<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
AMENDMENT NO. 1
(Mark One)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended JANUARY 31, 1998 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.)
1266 E. MAIN STREET, FIFTH FLOOR, STAMFORD, CONNECTICUT 06902
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (203) 358-0294
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON SHARES, PAR VALUE $.01 PER SHARE
(Title of Class)
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 if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by nonaffiliated of the
registrant as of April 24, 1998 calculated by reference to the closing sale
price as reported by Nasdaq on such date, was approximately $4,031,939.
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
---- ----
The number of shares outstanding of the registrant's common shares, $.01 par
value per share, as of April 24, 1998 was 7,581,713.
DOCUMENTS INCORPORATED BY REFERENCE
None
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth information as of May 29, 1998, regarding
the Company's directors and executive officers:
<TABLE>
<CAPTION>
DIRECTOR OR
EXECUTIVE
NAME AGE POSITIONS WITH THE COMPANY OFFICER SINCE
------ ----- --------------------------- -------------
<S> <C> <C> <C>
L. Douglas Gantos 66 Consultant and Director 1961
Hannah H. Strasser 38 Director 1995
Mary Elizabeth Burton 46 Director 1995
Elizabeth M. Eveillard 51 Director 1992
S. Amanda Putnam 48 Director 1995
Arlene H. Stern 47 President, Chief Executive 1996
Officer and a Director
Fred K. Schomer 58 Director 1992
Erwin A. Marks 60 Director 1995
Joseph Giudice 48 Senior Vice President, Merchandise 1996
Planning and Operations
Dennis Horstman 52 Senior Vice President, Merchandising and 1996
Marketing
Neal Gottfried 55 Senior Vice President, Store 1997
Operations and Visual Merchandising
David Nelson 48 Senior Vice President, Chief 1997
Financial Officer and Treasurer
Vicki Boudreaux 41 Vice President, Planning and 1996
Allocation
Hope Grey 41 Vice President, Technical Product Management 1996
</TABLE>
CURRENT DIRECTORS WHOSE TERMS EXPIRE IN 1998
CLASS III
L. DOUGLAS GANTOS
L. Douglas Gantos served as the Company's Chairperson of the Board from
September 1996 to May 1998 and has served as a consultant to the Company since
May 1998. From July 1996 until September 1996, he served as the Company's Chief
Executive Officer and Chairperson of the Board. From August 1993 until July
1996, Mr. Gantos served as the Company's President, Chief Executive Officer and
Chairperson of the Board. From April 1992 until August 1993 he served as the
Company's Chief Executive Officer and Chairperson of the Board. From April 1963
until April 1992, Mr. Gantos served as the Company's President and Chief
Executive Officer. While Mr. Gantos receives cash payments pursuant to a letter
of employment, as amended (see Item 11, "Executive
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Compensation--Employment Contracts and Termination of Employment and
Change-in-Control Arrangements--L. Douglas Gantos"), he will serve as a
director of the Company during any period in which the Company's Board of
Directors desires him to serve as a director, unless he is not elected by the
shareholders or dies. The Company filed a voluntary petition for relief
under Chapter 11 of the United States Bankruptcy Code on November 12, 1993.
Mr. Gantos was an executive officer of the Company at the time of the filing.
Mr. Gantos will not continue as a director of the Company if the proposed
Merger of the Company and HOM Holding, Inc. (the "Merger") is consummated.
HANNAH H. STRASSER
Hannah H. Strasser is co-head of the high yield group, responsible for
portfolio management and research for Cardinal Capital Management, a money
management company Ms. Strasser co-founded in April 1995. Prior to co-founding
Cardinal, Ms. Strasser was co-head of the high yield group and was responsible
for portfolio management and research for Deltec Asset Management Corp., a money
management firm. She was also a Managing Director and a member of Deltec's
Executive Committee. She currently serves as a member of the Board of Directors
of Rymer Foods Inc. Ms. Strasser will change from a Class III director to a
Class I director if the Merger is consummated.
MARY ELIZABETH BURTON
Mary Elizabeth Burton has been the Chairman of BB Capital, Inc., a company
that was formed by Ms. Burton to invest in retail or service companies in the
health and beauty industries, since November 1994. From July 1992 until
November 1994, she served as Chairman of the Board and Chief Executive Officer
of Supertans, Inc., a tanning store chain. Ms. Burton currently serves as a
member of the Board of Directors of Staples, Inc., the office superstore. Ms.
Burton will not continue as a director of the Company if the Merger is
consummated.
CURRENT DIRECTORS WHOSE TERMS EXPIRE IN 1999
CLASS I
ELIZABETH M. EVEILLARD
Elizabeth M. Eveillard has been the Managing Director and head of the
Retailing Industry Group for PaineWebber Incorporated, an investment-banking
firm, since April 1988. Ms. Eveillard currently serves as a member of the Board
of Directors of Lillian Vernon Corporation, a specialty catalog retailer. Ms.
Eveillard will continue as a Class I director if the Merger is consummated.
S. AMANDA PUTNAM
S. Amanda Putnam has been the Vice President, Marketing Strategies for
Fitch, Inc., which is an international business and design consulting
organization, since 1992. Ms. Putnam will not continue as a director of the
Company if the Merger is consummated.
CURRENT DIRECTORS WHOSE TERMS EXPIRE IN 2000
CLASS II
ARLENE H. STERN
Arlene H. Stern has been the Company's President and Chief Executive
Officer since September 8, 1996. From July 8, 1996 to September 8, 1996, Ms.
Stern was the President and Chief Operating Officer for the Company. Ms. Stern
served as Executive Vice President and Chief Operating Officer of Casual Corner
Group, Inc., a retail apparel specialty store chain and a division of U.S. Shoe
Corporation, from July 1993 to August 1995. From February 1985 to July 1993, Ms.
Stern was the Executive Vice President for Human Resources and Distribution with
P.A. Bergner & Company, a department store chain.
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If the Merger is consummated, Ms. Stern will continue as a Class II director.
FRED K. SCHOMER
Fred Schomer was the Executive Vice President and Chief Executive Officer
for Gerber Products Company, a consumer products manufacturer, from November
1988 until his retirement in December 1997. Mr. Schomer will not continue as a
director of the Company if the Merger is consummated.
ERWIN A. MARKS
Erwin A. Marks has been the President of Marks & Associates, Inc., an
interim management and consulting firm specializing in underperforming companies
and restructurings, since April 1996. From June 1995 to April 1996, Mr. Marks
was the President of Circle Fine Arts Corporation, a retail art gallery chain.
