<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the quarterly period ended November 2, 1996 or
Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the transition period from to
Commission file number 0-14577
Gantos, Inc.
(Exact name of registrant as specified in its charter)
Michigan 38-1414122
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3260 Patterson S.E., Grand Rapids, Michigan 49512
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (616) 949-7000
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes X No
Number of shares of common stock outstanding at December 9, 1996: 7,570,696
<PAGE>
GANTOS, INC.
Page
Number
PART I. FINANCIAL INFORMATION
Statements of Income (Loss) 3
Balance Sheets 4
Statements of Cash Flows 5
Notes to Financial Statements 6
Management's Discussion and Analysis of
Results of Operations and Financial Condition 7-10
PART II. OTHER INFORMATION
Exhibits and Reports on Form 8-K 11
Signatures 12
Page 2 of 12 pages.
<PAGE>
GANTOS, INC.
<TABLE>
<CAPTION>
STATEMENTS OF INCOME (LOSS)
(Amounts in thousands, except per share and store data)
13 Weeks Ended 39 Weeks Ended
Nov. 2, Oct. 28, Nov. 2, Oct. 28,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Net sales $41,716 $42,068 $133,890 $136,733
Cost of sales (including buying,
distribution and occupancy costs) (33,502) (33,448) (107,243) (108,820)
Gross income 8,214 8,620 26,647 27,913
Selling, general and administrative
expense (9,003) (9,037) (27,557) (29,014)
Finance charge and other revenue 1,093 1,037 3,324 3,178
Operating income 304 620 2,414 2,077
Interest expense (579) (493) (1,732) (1,221)
Income (loss) before reorganization
items and income taxes (275) 127 682 856
Reorganization items:
Professional fees - - - (530)
Interest earned on accumulating cash
resulting from Chapter 11 proceedings - - - 251
Net reorganization items - - - (279)
Income (loss) before income taxes (275) 127 682 577
Income taxes - - - -
Net income (loss) $ (275) $ 127 $ 682 $ 577
Net income (loss) per share $(0.04) $ 0.02 $ 0.09 $ 0.09
Outstanding shares 7,571,353 7,600,288 7,571,353 7,600,288
Estimated weighted average
shares outstanding 7,572,418 7,600,288 7,576,146 6,503,505
Stores open at end of period 114 113 114 113
</TABLE>
See accompanying notes to financial statements.
Page 3 of 12 pages.
<PAGE>
GANTOS, INC.
BALANCE SHEETS
(Amounts in thousands, except share data)
Nov. 2, February 3, Oct. 28,
1996 1996 1995
Current assets:
Cash and cash equivalents $ 982 $ 1,453 $ 1,790
Accounts receivable, less
allowance for doubtful accounts
of $585, $572, and $537, at
November 2, 1996, February 3, 1996 and
October 28, 1995, respectively 21,361 22,619 22,975
Merchandise inventories 32,454 23,955 31,350
Prepaid expenses and other 2,727 2,851 2,760
Total current assets 57,524 50,878 58,875
Property and equipment, at cost:
Leasehold improvements 29,404 28,375 28,572
Furniture and fixtures 33,320 32,243 34,090
Other 34 418 758
Total property and equipment 62,758 61,036 63,420
Less - Accumulated depreciation
and amortization (47,103) (43,504) (44,962)
Net property and equipment 15,655 17,532 18,458
Total assets $73,179 $68,410 $77,333
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $17,820 $12,119 $ 17,987
Accrued expenses and other 10,012 12,716 11,201
Current provision for facilities closings 2,407 2,417 3,810
Total current liabilities 30,239 27,252 32,998
Long-term debt 13,326 12,395 18,540
Liabilities subject to compromise - - 400
Shareholders' equity:
Preferred stock, $.01 par value, 2,000,000
shares authorized; none issued
Common stock, $.01 par value, 20,000,000
shares authorized; approximately
7,571,000 issued and outstanding at
November 2, 1996, 7,577,000 issued and
outstanding at February 3, 1996, and
7,600,000 issued and outstanding at
October 28, 1995 76 76 76
Additional paid-in capital 40,772 40,603 40,377
Accumulated deficit (11,234) (11,916) (15,058)
Total shareholders' equity 29,614 28,763 25,395
Commitments - - -
Total liabilities and shareholders' equity $73,179 $68,410 $77,333
See accompanying notes to financial statements.
Page 4 of 12 pages.
<PAGE>
GANTOS, INC.
