<PAGE> 1
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 July 31, 1999 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
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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
------------------
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 common shares outstanding at September 10, 1999: 2,707,856
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<PAGE> 2
GANTOS, INC.
Page
Number
------
PART I. UNAUDITED FINANCIAL INFORMATION
Statements of Operations (Unaudited) 3
Balance Sheets (Unaudited) 4
Statements of Cash Flows (Unaudited) 5
Notes to Unaudited Financial Statements 6-7
Management's Discussion and Analysis of
Results of Operations and Financial Condition 8-11
Quantitative and Qualitative Disclosures
about Market Risk 12
PART II. OTHER INFORMATION
Submission of Matters to a Vote of Security Holders 13-14
Exhibits and Reports on Form 8-K 14-15
Signature 16
Page 2 of 16 pages
<PAGE> 3
GANTOS, INC.
STATEMENTS OF OPERATIONS (UNAUDITED)
(Amounts in thousands, except share, per share and store data)
<TABLE>
<CAPTION>
13 Weeks Ended 26 Weeks Ended
July 31, Aug. 1, July 31, Aug. 1,
1999 1998 1999 1998
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Net sales $32,960 $31,758 $73,725 $70,822
Cost of sales (including buying,
distribution and occupancy costs) (28,167) (28,396) (60,030) (59,289)
-------------- -------------- -------------- --------------
Gross income 4,793 3,362 13,695 11,533
Selling, general and administrative
expense (8,825) (8,517) (17,713) (17,637)
Finance charge and other revenue 1,006 1,061 2,088 2,132
-------------- -------------- -------------- --------------
Operating income (loss) (3,026) (4,094) (1,930) (3,972)
Interest expense (1,269) (858) (2,507) (1,725)
-------------- -------------- -------------- --------------
Loss before income taxes (4,295) (4,952) (4,437) (5,697)
-------------- -------------- -------------- --------------
Income taxes - - - -
-------------- -------------- -------------- --------------
Net loss (4,295) (4,952) (4,437) (5,697)
============== ============== ============== ==============
Net loss per share (basic and diluted) (1.63) (1.95) (1.69) (2.25)
============== ============== ============== ==============
Weighted average
shares outstanding (basic and diluted) 2,642,444 2,542,843 2,625,015 2,536,781
============== ============== ============== ==============
Stores open at end of period 115 115 115 115
============== ============== ============== ==============
</TABLE>
See accompanying notes to unaudited financial statements.
Page 3 of 16 pages
<PAGE> 4
GANTOS, INC.
BALANCE SHEETS (UNAUDITED)
(Amounts in thousands, except share data)
<TABLE>
<CAPTION>
ASSETS July 31, January 30, Aug. 1,
1999 1999 1998
-------------- ------------- --------------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 1,164 $ 1,275 $ 775
-------------- ------------- --------------
Accounts receivable, less allowance for doubtful accounts of $578,
$577 and $492 at July 31, 1999, January 30, 1999 and
August 1, 1998, respectively 16,060 17,634 16,203
Merchandise inventories 31,038 27,808 26,640
Prepaid expenses and other 11,429 8,053 8,362
-------------- ------------- --------------
Total current assets 59,691 54,770 51,980
-------------- ------------- --------------
Property and equipment, at cost:
Leasehold improvements 31,551 31,290 31,076
Furniture and fixtures 32,270 31,813 31,716
Other 215 88 772
-------------- ------------- --------------
Total property and equipment 64,036 63,191 63,564
Less - Accumulated depreciation
and amortization (54,263) (52,229) (50,247)
-------------- ------------- --------------
Net property and equipment 9,773 10,962 13,317
-------------- ------------- --------------
Other assets 983 921 -
-------------- ------------- --------------
Total assets $ 70,447 $ 66,653 $ 65,297
============== ============= ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 22,023 $ 12,189 $ 9,977
Accrued expenses and other 6,344 7,492 7,954
--------------- ------------- --------------
Total current liabilities 28,367 19,681 17,931
--------------- ------------- --------------
Long-term debt 36,893 37,651 31,339
--------------- ------------- --------------
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 2,708,000 issued and outstanding at July 31, 1999,
2,607,000 issued and outstanding at January 30, 1999 and 2,553,000
issued and outstanding at August 1, 1998 27 26 26
Additional paid-in capital 41,786 41,485 41,071
Accumulated deficit (36,626) (32,190) (25,070)
--------------- ------------- --------------
Total shareholders' equity 5,187 9,321 16,027
=============== ============= ==============
Total liabilities and shareholders' equity $ 70,447 $ 66,653 $ 65,297
=============== ============= ==============
</TABLE>
See accompanying notes to unaudited financial statements.
Page 4 of 16 pages
<PAGE> 5
GANTOS, INC.
STATEMENTS OF CASH FLOWS (UNAUDITED)
(Thousands)
<TABLE>
<CAPTION>
26 Weeks Ended
--------------------------------
July 31, Aug. 1,
1999 1998
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (4,295) $ (5,697)
-------------- --------------
Adjustments to reconcile net loss
to net cash provided (used) by operating activities:
Depreciation and amortization 1,897 2,251
Restricted stock compensation expense - 30
Other (4) -
Changes in assets and liabilities:
Accounts receivable 1,574 2,404
Merchandise inventories (3,230) (4,100)
Prepaid expenses and other (3,376) (157)
Accounts payable 9,834 2,333
Accrued expenses and other (1,148) (518)
-------------- --------------
Total adjustments 5,547 2,243
Net cash provided in (used) by operating activities 1,252 (3,454)
-------------- --------------
Cash flows from investing activities:
Capital expenditures (845) (696)
-------------- --------------
Net cash used in investing activities (845) (696)
-------------- --------------
Cash flows from financing activities:
Principal payments under capital lease
obligations and other long-term debt (1,624) (803)
Issuance of common shares 302 14
Borrowings under revolving credit notes payable 86,196 82,394
Repayments under revolving credit notes payable (85,329) (77,650)
Other (61) (325)
-------------- --------------
Net cash (used in) provided by financing activities (516) 3,630
-------------- --------------
Net decrease in cash and cash equivalents (111) (520)
Cash and cash equivalents at beginning of period 1,275 1,295
-------------- --------------
Cash and cash equivalents at end of period $ 1,164 $ 775
============== ==============
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 2,264 $ 860
Income taxes - -
</TABLE>
See accompanying notes to unaudited financial statements.
Page 5 of 16 pages
<PAGE> 6
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 are 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 January 30, 1999.
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 July 31, 1999, January 30, 1999 and
August 1, 1998 and the results of operations for the thirteen and twenty
-six weeks, and cash flows for the twenty-six weeks, ended July 31, 1999
and August 1, 1998. Effective July 21, 1999, the Company affected a
one-for-three reverse stock split. The financial statements have been
restated to give retroactive effect to this reverse stock split. All other
adjustments are of a normal and recurring nature.
The results of operations for the thirteen-week and twenty-six week
periods ended July 31, 1999 and August 1, 1998 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 and consists
primarily of finished goods.
3. Basic net loss per share is determined by dividing net loss by the
weighted average number of common shares outstanding during the period
presented.
Diluted loss per share data has not been presented because its effect is
anti-dilutive.
4. Long-Term Debt
As of August 2, 1999, the Company had $33.8 million in borrowings and $1.0
million in letters of credit outstanding under its Loan and Security
Agreement with Foothill Capital Corporation and Paragon Capital LLC (the
"Foothill/Paragon Facility"), and approximately $0.4 million was available
for borrowing under the Foothill/Paragon Facility.
Page 6 of 16 pages
<PAGE> 7
As of April 30, 1999 holders of approximately 96% in principal amount of
the Company's 12.75% notes issued under the Indenture, dated as of April
1, 1995, as amended (the "Indenture") agreed to reschedule their portion
of the principal payments on the notes outstanding under the Indenture.
For holders of the remaining 4% in principal amount of notes, the payment
schedule remains unaffected. As of July 1, 1999, the Company and the
Trustee under the Indenture amended the Indenture to reflect the new
payment schedule. For the rescheduled holders the payment schedule is as
follows:
<TABLE>
<CAPTION>
Date Amount Date Amount
---------------- ------------- ------------- -------------
<S> <C> <C> <C>
5/1/99 $223,874 10/1/00 $335,811
7/1/99 $223,874 1/1/01 $746,246
10/1/99 $223,874 4/1/01 $671,621
1/1/00 $671,621 7/1/01 $444,577
4/1/00 $671,621
7/1/00 $335,811
</TABLE>
In exchange for such amendment to the payment schedule, the Company issued
to the affected holders five-year warrants to purchase 475,000 of the
Company's Common Shares at an exercise price of $0.01 per share. All stock
warrants issued under this arrangement were immediately vested and have a
term of five years. The fair value of stock warrants issued, approximately
$400,000, was capitalized as accrued expenses and is being charged to
interest expense over the remaining term of the Notes using the interest
method.
If the Company's availability under the Foothill/Paragon Facility, trade
credit or sales are lower than expected, or if the Company's borrowing
requirements or liquidity needs are higher than expected, the Company
could have insufficient liquidity to continue its current operations, its
business, operations, liquidity, financial condition and results of
operations could be materially adversely affected, and the Company could
be required to substantially reduce or discontinue its operations. In
addition, there can be no assurance that the Company will be able to meet
the financial covenants under its borrowing arrangements for the next 12
months unless sales and trade credit substantially improve.
5. The accompanying financial statements have been prepared on the going
concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. As shown in
the financial statements, during the six months ended July 31, 1999, the
Company incurred a loss of $4,437,000 and has experienced continued tight
trade credit. See also Note 4. These factors among others may indicate
that the Company will be unable to continue as a going concern. The
Company is exploring various strategic alternatives.
The financial statements do not include any adjustments relating to the
recoverability and classification of assets and liabilities that might be
necessary should the Company be unable to continue as a going concern. The
Company's ability to continue as a going concern is dependent upon its
ability to generate sufficient cash flow to meet its obligations on a
timely basis, to comply with the terms of the Foothill/Paragon Facility
and the Indenture, support form trade creditors, changes in comparable
store sales, and future profitable operations.
Pages 7 of 16 pages
<PAGE> 8
GANTOS, INC.
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
Results of Operations
Thirteen and Twenty-six Weeks Ended July 31, 1999, Compared to Thirteen and
Twenty-six Weeks Ended August 1, 1998.
The following table indicates the percentage relationships to net sales of
various revenue and expense items for the thirteen and twenty-six week periods
ended July 31, 1999 and August 1, 1998.
