August 13, 2007

 

Dear Shareholder:

 

You are cordially invited to attend the 2007 Annual Meeting of Shareholders of Gerber Scientific, Inc., which will be held at 2:30 p.m., local time, on Thursday, September 20, 2007, at our corporate headquarters in South Windsor, Connecticut. The Notice of Annual Meeting and Proxy Statement that accompany this letter describe the matters to be voted on at the meeting. In addition, our management will make a presentation on this year’s operating results and recent developments affecting your company. We hope you will be able to attend and participate in the meeting.

 

Mr. A. Robert Towbin is retiring as a Director effective on the date of the Annual Meeting as required by mandatory retirement guidelines established by the Board of Directors. We wish to acknowledge Mr. Towbin’s numerous contributions and dedication to the Company over his many years of service.

 

Whether or not you plan to attend, it is important that your shares be represented and voted at the meeting. As a shareholder of record, you may vote your shares by telephone, over the Internet or by proxy card.

 

On behalf of your Board of Directors, I would like to thank you for your continued support and interest in Gerber Scientific.

 

Sincerely,

 

 

Marc T. Giles
President and Chief Executive Officer

 

GERBER SCIENTIFIC, INC.
83 GERBER ROAD WEST
SOUTH WINDSOR, CONNECTICUT 06074

 

 

Notice of Annual Meeting of Shareholders

to be held on September 20, 2007 at 2:30 p.m.

 

The Annual Meeting of Shareholders of Gerber Scientific, Inc. will be held on Thursday, September 20, 2007, at 2:30 p.m., local time, at the corporate headquarters of Gerber Scientific, 83 Gerber Road West, South Windsor, Connecticut. The Annual Meeting has been called for the following purposes:

 

1. to consider and vote upon a proposal to elect seven members of the Board of Directors;

 

2. to consider and vote upon a proposal to ratify the appointment of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm for the 2008 fiscal year; and

 

3. to transact such other business as may properly come before the Annual Meeting or any adjournment or postponement thereof.

 

Only shareholders of record at the close of business on August 1, 2007 will be entitled to notice of, and to vote at, the Annual Meeting or any adjournment or postponement thereof.

 

Your vote is very important to us. Whether or not you plan to attend the meeting in person, your shares should be represented and voted. To vote without attending the Annual Meeting, you should complete, sign, date and promptly return the enclosed proxy card in the postage-paid envelope that we have included for your convenience. Alternatively, you may vote through the Internet or by telephone as indicated on the enclosed proxy card. No postage is required if you mail your proxy in the United States. Even if you plan to attend the Annual Meeting, we would appreciate receiving your voting instructions before that date. Submitting the proxy before the Annual Meeting will not preclude you from voting in person at the Annual Meeting if you should decide to attend.

 

All shareholders are invited to attend the Annual Meeting. No ticket is required for admittance. If you have any questions regarding this Notice of Annual Meeting or if you have special needs which require assistance, please call us at 1-800-811-4707, extension 8067, and we will be happy to assist you.

 

By Order of the Board of Directors,

 

 

 

William V. Grickis, Jr.
Secretary

 

South Windsor, Connecticut

August 13, 2007

GERBER SCIENTIFIC, INC.
83 GERBER ROAD WEST
SOUTH WINDSOR, CONNECTICUT 06074

 

Annual Meeting of Shareholders
to be held on September 20, 2007 at 2:30 p.m.

 

 

PROXY STATEMENT

 

 

GENERAL INFORMATION

 

Gerber Scientific, Inc. (“Gerber Scientific” or the “Company”) is furnishing this Proxy Statement in connection with the solicitation of proxies by the Company’s Board of Directors (the “Board”) for use at the Annual Meeting of Shareholders to be held on Thursday, September 20, 2007, at 2:30 p.m., local time, at the Company’s corporate headquarters, 83 Gerber Road West, South Windsor, Connecticut. For your convenience, directions to the corporate headquarters are included in this Proxy Statement at Appendix A.

 

This Proxy Statement and the enclosed proxy card are first being mailed to the Company’s shareholders on or about August 13, 2007.

 

The Annual Meeting has been called for shareholders to consider and vote upon the election of Directors, to consider and vote upon a proposal to ratify the appointment of the Company’s independent registered public accounting firm for the 2008 fiscal year and to transact such other business as may properly come before the Annual Meeting or any adjournment or postponement thereof.

 

Proxy Solicitation

 

The Company will pay the cost of this proxy solicitation. In addition to the solicitation of proxies by use of the mails, officers and other employees of the Company and its subsidiaries may solicit proxies by personal interview, telephone, facsimile, e-mail and telegram. None of these individuals will receive compensation for such services, which will be performed in addition to their regular duties. The Company also expects to make arrangements with brokerage firms, banks, custodians, nominees and other fiduciaries to forward proxy solicitation materials for shares held of record by them to the beneficial owners of such shares. The Company will reimburse such persons for their reasonable out-of-pocket expenses in forwarding such materials.

 

A list of shareholders entitled to notice of the Annual Meeting will be open to the examination of any shareholder during regular business hours beginning on August 6, 2007 at the Company’s corporate headquarters, 83 Gerber Road West, South Windsor, Connecticut, and at the time and place of the meeting during the whole time of the meeting.

 

Voting Procedures

 

 

 

 

Annual Report to Shareholders

 

A copy of the Company’s annual report to shareholders for the 2007 fiscal year accompanies this Proxy Statement. The Company has filed an annual report on Form 10-K for the 2007 fiscal year with the Securities and Exchange Commission (the “SEC”), which forms a part of the 2007 annual report to shareholders. Shareholders separately may obtain, free of charge, a copy of the 2007 Form 10-K, without exhibits, by writing to Gerber Scientific, Inc., 83 Gerber Road West, South Windsor, Connecticut 06074, Attention: Corporate Secretary. The annual report on Form 10-K is also available through the Company’s website at www.gerberscientific.com. The annual report to shareholders and the 2007 Form 10-K are not proxy soliciting materials.

 

SECURITY OWNERSHIP

 

The following tables present information regarding beneficial ownership of the common stock as of June 30, 2007. This information has been presented in accordance with the rules of the SEC and is not necessarily indicative of beneficial ownership for any other purpose. Under SEC rules, beneficial ownership of a class of capital stock includes any shares of such class as to which a person, directly or indirectly, has or shares voting power or investment power and also any shares as to which a person has the right to acquire such voting or investment power within 60 days through the exercise of any stock option, warrant or other right, without regard to whether such right expires before the end of such 60-day period or continues thereafter. If two or more persons share voting power or investment power with respect to specific securities, all of such persons may be deemed to be the beneficial owners of such securities. Information with respect to persons other than the holders listed in the tables below that share beneficial ownership with respect to the securities shown is set forth following the applicable table.

 

There were 23,212,122 shares of common stock outstanding as of June 30, 2007.

 

Principal Shareholders

 

The following table presents, as of June 30, 2007, information based upon the Company’s records and filings with the SEC regarding each person, other than a Director, Director nominee or executive officer of the Company, known to the Company to be the beneficial owner of more than 5% of the common stock:

 

 

The percentage of beneficial ownership as to any person as of a particular date is calculated by dividing the number of shares beneficially owned by such person, which includes the number of shares as to which such person has the right to acquire voting or investment power within 60 days, by the sum of the number of shares outstanding as of such date plus the number of shares as to which such person has the right to acquire voting or investment power within 60 days. Consequently, the denominator for calculating beneficial ownership percentages may be different for each beneficial owner. Except as otherwise indicated below, the information available to the Company indicates that the beneficial owners shown in the table above have sole voting and investment power with respect to the shares shown.

 

The information concerning Wells Fargo & Company is based upon a Schedule 13G filed with the SEC on January 24, 2007 on its own behalf and on behalf of Wells Capital Management Incorporated, Wells Fargo Funds Management, LLC, Peregrine Capital Management, Inc., and Wells Fargo Bank, National Association.

Wells Fargo & Company reports that it has sole voting power with respect to 1,584,076 of the reported shares and sole investment power with respect to 1,661,976 of the reported shares.

 

The information concerning Royce & Associates, LLC is based upon an amended statement on Schedule 13G/A filed with the SEC on January 22, 2007. Royce & Associates reports that it has sole voting and investment power with respect to all of the reported shares.