STATEMENTS OF CASH FLOWS
(Thousands)
39 Weeks Ended
Nov. 2, Oct. 28,
1996 1995
Cash flows from operating activities:
Net income $ 682 $ 577
Adjustments to reconcile net income
to net cash provided (used) by
operating activities:
Reorganization items - 279
Cash used for store closings (9) (459)
Depreciation and amortization 3,727 4,630
Restricted stock compensation expense 138 128
Changes in assets and liabilities:
Accounts receivable 1,258 2,101
Merchandise inventories (8,499) (8,806)
Prepaid expenses and other 124 (175)
Accounts payable 5,701 9,512
Accrued expenses and other (2,793) (184)
Total adjustments (353) 7,026
Net cash provided by operating activities
before reorganization items 329 7,603
Adjustments to reconcile reorganization items
to cash used by reorganization items
Net change to liabilities subject
to compromise - (64,541)
Net non-cash change to liabilities
subject to compromise - 33,067
Net cash payments on liabilities
subject to compromise - (31,474)
Reorganization items - (279)
Change in accrued interest receivable - 88
Change in accrued bankruptcy expenses - (1,352)
Net cash used by reorganization items - (33,017)
Net cash provided (used) by operating activities 329 (25,414)
Cash flows from investing activities:
Capital expenditures (2,072) (4,724)
Net cash used by investing activities (2,072) (4,724)
Cash flows from financing activities:
Principal payments under capital lease
obligations and other long-term debt (455) (25)
Issuance of Common Stock 33 -
Net borrowings under revolving credit
notes payable 1,385 6,011
Other 309 (603)
Net cash provided by financing activities 1,272 5,383
Net decrease in cash and cash
equivalents (471) (24,755)
Cash and cash equivalents at beginning of period 1,453 26,545
Cash and cash equivalents at end of period $ 982 $ 1,790
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest (net of amount capitalized) $1,193 $1,080
Income taxes $ 34 $ 50
See accompanying notes to financial statements.
Page 5 of 12 pages.
<PAGE>
GANTOS, INC.
NOTES TO FINANCIAL STATEMENTS
1. The interim financial statements included herein have been prepared by the
Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been omitted
pursuant to such rules and regulations, although the Company believes that
the disclosures are adequate to make the information presented not
misleading. Nevertheless, it is recommended that these financial
statements be read in conjunction with the financial statements and notes
thereto included in the Company's Annual Report on Form 10-K for the fiscal
year ended February 3, 1996.
The accompanying interim financial statements reflect all adjustments which
are, in the opinion of management, necessary to a fair statement of the
results of the interim periods presented and necessary to present fairly
the financial position as of November 2, 1996, February 3, 1996 and October
28, 1995 and the results of operations for the thirteen and thirty-nine
weeks ended, and cash flows for the thirty-nine weeks ended, November 2,
1996 and October 28, 1995. Certain amounts from the prior year have been
reclassified to conform with the presentation used in the current year.
All other adjustments are of a normal and recurring nature.
The results of operations for the thirty-nine week periods ended November
2, 1996 and October 28, 1995 are not necessarily indicative of the results
to be expected for the full year due to the seasonal nature of the
business.
2. Inventories are stated at the lower of cost or market. A physical
inventory to determine actual cost of merchandise sold is taken at least
two times per year.
3. Net income per share is computed using the weighted average number of
common shares outstanding during each period.
4. Effective April 25, 1996, the Company amended its Revolving Credit
Agreement. The commitment, term, borrowing rate and total credit available
under the agreement remain the same but the Amendment allows the Company to
reduce the committed amount or terminate the agreement without any
reduction fees after March 26, 1996. Other changes include adjustments to
the fixed charge ratio covenant and reduction of the earnings before
interest, taxes, depreciation and amortization covenant.
5. On March 19, 1996, the Company's Board of Directors adopted the Gantos,
Inc. 1996 Stock Option Plan (the "1996 Plan"). Pursuant to the 1996 Plan,
which was approved by shareholders on June 20, 1996, 1,000,000 Common
Shares are reserved for issuance pursuant to options or stock appreciation
rights granted or to be granted, and pursuant to restricted stock awarded
or to be awarded, to key employees of the Company, as the Company's Board
of Directors or the Compensation Committee shall determine.
6. On March 19, 1996, the Company's Board of Directors adopted the Gantos,
Inc. Employee Stock Purchase Plan (the "Stock Purchase Plan"), and on
August 15, 1996, the Board of Directors adopted amendments to the Stock
Purchase Plan. Pursuant to the Stock Purchase Plan, which was approved by
shareholders on June 20, 1996, eligible employees of the Company will be
granted the right to purchase a maximum aggregate of 200,000 Common Shares.
Shares issued under the Stock Purchase Plan may be authorized but unissued
shares, reacquired shares or shares bought on the open market.
Page 6 of 12 pages.
<PAGE>
GANTOS, INC.
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
Results of Operations
Thirteen and Thirty-nine Weeks Ended November 2, 1996 Compared to Thirteen and
Thirty-nine Weeks Ended October 28, 1995.
The following table indicates the percentage relationships to net sales of
various revenue and expense items for the thirteen and thirty-nine week periods
ended November 2, 1996 and October 28, 1995.
As a percent of net As a percent of net
sales for the thirteen sales for the thirty-
weeks ended nine weeks ended
Nov. 2, Oct. 28, Nov. 2, Oct. 28,
1996 1995 1996 1995
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales (including buying,
distribution and occupancy costs) (80.3) (79.5) (80.1) (79.6)
Gross income 19.7 20.5 19.9 20.4
Selling, general and
administrative expense (21.6) (21.5) (20.6) (21.2)
Finance charge and other revenue 2.6 2.5 2.5 2.3
Operating income 0.7 1.5 1.8 1.5
Interest expense (1.4) (1.2) (1.3) (0.9)
Income (loss) before reorganization
items and income taxes (0.7) 0.3 0.5 0.6
Reorganization items:
Professional fees - - - (0.4)
Interest earned on accumulating
cash from Chapter 11 proceedings - - - 0.2
Net reorganization items - - - (0.2)
Income (loss) before income taxes (0.7) 0.3 0.5 0.4
Income taxes - - - -
Net income (loss) (0.7)% 0.3% 0.5% 0.4%
Page 7 of 12 pages.
