vacancy.
NOMINEES FOR DIRECTOR TO BE ELECTED AT THE 1998 ANNUAL MEETING (CLASS II)
George M. Gentile, 62, has been a Director of the Company since 1989. Mr.
Gentile is the Chairman of the Board of the Company. On June 1, 1998, Mr.
Gentile announced his retirement as Chief Executive Officer of the Company,
effective on that date, and as Chairman of the Board of Directors, effective at
this annual meeting of shareholders on September 25, 1998. If re-elected, Mr.
Gentile intends to remain as a Director of the Company. From August, 1996 to
June, 1998 Mr. Gentile served as Chairman and Chief Executive Officer of the
Company. Previous to August, 1996, Mr. Gentile was Senior Vice President,
Finance and served in that capacity since 1977. He has been employed by the
Company in numerous key financial and management positions since 1963, and
presently serves as a director of several of the Company's subsidiaries.
David J. Gerber, 37, has been a Director of the Company since 1992. Mr.
Gerber was appointed Vice President, Business Development and Technology
Strategy of the Company in March, 1998. Mr. Gerber was an attorney in the
Company's legal department from 1989 to September, 1996, served as Secretary of
the Company from February, 1995 to September, 1996, and was the Company's
Director of New Business Development and Technology Strategy from September,
1996 to March, 1998.
Donald P. Aiken, 54, has been a Director of the Company since September,
1997. Mr. Aiken is President of ABB Industrial Systems, Inc., a position he has
held since 1993. ABB Industrial Systems, Inc. manufactures and distributes a
wide variety of industrial products and components worldwide. Prior to joining
ABB, Mr. Aiken held executive positions at General Instrument Corporation, Texas
Instruments, and Rexnord, Inc.
DIRECTORS SERVING UNTIL THE 1999 ANNUAL MEETING (CLASS III)
A. Robert Towbin, 63, has been a Director of the Company since 1992. Mr.
Towbin has been Managing Director, C.E. Unterberg Towbin, of New York, New York
since 1995. Mr. Towbin was the Vice Chairman and a director of the U.S. Russia
Investment Fund from May, 1995 to August, 1995; President, Chief Executive
Officer, and a director of the Russian-American Enterprise Fund from January,
1994 to May, 1995, and Managing Director, Lehman Brothers, from January, 1987 to
December, 1993. Mr. Towbin is also a director of Columbus New Millenium Fund
(London), K&F Industries, Inc., Bradley Real Estate, Inc., and Globalstar
Telecommunications, Ltd.
David J. Logan, 64, has been a Director of the Company since August 4, 1996.
Mr. Logan was a Director of the Company from 1988 to 1989, and previously held
the positions of Senior Vice President, Engineering of the Company and President
of the Company's wholly-owned subsidiary Gerber Scientific Products, Inc., until
his early retirement from the Company in 1990. Mr. Logan is a Director of Gerber
Scientific Products, Inc. and Gerber Coburn Optical, Inc., and an independent
technical consultant to the Company.
DIRECTORS SERVING UNTIL THE YEAR 2000 ANNUAL MEETING (CLASS I)
Edward E. Hood, Jr., 67, has been a Director of the Company since 1994. Mr.
Hood was Vice Chairman of General Electric Company of Fairfield, Connecticut,
from 1979 to 1993. Mr. Hood is also a director of Lockheed Martin Corp. and
Lincoln Electric Co.
William Jerome Vereen, 57, has been a Director of the Company since 1994.
Mr. Vereen is President, Chief Executive Officer, Treasurer, and Acting Chairman
of the Board of Directors of Riverside Manufacturing Company of Moultrie,
Georgia, positions he has held for a number of years. Mr. Vereen is also a
director of Georgia Power Company and Blue Cross/Blue Shield of Georgia, and is
an advisory director for Southern Region, NationsBank of Georgia N.A.
Michael J. Cheshire, 49, has been a Director since 1997. In February, 1997,
Mr. Cheshire was appointed President and Chief Operating Officer of the Company
and, effective on June 1, 1998, Mr. Cheshire was appointed Chief Executive
Officer of the Company. Prior to joining the Company, Mr. Cheshire was employed
by General Signal Corporation for over 21 years
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where he rose to become President of the General Signal Electrical Group in
1995. Prior positions of Mr. Cheshire with General Signal included President,
SOLA Electric and President, OZ/GEDNEY.
Carole F. St. Mark, 55, has been a Director of the Company since September,
1997. Ms. St. Mark is the founder of Growth Management LLC., a business
development and strategic management company. Prior to founding Growth
Management LLC. in 1997, Ms. St. Mark was an employee of Pitney Bowes, Inc. for
17 years where she held a series of senior executive positions, including,
President and Chief Operating Officer of Pitney Bowes Business Services. Ms. St.
Mark also serves on the Board of Directors of Polaroid Corporation and
SUPERVALUE, Inc.
Other than as indicated under "Directors' Compensation" below, there is no
significant business relationship between the Company and any of the companies
mentioned above as the principal employer of any nominee or any continuing
Director, or for which the nominee or continuing Director also serves as a
director. No nominee is in any way related to any continuing Director, no
continuing Director is in any way related to any nominee or any other continuing
Director, and no nominee nor continuing Director is in any way related to any
current executive officer of the Company or its subsidiaries. There is no
arrangement or understanding between any nominee and any other person pursuant
to which he was selected as a nominee.
Any shareholder wishing to nominate other persons for Director of the
Company must do so in writing to the Secretary of the Company for receipt by the
close of business on the tenth day following the mailing of this Proxy Statement
by the Company or the public announcement of the date of the annual meeting of
shareholders.
Table II, page 3, contains the information concerning the beneficial
ownership of the Company's Common Stock by each of the Directors and the
nominees, by each of the current and former executive officers named in the
Summary Compensation Table, and by all Directors and executive officers as a
group as of July 20, 1998.
DIRECTORS' COMPENSATION
Effective June, 1998, each non-employee Director receives an annual
Director's fee of $20,000 for membership on and services to the Board, a fee of
$1,000 for attendance at each meeting of the Board, and annual compensation of
$1,000 for membership on and services to each assigned Committee of the Board.
At the election of the recipient, Director fees may be deferred pursuant to
the Gerber Scientific, Inc. Agreement for Deferment of Directors Fees and the
Non-Employee Director Stock Option Plan. The plan permits any non-employee
Director to defer all or a portion of the fees paid to non-employee Directors
until a future time selected by such Director. Deferrals under this program may
be either in cash or in shares at the election of the Director. Deferrals in
cash are credited with interest by the Company at market rate. Deferrals in
shares of the Company are credited with dividends, which would otherwise be
payable with respect to such deferred shares of the Company.
In 1992, shareholders approved the 1992 Non-Employee Director Stock Option
Plan pursuant to which Directors of the Company who are not (and have not been
during the past twelve months) employees of the Company were automatically
granted 1,000 non-qualified options to purchase shares of the Company's Common
Stock on May 1 of each year. These options are granted at 100% of the fair
market value (as that term is defined in the Director Option Plan) of a share of
the Company's Common Stock on the date of grant. The purpose of the Non-Employee
Director Stock Option Plan is to provide an incentive to non-employee Directors,
to encourage ownership of the Company's Common Stock, and to enable the Company
to attract and maintain qualified non-employee Directors whose services are
considered important to the success of the Company. Up to 75,000 shares of
Common Stock (subject to proportionate adjustment in certain events) were
reserved for grant as options under the plan. The Director Stock Option Plan is
administered by the members of the Board who are employees of the Company.
At the 1997 annual meeting of shareholders of the Company, amendments to
this Non-Employee Director Stock Option Plan were approved whereby Directors
could, at the election of each Director, receive all or a portion of their
Director fees in Company stock or defer all or a portion of their Director fees
in Company stock. In June, 1998, the Board adopted a resolution, effective May
1, 1998, whereby, subject to approval of shareholders, non-Employee Directors
would automatically receive, each year, options for 3,000 shares of Company
Common Stock in accordance with the terms of the non-employee Director Stock
Option Plan. Shareholder approval of this amendment to the Non-Employee Director
Stock Option Plan is included as one of the items for approval by shareholders
at the 1998 annual meeting of shareholders. At this meeting, the approval of
shareholders will also be sought to increase the number of shares available for
grant as options under this Non-Employee Director Stock Option Plan to 175,000
shares.
For fiscal year 1998, Mr. Logan received consulting fees of $120,000 plus
expenses of $1,957. Mr. A. Robert Towbin is a principal in C.E. Unterberg
Towbin. During fiscal year 1998, C.E. Unterberg Towbin, an investment banking
firm, received investment banking fees from the Company with respect to an
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acquisition and other advice provided to the Company. Other than as discussed
above, no other Directors received fees for their services as Directors or
Committee members during the fiscal year ended April 30, 1998 except for Mr.
Stanley Simon who retired from the Board of Directors in September, 1997. Mr.
Simon received Director's fees of $12,500 for the period preceding his
retirement and, for fiscal year 1998, $29,584 in consulting fees and expenses of
$2,255.
COMMITTEES OF THE BOARD OF DIRECTORS
The Company has three standing committees: the Audit and Finance Committee,
the Management Development and Compensation Committee, and the Business
Development Committee. The Company does not have a Nominating Committee.
THE AUDIT AND FINANCE COMMITTEE, composed of Messrs. Vereen (Chairperson),
Hood, and Logan held one (1) meeting during the fiscal year ended April 30,
1998. The principal functions of the Audit and Finance Committee are to review
the selection and qualifications of the Company's independent auditors and make
recommendations to the Board, to review with the independent auditors and the
internal auditors the scope and adequacy of their examinations and audits, and
to review and approve non-audit services performed by the independent auditors.
THE MANAGEMENT DEVELOPMENT AND COMPENSATION COMMITTEE, currently composed
of Messrs. Hood (Chairperson), Aiken, Vereen, and Ms. St. Mark, held three (3)
meetings during the fiscal year ended April 30, 1998. The principal functions of
the Management Development and Compensation Committee are to establish and
determine salaries and other compensation to be paid to executive officers; to
establish and determine terms and conditions of bonus and stock option plans; to
establish and administer performance goals and other criteria for payment of any
compensation of executive officers which is intended to be performance-based for
purposes of Section 162(m) of the Internal Revenue Code (the "Code"); to amend
the Company's employee stock option plans, subject to shareholder and other
approvals as may be required by applicable law; and to make recommendations to
the Board of Directors concerning training and other development of the
Company's management personnel.
THE BUSINESS DEVELOPMENT COMMITTEE, composed of Ms. St. Mark, (Chairperson)
and Messrs. Gerber, Towbin, and Logan, held one (1) meeting during the fiscal
year ended April 30, 1998. The principal function of the Business Development
Committee is to evaluate opportunities presented by the management of the
Company for development of existing and new business for the Company and its
subsidiaries.
The Board of Directors held nine (9) meetings and acted by unanimous
written consent on sixteen (16) occasions during the year ended April 30, 1998.
All of the Directors attended 75% or more of the aggregate of their respective
Board and Committee meetings.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based upon Company records and other information, the Company believes that
all required reports pursuant to Section 16(a) of the Securities Exchange Act of
1934 have been timely filed by all officers and Directors, and shareholders of
the Company.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Messrs. Hood, Aiken, Vereen, Towbin, Simon and Ms. St. Mark served as
members of the Management Development and Compensation Committee for all or
portions of the Company's last completed fiscal year ended April 30, 1998.
Except as indicated above under the caption "Directors' Compensation," no such
member was compensated by the Company for any services rendered during such
fiscal year.
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MANAGEMENT DEVELOPMENT AND COMPENSATION COMMITTEE REPORT ON EXECUTIVE
COMPENSATION
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DEAR SHAREHOLDERS,
Our Committee is responsible for establishing executive compensation policies,
approving base salary levels for executive officers, including those named in
the Summary Compensation Table (the "Named Executives"), determining the terms
and conditions of incentive bonuses, making stock plan awards (in conformance
with shareholder approved plans) and generally administering the Company's stock
option and executive bonus plans. We also establish and administer performance
goals and other criteria for payment of any compensation to executive officers
intended to be performance contingent. In addition, we make recommendations to
the full Board of Directors concerning development of the Company's management
personnel. The Board of Directors has delegated these responsibilities to this
Committee.
EXECUTIVE COMPENSATION PHILOSOPHY
The Company's executive compensation philosophy emphasizes three guiding
principles:
Providing a competitive executive compensation package that enables the
Company to attract and retain talented executives;
Basing a major portion of each executive's annual cash compensation on the
annual profitability of the Company or of the subsidiary for which the executive
is primarily responsible; and,
Aligning the financial interests of executives with long-term total
shareholder return, particularly through the accumulation of Company
shareholdings by each executive.
EXECUTIVE COMPENSATION PROGRAM
The Company's executive compensation program has three major components: base
salaries; incentive plans for awarding annual bonuses; and a long-term incentive
plan for the awarding of stock options and, to a lesser extent, in limited
cases, for awarding restricted shares and bonus shares. Although the Company's
1992 Employee Stock Plan also provides for the awarding of performance units,
none were granted during the Company's 1998 fiscal year ended April 30, 1998 and
there will be no future grants under the Plan if shareholders approve the
amendments to the Plan (discussed on page 17 in this Proxy Statement) to be
voted on at the September 25, 1998 annual meeting. This Committee and the Board
are recommending approval of these Amendments and of the Company's Annual
Incentive Bonus Plan for the fiscal years 1999 though 2001 ("1999-2001 Bonus
Plan").
In setting executive compensation levels, the Committee has been assisted by
outside compensation consultants from KPMG Peat Marwick, LLP ("Compensation
Consultants"). These Compensation Consultants analyzed market data obtained from
proxy statements of U.S. companies of revenue and asset size similar to the
Company which are engaged in technology-based manufacturing and from published
surveys covering the same industry sector (collectively, the "Comparison
Companies"). Comparisons of this type have been prepared for and used by the
Committee for a number of years. Over time, however, the companies in the
comparison group have changed to remain aligned with the growth of our Company
and other business changes. From this data, the Compensation Consultants have
developed executive salary ranges for executives of the Company. The
Compensation Consultants also made recommendations to the Committee on the
placement of executive positions into the salary ranges so developed, the terms
and conditions of the Company's annual incentive bonus plans, and stock option
grant guidelines for the Company's executives, all based on the market data
analysis. The data and recommendations provided by the Compensation Consultants
were significant factors considered by the Committee in making salary
adjustments and stock option grants to executives, including the Named
Executives, during fiscal year 1998 and in determining the terms of the
1999-2001 Bonus Plan.
The Comparison Companies analyzed by the Compensation Consultants differed from
the companies contained in the Dow Jones Diversified Technology Index selected
for the comparative total return graph shown on page 14 in this Proxy Statement.
The Diversified Technology Index generally represents companies of substantially
larger revenue and asset size which were, therefore, deemed inappropriate for
purposes of external salary comparison.
BASE SALARY
In fiscal year 1998, as in prior years, the Committee determined base salaries
of the Company's executive officers, including the Named Executives, based on
its overall assessment of several factors. These factors included: (1) the
performance of the Company or applicable subsidiary; (2) the executive's
individual accomplishments; (3) the executive's managerial capabilities; (4) the
executive's salary in relation to salaries of comparable executives employed by
the Comparison Companies; and (5) other subjective factors deemed relevant by
the Committee. There was no specific relative weighting given to these factors.