 

The information concerning Bear Stearns Asset Management Inc. is based upon an amended statement on 13G/A filed with the SEC on February 14, 2007. Bear Stearns Asset Management Inc. reports that it has sole voting power with respect to 527,310 of the reported shares, shared voting and investment power with respect to 763,400 of the reported shares, and sole investment power with respect to 559,693 of the reported shares.

 

The information concerning Mario J. Gabelli and affiliates is based upon an amended statement on Schedule 13D/A filed with the SEC on June 8, 2007. In addition to Mr. Gabelli, each of the following is a reporting person on such Schedule 13D/A: Gabelli Funds, LLC; GAMCO Asset Management, Inc.; Gabelli Advisers, Inc.; GGCP, Inc.; and GAMCO Investors, Inc. Mr. Gabelli reports that he directly or indirectly controls or acts as chief investment officer for each of these entities. Mr. Gabelli also reports that each reporting person identified in such Schedule 13D/A has the sole voting power and investment power with respect to the shares reported for it, except that (1) GAMCO Asset Management, Inc. does not have authority to vote 21,000 of the reported shares and (2) proxy voting committees may have voting power over the reported shares in certain circumstances.

 

The information concerning Dimensional Fund Advisors LP is based upon an amended statement on Schedule 13G/A filed with the SEC on February 2, 2007. Dimensional Fund Advisors LP reports that it is an investment adviser registered under Section 203 of the Investment Advisers Act of 1940, furnishes investment advice to four investment companies registered under the Investment Company Act of 1940 and serves as investment manager to certain other commingled group trusts and separate accounts. Dimensional Fund Advisors LP reports that, in its role as investment adviser or manager, it possesses investment and/or voting power over all of the shares shown, but that all of the shares shown are owned by the investment companies, trusts and separate accounts and that it disclaims beneficial ownership of such securities.

 

The information concerning Barclays Global Investors, NA is based upon a statement on Schedule 13G filed with the SEC on January 23, 2007. Shares reported are held in trust accounts for the economic benefit of the following beneficiaries: Barclays Global Fund Advisors; Barclays Global Investors, Ltd.; Barclays Global Investors Japan Trust and Banking Company Limited; and Barclays Global Investors Japan Limited. Barclay’s Global Investors, NA reports that each of the foregoing entities has the sole voting and investment power with respect to the shares reported for it, except that Barclay’s Global Investors, NA has sole voting power with respect to 1,191,882 of the reported shares.

 

Investment in Gerber Scientific by Directors and Executive Officers

 

The following table presents, as of June 30, 2007, information regarding the beneficial ownership of the Company’s common stock by the following persons:

 

 

 

 

 

 

The percentage of beneficial ownership as to any person as of a particular date is calculated by dividing the number of shares beneficially owned by such person, which includes the number of shares as to which such person has the right to acquire voting or investment power within 60 days, by the sum of the number of shares outstanding as of such date plus the number of shares as to which such person has the right to acquire voting or investment power within 60 days. Consequently, the denominator for calculating beneficial ownership percentages may be different for each beneficial owner. Except as otherwise indicated below and under applicable community property laws, the information available to the Company indicates that the beneficial owners shown in the table above have sole voting and investment power with respect to the shares shown.

 

The shares shown as beneficially owned by Mr. Aiken include 15,000 shares that Mr. Aiken has the right to purchase within 60 days of June 30, 2007 pursuant to the exercise of stock options and 40,109 shares deliverable to Mr. Aiken pursuant to the Gerber Scientific, Inc. Agreement for Deferment of Director Fees (the “Agreement for Deferment of Director Fees”), or deliverable to Mr. Aiken after he ceases to serve as a Director pursuant to the Gerber Scientific, Inc. Non-Employee Director’s Stock Grant Plan (the “Non-Employee Director’s Stock Grant Plan”).

 

The shares shown as beneficially owned by Mr. Arthurs include 5,000 shares that Mr. Arthurs has the right to purchase within 60 days of June 30, 2007 pursuant to the exercise of stock options.

 

The shares shown as beneficially owned by Mr. Demko include 84,167 shares that Mr. Demko has the right to purchase within 60 days of June 30, 2007 pursuant to the exercise of stock options.

 

The shares shown as beneficially owned by Mr. Giles include 33,333 shares that Mr. Giles has the right to purchase within 60 days of June 30, 2007 pursuant to the exercise of stock options.

 

The shares shown as beneficially owned by Mr. Jepsen include 16,933 shares deliverable to Mr. Jepsen after he ceases to serve as a Director pursuant to the Non-Employee Director’s Stock Grant Plan.

 

The shares shown as beneficially owned by Dr. Ledford consist of shares deliverable to Dr. Ledford after he ceases to serve as a Director pursuant to the Non-Employee Director’s Stock Grant Plan.

The shares shown as beneficially owned by Mr. Lord include 14,164 shares deliverable to Mr. Lord after he ceases to serve as a Director pursuant to the Non-Employee Director’s Stock Grant Plan.

 

The shares shown as beneficially owned by Mr. Lovass include 1,666 shares that Mr. Lovass has the right to purchase within 60 days of June 30, 2007 pursuant to the exercise of stock options.

 

The shares shown as beneficially owned by Ms. St. Mark include 15,000 shares that Ms. St. Mark has the right to purchase within 60 days of June 30, 2007 pursuant to the exercise of stock options and 28,937 shares deliverable to Ms. St. Mark pursuant to the Agreement for Deferment of Director Fees or deliverable to her after she ceases to serve as a Director pursuant to the Non-Employee Director’s Stock Grant Plan.

 

The shares shown as beneficially owned by Mr. Towbin include 15,000 shares that Mr. Towbin has the right to purchase within 60 days of June 30, 2007 pursuant to the exercise of stock options and 23,678 shares deliverable to Mr. Towbin after he ceases to serve as a Director pursuant to the Non-Employee Director’s Stock Grant Plan.

 

The shares shown as beneficially owned by Mr. Vereen include 15,000 shares that Mr. Vereen has the right to purchase within 60 days of June 30, 2007 pursuant to the exercise of stock options, 1,000 shares held of record by a trust for which Mr. Vereen serves as trustee, and 23,678 shares deliverable to Mr. Vereen after he ceases to serve as a Director pursuant to the Non-Employee Director’s Stock Grant Plan.

 

The shares shown as beneficially owned by Mr. Zager include 71,667 shares that Mr. Zager has the right to purchase within 60 days of June 30, 2007 pursuant to the exercise of stock options.

 

The shares shown as beneficially owned by all Directors and executive officers as a group include a total of 1,069,598 shares that all Directors and executive officers as a group have the right to purchase within 60 days after June 30, 2007 pursuant to the exercise of stock options and a total of 161,663 shares deliverable to Directors pursuant to the Agreement for Deferment of Director Fees or pursuant to the Non-Employee Director’s Stock Grant Plan.

 

AGENDA ITEM 1:

 

ELECTION OF DIRECTORS

 

Nominees for Election as Directors

 

The Company’s Amended and Restated Certificate of Incorporation provides that all Directors will stand for election for one-year terms ending at the Annual Meeting.

 

The Company’s Amended and Restated By-Laws provide that the Board will consist of not fewer than three or more than eleven Directors, with the actual number to be determined by Board resolution from time to time. The number of Directors currently constituting the entire Board is eight.

 

The Board has nominated Donald P. Aiken, Marc T. Giles, Edward G. Jepsen, Randall D. Ledford, John R. Lord, Carole F. St. Mark and W. Jerry Vereen as nominees for election as Directors of the Company for a one-year term, until the next Annual Meeting of Shareholders or until their respective successors are elected and qualified. Each of the nominees is currently serving as a Director.

 

The nominees have indicated that they are willing and able to serve as Directors if elected. If any of such nominees should become unable or unwilling to serve, the proxies intend to vote for the replacement or replacements selected by the Nominating and Corporate Governance Committee of the Board.

 

A. Robert Towbin, whose term as a Director expires at this Annual Meeting, is retiring as a Director as required by mandatory retirement guidelines established by the Board.

 

Approval of Nominees

 

Approval of the nominees requires the affirmative vote of a plurality of the votes cast at the Annual Meeting. Accordingly, the Directorships to be filled at the Annual Meeting will be filled by the nominees receiving the highest number of votes. In the election of Directors, votes may be cast for or withheld with respect to any or all nominees. Unless authority to do so is withheld, it is the intention of the persons named in the proxy to vote such proxy for the election of each of the nominees. You may not cumulate your votes in the election of Directors.

 

The Board unanimously recommends a vote FOR the election of each of the nominees to serve as Directors.