<PAGE>
Net sales for the thirteen weeks ended November 2, 1996 were approximately $41.7
million, a decrease of approximately $0.4 million, compared to net sales of
approximately $42.1 million in the same period of the prior fiscal year. Net
sales for stores in operation throughout both periods decreased 1.5%, or $0.6
million, for the third quarter of 1996 compared to the same period in 1995. The
1.5% decrease in comparable store sales is comprised of a 1.1% decrease in
average sales dollars per unit, a 0.5% decrease in unit sales and a 0.1%
increase due to a change in the merchandise mix.
Net sales for the thirty-nine weeks ended November 2, 1996 were approximately
$133.9 million, a decrease of approximately $2.8 million, compared to net sales
of approximately $136.7 million in the same period of the prior fiscal year.
Net sales for stores in operation throughout both periods decreased 2.3%, or
$3.1 million, for the first three quarters of 1996 compared to the same period
in 1995. The 2.3% decrease in comparable store sales is comprised of a 4.0%
decrease in unit sales and a 0.1% decrease due to a change in merchandise mix,
partially offset by a 1.8% increase in average sales dollars per unit. The
changes in average sales dollars per unit are primarily due to changes in the
mix of merchandise sold. The Company opened one new store in June 1996.
Management expects the negative comparable store sales trend to continue into
the fourth quarter.
Cost of sales, as a percent of net sales, increased $54,000 to 80.3% in the
thirteen weeks ended November 2, 1996, compared to 79.5% in the same period in
the prior fiscal year. Cost of sales decreased $1.6 million, while increasing
as a percent of net sales to 80.1% in the thirty-nine weeks ended November 2,
1996, compared to 79.6% in the same period in the prior fiscal year.
The increase in cost of sales, as a percent of net sales, for the third quarter
of 1996 is primarily due to decreased sales volume and increased net markdowns
compared to a year ago. The increase in cost of sales, as a percent of net
sales, for the thirty-nine weeks ended November 2, 1996 is primarily due to
increased net markdowns for the period and decreased sales volume, partially
offset by lower buying, distribution and depreciation expenses and an increase
in vendor markdown allowances during 1996 compared to 1995.
Selling, general and administrative expense for the thirteen and thirty-nine
weeks ended November 2, 1996 decreased approximately $34,000 and $1.5
million, respectively, compared to the same periods in the prior fiscal year.
The decrease in SG&A for the thirty-nine weeks ended November 2, 1996 is
primarily due to lower depreciation expense, the elimination of computer
outsourcing fees and general expense controls, partially offset by increased
bad debt expense due to the rise in personal bankruptcies in 1996 compared to
1995. The majority of these savings occurred as the result of plans
implemented in the third quarter of 1995 and are not expected to continue to
generate savings in the fourth quarter of 1996 as compared to the fourth
quarter of 1995. As a percent of net sales, SG&A expense increased from
21.5% to 21.6% for the thirteen weeks ended November 2, 1996 and decreased
from 21.2% to 20.6% for the thirty-nine week period ended November 2, 1996.
Finance charge and other revenue increased $56,000 to 2.6% of net sales and
$146,000 to 2.5% of net sales for the thirteen and thirty-nine weeks ended
November 2, 1996, respectively, compared to the same periods in the prior fiscal
year. The increases in both the thirteen and thirty-nine weeks ended November
2, 1996 were primarily due to the late charge fee implemented on the Gantos
charge card in October of 1995, partially offset by decreases in finance charge
income as a result of lower average Gantos credit card receivable balances
outstanding in the first nine months of 1996 compared to the first nine months
of 1995. The decrease in the receivable balances is primarily the result of
faster payment by customers.
Page 8 of 12 pages.
<PAGE>
Interest expense for the thirteen and thirty-nine weeks ended November 2,
1996 increased approximately $86,000 and $511,000, respectively, compared to
the same periods in the prior fiscal year. The increase in interest expense
for the thirteen and thirty nine weeks ended November 2, 1996 was due to
higher loan arrangement fee amortization during the period, partially offset
by lower net interest expense on the revolving credit loans due to lower
borrowings. During the first two months of 1995, the Company was still in
Chapter 11 Proceedings, and was not required to pay interest on its unsecured
or undersecured pre-petition debt.
Interest income and professional fees, shown separately under "Reorganization
Items" in the Statements of Income (Loss), will not be incurred during 1996 as a
result of the Company's emergence from Chapter 11 in 1995 and payments made to
creditors under the Plan.
The Company did not record a provision for taxes during the first three quarters
of 1996 or during the first three quarters of 1995 due to the availability of
net operating loss carryforwards.