<TABLE>
<CAPTION>
As a percent of net As a percent of net
sales for the thirteen sales for the twenty-
weeks ended six weeks ended
-------------------------------- --------------------------------
July 31, Aug. 1, July 31, Aug. 1,
1999 1998 1999 1998
-------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales (including buying,
distribution and occupancy costs) (85.5) (89.4) (81.4) (83.7)
-------------- -------------- ------------- -------------
Gross income 14.5 10.6 18.6 16.3
Selling, general and
administrative expense (26.8) (26.8) (24.0) (24.9)
Finance charge and other revenue 3.1 3.3 2.8 3.0
-------------- -------------- ------------- -------------
Operating loss (9.2) (12.9) (2.6) (5.6)
Interest expense (3.8) (2.7) (3.4) (2.4)
-------------- -------------- ------------- -------------
Loss before income taxes (13.0) (15.6) (6.0) (8.0)
Income taxes - - - -
-------------- -------------- ------------- -------------
Net loss (13.0)% (15.6)% (6.0)% (8.0)%
============== ============== ============= =============
</TABLE>
Net sales for the thirteen weeks ended July 31, 1999 were approximately $33.0
million, an increase of approximately $1.2 million, or 3.8%, compared to net
sales of approximately $31.8 million in the same period of the prior fiscal
year. Net sales for stores in operation throughout both periods increased 4.4%,
or $1.4 million, for the second quarter of 1999 compared to the same period in
1998. The 4.4% increase in comparable store sales is comprised of a 1.6%
increase in unit sales and a 3.1% increase in average sales dollars per unit,
partially offset by a .3% decrease due to a change in merchandise mix.
Page 8 of 16 pages
<PAGE> 9
Net sales for the twenty-six weeks ended July 31, 1999 were approximately $73.7
million, an increase of approximately $2.9 million, or 4.1%, compared to net
sales of approximately $70.8 million in the same period of the prior fiscal
year. Net sales for stores in operation throughout both periods increased 4.8%,
or $3.3 million, for the first two quarters of 1999 compared to the same period
in 1998. The 4.8% increase in comparable store sales is comprised of a 1.4%
increase in unit sales and a 3.5% increase in average sales dollars per unit,
partially offset by a 0.1% decrease due to a change in merchandise mix.
Cost of sales decreased approximately $0.2 million in the thirteen weeks ended
July 31, 1999 compared to the same period of the prior fiscal year. Cost of
sales, as a percent of net sales, decreased to 85.5% in the thirteen weeks ended
July 31, 1999, compared to 89.4% in the same period in the prior fiscal year.
Cost of sales increased approximately $0.7 million in the twenty-six weeks ended
July 31, 1999 compared to the same period of the prior fiscal year. Cost of
sales, as a percent of net sales, decreased to 81.4% in the twenty-six weeks
ended July 31, 1999, compared to 83.7% in the same period in the prior fiscal
year. The decrease in cost of sales, as a percent of net sales, for the thirteen
and twenty-six weeks ended July 31, 1999 is primarily the result of increased
sales volume with consistent distribution and occupancy costs, higher initial
markups, lower net markdowns and lower net merchandise costs for the periods
compared to a year ago. These decreases were partially offset by a smaller cost
accounting benefit and higher shrinkage expense than in the previous year.
As a percent of net sales, SG&A expense was flat for the thirteen weeks ended
July 31, 1999 compared to the same periods ended August 1, 1998 and decreased
from 24.9% for the twenty-six weeks ended August 1, 1998 to 24.0% for the
twenty-six weeks ended July 31, 1999. Selling, general and administrative (SG&A)
expense for the thirteen and twenty-six weeks ended July 31, 1999 increased
approximately $308,000 and $76,000, respectively, compared to the same period in
the prior fiscal year. The increase in SG&A is partly due to higher professional
services, transportation services, and travel and entertainment expenses,
partially offset by a decrease in depreciation due to the age of the assets.
Finance charge and other revenue was essentially that. The marginal decrease in
both the thirteen and twenty-six weeks ended July 31, 1999 were primarily due to
a lower average outstanding balance of Gantos credit card receivables compared
to the same period in the prior fiscal year. The decrease in the receivable
balances is primarily the result of lower use of the Gantos charge card.
Interest expense for the thirteen and twenty-six weeks ended July 31, 1999
increased approximately $411,000 and $782,000, respectively, compared to the
same periods in the prior fiscal year. The increase for both periods is
primarily due to higher debt levels under the Foothill/Paragon Facility and the
expense and fees associated with the new Foothill/Paragon Facility and the
warrants issued in connection with amendments to, and the extension of, the
Indenture Notes payment schedule, partially offset by reduced interest expense
on the Indenture Notes as a result of scheduled principal payments. The increase
in amounts outstanding under the Fleet Facility is due to operating losses,
greater inventory levels and continued difficulties with trade credit.
The effective income tax rate varies from the statutory rate of 35% due to the
establishment of additional valuation allowances during the quarter.
These factors resulted in a net loss of approximately $4.3 million, or $1.63 per
share, for the thirteen weeks ended July 31, 1999, compared to a net loss of
approximately $5.0 million, or $1.95 per share, in the same period of the prior
year. For the twenty-six weeks ended July 31, 1999, the Company reported a net
loss of approximately $4.4 million, or $1.69 per share, compared to net loss of
approximately $5.7 million, or $2.25 per share, in the same period of the prior
year.
Page 9 of 16 pages
<PAGE> 10
Liquidity and Capital Resources
Net cash provided by operating activities totaled $1.3 million in the first half
of 1999 compared to $3.5 million used in the same period a year ago. The
increase was primarily due to a smaller net loss this year (net of non-cash
items) compared to last year a smaller increase in inventories, a larger
increase in merchandise accounts payable this year over last year and a smaller
increase in inventory this year. These amounts are partially offset by a smaller
decrease in accounts receivable this year, a larger increase in prepaid expenses
and other this year (due to increased merchandise pre-payments as a result of
tighter trade credit), and a larger decrease in accrued expenses and other this
year. The larger increase in accounts payable this year is primarily due to low
1999 beginning inventory levels and longer payment periods and higher overdrafts
in 1999. The smaller decrease in accounts receivable this year is due to slower
payments. The Company expects the accounts receivable balance to be lower for
the remainder of 1999 compared to 1998 and that trade credit will remain tight
through at least the third quarter of 1999.
Capital expenditures for the first six months of 1999 were approximately
$845,000, compared to approximately $696,000 for the same period in 1998.
Capital expenditures in fiscal 1999 were primarily for remodeling two stores and
IS expenditures related to Year 2000 readiness.
Net cash used in financing activities in the first half of 1999 was
approximately $0.5 million compared to net cash provided by approximately $3.6
million in the same period a year ago. The increase in cash used is the result
of payments of deferred Indentures Note payments in 1999 and lower net
borrowings under the Foothill/Paragon Facility. Cash used in 1999 represents
$1.6 million in payments made on the Indenture Notes compared to $0.8 million
paid in 1998, partially offset by net borrowings under the Foothill/Paragon
Facility of $0.9 million, compared to $4.7 million in the prior period, and $0.3
million received in 1999 upon the exercise of warrants.
The Company has a Loan and Security Agreement with Foothill Capital Corporation
and Paragon Capital LLC (the "Foothill/Paragon Facility"). The Foothill/Paragon
Facility expires November 18, 2001, and it provides the Company with revolving
credit loans and letters of credit up to $40 million, subject to a borrowing
base formula and lender reserves (as defined in the agreement). Undrawn and
unreimbursed letters of credit under the facility may not exceed $5,000,000 in
face amount.
As of September 2, 1999, the Company had $35.3 million in borrowings and $1.2
million in letters of credit outstanding under this facility, and $1.5 million
was available for borrowing under this facility. During the first two quarters
of 1999, the weighted average interest rate under this facility was 9.75%.
As of September 2, 1999, approximately $4.2 million in principal amount of notes
were outstanding under the Company's Indenture, under which its 12.75% Notes
were issued. As of April 30, 1999, holders of approximately 96% in principal
amount of the notes issued under the Indenture agreed to reschedule their
portion of the principal payments on the notes outstanding under the Indenture.
For holders of the remaining 4% in principal amount of notes, the payment
schedule remains unaffected. As of July 1, 1999, the Company and the Trustee
under the Indenture amended the Indenture to reflect the new payment schedule.
For the rescheduled holders, the payment schedule is as follows:
<TABLE>
<CAPTION>
Date Amount Date Amount
---------------- ------------- ------------- -------------
<S> <C> <C> <C>
5/1/99 $223,874 10/1/00 $335,811
7/1/99 $223,874 1/1/01 $746,246
10/1/99 $223,874 4/1/01 $671,621
1/1/00 $671,621 7/1/01 $444,577
4/1/00 $671,621
7/1/00 $335,811
</TABLE>
Page 10 of 16 pages
<PAGE> 11
In exchange for such amendment to the payment schedule, the Company issued to
the affected holders five-year warrants to purchase 475,000 of the Company's
Common Shares at an exercise price of $0.01 per share. All stock warrants issued
under this arrangement were immediately vested and have a term of five years.
The fair value of the stock warrants issued, approximately $400,000, was
capitalized as accrued expenses and will be charged to interest expense over the
remaining term of the Notes using the interest method.
If the Company's availability under the Foothill/Paragon Facility, trade credit
or sales are lower than expected, or if the Company's borrowing requirements or
liquidity needs are higher than expected, the Company could have insufficient
liquidity to continue its current operations, its business, operations,
liquidity, financial condition and results of operations could be materially
adversely affected, and the Company could be required to substantially reduce or
discontinue its operations. In addition, there can be no assurance that the
Company will be able to meet the financial covenants under its borrowing
agreements for the next 12 months unless sales and trade credit substantially
improve.
Many currently installed computer systems and software products are coded to
accept only two digit entries in the date code field. To distinguish 21st
century dates from 20th century dates, these date code fields must be able to
accept four digit entries. The Company has evaluated its management information
systems (including information technology ("IT") and non-IT computerized
systems) and has prepared a plan for Year 2000 compliance. Through July 31,
1999, the Company has spent approximately $300,000 to modify its management
information systems to become Year 2000 compliant. Given that the Company has
substantially completed its installation and testing of its modifications, the
Company has not prepared a contingency plan and does not currently believe that
a contingency plan is necessary. The Company is also evaluating the systems of
its vendors to ensure that these companies are Year 2000 compliant. The cost of
this evaluation is expected to be nominal. In the event that its current vendors
are unable to certify that they will be Year 2000 compliant or if such vendors
are unable to certify that their failure to be Year 2000 complaint will not
adversely affect the Company, the Company will be reviewing its alternatives
with respect to other vendors that are acceptable to the Company. There can be
no assurance that the Company will be able to find vendors that are acceptable
to the Company. The Company does not anticipate any material disruption in its
operations as a result of any failure by the Company or its vendors to become
Year 2000 compliant.