From 1989 to June 1995, Mr. Marks was the Managing Director and Senior Vice
President of Heller Investments, Inc., a subsidiary of Heller Financial Inc., a
financial services company. Mr. Marks is also on the Board of Directors of
Value Merchants, Inc. Circle Fine Arts Corporation filed a voluntary petition
for relief under Chapter 11 of the United States Bankruptcy Code on February 8,
1996. Mr. Marks was an executive officer of Circle Fine Arts Corporation at the
time of the filing. Mr. Marks will continue as a Class II director if the
Merger is consummated.
ARRANGEMENTS CONCERNING ELECTION OF DIRECTORS
If the Merger is consummated, the Board of Directors will consist of seven
members. Three of the directors will be designated by HOM Holding, Inc. (the
"Holding Designees") and four of the directors (Ms. Stern, Ms. Eveillard, Mr.
Marks and Ms. Strasser) will be continuing directors of the Company (the
"Company Designees"). The other four current directors of the Company will
resign. If the Merger is not consummated, the current eight directors of the
Company will remain in office until the Annual Meeting of Shareholders for the
year in which his or her term expires and until their respective successors have
been elected and qualified.
In connection with the Merger, on May 12, 1998, the Company entered into
the Stockholder Voting and Proxy Agreement (the "Voting Agreement") with Arlene
Stern, Erwin A. Marks and Elizabeth Eveillard (collectively, the "Company
Shareholders"), HOM Holding, Inc. ("Holding"), and Herbert Yalof, Jack Concannon
and Access Capital Partners, L.P., (collectively, the Holding Stockholders). In
the merger, Access Capital Partners, L.P. the principal stockholder of Holding
("Access Capital"), will receive approximately 7.0 million shares, or
approximately 47% of the issued and outstanding common shares of the surviving
corporation and, upon exercise of the warrants, if and when exercised, Access
Capital and affiliated entities will have received approximately 8.2 million
shares, or approximately 50%, of the issued and outstanding Common Shares of the
surviving corporation.
Pursuant to the Voting Agreement, each of the Holding Stockholders has
agreed to vote all of his, her or its Common Shares of the Company issued in
the Merger, to the extent that any of the following matters are submitted to
the shareholders of the Company (i) in favor of the re-election (unless after
such re-election there will be greater than three Company designees) of, and
against any proposed removal (if after such removal there will be fewer than
three Company Designees) of, a Company Designee to the surviving
corporation's Board of Directors, and (ii) to fill all vacancies on the
Board of Directors caused by the resignation or removal of a Company Designee
(if after such resignation or removal there will be fewer than three Company
Designees), for the nominees designated by the affirmative vote of at least
two of the Company Designees then in office, subject to the consent of a
sufficient number of the remaining directors such that the voting
requirements set forth in the Company's bylaws are satisfied, and (iii)
against any proposed expansion of the surviving corporation's Board of
Directors beyond seven members (or such increased number as may have been
approved in accordance with the provisions of the Voting Agreement described
herein) unless at least two of the Company Designees then in office and a
majority of the Holding Designees then in office vote to approve such
expansion; PROVIDED, HOWEVER, that this provision does not apply to any
expansion of the surviving corporation's Board of Directors which is effected
in connection with an acquisition of, or a merger, consolidation or other
business combination with, another company, so long as the vacancies caused
by the expansion of the surviving corporation's Board of Directors are solely
filled (x) with persons who are
4
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significant stockholders, executive officers or directors of the acquired
company, (y) immediately upon the consummation of the acquisition, merger,
consolidation or business combination with the acquired company and (z)
pursuant to a vote approving such expansion by a majority of the surviving
corporation's directors then in office. The Company Shareholders have agreed
to similar provisions with respect to the Holding Designees.
The Company has amended its bylaws to be consistent with the Voting
Agreement. The Voting Agreement also requires the Company Shareholders and the
Holding Stockholders to vote in favor of the Merger and contains restrictions on
their transfer of shares or voting rights.
EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS
Joseph Giudice has been the Company's Senior Vice President, Merchandise
Planning and Operations since September 16, 1996. From January 1994 to
September 1996, Mr. Giudice was Executive Vice President of
Operations/Management Information Systems for Casual Corner Group, Inc., a
retail apparel specialty store chain. Prior to that position, Mr. Giudice was
Vice President of Operations of Foley's Department Store, a division of the May
Company, from March 1990 to January 1994. Pursuant to a letter agreement, dated
September 25, 1996, Mr. Giudice is to be employed at will as the Company's
Senior Vice President, Merchandise Planning and Operations.
Dennis Horstman has been the Company's Senior Vice President, Merchandising
and Marketing since December 2, 1996. Prior to joining Gantos, Mr. Horstman was
Senior Vice President/General Merchandise Manager for Petrie Retail, Inc., a
retail apparel specialty store chain, from July 1995 to December 1996. Petrie
Retail, Inc. filed a voluntary petition for relief under Chapter 11 of the
United States Bankruptcy Code on October 13, 1995. Mr. Horstman was an
executive officer of Petrie Retail, Inc. at the time of the filing. Prior to
Petrie, Mr. Horstman was President of the Petite Sophisticate Division of
Women's Specialty Group, a retail apparel specialty store chain and a division
of U.S. Shoe Corporation from November 1994 to July 1995. From May 1994 to
November 1994, Mr. Horstman was General Merchandise Manager for the Capezio
Sportswear Division of Women's Specialty Group. From 1991 to 1994, Mr. Horstman
was Vice President/General Merchandise Manager for the Wilsons Leather Division
of Mellville Corporation, a retail apparel specialty store. Pursuant to a
letter agreement, dated November 11, 1996, Mr. Horstman is to be employed at
will as the Company's Senior Vice President, Merchandising and Marketing.
Neal Gottfried has been the Company's Senior Vice President, Store
Operations and Visual Merchandising since April 14, 1997. From January 1994
until April 1997, Mr. Gottfried was the Vice President of Operations for the
Southern Zone of Casual Corner Group, Inc., a retail apparel specialty store
chain and a division of U.S. Shoe Corporation. From September 1992 until
January 1994, Mr. Gottfried was the Executive Vice President for Caren Charles,
a retail apparel specialty store chain and a division of U.S. Shoe Corporation.
From May 1987 until September 1992, Mr. Gottfried was the Executive Vice
President for Casual Corner Group, Inc., a retail apparel specialty store chain
and a division of U.S. Shoe Corporation. Pursuant to a letter agreement, dated
April 23, 1997, Mr. Gottfried is to be employed at will as the Company's Senior
Vice President, Store Operations and Visual Merchandising.
David Nelson has been the Company's Senior Vice President, Chief Financial
Officer and Treasurer since August 19, 1997. From July 1994 to August 1997, Mr.
Nelson was an independent financial consultant and advisor to private and public
corporations and financial institutions. From April 1991 to July 1994, Mr.