 

Information About the Nominees

 

Biographical information concerning each of the nominees is presented below.

 

Donald P. Aiken, age 63, has served as a Director since 1997 and has served as Chairman of the Board of the Company since February 1, 2004. From August 2003 through December 2005, Mr. Aiken served as a director of ABB Lummus Global, a subsidiary of ABB Ltd., a provider of engineering, procurement and construction-related services for customers in the oil and gas, petrochemical and refining and power industries. Mr. Aiken also served as a consultant to ABB, Inc., a provider of power and automation technologies for utility and other industrial customers, from February 2004 through December 2005. He served as President and Chief Executive Officer of ABB, Inc. from February 2001 to January 2004. Mr. Aiken also serves on the board of directors of Xerium Technologies, Inc., a manufacturer and supplier of products used in the production of paper.

 

Marc T. Giles, age 51, has served as President and Chief Executive Officer of Gerber Scientific since November 2001. Mr. Giles began his career with Gerber Scientific in November 2000 as a Senior Vice President of the Company and President of Gerber Technology, Inc. Before joining Gerber Scientific, Mr. Giles spent twelve years with FMC Corp., a producer of machinery and chemicals for industry and agriculture, where he served in a number of senior positions in sales and marketing management, strategy development, mergers and acquisitions, and general management. Mr. Giles serves on the board of directors of the Charter Oak Chapter of the American Red Cross and on the board of directors of Connecticut Business & Industry Association.

Edward G. Jepsen, age 64, has served as a Director since 2003. Mr. Jepsen was the Executive Vice President and Chief Financial Officer of Amphenol Corporation from November 1988 until December 31, 2004. Amphenol Corporation is a manufacturer of electronic interconnect components. Mr. Jepsen is a member of the board of directors of Amphenol Corporation and is a director of and Chair of the audit committees of TRC Companies, Inc. and ITC Holdings Corp. He serves as Chair of the Company’s Audit and Finance Committee.

 

Randall D. Ledford, Ph.D., age 57, has served as a Director since 2003. Dr. Ledford has served since 1997 as Senior Vice President and Chief Technology Officer of Emerson Electric Company and as President of Emerson Venture Capital. Emerson Electric is engaged principally in the worldwide design, manufacture and sale of a broad range of electrical, electromechanical and electronic products and systems. Dr. Ledford serves on the Company’s Audit and Finance Committee and its Nominating and Corporate Governance Committee.

 

John R. Lord, age 63, has served as a Director since 2003. Mr. Lord served as the non-executive chairman of Carrier Corporation from January 2000 until April 2006. Mr. Lord was President and Chief Executive Officer of Carrier Corporation from April 1995 until his retirement in January 2000. Carrier Corporation, a division of United Technologies Corp., is the world’s largest manufacturer of air conditioning, heating and refrigeration equipment. Mr. Lord currently serves as a director of Amphenol Corporation. He serves on the Company’s Audit and Finance Committee and its Management Development and Compensation Committee.

 

Carole F. St. Mark, age 64, has served as a Director since 1997. Ms. St. Mark is the founder and President of Growth Management LLC, a business development and strategic management company. Prior to her association with Growth Management LLC, Ms. St. Mark was employed by Pitney Bowes, Inc., a provider of office equipment and services, from 1980 to 1997, during which period she served in several senior positions, including President and Chief Executive Officer of Pitney Bowes Business Services. Ms. St. Mark serves as Chair of the Company’s Nominating and Corporate Governance Committee and serves on its Management Development and Compensation Committee.

 

W. Jerry Vereen, age 66, has served as a Director since 1994. Mr. Vereen has served since 1976 as President of Riverside Manufacturing Company and its subsidiaries and currently also serves as the company’s Chairman, President and Chief Executive Officer. Riverside Manufacturing Company is primarily engaged in manufacturing and selling uniforms and business apparel to businesses and government agencies worldwide. Mr. Vereen serves on the board of directors of Georgia Power Company, where he also serves on the executive committee, the controls and compliance committee, and the nuclear committee, of which he is chairman. He is a past chairman and current director of the American Apparel and Footwear Association, and past chairman and current member of the board of directors of the International Apparel Federation, which is headquartered in Amsterdam, Netherlands. Mr Vereen is also a director of the National Association of Uniform Manufacturers and Distributors. Mr. Vereen serves as Chair of the Company’s Management Development and Compensation Committee and serves on its Audit and Finance Committee and Nominating and Corporate Governance Committee.

 

Director Emeritus

 

Stanley Simon, a member of the Company’s Board from 1967 to 1997, serves as a director emeritus. Mr. Simon is the founder of Stanley Simon and Associates, a financial and management consulting firm.

 

Board of Directors and Committees of the Board of Directors

 

The Board currently has a standing Audit and Finance Committee, a standing Management Development and Compensation Committee, and a standing Nominating and Corporate Governance Committee. The Board held six meetings during the Company’s 2007 fiscal year, which ended on April 30, 2007. During fiscal 2007, each Director attended at least 80% of the aggregate of the total number of meetings of the Board and the total number of meetings held by each committee of the Board on which such Director served during the period for which such Director served.

Director Independence.  The Board has affirmatively determined that all of the current Directors, other than Marc T. Giles, are “independent” of the Company within the meaning of rules governing NYSE-listed companies. For a Director to be “independent” under the NYSE rules, the Board must affirmatively determine that the Director has no material relationship with the Company, either directly or as a partner, shareholder or officer of an organization that has a relationship with the Company. The Board has adopted a categorical independence standard. Under this standard, a Director will not fail to qualify as independent solely because the Director served as an employee of any company that has made payments to, or received payments from, the Company for property or services in an amount which in any of the last three fiscal years does not exceed the greater of $750,000 or 2% of such other company’s consolidated gross revenues.

 

Consistent with the NYSE rules, the Company’s Corporate Governance Principles require the Company’s independent Directors to meet in executive session at every Board or committee meeting without any management Director or other member of management present. The Chair of the Board will preside over each executive session if he or she is a non-management Director. If the Chair of the Board is a management Director, the Chair of the Audit and Finance Committee, the Management Development and Compensation Committee and the Nominating and Corporate Governance Committee, as applicable, will preside as Chair at each executive session of the non-management Directors at which the principal items to be considered are within the scope of the authority of such Chair’s committee.

 

Audit and Finance Committee.  The Audit and Finance Committee, which held nine meetings during fiscal 2007, currently consists of Mr. Jepsen, who is the Chair, and Messrs. Ledford, Lord, Towbin and Vereen. The Board has determined that each of the members of the Audit and Finance Committee satisfies the independence standards of the NYSE and the additional independence standards of the SEC applicable to audit committee members. The Board also has determined that Edward G. Jepsen is an “audit committee financial expert,” as such term is defined in Item 407(d)(5) of Regulation S-K promulgated by the SEC, and is independent of management. This committee is responsible, among its other duties, for engaging, overseeing, evaluating and replacing the Company’s independent registered public accounting firm, pre-approving all audit and non-audit services by the independent registered public accounting firm, reviewing the scope of the audit plan and the results of the audit with management and the independent registered public accounting firm, reviewing the internal audit function, reviewing the adequacy of the Company’s system of internal accounting controls and disclosure controls and procedures, reviewing the financial statements and other financial information included in the Company’s annual and quarterly reports filed with the SEC and exercising oversight with respect to the Company’s policies and procedures regarding adherence with legal requirements.

 

Management Development and Compensation Committee.  The two primary purposes of Management Development and Compensation Committee are to evaluate and develop executive talent for the Company and to conduct reviews of the Company’s executive compensation strategies and oversee the Company’s overall compensation programs.

 

The specific functions and responsibilities of the Management Development and Compensation Committee are set forth in the Committee’s charter. Pursuant to its charter, the Committee’s responsibilities include, among other things:

 

 

 

Pursuant to its charter, the Committee has the right to delegate some or all aspects of its authority and responsibilities to subcommittees of the Committee. During 2007, the Committee delegated oversight of the Company’s pension, 401(k) and nonqualified supplemental employee retirement plans to an executive-led Investment Committee. The Committee did not otherwise delegate any of its responsibilities, including its responsibilities in approving grants to Company employees generally.

