<PAGE> 1
FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Quarterly Period Ended December 31, 1998
[ ] Transition Report Under Section 13 or 15(d) of the Securities Exchange
Act of 1934.
For the transition period from __________ to __________
Commission File Number: 0-22994
GUNTHER INTERNATIONAL, LTD.
(Exact name of small business issuer as specified in its charter)
DELAWARE 51-0223195
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
ONE WINNENDEN ROAD, NORWICH, CONNECTICUT 06360
(Address of principal executive offices)
Registrant's Telephone Number Including Area Code: 860-823-1427
Indicate by check whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months
(or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
YES X NO
----- -----
The number of shares of the Registrant's Common stock outstanding as of February
5, 1999 was 4,291,769.
Transitional Small Business Disclosure Format (check one):
YES NO X
----- -----
<PAGE> 2
GUNTHER INTERNATIONAL, LTD.
Index
Page
----
PART I - CONDENSED FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheets as of December 31, 1998
and March 31, 1998 3
Condensed Statements of Operations for the three and nine
months ended December 31, 1998 and 1997 4
Condensed Statements of Cash Flows for the nine
months ended December 31, 1998 and 1997 5
Notes to Condensed Financial Statements 6-8
Item 2. Management's Discussion and Analysis or Plan of Operation 9-14
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 2. Changes in Securities and Use of Proceeds 15
Item 6. Exhibits and Reports on Form 8-K 16-17
Signatures 18
<PAGE> 3
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Gunther International, Ltd.
Condensed Balance Sheets
December 31, 1998 and March 31, 1998
<TABLE>
<CAPTION>
December 31, 1998 March 31, 1998
----------------- --------------
(Unaudited) (As Restated)
(See Note 1)
<S> <C> <C>
Assets
Current Assets:
Cash $ 1,063,697 $ 572,368
Restricted cash 150,000 --
Accounts receivable, net 1,236,996 326,128
Costs and estimated earnings in excess
of billings on uncompleted contracts 758,248 861,219
Inventories 1,524,480 1,256,852
Prepaid expenses 45,293 61,819
Note receivable from stockholder, net -- 40,000
------------ ------------
Total current assets 4,778,714 3,118,386
------------ ------------
Property and Equipment:
Machinery and equipment 1,245,293 1,224,856
Furniture and fixtures 273,782 249,581
Leasehold improvements 255,018 240,541
------------ ------------
1,774,093 1,714,978
Less - accumulated depreciation and
amortization (995,428) (764,934)
------------ ------------
778,665 950,044
------------ ------------
Other Assets:
Excess of costs over fair value of net
assets acquired, net 3,054,223 3,221,821
Deferred preproduction costs, net -- 622,953
Other 77,527 123,725
------------ ------------
3,131,750 3,968,499
------------ ------------
$ 8,689,129 $ 8,036,929
============ ============
Liabilities and Stockholders' Equity (Deficit)
Current Liabilities:
Current maturities of long-term debt - other $ 9,222 $ 514,554
Current maturities of long-term debt - related parties 1,300,000 --
Accounts payable 1,895,968 2,923,468
Accrued expenses 1,024,822 996,994
Billings in excess of costs and estimated
earnings on uncompleted contracts 2,214,623 1,597,789
Deferred service contract revenue 1,043,542 1,799,066
Note payable to stockholder 150,000 150,000
------------ ------------
Total current liabilities 7,638,177 7,981,871
------------ ------------
Long-term debt, less current maturities:
Other 20,269 1,884,551
Related parties 3,462,681 --
------------ ------------
Total long-term debt 3,482,950 1,884,551
------------ ------------
Commitments and contingencies (Note 5)
Stockholders' Equity (Deficit):
Common stock, $.001 par value; 16,000,000
shares authorized; 4,291,269 shares issued and
outstanding at December 31, 1998 and March 31, 1998 4,291 4,291
Series B Common stock, $.001 par value; 500 shares
authorized issued and outstanding 1 1
Additional paid-in capital 12,188,556 11,390,818
Accumulated deficit (14,624,846) (13,224,603)
------------ ------------
Total Stockholders' Equity (Deficit) (2,431,998) (1,829,493)
------------ ------------
$ 8,689,129 $ 8,036,929
============ ============
</TABLE>
3
<PAGE> 4
Gunther International, Ltd.
Condensed Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
----------------------------- -----------------------------
December 31, December 31, December 31, December 31,
1998 1997 1998 1997
------------ ------------ ------------ ------------
(As Restated) (As Restated)
(See Note 1) (See Note 1)
<S> <C> <C> <C> <C>
Sales:
Systems $ 3,523,329 $ 2,383,776 $ 7,984,513 $ 4,679,218
Maintenance 2,158,713 1,630,288 6,391,505 4,719,679
------------ ------------ ------------ ------------
Total sales 5,682,042 4,014,064 14,376,018 9,398,897
------------ ------------ ------------ ------------
Cost of sales:
Systems 2,275,645 1,613,265 5,788,768 4,265,715
Maintenance 1,723,598 1,231,010 4,780,398 3,480,620
------------ ------------ ------------ ------------
Total cost of sales 3,999,243 2,844,275 10,569,166 7,746,335
------------ ------------ ------------ ------------
Gross profit 1,682,799 1,169,789 3,806,852 1,652,562
------------ ------------ ------------ ------------
Operating expenses:
Selling and marketing 511,901 766,322 1,673,994 1,625,871
Research and development 206,059 209,717 715,674 498,702
General and administrative 681,586 756,543 1,857,256 1,845,306
------------ ------------ ------------ ------------
Total operating expenses 1,399,546 1,732,582 4,246,924 3,969,879
------------ ------------ ------------ ------------
Operating income (loss) 283,253 (562,793) (440,072) (2,317,317)
Interest expense, net (115,829) (47,991) (337,218) (152,565)
------------ ------------ ------------ ------------
Income (loss) before cumulative effect of
change in accounting principle 167,424 (610,784) (777,290) (2,469,882)
Cumulative effect of accounting change -- -- (622,953) --
------------ ------------ ------------ ------------
Net income (loss) $ 167,424 $ (610,784) $ (1,400,243) $ (2,469,882)
============ ============ ============ ============
Basic and Diluted Income (loss) per share:
Income (loss) before cumulative effect of
change in accounting principle 0.04 (0.14) (0.18) (0.58)
Cumulative effect of accounting change -- -- (0.15) --
------------ ------------ ------------ ------------
Income (loss) per share 0.04 (0.14) (0.33) (0.58)
============ ============ ============ ============
Basic and Diluted weighted average number
of common shares outstanding 4,291,269 4,290,380 4,291,269 4,287,417
============ ============ ============ ============
</TABLE>
4
<PAGE> 5
Gunther International, Ltd.
Condensed Statements of Cash Flows
For the Nine Months Ended December 31, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
December 31, December 31,
1998 1997
------------ ------------
(As Restated)
(See Note 1)
<S> <C> <C>
Cash flows from operating activities:
Net loss $(1,400,243) $(2,469,882)
Adjustments to reconcile net loss to net cash provided by
(used for) operating activities:
Depreciation and amortization 406,273 468,799
Provision for doubtful accounts 40,000 --
Cumulative effect of accounting change 622,953 --
Changes in operating assets and liabilities:
Increase in accounts receivable (910,868) (318,476)
Increase in inventories (267,628) (298,241)
Decrease in prepaid expenses 16,526 23,289
Decrease in accounts payable (1,027,500) (518,917)
Increase in accrued expenses 27,828 138,083
Increase (decrease) in deferred service contract revenue (755,524) 2,125
Increase in billings in excess of costs and
estimated earnings on uncompleted contracts, net 719,805 3,205,005
----------- -----------
Net cash provided by (used for) operating activities (2,528,378) 231,785
----------- -----------
Cash flows from investing activities:
Acquisitions of property and equipment (59,115) (176,668)
Preproduction costs and other assets 18,017 (297,766)
Proceeds from sale of investment 20,000 --
----------- -----------
Net cash used for investing activities (21,098) (474,434)
----------- -----------
Cash flows from financing activities:
Repayment of notes payable and long-term debt (2,569,614) (67,627)
Proceeds from notes payable and long-term debt 5,760,419 171,515
Transfer to restricted cash (150,000) --
Proceeds from exercise of warrants -- 5,165
----------- -----------
Net cash provided by financing activities 3,040,805 109,053
----------- -----------
Net increase (decrease) in cash 491,329 (133,596)
Cash, beginning of period 572,368 261,700
----------- -----------
Cash, end of period $ 1,063,697 $ 128,104
=========== ===========
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest $ 214,084 $ 156,503
Cash paid for income taxes 26,245 935
</TABLE>
5
<PAGE> 6
Gunther International Ltd.
Notes to Condensed Financial Statements
1. Restatement:
On June 23, 1998, the Company announced that, during the course of completing
its year-end audit, certain errors had been discovered in the way in which the
Company accounted for the accumulation of contract costs. In addition, certain
items of expense were not properly accounted for. As a result, the Company
announced that the previously issued interim financial statements for the first
three quarters of the fiscal year ended March 31, 1998 should not be relied
upon. The Company subsequently announced that similar deficiencies were
discovered during the course of preparing its accounts for the first quarter of
fiscal 1999 and that, as a result, the financial statements and corresponding
audit report for the fiscal year ended March 31, 1998 also should not be relied
upon. At that time, the Audit Committee initiated a review into the accuracy of
prior financial statements. The Audit Committee's review has since been
completed and it has been determined that accounts receivable were overstated
and accounts payable and deferred service revenues were understated at March 31,
1997 and costs and estimated earnings in excess of billings on uncompleted
contracts were overstated at March 31, 1998. Restated financial statements and
the corresponding audit report, dated January 6, 1999, were issued in January
1999 and included in the Company's Form 10-KSB, as amended. As a result, the
accompanying financial statements and management's discussion and analysis of
financial condition and results of operations include restated results for the
three and nine months ended December 31, 1997 and a restated balance sheet as of
March 31, 1998. Also, certain amounts were reclassified between selling and
administrative expenses, cost of sales, and research and development expenses to
more appropriately reflect the results of operations. The following represents
the restated quarterly amounts for each quarter in the fiscal year ended March
31, 1998.
<TABLE>
<CAPTION>
Quarter Ended
------------------------------------------------------------- Year Ended
June 30, September 30, December 31, March 31, March 31,
1997 1997 1997 1998 1998
------------ ------------ ------------ ------------ ------------
(As restated) (As restated)
(Unaudited)
<S> <C> <C> <C> <C> <C>
Sales:
Systems $ 978,178 $ 1,317,264 $ 2,383,776 $ 3,950,885 $ 8,630,103
Maintenance 1,513,084 1,576,307 1,630,288 1,735,037 6,454,716
------------ ------------ ------------ ------------ ------------
Total Sales 2,491,262 2,893,571 4,014,064 5,685,922 15,084,819
------------ ------------ ------------ ------------ ------------
Cost of Sales:
Systems 1,212,044 1,440,406 1,613,265 2,764,377 7,030,092
Maintenance 1,090,460 1,159,150 1,231,010 1,291,072 4,771,692
------------ ------------ ------------ ------------ ------------
Total Cost of Sales 2,302,504 2,599,556 2,844,275 4,055,449 11,801,784
------------ ------------ ------------ ------------ ------------
Gross Profit 188,758 294,015 1,169,789 1,630,473 3,283,035
------------ ------------ ------------ ------------ ------------
Operating expenses:
Selling and marketing 467,777 391,772 766,322 686,015 2,311,886
Research and development 116,981 172,004 209,717 120,033 618,735
General and administrative 450,154 638,609 756,543 893,671 2,738,977
------------ ------------ ------------ ------------ ------------
Total operating expenses 1,034,912 1,202,385 1,732,582 1,699,719 5,669,598
------------ ------------ ------------ ------------ ------------
Operating loss
(846,154) (908,370) (562,793) (69,246) (2,386,563)
Interest expense, net
(51,276) (53,298) (47,991) (92,987) (245,552)
------------ ------------ ------------ ------------ ------------
Net loss $ (897,430) $ (961,668) $ (610,784) $ (162,233) $ (2,632,115)
============ ============ ============ ============ ============
Net loss per share $ (0.21) $ (0.22) $ (0.14) $ (0.04) $ (0.61)
============ ============ ============ ============ ============
Net income (loss)
as previously reported $ (227,580) $ 43,778 $ 125,026 $ (2,643,043) $ (2,701,819)
============ ============ ============ ============ ============
</TABLE>
6
<PAGE> 7
2. Accounting Change:
In the first quarter of fiscal 1999, the Company changed its method of
accounting for deferred preproduction costs, in accordance with AICPA Statement
of Position No. 98-5, "Reporting on the Costs of Start-Up Activities", which
requires costs of start-up activities and organization costs to be expensed as
incurred, rather than capitalizing and subsequently amortizing such costs. The
cumulative effect of the change in accounting principle was to increase the net
loss for the nine months ended December 31, 1998 by $622,953, or $0.15 per
share.
3. Basis of Presentation:
In the opinion of management, the accompanying unaudited interim condensed
financial statements have been prepared in accordance with generally accepted
accounting principles and contain all adjustments (consisting of only normal
recurring adjustments except as described in Note 1) necessary to present fairly
the financial position and the results of operations for the interim periods.
These financial statements should be read in conjunction with the financial
statements and related notes included in the Company's Annual Report on Form
10-KSB, as amended, for the fiscal year ended March 31, 1998. The results of
operations for the interim periods are not necessarily indicative of results to
be expected for the full year.
4. Long - Term Debt:
On October 2, 1998, the Company entered into a $5.7 million comprehensive
financing transaction with the Bank of Boston, Connecticut, N.A. (the "Bank"),
the Estate of Harold S. Geneen (the "Estate") and Gunther Partners LLC (the "New
Lender"), the proceeds of which have been utilized to restructure and replace
the Company's pre-existing senior line of credit, fund a full settlement with
the Company's third party service provider and provide additional working
capital to fund the Company's ongoing business operations. Under the terms of
the transaction, the New Lender loaned an aggregate of $4.0 million to the
Company. At the same time, the Bank reached an agreement with the Estate, which
had guaranteed a portion of the Company's senior line of credit, whereby the
Estate consented to the liquidation of approximately $1.7 million of collateral
and the application of the proceeds of such collateral to satisfy and repay in
full a like amount of indebtedness outstanding under the senior credit facility.
The balance of the indebtedness outstanding under the senior credit facility,
approximately $350,000, was repaid in full from the proceeds of the new
financing. The Company executed a new promissory note in favor of the Estate
evidencing the Company's obligation to repay the amount of the collateral that
was liquidated by the Bank. The Company's obligations to the Estate are
subordinated to the Company's obligations to the New Lender.
The principal balance of the $4.0 million debt is to be repaid in monthly
installments of $100,000 from November 1, 1998 and continuing to and including
September 1, 1999, $400,000 on October 1, 1999 and the balance shall be due on
October 1, 2003. Interest shall be paid quarterly, at the rate of 8% per annum,
beginning January 1, 1999 and continuing until the principal and interest due is
paid in full. The debt is secured by a first priority interest in all tangible
and intangible (excluding patents and trademarks) personal property and a
secondary interest in patents and trademarks.
To induce the New Lender to enter into the financing transaction, the Company
granted the New Lender stock purchase warrants entitling the New Lender, at any
time during the period commencing on January 1, 1999 and ending on the fifth
anniversary of the transaction, to purchase up to 35% of the pro forma, fully
diluted number of shares of the Common Stock of the Company, determined as of
the date of exercise. The exercise price of the warrants is $1.50 per share. The
warrants are valued at $345,000 and have been recorded as additional paid-in
capital. The discount on the debt will be accreted using the effective interest
rate method over the term of the debt.
In addition, the Company, the New Lender, the Estate and certain shareholders
(Park Investment Partners, Gerald H. Newman, Four Partners and Robert Spiegel)
entered into a separate voting agreement, pursuant to which they each agreed to
vote all shares of Gunther stock held by them in favor of (i) that number of
persons nominated by the New Lender constituting a majority of the Board of
Directors, (ii) one person nominated by the Estate and (iii) one person
nominated by Park Investment Partners.
The promissory note in favor of the Estate for approximately $1.7 million is to
be repaid at the earlier of one year after the Company's obligations to the New
Lender are paid in full or on October 2, 2004. Interest, at 5.44% per annum,
shall accrue on principal and unpaid interest, which is added to the outstanding
balance and is due at the time of principal payments. The Company has calculated
7
<PAGE> 8
the present value of this obligation to the Estate using a 10.5% assumed
interest rate. The difference between the fair value of the obligation and the
present value, $1.2 million, has been recorded as additional paid-in capital.
The discount on this obligation will be accreted using the effective interest
rate method over the term of the obligation.
5. Contingencies:
On July 9, 1998, a purported class action lawsuit was filed against the Company,
James H. Whitney and Frederick W. Kolling III asserting claims under the federal
securities laws. The action was filed in the United States District Court for
the District of Connecticut and purports to be brought on behalf of the named
plaintiff, Ms. Arlene Greenberg, and all other persons and entities who
purchased shares of Company Common Stock during the period from August 14, 1997
through June 23, 1998.
On August 12, 1998, a second purported class action lawsuit was filed against
the Company, James H. Whitney and Frederick W. Kolling, III asserting similar
claims under the federal securities laws. The second action also was filed in
the United States District Court for the District of Connecticut and purports to
be brought on behalf of the named plaintiff Mr. Mark Abrams for the same class
period.
On January 4, 1999, the Court consolidated the two actions into one. The Court
also granted the plaintiffs until February 18, 1999 in which to file an amended
complaint. The defendants, including the Company, were given 45 days after the
filing of the amended complaint in which to file a response.
Among other things, the complaints allege that the Company's financial
statements for the first three quarters of fiscal 1998 were materially false and
misleading in violation of Section 10(b) of the Securities Exchange Act of 1934
(the "Exchange Act") and SEC Rule 10b-5 promulgated thereunder, and Section
20(a) of the Exchange Act. The prayers for relief request compensatory damages
and reimbursement for the reasonable costs and expenses, including attorney's
fees and expert fees, incurred in connection with the action.
Although the Company believes the complaint is without merit and will vigorously
defend the action, it is not possible to predict with certainty the final
outcome of this proceeding.
8
<PAGE> 9
ITEM 2. Management's Discussion and Analysis or Plan of Operation
On June 23, 1998, the Company announced that, during the course of completing
its year-end audit, certain errors had been discovered in the way in which the
Company accounted for the accumulation of contract costs. In addition, certain
items of expense were not properly accounted for. As a result, the Company
announced that the previously issued interim financial statements for the first
three quarters of the fiscal year ended March 31, 1998 should not be relied
upon. The Company subsequently announced that similar deficiencies were
discovered during the course of preparing its accounts for the first quarter of
fiscal 1999 and that, as a result, the financial statements and corresponding
audit report for the fiscal year ended March 31, 1998 also should not be relied
upon. At that time, the Audit Committee initiated a review into the accuracy of
prior financial statements. The Audit Committee's review has since been
completed and it has been determined that accounts receivable were overstated
and accounts payable and deferred service revenues were understated at March 31,
1997 and costs and estimated earnings in excess of billings on uncompleted
contracts were overstated at March 31, 1998. Restated financial statements and
the corresponding audit report, dated January 6, 1999, were issued in January
1999 and included in the Company's Form 10-KSB, as amended. As a result, the
accompanying financial statements and management's discussion and analysis of
financial condition and results of operations include restated results for the
three and nine months ended December 31, 1997 and a restated balance sheet as of
March 31, 1998. Also, certain amounts were reclassified between selling and
administrative expenses, cost of sales, and research and development expenses to
more appropriately reflect the results of operations. The following represents
the restated quarterly amounts for each quarter in the fiscal year ended March
31, 1998.