The Committee's base salary determinations considered performance evaluations of
each Named Executive by the Company's Chief Executive Officer, except that the
Committee evaluated the Chief Executive Officer. Our policy has been to
generally target executive salaries within a range between the median and
seventy-fifth percentile of externally surveyed salaries in order to be fully
competitive in the hiring and retention of high-caliber executives.
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ANNUAL INCENTIVE BONUS PLAN
1998 ANNUAL INCENTIVE BONUS PLAN GENERAL DESCRIPTION In fiscal year 1998, cash
bonuses were awarded to employees of the Company and its subsidiaries, including
the Named Executives, pursuant to the Company's 1998 incentive bonus plan.
Bonuses under the 1998 bonus plan were paid from bonus pools funded on the basis
of formulas determined at the beginning of the year by the Committee and
approved by the full Board of Directors. Separate bonus pools were provided for
employees of the Company and for employees of each of its subsidiaries. The
bonus pools were funded based on a percentage of the pretax, pre-bonus profits
of the applicable entity (as adjusted to eliminate certain income and expense
items) plus a percentage of the improvement, if any, in such profits over 70% of
the highest such annual profit achieved by the entity during the prior three
years. Such respective percentages in 1998, as in 1997, were 0.75% and 2.25% for
the corporate-level pool and 1% and 3% for each subsidiary level pool. Awards
under the 1998 plan (other than restricted stock grants discussed below) could
only be made from the amounts available from the applicable bonus pool.
The terms and conditions of the 1998 Annual Incentive Bonus Plan, which were
approved by the Committee at the beginning of the 1998 fiscal year, were similar
to the terms and conditions of the Company's 1997 Annual Incentive Bonus Plan
except that the maximum award attainable by any executive was increased to 100%
of base salary from 75% and, to encourage management's investment in the
Company's Common Stock, the Purchase Alternative, discussed below, was added.
The 1997 bonus plan and the changes to that plan reflected in the 1998 bonus
plan were based on recommendations by the Compensation Consultants and the
Committee's desire to further emphasize performance-based compensation.
Target bonus percentages and maximum amounts for cash bonus awards in fiscal
year 1998 were determined at the beginning of the fiscal year. For the Named
Executives, the target bonus percentage was 50% of base salary and the maximum
attainable cash bonus was 100% of base salary.
1998 PLAN - STOCK PURCHASE ALTERNATIVE For the first time, the 1998 Annual
Incentive Bonus Plan afforded Named Executives and other senior management
personnel the opportunity to elect and direct that up to 50% of their bonuses,
which would otherwise be payable in cash, be used to purchase stock in the
Company at the current market price. For the persons who elected to make such
Company stock purchases, the Committee made companion awards of Restricted Stock
equal in number to one third of the stock elected to be purchased by each such
purchaser (before tax withholding). The Restricted Stock was granted under the
terms of the 1992 Employee Stock Plan, as amended, and will vest in one-third
equal, annual increments over three years. In the event of termination of
employment of the executive for any reason other than death, permanent
disability, retirement, or change of control of the Company the portions of the
Restricted Stock award which are not then vested would be forfeited. Similarly,
a pro-rata portion of the shares of Restricted Stock which are not then vested
will be forfeited if, during the restricted period, the executive sells,
transfers or otherwise disposes of all or any portion of the underlying Common
Stock purchased under this plan. This plan permitting Restricted Stock to be
awarded to certain executives who "traded" cash bonuses in favor of purchasing
Company stock, was specifically designed by the Committee's Compensation
Consultants and implemented by the Committee to promote ownership of stock in
the Company by senior executives thus further aligning the interests of those
executives with the interests of our shareholders.
1999-2001 ANNUAL INCENTIVE BONUS PLAN This Committee has approved the terms of a
new Annual Incentive Bonus Plan which will apply to fiscal years 1999 through
2001, subject to the Plan's approval by the shareholders at the annual meeting.
The terms of this Plan are similar to those of the 1998 Annual Incentive Bonus
Plan except that, based on recommendations from the Compensation Consultants,
the amount of adjusted consolidated pretax, pre-bonus profits available to fund
the corporate bonus pool has been increased to 1% and the percentage of any
increase in such profits over 70% of the highest such profits earned in any of
the preceding three years has been increased to 3%. In addition, for the Chief
Executive Officer, the target bonus percentage has been increased from 50% to
75% and the maximum cash bonus attainable by the Chief Executive Officer has
been increased to 150% of the Chief Executive Officer's base salary plus any
Restricted Shares he may become entitled to under the Plan as a result of the
Stock Purchase Alternative under the Plan. The Committee deemed the 1999-2001
Bonus Plan, with these changes, to be competitive with similar kinds of
performance-based bonus plans and practices among the Comparison Companies. The
new Annual Incentive Bonus Plan is more fully described on page 26 of this Proxy
Statement.
LONG-TERM INCENTIVE PLAN
In fiscal year 1998, the Committee granted stock options to the Named Executives
in the amounts indicated in Table III on page 11. Other than a grant of options
to purchase 30,000 shares made to the Company's then newly hired President and
Chief Operating Officer, no grants were made to any of the Named Executives in
fiscal year 1997. Options granted in fiscal year 1998 were based on the
guidelines developed by the
8
<PAGE>
- --------------------------------------------------------------------------------
Compensation Consultants from an analysis of the Comparison Companies as well
as the Committee's subjective assessment of the factors described above under
the paragraph entitled "Base Salary".
The Employee Stock Plan currently provides for the granting of stock options,
restricted stock, bonus stock and cash "performance units" to selected optionees
as long-term incentive compensation. In fiscal 1998, the Committee made no
grants of restricted stock, bonus stock or performance units to any of the Named
Executives. Restricted Stock grants were made in fiscal year 1999 for those
executives who participated in the 1998 Stock Purchase Alternative, described
above.
As discussed in the Sections regarding proposed amendments to the Gerber
Scientific, Inc. 1992 Employee Stock Plan, if the proposed amendments to that
plan are approved by shareholders at the annual meeting, the granting of
"Performance Units" in connection with stock option grants will no longer be
permitted under the Plan.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
Mr. George M. Gentile was appointed to the position of Chief Executive Officer
of the Company in August, 1996 following the death of Mr. H. Joseph Gerber, the
preceding President and CEO and the Company founder. Upon his appointment, the
Committee established Mr. Gentile's base salary at $400,000 based on
market-based salary guidelines and the Committee's subjective assessment of the
factors described above in this report under the caption "Base Salary", and Mr.
Gentile's base salary was continued at that rate in fiscal year 1998.
The cash bonus awarded to Mr. Gentile as CEO for fiscal year 1998 was determined
in accordance with the terms of the Company's 1998 Annual Incentive Bonus Plan
and, like the other Named Executives, Mr. Gentile's targeted bonus percentage
was 50% of base salary and his maximum attainable cash bonus was 100% of his
base salary. Mr. Gentile's earned cash bonus for the fiscal year 1998 was
$256,000 which represented 64% of his base salary for the year. Under the terms
of the Stock Purchase Alternative, described above, Mr. Gentile elected to use
50 percent of his cash bonus to purchase 2,968 shares of Common Stock of the
Company, after tax withholding, thereby entitling Mr. Gentile to an additional
grant of 1,649 restricted shares.
At the beginning of fiscal year 1998, the Committee granted Mr. Gentile options
to purchase 200,000 shares of the Company's Common stock under the Company's
Employee Stock Plan. The Committee also specified, in accordance with the Plan,
the grant of "Reload Options" in the event that Mr. Gentile makes a "cashless"
exercise of any of these options within five years following the grant date.
The actions taken by this Committee in respect to Mr. Gentile's fiscal year 1998
stock awards were based on executive stock grant guidelines recommended by the
Compensation Consultants and the Committee's assessment of Mr. Gentile's
performance during the periods prior to the date the options were granted.
Mr. Gentile, who has held the positions of Chairman of the Board and Chief
Executive Officer since 1996, has announced his retirement from employment by
the Company to be effective at calendar year end. To facilitate a smooth
transition of responsibilities, Mr. Gentile elected to resign his position as
Chief Executive Officer of the Company effective June 1, 1998 and Mr. Michael J.
Cheshire, who formerly served as President and Chief Operating Officer, has been
appointed to the position of Chief Executive Officer effective on that date. Mr.
Gentile has also elected to resign as Chairman of the Board of Directors at the
upcoming annual meeting of shareholders on September 25, 1998. Mr. Gentile will,
if re-elected at this meeting of shareholders, remain as a Director of the
Company. The Board of Directors has appointed Mr. Cheshire as Chairman of the
Board of Directors effective on Mr. Gentile's anticipated retirement as
Chairman.
POLICY ON DEDUCTIBILITY OF EXECUTIVE COMPENSATION
Under Section 162(m) of the Internal Revenue Code and the regulations issued
thereunder, the Company would not be allowed a deduction for any compensation
paid to any of the Named Executives in excess of $1 million unless the amounts
in excess of $1 million were "performance based" within the meaning of Section
162(m). Compensation which is payable because of the attainment of
pre-established performance goals will qualify as Section 162(m) performance
based compensation if: (1) the performance goals are established by an
independent compensation committee consisting solely of two or more outside
directors; and, (2) the material terms of the compensation and performance goals
have been approved by shareholders prior to payment; and, (3) prior to payment,
the Committee certifies that the performance goals were attained and other
material terms were satisfied.
This Committee, which consists solely of outside directors, generally intends to
provide for the deductibility of all compensation expenses, although it
recognizes that circumstances may arise in which the interests of the Company
and its shareholders are best served by decisions which limit this
deductibility, and the Committee will act in its best judgment in such
circumstances.
9
<PAGE>
- --------------------------------------------------------------------------------
In order to preserve the deductibility of all amounts which may be paid to the
Named Executives under the 1999-2001 Annual Incentive Bonus Plan, the Committee
has directed that such Plan be submitted to the Company's shareholders for
approval at the annual meeting scheduled for September 25, 1998. If the Plan is
not approved, it will not be implemented. However, if shareholder approval is
not obtained, the Committee may be required to implement an alternative bonus
plan for key employees in order to continue to attract and retain talented
executives.
Respectfully submitted,
The Management Development
and Compensation Committee
Edward E. Hood, Jr., Chairperson
Donald P. Aiken
Carole F. St. Mark
William J. Vereen
10
<PAGE>
EXECUTIVE COMPENSATION
- --------------------------------------------------------------------------------
TABLE III
- --------------------------------------------------------------------------------
The following table shows compensation for services during the years ended April
30, 1998, 1997, and 1996 for the Chief Executive Officer and the four other most
highly compensated executive officers of the Company.
<TABLE>
SUMMARY COMPENSATION TABLE
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Long-Term Compensation
----------------------------------------
Annual Compensation Awards Payouts
--------------------------------------- -------------------------- -----------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Securities
Underlying Long- All Other
Other Restricted Options/ Term Compen-
Name and Annual Com- Stock SARs Incentive sation
Principal Position Year Salary ($) Bonus ($)(1) pensation ($) Awards ($)(2) (#)(3) Plan ($)(4) ($)(5)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
George M. Gentile ........... 1998 $400,000 $256,000 $ 0 $42,668 200,000 $ 0 $ 1,000
Chief Executive Officer 1997 388,282 90,586 0 0 0 0 600
1996 293,692 164,775 0 0 50,000 0 500
Michael J. Cheshire ......... 1998 350,000 224,000 0 37,338 120,000 0 1,000
President and Chief 1997 67,308 0 100,000 0 30,000 0 300,000
Operating Officer (6)
from 2/17/97
Fredric K. Rosen ............ 1998 275,000 268,860 0 44,816 50,000 0 1,000
Senior Vice President 1997 261,923 33,243 0 0 0 0 600
1996 248,461 47,041 0 0 40,000 0 500
Ronald B. Webster ........... 1998 290,000 202,130 0 33,688 50,000 0 1,000
Senior Vice President 1997 274,039 189,087 0 0 0 0 600
1996 253,923 190,442 0 0 40,000 0 500
Richard F. Treacy, Jr ....... 1998 180,000 115,200 0 19,199 30,000 0 1,000
Senior Vice President, 1997 176,154 41,097 0 0 0 0 600
and General Counsel 1996 169,231 66,135 0 0 20,000 0 500
</TABLE>
(1) In 1998, the Named Executives elected to receive 50 percent of their
bonus in the form of Gerber Scientific, Inc. stock in lieu of cash. This stock
was purchased by those executives in the open market. See discussion in the
Management Development and Compensation Committee report page 7 regarding the
stock purchase alternative.
(2) In June, 1998, the Company granted to the Named Executives and others
who purchased Gerber Scientific, Inc. stock with a portion of their bonus,
restricted shares equal in value to one-third of the bonus amount received in
common stock (before tax withholdings). The restricted stock will vest in equal
installments at each of three anniversary dates following the grant date,
provided that the portion of the original stock purchased with bonus proceeds is
still held by the executive. There were no restricted shares granted at April
30, 1998 because the bonus for fiscal year 1998 was paid in June, 1998.
Dividends are paid on the restricted stock. Restricted shares vest free and
clear of all restrictions upon the retirement of the holder of such shares.
Accordingly, Mr. Gentile's restricted shares will vest upon his retirement as an
employee of the Company on December 31, 1998 and Mr. Webster's shares were
issued without restriction due to his retirement on May 1, 1998.
(3) The securities underlying the options are shares of the Company's
common stock; the Company does not grant stock appreciation rights (SARs).
(4) There were no long-term incentive plan payouts in 1996, 1997, or 1998.
(5) Each of the Named Executives received $800 in matching contributions
under the Company's 401(k) defined contribution plan in 1998. Except for Mr.
Cheshire, the 401(k) matching contributions for these executives in 1996 and
1997 were $300. Also, each executive received $200 as a Christmas bonus in each
year, except Mr. Cheshire who received $200 as a Christmas bonus beginning in
1998.
(6) In February, 1997, Mr. Cheshire joined the Company as President and
Chief Operating Officer. At such time, Mr. Cheshire became entitled to receive
$400,000 as a sign on award, payable in $100,000 in each of 1997 and 1998 and
$200,000 in 1999.
11
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
- --------------------------------------------------------------------------------
TABLE IV
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Annual Rates of Stock
Price Appreciation
Individual Grants for Option Term
-------------------------------------------------------------------- --------------------------
(a) (b) (c) (d) (e) (f) (g)
Number of
Securities % of Total
Underlying Options Granted Exercise or
Options to Employees Base Price (2) Expiration
Name Granted (#)(1) in Fiscal Year ($ per Share) Date 5%(3) 10%(3)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
George M. Gentile 200,000 12.0% $16.62 4/30/07 $2,090,000 $5,298,000
Michael J. Cheshire 120,000 7.2% 16.62 4/30/07 1,254,000 3,179,000
Fredric K. Rosen 50,000 3.0% 16.62 4/30/07 523,000 1,324,000
Ronald B. Webster 50,000 3.0% 16.62 4/30/07 523,000 1,324,000
Richard F. Treacy, Jr. 30,000 1.8% 16.62 4/30/07 314,000 795,000
</TABLE>
(1) These options become exercisable in installments of 33 1/3% per year
beginning in fiscal year 1999. The terms of the plan provide that these options
may become exercisable in full in the event of a change of control (as defined
in the plan). The underlying grant agreement for these options includes grants
of reload options upon the exercise or partial exercise of the original options
through a form of "cashless" exercise. Reload options are granted when the
optionee exercises all or part of the original options within five years of the
date of the original options. Each reload option granted entitles the optionee
to purchase a number of shares of common stock equal to the number of shares of
common stock surrendered at an option price equal to the fair market value of a
share of common stock on the grant date of the reload options. The reload
options vest and become exercisable three years following the grant date of the
reload options provided the optionee continues to hold the stock acquired as a
result of the original exercise and are exercisable until the expiration of the
options period for the original options.