 

As discussed in the Compensation Discussion and Analysis below, our CEO, Mr. Giles, annually reports to the Committee his review and evaluation of each of the other executive officers of the Company, including the named executive officers set forth in the Summary Compensation table below. Mr. Giles also recommends to the Committee the base salaries, or base salary increases (as the case may be), for each executive, as well as the size of annual equity grants to be awarded, if any, to each officer. In addition, while the Committee as a whole reviews and approves the performance targets to be used each year for purposes of our annual incentive compensation plan, Mr. Giles, our Chief Financial Officer, and our Vice President, Global Human Resources, collectively recommend to the Committee the “threshold” level of performance that must be reached prior to any payments under the plan, as well as the “maximum” amounts that can be earned pursuant to the plan. With respect to all of these recommendations, however, the Committee has the final review and approval. Our Vice President, Global Human Resources, serves as management’s liaison to the Committee and works with the Committee Chair to prepare the agendas for its regularly scheduled and, if applicable, special meetings.

 

Pursuant to the Committee’s charter, the Committee has the sole authority to retain, amend the engagement of and terminate any compensation consultant used to assist in the evaluation of CEO or executive officer compensation. As discussed in the Compensation Discussion and Analysis below, the Committee retained Hewitt Associates in 2004 to perform a comprehensive review of the Company’s compensation programs and practices. Pursuant to this review, Hewitt provided information to the Committee relating to:

 

 

In a subsequent assignment, Hewitt provided market benchmark information on executive severance and change in control agreements.

 

The majority of Hewitt’s assistance to the Committee occurred in 2004 and, in part, resulted in the executive compensation program and practices we provided to our executives for fiscal 2007. Hewitt was engaged by the Committee again in the spring of 2007 to perform a new executive compensation benchmarking study, which is expected to be completed by the end of the summer of 2007.

 

During fiscal 2007, the Management Development and Compensation Committee consisted of Mr. Vereen, who is the Chair, Mr. Lord and Ms. St. Mark. The Committee held eight meetings during fiscal year 2007. Each member of the Committee is “independent” within the meaning of the NYSE listing requirements.

 

Nominating and Corporate Governance Committee.  The Nominating and Corporate Governance Committee, which held four meetings during fiscal 2007, currently consists of Ms. St. Mark, who is the Chair, and Messrs. Ledford, Towbin and Vereen. This Committee is responsible for recommending candidates for election to the Board and for making recommendations to the Board regarding corporate governance matters, including Board size, membership qualifications and Board committees. Each member of this Committee is “independent” within the meaning of the NYSE listing requirements.

The written charters governing the Audit and Finance Committee, the Management Development and Compensation Committee, and the Nominating and Corporate Governance Committee, as well as the Company’s Corporate Governance Principles, are posted on the governance page of the Company’s website at www.gerberscientific.com. You may also obtain a copy of any of these documents without charge by writing to Gerber Scientific, Inc., 83 Gerber Road West, South Windsor, Connecticut 06074, Attention: Corporate Secretary.

 

Director Nomination Process

 

The Board has, by resolution, adopted a Director nominations policy. The purpose of the nominations policy is to describe the process by which candidates for possible inclusion in the Company’s recommended slate of Director nominees are selected. The nominations policy is administered by the Nominating and Corporate Governance Committee.

 

The Board does not currently prescribe any minimum qualifications for Director candidates. Consistent with the criteria for the selection of Directors approved by the Board, the Nominating and Corporate Governance Committee will take into account the Company’s current needs and the qualities needed for Board service, including experience and achievement in business, finance, technology or other areas relevant to the Company’s activities; reputation, ethical character and maturity of judgment; diversity of viewpoints, backgrounds and experiences; absence of conflicts of interest that might impede the proper performance of the responsibilities of a Director; independence under SEC and NYSE rules; service on other boards of directors; sufficient time to devote to Board matters; and ability to work effectively and collegially with other Board members. In the case of incumbent Directors whose terms of office are set to expire, the Nominating and Corporate Governance Committee will review such Directors’ overall service to the Company during their term, including the number of meetings attended, level of participation, quality of performance, and any transactions of such Directors with the Company during their term. For those potential new Director candidates who appear upon first consideration to meet the Board’s selection criteria, the Nominating and Corporate Governance Committee will conduct appropriate inquiries into their background and qualifications and, depending on the result of such inquiries, arrange for in-person meetings with the potential candidates.

 

The Nominating and Corporate Governance Committee may use multiple sources for identifying Director candidates, including its own contacts and referrals from other Directors, members of management, the Company’s advisors, and executive search firms. The Nominating and Corporate Governance Committee will consider Director candidates recommended by shareholders and will evaluate such Director candidates in the same manner in which it evaluates candidates recommended by other sources. In making recommendations for Director nominees for the Annual Meeting of Shareholders, the Nominating and Corporate Governance Committee will consider any written recommendations of Director candidates by shareholders received by the Corporate Secretary of the Company not later than 120 days before the anniversary of the previous year’s Annual Meeting of Shareholders. Recommendations must include the candidate’s name and contact information and a statement of the candidate’s background and qualifications, and must be mailed to Gerber Scientific, Inc., 83 Gerber Road West, South Windsor, Connecticut 06074, Attention: Corporate Secretary.

 

The nominations policy is intended to provide a flexible set of guidelines for the effective functioning of the Company’s Director nominations process. The Nominating and Corporate Governance Committee intends to review the nominations policy at least annually and anticipates that modifications may be necessary from time to time as the Company’s needs and circumstances evolve, and as applicable legal or listing standards change. The Nominating and Corporate Governance Committee may amend the nominations policy at any time, in which case the most current version will be available on the governance page of the Company’s website at www.gerberscientific.com.

 

Communications With the Board of Directors

 

The Board welcomes communications from interested parties, and has adopted a procedure for receiving and addressing those communications. Interested parties may send written communications to the full Board, the non-management Directors as a group or any individual Director by addressing such a communication to

the attention of the Corporate Secretary at the following address: Gerber Scientific, Inc., 83 Gerber Road West, South Windsor, Connecticut 06074. The Corporate Secretary will review and forward all such communications to the intended recipient.

 

The Board has adopted a policy that all Directors should attend the Annual Meeting of Shareholders. All eight of the Company’s Directors at the time of the 2006 Annual Meeting of Shareholders attended such Annual Meeting.

 

Complaint Process

 

The Company has established formal procedures for receiving and handling complaints regarding accounting, auditing and internal controls matters. The Company has a telephone hotline for employees to submit their concerns regarding violations or suspected violations of law and for reporting questionable accounting or auditing matters and other accounting, internal accounting controls or auditing matters on a confidential, anonymous basis. Employees or others can report concerns by calling 1-866-384-4277, by filing a report on www.ethicspoint.com, or by writing to the addresses provided in the Company’s Policy for Handling Complaints, which is posted on the governance page of the Company’s website at www.gerberscientific.com. Any concerns regarding accounting or auditing matters so reported are communicated to the Chair of the Audit and Finance Committee.

 

Financial Code of Ethics and Code of Business Conduct and Ethics

 

The Company has adopted a Financial Code of Ethics applicable to its Chief Executive Officer and its senior financial and accounting officers that meets the requirements of a “code of ethics” as defined by Item 406 of Regulation S-K promulgated by the SEC. In addition, the Company has adopted a Code of Business Conduct and Ethics applicable to all Directors, officers and employees. The Code of Business Conduct and Ethics sets forth the Company’s policies and expectations with respect to the conduct and ethical standards expected of covered individuals. It addresses a number of topics, including conflicts of interest, relationships with others, corporate payments, disclosure policy, compliance with laws, corporate opportunities and the protection and proper use of the Company’s assets. The Financial Code of Ethics and the Code of Business Conduct and Ethics are posted on the governance page of the Company’s website at www.gerberscientific.com. You may obtain copies of these documents without charge by writing to Gerber Scientific, Inc., 83 Gerber Road West, South Windsor, Connecticut 06074, Attention: Corporate Secretary.

 

DIRECTOR COMPENSATION

 

Fees

 

Until May 1, 2006, Directors who were not employees of the Company received fees of $20,000 annually. Beginning May 1, 2006, the annual fee for non-employee Directors was increased to $40,000. In addition to annual fees, non-employee Directors generally receive fees of $1,500 for each Board meeting attended, $1,500 for each committee meeting attended or, if Chair of a committee, $3,000 for each committee meeting attended, in each case whether attendance is in person or by conference telephone. All such fees are paid in cash. Directors who are also employees of the Company receive no fees for their service on the Board. All Directors are entitled to reimbursement for their reasonable out-of-pocket travel expenditures.