<TABLE>
<CAPTION>
Quarter Ended
------------------------------------------------------------- Year Ended
June 30, September 30, December 31, March 31, March 31,
1997 1997 1997 1998 1998
------------ ------------ ------------ ------------ ------------
(As restated) (As restated)
(Unaudited)
<S> <C> <C> <C> <C> <C>
Sales:
Systems $ 978,178 $ 1,317,264 $ 2,383,776 $ 3,950,885 $ 8,630,103
Maintenance 1,513,084 1,576,307 1,630,288 1,735,037 6,454,716
------------ ------------ ------------ ------------ ------------
Total Sales 2,491,262 2,893,571 4,014,064 5,685,922 15,084,819
------------ ------------ ------------ ------------ ------------
Cost of Sales:
Systems 1,212,044 1,440,406 1,613,265 2,764,377 7,030,092
Maintenance 1,090,460 1,159,150 1,231,010 1,291,072 4,771,692
------------ ------------ ------------ ------------ ------------
Total Cost of Sales 2,302,504 2,599,556 2,844,275 4,055,449 11,801,784
------------ ------------ ------------ ------------ ------------
Gross Profit 188,758 294,015 1,169,789 1,630,473 3,283,035
------------ ------------ ------------ ------------ ------------
Operating expenses:
Selling and marketing 467,777 391,772 766,322 686,015 2,311,886
Research and development 116,981 172,004 209,717 120,033 618,735
General and administrative 450,154 638,609 756,543 893,671 2,738,977
------------ ------------ ------------ ------------ ------------
Total operating expenses 1,034,912 1,202,385 1,732,582 1,699,719 5,669,598
------------ ------------ ------------ ------------ ------------
Operating loss
(846,154) (908,370) (562,793) (69,246) (2,386,563)
Interest expense, net
(51,276) (53,298) (47,991) (92,987) (245,552)
------------ ------------ ------------ ------------ ------------
Net loss $ (897,430) $ (961,668) $ (610,784) $ (162,233) $ (2,632,115)
============ ============ ============ ============ ============
Net loss per share $ (0.21) $ (0.22) $ (0.14) $ (0.04) $ (0.61)
============ ============ ============ ============ ============
Net income (loss)
as previously reported $ (227,580) $ 43,778 $ 125,026 $ (2,643,043) $ (2,701,819)
============ ============ ============ ============ ============
</TABLE>
9
<PAGE> 10
RESULTS OF OPERATIONS
Sales: The Company's sales are derived from the sale of systems, which includes
new systems and upgrades to existing systems, and related maintenance. Total
sales for the three and nine months ended December 31, 1998 were $5.7 million
and $14.4 million, respectively, an increase of 42% and 53%, respectively, over
the comparable periods of the prior year. Systems sales for the three and nine
months ended December 31, 1998 were $3.5 million and $8.0 million, respectively,
an increase of 48% and 71%, respectively, over the comparable periods of the
prior year. The increase in system sales was primarily due to systems in
progress being completed on a more timely basis during the three and nine months
ended December 31, 1998 as compared to the comparable periods of the prior year.
While the Company had approximately the same number of systems in process during
the quarter ended December 31, 1998 as compared to the prior year quarter, the
revenue associated with those systems was greater as systems were completed more
rapidly. The increase was also partially attributable to sales of inkjet imagers
and related products, which were not sold during the prior year. Maintenance
sales for the three and nine months ended December 31, 1998 were $2.2 million
and $6.4 million, respectively, an increase of 32% and 35%, respectively, over
the comparable periods of the prior year. The increase in maintenance sales was
primarily due to an increase in the number of systems being serviced and an
increase in service requests outside of contracted maintenance agreements,
including the moving of systems and coverage during unusually high volume
periods.
Gross profit: Gross profit as a percentage of total sales for the three and nine
months ended December 31, 1998 increased to 30% and 26%, respectively, from 29%
and 18%, respectively, for the comparable periods of the prior year. Gross
profit as a percentage of systems sales for the three and nine months ended
December 31, 1998 increased to 35% and 28%, respectively, from 32% and 9%,
respectively, for the comparable periods of the prior year. The increase in the
gross profit percentage was a result of indirect manufacturing overhead costs
being allocated over a larger revenue base causing a reduction in costs per
system. Gross profit as a percentage of maintenance sales for the three months
ended December 31, 1998 decreased to 20% from 24% for the comparable period of
the prior year. The decrease in the gross profit percentage was due primarily to
an increase in costs associated with the third party service provider and an
increase in service parts costs. There was a general price increase from the
third party service provider as of April 1997 which went into effect as each
maintenance contract was renewed. Gross profit as a percentage of maintenance
sales for the nine months ended December 31, 1998 and 1997 remained relatively
stable at 25% and 26%, respectively. The Company will be assuming the
maintenance services on predominantly all current and future maintenance
contracts. By assuming the maintenance services, management believes gross
profit as a percentage of maintenance sales will increase over time by
eliminating certain duplicate costs associated with the Company and the third
party service provider. The transition of maintenance services is to begin on
April 1, 1999 and be completed by March 31, 2000. During the fourth quarter of
fiscal 1999, the Company expects to incur certain costs to build a service
department infrastructure, including the hiring of additional support personnel,
while still incurring costs from the third party service provider. These costs
are currently expected to total between $120,000 and $180,000 for the quarter.
The Company will need to staff the service locations as the transition date for
each location approaches. To the extent that the Company cannot hire personnel
with Gunther system experience at a service location, the Company will have to
hire personnel prior to the transition date to provide time for training. The
Company's third party service provider is making available certain personnel,
which the Company has permission to offer employment to, if it so desires. The
Company believes the availability of those individuals will allow the Company to
meet the transition dates with a full complement of service personnel.
Operating Expenses: Operating expenses include selling and marketing, research
and development, and general and administrative expenses.
Selling and marketing expenses, as a percentage of total revenues, for the three
and nine months ended December 31, 1998 were 9% and 12%, respectively, as
compared to 19% and 17%, respectively, for the comparable periods of the prior
year. For the three months ended December 31, 1998, these expenses decreased by
33% to $512,000 from
10
<PAGE> 11
$766,000 for the three months ended December 31, 1997. The decrease was
primarily due to a decrease in sales personnel expenses and trade show expense.
For the nine months ended December 31, 1998, these expenses increased by 3% to
$1.67 million from $1.63 million for the nine months ended December 31, 1997.
The increase was primarily due to the initial sales and marketing costs related
to the inkjet imager. All personnel costs, which included new sales personnel,
associated with the inkjet imager were included in sales and marketing expenses
for the first two fiscal quarters as the product was introduced to the market.
Research and development expenses, as a percentage of total revenues, for the
three and nine months ended December 31, 1998 and 1997, were 4% and 5%,
respectively, as compared to 5% and 5%, respectively, for the comparable periods
of the prior year. For the three months ended December 31, 1998, these expenses
decreased by 2% to $206,000 from $210,000 for the three months ended December
31, 1997. For the nine months ended December 31, 1998, these expenses increased
by 44% to $716,000 from $499,000 for the nine months ended December 31, 1997.
The increase in research and development for the nine months ended December 31,
1998 was related to the completion of the initial development of the inkjet
imager and continued enhancements of system components. The Company expects
research and development expense to remain at the third fiscal quarter level for
the remainder of the fiscal year.
General and administrative expenses, as a percentage of total revenues, for the
three and nine months ended December 31, 1998 and 1997, were 12% and 13%,
respectively, as compared to 19% and 20%, respectively, for the comparable
periods of the prior year. For the three months ended December 31, 1998, these
expenses decreased by 10% to $682,000 from $757,000 for the three months ended
December 31, 1997. For the nine months ended December 31, 1998, these expenses
remained relatively stable, increasing $12,000 between the periods. An increase
in royalties based on sales and professional services was offset by a decrease
in amortization expense due to the accounting change under SOP 98-5 described in
Note 2 to the condensed financial statements.
Interest expense, net: Interest expense, net, increased to $116,000 and $337,000
in the three and nine months ended December 31, 1998, respectively, from $48,000
and $153,000, in the three and nine months ended December 31, 1997,
respectively, primarily due to the interest on debt from the New Lender and
interest on past due balances to the third party service provider.
Cumulative effect of accounting change: In the first quarter of fiscal 1999, the
Company changed its method of accounting for deferred preproduction costs, in
accordance with AICPA Statement of Position No. 98-5, "Reporting on the Costs of
Start-Up Activities", which requires costs of start-up activities and
organization costs to be expensed as incurred, rather than capitalizing and
subsequently amortizing such costs. The cumulative effect of the change in
accounting principle was to increase the net loss for the nine months ended
December 31, 1998 by $622,953, or $0.15 per share.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary need for liquidity is to fund operations while it
endeavors to increase sales and achieve profitability. Historically, the Company
has derived liquidity through system and maintenance sales (including customer
deposits), bank borrowings, financing arrangements with third parties and, from
time to time, sales of its equity securities.
During the nine months ended December 31, 1998, the Company had a negative cash
flow from operations of $2.5 million, compared to a positive cash flow from
operations of $232,000 for the nine months ended December 31, 1997. The decrease
in the cash flow from operations is primarily related to the decrease in
accounts payable, as outstanding accounts payable resulting from prior cash
shortages were paid, an increase in accounts receivable, primarily due to
billings on recent system deliveries, and a decrease in deferred service
revenue, as annual contracts are coming up for renewal at the beginning of the
calendar year.
During the nine months ended December 31, 1998 and 1997, the Company used cash
for investing activities of $21,000 and $474,000, respectively, to purchase
machinery and equipment and to facilitate the further development of product
enhancements.
During the nine months ended December 31, 1998 and 1997, the Company received
cash from financing activities of $3.0 million and $109,000, respectively.
As previously reported, Company completed a $5.7 million comprehensive financing
transaction on October 2, 1998, the proceeds of which have been utilized to
restructure and replace the Company's then-existing senior line of credit, fund
a full settlement with the Company's third-party service provider and provide
additional working capital to fund the Company's ongoing business operations.
11
<PAGE> 12
Under the terms of the transaction, a newly formed limited liability
company, Gunther Partners LLC (the "New Lender"), loaned an aggregate of $4.0
million to the Company. At the same time, the Company's then senior lender, the
Bank of Boston, Connecticut, N.A. (the "Bank"), reached an agreement with the
Estate of Harold S. Geneen (the "Estate") (which had guaranteed a portion of the
Company's senior line of credit) whereby the Estate consented to the liquidation
of approximately $1.7 million of collateral and the application of the proceeds
of such collateral to satisfy and repay in full a like amount of indebtedness
outstanding under the senior credit facility. The balance of the indebtedness
outstanding under the then-existing senior credit facility, approximately
$350,000, was repaid in full from the proceeds of the new financing. The Company
executed a new promissory note in favor of the Estate evidencing the Company's
obligation to repay the amount of the collateral that was liquidated by the
Bank. The Company's obligations to the Estate are subordinated to the Company's
obligations to the New Lender.
The principal balance of the $4.0 million term note payable to the New
Lender is to be repaid in monthly installments of $100,000 from November 1, 1998
and continuing to and including September 1, 1999, a single installment of
$400,000 on October 1, 1999 and a final installment representing the balance
($2.5 million plus all accrued and unpaid interest) shall be due on October 1,
2003. Interest shall be paid quarterly, at the rate of 8% per annum, beginning
January 1, 1999 and continuing until the principal and interest due is paid in
full. The debt is secured by a first priority interest in all tangible and
intangible (excluding patents and trademarks) personal property and a secondary
interest in patents and trademarks.
The promissory note in favor of the Estate for approximately $1.7
million is to be repaid at the earlier of one year after the Company's
obligations to the New Lender are paid in full or on October 2, 2004. Interest,
at 5.44% per annum, shall accrue on principal and unpaid interest, which is
added to the outstanding balance and is due at the time of principal payments.
The indebtedness is secured by a second priority interest in all tangible and
intangible personal property of the Company (excluding patents and trademarks)
and a third priority interest in patents and trademarks. Another entity,
Connecticut Innovations, Inc. ("CII"), has a first priority security interest in
certain specified patents and trademarks of the Company dating back to an
earlier financing transaction. The security interests of both the New Lender and
the Estate in the Company's patents and trademarks are subordinate to the
security interest of CII in this specified collateral. The security interest of
the Estate is subordinate to all rights of the New Lender.
Except for the financing transaction with the New Lender described
above, the Company does not have commitments for outside funding of any kind. In
addition, the Loan and Security Agreement entered into between the Company and
the New Lender expressly prohibits the Company from incurring any additional
indebtedness from any person or entity other than the New Lender. The Company
must depend, therefore, on current cash balances and the generation of
sufficient internally generated funds to finance its operations during the
balance of fiscal 1999 and thereafter. At December 31, 1998, the Company had
cash and cash equivalents of approximately $1.2 million, as well as
approximately $1.2 million of accounts receivable. The Company's accounts
receivable have increased by approximately $.9 million since the end of the
corresponding period of the prior fiscal year. The increase was primarily
attributable to billings on recent system deliveries. Management does not
believe that this increase will be permanent but, rather, expects that the
Company's accounts receivable will decline to historical levels during the
current fiscal quarter, thereby generating additional cash flow to the Company.
Under the Company's current pricing policy, approximately 50% of the
purchase price of each system is received by the Company at the time an order is
placed by a customer, approximately 40% of the purchase price is received at the
time the system is shipped to the customer and the remaining 10% of the purchase
price is received approximately 30 days after the delivery of the system. As a
result, the Company receives a significant cash flow benefit from the receipt of
new orders.
As noted above, the Company had a negative cash flow from operations of
approximately $2.5 million during the nine-month period ended December 31, 1998,
approximately $2.2 million of which occurred during the three-month period
ended December 31, 1998. Prior to the financing transaction described above, the
Company had been unable to pay its vendors and suppliers on a timely basis and,
as a result, the Company's accounts payable had increased to higher than normal
levels. Following the completion of the financing transaction, the Company
reduced its accounts payable by approximately $1,000,000.
On a going forward basis, management believes that the Company has
sufficient cash and cash equivalents, together with the cash expected to be
derived from additional sales and maintenance revenues, to meet the Company's
cash needs for the balance of the fiscal year. The Company's cash needs may be
affected by a number of factors, however, many of which are beyond the control
of management. See "Forward Looking Statements," below. Thus, there can be no
assurance that the Company will not need significantly more cash than is
presently forecasted by
12
<PAGE> 13
management or that the Company's current and expected sources of cash will be
sufficient to fund the Company's ongoing operations.
Inflation
The effect of inflation on the Company has not been significant during the last
two fiscal years.
Forward-Looking Statements
This report contains forward-looking statements within the meaning of Section
21E of the Securities Exchange Act of 1934, as amended. In general, any
statements contained in this report that are not statements of historical fact
may be deemed to be forward-looking statements within the meaning of Section
21E. Without limiting the generality of the foregoing, the words "believes,"
"anticipates," "plans," "expects," and other such similar expressions are
intended to identify forward-looking statements. Investors should be aware that
such forward-looking statements are based on the current expectations of
management and are inherently subject to a number of risks and uncertainties
that could cause the actual results of the Company to differ materially from
those reflected in the forward-looking statements. Some of the important factors
which could cause actual results to differ materially from those projected
include, but are not limited to, the following: general economic conditions and
growth rates in the finishing and related industries; competitive factors and
pricing pressures; changes in the Company's product mix; technological
obsolescence of existing products and the timely development and acceptance of
new products; inventory risks due to shifts in market demands; component
constraints and shortages; the ramp-up and expansion of manufacturing capacity;
the continued availability of financing; the costs and expenses associated with
Year 2000 compliance; and the costs and expenses associated with the ongoing
class action lawsuits currently pending against the Company. The Company does
not undertake to update any forward-looking statement made in this report or
that may from time-to-time be made by or on behalf of the Company.
Year 2000
The Company is continuing to assess the potential impact of the Year 2000 on its
internal business systems, products and operations. The Company's Year 2000
initiatives include (i) testing and upgrading internal business systems and
facilities; (ii) testing and developing necessary upgrades for the Company's
products; (iii) contacting key suppliers, vendors and customers to determine
their year 2000 compliance status; and (iv) developing contingency plans.
The Company's State of Readiness: The Company is in the process of testing and
evaluating its critical information-technology systems for year 2000 compliance,
including its significant computer systems, software applications and related
equipment. Important computer systems used by the Company include those used in
developing products and in communicating and servicing customers. Important
computer systems used in financial and administrative management include the
general ledger, inventory control and purchasing. As of the date of this report,
the Company believes that substantially all of its internal operating systems
are year 2000 compliant. The remaining noncompliant systems are expected to be
upgraded or replaced by the end of the fiscal quarter ended June 30, 1999, at
which time the Company expects that all of its material information-technology
systems will be year 2000 compliant.
None of the Company's products have time sensitive applications. Thus, the
Company believes that all of the material products that it currently sells are
year 2000 compliant. However, as many of the Company's systems and products are
complex, interact with third-party products, and operate on computer systems
that are not under the Company's direction and control, there can be no
assurance that the Company has identified all of the year 2000 problems with its
current products.
The Company has identified suppliers, vendors and customers that are believed to
be significant to the Company's business operations in order to assess their
year 2000 readiness and will be contacting them in the fourth quarter of fiscal
1999. As part of this effort, the Company is developing and plans to distribute
questionnaires relating to year 2000 compliance to its significant suppliers,
vendors and customers. The Company also intends to follow-up and monitor the
year 2000 compliance progress of significant suppliers, vendors and customers
that indicate that they are not year 2000 compliant or that do not respond to
the Company's questionnaires.
The Company is currently in the process of evaluating the potential year 2000
impact on its facilities, including its building and utility systems. Any
problems that are identified will be prioritized and remediated based on their
assigned priority. The Company will continue periodic testing of its critical
internal business systems and facilities in an effort to minimize operating
disruptions due to year 2000 issues.
13
<PAGE> 14
Estimated Costs to Address the Company's Year 2000 Issues: To date, the costs
incurred by the Company in connection with the year 2000 issue have not been
material. The Company does not expect total year 2000 remediation costs to be
material, but there can be no assurance that the Company will not encounter
unexpected costs or delays in achieving year 2000 compliance. The Company does
not track internal costs incurred in its year 2000 compliance project. Such
costs are principally for related payroll costs for information systems
employees.
Contingency Plans: The Company intends to develop a contingency plan that will
allow its primary business operations to continue despite potential disruptions
due to year 2000 issues. These plans may include identifying and securing other
suppliers, increasing inventories and modifying production facilities and
schedules. As the Company continues to evaluate year 2000 readiness of its
business systems and facilities, products, and significant suppliers, vendors
and customers, it will modify and adjust its contingency plan as may be
required.
Risks of the Company's Year 2000 Issues: While the Company is attempting to
minimize any negative consequences arising from the year 2000 issue, there can
be no assurance that year 2000 issues will not have a material adverse impact on
the Company's business, operations or financial condition. While the Company
expects that the remaining upgrades to its internal business systems will be
completed in a timely fashion, there can be no assurance that the Company will
not encounter unexpected costs or delays. Despite the Company's efforts to
ensure that its material current products are year 2000 compliant, the Company
may see an increase in warranty and other claims, especially those related to
Company products that incorporate, or operate using, third-party hardware or
software. If any of the Company's significant suppliers, vendors or customers
experience business disruptions due to year 2000 issues, the Company might also
be materially adversely affected. The Company's research and development,
production, distribution, financial, administrative and communications
operations might be disrupted. There is expected to be a significant amount of
litigation relating to the year 2000 issue and there can be no assurance that
the Company will not incur material costs in defending or bringing lawsuits. Any
unexpected costs or delays arising from the year 2000 issue could have a
significant adverse impact on the Company's business, operations and financial
condition.
14
<PAGE> 15
GUNTHER INTERNATIONAL, LTD.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
On July 9, 1998, a purported class action lawsuit was filed against the
Company, James H. Whitney and Frederick W. Kolling III asserting claims under
the federal securities laws. The action was filed in the United States District
Court for the District of Connecticut and purports to be brought on behalf of
the named plaintiff, Ms. Arlene Greenberg, and all other persons and entities
who purchased shares of Company Common Stock during the period from August 14,
1997 through June 23, 1998.