(2) These stock options were granted May 1, 1997 at the fair market value
of the common stock on the date of grant.
(3) Pursuant to Securities and Exchange Commission rules, columns (f) and
(g) show gains that might exist for the options over a period of ten years at 5%
and 10% annual compounded appreciation in the stock price. This method of
valuation is hypothetical; if the stock price does not increase above the
exercise price, the compensation to the Named Executive will be zero. If this
same methodology was used to determine the potential realizable gain for all
shareholders over this same period (May 1, 1997 through May 1, 2007) the gain
based on 5% annual appreciation would be approximately $244,000,000 and the gain
based on 10% annual appreciation would be approximately $617,000,000. The
potential gain related to the options granted to the Named Executives above
represents approximately 1.9% of the total potential gain to all shareholders
using this valuation method. These are assumed rates of appreciation and are not
intended to forecast future appreciation of the Company's common stock. Actual
gains, if any, on option exercises and share holdings are dependent on the
future performance of the Company's stock price.
12
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
- --------------------------------------------------------------------------------
TABLE V
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e) (f) (g)
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Options at Fiscal Options at Fiscal
Year-end (#) Year-end ($)(1)
----------------------------- -----------------------------
Shares Value
Acquired on Realized
Name Exercise (#) ($) Exercisable Unexercisable Exercisable Unexercisable
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
George M. Gentile 0 $ 0 22,500 250,000 $309,075 $2,263,500
Michael J. Cheshire 0 0 0 150,000 0 1,399,500
Fredric K. Rosen 0 0 15,000 90,000 230,700 834,000
Ronald B. Webster 20,000 229,625 40,000 50,000 390,000 487,500
Richard F. Treacy, Jr. 6,000 69,750 22,625 51,875 327,051 482,269
</TABLE>
(1) These amounts represent the difference between the exercise price of
the stock options and the closing price of the Company's Common Stock on April
30, 1998 ($25.50) for all options held by each Named Executive. The stock option
exercise prices ranged from $7.25 to $16.62. All stock options are granted at
the fair market value of the Common Stock on the date.
13
<PAGE>
PERFORMANCE GRAPH
- --------------------------------------------------------------------------------
The following graph and table compare the performance of the Company's Common
Stock with that of the S&P 500[REGISTER MARK] and the Dow Jones Diversified
Technology Index for the past five years. The graph plots the growth in value of
an initial $100 investment over the indicated time periods, with dividends
reinvested.
[GRAPHIC OMITTED]
Apr-93 Apr-94 Apr-95 Apr-96 Apr-97 Apr-98
- --------------------------------------------------------------------------------
Gerber Scientific, Inc. $100 $120 $124 $139 $139 $218
- --------------------------------------------------------------------------------
S&P 500{register mark] $100 $105 $124 $161 $202 $284
- --------------------------------------------------------------------------------
Dow Jones Diversified $100 $106 $129 $161 $210 $246
Technology Index
- --------------------------------------------------------------------------------
In accordance with rules promulgated by the Securities and Exchange
Commission, the information included under the caption "Management Development
and Compensation Committee Report on Executive Compensation" will not be deemed
to be filed or to be proxy soliciting material or incorporated by reference in
any prior or future filings by the Company under the Securities Act of 1933 or
the Securities Exchange Act of 1934.
EXECUTIVE EMPLOYMENT AGREEMENTS AND ARRANGEMENTS
As of February 17, 1997, the Company and Mr. Michael J. Cheshire entered
into an Employment Agreement under which Mr. Cheshire served as President and
Chief Operating Officer. The Agreement was amended, as of June 1, 1998, to name
Mr. Cheshire as President and Chief Executive Officer of the Company. The
Agreement also requires the Company to use its best efforts to cause Mr.
Cheshire to be elected a Director of the Company. Mr. Cheshire has served as a
Company Director since 1997. The Agreement provides that Mr. Cheshire will be
paid an initial base salary of $350,000 per year plus any increase that the
Board of Directors shall determine in accordance with Company policy. Upon Mr.
Cheshire's appointment as Chief Executive Officer, the Management Development
and Compensation Committee and the Board fixed Mr. Cheshire's base salary at
$500,000 per year effective June 1, 1998 ("Base Compensation"). Pursuant to the
agreement, Mr. Cheshire was required to be paid a one time Sign-On Award of
$400,000, of which $100,000 was paid on February 17, 1997, $100,000 was paid on
February 17, 1998 and $200,000 is to be paid on February 17, 1999. Under the
Agreement, Mr. Cheshire is also eligible to receive annual bonuses calculated
and determined in the same manner and on the same terms as other executives of
the Company. The Agreement further provided that Mr. Cheshire's bonus for the
1998 fiscal year was required to be not less than $175,000.
14
<PAGE>
- --------------------------------------------------------------------------------
Pursuant to the Agreement, Mr. Cheshire was granted options to purchase a
total of 150,000 shares of the Company's Common Stock pursuant to the Company's
existing stock option plan. Mr. Cheshire was granted an option to purchase
30,000 shares at $14.37 (together with 7,500 Performance Units) on February 17,
1997 and an option to purchase 120,000 shares at $16.62 on May 1, 1997. Mr.
Cheshire is also entitled to participate in all of the benefit plans made
generally available to the Company's employees and to certain other benefits.
The Agreement may be terminated by either party at any time for any reason,
provided, that if Mr. Cheshire's employment is terminated by the Company for any
reason other than cause, Mr. Cheshire would be entitled to receive (i) his Base
Compensation for a period of 18 months from the date of termination; (ii) the
balance of any unpaid Sign-On Award; (iii) medical benefits for a period of 18
months following the date of termination; and (iv) any unpaid portion of any
bonus earned by Mr. Cheshire for any then completed fiscal year of the Company,
plus the pro rata portion of his target bonus for any portion of a fiscal year
completed prior to termination of his employment, plus the pro rata portion of
his target bonus for a period of 18 months from the date of such termination.
For purposes of this provision, Mr. Cheshire's target bonus shall be deemed to
be 50% of his Base Compensation for such year, or if Base Compensation has not
been set for a particular year, 50% of his then current Base Compensation.
The Agreement provides that if Mr. Cheshire's employment is terminated or
his position is reduced by the Company at any time within 24 months following a
change of control, as defined in the Company's Employee Stock Plan, he would be
entitled to receive (i) his Base Compensation for a period of 24 months
following the date of termination; (ii) the balance of any unpaid Sign-On Award;
(iii) medical benefits for a period of 24 months following the date of
termination; and (iv) any unpaid portion of any bonus earned by Mr. Cheshire for
any then completed fiscal year, plus the pro rata portion of his target bonus
for any portion of a fiscal year completed prior to such termination, plus the
pro rata portion of his target bonus for a period of 24 months from the date of
such termination.
If Mr. Cheshire were to die or become partially or totally disabled during
his employment, he would be entitled to receive the balance of any unpaid
Sign-On Award and such other death and disability benefits as employees of the
Company are then entitled to receive.
George M. Gentile resigned as the Company's Chief Executive Officer
effective June 1, 1998 and announced his intention to retire as an employee of
the Company effective December 31, 1998. In connection with Mr. Gentile's
retirement, the Management Development and Compensation Committee accelerated
the vesting date of options to purchase 50,000 shares of the Company's Common
Stock held by Mr. Gentile to June 17, 1998, authorized the payment of a pro rata
portion of any bonus he would otherwise have earned under the Company's bonus
plan had he continued to be employed by the Company through April 30, 1999 (the
end of the Company's 1999 fiscal year) and approved his leave with pay and
benefits from and after the 1998 annual meeting of shareholders through December
31, 1998 (62+ days of which Mr. Gentile previously had earned and accrued under
the Company's annual leave policy). Additionally, the Committee also accelerated
the vesting date of options to purchase 40,000 shares of the Company's Common
Stock held by Ronald B. Webster, the Company's Senior Vice President, to April
28, 1998. Mr. Webster retired on May 1, 1998. These options, which were granted
to Mr. Gentile and Mr. Webster on May 21, 1995 under the Company's 1992 Employee
Stock Plan, would automatically have vested in the normal course under the terms
of such plan had Mr. Gentile and Mr. Webster retired on or after May 21, 1999.
PENSION PLANS
The Company maintains a non-contributory qualified defined benefit pension
plan, the Gerber Scientific, Inc. and Participating Subsidiaries Pension Plan
(the "Pension Plan"), and a supplemental pension benefit plan (the "Supplemental
Pension Benefit Plan"), covering full-time domestic employees. Effective May 1,
1995, retirement benefits under the Pension Plan are based on an employee's
years of service and average annual compensation during the employee's five
consecutive highest-paid years in the last ten years of service. Compensation
for this purpose includes salary and other compensation paid by the Company and
reportable on Form W-2, but excludes fringe benefits (cash and non-cash)
including compensation related to stock option plans which is reported in the
Summary Compensation Table in this Proxy Statement. The Code limits the amount
of compensation that may be considered and the annual benefits which may be
payable from the Pension Plan. Retirement benefits in excess of these
limitations are provided under the Company's Supplemental Pension Benefit Plan
which is a nonqualified arrangement.
The following table shows the estimated annual benefits payable to a
participant attaining age 65 in 1998 under the Pension Plan and the Supplemental
Pension Benefit Plan for specified years of service at age 65. The table assumes
that the given level of compensation is the compensation for the last calendar
year in the five-year averaging period, and uses a 4.5 per-
15
<PAGE>
- --------------------------------------------------------------------------------
cent per year salary progression to determine five-year average compensation.
The benefits shown in the table are the plan formula benefits, which include and
reflect a reduction for Social Security benefits. Each of the benefits shown is
payable as a straight life annuity. Benefits are reduced if a survivor's benefit
is elected. On retirement at ages earlier than 65, benefits may be reduced
depending upon age and service at retirement.
<TABLE>
<CAPTION>
Years of Service
--------------------------------------------------------------------------------------------------------
Compensation 15 20 25 30 35 40 45
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$125,000 $21,719 $28,958 $36,198 $43,454 $52,055 $60,657 $69,259
150,000 26,879 35,840 44,800 53,776 64,098 74,420 84,742
175,000 32,040 42,721 53,401 64,098 76,140 88,182 100,224
200,000 37,201 49,602 62,003 74,420 88,182 101,945 115,707
225,000 42,362 56,484 70,604 84,742 100,224 115,707 131,190
250,000 47,523 63,365 79,206 95,064 112,267 129,470 146,673
300,000 57,845 77,127 96,409 115,707 136,351 156,995 177,639
400,000 78,488 104,653 130,816 156,995 184,520 212,045 239,571
500,000 99,132 132,178 165,222 198,283 232,689 267,096 301,502
600,000 119,776 159,703 199,629 239,571 280,858 322,146 363,434
700,000 140,420 187,228 234,035 280,858 329,027 377,196 425,365
800,000 161,064 214,753 268,441 322,146 377,196 432,247 487,297
</TABLE>
As of normal retirement age (65) or attained age, if later, the years of
service credited for retirement benefits for the Company's Named Executives
in the Summary Compensation Table would be as follows: 39 years for George M.
Gentile; 17 years for Michael J. Cheshire; 17 years for Fredric K. Rosen; 44
years for Ronald B. Webster; and 24 years for Richard F. Treacy, Jr.
The current compensation covered by the plans for the Named Executives does
not differ substantially from that set forth in the annual compensation columns
of the Summary Compensation Table except for Mr. Michael J. Cheshire whose
current base salary as Chief Executive Officer is $500,000 per annum. Mr.
Cheshire's current compensation arrangements are described in the Executive
Employment Agreement section above.
401(k) PLAN
The Company's 401(k) deferred compensation plan (the "401(k) Plan") covers
full-time domestic employees who have attained age 21. Under the 401(k) Plan,
participating employees may contribute from 2% to 15% of their salary on a
"pretax" basis, subject to a calendar year limitation of $9,500 in 1997, and
$10,000 in 1998, plus up to 10% of their salary on an "after-tax" basis. The
Company matches 50% of the first 6% of a participant's pretax contribution, up
to a maximum annual Company contribution of $800 per participant. In 1997, the
Company amended the 401(k) Plan to permit participants to invest in additional
funds under the plan, including Company stock. Upon termination of service,
disability, death, or retirement, a participant is entitled to receive the value
of his/her account, including any investment earnings or losses.
DEFERRED COMPENSATION PLAN
In 1997, the Company established the Gerber Scientific, Inc. and
Participating Subsidiaries Deferred Compensation Plan (the "Deferred
Compensation Plan"), which allows certain highly compensated employees who have
reached the maximum qualified pretax deferral amount under the 401(k) Plan to
defer an additional portion of their compensation under the Deferred
Compensation Plan. Eligibility for the Deferred Compensation Plan is determined
annually based on compensation levels. Eligible participants may defer up to 15%
of their "pretax" salary to the Deferred Compensation Plan less any amounts
contributed to the 401(k) Plan. Participants may invest in a variety of funds
under the plan, including a Company stock fund. The Deferred Compensation Plan
is a nonqualified plan under the Internal Revenue Code. Compensation deferred
under the plan is held in a trust that protects the assets from the effects of a
change in management control or takeover, but not against the insolvency or
bankruptcy of the Company or any of its subsidiaries.
16
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PROPOSAL 2 -- APPROVAL OF CERTAIN AMENDMENTS TO THE GERBER SCIENTIFIC, INC. 1992
EMPLOYEE STOCK PLAN, AS AMENDED AND RESTATED AS OF MAY 1, 1997.
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THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THIS PROPOSAL.
The Company's shareholders have previously approved the Gerber Scientific,
Inc. 1992 Employee Stock Plan, as amended and restated as of May 1, 1997 (the
"Employee Stock Plan"). The Employee Stock Plan provides for grants of Incentive
Stock Options, Nonqualified Options and Reload Options, (collectively,
"Options"), Restricted Shares and Bonus Shares, and Performance Units to
officers and other key employees of the Company or any of its majority-owned
subsidiaries ("Subsidiaries") who make important and direct contributions to the
success of the Company and its Subsidiaries. The purpose of the Employee Stock
Plan is to allow the Company to offer as an additional incentive to these
individuals the opportunity to increase their proprietary interest in the
Company under conditions which will encourage their continued employment and to
reward their contribution to creating shareholder value. The Management
Development and Compensation Committee (the "Committee") of the Company's Board
of Directors, which is responsible for compensation matters relating to the
Company's key employees, recently determined that it was in the best interests
of the Company to further amend the Employee Stock Plan. Accordingly, effective
June 17, 1998, the Committee approved and adopted certain amendments to the
Employee Stock Plan (the "Amendments") subject to approval by the Company's
shareholders.