Many risks, however, such as the failure to perform by public utilities,
telecommunications providers and financial institutions, and the impact of the
Year 2000 issue on the economy as a whole, are outside the Company's control and
could adversely affect the Company and its ability to conduct its business.
While the Company believes its efforts will adequately identify and address the
Year 2000 issues that are within its reasonable control, the Year 2000 issue
might still have a material adverse impact on the Company's business, financial
condition, or results of operations.
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 and future compliance with financial
covenants) 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 level of support of
the Company's trade creditors and factors, general trends in retail clothing
apparel purchasing, especially during the Christmas season, the Company's
comparable store sales changes, the Company's ability to obtain merchandise, and
the factors set forth in this Management's Discussion and Analysis of Results
Operations and Financial Condition.
Page 11 of 16 pages
<PAGE> 12
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
that are sensitive to changes in interest rates, consisting of debt obligations.
The Company's fixed rate debt obligations include the 12-3/4% Notes issued under
its Indenture. The Company's variable rate debt obligations include indebtedness
under the Foothill/Paragon Facility. For these debt obligations, the table
presents scheduled principal cash flows and related weighted average interest
rates by expected maturity dates for each of the next five years, aggregate
subsequent maturities and the market value of the debt as of July 31, 1999.
Weighted average interest rates are based on contractual interest rates for
fixed rate obligations and are based on current rates for variable rate
obligations. The information is presented in U.S. dollars, which is the
Company's reporting currency and the denomination of the debt's actual cash
flows.
Page 12 of 16 pages
<PAGE> 13
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds.
As described in Item 4 below, at the June 22, 1999 Annual Meeting of
Shareholders, the shareholders approved a proposed amendment and restatement of
the Company's restated Articles of Incorporation to effect a one-for-three
reverse stock split of the Company's Common Shares while keeping 20,000,000
authorized Common Shares, at a par value of $0.01. The reverse stock split
became effective as of the close of business on July 21, 1999.
The reverse stock split primarily decreased the outstanding Common Shares by
approximately two-thirds, decreased the number of Common Shares reserved for
issuance upon exercise of warrants and options by approximately two-thirds and
tripled the exercise prices of outstanding warrants and options. Because the
reverse stock split did not affect the number or par value of the Company's
authorized Common Shares and it reduced the number of outstanding Common Shares
and Common Shares reserved for issuance, it increased the number of Common
Shares available for issuance. These shares are available for issuance by the
Company's Board of Directors for raising additional capital, stock options,
acquisitions, stock splits, stock dividends or other corporate purposes.
The terms of the post-split Common Shares are the same as the terms of the
pre-split Common Shares, and the reverse stock split did not change the relative
equity interests in the Company or the voting power or other rights, preferences
or privileges of the holders of Common Shares, subject to the adjustments to
eliminate fractional shares. Fractional shares otherwise issuable as a result of
the reverse stock split were rounded to the nearest whole share. The new Common
Shares issued in exchange for the old Common Shares in the reverse stock split
were not registered, but were issued in reliance on the exemption from
registration contained in Section 3(a) (9) under the Securities Act of 1933, as
amended.
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Shareholders of Gantos, Inc. was held on June 22, 1999. At
the annual meeting, L. Douglas Gantos and Hannah H. Strasser were elected as
directors of Gantos, Inc. to serve until the 2001 Annual Meeting of Shareholders
and until their respective successors were duly elected and qualified or until
their earlier death, resignation or removal, and Elizabeth M. Eveillard and S.
Amanda Putnam were elected as directors of Gantos, Inc. to serve until the 2002
Annual Meeting of Shareholders and until their respective successors were duly
elected and qualified or until their earlier death, resignation or removal. The
following votes were cast for or were withheld from voting with respect to the
election of such persons:
<TABLE>
<CAPTION>
Votes
---------------------------
Name For Withheld
--------------------------- ------------ -----------
<S> <C> <C>
L. Douglas Gantos 6,346,957 160,998
------------ -----------
Hannah H. Strasser 6,348,388 159,567
------------ -----------
Elizabeth M. Eveillard 6,348,388 159,567
------------ -----------
S. Amanda Putnam 6,348,388 159,567
------------ -----------
</TABLE>
There were no abstentions or broker non-votes in connection with the election of
the directors at the annual meeting. In addition, the terms of office of Arlene
H. Stern, Fred K. Schomer and Erwin A. Marks continued after the meeting.
In addition, at the Annual Meeting, the shareholders voted to approve a proposed
amendment and restatement of the Company's Restated Articles of Incorporation to
effect a one-for-three reverse stock split of the Company's Common Shares while
keeping 20,000,000 authorized Common Shares, at a par value of $0.01. The
following table shows the number of votes for and against the proposal and the
number of votes abstaining with respect to the proposal:
Page 13 of 16 pages
<PAGE> 14
For Against Abstain
------------ --------- ---------
------------ --------- ---------
There were no broker non-votes in connection with the proposed reverse stock
split at the Annual Meeting.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
3(i) Restated Articles of Incorporation, filed July
21, 1999.
3(ii) Amended and Restated Bylaws, as amended November
13, 1998.
4.1 Supplemental Indenture No. 3, dated as of May 1,
1999, to Indenture dated as of April 1, 1995,
between Gantos, Inc. and State Street Bank and
Trust Company (successor to Fleet Bank N.A.,
which was the successor to Shawmut Bank
Connecticut, National Association), as Trustee.
4.2 Agreements, dated as of April 30, 1999, between
Gantos, Inc. and various holder of Notes issued
under the Indenture.
4.3 Form of Common Shares Purchase Warrant, dated as
of [April 30], 1999, between Gantos, Inc. and
various holders of Notes issued under the
Indenture.
4.4 Second Amendment to Loan and Security Agreement,
dated as of August 27, 1999, by and among Gantos,
Inc., the financial institutions named therein,
and Foothill Capital Corporation, as agent.
10.1 Amendment, dated as of March 16, 1999, to Letter
Agreement, dated as of June 20, 1996, between
Gantos, Inc. and Arlene H. Stern.
10.2 Amendment, dated as of August , 1999, to Letter
Agreement, dated as of June 20, 1996, between
Gantos, Inc. and Arlene H. Stern.
10.3 1999 Gantos, Inc. Executive Bonus Plan.
27.1 Financial Data Schedule
(b) Reports on Form 8-K.
On June 24, 1999, Gantos, Inc. filed a Current Report on Form
8-K, reporting in Item 4 that on June 17, 1999, the
client-auditor relationship between the Company and
PricewaterhouseCoopers LLP, the independent accountants for
the Company's most recent fiscal year, ceased. In connection
with its audits for fiscal years 1998 and 1997, and during the
interim period preceding PricewaterhouseCoopers LLP's
resignation, there were no disagreements between the Company
and PricewaterhouseCoopers LLP on any matter of accounting
principles or practices, financial statement disclosure, or
auditing scope or procedure for such years, which
disagreements, if not resolved to the satisfaction of
PricewaterhouseCoopers LLP, would have caused them to make
reference to the subject matter of the disagreement in
connection with their report on the financial statements.
PricewaterhouseCoopers LLP's reports with respect to the
Company's financial statements for fiscal 1998 and 1997
contained no adverse opinion or disclaimer of opinion and were
not qualified or modified as to audit scope or accounting
Page 14 of 16 pages
<PAGE> 15
principles; however, such reports included an explanatory paragraph regarding
the Company's ability to continue as a going concern in both reports. No
financial statements were filed.
On July , 1999, Gantos, Inc. filed a Current Report on Form 8-K, reporting in
Item 4 that on July 12, 1999, the Company appointed the accounting firm of
Deloitte & Touche LLP, independent public accountants, to audit and report upon
the financial statements of the Company for the year ending January 29, 2000.
The Audit Committee of the Board of Directors of the Company approved this
appointment of independent accountants. During the two most recent fiscal years,
and the subsequent interim period before engaging Deloitte & Touche LLP, neither
the Company, nor anyone acting on its behalf, consulted with Deloitte & Touche
LLP regarding the application of accounting principles to a specified
transaction, or the type of audit opinion that might be rendered on the
Company's financial statements. No financial statements were filed.
Page 15 of 16 pages
<PAGE> 16
SIGNATURE
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: September 13, 1999
GANTOS, INC.
--------------------------------------
(Registrant)
By: /s/ THOMAS J. VILLANO
--------------------------------------
THOMAS J. VILLANO
ITS CHIEF FINANCIAL OFFICER (DULY
AUTHORIZED OFFICER AND PRINCIPAL
FINANCIAL OFFICER)
Page 16 of 16 pages
<PAGE> 17
EXHIBIT INDEX
DOCUMENT NUMBER AND DESCRIPTION
Exhibits
3(i) Restated Articles of Incorporation, filed July 21, 1999.
3(ii) Amended and Restated Bylaws, as amended November 13, 1998.
4.1 Supplemental Indenture No. 3, dated as of May 1, 1999, to Indenture
dated as of April 1, 1995, between Gantos, Inc. and State Street Bank
and Trust Company (successor to Fleet Bank N.A., which was the successor
to Shawmut Bank Connecticut, National Association), as Trustee.
4.2 Agreements, dated as of April 30, 1999, between Gantos, Inc. and
various holder of Notes issued under the Indenture.
4.3 Form of Common Shares Purchase Warrant, dated as of [April 30], 1999,
between Gantos, Inc. and various holders of Notes issued under the
Indenture.
4.4 Second Amendment to Loan and Security Agreement, dated as of August 27,
1999, by and among Gantos, Inc., the financial institutions named
therein, and Foothill Capital Corporation, as agent.
10.1 Amendment, dated as of March 16, 1999, to Letter Agreement, dated as of
June 20, 1996, between Gantos, Inc. and Arlene H. Stern.
10.2 Amendment, dated as of August, 1999, to Letter Agreement, dated as of
June 20, 1996, between Gantos, Inc. and Arlene H. Stern.
10.3 1999 Gantos, Inc. Executive Bonus Plan.
27.1 Financial Data Schedule
<PAGE> 1
Exhibit 3(i)
ARTICLE I
- --------------------------------------------------------------------------------
The name of the corporation is: Gantos, Inc.
- --------------------------------------------------------------------------------
ARTICLE II
- --------------------------------------------------------------------------------
The purpose or purposes for which the corporation is formed are: to engage in
any activity within the purposes for which corporations may be organized under
the Business Corporation Act of Michigan.