Nelson was the Vice President of Whitman Heffernan Rhein & Co. Inc., a merchant
banking and advising firm. Pursuant to a letter agreement, dated August 19,
1997, Mr. Nelson is to be employed at will as the Company's Senior Vice
President, Chief Financial Officer and Treasurer.
Vicki Boudreaux has been the Company's Vice President, Planning and
Allocation since September 16, 1996. From April 1996 to September 1996, Ms.
Boudreaux was Vice President-Organizational Management at Casual Corner Group,
Inc., a retail apparel specialty store chain and a division of U.S. Shoe
Corporation, and from April 1995 to April 1996, was Vice President - Quick
Response at Casual Corner Group, Inc. From December
5
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1991 to April 1995, Ms. Boudreaux was the Director and subsequently Senior
Director - Quick Response for Casual Corner Group, Inc. Pursuant to a letter
agreement, dated September 3, 1996, Ms. Boudreaux is to be employed at will
as the Company's Vice President, Planning and Allocation.
Hope Grey has been the Company's Vice President, Technical Product
Management since September 30, 1996. Prior to joining Gantos, Ms. Grey was Vice
President-Quality Assurance for Casual Corner Group, Inc., a retail apparel
specialty store chain and a division of U.S. Shoe Corporation, from November
1990 to May 1996. Pursuant to a letter agreement, dated September 25, 1996, Ms.
Grey is to be employed at will as the Company's Vice President, Technical
Product Management.
Executive officers are elected annually by the Board of Directors and serve
at the pleasure of the Board.
Section 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and officers, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file with the Securities
and Exchange Commission (the "SEC") initial reports of ownership and reports of
changes in ownership of Common Stock and other equity securities of the Company.
Officers, directors and greater than ten-percent shareholders are required by
SEC regulation to furnish the Company with copies of all Section 16(a) reports
they file.
To the Company's knowledge, based solely on a review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, during the fiscal year ended January 31, 1998 all Section
16(a) filing requirements applicable to its officers, directors and greater than
ten-percent beneficial owners were complied with, except that during 1997 one
report covering one transaction was filed late by Gordon J. Tendler and one
report covering one transaction was filed late by L. Douglas Gantos.
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth information for each of the fiscal years
ended January 31, 1998, February 1, 1997 and February 3, 1996 concerning the
compensation of (i) any person serving as the Company's Chief Executive Officer
during the fiscal year ended January 31, 1998, (ii) each of the Company's other
most highly compensated executive officers who were serving as executive
officers as of January 31, 1998 and whose total annual salary and bonus exceeded
$100,000, and (iii) up to two additional executive officers whose total annual
salary and bonus exceeded $100,000 for the fiscal year ended January 31, 1998
and who were not serving as executive officers as of January 31, 1998.
6
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SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term Compensation
Annual Compensation Awards
----------------------- ------------------------
Other Restricted
Annual Stock Securities All Other
Salary Bonus Compensation Award(s) Underlying Compensation
Name and Principal Position Year ($) ($) ($) ($) Options(#) ($)(7)
- --------------------------- ---- ----------- ------- ------------ ----------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Arlene H. Stern, President, 1997 425,000 (1) 0 2,384 0 50,000 2,975
Chief Executive Officer and 1996 245,193 75,000 5,939 0 350,000 14,260
Director 1995 N/A N/A N/A N/A N/A N/A
Dennis Horstman, Senior 1997 300,000 (2) 52,500 11,321 0 20,000 1,306
Vice President Merchandising 1996 51,923 0 33,123 0 35,000 0
And Marketing 1995 N/A N/A N/A N/A N/A N/A
Joseph Giudice, Senior 1997 225,000 (3) 0 9,193 0 15,000 2,029
Vice President, Merchandise 1996 86,538 0 25,912 0 25,000 106
Planning and Operations 1995 N/A N/A N/A N/A N/A N/A
Neal Gottfried, Senior 1997 177,404 (4) 0 8,439 0 25,000 805
Vice President, Store 1996 N/A N/A N/A N/A N/A N/A
Operations and Visual 1995 N/A N/A N/A N/A N/A N/A
Merchandising
Kenneth Green, former 1997 152,500 (5) 0 0 12,500 1,961
Vice President, General 1996 150,000 0 0 0 12,500 1,885
Counsel and Secretary 1995 149,039 * 70,000 0 75,000 (6) 50,000 1,861
</TABLE>
- -----------------------------
* Annual salary for fiscal 1995 includes 53 weeks compared to 52 weeks in
fiscal years 1997 and 1996.
(1) Ms. Stern became an executive officer of the Company on July 8, 1996. The
amounts disclosed include all compensation paid by the Company to Ms. Stern
during fiscal 1997 and fiscal 1996.
(2) Mr. Horstman became an executive officer of the Company on December 2,
1996. The amounts disclosed include all compensation paid by the Company
to Mr. Horstman during fiscal 1997 and fiscal 1996.
(3) Mr. Giudice became an executive officer of the Company on September 16,
1996. The amounts disclosed include all compensation paid by the Company
to Mr. Giudice during fiscal 1997 and fiscal 1996.
(4) Mr. Gottfried became an executive officer of the Company on April 14, 1997.
The amounts disclosed include all compensation paid by the Company to Mr.
Gottfried during fiscal 1997.
(5) Mr. Green resigned as an executive officer of the Company as of April 23,
1998.
(6) The restricted shares awarded in fiscal 1995 vested in one-third cumulative
annual installments, which began March 31, 1996. Mr. Green was originally
awarded 20,000 restricted shares in 1995. The officer receiving such
restricted shares is entitled to receive any dividends declared on Gantos
Common Shares with respect to his restricted shares. No such dividends
have been paid, however, since such restricted shares were awarded. Based
on the $0.56 closing price of the Common Stock as reported by the Nasdaq
National Market as of January 30, 1998 (the last trading day of fiscal
1997) the executive officer named in the table above held the following
number of restricted shares with the following value as of January 31,
1998: Kenneth Green--6,667 restricted shares ($3,750.19).
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(7) The amounts shown for fiscal 1997 include (i) $1,600, $742, $1,600, $527
and $1,548 for Ms. Stern, Mr. Horstman, Mr. Giudice, Mr. Gottfried and Mr.