 

Equity Grants

 

Before an amendment to the Company’s Non-Employee Director’s Stock Grant Plan that was effective as of May 1, 2006, non-employee Directors were credited annually with shares of the Company’s common stock having a fair market value at the time of the award equal to $25,000. One quarter of these shares were credited to a director’s account on the last business day of each calendar quarter using fair market value of the common stock on such dates. Beginning May 1, 2006, the Non-Employee Director’s Stock Grant Plan was amended to credit non-employee Directors annually with 5,000 shares of the Company’s common stock. One quarter of these shares, or 1,250 shares, is credited to a Director’s account on the last business day of each calendar quarter. Delivery of the shares credited to a Director is deferred until such Director ceases to serve as a Director. All shares are issued pursuant to the Gerber Scientific, Inc. 2006 Omnibus Incentive Plan and are fully vested upon grant.

 

Chairman’s Fee

 

Mr. Aiken serves as Chairman of the Board. In addition to receiving the Director compensation described above, Mr. Aiken receives a fee of $12,500 per month for his services as Chairman. Mr. Aiken does not receive fees for attending any committee meetings.

 

Deferrals

 

Pursuant to the Agreement for Deferment of Director Fees, each non-employee Director may elect to defer all or part of the Director’s annual cash retainer fees and Board and committee meeting cash attendance fees until a future date selected by the Director. Until the termination of the Gerber Scientific, Inc. 1992 Non-Employee Director Stock Option Plan in August 2002, a Director could elect to have the deferral held in cash, on which interest accrues at market rates, or in shares of the common stock issued under that plan. From August 2002 until the Agreement for Deferment of Director Fees was amended in January 2006, deferred amounts were held in cash, on which interest accrues at market rates. In January 2006, the Agreement for Deferment of Director Fees was amended to provide that non-employee Directors have the option, from and after January 1, 2006, to have amounts deferred held in shares of common stock or in cash, on which interest accrues at market rates. A total of 100,000 shares of common stock may be issued pursuant to the Agreement for Deferment of Director Fees credited on the shares of the common stock held in a Director’s share account established in accordance with the Agreement. These arrangements remain in effect notwithstanding the termination of the 1992 Non-Employee Director Stock Option Plan.

The following table shows compensation for non-employee Directors for fiscal 2007.

 

Fiscal 2007 Director Compensation Table

 

 

 

 

 

 

EXECUTIVE COMPENSATION

 

Compensation Discussion and Analysis

 

Executive Compensation Objectives

 

The primary objective of the Gerber Scientific executive compensation program is to attract, retain and motivate high-quality talent. We expect our executives to continue the Company’s growth in revenue and earnings and we reward them for attaining related performance goals. Each member of our senior management, which includes the five named executive officers set forth in the Summary Compensation Table below, receives a total compensation package that is primarily performance-based. For example, approximately 70% of the compensation we paid to Mr. Giles, our Chief Executive Officer, for fiscal year 2007 was based on performance when taking into account non-equity incentive plan compensation and stock and option awards.

 

In addition, we structure executive compensation to:

 

 

“Total Compensation” Philosophy

 

In determining any element of a named executive officer’s compensation, we believe the Management Development and Compensation Committee, which we refer to as “Committee,” must consider the total compensation package for our review to be effective. This includes salary, annual incentive compensation and long-term equity. We also consider retention-focused compensation, such as the Company’s benefits program and any compensation payable upon termination. The elements of the Company’s executive compensation are discussed in more detail under “Elements of Our Executive Compensation Program,” below.

 

Genesis of Current Executive Compensation Program

 

In 2004, we initiated a comprehensive review and redesign of the Company’s executive compensation program. We began by comparing the Company’s program to other programs within a peer group of companies. In particular, we set out to:

 

 

While we commenced the review in 2004, the re-design was not fully implemented until the Company’s shareholders adopted the Gerber Scientific, Inc. Omnibus Incentive Plan in September 2006. The Committee believes the review met each of the four key objectives set forth above, and the results were used in making compensation decisions for fiscal years 2005, 2006 and 2007.

 

Peer Group Data and Other Considerations in Setting of Executive Compensation

 

The Committee engaged Hewitt Associates to conduct the 2004 peer group study and has commissioned another study to be completed by the end of the summer of 2007. We review this comparative information annually for competitive purposes. We do not, however, “benchmark” our executive compensation or strive to pay our executive officers, including the named executive officers, at a particular level of compensation, whether by element or in total. Instead, the Committee uses the information to understand what constitutes the

median, or the 50^th percentile, in executive compensation, by element as well as total compensation, among the companies with which we compete for our executives.

 

At our request, Hewitt reviewed survey data as well as proxy data for 21 U.S.-based peer companies. The survey data reviewed included the following:

 

 

The Committee chose these data sources because they represent mid-sized, technology-based, manufacturing companies or divisions of larger manufacturing companies with business units comparable to the Company. We view many of these companies and business units as our competitors for talent. However, given some significant differences in scale among the companies, Hewitt adjusted all of the data to be comparable with Gerber Scientific’s revenue. The following 21 companies were included in the peer group for the CEO and other corporate executives, which includes each of the named executive officers:

 

 

In addition to the peer group and survey data described above, the Committee also considers the following when setting executive compensation:

 

 

Elements of Our Executive Compensation Program

 

For 2007, the Company’s executive compensation program consisted of the five basic components listed below:

 

 

 

The Company does not provide any other supplemental benefits or perquisites.

 

Base Salary

 

The Company pays base salaries to attract executive talent to the Company. Base salary increases reflect an individual executive’s performance and keep the executive’s base salary competitive for retention purposes. In approving base salary increases for fiscal year 2007, the Committee reviewed the factors set forth above under “Peer Group Data and Other Considerations in Setting of Executive Compensation” for each named executive officer. In addition, we noted the following two factors:

 

 

After considering the above, we approved base salary increases for each named executive officer as follows: Mr. Giles, 9%; Mr. Zager, 16%; Mr. Demko, 6%; Mr. Arthurs, 8%; and Mr. Lovass, 2.5%.

 

Annual Incentive Compensation

 

Annual incentive compensation is a primary component of our performance-driven compensation program. We find it particularly productive to match incentive-based pay to the Company’s annual strategic goals. This allows us to adapt our executive compensation to evolving business plans. In recent years, we have identified improved earnings and cash flow as our annual strategic goals tied to incentive compensation. In fiscal year 2007, we targeted improved earnings and cash flow, as we have done historically. We also added revenue as a new performance metric. This reflects the Company’s increasingly solid financial base and the importance of future growth. As a result, the following factors and respective weighting determined the amount of annual incentives payouts for the named executive officers, as well as our other participating employees generally, for fiscal year 2007:

 

 

At the beginning of each fiscal year, we approve the earnings, cash flow and revenue performance targets for the Company and its business units. In approving the performance targets, the Committee reviews the Company’s budget for the fiscal year, which is set collectively by our senior management and approved by the Board of Directors. We then set the targets as a percentage of the Company’s budget for the fiscal year. No payments are made under the incentive plan unless the Company achieves its minimum EBIT target. We typically set this target higher for our executive officers than for our participating employees as we believe our executive officers are more responsible for the leadership and strategy that determine whether the target is met.

 

The Committee also approves the target payout for each participant in the incentive compensation plan. This target is expressed as a percentage of base salary, measured as of the end of the fiscal year. In setting the target payout for each named executive officer, the Committee primarily considers peer group information for comparable executives within the Company’s competitive peer group. Possible payouts for each named

executive officer range from 0 to two times the target payout. In fiscal year 2007, the target payout for each named executive officer was as follows: Mr. Giles, 75% (with a minimum of 0% and a maximum of 150% of base salary); Mr. Zager, 60% (with a minimum of 0% and a maximum of 120% of base salary); Messrs. Demko and Arthurs, 50% (with a minimum of 0% and a maximum of 100% of base salary); and Mr. Lovass, 40% (with a minimum of 0% and a maximum of 80% of base salary). Messrs. Giles, Zager, Demko and Arthurs are considered “corporate” employees and thus their annual incentive compensation is measured on Company performance alone. Mr. Lovass is considered a “business unit employee,” and thus his annual incentive compensation is determined 50% based on Company performance and 50% based on his business unit performance. For additional information on our 2007 fiscal year annual incentive compensation plan, including bonus percentages and actual payouts, see the footnotes to the Summary Compensation Table beginning on page 24 below.