PROPOSED AMENDMENTS
The proposed Amendments to the Employee Stock Plan are designed to further
the original purpose of the Employee Stock Plan and to assist the Company in
attracting, retaining, and motivating highly competent officers and other key
employees. The Committee believes the Employee Stock Plan and the Amendments
(sometimes collectively referred to as the "Amended Employee Stock Plan") will
act as an incentive in motivating officers and other key employees to achieve
long-term business objectives of the Company which will inure to the benefit of
all shareholders of the Company. The proposed Amendments give the Committee
added flexibility to make individual awards to meet changing business and tax
strategies. The current Employee Stock Plan has been in effect since 1992 and
provides that a maximum of 3,000,000 shares of Common Stock are available for
the grant of Options, Restricted Shares and Bonus Shares under the Employee
Stock Plan. As of the record date, July 20, 1998, 2,706,511 shares have been
granted under the Employee Stock Plan and 294,489 shares are available for
future grants. Based on market data of companies of comparable asset and revenue
size, as prepared by the Company's Compensation Consultants, the Committee
determined that it is in the Company's and the shareholders' best interests to
have an additional 2,000,000 shares of the Company's Common Stock available for
future issuance under the Employee Stock Plan during the remaining four year
life of such plan. Thus, if the Amendments are approved by the shareholders, the
total number of shares of Common Stock with respect to which future Options,
Restricted Shares and Bonus Shares may be granted under the terms of the
Employee Stock Plan shall be increased by 2,000,000 shares. Under these
amendments to the Employee Stock Plan, the total authorized shares for the 10
year life of the plan shall be 5,000,000 of which 2,705,511 have, as of July 20,
1998, been granted in the past.
In addition, the Employee Stock Plan currently provides that if any
Options, Restricted Shares or Bonus Shares expire, are terminated unexercised,
or are forfeited, these Options, Restricted Shares and/or Bonus Shares will be
available for regrant by the Committee. The Amendments provide that any Options,
Restricted Shares or Bonus Shares that are surrendered or otherwise withheld in
payment of the exercise of another option or in satisfaction of tax withholding
obligations will also be available for regrant by the Committee.
Further, the Company is aware that during the past decade, various
institutional and other shareholders have voiced concerns about plans of other
companies which contain terms similar to the Employee Stock Plan. Although the
Company believes that none of its actions under the Employee Stock Plan could
reasonably be considered as objectionable by any shareholder under current
informal standards, the Company desires to amend the Employee Stock Plan on such
subjects as limitations on the number of Restricted Shares which may be granted,
"re-pricing" of past option grants and the granting of Performance Units in
conjunction with option grants. To further assure shareholders that such issues
or practices are either not permitted or are appropriately limited under the
proposed Amendments to the Employee Stock Plan, the Amendments provide that:
A. The number of Restricted Shares or Bonus Shares that the Committee
may grant under the plan is limited to 200,000 shares;
B. No "Re-Pricing" of previously issued options by the Committee is
allowed; and
C. No Performance Units may be granted under the Employee Stock Plan
after June 17, 1998.
The Company also proposes certain other amendments to the Employee Stock
Plan. The current definition of Retirement provides solely for a Participant's
early retirement at age 55, if such Participant has no less than ten years of
service to the Company and/or its Subsidiaries. As alternatives to such early
retirement, the Amendments would define Retirement to also mean normal
retirement at age 65, as defined under the Company's pension plan, or retirement
at age 65 if the Company has no pension plan.
The Employee Stock Plan now provides that no grants may be made after
August 19, 2002. The Amendments will make clear that automatic grants of Reload
Options made after August
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19, 2002, pursuant to the Committee's specifications made prior to that date,
are permitted. Further, the Employee Stock Plan currently terminates on August
19, 2002 or later, if Grants made before such date are outstanding. The
Amendments clarify that the Employee Stock Plan will continue to remain
effective so long as Reload Options automatically granted on or after August 19,
2002 remain outstanding.
SUMMARY DESCRIPTION OF THE AMENDED EMPLOYEE STOCK PLAN. The following is a
summary of the material features of the Employee Stock Plan, as amended.
Capitalized terms used in this summary which are not defined herein have the
meanings ascribed to them in the Employee Stock Plan and the Amendments. The
full text of the Employee Stock Plan and the Amendments are available upon
request from the Company's Secretary and this summary is qualified in its
entirety by reference to the Employee Stock Plan and the Amendments.
SHARES AVAILABLE UNDER THE AMENDED EMPLOYEE STOCK PLAN. The aggregate
number of shares of Common Stock of the Company ("Common Stock") which were
available for the grant of Options, Restricted Shares and Bonus Shares under the
1992 Employee Stock Plan, as amended, was 3,000,000 shares. Of that total
amount, Options for 2,294,489 have already been granted under the plan leaving
only 294,489 shares available for the issuance of Options over the remaining
four year life of the Plan. The amendments to the plan, which are presented for
approval by shareholders, would increase the number of shares available for
future grants over the remaining four year term of the plan by 2,000,000 shares.
These additional shares for the remainder of the four year term of the plan
would increase the total number of shares available for issuance under the
entire term of this ten year plan to 5,000,000 shares in the aggregate, but of
that aggregate ten year amount, only 2,294,489 shares (plus any shares available
due to the forfeiture of options or surrender of shares in payment of the
exercise price of any option or related withholding taxes) would be available
for issuance in the future over the remaining four year life of the plan. The
aggregate number of Restricted Shares which may be granted in the future under
the Amended Employee Stock Plan after approval by shareholders of the proposed
amendments is 200,000.
The shares of Common Stock issuable upon exercise of Options, Restricted
Shares, and Bonus Shares may be authorized but unissued shares or shares which
have been reacquired by the Company, including shares purchased in the open
market. If any Restricted Share, Bonus Share or Option expires, is terminated
unexercised, is forfeited, or is surrendered or otherwise withheld to pay the
exercise price of other options or to satisfy tax withholding obligations, new
Restricted Shares, Bonus Shares and/or Options may thereafter be granted
covering such shares.
The Amended Employee Stock Plan includes anti-dilution provisions that
provide for proportionate adjustments in the number of shares of Common Stock
available for grant of Options, Restricted Shares, and/or Bonus Shares under the
plan, and in outstanding Options, Restricted Shares, Bonus Shares and
Performance Units (collectively "Grants") in the event of certain corporate
restructuring events, dividends in stock, or similar transactions.
ELIGIBILITY. Grants may be made only to key employees, including officers,
who on the date of grant are employed by the Company or any of its Subsidiaries
and have managerial, supervisory, professional, scientific, engineering, or
similar responsibilities. The Amended Employee Stock Plan defines Subsidiary to
include any corporation or business entity in which the Company directly or
indirectly owns fifty percent of the ownership interest. A Director of the
Company or any Subsidiary who is not an employee is not eligible to receive
Grants under the Amended Employee Stock Plan. Approximately 200 employees are
currently eligible to receive Grants under the Amended Employee Stock Plan.
ADMINISTRATION. The Amended Employee Stock Plan is to be administered by a
committee of not less than two members of the Company's Board of Directors (the
"Committee"). It is expected that each member of the Committee will be a
non-employee Director for purposes of Rule 16b-3 under the Securities Exchange
Act of 1934 (the "Exchange Act") and an "outside director" as that term is
defined under Section 162(m) of the Internal Revenue Code. The Management
Development and Compensation Committee of the Board of Directors serves as the
Committee. Among its responsibilities, the Committee has sole and exclusive
discretion (subject to the terms of the Amended Employee Stock Plan) to
designate key employees to whom Grants are to be made; to authorize and make
Grants; to determine the number of shares subject to each Option and the number
of Options granted pursuant to any Grant Agreement, the market value to be used
as the Option Price thereof, provided that the Committee may not reduce the
Option Price of any Option once the Option is granted, whether the Options
covered thereby are Incentive Stock Options or Nonqualified Options, and in the
case of Nonqualified Options, whether the Participant shall be granted a Reload
Option; Restricted Shares and/or Bonus Shares granted to any Participant; to
determine the time or times when and the manner in which each Option shall be
exercisable; to determine the time or times when, and the conditions to and
manner in which, each previously granted Performance Unit shall be paid; to
establish the criteria, including but not limited to performance-based criteria,
for the vesting and/or acceleration of the vesting of Grants; to determine the
duration of the exercise period for each Option; to determine the terms,
conditions, and restrictions on Restricted Shares and/or Bonus Shares, if any;
and to make all other determina-
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tions deemed necessary or advisable for the administration of the Amended
Employee Stock Plan. The terms of each Grant will be reflected in a Grant
Agreement executed by the recipient of the Grant and a proper officer of the
Company. Although the Committee has granted Performance Units which are
currently outstanding, as permitted by the Employee Stock Plan, the Amendments
provide that no additional Performance Units will be granted under the Amended
Employee Stock Plan.
OPTIONS
TYPES OF OPTIONS. Options may be granted under the Amended Employee Stock
Plan as Incentive Stock Options or as Nonqualified Options. Options that are
granted as Incentive Stock Options are intended to satisfy the requirements of
Code Section 422.
EXERCISE PRICE. The price per share of Common Stock subject to Options will
be no less than 100% (110% in the case of a grant of an Incentive Stock Option
to an owner of more than 10% of the total combined voting power of all classes
of stock of the Company or its Subsidiaries) of the fair market value of such
stock on the grant date.
DURATION OF OPTIONS. Each Grant Agreement will specify the exercise period
for an Option. No Option will be exercisable later than ten years from the date
of its grant, or five years from the date of its grant in the case of an
Incentive Stock Option granted to an owner of more than 10% of the total
combined voting power of all classes of stock of the Company or its
Subsidiaries.
EXERCISE OF OPTIONS. Options will be exercisable on or following the date
or dates determined by the Committee and specified in each Grant Agreement. The
Committee may exercise discretion to change the date on which an outstanding
Option becomes exercisable; provided, that an exercise date designated in a
Grant Agreement may not be changed to a later date without the consent of the
Participant. Option Grants under the Amended Employee Stock Plan may provide for
accelerated vesting upon attaining certain preestablished performance goals,
which will be specified in Grant Agreements relating to such Options.
The following terms will apply to an Option granted under the Amended
Employee Stock Plan: (i) an Option will become fully vested and exercisable as
of the date a Participant terminates employment with the Company or its
Subsidiaries because of the Participant's death or Permanent Disability; (ii) an
Option or part thereof that would become exercisable within two years from the
date a Participant terminates employment with the Company or its Subsidiaries
because of Retirement (as redefined) (without regard to any accelerated vesting
upon attainment of performance goals) will become immediately exercisable at the
time of Retirement; (iii) in the event of a Change of Control of the Company,
all unexercised outstanding Options will become immediately exercisable in full
and generally may be exercised any time on or after the first day following
public disclosure of the Change of Control, except that in the event of a Change
of Control by reason of a merger, consolidation, liquidation, dissolution or
sale of all or substantially all of the assets of the Company, Options will
become exercisable and may be exercised as of the effective date of such event
and, if not exercised and proper notice is given, will expire on such date.
Also, in the event a Grant Agreement includes provisions with respect to
accelerated vesting upon the attainment of performance goals, and as of the date
of a Participant's termination of employment due to Retirement the Company has
completed a performance period, but the Committee has not yet certified the
attainment of the applicable performance goals, then the Participant will become
vested upon such certification in such Options as have become vested as a result
of the attainment of such performance goals.
An Option granted under the Amended Employee Stock Plan that has become
exercisable generally may be exercised following termination of employment with
the Company or any of its Subsidiaries, to the extent it was or becomes
exercisable on the date of such termination, within the earlier of the
expiration date of the Option or (subject to certain exceptions for death,
Permanent Disability, or Retirement as discussed below) thirty days after such
termination. Options will expire on the date of termination if termination is
the result of the Participant's fraud or other gross misconduct. The Amended
Employee Stock Plan provides that if employment terminates as a result of
Retirement, death, or Permanent Disability, the exercise period is extended to
the earlier of the expiration date of the Option or five years following the
date of Retirement, death, or Permanent Disability. If a Participant dies within
five years following termination of employment by reason of Retirement or
Permanent Disability, an Option may be exercised within the greater of (i) one
year following the date of death or (ii) the remainder of the five-year period
following such Retirement or Permanent Disability, but in no event later than
the expiration date of the Option.
Under the Amended Employee Stock Plan, "Retirement" is defined to mean
termination of employment for reasons other than Permanent Disability or death
at or after a Participant's fifty-fifth birthday if such Participant has at
least ten years of service with the Company and/or its Subsidiaries, or at the
normal age of retirement as defined under the Company's pension plan, or at age
65 if the Company has no pension plan.
Payment for stock purchased upon exercise of an Option must be made in full
at the time of exercise, either in cash, by delivery of shares of Common Stock,
or by reduction in the number of shares of Common Stock issuable upon such
exercise.
RELOAD OPTIONS. The Amended Employee Stock Plan authorizes the Committee to
specify at or after the time of grant
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of a Nonqualified Option (the "Original Option") that a Participant shall be
automatically granted a Nonqualified Option (a "Reload Option") in the event a
Participant exercises all or part of the Original Option within five years of
the date of grant of the Original Option and makes payment therefor by means of
a cashless exercise through (i) the issuance of shares of Common Stock upon
exercise of the Original Option directly to the Participant's broker upon
receipt by the Company of the purchase price in cash from the broker, (ii) a
reduction in the number of shares issuable upon exercise or (iii) delivery of
already owned shares of Common Stock of the Company.
Each Reload Option shall (i) grant the Participant the right to purchase
the number of shares of Common Stock equal to the number of shares of Common
Stock directly or indirectly surrendered to the Company or sold in certain
cashless broker assisted exercises in payment of the purchase price and any
related withholding taxes required to be paid under or in connection with the
Original Option, (ii) have an Option price equal to the fair market value of a
share of Company Common Stock on the grant date of such Reload Option, (iii)
expire at the end of the Option period of the Original Option, (iv) vest and
become exercisable at such time and in such manner as the Committee shall
determine, and (v) have such other terms and conditions as the Committee may
determine.
PERFORMANCE UNITS. The Amended Employee Stock Plan does not permit the
Committee to grant any additional Performance Units.
RESTRICTED SHARES. The Committee is authorized to grant Restricted Shares
under the Amended Employee Stock Plan. Restricted Shares are Common Stock which
have been granted to a Participant but which may not be sold or disposed of, and
which may be forfeited in the event of termination of employment and/or failure
to meet certain other conditions established by the Committee prior to the end
of a restricted period specified by the Committee. A Participant granted
Restricted Shares generally has all of the rights of a shareholder of the
Company, including the right to vote the shares and to receive dividends
thereon, unless otherwise determined by the Committee. Unless the Committee
determines otherwise at the time of the Grant, the restrictions on Restricted
Shares will lapse upon a Change of Control. No more than 200,000 Restricted
Shares may be granted under the Amended Employee Stock Plan.
BONUS SHARES AND OTHER GRANTS. The Committee is authorized to grant shares
of Common Stock of the Company as a bonus free of restrictions, or to grant
shares, which is now subject to the 200,000 share limitation applicable to
Restricted Shares, or make other Grants in lieu of obligations to pay cash under
other plans or compensatory arrangements, subject to such terms as the Committee
may specify.
AMENDMENT AND TERMINATION. The Committee may amend the Amended Employee
Stock Plan from time to time as it deems advisable; provided, however, that no
amendment will become effective without prior approval of the shareholders which
would (i) materially increase the benefits accruing to Insider Participants,
(ii) materially increase the number of securities which may be issued under the
Amended Employee Stock Plan to Insider Participants, or (iii) materially modify
the requirements as to eligibility for participation in the Amended Employee
Stock Plan to add a class of Insider Participants. Any increase in the number of
shares available under the Amended Employee Stock Plan for grant as Incentive
Stock Options and any change in the designation of the group of employees
eligible to receive Incentive Stock Options will be subject to shareholder
approval. No amendment of the Amended Employee Stock Plan may, without the
consent of the holder of an existing Grant, adversely affect the Participant's
rights thereunder.