Green, respectively, representing the Company's contribution to the
executive officer in fiscal 1997 under the Company's 401(k) Plan and (ii)
$1,375, $564, $429, $278 and $413 for Ms. Stern, Mr. Horstman, Mr. Giudice,
Mr. Gottfried and Mr. Green, respectively, representing life insurance
premiums paid by the Company in fiscal 1997 for policy values in excess of
$50,000.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information concerning individual grants of
stock options made during the fiscal year ended January 31, 1998, to each of the
executive officers of the Company named in its Summary Compensation Table above:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Potential realizable
Value at Assumed
Annual Rates of
Stock Price
Appreciation for
Individual Grants Option Term
------------------------------------------------------- --------------------
Number of % of Total
Securities Options
Underlying Granted To Exercise
Options Employees in Price Expiration
Name Granted (#) Fiscal Year ($/Sh) Date 5% ($) 10% ($)
- --------------- ------------ ------------ --------- ----------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Arlene H. Stern 50,000 19.5% 2.15625 03/18/07 67,803 171,825
Dennis Horstman 20,000 7.8% 2.15625 03/18/07 27,121 68,730
Joseph Giudice 15,000 5.8% 2.15625 03/18/07 20,341 51,548
Neal Gottfried 25,000 9.7% 2.12500 04/14/07 33,410 84,668
Kenneth Green 12,500 4.9% 2.15625 03/18/07 16,951 42,956
</TABLE>
- ------------------
* Less than 1%
Each of these options becomes exercisable in one-fifth cumulative annual
increments beginning one year after the date of grant. Pursuant to the
Gantos, Inc. 1996 Stock Option Plan under which these options were granted,
if upon the exercise of these options the Company must pay any amount for
income tax withholding, in the Compensation Committee's sole discretion,
either the Company will appropriately reduce the amount of stock to be
delivered to the optionee or the optionee will pay such amount to the
Company to reimburse the Company for such income tax withholding. Also
pursuant to the Gantos, Inc. 1996 Stock Option Plan, the Compensation
Committee may accelerate the exercisability of stock options and stock
appreciation rights in connection with termination of a participant's
employment or a change in control of the Company.
AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUE TABLE
The following table sets forth information concerning each exercise of
stock options during the fiscal year ended January 31, 1998 by each of the
executive officers named in the Summary Compensation Table above and the value
of unexercised options held by such persons as of January 31, 1998:
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AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION VALUES
<TABLE>
<CAPTION>
Number of
Securities Underlying Value of Unexercised
Shares Unexercised Options In the Money Options
Acquired At FY-End (#) at FY-End ($)
On Value Exercisable/ Exercisable/
Name Exercise(#) Realized ($) Unexercisable Unexercisable
- --------------- ----------- ------------ --------------------- ---------------------
<S> <C> <C> <C> <C>
Arlene H. Stern 0 0 116,666/283,334 0/0
Dennis Horstman 0 0 7,000/48,000 0/0
Joseph Giudice 0 0 5,000/35,000 0/0
Neal Gottfried 0 0 0/25,000 0/0
Kenneth Green 0 0 35,833/39,167 0/0
</TABLE>
COMPENSATION OF DIRECTORS
Under the Company's standard arrangements, each director who is not a
Company employee receives an annual fee of $15,000, payable quarterly, plus $500
for each Board meeting attended, including meetings by conference telephone
call, plus reasonable expenses.
Pursuant to the Gantos Inc. Amended and Restated Director Stock Option Plan
(the "Directors Plan"), on April 1 each year, the Company automatically grants
an option to purchase 1,000 of the Company's common shares to each director of
the Company who (i) is a director of the Company as of the date the option is
granted under the Directors Plan, (ii) has served as a director of the Company
for at least nine months as of the date the option is granted under the
Directors Plan, and (iii) is not an officer or employee of the Company. Up to
100,000 common shares are reserved for issuance under the Directors Plan.
Options are exercisable on the date of grant and expire ten years
thereafter. The option exercise price is the fair market value of the common
shares on the date of grant. Options may be exercised either by payment in cash
or, at the discretion of the Board of Directors, (i) by surrender of common
shares of the Company, or (ii) by a promissory note, or (iii) by delivery of the
proceeds from a broker's sale of, or loan secured by, some or all of the shares
received upon exercise of the option. No options may be granted under the
Directors Plan after March 16, 2002.
On April 1, 1997 and 1998, 6,000 options to purchase common shares were
granted under the Directors Plan at an exercise price of $2.40625 and $0.375,
respectively. As of the Record Date, options to purchase 40,000 common shares
remain authorized for future award under the Directors Plan.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
ARLENE H. STERN. The Company has a letter of employment, dated as of June
20, 1996 with Arlene H. Stern. Pursuant to Ms. Stern's employment letter she is
employed as the Company's President and Chief Executive Officer until July 8,
1999 (the "Term"), unless earlier terminated.
Ms. Stern will receive (i) a salary of $425,000, subject to increase in the
discretion of the Compensation Committee, (ii) the right to participate in the
Executive Bonus Plan, (iii) a minimum bonus of $75,000 with respect to each of
fiscal 1996, 1997 and 1998 (if employed at the end of each applicable year),
except that Ms. Stern waived her right to such bonus for 1997, (iv) a grant of
an option to purchase 350,000 Gantos Common Shares, which was granted as of July
8, 1996, (v) a $750 a month car allowance, (vi) life insurance in the amount of
twice the amount of her base salary, as long as she is insurable at standard
rates, (vii) fringe benefits generally available to other
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executive officers of the Company, (viii) reimbursement for various
relocation expenses, and (ix) reimbursement for the difference between the
cost of her Simsbury, Connecticut home and the net proceeds of its sale, up
to $250,000 of reimbursement, if such home is sold before July 8, 1999.
Ms. Stern will also receive termination benefits, which vary depending on
the reason for her termination. If Ms. Stern's employment is terminated before
July 8, 1999 by the Company without "Cause", other than because of her death or
disability, or by Ms. Stern for "Good Reason", she will be entitled to (i) her
salary through the date of termination, (ii) any bonus earned with respect to
the prior fiscal year and a pro rata bonus for the fiscal year in which the
termination occurs, (iii) payment for the pro rata portion of her unused
vacation time for the fiscal year in which the termination occurs, (iv) a
continuation of her salary and minimum bonus for one year after the date of
termination (the "Period"), (v) during the Period, the same medical long-term
disability, dental and prescription drug coverage generally available to other
Company executive officers and her life insurance policy, (vi) the options
granted to her pursuant to the letter agreement fully vesting and remaining
exercisable for 90 days after such termination, and (vii) her life insurance
policy being assigned to her at the end of the Period, if assignable and if she
pays the Company the cash surrender value of the policy. These termination
benefits are subject to Ms. Stern's obligation to seek other employment and the
Company's right to offset amounts paid to Ms. Stern from such other employment
during the severance period.
If a change in control occurs before July 8, 1999 and within two years
after the change in control Ms. Stern's employment is terminated without
"Cause", other than because of her death or disability, or she terminates her
employment for "Good Reason", she will be entitled to the same types of benefits
described in the preceding paragraph, except that (i) all cash payments would be
payable in a lump sum within 30 days after such termination, (ii) the Period
would continue for three years after the date of termination, (iii) the total
amount of compensation contingent on a change in the ownership or effective
control of the Company would be limited to the maximum amount that may be paid
to her and not be deemed a "parachute payment" resulting in an excise tax to her
and loss of compensation deduction to the Company, and (iv) Ms. Stern would not
have any mitigation obligations.