 

The Committee may, in its discretion, adjust the size of any annual incentive compensation payout, as determined based on the plan formula. The Committee would most likely do so only in extraordinary circumstances to maintain the integrity of the incentive program or protect the Company’s financial solvency. Over the past three years, the Committee has followed the plan formula and has not otherwise increased or decreased the payout.

 

Participants in the annual incentive plan, including the named executive officers, may elect to receive up to 50% of their annual incentive compensation in the form of fully-vested restricted stock. By making this election, a participant will receive an additional number of shares of restricted stock equal to one-third of the amount of the annual incentive compensation elected, net of tax, to be received in restricted stock (e.g., if the participant elects to receive $60,000, net of tax, of his or her annual bonus in restricted stock, the Company will issue to the participant an additional number of shares of restricted stock equal to $20,000). We offer this program in order to further our objective of aligning the interests of our employees, including the named executive officers, with those of our shareholders. Any additional shares of restricted stock issued by the Company pursuant to this program will vest in equal installments over a three-year period. No named executive officer elected to receive his fiscal year 2007 annual incentive compensation in restricted stock.

 

Long-Term Equity Incentive Compensation

 

Types and Amounts of Equity Grants.  The Company’s long-term equity incentive compensation for each of the named executive officers generally takes the form of stock option awards. We view stock options as inherently performance-based as our named executive officers are rewarded only if our stock price increases. During fiscal year 2007, equity awards to named executive officers consisted exclusively of stock options, with the exception of Mr. Giles, who received a portion of his long-term compensation in the form of restricted stock. We have determined that restricted stock is in some cases more cost efficient for the Company and provides good alignment with shareholders in both up and down markets. Restricted stock also provides a strong retention tool to help ensure management continuity. For these reasons, the Committee feels that adding restricted stock to the Company’s equity offerings will be in the long-term best interests of shareholders. As noted above, we began granting restricted stock to our CEO, Mr. Giles, in fiscal year 2007. It is likely that we will grant restricted stock to our other named executive officers, and executive officers generally, during fiscal year 2008.

 

Stock options granted to our employees, including the named executive officers, under some of our predecessor plans to our Omnibus Incentive Plan included an “option reload provision.” Pursuant to the reload provision, upon exercise of an original option grant issued under the former plans, the employee is entitled to receive a new option equal to the number of shares used to pay the strike price and taxes in a cashless exercise. The grant date of the reload option is the date of exercise of the underlying option, and the exercise price is equal to the closing market price of our stock on the date of exercise. The reload option expires on the same date as the original option and will vest in full three years after the grant date of the reload option, assuming the executive continues to hold the shares received upon exercise of the original option for three years. While initially adopted as an additional retention mechanism and reward for performance, the Committee excluded this provision from the Omnibus Incentive Plan due to a desire to simplify the program.

Equity grants beginning in 2003 did not include this feature. The last outstanding options with the reload feature will expire in fiscal year 2008.

 

From year to year, the size of equity grant awards to the named executive officers is determined by the factors set forth under “Peer Group Data and Other Considerations in Setting of Executive Compensation” above. Specifically, for fiscal year 2007, grant sizes were determined primarily by the named executive officer’s individual performance over the prior fiscal year. We measured performance in consultation with Mr. Giles (except when assessing Mr. Giles’s own performance), who recommended an award grant for each executive. In addition, we also considered each officer’s career potential at the Company and our general competitive review.

 

For specific information on the equity grants made to our named executive officers, see the Grants of Plan-Based Awards table beginning on page 25 below.

 

Timing of Equity Grants.  The Omnibus Incentive Plan provides that stock options must be granted with exercise prices not less than fair market value of the Company’s common stock on the effective date of grant. The effective date of any equity grant is typically the date the grant is approved by the Committee. However, if the equity grant is approved by the Committee during a period after quarterly results are known to the Committee, but not to the public, the effective date of the equity grant will be the first date of the next open trading window pursuant to our insider trading guidelines. The Company adopted this practice to ensure that the price of our common stock on the effective date of grant reflects all information, which in turn ensures fair treatment of all current and potential shareholders.

 

Pension Plan and SERP

 

We maintain a tax-qualified, noncontributory defined benefit plan for our U.S. employees who were hired prior to May 1, 2004, which includes each of the named executive officers other than Mr. Zager (employees hired after May 1, 2004 are eligible to participate in the Company’s 401(k) plan, but not in the defined benefit plan). We also maintain a nonqualified supplemental employee retirement plan, or SERP (available to senior executives who were hired prior to May 1, 2004), which provides retirement benefits in excess of the limitations set forth qualified plans. Each of the named executive officers, other than Mr. Zager, participates in the SERP. While we initially implemented the pension plan and SERP for competitive reasons, and as a means to be a more attractive employer for retirement benefit purposes, the Company discontinued the defined benefit pension plan for new employees due to cost considerations and a growing preference among recruits for defined contribution programs. For more information on our defined benefit plan and SERP, see the Pension Benefits table, and accompanying narrative, beginning on page 28 below.

 

Severance Arrangements

 

Each of our named executive officers is entitled to receive certain payments and benefits upon certain terminations pursuant to our Severance Policy for Senior Officers. In addition, pursuant to change in control agreements with each named executive officer, each such executive is entitled to receive certain payments and benefits upon a termination event occurring within a specified period of time following a change in control of the Company (a “double trigger”). We provide these payments to be competitive with our peer companies, as well as to recruit and retain our executives. With respect to payments and benefits payable to the named executive officers upon a termination following a change in control, the Committee believed a “double trigger” was more appropriate than a “single trigger” provision, since the purpose of such benefit is to provide employment protection to these officers, a concern that is not necessarily present upon a change in control alone. Moreover, a change in control agreement is designed to facilitate management continuity during an ownership transition. A new owner of the Company may want to retain the management team. A “single trigger” agreement would make this more difficult.

 

In August 2007, the Committee approved certain amendments to the change in control agreements. As a result of the amendments, certain benefits previously offered to our named executive officers upon termination following a change in control, including without limitation tax gross up payments, were eliminated. The

Committee made these changes to better align the Company’s change in control agreements with those of our peer companies.

 

For a more detailed discussion of these severance and change in control arrangements, as well as certain equity acceleration upon termination as provided pursuant to our equity plans, including estimates of the amounts payable to each named executive officer thereunder, see the “Potential Payments upon Termination and Change in Control” section beginning on page 30 below.

 

Tax and Accounting Considerations

 

Section 162(m) of the Internal Revenue Code generally disallows a tax deduction to public companies for compensation over $1,000,000 paid for any fiscal year to the company’s Chief Executive Officer and, based upon recent staff interpretations, the other three most highly compensated executive officers as of the end of the fiscal year. However, the statute exempts qualifying performance-based compensation from the deduction limit if certain requirements are met. The Committee designs the annual incentive compensation portion of our named executive officers’ compensation packages to allow full deductibility pursuant to Section 162(m). The Committee intends to continue to design compensation programs that strongly consider tax consequences, including protecting full deductibility under Section 162(m).

 

In addition, as discussed above under “Long-Term Equity Incentive Compensation,” in fiscal year 2007, the Committee determined it advisable to begin granting restricted stock, in lieu of options, due in part to the cost effectiveness of restricted stock resulting from the Company’s adoption of FAS 123R.

 

Management Development and Compensation Committee Report

 

The Management Development and Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis with management and, based on this review and discussion, has recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Proxy Statement and incorporated by reference into the Company’s annual report on Form 10-K for fiscal year 2007.

 

Respectfully submitted,

 

Management Development and Compensation Committee

 

W. Jerry Vereen (Chair)

Carole F. St. Mark

John R. Lord

 

Summary Compensation Table

 

Fiscal 2007 Summary Compensation Table

 

 

 

 

Grants of Plan-Based Awards Table

 

Fiscal 2007 Grants of Plan-Based Awards

 

 

 

 

 

Target% × Bonus% = % Earned

% Earned × Base $ = $ Earned

 

 

 

Outstanding Equity Awards at Fiscal Year-End Table

 

Fiscal 2007 Outstanding Equity Awards at Fiscal Year-End

 

 

 

 

Option Exercises and Stock Vested Table

 

Fiscal 2007 Option Exercises and Stock Vested

 

 

 

 

Pension Benefits Table

 

The Company maintains a tax-qualified, noncontributory pension plan for all U.S. employees who were hired prior to May 1, 2004. In addition, to provide additional retirement benefits to our more highly-paid executives in excess of the compensation limitations and maximum benefit accruals for tax-qualified plans imposed by the Internal Revenue Code, the Company maintains a nonqualified Supplemental Employee Retirement Plan, or SERP. Benefits under the SERP are also provided by the Company on a noncontributory basis. Employees hired on or after May 1, 2004 are not eligible for the pension plan or SERP and are only entitled to participate in the Company’s 401(k) plan. Each of the named executive officers, other than Mr. Zager, who was hired after May 1, 2004, is eligible to participate in the qualified pension plan and SERP.