These factors resulted in a net loss of approximately $275,000, or $0.04 per
share, for the thirteen weeks ended November 2, 1996, compared to net income of
approximately $127,000, or $0.02 per share, in the same period of the prior
year. However, the Company reported net income for the thirty-nine weeks ended
November 2, 1996 of approximately $682,000, or $0.09 per share, compared to net
income of $577,000, or $0.09 per share, in the same period of the prior year.
Liquidity and Capital Resources
Net cash provided by operating activities before reorganization items totaled
$0.3 million in the first three quarters of 1996 compared to $7.6 million in the
same period a year ago. This substantial decrease in cash provided by
operating activities is primarily the result of a smaller increase in accounts
payable and a larger decrease in accrued expenses and other. For 1996, the
primary sources of cash were a decrease in accounts receivable and an increase
in accounts payable. The primary uses of cash were an increase in inventories
for the peak selling season and a decrease in accrued expenses and other due
to the timing of payments.
Net cash used by reorganization items was $33 million in the first three
quarters of 1995. Pursuant to the Plan of Reorganization, during the first
three quarters of 1995, the Company used $28,774,000 of its cash, borrowed
approximately $2,700,000 from its new lenders, issued approximately
$12,396,000 in original principal amount of six-year notes payable, bearing
interest at 12.75% a year, and issued or committed to issue approximately
$20,484,000 in Common Shares (valued for this purpose at $4.16 a share), in
payment of approximately $58,648,000 of its liabilities subject to
compromise, $5,192,000 in long-term debt and $514,000 of accrued expenses,
including the settlement costs of the purported class action lawsuit.
Net cash provided by financing activities in the first three quarters of 1996
was $1.3 million compared to net cash provided of approximately $5.4 million in
the same period a year ago. The decrease in cash provided is the result of the
Company needing less borrowing in 1996 to meet its cash flow needs.
The Company has a revolving credit agreement expiring March 31, 1998, with Fleet
Bank N.A. (formerly NatWest Bank N.A.) and LaSalle National Bank with a maximum
commitment of $40 million, subject to a borrowing base formula and
Page 9 of 12 pages.
<PAGE>
lender reserves. As of December 9, 1996, the Company had $1.8 million in
borrowings and $113,000 in letters of credit outstanding under this facility.
As of December 9, 1996, approximately $30.6 million was available for borrowing
under this facility. During the third quarter of 1996, the weighted average
interest rate under this facility was 9.5%.
The Company expects its cash on hand, cash flow from operations and borrowings
under the Fleet facility to be sufficient to meet its capital expenditure,
working capital and other liquidity needs during the remainder of 1996. Capital
expenditures for 1996 are estimated to be $4.0 million. These amounts are
expected to be used primarily to complete the on-going remodel and refixturing
projects.
Each of the above statements regarding future revenues, expenses or business
plans (including statements regarding the sufficiency of the Company's cash
resources to meet future liquidity needs) may be a "forward looking statement"
within the meaning of the Securities Exchange Act of 1934. Such statements are
subject to important factors and uncertainties that could cause actual results
to differ materially from those in the forward-looking statement, including the
Company's ability to negotiate an extension or replacement of its Fleet facility
on terms acceptable to the Company, the continued support of the Company's trade
creditors and factors, general trends in retail clothing apparel purchasing,
especially during the Christmas season, and the factors set forth in this
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
Page 10 of 12 pages.
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
10.1 Letter of Employment, dated September 3, 1996, between
Gantos, Inc. and Ms. Vicki Boudreaux.
10.2 Letter of Employment, dated September 25, 1996, between
Gantos, Inc. and Mr. Joe Giudice.
10.3 Letter of Employment, dated September 25, 1996, between
Gantos, Inc. and Ms. Hope Grey.
10.4 Letter of Employment, dated November 1, 1996, between
Gantos, Inc. and Mr. Dennis Horstman.
27. Financial Data Schedule
(b) No reports on Form 8-K were filed by the Registrant during the quarter
for which this report is filed.
Page 11 of 12 pages.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: December 9, 1996
GANTOS, INC.
(Registrant)
By: /S/ J. E. BUNKA
J. E. BUNKA
ITS SENIOR VICE PRESIDENT, CHIEF FINANCIAL
OFFICER AND TREASURER
(DULY AUTHORIZED OFFICER AND
PRINCIPAL FINANCIAL OFFICER)
Page 12 of 12 pages.
<PAGE>
EXHIBIT INDEX
Document Number and Description
10.1 Letter of Employment, dated September 3, 1996, between Gantos,
Inc. and Ms. Vicki Boudreaux.
10.2 Letter of Employment, dated September 25, 1996, between Gantos,
Inc. and Mr. Joe Giudice.
10.3 Letter of Employment, dated September 25, 1996, between Gantos,
Inc. and Ms. Hope Grey.
10.4 Letter of Employment, dated November 1, 1996, between Gantos,
Inc. and Mr. Dennis Horstman.
27. Financial Data Schedule
<PAGE>
December 13, 1996
Ms. Vicki Boudreaux
18 Pinecrest Road
Enfield, CT 06082
Dear Vicki:
We are very pleased to offer you the position of Vice President of Planning and
Allocation for Gantos, Inc. (the "Company"). We are very excited to invite you
to join our senior management team. The terms of our offer supersede any of our
prior discussions and agreements, and are as follows:
1. Your initial annual salary will be $120,000.
2. Your date of employment will begin on or before September 16, 1996
("Start Date").