If Ms. Stern's employment is terminated before July 8, 1999 because of her
death or disability, she will be entitled to (i) her salary through the date of
termination, (ii) any bonus earned with respect to the prior fiscal year and a
pro rata bonus for the fiscal year in which the termination occurs, (iii)
payment for the pro rata portion of her unused vacation time for the fiscal year
in which the termination occurs, (iv) for one year after the date of
termination, the same medical, dental and prescription drug coverage generally
available to other Company executive officers and, if such termination is not
the result of her death, her life insurance policy, (v) the options granted to
her pursuant to the letter agreement fully vesting and remaining exercisable for
one year after such termination, (vi) if such termination is not the result of
her death, her life insurance policy would be assigned to her one year after the
date of such termination, is assignable and if she pays the Company the cash
surrender value of the policy, and (vii) receipt of the benefits under any
disability or life insurance policy covering her.
If Ms. Stern's employment is terminated before July 8, 1999 by the Company
for "Cause" or by Ms. Stern without "Good Reason", she will be entitled to (i)
her salary through the date of termination, and (ii) any bonus earned with
respect to the prior fiscal year. She would also be required to reimburse the
Company for a pro rata portion of her relocation expenses paid by the Company.
For purposes of Ms. Stern's employment letter, "Cause" generally means
(i) her continued failure to either devote substantially full time to her
employment duties (except because of illness or disability) or make a good
faith effort to perform her employment duties, (ii) any willful act or
omission that she knew or had reason to know would materially injure the
Company, (iii) breach of the non-competition, confidentiality and
non-solicitation provisions of the employment letter, (iv) misrepresentations
or breach by her regarding specified conflicting obligations or specified
claims regarding conflicting obligations, (v) conviction of a felony
involving dishonesty or fraud, (vi) certain acts contrary to directions of
the Board of Directors, or (vii) material breaches of the employment letter.
The employment letter provides notice and a chance to cure the items
described in clauses (i) and (ii). "Good Reason" under the employment letter
generally means voluntary termination of employment with the Company as a
result of (i) a reduction without her consent in duties, responsibilities,
benefits or compensation, (ii) material breach by the
10
<PAGE>
Company of the employment letter, (iii) any requirement that she relocate
outside of specified areas, or (iv) any failure of a successor to the
Company's business after a change in control to assume the Company's
obligations under the employment letter. "Change in Control" under the
employment letter generally means (i) any person (excluding specified related
parties) becoming the owner of 30% or more of the Company's capital stock,
(ii) the consummation of a business combination unless the shareholders
before the combination own more than 50% of the combined entity in
substantially the same proportions, (iii) a sale of substantially all of the
Company's assets, (iv) the continuing directors of the Company cease to be a
majority of the Company's directors, or (v) dissolution of the Company and
liquidation of substantially all of its assets.
L. DOUGLAS GANTOS. As of March 27, 1995, the Company entered into a letter
of employment with L. Douglas Gantos. This letter of employment was amended as
of March 19, 1996. Pursuant to Mr. Gantos' employment letter, as amended, he is
employed as part-time Chairperson of the Board or as a consultant to the Company
until September 8, 2000, unless earlier terminated. The Company's Board of
Directors will choose, in its sole discretion, which of the two positions he
will hold during that period. On May 19, 1998, the Board of Directors elected
to employ Mr. Gantos as a consultant to the Company. Prior to that time, Mr.
Gantos served as Chairperson of the Board. While Mr. Gantos receives cash
payments pursuant to the letter agreement, he will serve as a director of the
Company during any period in which the Company's Board of Directors desires him
to serve as a director, unless he is not elected by the shareholders or dies.
Mr. Gantos will not continue as a director of the Company if the Merger is
consummated.
Mr. Gantos' will receive (i) a salary of $250,000 while he is a consultant
or part-time Chairperson of the Board, (ii) a $1,000 a month care allowance and
an $8,000 a year tax, financial planning and legal advice allowance, (iii) life
insurance in the amount of $1,000,000 in addition to his $50,000 life insurance
policy, (iv) medical, dental and prescription drug coverage for himself and his
wife for their joint lives, to the same extent as such benefits are provided by
the Company to its executives, subject to the same contribution and co-payment
requirements applicable to other executive officers, and (v) fringe benefits
generally available to other executive officers of the Company.
Mr. Gantos will also receive termination benefits, which vary depending on
the reason for his termination. Regardless of the reason for his termination,
Mr. Gantos and his wife will receive the medical, dental and prescription drug
coverage described above for their joint lives. If Mr. Gantos' employment is
terminated before September 8, 2000 without "Cause" or by Mr. Gantos for "Good
Reason", he will be entitled to (i) his accrued bonus for the preceding year, if
any, and any other accrued compensation and benefits through the date of
termination, (ii) a continuation of his salary and benefits described above
through September 8, 2000 or his death, if earlier, and (iii) immediate vesting
of the restricted stock and stock options granted to him pursuant to the
employment letter, and such options will remain exercisable for their original
term.
11
<PAGE>
If Mr. Gantos' employment is terminated before September 8, 2000 by the
Company for "Cause" or by Mr. Gantos without "Good Reason", he will be entitled
to (i) his accrued bonus for the preceding year, if any, and any other accrued
compensation and benefits through the date of termination, and (ii) immediate
vesting of the stock options (but not the restricted stock) granted to him
pursuant to the employment letter, and such options will remain exercisable for
their original term.
If Mr. Gantos' employment is terminated before September 8, 2000 because of
his death, he will be entitled to (i) his accrued bonus for the preceding year,
if any, a pro-rated bonus for the year of termination, if any, and any other
accrued compensation and benefits through the date of termination, (ii) the
proceeds of his life insurance policy, and (iii) immediate vesting of the
restricted stock and stock options granted to him pursuant to the employment
letter, and the options would remain exercisable for their original term.
If Mr. Gantos' employment is terminated before September 8, 2000 because of
his disability, he will be entitled to (i) his accrued bonus for the preceding
year, if any, a pro-rated bonus for the year of termination, if any, and any
other accrued compensation and benefits through the date of termination, (ii) a
continuation of his salary described above through September 8, 2000 or his
death, if earlier, offset by any proceeds of disability insurance provided by
the Company, (iii) a continuation of the benefits described above for one year,
except that the life insurance policy would be maintained at least through
September 8, 2000 or his death, if earlier, and (iv) immediate vesting of the
restricted stock and stock options granted to him pursuant to the employment
letter, and such options would remain exercisable for their original term.
