After a Bitter Fight, N.Y. Firm Controls Gradco

After a bitterly contested proxy fight, a New York publisher has gained control of Irvine-based Gradco Systems Inc., prompting the resignation Wednesday of the office equipment company’s controversial founder, Keith B. Stewart.

Led by its chairman, Martin E. Tash, Plenum Publishing Corp. gained three of five seats on Gradco’s board after launching a proxy contest at Gradco’s annual meeting Friday, company officials said.

Bernard Bressler, Plenum’s corporate secretary, said preliminary results show that Gradco shareholders cast 3.5 million shares in favor of Plenum’s slate of directors, compared to 2.4 million shares for Gradco’s directors.

Failing to rally enough shareholder support at last week’s raucous annual meeting, Stewart said he will step down as chairman and chief executive of the company he co-founded in 1972 and took public in 1983.

“The last seven years as CEO of a public company (were) rewarding, though under the watchful eyes of the shareholders who constantly demanded explanations and asked me to work miracles,” Stewart said. “I think I am going to enjoy reversing the roles for a while.”

Stewart, Gradco’s largest shareholder, said his plans are uncertain. He said he will “observe” the company for awhile and hinted that he may try to regain control of the board or acquire the company.

Stewart’s resignation preempted plans by the Tash board to remove him. Bressler had said earlier in the day that Stewart would be fired.

David Harshman, corporate attorney for Gradco, confirmed that Plenum had won a majority of seats according to the preliminary results. Official results are expected to be released today, Harshman said. Harshman said he did not know which Gradco officers would remain on the company’s board.

Tash, Bressler and Harland Mischler, a Tash ally and owner of a Florida investment company, will serve as Plenum’s representatives on the Gradco board.

Tash, who owns 9.4% of Gradco stock, launched the proxy contest in August after filing a lawsuit against Stewart and the Gradco board. Stewart abruptly canceled the company’s original annual meeting on Aug. 31 to prepare to fend off Tash.

Tash’s suit accused Gradco managers of awarding themselves warrants to buy stock in the company’s Gradco Japan subsidiary for below-market prices at the expense of Gradco’s other shareholders.

Stewart denied the charges and accused Tash of a “dirty campaign” that was costing the company money and endangered its plans to take Gradco Japan public.

Stewart, 50, is a tall, bearded man with a booming voice. A native of the United Kingdom raised in Zimbabwe, he took the company public at $18 a share in 1983.

The company found its niche manufacturing automatic sorters for copier machines, garnering nearly 70% of the worldwide market. Gradco started winning praise for its performance on Wall Street and drew big name investors such as the Pritzker family of Chicago.

In March, 1989, it reported record earnings of $5.6 million and revenue of $115.1 million. But in the past year, as Stewart has put it, the company went from “Utopia to the gutter.”

Gradco lost $28.1 million on revenue of $89.5 million for its fiscal year ended March 31, and the company’s printer products division continues to lose money.

Stewart blamed the company’s troubles on the loss of its largest customer, Xerox Corp., and the failure of a management-led buyout in December.

But angry shareholders expressed frustration with Stewart’s management, citing the company’s purchase of a Rolls Royce for Stewart’s personal use and accusing Gradco of failing to adequately disclose financial troubles.