The Board of Directors may terminate the Amended Employee Stock Plan at any
time. Unless terminated sooner, it will terminate on August 19, 2002, except
with respect to Grants made under the Plan prior to such date, and automatic
Reload Options granted on or after such date pursuant to the Committee's
specification made prior to such date.
OTHER TERMS AND CONDITIONS. The Amended Employee Stock Plan provides that
the maximum number of shares of Common Stock with respect to which Options,
Restricted Shares and Bonus Shares may be granted under the Amended Employee
Stock Plan to any Participant cannot exceed 300,000 shares in any two-year
period, subject to adjustment under the Plan's anti-dilution provisions.
Options granted under the Amended Employee Stock Plan are not transferable
other than by will or by the laws of descent and distribution, provided that,
except in the case of Options previously granted in connection with Performance
Units, the Committee, in its sole and absolute discretion, may permit transfer
by gift to or for the benefit of family members of the Participants. Performance
Units are not transferable under any circumstances.
The Amended Employee Stock Plan provides that as a condition of a
Participant's right to exercise an Option or to receive payment under a
Performance Unit that the Participant pay, consent to the withholding by the
Company of, or make other provision satisfactory to the Company for the payment
of, any federal, state, or other taxes that the Company is obligated to withhold
or collect with respect to Options and/or Performance Units.
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Change of Control is defined in the Amended Employee Stock Plan to mean (i)
the acquisition of beneficial ownership of 30% or more of the combined voting
power of the Company's then outstanding voting securities by any person or group
(with certain exceptions); (ii) the first purchase of shares of Common Stock
pursuant to a tender offer or an exchange offer, other than an offer by the
Company or any of its Subsidiaries; or (iii) 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.
PARTICIPATION IN THE AMENDED EMPLOYEE STOCK PLAN BY EXECUTIVE OFFICERS AND
OTHER EMPLOYEES. It is not possible to determine the amount of Options that will
be granted to any officer or other employee under the Amended Employee Stock
Plan in future years since the grants under the Amended Employee Stock Plan are
within the discretion of the Committee. Information regarding grants made under
the Employee Stock Plan to each of the Company's Named Officers for the fiscal
year ended on April 30, 1998 is provided in Table IV of this Proxy Statement
entitled Option Grants in Last Fiscal Year.
As of July 20, 1998, 294,489 shares remained available for grants under the
Employee Plan. If the Amendments are approved by Shareholders, an aggregate of
2,000,000 shares will be available for issuance under the Amended Employee Plan.
On April 30, 1998, the market price for shares of Common Stock of the Company
was $25.50 per share.
FEDERAL INCOME TAX CONSEQUENCES
NONQUALIFIED OPTIONS. Generally, a Participant will not realize taxable income
at the time a Nonqualified Option is granted, nor will the Company be entitled
to a deduction at that time. Upon exercise, the employee generally will be
treated as receiving compensation, taxable as ordinary income, in an amount
equal to the difference between the fair market value of the shares at the time
of exercise and the Option Price. At that time, subject to the limitations of
Section 162(m) of the Internal Revenue Code ("Section 162 (m)"), the Company
normally will be entitled to a tax deduction in an amount equal to the amount
included in income by the employee.
If a Participant pays all or a portion of the Option Price for a
Nonqualified Option by surrendering previously acquired Common Stock, the
exchange will not affect the tax treatment of the exercise. Upon such exchange,
no gain or loss is recognized upon the surrender of the previously acquired
shares of Common Stock to the Company, and the shares received by the
Participant equal in number to the surrendered shares will have the same basis
and holding period for capital gain or capital loss purposes as the surrendered
shares. Shares received by the Participant in excess of the number of
surrendered shares will have a basis equal to the fair market value of the
Common Stock on the date of exercise and the holding period for capital gains
purposes will commence on that date.
Upon the sale of stock acquired upon exercise of a Nonqualified Option, the
difference between any amount realized upon the sale and the fair market value
of the shares at the time of exercise (or the basis of already owned shares of
Common Stock surrendered to the Company in payment of the Option Price) will be
treated as a long or short-term capital gain or capital loss depending on how
long the stock has been held.
INCENTIVE STOCK OPTIONS. Generally, a Participant will not realize taxable
compensation income at the time an Incentive Stock Option is granted or
exercised. However, except in the event of death or disability, if an Incentive
Stock Option is exercised more than three months following the Participant's
termination of employment (a disqualifying exercise), the Participant will be
treated as receiving compensation and will recognize ordinary income in an
amount equal to the difference between the fair market value of the shares on
the date of exercise and the Option Price. Also, the excess of the fair market
value of the shares received upon exercise of the Incentive Stock Option and the
Option Price is potentially subject to the alternative minimum tax. If a
Participant exercises an Incentive Stock Option by surrendering previously
acquired shares of Common Stock, the exchange will not affect the tax treatment
of the exercise. Upon such exchange, and except for disqualifying dispositions
discussed below, no gain or loss is recognized upon the surrender of the
previously acquired shares to the Company, and the shares received by the
Participant equal in number to the surrendered shares will have the same basis
and holding period for capital gain or capital loss purposes as the surrendered
shares. Shares received by the Participant in excess of the number of
surrendered shares will have a basis of zero and a holding period that commences
on the date shares are issued to the Participant upon exercise of the Incentive
Stock Option.
When stock covered by an Incentive Stock Option is sold, the Participant
will be taxed on the difference between the sales price and the exercise price.
If the Participant has held the stock for at least one year after exercise of
the Incentive Stock Option and two years after the date the Incentive Stock
Option was granted, the gain, if any, will be treated as a long-term capital
gain. If a Participant sells stock covered by an Incentive Stock Option in a
disqualifying disposition, i.e., within one year after the exercise of the
Incentive Stock Option or within two years after the grant of the Incentive
Stock Option, the Participant will be treated as receiving compensation, taxable
as ordinary income, in the year of the disqualifying disposition in the amount
of the difference between the Option Price and the lesser of the fair market
value of the stock on the date of exercise and the sales price of the stock. Any
amount recognized as ordinary income upon the exercise of an Incentive Stock
Option is added to the Option Price (or the basis of already owned shares
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of Common Stock surrendered to the Company in payment of the Option Price) in
determining the Participant's basis in the shares sold. In addition, under these
circumstances, there may be an adjustment in the calculation of the
Participant's alternative minimum tax. The Company generally is not entitled to
a deduction as a result of the grant or exercise of an Incentive Stock Option.
However, if the Participant recognizes ordinary income as a result of a
disqualifying exercise or disposition, the Company is entitled to a deduction of
an equivalent amount in the taxable year of the Company in which the
disqualifying disposition or exercise occurs, subject to the deduction
limitations under Section 162(m).
PERFORMANCE UNITS. Participants who have previously been granted
Performance Units did not recognize income at the time of grant. However, at the
time the value of a Performance Unit is paid to a Participant, the full amount
of the payment is treated as compensation that is taxable as ordinary income to
the Participant, and will be subject to tax withholding at the time it is paid.
Subject to the limitations of Code Section 162(m), the Company generally is
entitled to claim an income tax deduction in an amount equal to the amount of
ordinary income realized by the employee.
RESTRICTED SHARES AND BONUS SHARES. A grant of Restricted Shares generally
does not constitute a taxable event for a Participant or the Company. However, a
Participant will be subject to tax, at ordinary income rates, when any
restrictions on ownership of the Restricted Shares lapse. The Company will be
entitled to take a commensurate deduction at that time, subject to the deduction
limitation under Section 162(m) of the Code.
A Participant may elect to recognize taxable ordinary income at the time
Restricted Shares are awarded in an amount equal to the fair market value of the
shares at the time of grant, determined without regard to any forfeiture
restrictions. If such an election is made, the Company will be entitled to a
deduction at that time in the same amount, subject to the deduction limitation
under Section 162(m) of the Code. Future appreciation on the shares will be
taxed at the capital gains rate when the shares are sold. However, if, after
making such an election, the shares are forfeited, the Participant will be
unable to claim a deduction.
A grant of Bonus Shares will generally result in taxable income to the
Participant at the time of the grant in the amount of the fair market value of
the Bonus Shares at the time of grant. The Company will normally be entitled to
a tax deduction in the same amount, subject to the deduction limitation under
Section 162(m).
DEDUCTIBILITY OF EXECUTIVE COMPENSATION. Section 162(m) generally disallows
a federal income tax deduction to any publicly held company for compensation
paid in excess of $1 million in any taxable year to the Chief Executive Officer
or any of the other four most highly compensated officers whose compensation is
required to be reported in the Summary Compensation Table of the Corporation's
Proxy Statement ("Named Executive Officers"). Exceptions are made for, among
other things, qualified "performance-based compensation." Qualified
performance-based compensation means compensation paid solely on account of the
attainment of objective performance goals, provided that (i) performance goals
are established by a compensation committee consisting solely of two or more
outside directors, (ii) the material terms of the performance-based compensation
are disclosed to and approved by shareholders in a separate shareholder vote
prior to payment and (iii) prior to payment, the compensation committee
certifies that the performance goals were attained and other material terms were
satisfied. As was the case with the Employee Stock Plan, the Amended Employee
Stock Plan is designed to conform with the performance-based compensation
exception to Section 162(m). However, the regulations promulgated under that
Section are subject to interpretation and compensation received under this plan
may not qualify for the exclusion provided thereby.
SECTION 280G OF THE CODE. Under certain circumstances, the accelerated
vesting or exercise of Options or the accelerated lapse of restrictions with
respect to other Grants in connection with a Change in Control of the Company
might be deemed an "excess parachute payment" for purposes of the golden
parachute tax provisions of Section 280G of the Internal Revenue Code. To the
extent it is so considered, the Participant may be subject to a 20% excise tax
and the Company may be denied a tax deduction.
VOTE REQUIRED FOR APPROVAL
Pursuant to the By-Laws of the Company and Connecticut state law, the
affirmative vote of the holders of a majority of the shares of the Company's
Common Stock represented at the meeting is required for the adoption of the
amendments to the Employee Stock Plan. Abstentions will have the same effect as
votes "against" this proposal.
If the Amendments are not approved by the Company's shareholders, the
Employee Stock Plan will continue in effect in the form most recently approved
by the Company's shareholders on September 12, 1997.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR APPROVAL OF THE
AMENDMENTS TO THE EMPLOYEE STOCK PLAN.
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PROPOSAL 3 -- APPROVAL OF CERTAIN AMENDMENTS TO THE GERBER SCIENTIFIC, INC.
NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN.
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THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THIS PROPOSAL.
The Company's shareholders have previously approved the Gerber Scientific,
Inc. 1992 Non-Employee Director Stock Option Plan, as Amended and Restated as of
September 12, 1997 (the "Director Plan"). The purpose of the Director Plan is to
promote the long-term success of the Company by aligning the interest of the
non-employee Directors more closely with the interests of shareholders. The
Board believes that the awarding of Options to purchase the Company's Common
Stock provides non-employee Directors with additional inducements to remain in
the Company's service and increased incentives to work toward its long-term
success.
PROPOSED AMENDMENTS
The Compensation Consultants reviewed the provisions of the Director Plan. Based
on market data of companies of comparable asset and revenue size, prepared by
the Company's Compensation Consultants, the Board determined that it is in the
Company's and the shareholders' best interests to increase the automatic annual
award of stock options for non-employee Directors to 3,000 shares per year and
have an additional 100,000 shares of the Company's Common Stock made available
for future issuance under the Director Plan. As of the record date, July 20,
1998, approximately 25,000 shares have been granted or are due for grant by
automatic annual awards to non-employee Directors under the terms of the
non-employee Director Plan and 50,000 shares are available for future grants.
Provided shareholders approve the proposed amendments to the non-employee
Director Plan, the automatic grants to non-employee Directors under the plan
will increase from 1,000 to 3,000 shares per year and the number of shares
available for automatic grants will be increased by 100,000 shares to a total of
175,000 shares. The amendments do not increase the 250,000 aggregate number of
shares which may be purchased under the plan.
The Board of Directors now submits these Amendments to the shareholders for
their approval. The full text of the Director Plan and these Amendments are
available from the Company upon request and the summary description of the
proposed Amendments and Director Plan, as amended, as described in this Proxy
Statement is qualified in its entirety by reference to the Director Plan and the
Amendments.
The Board believes that the proposed amendments to the Director Plan, if
approved by the shareholders, will encourage Directors to increase their
holdings in the Company's Common Stock and enhance the Company's ability to
attract and retain qualified non-employee Directors.
SUMMARY DESCRIPTION OF THE DIRECTOR PLAN AS PROPOSED TO BE AMENDED.
SHARES AVAILABLE UNDER THE DIRECTOR PLAN. The maximum number of shares of
Company Common Stock approved for grant of Options under the Director Plan, as
proposed to be amended (the "Amended Director Plan") is 175,000, of which
approximately 25,000 shares have been granted or are due for grant. The
aggregate number of shares which may be purchased under the Plan is 250,000. The
shares of Common Stock issuable upon the exercise of Options may be authorized
but unissued shares of Company Stock or shares of Company Stock which have been
reacquired by the Company, including shares purchased on the open market. The
number of shares available under the plan, the number of shares issuable upon
the exercise of Options, and the exercise price of Options will be
proportionately adjusted in the event of certain corporate restructuring events,
stock dividends, or similar transactions. If any Option terminates, expires, or
is canceled without having been exercised in full, the shares reserved to
satisfy such option shall be available for subsequent option grants in
accordance with the terms of the plan.
ELIGIBILITY. All Directors who are not employees of the Company or its
Subsidiaries, and who have not been employees of the Company or its Subsidiaries
during the preceding twelve months, are eligible to participate in the Amended
Director Plan. Six of the nine current Directors will or have received Options
under the Director Plan and all such non-employee Directors will continue to be
eligible to receive options under the Amended Director Plan.
GRANT OF OPTIONS. Yearly grants of Options to purchase 3,000 shares of
Common Stock will be made automatically each May 1 to all eligible non-employee
Directors in office on that date. The increase from 1,000 and to 3,000 was
effective as of May 1, 1998, conditioned upon approval of the amendments by the
shareholders. No Option may be granted under the Director Plan after September
23, 2002.
EXERCISE PRICE. The price per share of Company Common Stock subject to
Options granted under the Director Plan is 100% of the fair market value of a
share of such stock on the day such Option is granted. On April 30, 1998, the
closing price of the Company's Common Stock as reported in the New York Stock
Exchange-Composite Transactions listing was $25.50 per share. Payment for stock
purchased upon exercise of an Option must be made in full at the time of
exercise, either in cash or by delivery of previously-owned shares of Company
Common Stock.
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DURATION OF OPTIONS. An Option granted under the Amended Director Plan may
be exercised no later than 10 years from the date such Option is granted.
EXERCISE OF OPTIONS. All Options granted under the Amended Director Plan
are exercisable immediately.
In the event that a non-employee Director is terminated for cause, all
Options granted to such director under the Amended Director Plan expire
immediately upon termination. In all cases other than termination for cause, the
non-employee Directors have five years (up to six years in the event of death in
the fifth year after termination) from the date of termination as a Director to
exercise the Options. In no event will any Options under the plan be exercisable
at a date later than the expiration date of the Options.