If Mr. Gantos' employment terminates because the agreement expires, he will
be entitled to (i) any accrued compensation and benefits through the date of
termination, and (ii) immediate vesting of the restricted stock and stock
options granted to him pursuant to the employment letter, and such options will
remain exercisable for their original term.
The termination benefits described above are Mr. Gantos' exclusive rights
with respect to termination of his employment. For purposes of Mr. Gantos'
employment letter, "Cause" generally means continued failure to either devote
substantially full working time to his duties (while he is a full-time employee)
or make a good faith effort to perform his employment duties, willful acts or
omissions materially injuring the Company, conviction of a felony involving
dishonesty or fraud that is injurious to the Company, or any material breach by
Mr. Gantos of the non-competition provisions of the employment letter. "Good
Reason" under the employment letter generally means termination as a result of
substantial reduction in Mr. Gantos' duties, responsibilities, benefits or
compensation, any material breach by the Company of the employment letter, any
requirement that Mr. Gantos relocate outside of specified areas or the failure
to elect Mr. Gantos as a director while he is an officer.
VICKI BOUDREAUX. The Company has a letter of employment, dated as of
September 3, 1996, with Vicki Boudreaux. Pursuant to Ms. Boudreaux's employment
letter she is employed as the Company's Vice President, Planning and Allocation.
Ms. Boudreaux's employment letter provides her with (i) an initial salary of
$120,000, (ii) the right to participate in the Company's Executive Bonus Plan,
(iii) six months separation pay, as her exclusive severance benefit, if her
employment is terminated without cause (other than pursuant to her death or
disability) before September 16, 1998 (subject to Ms. Boudreaux's obligation to
seek other employment and the Company's right to offset amounts paid to Ms.
Boudreaux from such other employment during the severance period), (iv)
reimbursement for various relocation expenses, (v) fringe benefits the Company
provides its other Vice Presidents, and (vi) a grant of an option to purchase
10,000 common shares, which was granted September 16, 1996.
JOSEPH GIUDICE. The Company has a letter of employment, dated as of
September 25, 1996, with Joseph Giudice. Pursuant to Mr. Giudice's employment
letter he is employed as the Company's Senior Vice President, Merchandise
Planning and Operations. Mr. Giudice's employment letter provides him with (i)
an initial salary of $225,000, (ii) the right to participate in the Company's
Executive Bonus Plan, (iii) twelve months separation pay, as his exclusive
severance benefit, if his employment is terminated without cause (other than
pursuant to his death or disability) before September 16, 1998 (subject to Mr.
Giudice's obligation to seek other employment and the Company's right to offset
amounts paid to Mr. Giudice from such other employment during the severance
period),
12
<PAGE>
(iv) reimbursement for various relocation expenses, (v) fringe benefits
the Company provides its other Vice Presidents, and (vi) a grant of an options
to purchase 25,000 common shares, which was granted September 16, 1996.
HOPE GREY. The Company has a letter of employment, dated as of September
25, 1996, with Hope Grey. Pursuant to Ms. Grey's employment letter she is
employed as the Company's Vice President, Technical Product Management. Ms.
Grey's employment letter provides her with (i) an initial salary of $120,000,
(ii) the right to participate in the Company's Executive Bonus Plan, (iii) six
months separation pay, as her exclusive severance benefit, if her employment is
terminated without cause (other than pursuant to her death or disability) before
September 30, 1998 (subject to Ms. Grey's obligation to seek other employment
and the Company's right to offset amounts paid to Ms. Grey from such other
employment during the severance period), (iv) reimbursement for various
relocation expenses, (v) fringe benefits the Company provides its other Vice
Presidents, and (vi) a grant of an option to purchase 10,000 common shares,
which was granted September 30, 1996.
DENNIS HORSTMAN. The Company has a letter of employment, dated as of
November 1, 1996, with Dennis Horstman. Pursuant to Mr. Horstman's employment
letter he is employed as the Company's Senior Vice President, Merchandising and
Marketing. Mr. Horstman's employment letter provides him with (i) an initial
salary of $300,000, (ii) the right to participate in the Company's Executive
Bonus Plan, and if employed at the end of the 1997 fiscal year, a minimum bonus
of $52,500 for that year, (iii) twelve months separation pay, as his exclusive
severance benefit, if his employment is terminated without cause (other than
pursuant to his death or disability) before December 2, 1998 (subject to Mr.
Horstman's obligation to seek other employment and the Company's right to offset
amounts paid to Mr. Horstman from such other employment during the severance
period), (iv) reimbursement for various relocation expenses, (v) fringe benefits
the Company provides its other Senior Vice Presidents, and (vi) a grant of an
option to purchase 35,000 common shares, which was granted December 2, 1996.
NEAL GOTTFRIED. The Company has a letter of employment, dated as of April
23, 1997, with Neal Gottfried. Pursuant to Mr. Gottfried's employment letter he
is employed as the Company's Senior Vice President, Store Operations and Visual
Merchandising. Mr. Gottfried's employment letter provides him with (i) an
initial salary of $225,000, (ii) the right to participate in the Company's
Executive Bonus Plan, (iii) twelve months separation pay, as his exclusive
severance benefit, if his employment is terminated without cause (other than
pursuant to his death or disability) before April 23, 1999 (subject to Mr.
Gottfried's obligation to seek other employment and the Company's right to
offset amounts paid to Mr. Gottfried from such other employment during the
severance period), (iv) reimbursement for various relocation expenses, (v)
fringe benefits the Company provides its other Vice Presidents, and (vi) a grant
of an option to purchase 25,000 common shares.
DAVID NELSON. The Company has a letter of employment, dated as of August
19, 1997, with David Nelson. Pursuant to Mr. Nelson's employment letter he is
employed as the Company's Senior Vice President and Chief Financial Officer.
Mr. Nelson's employment letter provides him with (i) an initial salary of
$225,000, (ii) a $4,000 sign on bonus and the right to participate in the
Company's Executive Bonus Plan, (iii) twelve months separation pay, as his
exclusive severance benefit, if his employment is terminated without cause
(other than pursuant to his death or disability) before August 19, 1999 (subject
to Mr. Nelson's obligation to seek other employment and the Company's right to
offset amounts paid to Mr. Nelson from such other employment during the
severance period), (iv) fringe benefits the Company provides its other Senior
Vice Presidents, and (v) a grant of an option to purchase 25,000 shares, which
was granted August 19, 1997.