3. You will be eligible to participate in the Gantos, Inc. Executive Bonus
Plan, beginning with the 1996 plan. A copy of the 1996 plan is enclosed. As
reflected in the enclosed 1996 plan, your 1996 bonus will be based on the
Company's profitability and prorated based on the 1996 Gantos base salary
actually paid to you.
4. On the Start Date, you will be granted an option to purchase 10,000
shares of Gantos, Inc. common shares at an exercise price equal to the fair
market value of Gantos, Inc. common shares on the Start Date. The option will
vest in one-fifth (1/5) cumulative annual installments, beginning on the first
anniversary of the Start Date. Thereafter, you will be eligible for annual
stock option grants in amounts commensurate with your position with the Company
at the discretion of the Board of Directors or its Compensation Committee.
5. You will receive six (6) months separation pay as your exclusive
severance benefits in the event that your employment is terminated without cause
(and other than pursuant to your death or disability) within the first twenty-
four (24) months of your employment. As a condition of your receipt of
severance pursuant to this agreement, after any termination you must (a) use
your best efforts to seek and obtain new employment (b) advise the Company, on a
timely and regular basis, of the status of your efforts, of the terms of any
employment (including self-employment), and of any remuneration you receive from
such employment. If at any time the Company, in good faith, determines that you
are not so seeking such employment, your right to receive severance benefits
will be immediately terminated. The severance benefits to which you would
otherwise be entitled will be reduced by the remuneration that is paid or
payable to you (whether as salary, bonus, commissions, consulting fees,
compensation and dividends from any entity owned by you or a sole proprietorship
established by you or otherwise) from rendering any services to any person,
corporation or entity during the period that you are eligible to receive
severance benefits under this agreement. Payment on account of death or
disability or for termination without cause after the first twenty-four (24)
months of employment will be in accordance with the Company policies concerning
these areas. You will be entitled to no severance benefits if you terminate
your employment with the Company.
6. To assist you in relocating to the Grand Rapids area, the Company will
pay or reimburse you for the reasonable expenses of:
A. A third party relocation service engaged by the Company to
purchase your residence in Enfield. This service will appraise your
residence and give you a written offer to purchase it for a specified
price, net of closing costs. You would have 90 days to accept the
relocation services offer; if you do not timely accept the offer, you
will be responsible for the sale of your residence.
<PAGE>
Ms. Vicki Boudreaux
December 13, 1996
Page two
B. Loan origination fees and discount points of up to two percent of
the principal amount of your mortgage and other reasonable and customary
closing costs in conjunction with your new home purchase.
C. Movement of all household goods and vehicles from Enfield to
Grand Rapids.
D. Interim living expenses for you for temporary living quarters (at
a mutually acceptable place) in the Grand Rapids area and a rental car
for a period of ninety days after your Start Date while you secure
housing in the Grand Rapids area.
E. To the extent not deductible by you, pay you an additional amount
as compensation to cover taxes owing on the amounts paid to you for all
relocation related expenses for tax purposes (i.e. gross up).
7. You will receive such benefits as the Company provides its other Vice
Presidents. Currently the Company provides (i) a non-contributory group life
insurance policy in the amount of one times your annual base compensation, (ii)
an individual disability policy which provides benefits equal to 60% of your
salary, (iii) a 30% discount on all merchandise purchases at our regular price
stores, (iv) medical prescription coverage under our plan on the first day of
the month following two months of employment, (v) on the first day of the month
after two months of employment, dental coverage under our plan, and (vi) four
weeks vacation a year. During the health benefits waiting periods, the Company
will reimburse you for the cost of continuing these coverages under COBRA with
your former employer. Enclosed is a complete breakdown of our benefit plans for
your information and review.
8. Your employment will be at will and may be terminated by either of us,
with or without cause, reason or notice. Upon such a termination, as your
exclusive severance benefits, you will be entitled to your salary through the
termination date and amounts, if any, payable to you or your estate as described
in paragraph 5 above.
9. You will comply with and be bound by all Company policies, procedures
and guidelines, as they may be amended and supplemented from time to time during
your employment with the Company.
Please date, sign and return the enclosed copy of this letter to indicate your
acceptance of employment on these terms.
If I can be of assistance in answering any questions that you may have, please
don't hesitate to contact my office.
Very truly yours,
GANTOS, INC.
Arlene H. Stern
President
Accepted and agreed on September _____, 1996
___________________________________
Vicki Boudreaux
<PAGE>
December 13, 1996
Mr. Joseph Giudice
P. O. Box 1111
East Granby, CT 06026
Dear Joe:
We are very pleased to offer you the position of Senior Vice President -
Merchandise Planning and Operations for Gantos, Inc. (the "Company"). We are
very excited to invite you to join our senior management team. The terms of our
offer supersede any of our prior discussions and agreements, and are as follows:
1. Your initial annual salary will be $225,000.
2. Your date of employment will begin on or before September 16, 1996
("Start Date").
