N.Y. Publisher Wins Control of Gradco; Stewart Resigns

After a bitterly contested proxy fight, a New York publisher has gained control of 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. successfully gained three of five seats on Gradco’s board after launching a proxy fight that culminated in the victory at Gradco’s annual meeting on 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 voted 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, took public in 1983 and built into the world’s largest independent supplier of office-copier products.

“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 in a statement. “I think I am going to enjoy reversing the roles for a while.”

Stewart, Gradco’s largest shareholder, said in an interview that he will remain in Orange County, but his future plans are uncertain. He said he will “observe” the company for a while and hinted that he may try to regain control of the board or acquire the company.

Stewart’s resignation followed Plenum’s announcement earlier Wednesday that it planned to fire the Gradco chairman at a board meeting on Friday.

Stewart will remain chairman of the company’s Gradco Japan subsidiary, which has an independent board of directors.

Tash, Bressler and Harland Mischler, a Tash associate who owns a Florida investment company, will serve as Plenum’s representatives on the Gradco board.

David Harshman, corporate attorney for Gradco, confirmed that a preliminary vote count showed that Plenum had three seats on Gradco’s board. A final tally is expected by today. Harshman said he did not know which Gradco officers would remain on the company’s 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 postponed the company’s annual meeting on Aug. 31, rescheduling it for last Friday.

Tash’s suit accused Gradco management of awarding its members warrants to purchase stock in the company’s Gradco Japan subsidiary for below-market prices at the expense of Gradco’s other shareholders. The suit alleged that Gradco management could have made a windfall of more than $12 million as a result of the deal.

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

The showdown between Tash and Stewart came at the annual meeting. Both men gave speeches to a crowded room of shareholders, with Stewart likening the proxy battle to the “Marriott fight night,” and Tash proclaiming that he would gain control of the firm.

“I have not the slightest intent of continuing as CEO of this company if it’s deemed to be at shareholder expense,” Stewart said. “No one here has more to gain or lose than me. Your vote here today will ensure the continuation of management. . . . Otherwise, all of this can be translated into nothing more than a farewell speech.”

Indeed, it was a goodby speech for Stewart, 50, a tall, bearded man with a booming voice. A native of the United Kingdom raised in Zimbabwe, he co-founded Gradco in 1972.

As part of a lawsuit filed in a divorce proceeding, Stewart’s former wife accused him of failing to inform her of the company’s true value shortly before it went public at $18 per share. After an Orange County Superior Court judge ruled that Stewart had defrauded his wife, she settled out of court for an undisclosed sum.

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

In March, 1989, Gradco reported record earnings of $5.6 million on 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.

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, 1989.

But angry shareholders expressed their 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 the company’s financial troubles.

In a statement, Stewart said he was leaving Gradco to allow the company to return to normal as quickly as possible, saying “it does not serve anybody’s interest to operate a board which has to show up at board meetings with their respective lawyers because of the continuing litigation between the groups.”

He added: “The future of (Gradco) is now in the hands of others, but it is going to take a dedicated and cooperative effort to save this company and get it back on track. Now I can focus on only one major task, and that is to concentrate on building back the value of Gradco stock through Gradco Japan.”