On August 12, 1998, a second purported class action was filed against
the Company, James H. Whitney and Frederick W. Kolling, III asserting similar
claims under the federal securities laws. The second action also was filed in
the United States District Court for the District of Connecticut and purports to
be brought on behalf of the named plaintiff Mr. Mark Abrams for the same class
period.
On January 4, 1999, the Court consolidated the two actions into one.
The Court also granted the plaintiffs until February 18, 1999 in which to file
an amended complaint. The defendants, including the Company, were given 45 days
after the filing of the amended complaint in which to file a response.
Among other things, the complaints allege that the Company's financial
statements for the first three quarters of fiscal 1998 were materially false and
misleading in violation of Section 10(b) of the Securities Exchange Act of 1934
(the "Exchange Act") and SEC Rule 10b-5 promulgated thereunder, and Section
20(a) of the Exchange Act. The prayers for relief request compensatory damages
and reimbursement for the reasonable costs and expenses, including attorney's
fees and expert fees, incurred in connection with the action.
Although the Company believes the complaint is without merit and will
vigorously defend the action, it is not possible to predict with certainty the
final outcome of this proceeding.
Item 2. Changes in Securities and Use of Proceeds.
As noted above, the Company completed a $5.7 million comprehensive
financing transaction on October 2, 1998, the proceeds of which have been
utilized to restructure and replace the Company's then-existing senior line of
credit, fund a full settlement with the Company's third-party service provider
and provide additional working capital to fund the Company's ongoing business
operations.
To induce the New Lender to enter into the financing transaction, the
Company granted the New Lender stock purchase warrants (collectively, the
"Warrants") entitling the New Lender, at any time during the period commencing
on January 1, 1999 and ending on the fifth anniversary of the transaction, to
purchase up to 35% of the pro forma, fully diluted number of shares of the
Common Stock of the Company, determined as of the date of exercise. As of the
date of this report, the Company believes the Warrants are currently exercisable
for approximately 2.6 million shares of Common Stock, although the actual number
of shares of Common Stock issuable upon exercise of the Warrants may increase or
decrease depending on the number of pro forma, fully diluted shares of Common
Stock outstanding as of the date of exercise. The exercise price of each Warrant
is $1.50 per share. The issuance of the Warrants to the New Lender was exempt
from the registration provisions of the Securities Act of 1993, as amended, by
virtue of Section 4(2) of such Act.
15
<PAGE> 16
Item 6. Exhibits and Reports on Form 8-K
(A) Exhibits
3.1 Restated Certificate of Incorporation of the registrant.
3.4 Bylaws of the registrant.
10.1 Agreement, dated October 2, 1998, by and among the registrant,
June H. Geneen, Phil E. Gilbert, Jr., Thomas W. Keesee and the
United States Trust Company Of New York, as Co-Executors of
the Estate of Harold S. Geneen, Late of New York, New York
(the "Estate"), BankBoston, N.A. (successor by merger to Bank
of Boston Connecticut ("BOB") and Gunther Partners, LLC (the
"Lender") (filed as Exhibit 99.2 to the registrant's Current
Report on Form 8-K dated October 7, 1998 and incorporated
herein by this reference).
10.2 Promissory Note, dated October 2, 1998, made by the registrant
to the order of the Estate (filed as Exhibit 99.3 to the
registrant's Current Report on Form 8-K dated October 7, 1998
and incorporated herein by this reference).
10.3 Security Agreement, dated October 2, 1998, by and between the
registrant and the Estate (filed as Exhibit 99.4 to the
registrant's Current Report on Form 8-K dated October 7, 1998
and incorporated herein by this reference).
10.4 Loan and Security Agreement, dated October 2, 1998, by and
between the registrant and the Lender (filed as Exhibit 99.5
to the registrant's Current Report on Form 8-K dated October
7, 1998 and incorporated herein by this reference).
10.5 $4,000,000 Term Note, dated October 2, 1998, made by the
registrant to the order of the Lender (filed as Exhibit 99.6
to the registrant's Current Report on Form 8-K dated October
7, 1998 and incorporated herein by this reference).
10.6 Subordination Agreement dated as of October 2, 1998, between
the Lender and Connecticut Innovations, Inc. ("CII") (filed as
Exhibit 99.7 to the registrant's Current Report on Form 8-K
dated October 7, 1998 and incorporated herein by this
reference).
10.7 Subordination Agreement, dated as of October 2, 1998, between
the Estate and CII (filed as Exhibit 99.8 to the registrant's
Current Report on Form 8-K dated October 7, 1998 and
incorporated herein by this reference).
10.8 Subordination and Intercreditor Agreement, dated October 2,
1998, between the Lender and the Estate (filed as Exhibit 99.9
to the registrant's Current Report on Form 8-K dated October
7, 1998 and incorporated herein by this reference).
10.9 Warrant Agreement, dated October 2, 1998, by and between the
Lender and the registrant (filed as Exhibit 99.10 to the
registrant's Current Report on Form 8-K dated October 7, 1998
and incorporated herein by this reference).
10.10 Registration Rights Agreement, dated October 2, 1998, by and
between the registrant and the Lender (filed as Exhibit 99.11
to the registrant's Current Report on Form 8-K dated October
7, 1998 and incorporated herein by this reference).
16
<PAGE> 17
10.11 Voting Agreement, dated October 2, 1998, by and among the
Estate, Gerald H. Newman, Park Investment Partners, Inc., the
Lender, Robert Spiegel, Four Partners and the registrant
(filed as Exhibit 99.12 to the registrant's Current Report on
Form 8-K dated October 7, 1998 and incorporated herein by this
reference).
10.12 Settlement Agreement, dated September 30, 1998, between the
registrant and DataCard Corporation (filed as Exhibit 99.13 to
the registrant's Current Report on Form 8-K dated October 7,
1998 and incorporated herein by this reference).
10.13 Employment Agreement, dated as of October 5, 1998, between the
registrant and Marc I. Perkins.
10.14 Non-Qualified Stock Option Agreement, dated as of October 5,
1998, between Marc I. Perkins and the registrant
10.15 Employment Agreement, dated as of October 7, 1998, between the
registrant and Michael M. Vehlies
10.16 Non-Qualified Stock Option Agreement, dated as of October 29,
1998, between Michael M. Vehlies and the registrant
10.17 Severance Agreement, dated as of October 8, 1998, between the
registrant and Alan W. Morton.
27. Financial Data Sheet
17
<PAGE> 18
GUNTHER INTERNATIONAL, LTD.
SIGNATURES
In accordance with the requirements of the Exchange Act, the
Registrant has caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
GUNTHER INTERNATIONAL, LTD.
(Registrant)
Date: February 12, 1999 /s/ Michael M. Vehlies
---------------------------
Michael M. Vehlies
Chief Financial Officer and
Treasurer (On behalf of the
Registrant and as Principal
Financial and Accounting Officer)
18
<PAGE> 1
RESTATED
CERTIFICATE OF INCORPORATION
OF
GUNTHER INTERNATIONAL LTD.
GUNTHER INTERNATIONAL LTD., a corporation incorporated under the General
Corporation Law of Delaware, hereby amends and restates its Certificate of
Incorporation, which was originally filed with the Secretary of State on March
22, 1978, so that the same shall read, in its entirety, as follows:
ARTICLE I
NAME
The name of the Corporation is:
GUNTHER INTERNATIONAL LTD.
ARTICLE II
PURPOSE
The purpose for which the Corporation is organized is to engage in any
lawful act or activity for which corporations may be organized under the General
Corporation Law of Delaware.
ARTICLE III
CAPITAL STOCK
The total number of shares of all classes of stock which the Corporation
has authority to issue is Sixteen Million Five Hundred One Thousand (16,501,000)
consisting of (i) Sixteen Million (16,000,000) shares of Common Stock, par value
$.001 per share (the "Common Stock"), (ii) Five Hundred (500) shares of Series B
Common Stock, par value $.001 per share (the "Series B Common Stock"), (iii)
Five Hundred Thousand (500,000) shares of Preferred
<PAGE> 2
Stock, par value $.001 per share (the "Preferred Stock"), and (iv) Five Hundred
(500) shares of Class B Senior Non-Convertible Preferred Stock, par value $.001
per share (the "Class B Preferred Stock"). The number of authorized shares of
any such class or classes may be increased or decreased (but not below the
number of shares then outstanding) by the affirmative vote of the holders of a
majority of the outstanding shares of the Corporation on the basis specified in
Part 1, Section 2 of this Article III.
PART I. COMMON STOCK AND SERIES B COMMON STOCK
Section I
Designation
There is hereby created a class of Common Stock, $.001 par value per
share, designated and known as "Series B Common Stock". The number of authorized
shares constituting such class shall be Five Hundred (500).
Section 2
Voting Rights
The holders of shares of Common Stock and of Series B Common Stock shall
be entitled to one vote for each share so held with respect to each matter voted
on by the shareholders of the Corporation, provided, however, that (i) until
five years from the closing of the initial public offering of the Corporation's
securities, the holders of Series B Common Stock, voting separately as a class,
will be entitled to elect that number of directors equal to one more than one
half of the total number of directors comprising the Board of Directors of the
Corporation, and (ii) the approval of a majority of the outstanding Series B
Common Stock voting separately as a class shall be required as to any matters
proposed for stockholder approval to amend, modify or terminate the voting
rights of Series B Common Stock or to create any other class or series of
Capital Stock with preferential, senior or superior voting rights.
Section 3
Liquidation Rights
Subject to the prior and superior right of the holders of Preferred Stock
or Class B Preferred Stock, upon any liquidation, dissolution or winding up of
the affairs of the Corporation, the holders of Common Stock and the holders of
Series B Common Stock shall be entitled, on an equal basis, to receive all
remaining assets of the Corporation as hereinafter
2
<PAGE> 3
provided: the holders of Series B Common Stock shall be entitled to receive the
amount of $.001 per share of Series B Common Stock held, and the holders of
Common Stock shall be entitled to divide the remaining assets ratably, on the
basis of the number of shares of Common Stock held by each of them.
Section 4
Dividends
Dividends may be paid on the Common Stock as and when declared by the
Board of Directors, subject, however to the prior and superior rights of the
holders of Preferred Stock. Dividends shall not be paid on the Series B Common
Stock.
Section 5
Conversion of Series B Common
Each outstanding share of Series B Common Stock will be converted into one
share of Common Stock on January 1, 1999, or prior to January 1, 1999 (i) at the
option of the holder, (ii) in the event of a transfer of the shares to anyone
other than to the initial shareholders (the "Initial Shareholders") of the
initial holder of Series B Common Stock (the "Initial Holder"), or (iii) in the
event that more than 50% of the outstanding voting securities of the Initial
Holder no longer is owned by the Initial Shareholders.
PART II. THE PREFERRED STOCK
The rights, preferences, privileges and restrictions granted to and
imposed upon each class of the Preferred Stock are as follows:
A. PREFERRED STOCK
Shares of Preferred Stock may be issued from time to time in one or more
series, and the Board of Directors of the Corporation is hereby authorized,
subject to the limitations provided by law, to establish and designate one or
more series of Preferred Stock, to fix the number of shares constituting each
series, and to fix the designation, powers, preferences and relative,
participating, optional or other special rights, and qualifications, limitations
or restrictions thereof, of each series and the variations and the relative
rights, preferences and limitations as between series, and to increase and to
decrease the number of shares constituting each series. The authority of the
Board of Directors of the Corporation with respect to each series shall include,
but shall not be limited to, the authority to determine the following:
3
<PAGE> 4
(i) The designation of such series, which may be by distinguishing
number or letter.
(ii) The number of shares initially constituting such series.
(iii) The increase, and the decrease to a number not less than the number
of the then outstanding shares of such series, of the number of
shares constituting such series theretofore fixed.
(iv) The rate or rates, and the conditions upon and the times at which
dividends on the shares of such series shall be paid, the
preference or relation which such dividends shall bear to the
dividends payable on any other class or classes or on any other
series of stock of the Corporation, and whether or not such
dividends shall be cumulative, and, if such dividends shall be
cumulative, the date or dates from and after which they shall
accumulate.
(v) Whether or not the shares of such series shall be redeemable and, if
such shares shall be redeemable, the terms and conditions of such
redemption, including, but not limited to, the date or dates upon or
after which such shares shall be redeemable and the amount per share
which shall be, payable upon such redemption, which amount may vary
under different conditions and at different redemption dates.
(vi) The rights to which the holders of the shares of such series shall
be entitled upon the voluntary or involuntary liquidation,
dissolution or winding up of, or upon any distribution of the assets
of, the Corporation, which rights may be different in the case of a
voluntary liquidation, dissolution or winding up than in the case of
such an involuntary event.
(vii) Whether or not the shares of such series shall have voting rights,
in addition to the voting rights provided by law and, if such shares
shall have such voting rights, the terms and conditions thereof,
including, but not limited to, the right of the holders of such
shares to vote as a separate class either alone or with the holders
of shares of one or more other series of Preferred Stock and the
right to have more than one vote per share.
(viii)Whether or not a sinking or a purchase fund shall be provided for
the redemption or purchase of the shares of such series and, if such
a sinking fund or purchase fund shall be provided, the terms and
conditions thereof.
4
<PAGE> 5
(ix) Whether or not the shares of such series shall be convertible
into, or exchangeable for, shares of any other class or classes
or any other series of the same or any other class or classes of
stock or any other security of the Corporation or any other
entity and, if provision be made for conversion or exchange, the
terms and conditions of conversion or exchange, including, but
not limited to, any provision for the adjustment of the
conversion or exchange rate or price.
(x) Any other relative rights, preferences and limitations.
B. THE CLASS B PREFERRED STOCK
Section 1
Designation
There is hereby created a class of Preferred Stock designated and known as
"Class B Senior Non-Convertible Preferred Stock". The number of authorized
shares constituting such class shall be five hundred (500), and such number of
authorized shares shall not be changed without the consent of the holder or
holders of all outstanding shares of Class B Senior Non-Convertible Preferred
Stock.
Section 2
Liquidation Rights
(a) Liquidation. In the event of any liquidation, dissolution or winding
up of the affairs of the Corporation, each holder of shares of Class B Preferred
stock shall be entitled to receive, prior and in preference to any distribution
of any of the assets or surplus funds of the Corporation to the holders of any
class or series of Preferred Stock ranking junior to the Class B Preferred
Stock, or the Common Stock of the Corporation, by reason of their ownership
thereof, $1,000.00 per shares.
(b) Pro Rata Distribution. If the assets or surplus funds to be
distributed to the holders of the Class B Preferred Stock under subparagraph (a)
of this Section 2 are insufficient to permit the payment to such holders of
their full preferential amount, the assets and surplus funds legally available
for distribution shall be distributed ratably among the holders of the Class B
Preferred Stock in proportion to the full preferential amount each such holder
is otherwise entitled to receive.
(c) Class B Preferred Stock Priority. All of the preferential amounts to
be paid to the holders of the Class B Preferred Stock under this Section 2 shall
be paid or set apart for
5
<PAGE> 6
payment before the payment or setting apart for payment of any amount for, or
the distribution of any assets of the Corporation to, the holders of the any
other class or series of Preferred Stock which is junior to the Class B
Preferred Stock or the holders of the Common Stock or Series B Common Stock in
connection with such liquidation, dissolution or winding up.
Section 3
Redemption
Upon a Redemption Event (as hereinafter defined), each share of Class B
Preferred Stock shall be redeemed at a price of $1,000,000 per share (the
"Redemption Price"), to the extent the Corporation has funds legally available
under the Delaware Stock Corporation Act. The term "Redemption Event" as used
herein shall mean the first to occur of:
(a) six (6) months after the Corporation completes a sale of its
shares which is registered under the Securities Act of 1933, as amended,
(b) three (3) years after the date on which the Corporation
completes a sale of shares of Class A Preferred Stock for an aggregate
purchase price of $1,500,000.00 or more,
(c) a conveyance of all or substantially all of the capital stock or
assets of the Corporation,
(d) a merger of the Corporation with or into another corporation
(unless, upon consummation thereof, the holders of voting securities of
the Corporation own directly or indirectly greater than fifty percent
(50%) of the voting power to elect directors of the surviving or acquiring
corporation), or
(e) six (6) months after the Corporation is required to file reports
pursuant to Section 12 of the Securities Exchange Act of 1934, as amended.
The Corporation shall give notice to each holder of Class B Preferred
Stock upon the occurrence of a Redemption Event. Each holder shall surrender his
certificate for the Class B Preferred Stock promptly following the receipt of
such notice. The Corporation shall pay the Redemption Price in three equal
installments due on the third, sixth and ninth months following the Redemption
Event.
If sufficient funds are not legally available to redeem all of the shares
of Class B Preferred Stock then due to be redeemed, the number of shares to be
redeemed from each holder shall be determined by multiplying such amount held by
each holder by a fraction, the numerator of which is the aggregate number of
shares which may legally be redeemed on such
6
<PAGE> 7
redemption date and the denominator of which is the aggregate number of shares
held by all holders on such redemption date. Any and all unredeemed shares shall
be carried forward and redeemed to the full extent of funds the Corporation has
legally available therefor at or a later date. The shares of Class B Preferred
Stock which are subject to redemption but which have not been redeemed and as to
which the Redemption Price is not paid or set aside due to insufficient legally
available funds shall continue to be entitled to the dividend, and other rights,
preferences and privileges of the Class B Preferred Stock until such shares have
been redeemed and the Redemption Price has been paid or otherwise set aside with
respect thereto.
The Corporation shall, to the fullest extent permitted by law, do all
things necessary to redeem the Class B Preferred Stock and make the payment
therefor required by this Section 3.
Section 4
Credits; Special Redemption
The Corporation has entered into a Development Agreement effective as of
April 9, 1987 (as amended from time to time, the "Development Agreement") with
Connecticut Innovations, Inc. ("CII"), a copy of which is on file at the offices
of the Corporation. The Development Agreement provides that amounts paid to the
holders of Class B Preferred stock on account of the Class B Preferred Stock
shall be credited against the Corporation's obligations to CII under the
Development Agreement. Notwithstanding any other provision hereof, the
Corporation's obligations to the holders of the Class B Preferred Stock shall be
limited to the amount of the Corporation's obligations to CII outstanding at
such time under the Development Agreement. At such time that the Corporation has
no further obligations to CII under the Development Agreement then, without any
further act or deed, the Corporation may redeem all of the shares of the Class B
Preferred Stock then outstanding for an aggregate purchase price of $1.00, such
redemption to be effective upon the date the Corporation gives such notice.
Section 5
Miscellaneous
The holders of Class B Preferred stock shall have no right to dividends
nor, except as required by applicable law, to vote upon any matter submitted to
stockholders for a vote.
C. RESIDUAL RIGHTS
All rights accruing to the outstanding shares of capital stock of the
Corporation not expressly provided for to the contrary herein shall be vested in
the Common Stock.
7
<PAGE> 8
ARTICLE IV
REGISTERED OFFICE AND AGENT
The address of the Corporation's registered office in the State of
Delaware is 32 Loockerman Square, Suite L-100, in the City of Dover, County of
Kent. The Corporation's registered agent at such address it The Prentice-Hall
Corporation System, Inc.
ARTICLE V
PERPETUAL EXISTENCE
The Corporation is to have perpetual existence.
ARTICLE VI
BOARD OF DIRECTORS
Section I
Management
The business and affairs of the corporation shall be managed by the board
of directors.
Section 2
No Ballot
The directors need not be elected by written ballot unless the Bylaws
of the corporation shall so provide.
Section 3
Indemnification and Liability
To the fullest extent permitted by Delaware General Corporation Law as the
same exists or may hereafter be amended, a director of this corporation shall be
indemnified by the
8
<PAGE> 9
corporation and shall not be personally liable to the corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director.
ARTICLE VII
MEETINGS; BOOKS
Meetings of stockholders may be held within or without the State of
Delaware, as amy be designated from time to time by the Board of Directors or in
the Bylaws. The books of the corporation may be kept (subject to any provisions
contained in the statutes) outside the State. of Delaware at such place or
places as may be designated from time to time by the Board of Directors or in
the Bylaws of the Corporation.