OPTION TO RECEIVE DIRECTOR FEES IN STOCK RATHER THAN CASH. The Amended
Director Plan authorizes the Board to give non-employee Directors the option to
receive all or a portion of the fees payable to them for services as a Director,
including annual retainer, meeting and committee service fees ("Director Fees")
in shares of Company stock rather than in cash. This allows non-employee
Directors to acquire the stock at then current market values without incurring
brokerage fees. The stock that a Director would receive in lieu of Director Fees
would be unrestricted stock that, unless deferred, would be owned outright by
the Director. The Amended Director Plan also authorizes the Board to give
non-employee Directors the option to defer all or a portion of any Director Fees
in Company stock. The Company maintains records of deferrals in unfunded
accounts, and credits the deferred share account of each non-employee Director
who elects to defer Director Fees payable in stock with an amount of Company
Common Stock equal in value to the amount of dividends on any deferred stock.
Directors who defer compensation in the form of stock are not entitled to vote
the shares or have any other benefits of ownership of the deferred shares (other
than the above-mentioned dividend credits) during their deferral periods. There
are a number of special restrictions which apply to the deferral option in order
to qualify it for deferral treatment under the federal income tax law. Among the
restrictions is the requirement that the election to defer be made prior to the
time of the performance of the Director's services. In addition, with respect to
their deferral accounts, the Directors would have the status of general,
unsecured creditors of the Company. In this regard, a deferral account under the
Amended and Restated Plan constitutes a mere promise by the Company to make
payments in the future.
ADMINISTRATION. The Amended Director Plan will be administered by the Board
although it does not have any discretion with respect to matters concerning
eligibility to participate in the Director Plan, the timing, amount and term of
Options granted, and Option exercise prices.
AMENDMENT AND TERMINATION. The Board of Directors has the right to amend or
terminate the Amended Director Plan at any time, provided that no amendment
shall be made which would (i) materially increase the benefits accruing to
non-employee Directors, (ii) materially increase the number of securities which
may be issued to non-employee Directors, or (iii) materially modify the
eligibility requirements for participation in the Amended Director Plan, unless
shareholder approval is obtained. Further, the provisions of the Amended
Director Plan relating to eligibility to participate and the price, amount, and
timing of awards cannot be amended more than once every six months, unless such
amendment is made to comport with changes in the Internal Revenue Code, the
Employee Retirement Income Security Act of 1974, as amended, or the rules
thereunder. Under the Amended Director Plan, no amendments are permitted which
would adversely affect the rights of non-employee Directors to any shares
theretofore credited to a deferred stock account in accordance with the plan.
Unless terminated sooner, the Amended Director Plan will terminate on September
23, 2002, except that Options granted prior to such date will continue to be
exercisable in accordance with their terms, stock deferrals made prior to that
date shall remain outstanding and be paid when due thereafter and dividends in
the form of accruals in Company Common Stock will continue to be credited to
deferred stock accounts until all such deferred stock has been paid out.
CERTAIN PLAN BENEFITS. The proposed amendments to the Director Plan were
approved by the Board on June 17, 1998, effective as of May 1, 1998. Thus,
effective May 1, 1998, A. Robert Towbin, Edward E. Hood, Jr., William Jerome
Vereen, Donald P. Aiken, Carole F. St. Mark and David J. Logan (the current
non-employee Directors) each accrued rights to receive Options to purchase 3,000
shares of the Company's Common Stock pursuant to the Director Plan, 2,000 of
which are contingent on shareholder approval of the Amendments to the Director
Plan. The exercise price of these options is $24.875 per share, the closing
price of the Company's Common Stock on May 1, 1998. Non-employee Directors will
automatically receive Options to purchase 3,000 shares each year through 2002
under the Plan if the proposed Amendments are approved. If the proposed
amendments are not approved by shareholders, these Directors will receive
Options to purchase 1,000 shares on May 1 of each year in accordance with the
terms of the current Director Plan.
FEDERAL INCOME TAX CONSEQUENCES. Options granted under the Director Plan
are not intended to qualify as Incentive Stock
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Options under Section 422 of the Code. A non-employee Director who receives an
Option pursuant to the Director Plan will not realize any taxable income upon
the grant of the Option. However, a non-employee Director will recognize income
on the exercise date in an amount equal to the difference between the fair
market value of the shares of stock acquired upon the exercise of the Option and
the Option exercise price. In the event that a non-employee Director exercises
an Option by surrendering Company Common Stock already owned by the non-employee
Director with a fair market value equal to all or a portion of the exercise
price, the non-employee Director will not recognize any gain or loss upon the
surrender of already-owned shares of Company Common Stock for an equal number of
new shares of such stock. In addition, the basis and holding period of the old
shares is carried over to an equal number of new shares. The Company may claim a
deduction for compensation paid in the same amount and at the same time as the
compensation is taxable to the non-employee Director. If the non-employee
Director subsequently sells the shares acquired upon exercise, the difference
between any amount realized upon the sale and the fair market value of the
shares at the time of exercise (or the basis of already owned shares of Common
Stock surrendered to the Company in payment of the Option Price) will be taxed
as a capital gain or loss.
Director Fees that a Director elects to receive in stock and defer under
the Amended and Restated Director Plan will become subject to Federal income
taxation to the Director only as and when stock is actually paid over to the
Director. The Company will become entitled to a compensation expense deduction
at the same time. The same treatment applies to dividends credited to the
Director's account during the period of deferral.
VOTE REQUIRED FOR APPROVAL
Pursuant to the By-Laws of the Company and Connecticut state law, the
affirmative vote of the holders of a majority of the shares of the Company's
Common Stock represented at the meeting is required for approval of the
Amendments to the Director Plan. Abstentions will have the same effect as votes
"against" the proposal.
If the Amendments are not approved by the Company's shareholders, the
Director Plan will continue in effect in the form approved by the Company's
shareholders on September 12, 1997.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE AMENDMENTS TO
THE DIRECTOR PLAN.
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PROPOSAL 4 -- APPROVAL OF THE GERBER SCIENTIFIC, INC., 1999 - 2001 ANNUAL
INCENTIVE BONUS PLAN.
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THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THIS PROPOSAL.
The Management Development and Compensation Committee (the "Committee") of
the Company's Board of Directors approved and established the terms of the
Gerber Scientific, Inc. 1999-2001 Annual Incentive Bonus Plan effective as of
May 1, 1998 (the "Plan") for each of the three (3) fiscal years beginning on May
1, 1998 and ending April 30, 2001, subject to the approval of the shareholders.
The Plan provides for bonus awards to be a function of the profits of the
Company and its subsidiaries and the growth in those profits. The Committee
believes that a significant portion of executive compensation should be at risk,
tied to the profitability of the Company and its subsidiaries in order to
enhance shareholder value. Accordingly, the terms and conditions of the Plan are
designed to provide an incentive for executives and other employees, thereby
aligning the financial interests of these employees with the annual
profitability of the Company or the subsidiary for which they primarily are
responsible.
The full text of the Plan is set forth in Appendix A to this Proxy
Statement and the following summary is qualified by reference to the terms set
forth in Appendix A.
ELIGIBILITY.
The participants in the Plan will be the executive officers of the Company
and the Company's domestic subsidiaries, including the Named Executives, and
most other full-time employees of the Company or any domestic subsidiary who on
the last day of the fiscal year will have been so employed for at least six
months. Expressly excluded from the Plan are certain employees who participate
in other forms of cash incentive compensation plans, employees of foreign
branches of the Company or any of its foreign subsidiaries and employees under
any form of collectively bargained wage or benefit contract. It is estimated
that approximately 1,500 employees, including the Named Executives, will
participate in the Incentive Bonus Plan in the initial year of the Plan.
BONUS POOLS.
Awards will be made annually under the Plan and will be limited to amounts
accrued in the bonus pools provided for in the Plan. Separate bonus pools are
provided for key employees of the Company (as distinguished from employees of
any of the Company's subsidiaries), other eligible Company employees, key
employees of each of the Company's domestic subsidiaries, and for all other
eligible employees of each such subsidiary. The bonus pools for key employees
and all other eligible employees of the Company for each fiscal year are based
on the consolidated pretax profit of the Company and all of its subsidiaries for
such fiscal year. The bonus pools for each of the domestic subsidiaries each
year are based on the pretax profit of such subsidiary (consolidated with its
subsidiaries) for such fiscal year. In calculating these pools, profits are
adjusted to exclude the following factors: Bonus charges associated with the
Plan; the effects of Foreign Sales Corporation activity; the effects of any
material changes in accounting principles not required by the FASB but adopted
by the Company; all costs incurred due to discontinued operations and/or
restructuring subject to the Committee's discretion to include such charges. In
addition, the effects of outside legal costs and recoveries (including legal
fees and expenses, court costs, settlement amounts and court awards) for patent
infringement lawsuits paid by the Company or any subsidiary of the Company will
be amortized as a charge against adjusted pretax profit over the following 60
months while any settlement amounts or court awards paid to the Company or any
of its subsidiaries resulting from a patent infringement lawsuit will be first
offset against patent infringement costs and the balance will be amortized over
three years and included in pretax profits. Additionally, the computation of
bonus pools for subsidiaries excludes all interest income or expense, and the
amortization of goodwill but shall include the equivalent income tax savings
from investment in tax exempt securities.
The Company will maintain two separate bonus pools, one for key employees
of the Company and one for all other eligible employees of the Company. The
bonus pool for the key employees of the Company will have available for annual
distribution to the participants in such pool 1% of the adjusted consolidated
pretax profit of the Company and its subsidiaries for the fiscal year, plus 3%
of the improvement, if any, in such adjusted pretax profit in the fiscal year
over 70% of the highest such annual adjusted consolidated pretax profit reported
by the Company in any of the three immediately prior fiscal years. The bonus
pool for all other eligible employees of the Company will have available for
annual distribution to the participants therein 1/4 of 1% of the adjusted
consolidated pretax profit of the Company and its subsidiaries for the fiscal
year.
Each of the Company's domestic subsidiaries will maintain two separate
bonus pools, one for key employees of the subsidiary and one for all other
eligible employees of that subsidiary. The bonus pool for the key employees of
each subsidiary will have available for annual distribution to the participants
in such pool 1% of the adjusted pretax profit of such subsidiary for the fiscal
year plus 3% of the improvement, if any, in such adjusted pretax profit over 70%
of the highest such annual adjusted consolidated pretax profit achieved by such
subsidiary in any of the three immediately prior fiscal years. The bonus pool
for all other eligible employees of each such subsidiary will have available for
annual distribution to participants therein 2% of the adjusted consolidated
pretax profit of that subsidiary for the fiscal year.
No cash bonuses will be paid to participants under the plan except to the
extent funds are available in the appropriate bonus pool. Named Executives will
participate either in the Company's
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key employee bonus pool or, if a Named Executive is the president of a
participating subsidiary, in the key employee bonus pool for that subsidiary.
TARGETED BONUS PERCENTAGES AND MAXIMUM CASH BONUS AWARDS.
The targeted bonus potential for annual cash bonus awards is fixed as a
percentage of each participant's "regular wages" paid as such term is defined in
the Plan. Cash bonus awards are made under the plan according to these targets
only to the extent that the funds are available in the applicable bonus pool.
The targeted bonus potential for the Company's Chief Executive Officer is 75%
and the maximum cash bonus payable to such officer under the Plan shall not
exceed 150% of regular wages paid to the Chief Executive Officer. The targeted
bonus potential for other Company officers and subsidiary presidents, including
Named Executives other than the Company's Chief Executive Officer, is 50% and
the maximum cash bonus payable to such officers is 100% of the regular wages
paid to them. The targeted bonus potential for other key employees is 30% and
the maximum amount payable to any such person shall not exceed 60% of regular
wages paid. The maximum bonus payable to all other eligible employees shall not
exceed 10% of regular wages paid to such persons. Bonus pools are allocated
among participating employees by dividing the total amount in each applicable
bonus pool by the sum of the regular wages paid to all participants, weighted by
target bonus potential, to produce an actual bonus percentage. This percentage
is then multiplied by the participant's regular wages paid to determine the
actual bonus amount. Named Executives and other key employees may, in addition
to their cash awards, receive Restricted Stock in an amount equal to up to
one-sixth of their total bonus award if they elect to make the maximum stock
election as described below.
STOCK ELECTION.
Key employees, including the Named Executives, may elect to use up to 50%
of their annual cash bonus award (less tax withholding) to purchase Common Stock
of the Company. For key employees who make such election, the Company will grant
additional shares of restricted Common Stock equal in value to one-third of the
bonus amount elected to be taken in stock. For example, a key employee who is
awarded a bonus of $60,000 can elect to use up to $30,000 (less tax withholding)
of his or her cash bonus award to purchase Common Stock. If such key employee
thus elects to use $30,000 (less tax withholding) to purchase Common Stock, the
Company will grant the key employee additional shares of restricted Common Stock
having a fair market value equal to $10,000. These restricted shares shall vest
ratably over a three-year period. If a key employee ceases employment with the
Company or its subsidiaries for reason other than retirement, death, disability
or change in control of the Company (as such terms are defined in the Plan), all
unvested restricted Common Stock will be forfeited. Likewise, if a key employee
disposes of all or any of the underlying Common Stock purchased with his or her
cash bonus, a proportional amount of any unvested restricted shares will be
forfeited. The shares will vest in full upon retirement, death or disability of
the holder, or upon a change in control of the Company.
CONTINUED EMPLOYMENT.
Payment of any annual bonus award under the Plan with respect to any
particular year may only be made if the participant is employed by the Company
or any domestic subsidiary of the Company on the last day of such fiscal year.
ADMINISTRATION.
The Plan will be administered by the Committee. The Committee is authorized
to interpret the Plan and to take all actions necessary or desirable to effect
the purposes of the Plan.
AMENDMENT AND TERMINATION.
The Committee has the right to amend or terminate the Plan at any time,
provided that any modifications to material terms of the Plan may not be made
without shareholder approval.
PLAN BENEFITS.
Since the Plan benefits are based on future profitability, the Company
cannot determine the amounts that will be received by or allocated to the Named
Executives or other participants in the Plan during the years the Plan will be
in effect if the Plan is approved by shareholders. Moreover, the Company does
not believe that it would be meaningful to compute the amounts which would have
been payable to the Named Executives, and others, in fiscal 1998 if the proposed
Plan had been in effect for that year. It is expected that a greater number of
key employees will participate in the bonus pools in which the Named Executives
participate in fiscal year 1999 than would have been eligible to participate in
fiscal 1998. The Company's business has grown dramatically and has significantly
changed in the last months, due largely to the acquisitions of Coburn Optical
Industries, Inc. in February, 1998 and Spandex PLC in May, 1998. These
acquisitions will require that the Company enhance and realign its executive
management to meet the challenges of these acquisitions and the growth of its
other businesses. The changes included as a part of the proposed amendments
assume that existing executives will, in some circumstances, be granted greater
responsibilities and attendant promotions and that additional senior executive
staff will be recruited from outside the Company.
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These promoted or newly hired executives will be eligible to participate in
the new 1999-2001 Bonus Plan in varying percentages depending upon position.
Application of the proposed changes to current Named Executives alone, without
consideration for expected senior level promotions and the addition of new
executive employees to be added in fiscal year 1999 would not, in the Company's
opinion, properly or meaningfully reflect the expected impact of the proposed
changes incorporated in the 1999-2001 Annual Incentive Bonus Plan presented in
this Proxy Statement.