 

For each eligible named executive officer, benefits pursuant to the tax-qualified pension plan are generally based on the executive’s credited years of service and his “final average compensation.” “Final average compensation” is equal to the average of the executive’s base salary for the five consecutive calendar years

during the last ten calendar years prior to termination or retirement, whichever occurs first, in which such average was the highest, multiplied by 1.5%, which is the annual benefit accrual rate. For 2006, the maximum compensation that could be taken into account for plan purposes pursuant to Internal Revenue Service regulations was $220,000, and the maximum annual benefit that could be accrued under the plan was $175,000. Benefits are then reduced by an offset for social security benefits. Thus, the formula for calculating the normal retirement pension benefit pursuant to the pension plan is as follows:

 

final average compensation × years of service × 1.5%

 

This result is then reduced by the named executive officer’s expected social security benefit, as follows:

 

social security benefit × years of service × 1.67%

 

Pension plan benefits are vested after five years of continued service with the Company. Each of the named executive officers participating in the pension plan, including Mr. Demko, has five years or more of continued service with the Company and thus are fully vested under the plan. In addition, pension plan benefits are actuarially reduced for participants who retire on or after age 55 (which constitutes early retirement). Mr. Arthurs is the only named executive officer eligible for early retirement pursuant to the pension plan. Upon early retirement, the plan provides that a participant would be entitled to his or her accrued benefit under the plan, reduced by 3% for each year (prorated for months) by which the commencement of benefit payments precedes his or her normal retirement date. However, the plan further provides that no actuarial reduction is to be made to the accrued benefits upon early retirement if the employee’s age and years of service total 85. Mr. Arthurs meets this threshold and thus may retire early pursuant to the pension plan with no reduction in benefits.

 

Pursuant to the SERP, each named executive officer is entitled to receive benefits equal to the benefits that would have been accrued under the tax-qualified pension plan if the maximum limitations on compensation that could be considered, and the annual benefit that could be accrued, under that plan did not apply, reduced by the amount of benefit actually accrued under the tax-qualified pension plan. Benefits under the SERP will be paid to each officer at the same time the officer elects, or is entitled, to receive his accrued benefits pursuant to the pension plan, and in the same form and manner as so elected by the officer.

 

Upon retirement at normal retirement age of 65, or upon disability prior to age 65 (in which case there would be no adjustment for early retirement), each named executive officer will generally be entitled to receive his accrued pension benefits in either (1) monthly payments for the life of the officer, or (2) a lump sum payment (provided that the officer’s vested benefit is at least $5,000 and less than $15,000), as elected by the named executive officer at the time of his application to receive pension benefits. In the event the benefits payable to a named executive officer do not exceed $5,000, the officer is required to receive such amount in a lump sum payment.

 

In the event of death prior to normal retirement age, if and only if the named executive officer is married at such time, the officer’s spouse is generally entitled to receive a reduced pre-retirement survivor annuity in the amounts set forth in the pension plan.

The table below illustrates the estimated present value of the accumulated benefit under these retirement plans. The value of each plan is designated separately. The calculation assumes that the named executive officer retires at age 65 (including for Mr. Arthurs since, although he is eligible for early retirement, he has an aggregate of 85 years in age in credited service and this is eligible to retire with no reduction in benefits), the normal retirement age as defined under the pension plan and SERP, and uses compensation levels as of April 30, 2007.

 

 

 

 

Potential Payments Upon Termination and Change in Control

 

Each of Messrs. Giles, Arthurs and Lovass is entitled to receive termination benefits that are not available to our employees generally. These benefits are provided pursuant to (1) our Severance Policy for Senior Officers, and (2) change in control agreements, as amended by the Company in August 2007. In addition, our equity plans provide for certain acceleration of unvested equity awards upon various termination events.

 

As disclosed in the Company’s current report on Form 8-K filed with the SEC on May 9, 2007, Mr. Zager resigned from the Company effective June 22, 2007. Mr. Zager did not receive any severance or termination payments other than those to which he was entitled as of the date of termination or as available generally to all of our employees. As disclosed in the Company’s current report on Form 8-K filed on May 11, 2007, as

amended on Form 8-K/A filed on July 23, 2007, Mr. Demko resigned from the Company on May 9, 2007, effective on July 18, 2007. Upon his termination, Mr. Demko entered into a Separation Agreement with the Company, which is summarized below.

 

Messrs. Giles, Arthurs and Lovass

 

Severance Policy for Senior Executives

 

Pursuant to the severance policy, upon termination of the executive officer for any reason other than death, disability, retirement or by the Company for “cause” (as defined under “Change in Control Agreements” immediately below), each such officer is entitled to the following:

 

 

Notwithstanding the above, in the event the officer is entitled to payments or benefits pursuant to the change in control agreements, as discussed immediately below, the officer will not be entitled to any payments or benefits pursuant to the severance policy (i.e., the officer may not receive benefits pursuant to both the severance policy and the change in control agreements). In addition, the severance policy provides that if the officer obtains full-time employment with a company that is not a competitor of the Company, the officer will receive, in lieu of the above benefits, a lump sum payment in an amount equal to 50% of the remaining amount of base salary that would have been payable to the officer pursuant to the severance policy.

 

In order to receive the above termination benefits, the named executive officer must release the Company from any and all claims. In addition, the Company’s obligation to make the above payments, or make available the above benefits, will cease in the event the officer:

 

 

Change in Control Agreements

 

Pursuant to severance agreements entered into with each of Messrs. Giles, Arthurs and Lovass in August 2007, each officer is entitled to the following upon termination of employment with the Company occurring within two years of a “change in control,” unless such termination is a result of death, disability, retirement, termination by the executive for other than “good reason” or by the Company for “cause” (each term as generally defined below):

 

 

 

For purposes of the above severance payment, “annual incentive bonus payment in effect as of the termination date” means the target amount of the annual incentive bonus payment for the year in which the notice of termination is given. In addition, in the event any of the above payments would qualify as “excess parachute payments” pursuant to Section 280G of the Internal Revenue Code, the payments will be reduced accordingly so that no such payment constitutes an “excess parachute payment.”

 

Upon the executive’s termination for death, disability, retirement, for other than good reason or by the Company for cause, the executive is not entitled to any termination or severance benefits under the change in control agreements. The executive will be entitled, however, to the payments described immediately above, if any, pursuant to the severance agreements, as well as any applicable acceleration of outstanding equity awards, as described immediately below under “Equity Plans.”

 

In exchange for the above payments or benefits, pursuant to the severance agreements, each officer agreed that in the event of a “potential change in control” (as generally defined below), the officer would not voluntarily terminate his employment with the Company under the earlier to occur of (1) six months after the occurrence of the potential change in control, or (2) the occurrence of a change in control of the Company.

 

In addition, as a condition to receipt of the above termination benefits, the executive must sign a general release in favor of the Company which releases the Company from all future claims, as well as certifies the executive’s agreement to be bound by the confidentiality and noncompete provisions (for a period of one year following termination) required by the severance agreement. The executive’s compliance with the confidentiality provision, however, is not a requirement to his receipt of any severance payments.

 

The Company agreed to require any successor to the Company’s business to expressly assume the obligations of the severance agreements. In the event any such successor to the Company does not agree to assume the severance obligations and related payments, the executive is entitled to compensation from the Company in the same amount and on the same terms as he would be entitled under the severance agreements in the event of termination for good reason following a change in control.

 

Pursuant to the severance agreements, the following terms have the following meanings:

 

 

 

 

 

 

 

 

 

 

Equity Plans

 

Each of Messrs. Giles, Arthurs and Lovass holds outstanding unvested stock options and/or restricted stock awards that are subject to acceleration upon the termination events described immediately below. These outstanding awards were issued pursuant to our (1) 2003 Employee Stock Option Plan, and (2) 2006 Omnibus Incentive Plan.