- --------------------------------------------------------------------------------
<PAGE> 2
ARTICLE III
- --------------------------------------------------------------------------------
The total authorized shares:
Common shares 20,000,000, par value $0.01 per share Preferred shares 2,000,000,
par value $0.01 per share
A statement of all or any of the relative rights, preferences and limitations
of the shares of each class is as follows:
The Board of Directors may cause the corporation to issue preferred
shares in one or more series, each series to bear a distinctive designation and
to have such relative rights and preferences as shall be prescribed by
resolution of the Board. Such resolutions, when filed, shall constitute
amendments to these Restated Articles of Incorporation.
Effective as of the close of business on the date of filing these
Restated Articles of Incorporation (the "Effective Time"), the filing of these
Restated Articles of Incorporation shall effect a reverse stock split on the
basis of one new common share for each three then issued and outstanding common
shares, while maintaining the number of authorized common shares and preferred
shares, and their par values, as set forth in this Article III (the "Reverse
Split").
Immediately as of the Effective Time, and without any action by the
holders of outstanding common shares, but subject to the redemption of
fractional shares described below, outstanding certificates representing the
corporation's common shares shall represent for all purposes, and each common
share issued and outstanding immediately before the Effective Time shall
automatically be converted into, new common shares in the ratio of three old
common shares for one new common share, all by virtue of the Reverse Split and
without any action on the part of the holder of such common shares.
Notwithstanding any of the foregoing to the contrary, no scrip or
fractional common shares shall be issued in connection with the Reverse Split.
In lieu thereof each record holder of common shares as of the Effective Date who
would otherwise have been entitled to receive a fractional new common share
shall, upon surrender of such shareholder's certificates representing pre-split
common shares, have the post-split common shares to which they are entitled
rounded to the nearest whole share and receive either a whole common share or
nothing in lieu of their fractional post-split common share. As of the Effective
Time such fractional shares shall no longer represent equity interests in the
corporation, and shall not be entitled to any voting, dividend or other
shareholder rights; rather, they shall represent only the right to receive the
common shares, if any, described in this paragraph.
- --------------------------------------------------------------------------------
ARTICLE IV
- --------------------------------------------------------------------------------
1. The address of the registered office is:
3366 Kraft S.E., Grand Rapids, Michigan 49588
------------------------------------------------- ------------------
(Street Address) (City) (ZIP Code)
2. The mailing address of the registered office, if different than above:
Michigan
------------------------------------------------- ------------------
(Street Address or P.O. Box) (City) (ZIP Code)
3. The name of the current resident agent is: Arlene H. Stern
----------------------------------
- --------------------------------------------------------------------------------
ARTICLE V
- --------------------------------------------------------------------------------
Any action required or permitted by the Act to be taken at an annual or
special meeting of shareholders may be taken without a meeting, without prior
notice, and without a vote, if consents in writing, setting forth the action so
taken, are signed by the holders of outstanding shares having not less than the
minimum number of
<PAGE> 3
votes that would be necessary to authorize or take the action at a meeting at
which all shares entitled to vote on the action were present and voted. The
written consents shall bear the date of signature of each shareholder who signs
the consent. No written consents shall be effective to take the corporate action
referred to unless, within 60 days after the record date for determining
shareholders entitled to express consent to or to dissent from a proposal
without a meeting, written consents dated not more than 10 days before the
record date and signed by a sufficient number of shareholders to take the action
are delivered to the corporation. Delivery shall be to the corporation's
registered office, its principal place of business, or an officer or agent of
the corporation having custody of the minutes of the proceedings of its
shareholders. Delivery made to a corporation's registered office shall be by
hand or by certified or registered mail, return receipt requested.
Prompt notice of the taking of the corporate action without a meeting
by less than unanimous written consent shall be given to shareholders who would
have been entitled to notice of the shareholder meeting if the action had been
taken at a meeting and who have not consented in writing.
- --------------------------------------------------------------------------------
ARTICLE VI
- --------------------------------------------------------------------------------
1. No action by written consent of shareholders under Article V shall
be effective unless the proposed action will have been approved by the Board of
Directors before the consent of shareholders is executed.
2. Pursuant to Sections 783 and 784(1)(b) of the Michigan Business
Corporation Act, the corporation expressly elects not to be governed by Chapter
7A of the Michigan Business Corporation Act, being Sections 775 through 784 of
the Michigan Business Corporation Act; provided that the corporation's Board of
Directors may terminate this election in whole or in part by action of the
majority of directors then in office.
- --------------------------------------------------------------------------------
ARTICLE VII
- --------------------------------------------------------------------------------
To the full extent permitted by the Michigan Business Corporation Act
or any other applicable laws presently or hereafter in effect, no director of
the corporation shall be personally liable to the corporation or its
shareholders for or with respect to any acts or omissions in the performance of
his or her duties as a director of the corporation. Any repeal or modification
of this Article VII shall not adversely affect any right or protection of any
director of the corporation existing immediately prior to, or for, or with
respect to, any acts or omissions occurring before, such repeal or modification.
- --------------------------------------------------------------------------------
ARTICLE VIII
- --------------------------------------------------------------------------------
The business and affairs of the corporation shall be managed by or
under the direction of a Board of Directors consisting of not fewer than three
or more than fifteen directors, the exact number of directors to be determined
from time to time solely by a resolution adopted by an affirmative vote of a
majority of the directors then in office. The directors shall be divided into
three classes, designated Class I, Class II and Class III. Each class shall
consist, as nearly as may be possible, of one-third of the total number of
directors constituting the entire Board of Directors. At the 1996 Annual Meeting
of Shareholders, Class I directors shall be elected for a three-year term. At
each succeeding annual meeting of shareholders, commencing in 1997, successors
to the class of directors whose term expires at that annual meeting shall be
elected for a three-year term.
If the number of directors is changed, any increase or decrease shall
be apportioned among the classes of directors so as to maintain the number of
directors in each class as nearly equal as possible, but in no case will a
decrease in the number of directors shorten the term of any incumbent director.
When the number of directors is increased by the Board of Directors and any
newly-created directorships are filled by the Board, the additional directors
shall be classified as provided by the Board.
A director shall hold office until the meeting for the year in which
his or her term expires and until his or her successor shall be elected and
shall qualify, subject, however, to prior death, resignation, retirement,
disqualification or removal from office. Newly created directorships resulting
from an increase in the number of directors and any vacancy on the Board of
Directors may be filled by only by the Board by an affirmative vote of a
- --------------------------------------------------------------------------------
<PAGE> 4
- --------------------------------------------------------------------------------
majority of the directors then in office. If the number of directors then in
office is less than a quorum, such newly created directorships and vacancies may
be filled by a majority of the directors then in office, although less than a
quorum, or by the sole remaining director. A director elected by the Board of
Directors to fill a vacancy shall hold office until the next election of the
class for which the director shall have been chosen and until his or her
successor shall be elected and shall qualify. A director or the entire Board of
Directors may be removed only for cause, including total and permanent
disability, fraud, criminal conduct, gross abuse of office amounting to a breach
of trust or similar conduct.
Notwithstanding the foregoing, whenever the holders of any one or more
classes of preferred shares or series thereof issued by the corporation shall
have the right, voting separately by class or series, to elect directors at an
annual or special meeting of shareholders, the election, term of office, filling
of vacancies and other features of such directorship shall be governed by the
terms of these Restated Articles of Incorporation applicable thereto, and such
directors so elected shall not be divided into classes pursuant to this Article.
This Article VIII may not be amended by written consent of the
corporation's shareholders under Article V and may only be amended by the
affirmative vote of holders of 80% of the outstanding common shares of the
corporation, in addition to the vote otherwise required by the Michigan Business
Corporation Act.
- --------------------------------------------------------------------------------
ARTICLE IX
- --------------------------------------------------------------------------------
The shareholders of the corporation do not have a preemptive right to
acquire the corporation's unissued shares except to the extent provided by
agreement between the corporation and one or more shareholders.
- --------------------------------------------------------------------------------
ARTICLE X
- --------------------------------------------------------------------------------
To the extent required by section 1123(a) of the United States
Bankruptcy Code, the corporation shall not issue nonvoting equity securities.
- --------------------------------------------------------------------------------
<PAGE> 1
Exhibit 3(ii)
BYLAWS
OF
GANTOS, INC.,
a Michigan corporation
<PAGE> 2
BYLAWS OF GANTOS, INC.,
a Michigan corporation
TABLE OF CONTENTS
Page
ARTICLE I.- OFFICES......................................................1
1.1 Registered Office..................................1
1.2 Other Offices......................................1
ARTICLE II.- MEETINGS OF SHAREHOLDERS....................................1
2.1 Time and Place.....................................1
2.2 Annual Meetings....................................1
2.3 Special Meetings...................................1
2.4 Notice of Meetings.................................1
2.5 List of Shareholders...............................1
2.6 Quorum; Adjournment................................2
2.7 Voting.............................................2
2.8 Proxies............................................2
2.9 Questions Concerning Elections.....................2
2.10 Telephonic Attendance..............................2
2.11 Action by Written Consent..........................3
ARTICLE III.- DIRECTORS..................................................3
3.1 Number and Residence...............................3
3.2 Classification, Election and Term..................3
3.3 Resignation........................................4
3.4 Removal............................................4
3.5 Nominations for Director...........................3
3.6 Vacancies..........................................4
3.7 Place of Meetings..................................4
3.8 Annual Meetings....................................5
3.9 Regular Meetings...................................5
3.10 Special Meetings...................................5
(i)
<PAGE> 3
3.11 Quorum...................................................5
3.12 Voting...................................................5
3.13 Telephonic Participation.................................5
3.14 Action by Written Consent................................5
3.15 Committees...............................................6
3.16 Compensation.............................................7
ARTICLE IV.- OFFICERS..........................................................7
4.1 Officers and Agents......................................7
4.2 Compensation.............................................7
4.3 Term.....................................................7
4.4 Removal..................................................7
4.5 Resignation..............................................7
4.6 Vacancies................................................7
4.7 Chairperson of the Board.................................7
4.8 Chief Executive Officer..................................7
4.9 President................................................8
4.10 Executive Vice Presidents and Vice Presidents............8
4.11 Secretary................................................8
4.12 Treasurer................................................8
4.13 Assistant Vice Presidents, Secretaries and
Treasurers..............................................9
4.14 Execution of Contracts and Instruments...................9
4.15 Voting of Shares and Securities of Other Corporations
and Entities............................................9
ARTICLE V.- NOTICES AND WAIVERS OF NOTICE......................................9
5.1 Delivery of Notices......................................9
5.2 Waiver of Notice........................................10
ARTICLE VI.- SHARE CERTIFICATES AND SHAREHOLDERS OF RECORD....................10
6.1 Certificates for Shares.................................10
6.2 Lost or Destroyed Certificates..........................10
6.3 Transfer of Shares......................................11
6.4 Record Date.............................................11
6.5 Registered Shareholders.................................11
ARTICLE VII.- INDEMNIFICATION.................................................12
(ii)
<PAGE> 4
ARTICLE VIII.- GENERAL PROVISIONS............................................12
8.1 Checks and Funds.......................................12
8.2 Fiscal Year............................................12
8.3 Corporate Seal.........................................12
8.4 Books and Records......................................12
8.5 Financial Statements...................................13
ARTICLE IX.- AMENDMENTS......................................................13
ARTICLE X.-- CONTROL SHARE ACQUISITIONS......................................13
10.1 Power to Redeem if no Acquiring Person Statement
is Filed..............................................13
10.2 Power to Redeem After Shareholder Vote.................13
10.3 Procedure for Redemption...............................13
10.4 Interpretation of Article .............................13
ARTICLE XI.- SCOPE OF BYLAWS.................................................14
(iii)
<PAGE> 5
GANTOS, INC.