ARTICLE VIII
BYLAWS
In furtherance and not in limitation of the powers conferred by the laws
of the State of Delaware, the board of directors of the Corporation is expressly
authorized to make, alter or repeal the Bylaws of the Corporation.
ARTICLE IX
COMPROMISE OR ARRANGEMENT
Whenever a compromise or arrangement is proposed between this Corporation
and its creditors or any class of them and/or between this Corporation and its
stockholders or any class of them, any court of equitable jurisdiction within
the State of Delaware may, on the application in a summary way of this
Corporation or of any creditor or stockholder thereof or on the application of
any receiver or receivers appointed for this Corporation under the provisions of
section 291 of Title 8 of the Delaware Core or on the application of trustees in
dissolution or of any receiver or receivers appointed for this Corporation under
the provisions of section 279 of Title 8 of the Delaware Code order a meeting of
the creditors or class of creditors, and/or of the stockholders or class of
stockholders of this Corporation , as the case may be, to be summoned in such
manner as the said court directs. If a majority in number representing
three-fourths in value of this creditors or class of creditors, and/or of the
stockholders or class of stockholders of this Corporation, as the case may be,
agree to any compromise or arrangement and to any reorganization of this
Corporation as consequence of
9
<PAGE> 10
such compromise or arrangement, the said compromise or arrangement and the said
reorganization shall, if sanctioned by the court to which the said application
has been made, be binding on all the creditors or class of creditors, and/or on
all the stockholders of class of stockholders, of this Corporation, as the case
may be, an also on this Corporation.
ARTICLE X
RESERVATION
The Corporation reserves the right to amend or repeal any provision
contained in this Restated Certificate of Incorporation, in the manner now or
hereafter prescribed by statute, and all rights conferred upon a stockholder
herein are granted subject to this reservation.
ADOPTION
This Restated Certificate of Incorporation has been duly adopted by the
Board of Directors of the Corporation and adopted by the written consent of the
Stockholders of the Corporation in accordance with Section 228 of the Delaware
General Corporation Law and in compliance with the provisions of Section 242 and
245 of the Delaware General Corporation Law, written notice of such action
having been given in accordance with Section 228(d) of such Law.
10
<PAGE> 1
BYLAWS
OF
GUNTHER INTERNATIONAL LTD.
(A DELAWARE CORPORATION)
-----------
ARTICLE I
STOCKHOLDERS
1. CERTIFICATES REPRESENTING STOCK. Every holder of stock in the
corporation shall be entitled to have a certificate signed by, or in the name
of, the corporation by the Chairman or Vice-Chairman of the Board of Directors,
if any, or by the President or a Vice-President and by the Treasurer or an
Assistant Treasurer or the Secretary or an Assistant Secretary of the
corporation certifying the number of shares owned by him in the corporation. Any
and all signatures on any such certificate may be facsimiles. In case any
officer, transfer agent, or registrar who has signed or whose facsimile
signature has been placed upon a certificate shall have ceased to be such
officer, transfer agent, or registrar before such certificate is issued, it may
be issued by the corporation with the same effect as if he were such officer,
transfer agent, or registrar at the date of issue.
Whenever the corporation shall be authorized to issue more than one
class of stock or more than one series of any class of stock, and whenever the
corporation shall issue any shares of its stock as partly paid stock, the
certificates representing shares of any such class or series or of any such
partly paid stock shall set forth thereon the statements prescribed by the
General Corporation Law. Any restrictions on the transfer or registration of
transfer of any shares of stock of any class or series shall be noted
conspicuously on the certificate representing such shares.
The corporation may issue a new certificate of stock in place of any
certificate theretofore issued by it, alleged to have been lost, stolen, or
destroyed, and the Board of Directors
<PAGE> 2
may require the owner of any lost, stolen, or destroyed certificate, or his
legal representative, to give the corporation a bond sufficient to indemnify the
corporation against any claim that may be made against it on account of the
alleged loss, theft, or destruction of any such certificate or the issuance of
any such new certificate.
2. FRACTIONAL SHARE INTERESTS. The corporation may, but shall not be
required to, issue fractions of a share. If the corporation does not issue
fractions of a share, it shall (1) arrange for the disposition of fractional
interests by those entitled thereto, (2) pay in cash the fair value of fractions
of a share as of the time when those entitled to receive such fractions are
determined, or (3) issue scrip or warrants in registered or bearer form which
shall entitle the holder to receive a certificate for a full share upon the
surrender of such scrip or warrants aggregating a full share. A certificate for
a fractional share shall, but scrip or warrants shall not unless otherwise
provided therein, entitle the holder to exercise voting rights, to receive
dividends thereon, and to participate in any of the assets of the corporation in
the event of liquidation. The Board of Directors may cause scrip or warrants to
be issued subject to the conditions that they shall become void if not exchanged
for certificates representing full shares before a specified date, or subject to
the conditions that the shares for which scrip or warrants are exchangeable may
be sold by the corporation and the proceeds thereof distributed to the holders
of scrip or warrants, or subject to any other conditions which the Board of
Directors may impose.
3. STOCK TRANSFERS. Upon compliance with provisions restricting the
transfer or registration of transfer of shares of stock, if any, transfers or
registration of transfers of shares of stock of the corporation shall be made
only on the stock ledger of the corporation by the registered holder thereof, or
by his attorney thereunto authorized by power of attorney duly executed and
filed with the Secretary of the corporation or with a transfer agent or a
registrar, if any, and on surrender of the certificate or certificates for such
shares of stock properly endorsed and the payment of all taxes due thereon.
4. RECORD DATE FOR STOCKHOLDERS. For the purpose of determining the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or to express consent, to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
2
<PAGE> 3
distribution or the allotment of any rights, or entitled to exercise any rights
in respect of any change, conversion, or exchange of stock or for the purpose of
any other lawful action, the directors may fix, in advance, a record date, which
shall not be more than sixty days nor less than ten days before the date of such
meeting, nor more than sixty days prior to any other action. If no record date
is fixed, the record date for determining stockholders entitled to notice of or
to vote at a meeting of stockholders shall be at the close of business on the
day next preceding the day on which notice is given, or, if notice is waived, at
the close of business on the day next preceding the day on which the meeting is
held; the record date for determining stockholders entitled to express consent
to corporate action in writing without a meeting, when no prior action by the
Board of Directors is necessary, shall be the day on which the first written
consent is expressed; and the record date for determining stockholders for any
other purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating thereto. A determination of
stockholders of record entitled to notice of or to vote at any meeting of
stockholders shall apply to any adjournment of the meeting; provided, however,
that the Board of Directors may fix a new record date for the adjourned meeting.
5. MEANING OF CERTAIN TERMS. As used herein in respect of the right
to notice of a meeting of stockholders or a waiver thereof or to participate or
vote thereat or to consent or dissent in writing in lieu of a meeting, as the
case may be, the term "share" or "shares" or "share of stock" or "shares of
stock" or "stockholder" or "stockholders" refers to an outstanding share or
shares of stock and to a holder or holders of record of outstanding shares of
stock when the corporation is authorized to issue only one class of shares of
stock, and said reference is also intended to include any outstanding share or
shares of stock and any holder or holders of record of outstanding shares of
stock of any class upon which or upon whom the certificate of incorporation
confers such rights where there are two or more classes or series of shares of
stock or upon which or upon whom the General Corporation Law confers such rights
notwithstanding that the certificate of incorporation may provide for more than
one class or series of shares of stock, one or more of which are limited or
denied such rights thereunder; provided, however, that no such right shall vest
in the event of an increase or a decrease in the authorized number of shares of
stock of any class or series which is otherwise denied voting rights under the
provisions of the certificate of incorporation.
3
<PAGE> 4
6. STOCKHOLDER MEETINGS.
- TIME. The annual meeting shall be held on the date and at the time
fixed, from time to time, by the directors, provided, that the first annual
meeting shall be held on a date within thirteen months after the organization of
the corporation, and each successive annual meeting shall be held on a date
within thirteen months after the date of the preceding annual meeting. A special
meeting shall be held on the date and at the time fixed by the directors.
- PLACE. Annual meetings and special meetings shall be held at such
place, within or without the State of Delaware, as the directors may, from time
to time, fix. Whenever the directors shall fail to fix such place, the meeting
shall be held at the registered office of the corporation in the State of
Delaware.
- CALL. Annual meetings and special meetings may be called by
the directors or by any officer instructed by the directors to call the
meeting.
- NOTICE OR WAIVER OF NOTICE. Written notice of all meetings shall
be given, stating the place, date, and hour of the meeting and stating the place
within the city or other municipality or community at which the list of
stockholders of the corporation may be examined. The notice of an annual meeting
shall state that the meeting is called for the election of directors and for the
transaction of other business which may properly come before the meeting, and
shall, (if any other action which could be taken at a special meeting is to be
taken at such annual meeting) state the purpose or purposes. The notice of a
special meeting shall in all instances state the purpose or purposes for which
the meeting is called. The notice of any meeting shall also include, or be
accompanied by, any additional statements, information, or documents prescribed
by the General Corporation Law. Except as otherwise provided by the General
Corporation Law, a copy of the notice of any meeting shall be given, personally
or by mail, not less than ten days nor more than sixty days before the date of
the meeting, unless the lapse of the prescribed period of time shall have been
waived, and directed to each stockholder at his record address or at such other
address which he may have furnished by request in writing to the Secretary of
the corporation. Notice by mail shall be deemed to be given when deposited, with
postage thereon prepaid, in the United States Mail. If a meeting is adjourned
4
<PAGE> 5
to another time, not more than thirty days hence, and/or to another place, and
if an announcement of the adjourned time and/or place is made at the meeting, it
shall not be necessary to give notice of the adjourned meeting unless the
directors, after adjournment, fix a new record date for the adjourned meeting.
Notice need not be given to any stockholder who submits a written waiver of
notice signed by him before or after the time stated therein. Attendance of a
stockholder at a meeting of stockholders shall constitute a waiver of notice of
such meeting, except when the stockholder attends the meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the stockholders need be specified in any written waiver of notice.
- STOCKHOLDER LIST. The officer who has charge of the stock ledger
of the corporation shall prepare and make, at least ten days before every
meeting of stockholders, a complete list of the stockholders, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in tile name of each stockholder. Such list shall be open
to the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten days prior to the
meeting, either at a place within the city or other municipality or community
where the meeting is to be held, which place shall be specified in the notice of
the meeting, or if not so specified, at the place where the meeting is to be
held. The list shall also be produced and kept at the time and place of the
meeting during the whole time thereof, and may be inspected by any stockholder
who is present. The stock ledger shall be the only evidence as to who are the
stockholders entitled to examine the stock ledger, the list required by this
section or the books of the corporation, or to vote at any meeting of
stockholders.
- CONDUCT OF MEETING. Meetings of the stockholders shall be presided
over by one of the following officers in the order of seniority and if present
and acting - the Chairman of the Board, if any, the Vice-Chairman of the Board,
if any, the President, a Vice-President, or, if none of the foregoing is in
office and present and acting, by a chairman to be chosen by the stockholders.
The Secretary of the corporation, or in his absence, an Assistant Secretary,
shall act as secretary of every meeting, but if neither the Secretary nor an
Assistant Secretary
5
<PAGE> 6
is present the Chairman of the meeting shall appoint a secretary of the meeting.
- PROXY REPRESENTATION. Every stockholder may authorize another
person or persons to act for him by proxy in all matters in which a stockholder
is entitled to participate, whether by waiving notice of any meeting, voting or
participating at a meeting, or expressing consent or dissent without a meeting.
Every proxy must be signed by the stockholder or by his attorney-in-fact. No
proxy shall be voted or acted upon after three years from its date unless such
proxy provides for a longer period. A duly executed proxy shall be irrevocable
if it states that it is irrevocable and, if, and only as long as, it is coupled
with an interest sufficient in law to support an irrevocable power. A proxy may
be made irrevocable regardless of whether the interest with which it is coupled
is an interest in the stock itself or an interest in the corporation generally.
- INSPECTORS. The directors, in advance of any meeting, may, but
need not, appoint one or more inspectors of election to act at the meeting or
any adjournment thereof. If an inspector or inspectors are not appointed, the
person presiding at the meeting may, but need not, appoint one or more
inspectors. In case any person who may be appointed as an inspector fails to
appear or act, the vacancy may be filled by appointment made by the directors in
advance of the meeting or at the meeting by the person presiding thereat. Each
inspector, if any, before entering upon the discharge of his duties, shall take
and sign an oath faithfully to execute the duties of inspector at such meeting
with strict impartiality and according to the best of his ability. The
inspectors, if any, shall determine the number of shares of stock outstanding
and the voting power of each, the shares of stock represented at the meeting,
the existence of a quorum,, the validity and effect of proxies, and shall
receive votes, ballots or consents, hear and determine all challenges and
questions arising in connection with the right to vote, count and tabulate all
votes, ballots or consents, determine the result, and do such acts as are proper
to conduct the election or vote with fairness to all stockholders. On request of
the person presiding at the meeting, the inspector or inspectors, if any, shall
make a report in writing of any challenge, question or matter determined by him
or them and execute a certificate of any fact found by him or them.
6
<PAGE> 7
- QUORUM. The holders of a majority of the outstanding shares of
stock shall constitute a quorum at a meeting of stockholders for the transaction
of any business. The stockholders present may adjourn the meeting despite the
absence of a quorum.
- VOTING. Each share of stock shall entitle the holder thereof to
one vote. In the election of directors, a plurality of the votes cast shall
elect. Any other action shall be authorized by a majority of the votes cast
except where the General Corporation Law prescribes a different percentage of
votes and/or a different exercise of voting power, and except as may be
otherwise prescribed by the provisions of the certificate of incorporation and
these By-Laws. In the election of directors, and for any other action, voting
need not be by ballot.
7. STOCKHOLDER ACTION WITHOUT MEETINGS. Any action required by the
General Corporation Law to be taken at any annual or special meeting of
stockholders, or any action which may be taken at any annual or special meeting
of stockholders, may be taken without a meeting, without prior notice and
without a vote, if a consent in writing, setting forth the action so taken,
shall be signed by the holders of outstanding stock having not less than the
minimum number of votes that would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote thereon were present and
voted. Prompt notice of the taking of the corporate action without a meeting by
less than unanimous written/consent shall be given to those stockholders who
have not consented in writing.
ARTICLE II
DIRECTORS
1. FUNCTIONS AND DEFINITION. The business and affairs of the
corporation shall be managed by or under the direction of the Board of Directors
of the corporation. The Board of Directors shall have the authority to fix the
compensation of the members thereof. The use of the phrase "whole board" herein
refers to the total number of directors which the corporation would have if
there were no vacancies.
2. QUALIFICATIONS AND NUMBER. A director need not be a stockholder,
a citizen of the United States, or a resident of the State of Delaware. The
initial Board of Directors shall
7
<PAGE> 8
consist of two persons. Thereafter the number of directors constituting the
whole board shall be at least one. Subject to the foregoing limitation and
except for the first Board of Directors, such number may be fixed from time to
time by action of the stockholders or of the directors, or, if the number is not
fixed, the number shall be three. The number of directors may be increased or
decreased by action of the stockholders or of the directors.
3. ELECTION AND TERM. The first Board of Directors, unless the
members thereof shall have been named in the certificate of incorporation, shall
be elected by the incorporator or incorporators and shall hold office until the
first annual meeting of stockholders and until their successors are elected and
qualified or until their earlier resignation or removal. Any director may resign
at any time upon written notice to the corporation. Thereafter, directors who
are elected at an annual meeting of stockholders, and directors who are elected
in the interim to fill vacancies and newly created directorships, shall hold
office until the next annual meeting of stockholders and until their successors
are elected and qualified or until their earlier resignation or removal. In the
interim between annual meetings of stockholders or of special meetings of
stockholders called for the election of directors and/or for the removal of one
or more directors and for the filling of any vacancy in that connection, newly
created directorships and any vacancies in the Board of Directors, including
unfilled vacancies resulting from the removal of directors for cause or without
cause, may be filled by the vote of a majority of the remaining directors then
in office, although less than a quorum, or by the sole remaining director.
4. MEETINGS.
- TIME. Meetings shall be held at such time as the Board shall fix,
except that the first meeting of a newly elected Board shall be held as soon
after its election as the directors may conveniently assemble.
- PLACE. Meetings shall be held at such place within or without the
State of Delaware as shall be fixed by the Board.
- CALL. No call shall be required for regular meetings for which the
time and place have been fixed. Special meetings may be called by or at the
direction of the Chairman of the Board, if any, the Vice-Chairman of the Board,
if any, of the President, or of a majority of the directors in office.
8
<PAGE> 9
- NOTICE OR ACTUAL OR CONSTRUCTIVE WAIVER. No notice shall be
required for regular meetings for which the time and place have been fixed.
Written, oral, or any other mode of notice of the time and place shall be given
for special meetings in sufficient time for the convenient assembly of the
directors thereat. Notice need not be given to any director or to any member of
a committee of directors who submits a written waiver of notice signed by him
before or after the time stated therein. Attendance of any such person at a
meeting shall constitute a waiver of notice of such meeting, except when he
attends a meeting for the express purpose of objecting, at the beginning the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened. Neither the business to be transacted at, nor the purpose
of, any regular or special meeting of the directors need be specified in any
written waiver of notice.
- QUORUM AND ACTION. A majority of the whole Board shall constitute
a quorum except when a vacancy or vacancies prevents such majority, whereupon a
majority of the directors in office shall constitute a quorum, provided, that
such majority shall constitute at least one-third of the whole Board. A majority
of the directors present, whether or not a quorum it present, may adjourn a
meeting to another time and place. Except as herein otherwise provided, and
except as otherwise provided by the General Corporation Law, the vote of the
majority of the directors present at a meeting at which a quorum is present
shall be the act of the Board. The quorum and voting provisions herein stated
shall not be construed as conflicting with any provisions of the General
Corporation Law and these By-Laws which govern a meeting of directors held to
fill vacancies and newly created directorships in the Board or action of
disinterested directors.
Any member or members of the Board of Directors or of any committee
designated by the Board, may participate in a meeting of the Board, or any such
committee, as the case may be, by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other.
- CHAIRMAN OF THE MEETING. The Chairman of the Board, if any and if
present and acting, shall preside at all meetings. Otherwise, the Vice-Chairman
of the Board, if any and if present and acting, or the President, if present and
acting, or any other director chosen by the Board, shall preside.
9
<PAGE> 10
5. REMOVAL OF DIRECTORS. Except as may otherwise be provided by the
General Corporation Law, any director or the entire Board of Directors may be
removed, with or without cause, by the holders of a majority of the shares then
entitled to vote at an election of directors.
6. COMMITTEES. The Board of Directors may, by resolution passed by a
majority of the whole Board, designate one or more committees, each committee to
consist of one or more of the directors of the corporation. The Board may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee. In
the absence or disqualification of any member of any such committee or
committees, the member or members thereof present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member. Any such
committee, to the extent provided in the resolution of the Board, shall have and
may exercise the powers and authority of the Board of Directors in the
management of the business and affairs of the corporation with the exception of
any authority the delegation of which is prohibited by Section 141 of the
General Corporation Law, and may authorize the seal of the corporation to be
affixed to all papers which may require it.
7. WRITTEN ACTION. Any action required or permitted to be taken at
any meeting of the Board of Directors or any committee thereof may be taken
without a meeting if all members of the Board or committee, as the case may be,
consent thereto in writing, and the writing or writings are filed with the
minutes of proceedings of the Board or committee.
ARTICLE III
OFFICERS
The officers of the corporation shall consist of a President, a
Secretary, a Treasurer, and, if deemed necessary, expedient, or desirable by the
Board of Directors, a Chairman of the Board, a Vice-Chairman of the Board, an
Executive Vice-President, one or more other Vice-Presidents, one or more
Assistant Secretaries, one or more Assistant Treasurers, and such other officers
with such titles as the resolution of the Board of Directors choosing them shall
designate. Except as may
10
<PAGE> 11
otherwise be provided in the resolution of the Board of Directors choosing him,
no officer other than the Chairman or Vice-Chairman of the Board, if any, need
be a director. Any number of offices may be held by the same person, as the
directors may determine, except that no person may hold the offices of President
and Secretary simultaneously.