VOTE REQUIRED FOR APPROVAL
Pursuant to the By-Laws of the Company and Connecticut state law, the
affirmative vote of the holders of a majority of the shares of the Company's
Common stock represented at the meeting is required for approval of the Plan.
Abstentions will have the same effect as votes "against" the proposal.
The Committee has directed that the Plan be submitted to the Company's
shareholders for approval at the annual meeting in accordance with Internal
Revenue Code Section 162(m), in order to preserve the deductibility of all
amounts which may be required to be paid to key employees under the Plan. Absent
shareholder approval, the Plan will not be implemented. If shareholder approval
is not obtained, however, the Committee may be required to design and implement
an alternative method for providing employee bonuses in order to continue to
attract and retain talented executives and other employees.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE INCENTIVE
BONUS PLAN.
INDEPENDENT AUDITORS
The Board of Directors has approved the appointment of KPMG Peat Marwick
LLP as independent auditors to audit the financial statements of the Company for
the fiscal year ending April 30, 1999. This firm has served as independent
auditors for the Company for many years. The audit services rendered to the
Company by KPMG Peat Marwick LLP during the year ended April 30, 1998, included
examination of the annual financial statements of the Company, review of
quarterly reports, and consultation on various accounting and tax matters.
Representatives of KPMG Peat Marwick LLP are expected to be present at the
annual meeting and will have the opportunity to make a statement if they wish.
They will also be available to respond to appropriate questions.
SHAREHOLDER PROPOSALS FOR 1999 ANNUAL MEETING
Shareholder proposals for the 1999 annual meeting must be received by the
Company no later than April 12, 1999, for inclusion in the 1999 Proxy Statement
and form of proxy.
OTHER BUSINESS
The Board of Directors and management do not know of any matters to come
before the annual meeting of shareholders other than those set forth in the
accompanying Notice. If any other matters properly come before the meeting,
however, it is the intention of the persons named in the enclosed form of proxy
to vote on such matters in accordance with their best judgment and in the best
interests of the Company.
By Order of the Board of Directors
/s/ Richard F. Treacy, Jr.
Richard F. Treacy, Jr.
Secretary
Dated at South Windsor, Connecticut,
this 10th day of August, 1998
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APPENDIX A
GERBER SCIENTIFIC, INC.
1999 - 2001 ANNUAL INCENTIVE BONUS PLAN.
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1. PURPOSE
The purpose of the Plan is to reward certain domestic (U.S.) executives, key
management, and other eligible employees by providing annual cash bonuses based
upon the adjusted pre-tax profits and the improvement in adjusted pre-tax
profits of their Subsidiary or the Company as applicable. This bonus is intended
as an incentive to increase shareholder value through sustained and improved
earnings.
2. DEFINITIONS
For purposes of the plan, the following terms shall have the definitions set
forth below:
(a) "Adjusted Consolidated Pre-Tax Profit." The pre-tax profit of the
Company and all of its subsidiaries as certified by the independent public
accountants of the Company, as accordance with Section 5.3
(b) "Adjusted Pre-Tax Profit." The pre-tax profit of any Subsidiary
(consolidated with its subsidiaries) of the Company as adjusted in accordance
with Section 5.3.
(c) "Board." The Board of Directors of the Company.
(d) "Bonus Stock" Shares of the Company's Common Stock acquired in lieu of
a portion of the cash bonus earned under this Plan.
(e) "CEO." The Chief Executive Officer of the Company.
(f) "Change of Control." A change in control as defined in the Employee
Stock Plan.
(g) "Code." The Internal Revenue Code of 1986, as amended, from time to
time, or any corresponding federal tax statute enacted after the date this Plan
is adopted by the Committee. A reference to a specific section of the Code
refers not only to such specific section but also to any corresponding provision
of any federal tax statute enacted after the date this Plan is adopted by the
Committee, as such specific section or corresponding provision is in effect on
the date of application of the provisions of this Plan containing such
reference.
(h) "Committee." The Management Development and Compensation Committee, as
appointed from time to time by the Board and consisting solely of two or more
outside Directors.
(i) "Company." Gerber Scientific, Inc.
(j) "Corporate Employees." Employees of the Company (as distinguished from
Employees of any Subsidiary) who are not Corporate Officers.
(k) "Corporate Designated Executives." Corporate Officers and other key
corporate Employees designated by the Committee.
(l) "Corporate Officers." Officers of the Company.
(m) "Designated Executives." Corporate Designated Executives and Subsidiary
Designated Executives.
(n) "Employees." Individuals employed by either the Company or the
Subsidiaries.
(o) "Employee Stock Plan." The Company's 1992 Employee Stock Plan, as
amended and restated as of May 1, 1997, and as may be further amended from time
to time.
(p) "Management." The Chairman and the Chief Executive Officer of the
Company.
(q) "Other Key Employees." Corporate Employees or Employees of a Subsidiary
who are not Designated Executives who may be selected by the Committee to share
in the Designated Executives' bonus pools in accordance with Section 6.2.1.
(r) "Permanent Disability." Permanent and Total Disability as provided in
Section 22(e)(3) of the Code.
(s) "Plan." This 1999-2001 Annual Incentive Bonus Plan, as it may be
amended from time to time.
(t) "Regular Wages Paid." Base pay, including holiday pay, vacation pay,
sick time pay and pay during an approved leave of absence, but excluding
vacation pay in lieu of time off, overtime pay (except for adjustments as may be
appropriate to assure compliance with the Fair Labor Standards Act), and any
bonus pay.
(u) "Retirement." Retirement as defined in the Employee Stock Plan.
(v) "Restricted Stock." Shares of Company Common Stock granted or to be
granted subject to certain restrictions as provided in Sections 8.2 and 8.2.1.
(w) "Subsidiary" or "Subsidiaries." The Company's domestic subsidiaries
(Gerber Scientific Products, Inc; Gerber Technology, Inc.; and Gerber Coburn
Optical, Inc.).
(x) "Subsidiary Designated Executives." Subsidiary Presidents and Other Key
Employees of the Subsidiary designated by the Committee.
(y) "Target Bonus Potential." The bonus percentages used to allocate the
applicable Designated Executives' bonus pool among the categories of employees.
3. SUMMARY
Bonuses under the Plan shall be paid from bonus pools which are funded in
accordance with the terms of this Plan. Separate bonus pools shall be provided
for Corporate Designated Executives, other Corporate Employees, Subsidiary
Designated Executives and other Employees of each of the Subsidiaries. The bonus
pools for Corporate Designated Executives and other Corporate Employees shall be
based on the consolidated performance of the Company and all of its subsidiaries
for the applicable fiscal year. The bonus pool for employees of each Subsidiary
shall be based on the individual performance of each Subsidiary for the
applicable fiscal year.
4. PLAN YEARS
This Plan shall become effective on May 1, 1998 and shall be in effect for each
of the succeeding three years through April 30, 2001.
5. DETERMINATION OF BONUS POOLS
5.1 Subsidiary Pools. The Company shall maintain two bonus pools for each
participating Subsidiary, to which shall be credited for the applicable fiscal
year an amount computed as follows:
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5.1.1. For Subsidiary Designated Executives and Other Key Employees, the
sum of the following:
5.1.1.1. One percent of the adjusted pre-tax profit of the Subsidiary
for the applicable fiscal year, plus
5.1.1.2. Three percent of the improvement, if any, in such adjusted
pre-tax profit over a threshold level which shall be 70 percent of the
highest such annual profit reported in the three prior fiscal years
(or, in the case of losses in each of such years, 100 percent of the
smallest of the annual losses in such three year period).
5.1.2. For all other eligible Employees of such Subsidiary:
5.1.2.1. Two percent of the adjusted pre-tax profit of the Subsidiary
for the applicable fiscal year.
5.2. Corporate Pools. There shall be two pools for the Company, to which shall
be credited for the applicable fiscal year amounts computed as follows:
5.2.1. For Corporate Designated Executives and Other Key Employees, the sum
of the following:
5.2.1.1. One percent of the adjusted consolidated pre-tax profit of the
Company and all of its subsidiaries for the applicable fiscal year,
plus
5.2.1.2. Three percent of the improvement, if any, in such adjusted
consolidated pre-tax profit over a threshold level which shall be 70
percent of the highest such annual adjusted consolidated profit
reported in any of the three prior fiscal years.
5.2.2. For all other Corporate Employees:
5.2.2.1. One-quarter of one percent (.25%) of the adjusted consolidated
pre-tax profit of the Company and all of its subsidiaries for the
applicable fiscal year.
5.3. Adjustment of Pre-Tax Profit: The Committee shall adjust the pre-tax profit
of each Subsidiary and the consolidated pre-tax profit of the Company and all of
its subsidiaries for purposes of computing the bonus pool as follows:
5.3.1. to exclude the bonus charges associated with this Plan for the
applicable fiscal year;
5.3.2. to exclude interest income or expense (intercompany or otherwise)
and amortization of goodwill in the computation of Subsidiary adjusted
pre-tax profits;
5.3.3. to exclude the effects of all Foreign Sales Corporation (FSC)
activity;
5.3.4. to exclude the effects of any material changes in accounting
principles which are not required by the Financial Accounting Standards
Board but which are adopted by the Company after the performance goals are
established;
5.3.5. to include the equivalent income tax savings from investments in
tax-exempt securities;
5.3.6. to exclude all costs and charges incurred due to discontinued
operations of, or restructuring by, the Company or its Subsidiaries,
subject to the Committee's discretion to include such costs and charges;
5.3.7. to exclude the effects of outside legal costs, including legal fees
and expenses, court costs, and any settlement amounts or court awards of
damages paid by the Company or the Subsidiaries, during the current fiscal
year for lawsuits alleging infringement of patents owned by the Company or
any subsidiary except that for bonus computation purposes, these outside
legal costs will be amortized as a charge against adjusted pre-tax profit
on a straight line basis over the following 60 months;
5.3.8. to exclude the effects of any settlement amounts or court awards for
damages paid to the Company or any subsidiary resulting from a patent
infringement lawsuit; provided that for bonus computation purposes, these
amounts first will be offset against the amount of current year patent
infringement legal costs amortized for bonus purposes during the year, and
second, will be offset against the cumulative unamortized amount of patent
infringement legal costs as of the end of such fiscal year; and if the
settlement or court award amounts exceed the cumulative amount of patent
infringement legal costs, such excess, for bonus computation purposes, will
be amortized on a straight line basis over three years, beginning in the
year the settlement or court award amounts are recognized in earnings, as
an increase to adjusted pre-tax profit.
5.4. Excess Credits or Charges. Any excess credits or charges to
the bonus pools and any overstatement of the amount available in the bonus
pools, however occasional, shall be corrected exclusively by adjustment of the
bonus pools then or subsequently available and not by recourse to any person.
6. DETERMINATION OF INDIVIDUAL BONUS AMOUNTS
6.1. The Targeted Bonus Potential. The Targeted Bonus Potential for cash bonus
awards is fixed as a percentage of each participant's Regular Wages Paid, as
stated below. Except for grants of Restricted Stock in accordance with Section
8.2, awards shall be made under the Plan according to these targets only to the
extent that funds are available in the applicable bonus pool and are subject to
the maximum bonus percentage stated in section 6.3.
6.1.1. The targeted bonus potential for the CEO is
75 percent,
6.1.2. The targeted bonus potential for other Corporate Officers and
Subsidiary presidents is 50 percent, 6.1.3. The targeted bonus potential
for other Designated Executives is 30 percent, 6.1.4. The targeted bonus
potential for Other Key Employees, if any, is up to 20 percent subject to
Management's discretion.
6.2. Bonus Pools for Designated Executives and Other Key Employees and
Allocation to Individuals. The bonus pool for Corporate Designated Executives
and Other Key Employees shall be divided between Corporate Officers, other
Corporate Designated Executives, and Other Key Employees of the Company based
upon the Target Bonus Potential of each indi-
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vidual or group so as to yield bonus percentages in the appropriate ratio.
Likewise, the bonus pool for each Subsidiary's Designated Executives and Other
Key Employees shall be divided between Subsidiary presidents, other Subsidiary
Designated Executives, and Other Key Employees based upon the Target Bonus
Potential of each individual or group as set out below so as to yield bonus
percentages in the appropriate ratio. Thus, since the Target Bonus Potential is
75 percent for the CEO, 50 percent for other Corporate Officers and 30 percent
for other Designated Executives, other Corporate Officers' bonus percentage will
be two-thirds of the CEO's bonus percentage and other Designated Executives'
bonus percentage will be 40 percent of the CEO's bonus percentage. Similarly,
since the Target Bonus Potential is 50 percent for Subsidiary presidents and 30
percent for other Subsidiary Designated Executives, the other Subsidiary
Designated Executives' bonus percentage will be 60 percent of the Subsidiary
president's bonus percentage. [Example: Assume that individual A has a Target
Bonus Potential of 50%, while individuals B, C, and D each have a Target Bonus
Potential of 30%. Thus, expressed as a ratio, the percentage of salary Regular
Wages Paid earned as a bonus award by B, C, and D shall equal 3/5 (or 60%) of
the percentage of Regular Wages Paid earned by A as a bonus award. Assume
further that the total bonus pool is $100,000, and that individual A earns
Regular Wages Paid of $210,000 while B, C, and D each earn $50,000 ($150,000
aggregate). A's actual bonus percentage is calculated by dividing the total
bonus pool ($100,000) by the weighted aggregate Regular Wages Paid, with A
weighted at 100% and each of B, C, and D weighted at 60% ($210,000 + (60% x
$150,000)). Thus, $100,000 is divided by $210,000 plus $90,000 or $300,000. A's
actual bonus percentage is therefore 1/3 or 33.33%. The actual bonus percentages
for B, C, and D are 60% of A's percentage (33.33% x 60%), resulting in 20%. The
applicable individual bonus amounts are calculated by multiplying the actual
bonus percentage for each applicable eligible employee by the employee's Regular
Wages Paid during the fiscal year. Thus, A shall receive 33.33% of his Regular
Wages Paid as a bonus award (33.33% x $210,000 = $70,000), while B, C, and D
each shall receive 20% of their Regular Wages Paid as bonus awards (20% x
$50,000 = $10,000 each).]
6.2.1. Discretion To Add Other Key Employees. Management has the discretion
to add a third category of Other Key Employees to share the Subsidiary
Designated Executives' or Corporate Designated Executives' bonus pool, with
a 20 percent (or less) relative Target Bonus Potential. The total
applicable Designated Executives' bonus pool would remain the same and
would be divided among the resulting individual or group based on the
relative Target Bonus Potential for each individual or group so as to yield
bonus percentages in the appropriate ratio (e.g., 50 percent for subsidiary
presidents, 30 percent for Key Management, and 20 percent (or less as
determined by Management based on recommendations of the Subsidiary) for
Other Key Employees). At no time would the three groups' bonuses exceed 100
percent of the bonus pool. In the event that Management declines to
exercise its discretion to add a third category of Other Key Employees, or
adds a category with a Target Bonus Potential less than 20 percent, the
bonus pools shall be divided between the remaining categories as described
in section 6.2.
6.3. Maximum Bonus Amounts.
6.3.1. Notwithstanding the amounts in the bonus pools, the maximum cash
bonus payable to the CEO under the Plan shall not exceed 150 percent of
Regular Wages Paid to him (i.e., two times the Target Bonus Potential). The
maximum cash bonus payable to any other Corporate Officer or Subsidiary
president shall not exceed 100 percent of Regular Wages Paid to such person
and the maximum amount payable to any other Designated Executive shall not
exceed 60 percent of Regular Wages Paid to any such person. For Designated
Executives, this maximum bonus amount may be increased by up to one-sixth
by an additional award of the Company's Restricted Stock, subject to the
individual's stock election pursuant to section 8.2.