ARTICLE I. - OFFICES
1.1 Registered Office. The registered office of the Corporation shall be
located at such place in Michigan as the Board of Directors from time to time
determines.
1.2 Other Offices. The Corporation may also have offices or branches at
such other places as the Board of Directors from time to time determines or the
business of the Corporation requires.
ARTICLE II. - MEETINGS OF SHAREHOLDERS
2.1 Time and Place. All meetings of the shareholders shall be held at such
place and time as the Board of Directors determines.
2.2 Annual Meetings. An annual meeting of shareholders shall be held on a
date, not later than 180 days after the end of the immediately preceding fiscal
year, to be determined by the Board of Directors. At the annual meeting, the
shareholders shall elect directors and transact such other business as is
properly brought before the meeting and described in the notice of meeting. If
the annual meeting is not held on its designated date, the Board of Directors
shall cause it to be held as soon thereafter as convenient.
2.3 Special Meetings. Special meetings of the shareholders, for any
purpose, (a) may be called by the Corporation's chief executive officer or the
Board of Directors, and (b) shall be called by the President or Secretary upon
written request (stating the purpose for which the meeting is to be called) of
the holders of a majority of all the shares entitled to vote at the meeting.
2.4 Notice of Meetings. Written notice of each shareholders' meeting,
stating the place, date and time of the meeting and the purposes for which the
meeting is called, shall be given (in the manner described in Section 5.1 below)
not less than 10 nor more than 60 days before the date of the meeting to each
shareholder of record entitled to vote at the meeting. Notice of adjourned
meetings is governed by Section 2.6 below.
2.5 List of Shareholders. The officer or agent who has charge of the stock
transfer books for shares of the Corporation shall make and certify a complete
list of the shareholders entitled to vote at a shareholders' meeting or any
adjournment of the meeting. The list shall be arranged alphabetically within
each class and series and shall show the address of, and the number of shares
held by, each shareholder. The list shall be produced at the time and place of
the meeting and may be inspected by any shareholder at any time during the
meeting.
-1-
<PAGE> 6
2.6 Quorum; Adjournment. At all shareholders' meetings, the shareholders
present in person or represented by proxy who, as of the record date for the
meeting, were holders of shares entitled to cast a majority of the votes at the
meeting, shall constitute a quorum. Once a quorum is present at a meeting, all
shareholders present in person or represented by proxy at the meeting may
continue to do business until adjournment, notwithstanding the withdrawal of
enough shareholders to leave less than a quorum. Regardless of whether a quorum
is present, a shareholders' meeting may be adjourned to another time and place
by a vote of the shares present in person or by proxy without notice other than
announcement at the meeting; provided, that (a) only such business may be
transacted at the adjourned meeting as might have been transacted at the
original meeting and (b) if the adjournment is for more than 60 days or if after
the adjournment a new record date is fixed for the adjourned meeting, a notice
of the adjourned meeting must be given to each shareholder of record entitled to
vote at the meeting.
2.7 Voting. Each shareholder shall at every meeting of the shareholders be
entitled to one vote in person or by proxy for each share having voting power
held by such shareholder and on each matter submitted to a vote. A vote may be
cast either orally or in writing. When an action, other than the election of
directors, is to be taken by vote of the shareholders, it shall be authorized by
a majority of the votes cast by the holders of shares entitled to vote on such
action. Directors shall be elected by a plurality of the votes cast at any
election.
2.8 Proxies. A shareholder entitled to vote at a meeting of shareholders or
to express consent or dissent without a meeting may authorize other persons to
act for him or her by proxy. Each proxy shall be in writing and signed by the
shareholder or the shareholder's authorized agent or representative. A proxy is
not valid after the expiration of three years after its date unless otherwise
provided in the proxy.
2.9 Questions Concerning Elections. The Board of Directors may, in advance
of the meeting, or the presiding officer may, at the meeting, appoint one or
more inspectors to act at a shareholders' meeting or any adjournment thereof. If
appointed, the inspectors shall determine the number of shares outstanding and
the voting power of each, the shares represented at the meeting, the existence
of a quorum, the validity and effect of proxies, and shall receive votes,
ballots or consents, hear and determine challenges and questions arising in
connection with the right to vote, count and tabulate votes, ballots or
consents, determine the result, and do such acts as are proper to conduct the
election or vote with fairness to all shareholders.
2.10 Telephonic Attendance. Shareholders may participate in any
shareholders' meeting by means of conference telephone or similar communications
equipment through which all persons participating in the meeting may communicate
with the other participants. All participants shall be advised of the
communications equipment and the names of the participants in the conference
shall be divulged to all participants. Participation in a meeting pursuant to
this Section 2.10 constitutes presence in person at such meeting.
-2-
<PAGE> 7
2.11 Action by Written Consent. To the extent permitted by the Articles of
Incorporation or applicable law, any action required or permitted to be taken at
any shareholders' meeting may be taken without a meeting, prior notice and a
vote, by written consent of shareholders.
ARTICLE III. - DIRECTORS
3.1 Number and Residence. The business and affairs of the Corporation shall
be managed by or under the direction of a Board of Directors consisting of not
less than three nor more than fifteen members. The number of directors shall be
determined from time to time solely by a resolution adopted by an affirmative
vote of a majority of the directors then in office. Directors need not be
Michigan residents or shareholders of the Corporation.
3.2 Classification, Election and Term. The directors shall be divided into
three classes, designated Class I, Class II and Class III. Each class shall
consist, as nearly as may be possible, of one-third of the total number of
directors constituting the entire Board of Directors. At the 1992 Annual Meeting
of Shareholders, Class I directors shall be elected for a one-year term, Class
II directors for a two-year term and Class III directors for a three-year term.
At each succeeding Annual Meeting of Shareholders, commencing in 1993,
successors to the class of directors whose term expires at that annual meeting
shall be elected for a three-year term. Except as provided in Section 3.6 below,
directors shall be elected at the annual shareholders' meeting. A director shall
hold office until the meeting for the year in which his or her term expires and
until his or her successor is elected and qualified, subject, however, to prior
death, resignation, retirement, disqualification or removal from office.
If the number of directors is changed, any increase or decrease shall be
apportioned among the classes of directors so as to maintain the number of
directors in each class as nearly equal as possible, but in no case will a
decrease in the number of directors shorten the term of any incumbent director.
When the number of directors is increased by the Board of Directors and any
newly-created directorships are filled by the Board, the additional directors
shall be classified as provided by the Board.
3.3 Resignation. A director may resign by written notice to the
Corporation. A director's resignation is effective upon its receipt by the
Corporation or a later time set forth in the notice of resignation.
3.4 Removal. A director or the entire Board of Directors may be removed,
only for cause, by vote of the holders of a majority of the shares entitled to
vote at an election of directors.
3.5 Nominations for Director. Except as provided in Section 3.6, only
persons who are nominated in accordance with the procedures set forth in this
Section 3.5 shall be eligible for election as directors. Nominations of persons
for election to the Board of Directors of the
-3-
<PAGE> 8
Corporation may be made at a meeting of shareholders by or at the direction of
the Board of Directors or by any shareholder of the Corporation entitled to vote
for the election of directors at the meeting who complies with the notice
procedures set forth in this Section 3.5. Such nominations, other than those
made by or at the direction of the Board of Directors, shall be made pursuant to
timely notice in writing to the Secretary of the Corporation. To be timely, a
shareholder's notice shall be delivered to, or mailed and received at, the
principal executive offices of the Corporation not less than 60 days nor more
than 90 days before the meeting; provided, that if less than 70 days' notice or
prior public disclosure of the date of the meeting is given or made to
shareholders, notice by the shareholder to be timely must be so received not
later than the close of business on the 10th day following the day on which such
notice of the date of the meeting was mailed or such public disclosure was made.
Such shareholder's notice shall set forth (a) as to each person whom the
shareholder proposes to nominate for election or re-election as a director, (1)
the name, age, business, address and residence address of such person, (2) the
principal occupation or employment of such person, (3) the class and number of
shares of the Corporation which are beneficially owned by such person and (4)
any other information relating to such person that is required to be disclosed
in solicitations of proxies for election of directors, or is otherwise required,
in each case pursuant to Regulation 14A under the Securities Exchange Act of
1934, as amended (including each such person's written consent to being named in
the proxy statement as a nominee and to serving as a director if elected); and
(b) as to the shareholder giving the notice (1) the name and address, as they
appear on the Corporation's books, of such shareholder and (2) the class and
number of shares of the Corporation which are beneficially owned by such
shareholder. At the request of the Board of Directors any person nominated by
the Board of Directors for election as a director shall furnish to the Secretary
that information required to be set forth in a shareholder's notice of
nomination which pertains to the nominee. The presiding officer of the meeting
shall, if the facts warrant, determine and declare to the meeting that a
nomination was not made in accordance with the procedures prescribed by these
Bylaws, and if the presiding officer should so determine, the presiding officer
shall so declare to the meeting and the defective nominations shall be
disregarded.
3.6 Vacancies. Newly-created directorships resulting from an increase in
the number of directors and any vacancy on the Board of Directors may be filled
only by the Board by an affirmative vote of a majority of the directors then in
office. If the number of directors then in office is less than a quorum, such
newly-created directorships and vacancies may be filled by a majority of the
directors then in office, although less than a quorum, or by the sole remaining
director. A director elected by the Board of Directors to fill a vacancy shall
hold office until the next election of the class for which the director shall
have been chosen and until his or her successor shall be elected and shall
qualify.
3.7 Place of Meetings. The Board of Directors may hold meetings at any
location. The location of annual and regular Board of Directors' meetings shall
be determined by the Board and the location of special meetings shall be
determined by the person calling the meeting.