Unless otherwise provided in the resolution choosing him, each
officer shall be chosen for a term which shall continue until the meeting of the
Board of Directors following the next annual meeting of stockholders and until
his successor shall have been chosen and qualified.
All officers of the corporation shall have such authority and
perform such duties in the management and operation of the corporation as shall
be prescribed in the resolutions of the Board of Directors designating and
choosing such officers and prescribing their authority and duties, and shall
have such additional authority and duties as are incident to their office except
to the extent that such resolutions may be inconsistent therewith. The Secretary
or an Assistant Secretary of the corporation shall record all of the proceedings
of all meetings and actions in writing of stockholders, directors, and
committees of directors, and shall exercise such additional authority and
perform such additional duties as the Board shall assign to him. Any officer may
be removed, with or without cause, by the Board of Directors. Any vacancy in any
office may be filled by the Board of Directors.
ARTICLE IV
CORPORATE SEAL
The corporate seal shall be in such form as the Board of Directors
shall prescribe.
ARTICLE V
FISCAL YEAR
The fiscal year of the corporation shall be fixed, and shall be
subject to change, by the Board of Directors.
11
<PAGE> 12
ARTICLE VI
CONTROL OVER BY-LAWS
Subject to the provisions of the certificate of incorporation and
the provisions of the General Corporation Law, the power to amend, alter or
repeal these By-Laws and to adopt new By-Laws may be exercised by the Board of
Directors or by the stockholders.
12
<PAGE> 1
EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement") is made and entered into this
7th day of October, 1998, by and between Gunther International, Ltd., a Delaware
corporation (the "Employer"), and Michael M. Vehlies, an individual resident in
the State of Connecticut (the "Executive").
RECITALS:
The Employer desires to secure the employment of the Executive, and the
Executive wishes to become employed by the Employer, upon the terms and
conditions set forth in this Agreement.
Now, therefore, the parties intending to be legally bound, hereby agree as
follows:
1. DEFINITIONS. For the purposes of this Agreement, the following terms
shall have the meanings specified or referred to in this Section 1.
"AGREEMENT" shall mean this Employment Agreement, as amended from time to
time.
"BASIC COMPENSATION" shall mean Salary and Benefits.
"BENEFITS" shall have the meaning given to such term in Section 3.1(b)
hereof.
"BOARD OF DIRECTORS" shall mean the board of directors of the Employer.
"CONFIDENTIAL INFORMATION" shall mean and include any and all:
(a) trade secrets concerning the business and affairs of the
Employer, product specifications, data, know-how, formulae, compositions,
processes, designs, sketches, photographs, graphs, drawings, samples, inventions
and ideas, past, current, and planned research and development, current and
planned manufacturing or distribution methods and processes, customer lists,
current and anticipated customer requirements, price lists, market studies,
business plans, computer software and programs (including object code and source
code), computer software and database technologies, systems, structures, and
architectures (and related formulae, compositions, processes, improvements,
devices, know-how, inventions, discoveries, concepts, ideas, designs, methods
and information), and any other information, however documented, that is a trade
secret within the meaning of Chapter 625 of the Connecticut General Statutes;
and
(b) information concerning the business and affairs of the Employer
(which includes historical financial statements, financial projections and
budgets, historical and projected sales, capital spending budgets and plans, the
names and backgrounds of key personnel, and personnel training and techniques
and materials), however documented; and
<PAGE> 2
(c) notes, analysis, compilations, studies, summaries, and other
material prepared by or for the Employer containing or based, in whole or in
part, on any information included in the foregoing.
"DISABILITY" shall have the meaning given to such term in Section 6.2
hereof.
"EFFECTIVE DATE" shall mean October 29, 1998.
"EMPLOYEE INVENTION" shall mean any idea, invention, technique,
modification, process, or improvement (whether patentable or not), any
industrial design (whether registerable or not), any mask work, however fixed or
encoded, that is suitable to be fixed, embedded or programmed in a semiconductor
product (whether recordable or not), and any work of authorship (whether or not
copyright protection may be obtained for it) created, conceived, or developed by
the Executive, either solely or in conjunction with others, during the
Employment Period, or a period that includes a portion of the Employment Period,
that relates in any way to, or is useful in any manner in, the business then
being conducted or proposed to be conducted by the Employer, and any such item
created by the Executive, either solely or in conjunction with others, following
termination of the Executive's employment with the Employer, that is based upon
or uses Confidential Information.
"EMPLOYMENT PERIOD" shall mean the term of the Executive's employment
under this Agreement.
"FISCAL YEAR" shall mean the Employer's fiscal year, as it exists on the
Effective Date or as changed from time to time.
"FOR CAUSE" shall have the meaning given to such term in Section 6.3
hereof.
"FOR GOOD REASON" shall have the meaning given to such term in Section 6.4
hereof.
"PERSON" shall mean any individual, corporation (including any non-profit
corporation), general or limited partnership, limited liability company, joint
venture, estate, trust, association, organization, or governmental body.
"POST-EMPLOYMENT PERIOD" shall have the meaning given to such term in
Section 8.2 hereof.
"PROPRIETARY ITEMS" shall have the meaning given to such term in Section
7.2(a)(iv) hereof.
"SALARY" shall have the meaning given to such term in Section 3.1(a)
hereof.
2
<PAGE> 3
2. EMPLOYMENT TERMS AND DUTIES.
2.1 EMPLOYMENT. The Employer hereby employs the Executive, and the
Executive hereby accepts employment by the Employer, upon the terms and
conditions set forth in this Agreement.
2.2 TERM. Subject to the provisions of Section 6, the term of the
Executive's employment under this Agreement shall commence as of the Effective
Date and continue until terminated by either party in accordance with the
provisions of Section 6 hereof.
2.3 DUTIES. The Executive will have such duties as are assigned or
delegated to the Executive by the Board of Directors or Chief Executive Officer,
and will initially serve as a Senior Vice President and the Chief Financial
Officer of the Employer. The Executive will devote his entire business time,
attention, skill, and energy exclusively to the business of the Employer, will
use his best efforts to promote the success of the Employer's business, and will
cooperate fully with the Board of Directors in the advancement of the best
interests of the Employer. Nothing in this Section 2.3, however, will prevent
the Executive from engaging in additional activities in connection with personal
investments and community affairs that are not inconsistent with the Executive's
duties under this Agreement.
3. COMPENSATION.
3.1 BASIC COMPENSATION.
(a) SALARY. The Executive will be paid an annual salary of
$100,000.00, subject to adjustment as provided below (the "Salary"), which will
be payable in equal periodic installments according to the Employer's customary
payroll practices, but no less frequently than monthly. The Salary will be
reviewed by the Board of Directors or the Chief Executive Officer of the
Employer not less frequently than annually and may be adjusted upward (but not
downward) in the sole discretion of the Board of Directors or the Chief
Executive Officer.
(b) BENEFITS. The Executive will, during the Employment
Period, be permitted to participate in such pension, profit sharing, bonus, life
insurance, hospitalization, major medical, and other employee benefit plans of
the Employer that may be in effect from time to time, to the extent the
Executive is eligible under the terms of those plans (collectively, the
"Benefits"). In the event that the Executive is required to satisfy any waiting
period requirement before he is eligible to participate in the medical insurance
plan generally available to all full-time employees of the Employer, the
Employer shall reimburse the Executive for the full amount of the cost of
acquiring or maintaining such coverage from the Effective Date until the
expiration of such waiting period.
3.2 INCENTIVE COMPENSATION. As additional compensation for the
services to be rendered by the Executive pursuant to this Agreement, the
Executive shall be granted a non-qualified stock option (the "Stock Option")
granting the Executive the right and option to
3
<PAGE> 4
purchase up to Thirty-Five Thousand (35,000) shares of the common stock, par
value $.001 per share ("Common Stock"), of the Employer at a per share exercise
price equal to the fair market value of one share of Common Stock as of the date
of grant of such Stock Option. The Stock Option shall have a term of five (5)
years, and shall vest and become exercisable in equal annual installments over a
three-year period beginning on the first anniversary of the date of grant. In
the event that there is a change in control of the Employer subsequent to the
Effective Date of this Agreement, the vesting of the unvested portion of the
Stock Option shall immediately accelerate and the entire amount of the Stock
Option shall be exercisable by the Executive. These and any other terms and
conditions of the Stock Option shall be set forth in a written agreement, the
form and content of which shall be determined by the Employer in its reasonable
discretion.
4. FACILITIES AND EXPENSES. The Employer will furnish the Executive office
space, equipment, supplies, and such other facilities and personnel as the
Employer deems necessary or appropriate for the performance of the Executive's
duties under this Agreement. The Employer will pay the Executive's dues in such
professional societies and organizations as the Chief Executive Officer deems
appropriate, and will pay on behalf of the Executive (or reimburse the Executive
for) reasonable expenses incurred by the Executive at the request of, or on
behalf of, the Employer in the performance of the Executive's duties pursuant to
this Agreement, and in accordance with the Employer's employment policies,
including reasonable expenses incurred by the Executive in attending
conventions, seminars, and other business meetings, in appropriate business
entertainment activities, and for promotional expenses. The Executive must file
expense reports with respect to such expenses in accordance with the Employer's
policies.
5. VACATIONS AND HOLIDAYS. The Executive will be entitled to paid vacation
in accordance with the vacation policies of the Employer in effect for its
executive officers from time to time. Vacation must be taken by the Executive at
such time or times as approved by the Chairman of the Board or the Chief
Executive Officer. The Executive will also be entitled to paid holidays and
other paid leave, as set forth in the Employer's policies. Vacation days and
holidays during any Fiscal Year that are not used by the Executive during such
Fiscal Year may not be used in any subsequent Fiscal Year.
6. TERMINATION.
6.1 EVENTS OF TERMINATION. The Employment Period, the Executive's
Basic Compensation, and any and all other rights of the Executive under this
Agreement or otherwise as an employee of the Employer will terminate (except as
otherwise provided in this Section 6):
(a) upon ninety (90) days' prior written notice from one party
to the other;
(b) upon the death of the Executive;
4
<PAGE> 5
(c) upon the disability of the Executive (as defined in
Section 6.2) immediately upon notice from either party to the other;
(d) For Cause (as defined in Section 6.3), immediately upon
notice from the Employer to the Executive, or at such later time as such notice
may specify; or
(e) For Good Reason (as defined in Section 6.4) upon not less
than thirty days' prior notice from the Executive to the Employer.
6.2 DEFINITION OF DISABILITY. For purposes of Section 6.1, the
Executive will be deemed to have a "disability" if, for physical or mental
reasons, the Executive is unable to perform the essential functions of the
Executive's duties under this Agreement for 30 consecutive days.
6.3 DEFINITION OF "FOR CAUSE." For purposes of Section 6.1, the
phrase "For Cause" means: (a) the Executive's material breach of this Agreement;
(b) the Executive's failure to adhere to any written Employer policy after the
Executive has been given a reasonable opportunity to comply with such policy or
cure his failure to comply (which reasonable opportunity must be granted during
the ten-day period preceding termination of this Agreement); (c) the
appropriation (or attempted appropriation) of a material business opportunity of
the Employer, including attempting to secure or securing any personal profit in
connection with any transaction entered into on behalf of the Employer; (d) the
misappropriation (or attempted misappropriation) of any of the Employer's funds
or property; or (e) the conviction of, the indictment for (or its procedural
equivalent), or the entering of a guilty plea or plea of no contest with respect
to, a felony, the equivalent thereof, or any other crime with respect to which
imprisonment is a possible punishment.
6.4 DEFINITION OF "FOR GOOD REASON." For purposes of Section 6.1,
the phrase "For Good Reason" means any of the following: (a) the Employer's
material breach of this Agreement; (b) the assignment of the Executive without
his consent to a position, responsibilities, or duties of a materially lesser
status or degree of responsibility than his position, responsibilities, or
duties at the Effective Date; or (c) the relocation of the Employer's principal
executive offices to a location or place that is more than fifty miles from the
location of the Employer's principal executive officers as of the Effective Date
or the requirement by the Employer that the Executive be based anywhere other
than the Employer's principal executive offices, in either case without the
Executive's consent.
6.5 TERMINATION PAY. Effective upon the termination of this
Agreement, the Employer will be obligated to pay the Executive (or, in the event
of his death, his designated beneficiary as defined below) only such
compensation as is provided in this Section 6.5, and in lieu of all other
amounts and in settlement and complete release of all claims the Executive may
have against the Employer. For purposes of this Section 6.5, the Executive's
designated beneficiary will be such individual beneficiary or trust, located at
such address, as the Executive may designate by notice to the Employer from time
to time or, if the Executive fails to give notice to the Employer of such a
beneficiary, the Executive's estate.
5
<PAGE> 6
Notwithstanding the preceding sentence, the Employer will have no duty, in any
circumstances, to attempt to open an estate on behalf of the Executive, to
determine whether any beneficiary designated by the Executive is alive or to
ascertain the address of any such beneficiary, to determine the existence of any
trust, to determine whether any person or entity purporting to act as the
Executive's personal representative (or the trustee of a trust established by
the Executive) is duly authorized to act in that capacity, or to locate or
attempt to locate any beneficiary, personal representative, or trustee.
(a) TERMINATION BY THE EXECUTIVE FOR GOOD REASON. If the
Executive terminates this Agreement For Good Reason, the Employer will pay the
Executive (i) the Executive's Salary for the remainder, if any, of the calendar
month in which such termination is effective and for six (6) consecutive
calendar months thereafter. Notwithstanding the preceding sentence, if the
Executive obtains other employment prior to the end of the six (6) months
following the month in which the termination is effective, he must promptly give
notice thereof to the Employer, and the Salary payments under this Agreement for
any period after the Executive obtains other employment will be reduced by the
amount of the cash compensation received and to be received by the Executive
from the Executive's other employment for services performed during such period.
(b) TERMINATION BY THE EMPLOYER FOR CAUSE. If the Employer
terminates this Agreement for cause, the Executive will be entitled to receive
his Salary only through the date such termination is effective.
(c) TERMINATION UPON DISABILITY. If this Agreement is
terminated by either party as a result of the Executive's disability, as
determined under Section 6.2, the Employer will pay the Executive his Salary
through the remainder of the calendar month during which such termination is
effective and for the lesser of (i) three consecutive months thereafter, or (ii)
the period until disability insurance benefits commence under the disability
insurance coverage furnished by the Employer to the Executive, if any.
(d) TERMINATION UPON DEATH. If this Agreement is terminated
because of the Executive's death, the Executive will be entitled to receive his
Salary through the end of the calendar month in which his death occurs.
(e) TERMINATION BY WRITTEN NOTICE. If this Agreement is
terminated by either party pursuant to Section 6.1(a) hereof, the Executive will
be entitled to receive his Salary through the termination date of his
employment, which shall be at least ninety (90) days from the date of the
notice.
(f) BENEFITS. The Executive's accrual of, or participation in
plans providing for, the Benefits will cease at the effective date of the
termination of this Agreement, and the Executive will be entitled to accrued
Benefits pursuant to such plans only as provided in such plans. The Executive
will not receive, as part of his termination pay pursuant to this Section 6, any
payment or other compensation for any vacation, holiday, sick leave, or other
leave unused on the date the notice of termination is given under this
Agreement.
6
<PAGE> 7
7. NON-DISCLOSURE COVENANT; EMPLOYEE INVENTIONS.
7.1 ACKNOWLEDGMENTS BY THE EXECUTIVE. The Executive acknowledges
that (a) during the Employment Period and as a part of his employment, the
Executive will be afforded access to Confidential Information; (b) public
disclosure of such Confidential Information could have an adverse effect on the
Employer and its business; (c) because the Executive possesses substantial
technical expertise and skill with respect to the Employer's business, the
Employer desires to obtain exclusive ownership of each Employee Invention, and
the Employer will be at a substantial competitive disadvantage if it fails to
acquire exclusive ownership of each Employee Invention; (d) the Buyer has
required that the Executive make the covenants in this Section 7 as a condition
to its purchase of the Employer's stock; and (e) the provisions of this Section
7 are reasonable and necessary to prevent the improper use or disclosure of
Confidential Information and to provide the Employer with exclusive ownership of
all Employee Inventions.
7.2 AGREEMENTS OF THE EXECUTIVE. In consideration of the
compensation and benefits to be paid or provided to the Executive by the
Employer under this Agreement, the Executive covenants as follows:
(a) CONFIDENTIALITY.
(i) During and following the Employment Period, the
Executive will hold in confidence the Confidential Information and will not
disclose it to any person, except with the specific prior written consent of the
Employer or except as otherwise expressly permitted by the terms of this
Agreement.
(ii) Any trade secrets of the Employer will be entitled
to all of the protections and benefits under Chapter 625 of the Connecticut
General Statutes and any other applicable law. If any information that the
Employer deems to be a trade secret is found by a court of competent
jurisdiction not to be a trade secret for purposes of this Agreement, such
information will, nevertheless, be considered Confidential Information for
purposes of this Agreement. The Executive hereby waives any requirement that the
Employer submit proof of the economic value of any trade secret or post a bond
or other security.
(iii) None of the foregoing obligations and restrictions
applies to any part of the Confidential Information that the Executive
demonstrates was or became generally available to the public other than as a
result of a disclosure by the Executive.
(iv) The Executive will not remove from the Employer's
premises (except to the extent such removal is for purposes of the performance
of the Executive's duties at home or while traveling, or except as otherwise
specifically authorized by the Employer) any document, record, notebook, plan,
model, component, device, or computer software or code, whether embodied in a
disk or in any other form (collectively, the "Proprietary Items"). The Executive
recognizes that, as between the Employer and the
7
<PAGE> 8
Executive, all of the Proprietary Items, whether or not developed by the
Executive, are the exclusive property of the Employer. Upon termination of this
Agreement by either party, or upon the request of the Employer during the
Employment Period, the Executive will return to the Employer all of the
Proprietary Items in the Executive's possession or subject to the Executive's
control, and the Executive shall not retain any copies, abstracts, sketches, or
other physical embodiment of any of the Proprietary Items.
(b) EMPLOYEE INVENTIONS. Each Employee Invention will belong
exclusively to the Employer. The Executive acknowledges that all of the
Executive's writings, works of authorship, and other Employee Inventions are
works made for hire and the property of the Employer, including any copyrights,
patents, or other intellectual property rights pertaining thereto. If it is
determined that any such works are not works made for hire, the Executive hereby
assigns to the Employer all of the Executive's right, title, and interest,
including all rights of copyright, patent, and other intellectual property
rights, to or in such Employee Inventions. The Executive covenants that he will
promptly:
(i) disclose to the Employer in writing any Employee
Invention;
(ii) assign to the Employer or to a party designated by
the Employer, at the Employer's request and without additional compensation, all
of the Executive's right to the Employee Invention for the United States and all
foreign jurisdictions;
(iii) execute and deliver to the Employer such
applications, assignments, and other documents as the Employer may request in
order to apply for and obtain patents or other registrations with respect to any
Employee Invention in the United States and any foreign jurisdictions;
(iv) sign all other papers necessary to carry out
the above obligations; and
(v) give testimony and render any other assistance
(but without expense to the Executive) in support of the Employer's rights to
any Employee Invention.
7.3 DISPUTES OR CONTROVERSIES. The Executive recognizes that should
a dispute or controversy arising from or relating to this Agreement be submitted
for adjudication to any court, arbitration panel, or other third party, the
preservation of the secrecy of Confidential Information may be jeopardized. All
pleadings, documents, testimony, and records relating to any such adjudication
will be maintained in secrecy and will be available for inspection by the
Employer, the Executive, and their respective attorneys and experts, who will
agree, in advance and in writing, to receive and maintain all such information
in secrecy, except as may be limited by them in writing.