MASTER SEVERANCE PLAN. On January 11, 1994, the Company's Board of
Directors adopted a Master Severance Plan as amended March 15, 1994. The Master
Severance Plan provides severance benefits to employees (including the officers
listed in the Summary Compensation Table above) if they are terminated without
cause. The amount of such benefits payable to executive officers of the
Company is (i) two weeks of the employee's base salary at the time of
termination (one week for Mr. Gantos) multiplied by the number of full years of
such employee's service to the Company at the time of termination; provided that
such benefits may not exceed one year of the employee's base compensation; plus
(ii) such employee's accrued vacation at the time of termination. As described
above, Ms. Stern, Mr. Gantos, Ms. Boudreaux, Mr. Giudice, Ms. Grey, Mr.
Horstman, Mr. Gottfried and
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<PAGE>
Mr. Nelson have employment letters, with the Company providing for severance
rights that differ from those under the Master Severance Plan.
STOCK OPTION TERMS. The stock option granted to Mr. Gantos on March 31,
1995 to purchase 180,000 Gantos Common Shares at $4.16 a share provides that the
option becomes immediately exercisable, and continues to be exercisable until
its original termination date, upon termination of Mr. Gantos' employment and
consultation with Gantos. The stock option granted to Mr. Gantos on March 19,
1996 to purchase 50,000 Gantos Common Shares at $3.375 provides that the option
becomes immediately exercisable until its original termination date upon
termination of Mr. Gantos' employment and consultation with the Company. The
stock option granted to Ms. Stern on July 8, 1996 to purchase 350,000 Gantos
Common Shares at $4.65625 a share provides that the option becomes immediately
exercisable upon termination of Ms. Stern's employment with the Company, unless
such termination is by the Company for Cause or by Ms. Stern without Good
Reason, and if a Change in Control occurs. The vested portion of the options at
the date of termination of Ms. Stern's employment with the Company may be
exercised (i) until one year after termination as a result of her death or
disability, and (ii) until 90 days after termination for any other reason,
except that all rights to exercise the options terminate if she is terminated
for Cause.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the fiscal year ended January 31, 1998 Mr. Schomer, Ms. Putnam and
Ms. Strasser served as sole members of the Company's Compensation Committee.
None of the members of the Company's Compensation Committee during the fiscal
year ended January 31, 1998 (i) was, during such fiscal year, an officer or
employee of the Company, or (ii) was formerly an officer of the Company or its
subsidiary.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of May 26, 1998, the only person known to the Company to be the
beneficial owner of more than 5% of the Company's outstanding Common Shares was
as follows:
<TABLE>
<CAPTION>
Name and Address of Number of Shares Percent of
Beneficial Owner Beneficially Owned Outstanding Shares
- -------------------------- ------------------ ------------------
<S> <C> <C>
Franklin Resources, Inc. 500,000 (a) 6.6%
777 Mariners Island Blvd.
San Mateo, CA 94404
</TABLE>
- ------------------------------
(a) The information with respect to Franklin Resources, Inc. is based
solely on a Schedule 13G report, dated, January 27, 1998. Franklin
Resources, Inc. ("FRI") is a parent holding company. FRI's
wholly-owned subsidiary, Franklin Advisory Services, Inc. ("FASI"),
is an investment adviser registered under the Investment Advisors Act
of 1940. One or more of FASI's advisory clients is the legal owner
of an aggregate of 500,000 of the Company's common shares. Pursuant
to investment advisory agreements with its respective advisory
clients, FASI has sole investment discretion and voting authority with
respect to such shares. Charles B. Johnson and Rupert H. Johnson, Jr.
(the "Principal Stockholders") each owns in excess of 10% of the
outstanding common stock of FRI and are the principal shareholders of
FRI. Each of the Principal Stockholders, therefore, may be deemed to
have indirect beneficial ownership of such shares. The Principal
Stockholders, FRI and FASI disclaim any economic interest or
beneficial ownership of the Company's common stock. The address of
each of the Principal Stockholders and FRI is as set forth in the
table above. The address of FASI is One Parker Plaza, Sixteenth
Floor, Fort Lee, NJ 07024.
The following information is furnished as of May 26, 1998 with respect to
each current director of the Company, with respect to each present or former
executive officer of the Company named in the Summary
14
<PAGE>
Compensation Table in Item 11, and with respect to all current directors and
executive officers as a group:
<TABLE>
<CAPTION>
Percentage of
Shares of Outstanding
Common Stock Common Stock
of the Company of the Company
Beneficially Beneficially
Name Owned(a) Owned
- ---- -------------- --------------
<S> <C> <C>
CURRENT CLASS III DIRECTORS
L. Douglas Gantos, Inc. 247,667 (b) 3.2%
Hannah H. Strasser 244,803 (c) 3.2%
Mary Elizabeth Burton 8,000 (d) *
CURRENT CLASS I DIRECTORS
Elizabeth M. Eveillard 24,500 (e) *
S. Amanda Putnam 8,000 (f) *
CURRENT CLASS II DIRECTORS
Arlene H. Stern 340,595 (g) 4.4%
Fred K. Schomer 24,700 (h) *
Erwin A. Marks 8,000 (i) *
OTHER NAMED EXECUTIVE OFFICERS
Dennis Horstman 22,718 (j) *
Joseph Giudice 34,458 (k) *
Neal Gottfried 10,000 (l) *
Kenneth Green 29,129 (m) *
All current directors and executive 992,107 (n) 12.2%
officers
As a group (14 persons)
</TABLE>
* Less than 1%.
(a) All directors and executive officers named in this Table have sole
investment and voting power with respect to the Company's Common Shares
beneficially owned by them, except as provided below.
(b) Mr. Gantos will not continue as a director of the Company if the Merger is
consummated. Includes 214,333 Gantos Common Shares that Mr. Gantos has the
right to acquire within 60 days of May 26, 1998 pursuant to options granted
to him under the Company's stock option plans (the "Stock Option Plan").
(c) Ms. Strasser will change from a Class III director to a Class I director if
the Merger is consummated. Includes 8,000 Gantos Common Shares that Ms.
Strasser has the right to acquire within 60 days of May 26, 1998 pursuant
to options granted to her under the Amended and restated Director Stock
Option Plan (the Directors Plan). In addition, the information includes
11,315 Gantos Common Shares held in investment advisory accounts over which
Ms. Strasser has voting and investment discretion and 225,488 Gantos Common
Shares held by Cardinal Recovery Partners. Cardinal Capital Management LLC
is a 1% general partner in Cardinal Recovery Partners and Ms. Strasser is a
45% general partner in Cardinal Capital Management. Ms. Strasser disclaims
beneficial ownership of the Gantos Common Shares held by Cardinal Recovery
Partners.
(d) Ms. Burton will not continue as a director of the Company if the Merger is
consummated. Includes 8,000 Gantos Common Shares that Ms.
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<PAGE>
Burton has the right to acquire within 60 days of May 26, 1998 pursuant to
options granted to her under the Director's Plan.