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3.8 Annual Meetings. Each newly elected Board of Directors may meet
promptly after the annual shareholders' meeting for the purposes of electing
officers and transacting such other business as may properly come before the
meeting. No notice of the annual directors' meeting shall be necessary to the
newly elected directors in order to legally constitute the meeting, provided a
quorum is present.
3.9 Regular Meetings. Regular meetings of the Board of Directors or Board
committees may be held without notice at such places and times as the Board or
committee determines at least 30 days before the date of the meeting.
3.10 Special Meetings. Special meetings of the Board of Directors may be
called by the chief executive officer, and shall be called by the President or
Secretary upon the written request of two directors, on two days notice to each
director or committee member by mail or 24 hours notice by any other means
provided in Section 5.1. The notice must specify the place, date and time of the
special meeting, but need not specify the business to be transacted at, nor the
purpose of, the meeting. Special meetings of Board committees may be called by
the Chairperson of the committee or a majority of committee members pursuant to
this Section 3.10.
3.11 Quorum. At all meetings of the Board or a Board committee, a majority
of the directors then in office, or of members of such committee, constitutes a
quorum for transaction of business, unless a higher number is otherwise required
by the Articles of Incorporation, these Bylaws or the Board resolution
establishing such Board committee. If a quorum is not present at any Board or
Board committee meeting, a majority of the directors present at the meeting may
adjourn the meeting to another time and place without notice other than
announcement at the meeting. Any business may be transacted at the adjourned
meeting which might have been transacted at the original meeting, provided a
quorum is present.
3.12 Voting. The vote of a majority of the members present at any Board or
Board committee meeting at which a quorum is present constitutes the action of
the Board of Directors or of the Board committee, unless a higher vote is
otherwise required by the Michigan Business Corporation Act, the Articles of
Incorporation, these Bylaws, or the Board resolution establishing the Board
committee.
3.13 Telephonic Participation. Members of the Board of Directors or any
Board committee may participate in a Board or Board committee meeting by means
of conference telephone or similar communications equipment through which all
persons participating in the meeting can communicate with each other.
Participation in a meeting pursuant to this Section 3.13 constitutes presence in
person at such meeting.
3.14 Action by Written Consent. Any action required or permitted to be
taken under authorization voted at a Board or Board committee meeting may be
taken without a meeting if, before or after the action, all members of the Board
then in office or of the Board committee consent to the action in writing. Such
consents shall be filed with the minutes of the proceedings
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of the Board or committee and shall have the same effect as a vote of the Board
or committee for all purposes.
3.15 Committees. The Board of Directors may, by resolution passed by a
majority of the directors then in office, designate one or more committees, each
consisting of one or more directors. The Board may designate one or more
directors as alternate members of a committee, who may replace an absent or
disqualified member at a committee meeting. In the absence or disqualification
of a member of a committee, the committee members present and not disqualified
from voting, regardless of whether they constitute a quorum, may unanimously
appoint another member of the Board of Directors to act at the meeting in place
of such absent or disqualified member. Any committee, to the extent provided in
the resolution of the Board, may exercise all powers and authority of the Board
of Directors in management of the business and affairs of the Corporation,
except a committee does not have power or authority to:
(a) Amend the Articles of Incorporation.
(b) Adopt an agreement of merger or consolidation.
(c) Recommend to shareholders the sale, lease or exchange of all or
substantially all of the Corporation's property and assets.
(d) Recommend to shareholders a dissolution of the Corporation or a
revocation of a dissolution.
(e) Amend the Bylaws of the Corporation.
(f) Fill vacancies in the Board.
(g) Unless the resolution designating the committee or a later
Board of Directors' resolution expressly so provides, declare a
distribution or dividend or authorize the issuance of stock.
Each committee and its members shall serve at the pleasure of the Board, which
may at any time change the members and powers of, or discharge, the committee.
Each committee shall keep regular minutes of its meetings and report them to the
Board of Directors when required.
3.16 Compensation. The Board, by affirmative vote of a majority of
directors in office and irrespective of any personal interest of any of them,
may establish reasonable compensation of directors for services to the
Corporation as directors, officers or members of a Board committee. No such
payment shall preclude any director from serving the Corporation in any other
capacity and receiving compensation for such service.
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ARTICLE IV. - OFFICERS
4.1 Officers and Agents. The Board of Directors, at its first meeting after
each annual meeting of shareholders, shall elect a President, a Secretary and a
Treasurer, and may also elect and designate as officers a Chairperson of the
Board, a Vice Chairperson of the Board and one or more Executive Vice
Presidents, Vice Presidents, Assistant Vice Presidents, Assistant Secretaries
and Assistant Treasurers. The Board of Directors may also from time to time
appoint, or delegate authority to the Corporation's chief executive officer to
appoint, such other officers and agents as it deems advisable. Any number of
offices may be held by the same person, but an officer shall not execute,
acknowledge or verify an instrument in more than one capacity if the instrument
is required by law to be executed, acknowledged or verified by two or more
officers. An officer has such authority and shall perform such duties in the
management of the Corporation as provided in these Bylaws, or as may be
determined by resolution of the Board of Directors not inconsistent with these
Bylaws, and as generally pertain to their offices, subject to the control of the
Board of Directors.
4.2 Compensation. The compensation of all officers of the Corporation shall
be fixed by the Board of Directors.
4.3 Term. Each officer of the Corporation shall hold office for the term
for which he or she is elected or appointed and until his or her successor is
elected or appointed and qualified, or until his or her death, resignation or
removal. The election or appointment of an officer does not, by itself, create
contract rights.
4.4 Removal. An officer elected or appointed by the Board of Directors may
be removed by the Board of Directors with or without cause. The removal of an
officer shall be without prejudice to his or her contract rights, if any.
4.5 Resignation. An officer may resign by written notice to the
Corporation. The resignation is effective upon its receipt by the Corporation or
at a subsequent time specified in the notice of resignation.
4.6 Vacancies. Any vacancy occurring in any office of the Corporation shall
be filled by the Board of Directors.
4.7 Chairperson of the Board. The Chairperson of the Board, if such office
is filled, shall be a director and shall preside at all shareholders' and Board
of Directors' meetings.
4.8 Chief Executive Officer. The Chairperson of the Board, if any, or the
President, as designated by the Board, shall be the chief executive officer of
the Corporation and shall have the general powers of supervision and management
of the business and affairs of the Corporation usually vested in the chief
executive officer of a corporation and shall see that all orders and resolutions
of the Board of Directors are carried into effect. If no designation of chief
executive officer is made, or if there is no Chairperson of the Board, the
President shall be the chief
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executive officer. The chief executive officer may delegate to the other
officers such of his or her authority and duties at such time and in such manner
as he or she deems advisable.
4.9 President. If the office of Chairperson of the Board is not filled, the
President shall perform the duties and execute the authority of the Chairperson
of the Board. If the Chairperson of the Board is designated by the Board as the
Corporation's chief executive officer, the President shall be the chief
operating officer of the Corporation, shall assist the Chairperson of the Board
in the supervision and management of the business and affairs of the Corporation
and, in the absence of the Chairperson of the Board, shall preside at all
shareholders' and Board of Directors' meetings. The President may delegate to
the officers other than the Chairperson of the Board, if any, such of his or her
authority and duties at such time and in such manner as he or she deems
appropriate.
4.10 Executive Vice Presidents and Vice Presidents. The Executive Vice
Presidents and Vice Presidents shall assist and act under the direction of the
Corporation's chief executive officer. The Board of Directors may designate one
or more Executive Vice Presidents and may grant other Vice Presidents titles
which describe their functions or specify their order of seniority. In the
absence or disability of the President, the authority of the President shall
descend to the Executive Vice Presidents or, if there are none, to the Vice
Presidents in the order of seniority indicated by their titles or otherwise
specified by the Board. If not specified by their titles or the Board, the
authority of the President shall descend to the Executive Vice Presidents or, if
there are none, to the Vice Presidents, in the order of their seniority in such
office.
4.11 Secretary. The Secretary shall act under the direction of the
Corporation's chief executive officer and President. The Secretary shall attend
all shareholders' and Board of Directors' meetings, record minutes of the
proceedings and maintain the minutes and all documents evidencing corporate
action taken by written consent of the shareholders and Board of Directors in
the Corporation's minute books. The Secretary shall perform these duties for
Board committees when required. The Secretary shall see to it that all notices
of shareholders' meetings and special Board of Directors' meetings are duly
given in accordance with applicable law, the Articles of Incorporation and these
Bylaws. The Secretary shall have custody of the Corporation's seal and, when
authorized by the Corporation's chief executive officer, President or the Board
of Directors, shall affix the seal to any instrument requiring it and attest
such instrument.
4.12 Treasurer. The Treasurer shall act under the direction of the
Corporation's chief executive officer and President. The Treasurer shall have
custody of the corporate funds and securities and shall keep full and accurate
accounts of the Corporation's assets, liabilities, receipts and disbursements in
books belonging to the Corporation. The Treasurer shall deposit all moneys and
other valuables in the name and to the credit of the Corporation in such
depositories as may be designated by the Board of Directors. The Treasurer shall
disburse the funds of the Corporation as may be ordered by the Corporation's
chief executive officer, the President or the Board of Directors, taking proper
vouchers for such disbursements, and shall render to the Corporation's chief
executive officer, the President and the Board of Directors (at
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its regular meetings or whenever they request it) an account of all his or her
transactions as Treasurer and of the financial condition of the Corporation. If
required by the Board of Directors, the Treasurer shall give the Corporation a
bond for the faithful discharge of his or her duties in such amount and with
such surety as the Board prescribes.
4.13 Assistant Vice Presidents, Secretaries and Treasurers. The Assistant
Vice Presidents, Assistant Secretaries and Assistant Treasurers, if any, shall
act under the direction of the Corporation's chief executive officer, the
President and the officer they assist. In the order of their seniority, the
Assistant Secretaries shall, in the absence or disability of the Secretary,
perform the duties and exercise the authority of the Secretary. The Assistant
Treasurers, in the order of their seniority, shall, in the absence or disability
of the Treasurer, perform the duties and exercise the authority of the
Treasurer.
4.14 Execution of Contracts and Instruments. The Board of Directors may
designate an officer or agent with authority to execute any contract or other
instrument on the Corporation's behalf; the Board may also ratify or confirm any
such execution. If the Board authorizes, ratifies or confirms the execution of a
contract or instrument without specifying the authorized executing officer or
agent, the Corporation's chief executive officer, the President, any Executive
Vice President or Vice President or the Treasurer may execute the contract or
instrument in the name and on behalf of the Corporation and may affix the
corporate seal to such document or instrument.