8
<PAGE> 9
8. NON-INTERFERENCE.
8.1 ACKNOWLEDGMENTS BY THE EXECUTIVE. The Executive hereby
acknowledges that: (a) the services to be performed by him under this Agreement
are of a special, unique, unusual, extraordinary, and intellectual character;
(b) the Employer's business is national in scope and its products are marketed
throughout the United States; (c) the Employer competes with other businesses
that are or could be located in any part of the United States; (d) the Buyer has
required that the Executive make the covenants set forth in this Section 8 as a
condition to the Buyer's willingness to employ the Executive pursuant to this
Agreement; and (e) the provisions of this Section 8 are reasonable and necessary
to protect the Employer's business.
8.2 COVENANTS OF THE EXECUTIVE. In consideration of the foregoing
acknowledgments by the Executive, and in consideration of the compensation and
benefits to be paid or provided to the Executive by the Employer, the Executive
covenants that he will not, directly or indirectly:
(a) whether for the Executive's own account or the account of
any other person (i) at any time during the Employment Period and the
Post-Employment Period, solicit, employ, or otherwise engage as an employee,
independent contractor, or otherwise, any person who is or was an employee of
the Employer at any time during the Employment Period or in any manner induce or
attempt to induce any employee of the Employer to terminate his employment with
the Employer; or (ii) at any time during the Employment Period and for three
years thereafter, interfere with the Employer's relationship with any person,
including any person who at any time during the Employment Period was an
employee, contractor, supplier, or customer of the Employer; or
(b) at any time during or after the Employment Period,
disparage the Employer or any of its shareholders, directors, officers,
employees, or agents.
For purposes of this Section 8.2, the term "Post-Employment Period"
means the three-year period beginning on the date of termination of the
Executive's employment with the Employer.
If any covenant in this Section 8.2 is held to be unreasonable,
arbitrary, or against public policy, such covenant will be considered to be
divisible with respect to scope, time, and geographic area, and such lesser
scope, time, or geographic area, or all of them, as a court of competent
jurisdiction may determine to be reasonable, not arbitrary, and not against
public policy, will be effective, binding, and enforceable against the
Executive.
The period of time applicable to any covenant in this Section 8.2
will be extended by the duration of any violation by the Executive of such
covenant.
The Executive will, while the covenant under this Section 8.2 is in
effect, give notice to the Employer, within ten days after accepting any other
employment, of the identity
9
<PAGE> 10
of the Executive's employer. The Buyer or the Employer may notify such employer
that the Executive is bound by this Agreement and, at the Employer's election,
furnish such employer with a copy of this Agreement or relevant portions
thereof.
9. GENERAL PROVISIONS.
9.1 INJUNCTIVE RELIEF AND ADDITIONAL REMEDY. The Executive hereby
acknowledges that the injury that would be suffered by the Employer as a result
of a breach of the provisions of this Agreement (including any provision of
Sections 7 and 8) would be irreparable and that an award of monetary damages to
the Employer for such a breach would be an inadequate remedy. Consequently, the
Employer will have the right, in addition to any other rights it may have, to
obtain injunctive relief to restrain any breach or threatened breach or
otherwise to specifically enforce any provision of this Agreement, and the
Employer will not be obligated to post bond or other security in seeking such
relief. Without limiting the Employer's rights under this Section 9 or any other
remedies of the Employer, if the Executive breaches any of the provisions of
Section 7 or 8, the Employer will have the right to cease making any payments
otherwise due to the Executive under this Agreement.
9.2 COVENANTS OF SECTIONS 7 AND 8 ARE ESSENTIAL AND INDEPENDENT
COVENANTS. The covenants by the Executive in Sections 7 and 8 are essential
elements of this Agreement, and without the Executive's agreement to comply with
such covenants, the Buyer would not have entered into this Agreement or employed
or continued the employment of the Executive. The Employer and the Executive
have independently consulted their respective counsel and have been advised in
all respects concerning the reasonableness and propriety of such covenants, with
specific regard to the nature of the business conducted by the Employer.
The Executive's covenants in Sections 7 and 8 are independent
covenants and the existence of any claim by the Executive against the Employer
under this Agreement or otherwise, or against the Buyer, will not excuse the
Executive's breach of any covenant in Section 7 or 8.
If the Executive's employment hereunder expires or is terminated,
this Agreement will continue in full force and effect as is necessary or
appropriate to enforce the covenants and agreements of the Executive in Sections
7 and 8.
9.3 REPRESENTATIONS AND WARRANTIES BY THE EXECUTIVE. The Executive
represents and warrants to the Employer that the execution and delivery by the
Executive of this Agreement do not, and the performance by the Executive of the
Executive's obligations hereunder will not, with or without the giving of notice
or the passage of time, or both: (a) violate any judgment, writ, injunction, or
order of any court, arbitrator, or governmental agency applicable to the
Executive; or (b) conflict with, result in the breach of any provisions of or
the termination of, or constitute a default under, any agreement to which the
Executive is a party or by which the Executive is or may be bound.
10
<PAGE> 11
9.4 OBLIGATIONS CONTINGENT ON PERFORMANCE. The obligations of the
Employer hereunder, including its obligation to pay the compensation provided
for herein, are contingent upon the Executive's performance of the Executive's
obligations hereunder.
9.5 WAIVER. The rights and remedies of the parties to this Agreement
are cumulative and not alternative. Neither the failure nor any delay by either
party in exercising any right, power, or privilege under this Agreement will
operate as a waiver of such right, power, or privilege, and no single or partial
exercise of any such right, power, or privilege will preclude any other or
further exercise of such right, power, or privilege or the exercise of any other
right, power, or privilege. To the maximum extent permitted by applicable law,
(a) no claim or right arising out of this Agreement can be discharged by one
party, in whole or in part, by a waiver or renunciation of the claim or right
unless in writing signed by the other party; (b) no waiver that may be given by
a party will be applicable except in the specific instance for which it is
given; and (c) no notice to or demand on one party will be deemed to be a waiver
of any obligation of such party or of the right of the party giving such notice
or demand to take further action without notice or demand as provided in this
Agreement.
9.6 BINDING EFFECT; DELEGATION OF DUTIES PROHIBITED. This Agreement
shall inure to the benefit of, and shall be binding upon, the parties hereto and
their respective successors, assigns, heirs, and legal representatives,
including any entity with which the Employer may merge or consolidate or to
which all or substantially all of its assets may be transferred. The duties and
covenants of the Executive under this Agreement, being personal, may not be
delegated.
9.7 NOTICES. All notices, consents, waivers, and other
communications under this Agreement must be in writing and will be deemed to
have been duly given when (a) delivered by hand, (b) sent by facsimile, provided
that a copy is mailed by registered mail, return receipt requested, or (c) when
received by the addressee, if sent by a nationally recognized overnight delivery
service (receipt requested), in each case to the appropriate addresses and
facsimile numbers set forth below (or to such other addresses and facsimile
numbers as a party may designate by notice to the other parties):
If to Employer:
Gunther International, Ltd.
One Winnenden Road
Norwich, CT 06360
Attn: President
Facsimile No.: (860-886-8889
If to the Executive:
Michael M. Vehlies
16 Wesleyan Road
Glastonbury, CT 06033
11
<PAGE> 12
9.8 ENTIRE AGREEMENT; AMENDMENTS. This Agreement and the Stock
Option contain the entire agreement between the parties with respect to the
subject matter hereof and supersede all prior agreements and understandings,
oral or written, between the parties hereto with respect to the subject matter
hereof. This Agreement may not be amended orally, but only by an agreement in
writing signed by the parties hereto.
9.9 GOVERNING LAW. This Agreement will be governed by the laws of
the State of Connecticut without regard to conflicts of laws principles.
9.10 JURISDICTION. Any action or proceeding seeking to enforce any
provision of, or based on any right arising out of, this Agreement may be
brought against either of the parties in the courts of the State of Connecticut,
County of Hartford, or, if it has or can acquire jurisdiction, in the United
States District Court for the District of Connecticut, and each of the parties
consents to the jurisdiction of such courts (and of the appropriate appellate
courts) in any such action or proceeding and waives any objection to venue laid
therein. Process in any action or proceeding referred to in the preceding
sentence may be served on either party anywhere in the world.
9.11 SECTION HEADINGS, CONSTRUCTION. The headings of Sections in
this Agreement are provided for convenience only and will not affect its
construction or interpretation. All references to "Section" or "Sections" refer
to the corresponding Section or Sections of this Agreement unless otherwise
specified. All words used in this Agreement will be construed to be of such
gender or number as the circumstances require. Unless otherwise expressly
provided, the word "including" does not limit the preceding words or terms.
9.12 SEVERABILITY. If any provision of this Agreement is held
invalid or unenforceable by any court of competent jurisdiction, the other
provisions of this Agreement will remain in full force and effect. Any provision
of this Agreement held invalid or unenforceable only in part or degree will
remain in full force and effect to the extent not held invalid or unenforceable.
9.13 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which will be deemed to be an original copy of this
Agreement and all of which, when taken together, will be deemed to constitute
one and the same agreement.
9.14 WAIVER OF JURY TRIAL. THE PARTIES HERETO HEREBY WAIVE A
JURY TRIAL IN ANY LITIGATION WITH RESPECT TO THIS AGREEMENT.
12
<PAGE> 13
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement
as of the date above first written above.
GUNTHER INTERNATIONAL, LTD.
By: /s/ Marc I. Perkins
------------------------------------
Its: Chief Executive Officer
/s/ Michael M. Vehlies
------------------------------------
Michael M. Vehlies
13
<PAGE> 1
NON-QUALIFIED STOCK OPTION AGREEMENT
THIS NON-QUALIFIED STOCK OPTION AGREEMENT ("Option Agreement") is made and
entered into as of October 29, 1998 (the "Grant Date"), between Gunther
International, Ltd., a Delaware corporation (the "Company"), and Michael M.
Vehlies, an individual residing within the State of Connecticut (the
"Optionee").
RECITALS:
A. The Optionee and the Company have entered into an Employment Agreement,
effective as of the date hereof (the "Employment Agreement"), providing for the
employment of the Optionee by the Company on the terms and subject to the
conditions set forth in the Employment Agreement.
B. The Employment Agreement provides for the grant of a non-qualified
stock option (the "Option") entitling the Optionee to purchase up to Thirty-Five
Thousand (35,000) shares of the common stock, par value $.001 per share ("Common
Stock"), of the Company at an exercise price of $1.50 per share.
C. This is the Option contemplated by the Employment Agreement.
NOW, THEREFORE, in consideration of the foregoing recitals and the mutual
covenants and promises contained in this Option Agreement, the Company hereby
grants the Optionee the Option on the terms and conditions hereinafter set
forth.
1. Number of Shares; Option Price and Non-Qualified Status of Option. The
Optionee shall have the right and option to purchase up to 35,000 shares of
Common Stock (the "Option Shares") at an exercise price of $1.50 per share (the
"Option Price"), which is not less than the fair market value of the Option
Shares as of the Grant Date. The Option shall constitute and be treated at all
times by the Optionee and the Company as a "non-qualified stock option" for
Federal income tax purposes and shall not constitute and shall not be treated as
an "incentive stock option" as defined under Section 422(b) of the Internal
Revenue Code of 1986, as amended (the "Code").
2. Exercise of Option. The Option shall become exercisable one year after
the Grant Date to the extent of 33.33% of the Option Shares and, thereafter, on
each subsequent anniversary of the Grant Date to the extent of an additional
33.33% of the Option Shares, in cumulative installments, until the Option has
become exercisable as to all of the Option Shares or is otherwise terminated in
accordance with the terms and conditions hereinafter set forth. The Option may
be exercised only to purchase whole shares of Common Stock, and in no case may a
fraction of a share be purchased. To exercise the Option, the Optionee must
deliver a completed copy of the attached Option Exercise Form to the address
indicated on the form, specifying the number of Option Shares being purchased as
a result of such exercise, together
<PAGE> 2
with payment of the full Option Price for the Option Shares being purchased.
Payment of the Option Price must be made in cash or by check.
3. Term of Option and Termination of Employment.
(a) General. The term of the Option and this Option Agreement shall
commence as of the Grant Date. The right of the Optionee to exercise the Option
with respect to any Option Shares, to purchase any such Option Shares and all
other rights of the Optionee with respect to any such Option Shares shall
terminate on the fifth anniversary of the Grant Date, unless the Option has been
earlier terminated as provided either in paragraphs (b) through (f) below. This
Option Agreement shall terminate on October 29, 2003.
(b) Death of Optionee. If the Optionee shall die prior to the
exercise of the Option while the Optionee is employed by the Company, then the
Option may be exercised by the legatee(s) or personal representative(s) of the
Optionee at any time within one year after the Optionee's death; provided,
however, that (i) the Option may not be exercised after its expiration date; and
(ii) the Option may be exercised after the Optionee's death if and only to the
extent that the Option was exercisable at the time of the Optionee's death.
(c) Disability. If the Optionee's employment with the Company shall
terminate prior to the exercise of the Option as a result of the "disability" of
the Optionee (as defined in Section 6.2 of the Employment Agreement), then the
Option may be exercised by the Optionee (or his personal representative(s)) at
any time within one year after the Optionee's termination of employment;
provided, however, that (i) the Option may not be exercised after its expiration
date; and (ii) the Option may be exercised after the termination of the
Optionee's employment if and only to the extent that the Option was exercisable
at the time of termination of the Optionee's employment.
(d) Termination For Cause. If the Optionee's employment with the
Company shall terminate prior to the exercise of the Option because the Optionee
is terminated "For Cause" (as defined in Section 6.3 of the Employment
Agreement), then the Option shall immediately terminate upon the termination of
the Optionee's employment with the Company.
(e) Termination For Good Reason. If the Optionee's employment with
the Company shall terminate prior to the exercise of the Option For Good Reason
(as defined in Section 6.4 of the Employment Agreement), then the Option
(subject to clauses (i) and (ii) of paragraph (c) above) may be exercised by the
Optionee at any time within three months after the Optionee's termination of
employment.
(f) Termination for Other Reason. If the Optionee's employment with
the Company shall terminate prior to the exercise of the Option for any reason
other than as set forth in paragraphs (b) through (e) above, then the Option
(subject to clauses (i) and (ii) of paragraph (c) above) may be exercised by the
Optionee at any time within one month after the Optionee's termination of
employment.
2
<PAGE> 3
4. Notices. Any notice required or permitted under this Option Agreement
shall be deemed given when delivered personally, or when deposited in a United
States Post Office, postage prepaid, addressed, as appropriate, to the Company
at its principal executive offices located at One Winnenden Road, Norwich,
Connecticut 06360, or to the Optionee at the last known address of the Optionee
reflected in the personnel records of the Company or at such other address as
the parties may designate in writing.
5. Failure to Enforce Not a Waiver. The failure of the Company to enforce
at any time any provision of this Option Agreement shall in no way be construed
to be a waiver of such provision or of any other provision hereof.
6. Rights of a Stockholder. The Optionee shall have no rights as a
stockholder with respect to any Option Shares unless and until certificates for
shares of Common Stock are issued to the Optionee.
7. Rights to Terminate Employment. Nothing in this Option Agreement shall
confer upon the Optionee the right to continue in the employment of the Company
or affect any right which the Company may have to terminate the employment of
the Optionee.
8. Transferability of Option. This Option may not be transferred by the
Optionee (other than by will or the laws of descent and distribution) and may be
exercised during the Optionee's lifetime only by the Optionee.
9. Representations.
(a) The Optionee represents and warrants to the Company that, upon
exercise of this Option, the Optionee will be acquiring the Option Shares for
its own account for the purpose of investment and not with a view to or for sale
in connection with any distribution thereof, and the Optionee understands that
(i) neither the Option nor the Option Shares have been registered with the
Securities and Exchange Commission by reason of their issuance in a transaction
exempt from the registration requirements of the Securities Act of 1933, and
(ii) the Option Shares must be held indefinitely by the Optionee unless a
subsequent disposition thereof is registered under the Securities Act of 1933 or
is exempt from such registration. The stock certificates for any Option Shares
issued to the Optionee will bear the following legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS
OF ANY STATE AND MAY NOT BE SOLD OR OTHERWISE DISPOSED OF EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND
APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN APPLICABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH
LAWS.
3
<PAGE> 4
(b) The Optionee further represents and warrants that it understands
the Federal, state and local income tax consequences of the granting of the
Option, the acquisition of rights to exercise the Option with respect to any
Option Shares, the exercise of the Option and purchase of Option Shares, and the
subsequent sale or other disposition of any Option Shares. In addition, the
Optionee understands that the Company will be required to withhold Federal,
state or local taxes in respect of any compensation income realized by the
Optionee upon exercise of the Option granted hereunder. To the extent that the
Company is required to withhold any such taxes, the Optionee hereby agrees that
the Company may deduct from any payments of any kind otherwise due to the
Optionee an amount equal to the total Federal, state and local taxes required to
be so withheld, or if such payments are inadequate to satisfy such Federal,
state and local taxes, or if no such payments are due or to become due to the
Optionee, then the Optionee agrees to provide the Company with cash funds equal
to the total Federal, state and local taxes required to be so withheld, or make
other arrangements satisfactory to the Company regarding such payment. It is
understood that all matters with respect to the total amount of taxes to be
withheld in respect of any such compensation income shall be determined by the
Company in its sole discretion.
10. Amendment. This Option Agreement may be amended only by a written
document signed by both parties.
IN WITNESS WHEREOF, the parties hereto have executed this Option Agreement
as of the date and year set forth above.
GUNTHER INTERNATIONAL, LTD.
By: /s/ Marc I. Perkins
--------------------------------------
Name: Marc I. Perkins
Title: Chief Executive Officer
The undersigned hereby accepts and agrees to
all the terms and provisions of the
foregoing Option Agreement.
/s/ Michael M. Vehlies (Optionee)
-------------------------------
Michael M. Vehlies
4
<PAGE> 5
GUNTHER INTERNATIONAL, LTD.
NON-QUALIFIED STOCK OPTION
OPTION EXERCISE FORM
I, Michael M. Vehlies, do hereby exercise the right to purchase
______________ shares of Common Stock, $.001 par value, of Gunther
International, Ltd. pursuant to the Non-Qualified Stock Option granted to me on
October 29, 1998.
Date: ___________________
Signature
Send a completed copy of this Option Exercise Form to:
Gunther International, Ltd.
One Winnenden Road
Norwich, Connecticut 06360
Attention: Chief Financial Officer
5
<PAGE> 1
EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement") is made and entered into as
of the 5th day of October, 1998, by and between Gunther International, Ltd., a
Delaware corporation (the "Employer"), and Marc I. Perkins, an individual
resident in the State of Connecticut (the "Executive").
RECITALS:
The Employer desires to secure the employment of the Executive, and the
Executive wishes to become employed by the Employer, upon the terms and
conditions set forth in this Agreement.
Now, therefore, the parties intending to be legally bound, hereby agree as
follows:
1. DEFINITIONS. For the purposes of this Agreement, the following terms
shall have the meanings specified or referred to in this Section 1.
"AGREEMENT" shall mean this Employment Agreement, as amended from time to
time.
"BASIC COMPENSATION" shall mean Salary and Benefits.
"BENEFITS" shall have the meaning given to such term in Section 3.1(b)
hereof.
"BOARD OF DIRECTORS" shall mean the board of directors of the Employer.
"CONFIDENTIAL INFORMATION" shall mean and include any and all:
(a) trade secrets concerning the business and affairs of the
Employer, product specifications, data, know-how, formulae, compositions,
processes, designs, sketches, photographs, graphs, drawings, samples, inventions
and ideas, past, current, and planned research and development, current and
planned manufacturing or distribution methods and processes, customer lists,
current and anticipated customer requirements, price lists, market studies,
business plans, computer software and programs (including object code and source
code), computer software and database technologies, systems, structures, and
architectures (and related formulae, compositions, processes, improvements,
devices, know-how, inventions, discoveries, concepts, ideas, designs, methods
and information), and any other information, however documented, that is a trade
secret within the meaning of Chapter 625 of the Connecticut General Statutes;
and
(b) information concerning the business and affairs of the Employer
(which includes historical financial statements, financial projections and
budgets, historical and projected sales, capital spending budgets and plans, the
names and backgrounds of key personnel, and personnel training and techniques
and materials), however documented; and
<PAGE> 2
(c) notes, analysis, compilations, studies, summaries, and other
material prepared by or for the Employer containing or based, in whole or in
part, on any information included in the foregoing.