(e) Ms. Eveillard will continue as a Class I director if the Merger is
consummated. Includes 14,000 Gantos Common Shares that Ms. Eveillard has
the right to acquire within 60 days of May 26, 1998 pursuant to options
granted to her under the Directors Plan.
(f) Ms. Putnam will not continue as a director of the Company if the Merger is
consummated. Includes 8,000 Gantos Common Shares that Ms. Putnam has the
right to acquire within 60 days of May 26, 1998 pursuant to options granted
to her under the Directors Plan.
(g) Ms. Stern will continue as a Class II director if the Merger is
consummated. Includes 22,262 Gantos Common Shares acquired under the
Gantos, Inc. Employee Stock Purchase Plan (the "Stock Purchase Plan")
between January 31, 1997 and May 26, 1998 and 243,333 Gantos Common Shares
that Ms. Stern has the right to acquire within 60 days of May 26, 1998
pursuant to options granted to her under the Stock Option Plan.
(h) Mr. Schomer will not continue as a director of the Company if the Merger is
consummated. Includes 14,000 Gantos Common Shares that Mr. Schomer has the
right to acquire within 60 days of May 26, 1998 pursuant to options granted
to him under the Directors Plan. In addition, the information includes
10,700 shares Mr. Schomer owns jointly with his wife.
(i) Mr. Marks will continue as a Class II director if the Merger is
consummated. Includes 8,000 Gantos Common Shares that Mr. Marks has the
right to acquire within 60 days of May 26, 1998 pursuant to options granted
to him under the Directors Plan.
(j) Includes 11,000 shares that Mr. Horstman has the right to acquire within 60
days of May 26, 1998 pursuant to options granted to him under the Stock
Option Plan. In addition, the information includes 8,000 shares Mr.
Horstman owns jointly with his wife and 3,718 shares acquired under the
Gantos, Inc. Employee Stock Purchase Plan between August 1, 1997 and May
26, 1998.
(k) Includes 8,000 shares that Mr. Giudice has the right to acquire within 60
days of May 26, 1998 pursuant to options granted to him under the Stock
Option Plan. In addition, the information includes 15,250 shares Mr.
Giudice owns jointly with his wife and 6,208 shares acquired under the
Gantos, Inc. Employee Stock Purchase Plan between May 1, 1997 and May 26,
1998.
(l) Includes 5,000 shares that Mr. Gottfried has the right to acquire within 60
days of May 26, 1998 pursuant to options granted to him under the Company's
1996 Stock Option Plan.
(m) Includes 9,129 shares Mr. Green acquired under the Gantos, Inc. Employee
Stock Purchase Plan between November 1, 1996 and April 23, 1998.
(n) Includes 547,666 shares that the Company's directors and executive officers
have the right to acquire within 60 days of May 26, 1998, pursuant to
options granted to them under the Company's Stock Option Plans.
POTENTIAL CHANGE IN CONTROL
On May 12, 1998, the Company entered into a definitive Agreement and Plan
of Merger (the "Merger Agreement") with Hit or Miss Inc. ("Hit or Miss") and HOM
Holding, Inc., the sale stockholder of Hit or Miss ("Holding"), regarding the
merger of Holding with and into the Company. Pursuant to the Merger Agreement,
the Company would acquire the assets and assume the liabilities of Hit or Miss
for an aggregate of approximately 7.4 million of the Company's Common Shares and
warrants to purchase 1.25 million Common Shares for $1.50 per share. The
warrants would not be immediately exercisable.
In the Merger, Access Capital Partners, L.P., the principal stockholder
of Holding ("Access Capital"), will receive approximately 7.0 million shares,
or approximately 47% of the issued and outstanding common shares of the
surviving corporation and, upon exercise of the warrants, if and when
exercised, Access Capital and affiliated entities will have received
approximately 8.2 million shares, or approximately 50% of the issued and
outstanding Common Shares of the surviving corporation. Following completion
of the Merger, the Board of Directors of the surviving corporation (which
will continue as Gantos, Inc.) will consist of seven individuals, three of
whom will be nominees of Holding and four of whom will be continuing Board
members of the Company. The Company's Bylaws will initially provide that
substantially all actions of the Board of Directors of the Surviving
Corporation will require the affirmative vote of more than 70% of the
directors. Hit or Miss will be operated as a separate subsidiary of the
Company. The Company expects, subject to the satisfaction of all
16
<PAGE>
conditions to consummate the Merger on or before August 31, 1998. Under
certain conditions, if the Merger Agreement is terminated or the merger is
not consummated, the company or Holding may be entitled to a fee as
liquidated damages.
The Company and Holding have also entered into a Stockholder Voting and
Proxy Agreement (the "Voting Agreement") whereby Access Capital and certain
other stockholders of Holding, who collectively own approximately 96% of the
equity of Holding, have agreed to vote in favor of the merger and, so long as
they own shares, to elect the continuing Board members of the Company to the
Board of Directors of the surviving corporation for a period of three years.
In connection with the Merger, the parties have received a proposal, which
has received credit committee approval, to refinance the working capital
facilities of the Company and Hit or Miss into a combined $60 million facility.
The consummation of the transaction contemplated by the Merger Agreement is
subject to several material conditions including, among others, the consummation
of the above-described financing, the approval of the Merger by the Company's
shareholders and Holding, the waiver of certain covenants of the debtholders of
the Company and Hit or Miss, the receipt of all necessary approvals under the
Hart-Scott-Rodino Antitrust Improvements Act and the absence of adverse changes
to the business of the Company and Hit or Miss. There can be no assurance that
the Company will be successful in closing the above-described Merger with
Holding and Hit or Miss.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pursuant to the terms of an engagement letter dated February 13, 1998, the
Company has agreed to pay PaineWebber an aggregate fee of $500,000 for acting as
the Company's exclusive financial advisor in connection with the Merger (see
Item 12). A $50,000 retainer fee paid by the Company upon execution of the
engagement letter and a $250,000 fee paid by the Company upon delivery of
PaineWebber's fairness opinion will be credited against the aggregate remaining
fee payable upon the closing of the merger. Whether or not the Merger is
consummated, the Company has also agreed to reimburse PaineWebber for its
reasonable out-of-pocket expenses incurred in connection with the Merger and has
further agreed to indemnify PaineWebber and certain related persons against
certain liabilities relating to or arising out of its engagement. Elizabeth M.
Eveillard, a Managing Director in the Investment Banking Division of
PaineWebber, is a member of the Board of Directors of the Company and will
continue as a director of the surviving corporation.
17
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Dated: June 1, 1998
GANTOS, INC.
(Registrant)
By: /s/ ARLENE H. STERN
-------------------------------------------
Arlene H. Stern
ITS PRESIDENT AND CHIEF EXECUTIVE OFFICER
18