6.3.2. The maximum cash bonus payable for all other Employees shall not
exceed 10 percent of the Regular Wages Paid to persons in that category.
6.4. Committee Authority. The Committee shall have the sole authority to
designate which Employees are classified as Corporate Officers, and Management
shall have authority to designate other Corporate Designated Executives,
Subsidiary Designated Executives and Other Key Employees, subject to
ratification by the Committee.
7. ELIGIBILITY
7.1. Eligible Employees. All full-time persons employed by the Company and its
Subsidiaries who are on the active permanent payroll on the last day of the
fiscal year and who have been employed continuously by the Company or its
subsidiaries for more than six months, shall receive a full share under the Plan
as computed in sections 6.2 to 6.3.
7.1.1. An approved leave of absence shall not be considered a break in
service for purposes of determining bonus share.
7.1.2. Employees who as of the last day of the fiscal year have been
employed by the Company or its subsidiaries for less than six months are
not eligible to receive any share under the Plan.
7.1.3. Eligible employees who transfer between participating companies
shall participate pro-rata in the Plan of each company where they were
employed during the Plan year. Their bonus is based on the respective
regular wages paid and applicable bonus percentage at each company where
they were employed.
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7.2. Excluded Employees. Specifically excluded from participating in the Plan
are: (1) Employees of foreign (i.e., non-U.S.) subsidiaries and foreign branches
of the Company or the Subsidiaries; (2) Employees who participate in other forms
of cash incentive compensation plans (e.g., salesmen paid on a commission
basis); and (3) Employees under any form of collectively bargained wage or
benefit contract.
7.3. Reinstated Employees. Employees who are laid-off during the Plan year but
recalled to a participating company within the period of recall rights and prior
to the end of the Plan year shall be considered to have had no break in service
for purposes of determining bonus share. Employees who were laid-off prior to
the beginning of the Plan year and are recalled to a participating company
within the period of recall rights and prior to the end of the Plan year shall
be considered to have been employed as of the first day of the Plan year for
purposes of determining bonus share.
8. DISTRIBUTION OF THE PROFIT AND GROWTH INCENTIVE BONUS
8.1. Cash Distribution. Except as provided in this Article 8, the profit and
growth incentive bonus for each participating company shall be paid in cash to
eligible employees in accordance with section 6 ("Determination of Individual
Bonus Amounts"). It is expected that any distribution for each fiscal year will
be made on or before July 15th following the close of each fiscal year.
8.2. Stock Election. Designated Executives may elect to receive up to 50 percent
of their bonus in the form of company Common Stock in lieu of cash. To encourage
the election of stock in lieu of cash ("Bonus Stock"), the Company shall grant
additional shares of the Company's Common Stock which shall equal in value
(valued as of the date of purchase of the Bonus Stock without regard to any
restrictions that may attach to such shares) to one-third of the bonus amount
elected to be received in stock before tax withholding and shall be subject to
certain restrictions ("Restricted Stock"). The restrictions and other terms of
such Restricted Stock award shall be determined by the Committee and set forth
in separate grant agreements. The agreement shall provide, among other things,
that such Restricted Stock shall vest (and the restrictions shall lapse) in
equal installments at each of the three anniversary dates following the date of
election, provided that they have not been forfeited prior to any such vesting
date. In the event that all or any portion of the Bonus Stock received in lieu
of cash (after deduction for taxes withheld) is sold, transferred, or otherwise
disposed of by the recipient thereof during the three year period following the
grant of the Restricted Stock, a proportional number of the shares of Restricted
Stock not yet vested shall be forfeited. [Example: If a participant elected to
receive 150 shares of Common Stock in lieu of a portion of his or her cash
bonus, after withholding 60 shares for taxes the participant will receive 90
shares of Bonus Stock. The participant would then be granted 50 shares of
Restricted Stock. If the participant then sells all 90 shares of the Bonus Stock
after the first anniversary of the Restricted Stock Grant date but before the
second anniversary thereof, two-thirds of the shares of Restricted Stock (33.33)
would be forfeited to the Company. The restrictions as to one-third of the
Shares of Restricted Stock (16.67) would have lapsed after one year and those
shares would no longer be Restricted Stock.] Upon termination of employment for
any reason other than death, Permanent Disability or Retirement, all Restricted
Stock not yet vested shall be forfeited. If termination of a Designated
Executive's employment is due to Death, Permanent Disability or Retirement, all
restrictions on the Restricted Stock issued to such Designated Executive
pursuant to the Plan shall terminate upon such termination. All restrictions on
Restricted Stock issued to a Designated Executive pursuant to this Plan shall
also terminate in the event of a Change of Control.
8.2.1. Restrictions. Restricted Stock shall be subject to such restrictions
on transferability, risk of forfeiture and other restrictions, if any, as
the Committee may impose, which restrictions may lapse separately or in
combination at such times or under circumstances as the Committee may
determine on the date of election or thereafter. Except to the extent
restricted as stated in section 8.2, a Designated Executive granted
Restricted Stock shall have all of the rights of a shareholder, including
the right to vote the restricted shares and the right to receive dividends
thereon (subject to any mandatory reinvestment or other requirement imposed
by the Committee). Where shares are Restricted Stock, they may not be sold,
transferred, pledged, hypothecated, margined or otherwise encumbered by the
Designated Executive. Certificates representing shares of Restricted Stock
may be legended to restrict transfer.
8.2.2. Income Tax Withholding. It shall be a condition of an employee's
right to receive a bonus under this Plan whether in the form of Company
Common Stock (including restricted Stock) or cash, that the employee shall
consent to the withholding by the Company of any federal, state or other
taxes which the Company is obligated to withhold or collect. The Company is
authorized to pay any such federal, state or other taxes resulting from
such bonus by withholding such number of shares of Company Common Stock
otherwise issuable to such employee that, based on the fair market value of
the shares on the date the election to receive such Common Stock in lieu of
cash is made, will satisfy such federal, state or other tax. It shall be a
condition of an employee's right to receive Restricted Stock pursuant to
this Plan that the employee agrees and authorizes the Company to either
withhold from such employee's Regular Wages Paid or, at the Company's
election, to reduce the number of shares of Restricted Stock which would
otherwise be due to the employee under this Plan by an amount which, in the
sole discretion of the Company, is sufficient
32
<PAGE>
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to pay all income taxes that the Company is required to withhold or collect
in connection with the Restricted Stock award.
8.2.3. Investment Representation. Unless the Committee otherwise
determines, Participants who elect to receive Common Stock in lieu of cash
must agree to take such Stock for investment and not for distribution.
Delivery of such representations as may be requested by the Committee shall
be a condition precedent to the right of the Participant to receive any
shares of Common Stock under this Plan. Certificates representing such
shares of Common Stock may be legended to restrict transfer absent
compliance with the federal securities laws.
8.2.4. Issuance of Bonus Stock and Restricted Stock. Company Common Stock
received by Designated Executives in lieu of cash may, in the sole
discretion of the Committee, be issued by the Company, purchased in the
open market using the applicable portion of the Designated Executive's cash
bonus amount, or issued under the Employee Stock Plan. In the Committee's
discretion, Restricted Stock may be issued as Restricted Shares under the
Employee Stock Plan.
9. MISCELLANEOUS
9.1. Transferability. An employee's rights and interests under the Plan may not
be assigned or transferred. In the event of an employee's death, the Company
shall pay any bonus amounts due under the Plan to the employee's designated
beneficiary, or in the absence of such designation, by will or the laws of
descent and distribution.
9.2. Administration of Plan. The Plan shall be administered by the Committee.
The Committee shall have the authority to interpret the Plan, to establish and
revise rules and regulations relating to the Plan, and to make any other
determinations that it believes necessary or advisable for the administration of
the Plan. Decisions of the Committee shall be final, conclusive, and binding
upon all parties, including the Company, Subsidiaries, stockholders, and
employees, provided, however, that the Committee shall rely upon and be bound by
the amount of pre-tax profits as certified by the Company's independent public
accountant, and the Target Bonus Potential and maximum bonus percentage as
defined in section 6.
9.3. Amendment and Termination. The Committee reserves the right to modify,
suspend or terminate the Plan in whole or in part at any time, including the
right to modify the performance goals and targets employed; provided, however,
that such amendment will not adversely affect rights with respect to allocations
previously made; and provided further, that no modification of the Plan by the
Committee without approval of the shareholders will materially increase the
maximum amount allocated to the five most highly compensated Employees or render
any member of the Committee eligible for a bonus award. Any modification to
material terms of the Plan (i.e., employees eligible, business criteria on which
the performance goal is based, or maximum amount of compensation payable) shall
require shareholder approval prior to the payment of any benefit.
9.4. No Agreement to Employ. Nothing in the Plan shall be construed to
constitute or evidence an agreement or understanding, express or implied, by the
Company to employ or retain the employee for any specific period of time.
9.5. Certification That Terms Have Been Satisfied. Prior to payment of any bonus
amount under the Plan, the Committee shall certify in writing that the
performance goals and all other material terms stated herein have been attained.
For this purpose, the approved minutes of a Committee meeting in which a
certification is made shall be treated as a written certification.
9.6. Indemnification. Current and past members of the Board or Committee shall
be indemnified and held harmless by the Company against and from any and all
loss, cost, liability or expense that may be imposed upon or reasonably incurred
by such member in connection with or resulting from any claim, action, suit or
proceeding to which such member may be or become a party or in which such member
may be or become involved by reason of any action taken or failure to act under
this Plan and against and from any and all amounts paid by such member in
settlement thereof (with the Company's written approval) or paid by such member
in satisfaction of a judgment in any such action, suit or proceeding, except a
judgment in favor of the Company based upon a finding of such member's lack of
good faith. Indemnification pursuant to this provision is subject to the
condition that, upon the institution of any claim, action, suit, or proceeding
against such member, such member shall in writing give the Company an
opportunity, at its own expense, to handle and defend the same before such
member undertakes to handle and defend it on such member's behalf. The foregoing
right of indemnification shall not be exclusive of any other right to which such
member may be entitled as a matter of law or otherwise, or any power that the
Company may have to indemnify or hold such member harmless.
9.7. Governing Law. This Plan shall be governed by the laws of the State of
Connecticut.
33
<PAGE>
GERBER SCIENTIFIC, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING SEPTEMBER 25, 1998
The undersigned shareholder(s) of Gerber Scientific, Inc. hereby appoint(s)
Michael J. Cheshire and Carole F. St. Mark, and each of them, with full and
individual power of substitution, proxies and attorneys, and hereby authorize(s)
them to represent and to vote all shares of Common Stock of Gerber Scientific,
Inc. which the undersigned shareholder(s) is/are entitled to vote at the Annual
Meeting of Gerber Scientific, Inc., to be held at the Headquarters of Gerber
Technology, Inc., 24 Industrial Park Road West, Tolland, Connecticut 06084, on
September 25, 1998, at 2:30 p.m., Eastern Daylight Saving Time, and at any
adjournment thereof, with all powers which the undersigned shareholder(s) would
possess if personally present, for the election of the Class II Directors; for
approval of certain Amendments to the Gerber Scientific, Inc. 1992 Employee
Stock Plan, As Amended and Restated As of May 1, 1997; for approval of certain
Amendments to the Gerber Scientific, Inc. 1992 Non-Employee Director Stock
Option Plan, As Amended and Restated As of September 12, 1997; for approval of
the Annual Incentive Bonus Plan for fiscal years 1999 through 2001; and upon
such other business as may properly come before the Annual Meeting or any
adjournment thereof.
(To be signed, dated, and voted on reverse side)
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[triangle] FOLD AND DETACH HERE [triangle]
<PAGE>
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED Please mark [X]
IN THE MANNER DIRECTED HEREIN BY THE UNDERSIGNED. your vote as
IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR indicated in
EACH OF THE FOLLOWING ITEMS: this example
(1) To elect three Directors: 01 Donald P. Aiken, 02 George M. Gentile, 03 David
J. Gerber
FOR all nominees WITHHOLD
listed above AUTHORITY
(except as stated to vote for all
to the contrary nominees listed above.
herein).
[ ] [ ]
(Instruction: To withhold authority to vote for an individual nominee,
write that nominee's name on the line provided below.)
________________________________________________________________________________
(2) To obtain shareholder approval of certain amendments to the Gerber
Scientific, Inc. 1992 Employee Stock Plan, As Amended and Restated As of
May 1, 1997;
FOR [ ] AGAINST [ ] ABSTAIN [ ]
(3) To obtain shareholder approval of certain amendments to the Gerber
Scientific, Inc. 1992 Non-Employee Director Stock Option Plan, As Amended
and Restated As of September 12, 1997;
FOR [ ] AGAINST [ ] ABSTAIN [ ]
(4) To obtain shareholder approval of the Annual Incentive Bonus Plan for
fiscal years 1999 through 2001;
FOR [ ] AGAINST [ ] ABSTAIN [ ]
(5) To transact such other business as may properly come before the meeting.
The undersigned shareholder(s) hereby acknowledge(s) receipt of the Notice of
Annual Meeting of Shareholders and the Proxy Statement, each dated August 10,
1998
Dated: __________________________________________________________________, 1998
Signed:________________________________________________________________________
_______________________________________________________________________________
Please date and sign exactly as name(s) appear(s) on Proxy. Joint owners should
both sign. Executors, Administrators, Trustees, etc. should so indicate when
signing. Corporations should show full corporate name and title of signing
officer. Partnerships should show full partnership name and be signed by an
authorized person.
================================================================================
***IF YOU WISH TO VOTE BY TELEPHONE, PLEASE READ THE INSTRUCTIONS BELOW***
================================================================================
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[triangle] FOLD AND DETACH HERE [triangle]
[TELEPHONE] VOTE BY TELEPHONE [TELEPHONE]
QUICK * * * EASY * * * IMMEDIATE
Your telephone vote authorizes the named proxies to vote your shares in the same
manner as if you marked, signed and returned your proxy card.
[bullet] You will be asked to enter a Control Number which is located in the
box in the lower right hand corner of this form.
- --------------------------------------------------------------------------------
OPTION #1: To vote as the Board of Directors recommends on ALL proposals:
Press 1.
- --------------------------------------------------------------------------------
WHEN ASKED, PLEASE CONFIRM YOUR VOTE BY PRESSING 1.
- --------------------------------------------------------------------------------
OPTION #2: If you choose to vote on each proposal separately, press 0. You will
hear these instructions:
- --------------------------------------------------------------------------------
Proposal 1: To vote FOR ALL nominees, press 1; to WITHHOLD FOR ALL
nominees, press 9.
To withhold FOR AN INDIVIDUAL nominee, press 0 and listen to
the instructions.
Proposal 2: To vote FOR, press 1; AGAINST, press 9; ABSTAIN, press 0.
The Instructions are the same for all remaining proposals.
WHEN ASKED, PLEASE CONFIRM YOUR VOTE BY PRESSING 1.
- --------------------------------------------------------------------------------
PLEASE DO NOT RETURN THE ABOVE PROXY CARD IF VOTED BY PHONE.
- --------------------------------------------------------------------------------
CALL * * TOLL FREE * * ON A TOUCH TONE TELEPHONE
1-800-840-1208 - ANYTIME
There is NO CHARGE to you for this call.