"DISABILITY" shall have the meaning given to such term in Section 6.2
hereof.
"EFFECTIVE DATE" shall mean October 5, 1998.
"EMPLOYEE INVENTION" shall mean any idea, invention, technique,
modification, process, or improvement (whether patentable or not), any
industrial design (whether registerable or not), any mask work, however fixed or
encoded, that is suitable to be fixed, embedded or programmed in a semiconductor
product (whether recordable or not), and any work of authorship (whether or not
copyright protection may be obtained for it) created, conceived, or developed by
the Executive, either solely or in conjunction with others, during the
Employment Period, or a period that includes a portion of the Employment Period,
that relates in any way to, or is useful in any manner in, the business then
being conducted or proposed to be conducted by the Employer, and any such item
created by the Executive, either solely or in conjunction with others, following
termination of the Executive's employment with the Employer, that is based upon
or uses Confidential Information.
"EMPLOYMENT PERIOD" shall mean the term of the Executive's employment
under this Agreement.
"FISCAL YEAR" shall mean the Employer's fiscal year, as it exists on the
Effective Date or as changed from time to time.
"FOR CAUSE" shall have the meaning given to such term in Section 6.3
hereof.
"FOR GOOD REASON" shall have the meaning given to such term in Section 6.4
hereof.
"PERSON" shall mean any individual, corporation (including any non-profit
corporation), general or limited partnership, limited liability company, joint
venture, estate, trust, association, organization, or governmental body.
"POST-EMPLOYMENT PERIOD" shall have the meaning given to such term in
Section 8.2 hereof.
"PROPRIETARY ITEMS" shall have the meaning given to such term in Section
7.2(a)(iv) hereof.
"SALARY" shall have the meaning given to such term in Section 3.1(a)
hereof.
2
<PAGE> 3
2. EMPLOYMENT TERMS AND DUTIES.
2.1 EMPLOYMENT. The Employer hereby employs the Executive, and the
Executive hereby accepts employment by the Employer, upon the terms and
conditions set forth in this Agreement.
2.2 TERM. Subject to the provisions of Section 6, the term of the
Executive's employment under this Agreement shall commence as of the Effective
Date and continue until terminated by either party in accordance with the
provisions of Section 6 hereof.
2.3 DUTIES. The Executive will have such duties as are assigned or
delegated to the Executive by the Board of Directors, and will initially serve
as the Chief Executive Officer of the Employer. The Executive will devote his
entire business time, attention, skill, and energy exclusively to the business
of the Employer, will use his best efforts to promote the success of the
Employer's business, and will cooperate fully with the Board of Directors in the
advancement of the best interests of the Employer. Nothing in this Section 2.3,
however, will prevent the Executive from engaging in additional activities in
connection with personal investments and community affairs that are not
inconsistent with the Executive's duties under this Agreement. In addition, the
Employer expressly authorizes the Executive to devote up to ten (10) business
days to complete any private consulting work that is already in progress as of
the Effective Date of this Agreement and is not directly competitive with the
business of the Employer.
3. COMPENSATION.
3.1 BASIC COMPENSATION.
(a) SALARY. The Executive will be paid an annual salary of
$156,000.00, subject to adjustment as provided below (the "Salary"), which will
be payable in equal periodic installments according to the Employer's customary
payroll practices, but no less frequently than monthly. The Salary will be
reviewed by the Board of Directors of the Employer not less frequently than
annually and may be adjusted upward (but not downward) in the sole discretion of
the Board of Directors.
(b) BENEFITS. The Executive will, during the Employment
Period, be permitted to participate in such pension, profit sharing, bonus, life
insurance, hospitalization, major medical, and other employee benefit plans of
the Employer that may be in effect from time to time, to the extent the
Executive is eligible under the terms of those plans (collectively, the
"Benefits").
(c) RELOCATION EXPENSES. In addition to the foregoing, the
Employer shall reimburse the Executive for the reasonable costs and expenses
incurred by the Executive in connection with the relocation of himself and his
immediate family to a location within commuting distance from the Employer's
Norwich facility. Such reimbursable costs and expenses shall also include
occasional travel to and from the Executive's current residence in
5
<PAGE> 4
the State of Florida, as well as any other incidental expenses reasonably
relating thereto, as are reasonably necessary to facilitate the relocation of
the Executive. In no event shall the total amount of the costs and expenses that
are reimbursable to the Executive under this paragraph exceed $20,000.
3.2 INCENTIVE COMPENSATION. As additional compensation for the
services to be rendered by the Executive pursuant to this Agreement, the
Executive shall be granted a non-qualified stock option (the "Stock Option")
granting the Executive the right and option to purchase up to One Hundred Fifty
Thousand (150,000) shares of the common stock, par value $.001 per share
("Common Stock"), of the Employer at a per share exercise price equal to $1.50.
The Stock Option shall have a term of five (5) years, and shall vest and become
exercisable in accordance with the following schedule:
<TABLE>
<CAPTION>
NUMBER
OF SHARES VESTING DATE
--------- ------------
<S> <C>
25,000 Immediately
25,000 January 5, 1999
25,000 April 5, 1999
25,000 July 5, 1999
25,000 October 5, 1999
25,000 January 5, 2000
150,000
</TABLE>
In the event that there is a change in control of the Employer subsequent to the
Effective Date of this Agreement, the vesting of the unvested portion of the
Stock Option shall immediately accelerate and the entire amount of the Stock
Option shall be exercisable by the Executive. In the event that this Agreement
is terminated for any reason whatsoever, the Executive (or his estate, in the
event of his death) shall only be permitted to exercise the Stock Option with
respect to that number of shares of common stock that are vested as of the
effective date of such termination. These and any other terms and conditions of
the Stock Option shall be set forth in a written agreement, the form and content
of which shall be determined by the Employer in its reasonable discretion.
4. FACILITIES AND EXPENSES. The Employer will furnish the Executive office
space, equipment, supplies, and such other facilities and personnel as the
Employer deems necessary or appropriate for the performance of the Executive's
duties under this Agreement. The Employer will pay the Executive's dues in such
professional societies and organizations as the Board of Directors deems
appropriate, and will pay on behalf of the Executive (or reimburse the Executive
for) reasonable expenses incurred by the Executive at the request of, or on
behalf of, the Employer in the performance of the Executive's duties pursuant to
this Agreement, and in accordance with the Employer's employment policies,
including reasonable expenses incurred by the Executive in attending
conventions, seminars, and other business meetings, in appropriate business
entertainment activities, and for promotional expenses. The
4
<PAGE> 5
Executive must file expense reports with respect to such expenses in
accordance with the Employer's policies.
5. VACATIONS AND HOLIDAYS. The Executive will be entitled to paid vacation
in accordance with the vacation policies of the Employer in effect for its
executive officers from time to time. Vacation must be taken by the Executive at
such time or times as approved by the Chairman of the Board. The Executive will
also be entitled to paid holidays and other paid leave, as set forth in the
Employer's policies. Vacation days and holidays during any Fiscal Year that are
not used by the Executive during such Fiscal Year may not be used in any
subsequent Fiscal Year.
6. TERMINATION.
6.1 EVENTS OF TERMINATION. The Employment Period, the Executive's
Basic Compensation, and any and all other rights of the Executive under this
Agreement or otherwise as an employee of the Employer will terminate (except as
otherwise provided in this Section 6):
(a) upon ninety (90) days' prior written notice from one party
to the other;
(b) upon the death of the Executive;
(c) upon the disability of the Executive (as defined in
Section 6.2) immediately upon notice from either party to the other;
(d) For Cause (as defined in Section 6.3), immediately upon
notice from the Employer to the Executive, or at such later time as such notice
may specify; or
(e) For Good Reason (as defined in Section 6.4) upon not less
than thirty days' prior notice from the Executive to the Employer.
6.2 DEFINITION OF DISABILITY. For purposes of Section 6.1, the
Executive will be deemed to have a "disability" if, for physical or mental
reasons, the Executive is unable to perform the essential functions of the
Executive's duties under this Agreement for 30 consecutive days.
6.3 DEFINITION OF "FOR CAUSE." For purposes of Section 6.1, the
phrase "For Cause" means: (a) the Executive's material breach of this Agreement;
(b) the Executive's failure to adhere to any written Employer policy after the
Executive has been given a reasonable opportunity to comply with such policy or
cure his failure to comply (which reasonable opportunity must be granted during
the ten-day period preceding termination of this Agreement); (c) the
appropriation (or attempted appropriation) of a material business opportunity of
the Employer, including attempting to secure or securing any personal profit in
connection with any transaction entered into on behalf of the Employer; (d) the
5
<PAGE> 6
misappropriation (or attempted misappropriation) of any of the Employer's funds
or property; or (e) the conviction of, the indictment for (or its procedural
equivalent), or the entering of a guilty plea or plea of no contest with respect
to, a felony, the equivalent thereof, or any other crime with respect to which
imprisonment is a possible punishment.
6.4 DEFINITION OF "FOR GOOD REASON." For purposes of Section 6.1,
the phrase "For Good Reason" means any of the following: (a) the Employer's
material breach of this Agreement; (b) the assignment of the Executive without
his consent to a position, responsibilities, or duties of a materially lesser
status or degree of responsibility than his position, responsibilities, or
duties at the Effective Date; or (c) the relocation of the Employer's principal
executive offices to a location or place that is more than fifty miles from the
location of the Employer's principal executive officers as of the Effective Date
or the requirement by the Employer that the Executive be based anywhere other
than the Employer's principal executive offices, in either case without the
Executive's consent.
6.5 TERMINATION PAY. Effective upon the termination of this
Agreement, the Employer will be obligated to pay the Executive (or, in the event
of his death, his designated beneficiary as defined below) only such
compensation as is provided in this Section 6.5, and in lieu of all other
amounts and in settlement and complete release of all claims the Executive may
have against the Employer. For purposes of this Section 6.5, the Executive's
designated beneficiary will be such individual beneficiary or trust, located at
such address, as the Executive may designate by notice to the Employer from time
to time or, if the Executive fails to give notice to the Employer of such a
beneficiary, the Executive's estate. Notwithstanding the preceding sentence, the
Employer will have no duty, in any circumstances, to attempt to open an estate
on behalf of the Executive, to determine whether any beneficiary designated by
the Executive is alive or to ascertain the address of any such beneficiary, to
determine the existence of any trust, to determine whether any person or entity
purporting to act as the Executive's personal representative (or the trustee of
a trust established by the Executive) is duly authorized to act in that
capacity, or to locate or attempt to locate any beneficiary, personal
representative, or trustee.
(a) TERMINATION BY THE EXECUTIVE FOR GOOD REASON. If the
Executive terminates this Agreement For Good Reason, the Employer will pay the
Executive (i) the Executive's Salary for the remainder, if any, of the calendar
month in which such termination is effective and for six (6) consecutive
calendar months thereafter. Notwithstanding the preceding sentence, if the
Executive obtains other employment prior to the end of the six (6) months
following the month in which the termination is effective, he must promptly give
notice thereof to the Employer, and the Salary payments under this Agreement for
any period after the Executive obtains other employment will be reduced by the
amount of the cash compensation received and to be received by the Executive
from the Executive's other employment for services performed during such period.
(b) TERMINATION BY THE EMPLOYER FOR CAUSE. If the Employer
terminates this Agreement for cause, the Executive will be entitled to receive
his Salary only through the date such termination is effective.
6
<PAGE> 7
(c) TERMINATION UPON DISABILITY. If this Agreement is
terminated by either party as a result of the Executive's disability, as
determined under Section 6.2, the Employer will pay the Executive his Salary
through the remainder of the calendar month during which such termination is
effective and for the lesser of (i) three consecutive months thereafter, or (ii)
the period until disability insurance benefits commence under the disability
insurance coverage furnished by the Employer to the Executive, if any.
(d) TERMINATION UPON DEATH. If this Agreement is terminated
because of the Executive's death, the Executive will be entitled to receive his
Salary through the end of the calendar month in which his death occurs.
(e) TERMINATION BY WRITTEN NOTICE. If this Agreement is
terminated by either party pursuant to Section 6.1(a) hereof, the Executive will
be entitled to receive his Salary through the termination date of his
employment, which shall be at least ninety (90) days from the date of the
notice.
(f) BENEFITS. The Executive's accrual of, or participation in
plans providing for, the Benefits will cease at the effective date of the
termination of this Agreement, and the Executive will be entitled to accrued
Benefits pursuant to such plans only as provided in such plans. The Executive
will not receive, as part of his termination pay pursuant to this Section 6, any
payment or other compensation for any vacation, holiday, sick leave, or other
leave unused on the date the notice of termination is given under this
Agreement.
7. NON-DISCLOSURE COVENANT; EMPLOYEE INVENTIONS.
7.1 ACKNOWLEDGMENTS BY THE EXECUTIVE. The Executive acknowledges
that (a) during the Employment Period and as a part of his employment, the
Executive will be afforded access to Confidential Information; (b) public
disclosure of such Confidential Information could have an adverse effect on the
Employer and its business; (c) because the Executive possesses substantial
technical expertise and skill with respect to the Employer's business, the
Employer desires to obtain exclusive ownership of each Employee Invention, and
the Employer will be at a substantial competitive disadvantage if it fails to
acquire exclusive ownership of each Employee Invention; (d) the Buyer has
required that the Executive make the covenants in this Section 7 as a condition
to its purchase of the Employer's stock; and (e) the provisions of this Section
7 are reasonable and necessary to prevent the improper use or disclosure of
Confidential Information and to provide the Employer with exclusive ownership of
all Employee Inventions.
7.2 AGREEMENTS OF THE EXECUTIVE. In consideration of the
compensation and benefits to be paid or provided to the Executive by the
Employer under this Agreement, the Executive covenants as follows:
7
<PAGE> 8
(a) CONFIDENTIALITY.
(i) During and following the Employment Period, the
Executive will hold in confidence the Confidential Information and will not
disclose it to any person, except with the specific prior written consent of the
Employer or except as otherwise expressly permitted by the terms of this
Agreement.
(ii) Any trade secrets of the Employer will be entitled
to all of the protections and benefits under Chapter 625 of the Connecticut
General Statutes and any other applicable law. If any information that the
Employer deems to be a trade secret is found by a court of competent
jurisdiction not to be a trade secret for purposes of this Agreement, such
information will, nevertheless, be considered Confidential Information for
purposes of this Agreement. The Executive hereby waives any requirement that the
Employer submit proof of the economic value of any trade secret or post a bond
or other security.
(iii) None of the foregoing obligations and restrictions
applies to any part of the Confidential Information that the Executive
demonstrates was or became generally available to the public other than as a
result of a disclosure by the Executive.
(iv) The Executive will not remove from the Employer's
premises (except to the extent such removal is for purposes of the performance
of the Executive's duties at home or while traveling, or except as otherwise
specifically authorized by the Employer) any document, record, notebook, plan,
model, component, device, or computer software or code, whether embodied in a
disk or in any other form (collectively, the "Proprietary Items"). The Executive
recognizes that, as between the Employer and the Executive, all of the
Proprietary Items, whether or not developed by the Executive, are the exclusive
property of the Employer. Upon termination of this Agreement by either party, or
upon the request of the Employer during the Employment Period, the Executive
will return to the Employer all of the Proprietary Items in the Executive's
possession or subject to the Executive's control, and the Executive shall not
retain any copies, abstracts, sketches, or other physical embodiment of any of
the Proprietary Items.
(b) EMPLOYEE INVENTIONS. Each Employee Invention will belong
exclusively to the Employer. The Executive acknowledges that all of the
Executive's writings, works of authorship, and other Employee Inventions are
works made for hire and the property of the Employer, including any copyrights,
patents, or other intellectual property rights pertaining thereto. If it is
determined that any such works are not works made for hire, the Executive hereby
assigns to the Employer all of the Executive's right, title, and interest,
including all rights of copyright, patent, and other intellectual property
rights, to or in such Employee Inventions. The Executive covenants that he will
promptly:
(i) disclose to the Employer in writing any Employee
Invention;
8
<PAGE> 9
(ii) assign to the Employer or to a party designated by
the Employer, at the Employer's request and without additional compensation, all
of the Executive's right to the Employee Invention for the United States and all
foreign jurisdictions;
(iii) execute and deliver to the Employer such
applications, assignments, and other documents as the Employer may request in
order to apply for and obtain patents or other registrations with respect to any
Employee Invention in the United States and any foreign jurisdictions;
(iv) sign all other papers necessary to carry out the
above obligations; and
(v) give testimony and render any other assistance (but
without expense to the Executive) in support of the Employer's rights to any
Employee Invention.
7.3 DISPUTES OR CONTROVERSIES. The Executive recognizes that should
a dispute or controversy arising from or relating to this Agreement be submitted
for adjudication to any court, arbitration panel, or other third party, the
preservation of the secrecy of Confidential Information may be jeopardized. All
pleadings, documents, testimony, and records relating to any such adjudication
will be maintained in secrecy and will be available for inspection by the
Employer, the Executive, and their respective attorneys and experts, who will
agree, in advance and in writing, to receive and maintain all such information
in secrecy, except as may be limited by them in writing.
8. NON-INTERFERENCE.
8.1 ACKNOWLEDGMENTS BY THE EXECUTIVE. The Executive hereby
acknowledges that: (a) the services to be performed by him under this Agreement
are of a special, unique, unusual, extraordinary, and intellectual character;
(b) the Employer's business is national in scope and its products are marketed
throughout the United States; (c) the Employer competes with other businesses
that are or could be located in any part of the United States; (d) the Buyer has
required that the Executive make the covenants set forth in this Section 8 as a
condition to the Buyer's willingness to employ the Executive pursuant to this
Agreement; and (e) the provisions of this Section 8 are reasonable and necessary
to protect the Employer's business.
8.2 COVENANTS OF THE EXECUTIVE. In consideration of the foregoing
acknowledgments by the Executive, and in consideration of the compensation and
benefits to be paid or provided to the Executive by the Employer, the Executive
covenants that he will not, directly or indirectly:
(a) whether for the Executive's own account or the account of
any other person (i) at any time during the Employment Period and the
Post-Employment Period,
9
<PAGE> 10
solicit, employ, or otherwise engage as an employee, independent contractor, or
otherwise, any person who is or was an employee of the Employer at any time
during the Employment Period or in any manner induce or attempt to induce any
employee of the Employer to terminate his employment with the Employer; or (ii)
at any time during the Employment Period and for three years thereafter,
interfere with the Employer's relationship with any person, including any person
who at any time during the Employment Period was an employee, contractor,
supplier, or customer of the Employer; or
(b) at any time during or after the Employment Period,
disparage the Employer or any of its shareholders, directors, officers,
employees, or agents.
For purposes of this Section 8.2, the term "Post-Employment Period"
means the three-year period beginning on the date of termination of the
Executive's employment with the Employer.
If any covenant in this Section 8.2 is held to be unreasonable,
arbitrary, or against public policy, such covenant will be considered to be
divisible with respect to scope, time, and geographic area, and such lesser
scope, time, or geographic area, or all of them, as a court of competent
jurisdiction may determine to be reasonable, not arbitrary, and not against
public policy, will be effective, binding, and enforceable against the
Executive.
The period of time applicable to any covenant in this Section 8.2
will be extended by the duration of any violation by the Executive of such
covenant.
The Executive will, while the covenant under this Section 8.2 is in
effect, give notice to the Employer, within ten days after accepting any other
employment, of the identity of the Executive's employer. The Buyer or the
Employer may notify such employer that the Executive is bound by this Agreement
and, at the Employer's election, furnish such employer with a copy of this
Agreement or relevant portions thereof.