3. You will be eligible to participate in the Gantos, Inc. Executive Bonus
Plan, beginning with the 1996 plan. A copy of the 1996 plan is enclosed. As
reflected in the enclosed 1996 plan, your 1996 bonus will be based on the
Company's profitability and prorated based on the 1996 Gantos base salary
actually paid to you.
4. On the Start Date, you will be granted an option to purchase 25,000
shares of Gantos, Inc. common shares at an exercise price equal to the fair
market value of Gantos, Inc. common shares on the Start Date. The option will
vest in one-fifth (1/5) cumulative annual installments, beginning on the first
anniversary of the Start Date. Thereafter, you will be eligible for annual
stock option grants in amounts commensurate with your position with the Company
at the discretion of the Board of Directors or its Compensation Committee.
5. You will receive twelve (12) months separation pay as your exclusive
severance benefits in the event that your employment is terminated without cause
(and other than pursuant to your death or disability) within the first twenty-
four (24) months of your employment. As a condition of your receipt of
severance pursuant to this agreement, after any termination you must (a) use
your best efforts to seek and obtain new employment (b) advise the Company, on a
timely and regular basis, of the status of your efforts, of the terms of any
employment (including self-employment), and of any remuneration you receive from
such employment. If at any time the Company, in good faith, determines that you
are not so seeking such employment, your right to receive severance benefits
will be immediately terminated. The severance benefits to which you would
otherwise be entitled will be reduced by the remuneration that is paid or
payable to you (whether as salary, bonus, commissions, consulting fees,
compensation and dividends from any entity owned by you or a sole proprietorship
established by you or otherwise) from rendering any services to any person,
corporation or entity during the period that you are eligible to receive
severance benefits under this agreement. Payment on account of death or
disability or for termination without cause after the first twenty-four (24)
months of employment will be in accordance with the Company policies concerning
these areas. You will be entitled to no severance benefits if you terminate
your employment with the Company.
6. To assist you in relocating, the Company will pay or reimburse you for
the reasonable expenses of:
A. A third party relocation service engaged by the Company to
purchase your residence in East Granby, Connecticut. This service will
appraise your residence and give you a written offer to purchase it for
a specified price, net of closing costs. You would have 90 days to
accept the relocation services offer; if you do not timely accept the
offer, you will be responsible for the sale of your residence.
<PAGE>
Mr. Joseph Giudice
December 13, 1996
Page two
B. Loan origination fees and discount points of up to two percent of
the principal amount of your mortgage, other reasonable and customary
closing costs in conjunction with your new home purchase, and reasonable
and customary closing costs for the sale of your home in Connecticut.
C. Movement of all household goods and vehicles from East Granby.
D. Interim living expenses for you for temporary living quarters (at
a mutually acceptable place) in the Grand Rapids area and a rental car
for a period of ninety days after your Start Date while you secure
housing in the Grand Rapids area.
E. To the extent not deductible by you, pay you an additional amount
as compensation to cover taxes owing on the amounts paid to you for all
relocation related expenses for tax purposes (i.e. gross up).
7. You will receive such benefits as the Company provides its other Vice
Presidents. Currently the Company provides (i) a non-contributory group life
insurance policy in the amount of one times your annual base compensation, (ii)
an individual disability policy which provides benefits equal to 60% of your
salary, (iii) a 30% discount on all merchandise purchases at our regular price
stores, (iv) medical prescription coverage under our plan on the first day of
the month following two months of employment, (v) on the first day of the month
after two months of employment, dental coverage under our plan, and (vi) four
weeks vacation a year. During the health benefits waiting periods, the Company
will reimburse you for the cost of continuing these coverages under COBRA with
your former employer. Enclosed is a complete breakdown of our benefit plans for
your information and review.
8. Your employment will be at will and may be terminated by either of us,
with or without cause, reason or notice. Upon such a termination, as your
exclusive severance benefits, you will be entitled to your salary through the
termination date and amounts, if any, payable to you or your estate as described
in paragraph 5 above.
9. You will comply with and be bound by all Company policies, procedures
and guidelines, as they may be amended and supplemented from time to time during
your employment with the Company.
Please date, sign and return the enclosed copy of this letter to indicate your
acceptance of employment on these terms.
If I can be of assistance in answering any questions that you may have, please
don't hesitate to contact my office.
Very truly yours,
GANTOS, INC.
Arlene H. Stern
President
Accepted and agreed on September _____, 1996
___________________________________
Joseph Giudice
<PAGE>
December 13, 1996
Ms. Hope Grey
635 Locksmith
Windsor, CT 06095
Dear Hope:
We are very pleased to offer you the position of Vice President of Technical
Product Management for Gantos, Inc. (the "Company"). We are very excited to
invite you to join our senior management team. The terms of our offer supersede
any of our prior discussions and agreements, and are as follows:
1. Your initial annual salary will be $120,000.
2. Your date of employment will begin on September 29, 1996 ("Start Date").
3. You will be eligible to participate in the Gantos, Inc. Executive Bonus
Plan, beginning with the 1996 plan. A copy of the 1996 plan is enclosed. As
reflected in the enclosed 1996 plan, your 1996 bonus will be based on the
Company's profitability and prorated based on the 1996 Gantos base salary
actually paid to you.