4.15 Voting of Shares and Securities of Other Corporations and Entities.
Unless the Board of Directors otherwise directs, the Corporation's chief
executive officer shall be entitled to vote or designate a proxy to vote all
shares and other securities which the Corporation owns in any other corporation
or entity.
ARTICLE V. - NOTICES AND WAIVERS OF NOTICE
5.1 Delivery of Notices. All written notices to shareholders, directors and
Board committee members shall be given personally or by mail (registered,
certified or other first class mail, with postage pre-paid), addressed to such
person at the address designated by him or her for that purpose or, if none is
designated, at his or her last known address. Written notices to directors or
Board committee members may also be delivered at his or her office on the
Corporation's premises, if any, or by overnight carrier, telegram, telex,
telecopy, radiogram, cablegram, facsimile, computer transmission or similar form
of communication, addressed to the address referred to in the preceding
sentence. Notices given pursuant to this Section 5.1 shall be deemed to be given
when dispatched, or, if mailed, when deposited in a post office or official
depository under the exclusive care and custody of the United States postal
service. Notices given by overnight carrier shall be deemed "dispatched" at
10:00 a.m. on the day the overnight carrier is reasonably requested to deliver
the notice. The Corporation shall have no duty to change the written address of
any director, Board committee member or shareholder unless the Secretary
receives written notice of such address change.
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5.2 Waiver of Notice. Action may be taken without a required notice and
without lapse of a prescribed period of time, if at any time before or after the
action is completed the person entitled to notice or to participate in the
action to be taken or, in the case of a shareholder, his or her
attorney-in-fact, submits a signed waiver of the requirements, or if such
requirements are waived in such other manner permitted by applicable law.
Neither the business to be transacted at, nor the purpose of, the meeting need
be specified in the written waiver of notice. Attendance at any shareholders'
meeting (in person or by proxy) will result in both of the following:
(a) Waiver of objection to lack of notice or defective notice of the
meeting, unless the shareholder at the beginning of the meeting objects to
holding the meeting or transacting business at the meeting.
(b) Waiver of objection to consideration of a particular matter at the
meeting that is not within the purpose or purposes described in the meeting
notice, unless the shareholder objects to considering the matter when it is
presented.
A director's attendance at or participation in any Board or Board committee
meeting waives any required notice to him or her of the meeting unless he or
she, at the beginning of the meeting or upon his or her arrival, objects to the
meeting or the transacting of business at the meeting and does not thereafter
vote for or assent to any action taken at the meeting.
ARTICLE VI. - SHARE CERTIFICATES AND SHAREHOLDERS OF RECORD
6.1 Certificates for Shares. The shares of the Corporation shall be
represented by certificates signed by the Chairperson of the Board,
Vice-chairperson of the Board, President or a Vice-president. The certificates
also may be signed by another officer of the Corporation. The officers'
signatures may be facsimiles if the certificate is countersigned by a transfer
agent or registered by a registrar other than the Corporation or its employee.
If any officer who has signed or whose facsimile signature has been placed upon
a certificate ceases to be such officer before the certificate is issued, it may
be issued by the Corporation with the same effect as if the person were such
officer at the date of issue.
6.2 Lost or Destroyed Certificates. The Board of Directors may direct or
authorize an officer to direct that a new certificate for shares be issued in
place of any certificate alleged to have been lost or destroyed. When
authorizing such issue of a new certificate, the Board of Directors or officer
may, in its discretion and as a condition precedent to the issuance thereof,
require the owner (or the owner's legal representative) of such lost or
destroyed certificate to give the Corporation an affidavit claiming that the
certificate is lost or destroyed or a bond in such sum as it may direct as
indemnity against any claim that may be made against the Corporation with
respect to such old or new certificate.
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6.3 Transfer of Shares. Shares of the Corporation are transferable only on
the Corporation's stock transfer books upon surrender to the Corporation or its
transfer agent of a certificate for the shares, duly endorsed for transfer, and
the presentation of such evidence of ownership and validity of the transfer as
the Corporation requires.
6.4 Record Date. The Board of Directors may fix, in advance, a date as the
record date for determining shareholders for any purpose, including determining
shareholders entitled to (a) notice of, and to vote at, any shareholders'
meeting or any adjournment of such meeting; (b) express consent to, or dissent
from, a proposal without a meeting; or (c) receive payment of a share dividend
or distribution or allotment of a right. The record date shall not be more than
60 nor less than 10 days before the date of the meeting, nor more than 10 days
after the Board resolution fixing a record date for determining shareholders
entitled to express consent to, or dissent from, a proposal without a meeting,
nor more than 60 days before any other action.
If a record date is not fixed:
(a) the record date for determining the shareholders entitled
to notice of, or to vote at, a shareholders' meeting shall be the close of
business on the day next preceding the day on which notice of the meeting
is given, or, if no notice is given, the close of business on the day next
preceding the day on which the meeting is held; and
(b) if prior action by the Board of Directors is not required
with respect to the corporate action to be taken without a meeting, the
record date for determining shareholders entitled to express consent to, or
dissent from, a proposal without a meeting, shall be the first date on
which a signed written consent is properly delivered to the Corporation;
and
(c) the record date for determining shareholders for any other
purpose shall be the close of business on the day on which the resolution
of the Board of Directors relating to the action is adopted.
A determination of shareholders of record entitled to notice of, or to vote at,
a shareholders' meeting shall apply to any adjournment of the meeting, unless
the Board of Directors fixes a new record date for the adjourned meeting.
Only shareholders of record on the record date shall be entitled to notice
of, or to participate in, the action to which the record date relates,
notwithstanding any transfer of shares on the Corporation's books after the
record date. This Section 6.4 shall not affect the rights of a shareholder and
the shareholder's transferor or transferee as between themselves.
6.5 Registered Shareholders. The Corporation shall be entitled to recognize
the exclusive right of a person registered on its books as the owner of a share
for all purposes, including notices, voting, consents, dividends and
distributions, and shall not be bound to
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recognize any other person's equitable or other claim to interest in such share,
regardless of whether it has actual or constructive notice of such claim or
interest.
ARTICLE VII. - INDEMNIFICATION
The Corporation shall, to the fullest extent authorized or permitted by
the Michigan Business Corporation Act, (a) indemnify any person, and his or her
heirs, personal representatives, executors, administrators and legal
representatives, who was, is, or is threatened to be made, a party to any
threatened, pending or completed action, suit or proceeding (whether civil,
criminal, administrative or investigative) by reason of the fact that such
person is or was a director or officer of the Corporation or is or was serving
at the request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise
(collectively, "Covered Matters"); and (b) pay or reimburse the reasonable
expenses incurred by such person and his or her heirs, personal representatives,
executors, administrators and legal representatives in connection with any
Covered Matter in advance of final disposition of such Covered Matter. The
Corporation may provide such other indemnification to directors, officers,
employees and agents by insurance, contract or otherwise as is permitted by law
and authorized by the Board of Directors.
ARTICLE VIII. - GENERAL PROVISIONS
8.1 Checks and Funds. All checks, drafts or demands for money and notes of
the Corporation must be signed by such officer or officers or such other person
or persons as the Board of Directors from time to time designates. All funds of
the Corporation not otherwise employed shall be deposited or used as the Board
of Directors from time to time designates.
8.2 Fiscal Year. The fiscal year of the Corporation shall end on the
closest Saturday to the end of January or such other date as the Board of
Directors from time to time determines.
8.3 Corporate Seal. The Board of Directors may adopt a corporate seal for
the Corporation. The corporate seal, if adopted, shall be circular and contain
the name of the Corporation and the words "Corporate Seal Michigan". The seal
may be used by causing it or a facsimile of it to be impressed, affixed,
reproduced or otherwise.
8.4 Books and Records. The Corporation shall keep within or outside of
Michigan books and records of account and minutes of the proceedings of its
shareholders, Board of Directors and Board committees, if any. The Corporation
shall keep at its registered office or at the office of its transfer agent
within or outside of Michigan records containing the names and addresses of all
shareholders, the number, class and series of shares held by each and the dates
when they respectively became recordholders of shares. Any of such books,
records or minutes may be in written form or in any other form capable of being
converted into written form within a reasonable time.
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8.5 Financial Statements. The Corporation shall cause to be made and
distributed to its shareholders, within four months after the end of each fiscal
year, a financial report (including a statement of income, year-end balance
sheet, and, if prepared by the Corporation, its statement of sources and
application of funds) covering the preceding fiscal year of the Corporation.
ARTICLE IX. - AMENDMENTS
These Bylaws may be amended or repealed, or new Bylaws may be adopted,
by action of either the shareholders or a majority of the Board of Directors
then in office. The Articles of Incorporation or these Bylaws may from time to
time specify particular provisions of the Bylaws which may not be altered or
repealed by the Board of Directors.
ARTICLE X. -- CONTROL SHARE ACQUISITIONS
10.1 Power to Redeem if no Acquiring Person Statement is Filed. Control
shares acquired in a control share acquisition, with respect to which no
acquiring person statement has been filed with the Corporation, may, at any time
during the period ending 60 days after the last acquisition of control shares or
the power to direct the exercise of voting power of control shares by the
acquiring person, be redeemed by the Corporation at the fair value of the
shares.
10.2 Power to Redeem After Shareholder Vote. After an acquiring person
statement has been filed and after the meeting at which the voting rights of the
control shares acquired in a control share acquisition are submitted to the
shareholders, the shares are subject to redemption by the Corporation at the
fair value of the shares unless the shares are accorded full voting rights by
the shareholders pursuant to Section 798 of the Michigan Business Corporation
Act.
10.3 Procedure for Redemption. A redemption of shares by the Corporation
pursuant to Sections 10.1 or 10.2 shall be made upon election to redeem by the
Board of Directors. Written notice of the election shall be sent to the
acquiring person within seven days after the election is made. The determination
of the Board of Directors as to fair value shall be conclusive. Payment shall be
made for the control shares subject to redemption within 30 days after the
election to redeem is made at a date and place selected by the Board of
Directors. The Board of Directors may adopt additional procedures to accomplish
a redemption.
10.4 Interpretation of Article X. This Article X is adopted pursuant to
Section 799 of the Michigan Business Corporation Act, and the terms used in this
Article X shall have the meanings of the terms in Section 799.
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ARTICLE XI. - SCOPE OF BYLAWS
These Bylaws govern the regulation and management of the affairs of the
Corporation to the extent that they are consistent with applicable law and the
Articles of Incorporation; to the extent they are not consistent, applicable law
and the Articles of Incorporation shall govern.