 

Pursuant to these plans, outstanding unvested stock options and shares of restricted stock held by the executives will accelerate and vest in full upon the executive’s termination due to death or disability, or upon a change in control of the Company (i.e., a “single trigger”). In addition, pursuant to the 2003 Employee Stock Option Plan only, the executive is entitled to an additional two years of accelerated vesting upon the executive’s retirement. The 2006 Omnibus Incentive Plan does not provide for acceleration of outstanding unvested equity awards upon retirement.

Estimated Payments

 

The table below sets forth the estimated payments to each of Messrs. Giles, Arthurs and Lovass upon the termination events described immediately above. The estimated payments are based on the assumption that the termination event occurred on April 30, 2007, the last day of our last fiscal year, and the stock price of our common stock was $10.01, the price of our common stock on April 30, 2007. The estimates below are based on these assumptions, as required by the rules of the Securities and Exchange Commission, while the actual amounts to be paid to each officer will be determinable only upon the actual termination event. In addition, the amounts set forth in the table below do not include any other payments that are available to our employees generally on a non-discriminatory basis.

 

 

 

 

 

Mr. Demko

 

As discussed above, on May 9, 2007, Mr. Demko resigned from the Company, effective July 18, 2007. Pursuant to a separation agreement entered into between Mr. Demko and the Company, Mr. Demko received the following payments:

 

 

In addition, each of the Company and Mr. Demko agreed to release the other party from any and all claims each may have against the other. In addition, Mr. Demko agreed to keep all Company information confidential and not to compete against the Company for a period of one-year following the effective date of his termination.

 

Compensation Committee Interlocks and Insider Participation

 

W. Jerry Vereen served as Chair and John R. Lord and Carole F. St. Mark served as members of the Management Development and Compensation Committee during fiscal 2007. No member of the Management Development and Compensation Committee during fiscal 2007 is or was an officer or other employee of the Company or any of its subsidiaries. No executive officer of the Company or any of its subsidiaries served as a member of the compensation committee or committee performing similar functions, or board of directors of any other entity which had an executive officer serving as a member of the Company’s Board or Management Development and Compensation Committee during fiscal 2007.

Equity Compensation Plan Information

 

The table below provides information relating to the Company’s equity compensation plans as of April 30, 2007. As of that date, the Gerber Scientific, Inc. 2006 Omnibus Incentive Plan, the Gerber Scientific, Inc. Non-Employee Director’s Stock Grant Plan and the Agreement for Deferment of Director Fees were the three equity compensation plans of the Company that were in effect and pursuant to which the Company may make future awards. In addition, options to purchase common stock and restricted stock awards remained outstanding as of that date under the Gerber Scientific, Inc. 1992 Employee Stock Plan, the Gerber Scientific, Inc. 1992 Non-Employee Director Stock Option Plan, the Gerber Scientific, Inc. 2003 Employee Stock Option Plan and the Gerber Scientific, Inc. 2005-2006 Executive Annual Incentive Bonus Plan. All of the foregoing plans were approved by the Company’s shareholders.

 

 

 

 

Transactions With Related Parties

 

During fiscal year 2007, a company with which W. Jerry Vereen, a Director of the Company, is affiliated purchased goods from the Company for a total purchase price of $116,000 in transactions that were in the ordinary course of business.

 

The Board has vested in the Audit and Finance Committee the responsibility for reviewing and approving the Company’s transactions with its Directors and officers and with other entities that employ directors, as well as any other material related-party transactions. Transactions involving executive compensation are subject to oversight and approval by the Management Development and Compensation Committee. The Nominating and Corporate Governance Committee is charged with considering questions of possible conflicts of interest of Board members and the Company’s executive officers.

 

In reviewing a related-party transaction, the Audit and Finance Committee will, after reviewing all material information regarding the transaction, take into account, among other factors it deems appropriate, whether the transaction is on terms no less favorable than terms generally available to an unaffiliated third party under the same or similar circumstances and the extent of the related person’s interest in the transaction.

 

Other than the transaction described above, which was approved by the Audit and Finance Committee, there are no transactions to report for fiscal 2007.

 

REPORT OF THE AUDIT AND FINANCE COMMITTEE

 

The Audit and Finance Committee of the Board currently consists of five members: Edward G. Jepsen, who serves as Chair, Randall D. Ledford, John R. Lord, A. Robert Towbin, and W. Jerry Vereen. Each member of the committee is “independent” under the rules of the New York Stock Exchange as currently in effect. In addition, the Board has determined that each of the committee members is financially literate and that Edward

G. Jepsen qualifies as an “audit committee financial expert,” as that term is defined in Item 407(d)(5) of Regulation S-K promulgated by the SEC.

 

The Committee operates under a written charter. The Committee reviews and evaluates its charter at least annually and reports and makes recommendations to the Board with respect to any amendments or modifications of the charter. The charter was last amended in June 2004 to address legislative and regulatory requirements.

 

Management is responsible for the Company’s financial reporting process, the preparation of consolidated financial statements in accordance with generally accepted accounting principles in the United States, and the design and operation of the Company’s system of internal controls and procedures to ensure compliance with accounting standards and applicable laws and regulations. The Company’s independent registered public accounting firm, PricewaterhouseCoopers LLP, is responsible for performing an independent integrated audit of the Company’s consolidated financial statements and internal control over financial reporting in accordance with generally accepted auditing standards in the United States and issuing a report on such financial statements and internal control. The Committee’s responsibility is, in an oversight role, to monitor, oversee and review these processes.

 

In connection with the Committee’s responsibilities, the Committee reviewed the Company’s audited financial statements for the fiscal year ended April 30, 2007 and discussed these financial statements and the assessment of internal control over financial reporting with the Company’s management and the independent registered public accounting firm.

 

The Committee also reviewed and discussed with the Company’s independent registered public accounting firm the matters required by Statement on Auditing Standards No. 61 (Codification of Statements on Auditing Standards, AU § 380), as amended (Communication with Audit Committees).

 

The Committee discussed with PricewaterhouseCoopers the matters required to be discussed by the New York Stock Exchange, the Securities and Exchange Commission, the Public Company Accounting Oversight Board and the American Institute of Certified Public Accountants. In addition, PricewaterhouseCoopers provided the Committee with the written disclosures and the letter required by Independence Standards Board Standard No. 1 (Independence Discussions with Audit Committees).

 

Independence Standards Board Standard No. 1 requires auditors annually to disclose in writing all relationships that in their professional opinion may reasonably be thought to bear on independence, to confirm their independence and to engage in a discussion of independence. The Committee discussed with the Company’s independent registered public accounting firm the independence of such firm, a discussion that encompassed, among other things, whether the independent registered public accounting firm’s provision of non-audit-related services to the Company is compatible with maintaining the firm’s independence.

 

Based upon the reviews and discussions with management and the independent registered public accounting firm referred to above, and the receipt of an unqualified opinion from PricewaterhouseCoopers dated July 9, 2007, the Committee recommended to the Board that the financial statements be included in the Company’s annual report on Form 10-K for the fiscal year ended April 30, 2007 for filing with the Securities and Exchange Commission.

 

Respectfully submitted,

 

Audit and Finance Committee

 

Edward G. Jepsen (Chair)

Randall D. Ledford

John R. Lord

A. Robert Towbin

W. Jerry Vereen

 

AGENDA ITEM 2:

 

RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

PricewaterhouseCoopers LLP, or PwC, served as Gerber Scientific’s independent registered public accounting firm for fiscal 2007 and has been appointed as the Company’s independent registered public accounting firm for fiscal 2008. The Board is submitting this appointment for shareholder ratification at the Annual Meeting. Representatives of PwC are expected to be present at the Annual Meeting and will be afforded the opportunity to make a statement if they so desire and to respond to appropriate questions.

 

Our governing documents do not require that the shareholders ratify the appointment of PwC as our independent registered public accounting firm. We are seeking ratification because we believe it is a good corporate governance practice. If our shareholders do not ratify the appointment, the Audit and Finance Committee will reconsider whether to retain PwC, but may retain PwC as the Company’s independent registered public accounting firm. Even if the appointment is ratified, the Audit and Finance Committee in its discretion may change the appointment at any time during the year if it determines that a change would be in the best interests of the Company and its shareholders.

 

The Board unanimously recommends a vote FOR the ratification of the appointment of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm for the 2008 fiscal year.

 

Dismissal of KPMG LLP

 

On August 25, 2005, the Audit and Finance Committee dismissed KPMG LLP, or KPMG, as the Company’s independent registered public accounting firm.