9. GENERAL PROVISIONS.
9.1 INJUNCTIVE RELIEF AND ADDITIONAL REMEDY. The Executive hereby
acknowledges that the injury that would be suffered by the Employer as a result
of a breach of the provisions of this Agreement (including any provision of
Sections 7 and 8) would be irreparable and that an award of monetary damages to
the Employer for such a breach would be an inadequate remedy. Consequently, the
Employer will have the right, in addition to any other rights it may have, to
obtain injunctive relief to restrain any breach or threatened breach or
otherwise to specifically enforce any provision of this Agreement, and the
Employer will not be obligated to post bond or other security in seeking such
relief. Without limiting the Employer's rights under this Section 9 or any other
remedies of the Employer, if the Executive breaches any of the provisions of
Section 7 or 8, the Employer will have the right to cease making any payments
otherwise due to the Executive under this Agreement.
10
<PAGE> 11
9.2 COVENANTS OF SECTIONS 7 AND 8 ARE ESSENTIAL AND INDEPENDENT
COVENANTS. The covenants by the Executive in Sections 7 and 8 are essential
elements of this Agreement, and without the Executive's agreement to comply with
such covenants, the Buyer would not have entered into this Agreement or employed
or continued the employment of the Executive. The Employer and the Executive
have independently consulted their respective counsel and have been advised in
all respects concerning the reasonableness and propriety of such covenants, with
specific regard to the nature of the business conducted by the Employer.
The Executive's covenants in Sections 7 and 8 are independent
covenants and the existence of any claim by the Executive against the Employer
under this Agreement or otherwise, or against the Buyer, will not excuse the
Executive's breach of any covenant in Section 7 or 8.
If the Executive's employment hereunder expires or is terminated,
this Agreement will continue in full force and effect as is necessary or
appropriate to enforce the covenants and agreements of the Executive in Sections
7 and 8.
9.3 REPRESENTATIONS AND WARRANTIES BY THE EXECUTIVE. The Executive
represents and warrants to the Employer that the execution and delivery by the
Executive of this Agreement do not, and the performance by the Executive of the
Executive's obligations hereunder will not, with or without the giving of notice
or the passage of time, or both: (a) violate any judgment, writ, injunction, or
order of any court, arbitrator, or governmental agency applicable to the
Executive; or (b) conflict with, result in the breach of any provisions of or
the termination of, or constitute a default under, any agreement to which the
Executive is a party or by which the Executive is or may be bound.
9.4 OBLIGATIONS CONTINGENT ON PERFORMANCE. The obligations of the
Employer hereunder, including its obligation to pay the compensation provided
for herein, are contingent upon the Executive's performance of the Executive's
obligations hereunder.
9.5 WAIVER. The rights and remedies of the parties to this Agreement
are cumulative and not alternative. Neither the failure nor any delay by either
party in exercising any right, power, or privilege under this Agreement will
operate as a waiver of such right, power, or privilege, and no single or partial
exercise of any such right, power, or privilege will preclude any other or
further exercise of such right, power, or privilege or the exercise of any other
right, power, or privilege. To the maximum extent permitted by applicable law,
(a) no claim or right arising out of this Agreement can be discharged by one
party, in whole or in part, by a waiver or renunciation of the claim or right
unless in writing signed by the other party; (b) no waiver that may be given by
a party will be applicable except in the specific instance for which it is
given; and (c) no notice to or demand on one party will be deemed to be a waiver
of any obligation of such party or of the right of the party giving such notice
or demand to take further action without notice or demand as provided in this
Agreement.
9.6 BINDING EFFECT; DELEGATION OF DUTIES PROHIBITED. This Agreement
shall inure to the benefit of, and shall be binding upon, the parties hereto and
their respective
11
<PAGE> 12
successors, assigns, heirs, and legal representatives, including any entity with
which the Employer may merge or consolidate or to which all or substantially all
of its assets may be transferred. The duties and covenants of the Executive
under this Agreement, being personal, may not be delegated.
9.7 NOTICES. All notices, consents, waivers, and other
communications under this Agreement must be in writing and will be deemed to
have been duly given when (a) delivered by hand, (b) sent by facsimile, provided
that a copy is mailed by registered mail, return receipt requested, or (c) when
received by the addressee, if sent by a nationally recognized overnight delivery
service (receipt requested), in each case to the appropriate addresses and
facsimile numbers set forth below (or to such other addresses and facsimile
numbers as a party may designate by notice to the other parties):
If to Employer:
Gunther International, Ltd.
One Winnenden Road
Norwich, CT 06360
Attn: Chairman of the Board
Facsimile No.: (860) 886-8889
If to the Executive:
Marc I. Perkins
213 West Town Street
Unit H-43
Norwich, CT 06360
9.8 ENTIRE AGREEMENT; AMENDMENTS. This Agreement and the Stock
Option contain the entire agreement between the parties with respect to the
subject matter hereof and supersede all prior agreements and understandings,
oral or written, between the parties hereto with respect to the subject matter
hereof. This Agreement may not be amended orally, but only by an agreement in
writing signed by the parties hereto.
9.9 GOVERNING LAW. This Agreement will be governed by the laws of
the State of Connecticut without regard to conflicts of laws principles.
9.10 JURISDICTION. Any action or proceeding seeking to enforce any
provision of, or based on any right arising out of, this Agreement may be
brought against either of the parties in the courts of the State of Connecticut,
County of Hartford, or, if it has or can acquire jurisdiction, in the United
States District Court for the District of Connecticut, and each of the parties
consents to the jurisdiction of such courts (and of the appropriate appellate
courts) in any such action or proceeding and waives any objection to venue laid
therein. Process in any action or proceeding referred to in the preceding
sentence may be served on either party anywhere in the world.
12
<PAGE> 13
9.11 SECTION HEADINGS, CONSTRUCTION. The headings of Sections in
this Agreement are provided for convenience only and will not affect its
construction or interpretation. All references to "Section" or "Sections" refer
to the corresponding Section or Sections of this Agreement unless otherwise
specified. All words used in this Agreement will be construed to be of such
gender or number as the circumstances require. Unless otherwise expressly
provided, the word "including" does not limit the preceding words or terms.
9.12 SEVERABILITY. If any provision of this Agreement is held
invalid or unenforceable by any court of competent jurisdiction, the other
provisions of this Agreement will remain in full force and effect. Any provision
of this Agreement held invalid or unenforceable only in part or degree will
remain in full force and effect to the extent not held invalid or unenforceable.
9.13 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which will be deemed to be an original copy of this
Agreement and all of which, when taken together, will be deemed to constitute
one and the same agreement.
9.14 WAIVER OF JURY TRIAL. THE PARTIES HERETO HEREBY WAIVE A
JURY TRIAL IN ANY LITIGATION WITH RESPECT TO THIS AGREEMENT.
13
<PAGE> 14
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement
as of the date above first written above.
GUNTHER INTERNATIONAL, LTD.
By: /s/ Robert Spiegel
---------------------------------------
Chairman of the Executive Compensation/
Stock Option Committee
/s/ Marc I. Perkins
------------------------------------------
Marc I. Perkins
14
<PAGE> 1
NON-QUALIFIED STOCK OPTION AGREEMENT
THIS NON-QUALIFIED STOCK OPTION AGREEMENT ("Option Agreement") is made and
entered into as of October 5, 1998 (the "Grant Date"), between Gunther
International, Ltd., a Delaware corporation (the "Company"), and Marc I.
Perkins, an individual residing within the State of Connecticut (the
"Optionee").
RECITALS:
A. The Optionee and the Company have entered into an Employment Agreement,
effective as of the date hereof (the "Employment Agreement"), providing for the
employment of the Optionee by the Company on the terms and subject to the
conditions set forth in the Employment Agreement.
B. The Employment Agreement provides for the grant of a non-qualified
stock option (the "Option") entitling the Optionee to purchase up to One Hundred
Fifty Thousand (150,000) shares of the common stock, par value $.001 per share
("Common Stock"), of the Company at an exercise price of $1.50 per share.
C. This is the Option contemplated by the Employment Agreement.
NOW, THEREFORE, in consideration of the foregoing recitals and the mutual
covenants and promises contained in this Option Agreement, the Company hereby
grants the Optionee the Option on the terms and conditions hereinafter set
forth.
1. Number of Shares; Option Price and Non-Qualified Status of Option. The
Optionee shall have the right and option to purchase up to 150,000 shares of
Common Stock (the "Option Shares") at an exercise price of $1.50 per share (the
"Option Price"), which is not less than the fair market value of the Option
Shares as of the Grant Date. The Option shall constitute and be treated at all
times by the Optionee and the Company as a "non-qualified stock option" for
Federal income tax purposes and shall not constitute and shall not be treated as
an "incentive stock option" as defined under Section 422(b) of the Internal
Revenue Code of 1986, as amended (the "Code").
2. Exercise of Option. The Option shall be immediately exercisable with
respect o 25,000 of the Option Shares and shall become exercisable with respect
to an additional 25,000 Option Shares, in cumulative installments (unless the
Option is otherwise terminated in accordance with the terms and conditions
hereinafter set forth), as of each of January 5, 1998; April 5, 1998; July 5,
1998; October 5, 1998; and January 5, 2000; on which date the Option shall
become fully exercisable with respect to all of the Option Shares. The Option
may be exercised only to purchase whole shares of Common Stock, and in no case
may a fraction of a share be purchased. To exercise the Option, the Optionee
must deliver a completed copy of the attached Option Exercise Form to the
address indicated on the form, specifying the number of Option Shares being
purchased as a result of such exercise, together with payment of the full
<PAGE> 2
Option Price for the Option Shares being purchased. Payment of the Option Price
must be made in cash or by check.
3. Term of Option and Termination of Employment.
(a) General. The term of the Option and this Option Agreement shall
commence as of the Grant Date. The right of the Optionee to exercise the Option
with respect to any Option Shares, to purchase any such Option Shares and all
other rights of the Optionee with respect to any such Option Shares shall
terminate on the fifth anniversary of the Grant Date, unless the Option has been
earlier terminated as provided either in paragraphs (b) through (f) below. This
Option Agreement shall terminate on October 29, 2003.
(b) Death of Optionee. If the Optionee shall die prior to the
exercise of the Option while the Optionee is employed by the Company, then the
Option may be exercised by the legatee(s) or personal representative(s) of the
Optionee at any time within one year after the Optionee's death; provided,
however, that (i) the Option may not be exercised after its expiration date; and
(ii) the Option may be exercised after the Optionee's death if and only to the
extent that the Option was exercisable at the time of the Optionee's death.
(c) Disability. If the Optionee's employment with the Company shall
terminate prior to the exercise of the Option as a result of the "disability" of
the Optionee (as defined in Section 6.2 of the Employment Agreement), then the
Option may be exercised by the Optionee (or his personal representative(s)) at
any time within one year after the Optionee's termination of employment;
provided, however, that (i) the Option may not be exercised after its expiration
date; and (ii) the Option may be exercised after the termination of the
Optionee's employment if and only to the extent that the Option was exercisable
at the time of termination of the Optionee's employment.
(d) Termination For Cause. If the Optionee's employment with the
Company shall terminate prior to the exercise of the Option because the Optionee
is terminated "For Cause" (as defined in Section 6.3 of the Employment
Agreement), then the Option shall immediately terminate upon the termination of
the Optionee's employment with the Company.
(e) Termination For Good Reason. If the Optionee's employment with
the Company shall terminate prior to the exercise of the Option For Good Reason
(as defined in Section 6.4 of the Employment Agreement), then the Option
(subject to clauses (i) and (ii) of paragraph (c) above) may be exercised by the
Optionee at any time within three months after the Optionee's termination of
employment.
(f) Termination for Other Reason. If the Optionee's employment with
the Company shall terminate prior to the exercise of the Option for any reason
other than as set forth in paragraphs (b) through (e) above, then the Option
(subject to clauses (i) and (ii) of paragraph (c) above) may be exercised by the
Optionee at any time within one month after the Optionee's termination of
employment.
2
<PAGE> 3
4. Notices. Any notice required or permitted under this Option Agreement
shall be deemed given when delivered personally, or when deposited in a United
States Post Office, postage prepaid, addressed, as appropriate, to the Company
at its principal executive offices located at One Winnenden Road, Norwich,
Connecticut 06360, or to the Optionee at the last known address of the Optionee
reflected in the personnel records of the Company or at such other address as
the parties may designate in writing.
5. Failure to Enforce Not a Waiver. The failure of the Company to enforce
at any time any provision of this Option Agreement shall in no way be construed
to be a waiver of such provision or of any other provision hereof.
6. Rights of a Stockholder. The Optionee shall have no rights as a
stockholder with respect to any Option Shares unless and until certificates for
shares of Common Stock are issued to the Optionee.
7. Rights to Terminate Employment. Nothing in this Option Agreement shall
confer upon the Optionee the right to continue in the employment of the Company
or affect any right which the Company may have to terminate the employment of
the Optionee.
8. Transferability of Option. This Option may not be transferred by the
Optionee (other than by will or the laws of descent and distribution) and may be
exercised during the Optionee's lifetime only by the Optionee.
9. Representations.
(a) The Optionee represents and warrants to the Company that, upon
exercise of this Option, the Optionee will be acquiring the Option Shares for
its own account for the purpose of investment and not with a view to or for sale
in connection with any distribution thereof, and the Optionee understands that
(i) neither the Option nor the Option Shares have been registered with the
Securities and Exchange Commission by reason of their issuance in a transaction
exempt from the registration requirements of the Securities Act of 1933, and
(ii) the Option Shares must be held indefinitely by the Optionee unless a
subsequent disposition thereof is registered under the Securities Act of 1933 or
is exempt from such registration. The stock certificates for any Option Shares
issued to the Optionee will bear the following legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS
OF ANY STATE AND MAY NOT BE SOLD OR OTHERWISE DISPOSED OF EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND
APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN APPLICABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH
LAWS.
3
<PAGE> 4
(b) The Optionee further represents and warrants that it understands
the Federal, state and local income tax consequences of the granting of the
Option, the acquisition of rights to exercise the Option with respect to any
Option Shares, the exercise of the Option and purchase of Option Shares, and the
subsequent sale or other disposition of any Option Shares. In addition, the
Optionee understands that the Company will be required to withhold Federal,
state or local taxes in respect of any compensation income realized by the
Optionee upon exercise of the Option granted hereunder. To the extent that the
Company is required to withhold any such taxes, the Optionee hereby agrees that
the Company may deduct from any payments of any kind otherwise due to the
Optionee an amount equal to the total Federal, state and local taxes required to
be so withheld, or if such payments are inadequate to satisfy such Federal,
state and local taxes, or if no such payments are due or to become due to the
Optionee, then the Optionee agrees to provide the Company with cash funds equal
to the total Federal, state and local taxes required to be so withheld, or make
other arrangements satisfactory to the Company regarding such payment. It is
understood that all matters with respect to the total amount of taxes to be
withheld in respect of any such compensation income shall be determined by the
Company in its sole discretion.
10. Amendment. This Option Agreement may be amended only by a written
document signed by both parties.
IN WITNESS WHEREOF, the parties hereto have executed this Option Agreement
as of the date and year set forth above.
GUNTHER INTERNATIONAL, LTD.
By: /s/ Robert Spiegel
---------------------------------------
Name: Robert Spiegel
Title: Chairman of the Executive
Compensation/Stock Option
Committee
The undersigned hereby accepts and agrees to
all the terms and provisions of the
foregoing Option Agreement.
/s/ Marc I. Perkins (Optionee)
-------------------------------
Marc I. Perkins
4
<PAGE> 5
GUNTHER INTERNATIONAL, LTD.
NON-QUALIFIED STOCK OPTION
OPTION EXERCISE FORM
I, Marc I. Perkins, do hereby exercise the right to purchase
______________ shares of Common Stock, $.001 par value, of Gunther
International, Ltd. pursuant to the Non-Qualified Stock Option granted to me on
October 5, 1998.
Date: ___________________ _________________________________________
Signature
Send a completed copy of this Option Exercise Form to:
Gunther International, Ltd.
One Winnenden Road
Norwich, Connecticut 06360
Attention: Chief Financial Officer
5
<PAGE> 1
AGREEMENT AND GENERAL RELEASE
THIS AGREEMENT AND GENERAL RELEASE is made and entered into by and between
Alan W. Morton of Milford, Connecticut (also referred to as "Employee") and
Gunther International Ltd. of Norwalk, Connecticut (also referred to as the
"Company").
W I T N E S S E T H :
WHEREAS, Employee has been employed by the Company; and
WHEREAS, Employee and the Company wish to resolve all matters relating to
their employment relationship; and
WHEREAS, Employee and the Company wish to resolve all claims or potential
claims between them.
NOW, THEREFORE, in consideration of the covenants and mutual promises
herein contained, it is agreed as follows:
1. Employee has decided to resign from his employment with the Company as
of August 31, 1998.
2. The Company agrees to continue Employee's current salary until November
30, 1998.
3. The Company agrees to pay for Employee's COBRA insurance continuation
costs until November 30, 1998.
4. Employee and the Company agree that the existence of and the terms of
the Settlement Agreement and General Release will not be disclosed except as
requested by law.
<PAGE> 2
5. The Company has advised Employee to discuss all aspects of this
Agreement and General Release with his attorney.
6. Employee represents that he has carefully read and fully understands
all of the provisions of this Agreement and General Release and that he has
voluntarily entered into this Agreement and General Release.
7. The Company and Employee agree that by entering into this Agreement and
General Release that neither admits any wrongful act.
8. As a material inducement to the Company to enter into this Agreement
and General Release, Employee irrevocably and unconditionally releases and
acquits and forever discharges the Company's officers, directors, employees and
agents from any and all charges, complaints, contracts and causes of action of
any nature whatsoever, known or unknown, including but not limited to any rights
under federal, state or local laws including the Age Discrimination in
Employment Act, The Connecticut Fair Employment Practices Act, Title VII of the
Civil Rights Act any express or implied contract claims, claims of wrongful
discharge or any other claim which could arise from Employee's employment and
its termination.
9. Employee understands that he has up to twenty-one (21) days to consider
this Agreement and understands that he has a
<PAGE> 3
seven (7) day period after execution to revoke this Agreement and waiver of
claims.
10. This Agreement and General Release sets forth the entire agreement
between the parties hereto, and fully supersedes any and all prior agreements or
understandings between the parties hereto pertaining to the subject matter
hereof.
PLEASE READ CAREFULLY. THIS AGREEMENT AND GENERAL RELEASE INCLUDES A
RELEASE OF ALL KNOWN AND UNKNOWN CLAIMS.
Executed at Milford, Connecticut, this 20th day of September, 1998.
By: /s/ Alan W. Morton
--------------------------------------
Alan W. Morton
Executed at Norwich, Connecticut, this 8th day of October , 1998.
GUNTHER INTERNATIONAL LTD.
By: /s/ James H. Whitney
-----------------------------------
James H. Whitney
Its President
3
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 1,213,697
<SECURITIES> 0
<RECEIVABLES> 1,260,396
<ALLOWANCES> 23,400
<INVENTORY> 1,524,480
<CURRENT-ASSETS> 4,778,714
<PP&E> 1,774,093
<DEPRECIATION> 995,428
<TOTAL-ASSETS> 8,689,129
<CURRENT-LIABILITIES> 7,638,177
<BONDS> 3,482,950
0
0
<COMMON> 4,292
<OTHER-SE> (2,436,290)
<TOTAL-LIABILITY-AND-EQUITY> 8,689,129
<SALES> 3,523,329
<TOTAL-REVENUES> 5,682,042
<CGS> 2,275,645
<TOTAL-COSTS> 3,999,243
<OTHER-EXPENSES> 206,059
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 115,829
<INCOME-PRETAX> 167,424
<INCOME-TAX> 0
<INCOME-CONTINUING> 167,424
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 167,424
<EPS-PRIMARY> 0.04
<EPS-DILUTED> 0.04
</TABLE>