4. On the Start Date, you will be granted an option to purchase 10,000
shares of Gantos, Inc. common shares at an exercise price equal to the fair
market value of Gantos, Inc. common shares on the Start Date. The option will
vest in one-fifth (1/5) cumulative annual installments, beginning on the first
anniversary of the Start Date. Thereafter, you will be eligible for annual
stock option grants in amounts commensurate with your position with the Company
at the discretion of the Board of Directors or its Compensation Committee.
5. You will receive six (6) months separation pay as your exclusive
severance benefits in the event that your employment is terminated without cause
(and other than pursuant to your death or disability) within the first twenty-
four (24) months of your employment. As a condition of your receipt of
severance pursuant to this agreement, after any termination you must (a) use
your best efforts to seek and obtain new employment (b) advise the Company, on a
timely and regular basis, of the status of your efforts, of the terms of any
employment (including self-employment), and of any remuneration you receive from
such employment. If at any time the Company, in good faith, determines that you
are not so seeking such employment, your right to receive severance benefits
will be immediately terminated. The severance benefits to which you would
otherwise be entitled will be reduced by the remuneration that is paid or
payable to you (whether as salary, bonus, commissions, consulting fees,
compensation and dividends from any entity owned by you or a sole proprietorship
established by you or otherwise) from rendering any services to any person,
corporation or entity during the period that you are eligible to receive
severance benefits under this agreement. Payment on account of death or
disability or for termination without cause after the first twenty-four (24)
months of employment will be in accordance with the Company policies concerning
these areas. You will be entitled to no severance benefits if you terminate
your employment with the Company.
6. To assist you in relocating to the New York area once a New York office
is established, the Company will pay or reimburse you for the reasonable
expenses of:
A. A third party relocation service engaged by the Company to
purchase your residence in Windsor. This service will appraise your
residence and give you a written offer to purchase it for a specified
price, net of closing costs. You would have 90 days to accept the
relocation services offer; if you do not timely accept the offer, you
will be responsible for the sale of your residence.
<PAGE>
Ms. Hope Grey
December 13, 1996
Page two
B. Loan origination fees and discount points of up to two percent of
the principal amount of your mortgage, other reasonable and customary
closing costs in conjunction with your home purchased in the New York
area, and reasonable and customary closing costs for the sale of your
home in Connecticut.
C. Movement of all household goods and vehicles from Windsor to the
New York area.
D. Interim living expenses for you for temporary living quarters (at
a mutually acceptable place) in the New York area and a rental car for a
period of ninety days after opening the New York office while you secure
housing in the New York area.
E. Two house hunting trips to the New York area and back for you and
your family.
F. To the extent not deductible by you, pay you an additional amount
as compensation to cover taxes owing on the amounts paid to you for all
relocation related expenses for tax purposes (i.e. gross up).
7. You will receive such benefits as the Company provides its other Vice
Presidents. Currently the Company provides (i) a non-contributory group life
insurance policy in the amount of one times your annual base compensation, (ii)
an individual disability policy which provides benefits equal to 60% of your
salary, (iii) a 30% discount on all merchandise purchases at our regular price
stores, (iv) medical prescription coverage under our plan on the first day of
the month following two months of employment, (v) on the first day of the month
after two months of employment, dental coverage under our plan, and (vi) four
weeks vacation a year. During the health benefits waiting periods, the Company
will reimburse you for the cost of continuing these coverages under COBRA with
your former employer. Enclosed is a complete breakdown of our benefit plans for
your information and review.
8. Your employment will be at will and may be terminated by either of us,
with or without cause, reason or notice. Upon such a termination, as your
exclusive severance benefits, you will be entitled to your salary through the
termination date and amounts, if any, payable to you or your estate as described
in paragraph 5 above.
9. You will comply with and be bound by all Company policies, procedures
and guidelines, as they may be amended and supplemented from time to time during
your employment with the Company.
Please date, sign and return the enclosed copy of this letter to indicate your
acceptance of employment on these terms.
If I can be of assistance in answering any questions that you may have, please
don't hesitate to contact my office.
Very truly yours,
GANTOS, INC.
Arlene H. Stern
President
Accepted and agreed on September _____, 1996
___________________________________
Hope Grey
<PAGE>
November 1, 1996
Mr. Dennis Horstman
12 Chestnut Street
Basking Ridge, NJ 07920
Dear Dennis:
We are very pleased to offer you the position of Senior Vice President of
Merchandising and Marketing for Gantos, Inc. (the "Company"). We are very
excited to invite you to join our senior management team. The terms of our
offer supersede any of our prior discussions and agreements, and are as follows:
1. Your initial annual salary will be $300,000.
2. Your date of employment will begin on or before December 2, 1996 ("Start
Date").
3. You will be eligible to participate in the Gantos, Inc. Executive Bonus
Plan, beginning with the 1997 plan. The maximum bonus potential under the
current Plan is 35% of actual base salary earned during the fiscal year. A copy
of the 1996 plan is enclosed. If you are employed by the Company at the end of
the 1997 fiscal year, you will receive at least 50% of your bonus potential
under the plan for that year.
4. On the Start Date, you will be granted an option to purchase 35,000
shares of Gantos, Inc. common shares at an exercise price equal to the fair
market value of Gantos, Inc. common shares on the Start Date. The option will
vest in one-fifth (1/5) cumulative annual installments, beginning on the first
anniversary of the Start Date. Thereafter, you will be eligible for annual
stock option grants in amounts commensurate with your position with the Company
at the discretion of the Board of Directors or its Compensation Committee.
5. You will receive twelve (12) months separation pay as your exclusive
severance benefits in the event that your employment is terminated without cause
(and other than pursuant to your death or disability) within the first twenty-
four (24) months of your employment. As a condition of your receipt of
severance pursuant to this agreement, after any termination you must (a) use
your best efforts to seek and obtain new employment (b) advise the Company, on a
timely and regular basis, of the status of your efforts, of the terms of any
employment (including self-employment), and of any remuneration you receive from
such employment. If at any time the Company, in good faith, determines that you
are not so seeking such employment, your right to receive severance benefits
will be immediately terminated. The severance benefits to which you would
otherwise be entitled will be reduced by the remuneration that is paid or
payable to you (whether as salary, bonus, commissions, consulting fees,
compensation and dividends from any entity owned by you or a sole proprietorship
established by you or otherwise) from rendering any services to any person,
corporation or entity during the period that you are eligible to receive
severance benefits under this agreement. Payment on account of death or
disability or for termination without cause after the first twenty-four (24)
months of employment will be in accordance with the Company policies concerning
these areas. You will be entitled to no severance benefits if you terminate
your employment with the Company.
<PAGE>
Mr. Dennis Horstman
November 1, 1996
Page two
6. To assist you in relocating, the Company will pay or reimburse you for
the reasonable expenses of:
A. Loan origination fees and discount points of up to two percent of
the principal amount of your mortgage, other reasonable and customary
closing costs in conjunction with your new home purchase, and reasonable
and customary closing costs for the sale of your current home.
B. Movement of all household goods and vehicles.
C. Storage of household goods until you close on your new home.
D. Interim living expenses for you for temporary living quarters (at
a mutually acceptable place) in the Grand Rapids area and a rental car
for a period of up to ninety days after your Start Date while you secure
housing in the Grand Rapids area.
E. To the extent not deductible by you, pay you an additional amount
as compensation to cover taxes owing on the amounts paid to you for all
relocation related expenses for tax purposes (i.e. gross up).
7. You will receive such benefits as the Company provides its other Senior
Vice Presidents. Currently the Company provides (i) a non-contributory group
life insurance policy in the amount of one times your annual base compensation,
(ii) an individual disability policy which provides benefits equal to 60% of
your salary, (iii) a 30% discount on all merchandise purchases at our regular
price stores, (iv) medical prescription coverage under our plan on the first day
of the month following two months of employment, (v) on the first day of the
month after two months of employment, dental coverage under our plan, (vi) four
weeks vacation a year, (vii) after 870 hours of employment are met, eligibility
to participate in the Company's 401(k) Plan, and (viii) after six (6) months of
continuous employment, eligibility to participate in the Employee Stock Purchase
Plan. During the health benefits waiting periods, the Company will reimburse
you for the cost of continuing these coverages under COBRA with your former
employer. Enclosed is a complete breakdown of our benefit plans for your
information and review.
8. Your employment will be at will and may be terminated by either of us,
with or without cause, reason or notice. Upon such a termination, as your
exclusive severance benefits, you will be entitled to your salary through the
termination date and amounts, if any, payable to you or your estate as described
in paragraph 5 above.
9. You will comply with and be bound by all Company policies, procedures
and guidelines, as they may be amended and supplemented from time to time during
your employment with the Company.
Please date, sign and return the enclosed copy of this letter to indicate your
acceptance of employment on these terms.
If I can be of assistance in answering any questions that you may have, please
don't hesitate to contact my office.
Very truly yours,
GANTOS, INC.
Arlene H. Stern
President
Accepted and agreed on November _____, 1996
___________________________________
Dennis Horstman
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL
STATEMENTS OF GANTOS, INC. AS OF, AND FOR THE NINE-MONTH PERIOD ENDED, NOVEMBER
2, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS AND ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> FEB-01-1997
<PERIOD-END> NOV-02-1996
<CASH> 982
<SECURITIES> 0
<RECEIVABLES> 21,946
<ALLOWANCES> (585)
<INVENTORY> 32,454
<CURRENT-ASSETS> 57,524
<PP&E> 62,758
<DEPRECIATION> (47,103)
<TOTAL-ASSETS> 73,179
<CURRENT-LIABILITIES> 30,239
<BONDS> 13,326
0
0
<COMMON> 76
<OTHER-SE> 29,538
<TOTAL-LIABILITY-AND-EQUITY> 73,179
<SALES> 133,890
<TOTAL-REVENUES> 133,890
<CGS> 107,243
<TOTAL-COSTS> 107,243
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,732
<INCOME-PRETAX> 682
<INCOME-TAX> 0
<INCOME-CONTINUING> 682
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 682
<EPS-PRIMARY> .09
<EPS-DILUTED> .09
</TABLE>