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Exhibit 4.4
SECOND AMENDMENT TO LOAN AND SECURITY AGREEMENT
THIS SECOND AMENDMENT TO LOAN AND SECURITY AGREEMENT (this "Second
Amendment") is made and entered into as of August 27, 1999, by and among Gantos,
Inc., a corporation formed under the laws of the State of Michigan (the
"Borrower"), Foothill Capital Corporation, as Agent ("Foothill") and the
financial institutions listed on the signature page of the Loan Agreement
referred to below (such financial institutions, together with their respective
successors and assigns, are collectively referred to herein as the "Lenders").
This Second Amendment amends certain provisions of that certain Loan and
Security Agreement dated as of November 18, 1998 by and among the Borrower and
Foothill, as Agent, and the Lenders (as amended by a certain First Amendment to
Loan and Security Agreement dated as of February 28, 1999 by and among the
Borrower and Foothill as Agent and the Lenders, as further amended by and
through the date of this Second Amendment, and as hereafter amended and/or
restated from time to time, the "Loan Agreement"). Capitalized terms used herein
and not otherwise defined shall have the same meanings herein as in the Loan
Agreement.
BACKGROUND
In accordance with the Loan Agreement, the Borrower, Foothill and the
Lenders have agreed to amend the Loan Agreement to provide for, among other
things, a temporary change in the Borrowing Base, an amendment to the monthly
servicing fee provided for in the Loan Agreement and an amendment to the Retail
Performance Covenants set forth on Schedule 7.21 of the Loan Agreement, and to
amend certain other provisions of the Loan Agreement, in each instance subject
to the terms and conditions set forth below.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Borrower, the Agent and the
Lenders hereby agree as follows:
1. Amendments to Loan Agreement.
(a) Amendment to Subsection 2.1(a)(i) of the Loan Agreement (Revolving
Advances). Subsection 2.1(a)(i) of the Loan Agreement is hereby amended by
deleting the existing clauses (x), (y) and (z) of such subsection and inserting
in lieu thereof the following:
"(w) the lesser of (i) 90% of Eligible Accounts, less the
amount, if any, of the Dilution Reserve, and (ii) $20,000,000 plus
(x) the lesser of (i) 65% of the Cost value of Eligible
Inventory, and (ii) 80% of the most recently determined Net Retail
Liquidation Value of the Eligible Inventory, minus
(y) the aggregate amount of reserves, if any, established by
Agent under Sections 2.1(b), 6.14 and 10; plus
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(z) solely for the period commencing on August 27, 1999 and
terminating on the earlier to occur of (i) the closing of the sale of
the Borrower's private label credit portfolio, and (ii) September 30,
1999, the sum of $1,500,000."
(b) Amendment to Subsection 2.12(e) of the Loan Agreement (Fees).
Subsection 2.12(e) of the Loan Agreement is amended by deleting such subsection
in its entirety and inserting in lieu thereof the following:
"(e) Servicing Fee. On the first day of each month during the
term of this Agreement, a servicing fee in the amount of $4,000 per
month, provided, that if the Borrower requested a Special Sub-Line
Advance during the immediately preceding month, the servicing fee shall
be automatically increased to $12,000 per month (the "Increased
Servicing Fee"), unless, prior to the date any such increased fee is
due, the Borrower has received an equity contribution in an amount
determined by the Lenders, in their reasonable discretion, to resolve
or substantially reduce the Borrower's need for additional capital, in
which event the Increased Servicing Fee instead shall equal $9,000 per
month."
(c) Amended Schedule 7.21 (Retail Performance Covenants). The Loan
Agreement is amended by deleting the existing Schedule 7.21 attached thereto and
replacing it with the Amended Schedule 7.21 attached to this Second Amendment.
2. Representations and Warranties; Confirmation of Representations,
Warranties.
This Second Amendment has been duly authorized, executed and delivered
by the Borrower. The Loan Agreement, as amended hereby, and each of the other
Loan Documents, as amended by and through the date hereof, constitute legal,
valid and binding obligations of the Borrower, enforceable against the Borrower
in accordance with their respective terms. The Borrower, by execution of this
Second Amendment, certifies to the Agent and each of the Lenders that each of
the representations and warranties set forth in the Loan Agreement and the other
Loan Documents is true and correct as of the date hereof, except to the extent
such representations and warranties expressly relate to an earlier date, as if
fully set forth in this Second Amendment, and that, as of the date hereof, no
Default or Event of Default has occurred and is continuing under the Loan
Agreement or any other Loan Document. The Borrower acknowledges and agrees that
this Second Amendment shall become a part of the Loan Agreement and shall be a
Loan Document.
3. Release of Claims. The Agent, the Lenders and the Borrower agree to
eliminate any possibility that any of the conditions, acts, omissions, events or
circumstances described or referred to in the March 23, 1999 letter from Ms.
Arlene Stern, acting on behalf of the Borrower, addressed to the Oversight Agent
and the Agent (the "March 23 Letter"), would impair or otherwise adversely
affect any of the Agent's or the Lenders' rights, interests, security and/or
remedies. For and in consideration of the agreements contained in this Amendment
and other good and valuable consideration, the Borrower unconditionally and
irrevocably releases, waives and forever discharges the Agent and the Lenders
together with their successors, assigns,
<PAGE> 3
subsidiaries, affiliates, agents and attorneys, from: (x) any and all
liabilities, obligations, duties, promises or indebtedness of any kind of the
Agent or the Lenders to the Borrower which have arisen on or prior to the date
hereof as a result of any of the conditions, acts, omissions, events or
circumstances described or referred to in the March 23 Letter, and (y) all
claims, offsets, causes of action, suits or defenses of any kind whatsoever (if
any), whether known or unknown, which the Borrower might otherwise have against
the Agent or the Lenders, their successors, assigns or agents or any of them
with respect to any of the conditions, acts, omissions, events or circumstances
described or referred to in the March 23 Letter.
3A. No Knowledge of Additional Claims. The Agent and the Lenders hereby
acknowledge that they have no knowledge of any debts or liabilities of the
Borrower to the Agent or the Lenders other than the Obligations of the Borrower
to the Agent and the Lenders under and pursuant to the Loan Agreement and the
other Loan Documents. The foregoing acknowledgment shall in no way impair the
validity or enforceability of such Obligations or the Agent's and Lenders'
rights and remedies under the Loan Documents, all of which are hereby reserved.
4. Conditions Precedent.
Prior to or concurrently with the execution by the Agent and the
Lenders of this Second Amendment, and as a condition to the obligation of the
Lenders to execute this Second Amendment and make Advances for the account of
the Borrower on and after the date hereof:
(a) This Second Amendment and all other agreements, instruments and
certificates reasonably required by the Lenders in connection herewith and
therewith, shall have been executed and delivered by each of the parties
thereto;
(b) The Borrower shall have delivered or caused to be delivered to the
Agent such other instruments, certificates or documents as the Agent or any
Lender shall reasonably request, each of which shall be in form and substance
satisfactory to the Agent and the Lenders, for the purposes of implementing or
effectuating the provisions of the Loan Agreement and the other Loan Documents,
each as amended hereby;
(c) The Borrower shall have delivered to the Agent a covenant
compliance certificate for the immediately preceding month demonstrating the
Borrower's ongoing compliance with the covenants set forth in the Loan
Agreement, as of the date hereof; and
(d) The Borrower shall have paid the Agent for the ratable benefit of
the Lenders an amendment fee in the amount of $20,000.
5. Conditions to Lending; Compliance with Loan Documents, Borrower's
Covenant.
The Borrower hereby represents and warrants to the Agent and the
Lenders that all of the conditions precedent to lending specified in Section 4.2
of the Loan Agreement have been and continue to be satisfied as of the date
hereof. Without limiting the generality of the foregoing, the
3
<PAGE> 4
Borrower hereby confirms that it is in compliance with all of the terms and
provisions set forth in the Loan Agreement and each of the other Loan Documents,
as amended hereby, on its part to be observed or performed on or prior to the
date hereof.
The Borrower hereby covenants and agrees that it shall provide to the
Agent on or before September 3, 1999 a detailed, pro forma weekly cash flow
projection for the period September 6, 1999 through March 31, 2000, in form and
substance satisfactory to the Agent. The Borrower acknowledges that the failure
to deliver such projection to the Agent on or before September 3, 1999 shall
constitute an Event of Default under the Loan Agreement.
6. No Novation; Effect; Counterparts; Governing Law.
Except to the extent specifically amended hereby, the Loan Agreement
and each of the other Loan Documents shall be unaffected hereby and shall remain
in full force and effect; this Second Amendment shall not be deemed a novation
of the Loan Agreement or any other Loan Document. The Borrower hereby
acknowledges, confirms and ratifies its obligations under the Loan Agreement and
each of the other Loan Documents. This Second Amendment may be executed in any
number of counterparts, and by the different parties on separate counterparts,
each of which, when so executed and delivered, shall be an original, but all the
counterparts shall together constitute one instrument. This Second Amendment
shall be governed by the internal laws of The Commonwealth of Massachusetts
(without reference to conflicts of law principles) and shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
permitted assigns. The Borrower shall pay all reasonable out-of-pocket expenses
of the Agent and the Lenders in connection with the preparation, execution and
delivery of this Second Amendment.
7. Construction.
The Borrower, by execution hereof, acknowledges and confirms that for
all purposes of the Loan Agreement and the other Loan Documents, the term "Loan
Agreement" shall mean the Loan Agreement as amended by and through the date of
this Second Amendment and as further amended and/or restated from time to time
hereafter.
4
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have executed this Second
Amendment to Loan and Security Agreement as a sealed instrument as of the date
first above written.
GANTOS, INC.
By:________________________________
Name:______________________________
Title:_______________________________
FOOTHILL CAPITAL CORPORATION, for itself
and as Agent
By:
----------------------------------
(Title)
PARAGON CAPITAL, LLC, as a Lender
By:
----------------------------------
(Title)
5
<PAGE> 6
AMENDED
SCHEDULE 7.21
INVENTORY COMPOSITION AND IMBALANCE GUIDELINES:
Total EOM Dress Inventory at Cost (including Department # 500, 1300, 1500) shall
not be less than 25% of total EOM Inventory at Cost.
MIN/MAX INVENTORY
Measured monthly, on a rolling three-month basis, commencing EOM February 1999,
average EOM inventory at cost shall be at least 85.0% of plan, and not more than
115.0% of plan.
MINIMUM PURCHASES TEST (MONTHLY):
Measured monthly on a rolling two month basis, Total Actual Purchases, as a
percentage of Planned Purchases at cost, shall not vary negatively from plan in
any one fiscal month by more than 10.0%.
MINIMUM PURCHASE TEST (WEEKLY): Measured weekly during the period August 30,
1999 through September 30, 1999, Total Actual Purchases, as a percentage of
Planned Purchases at cost, shall not vary negatively from plan in any week by
more than 20.0%. The first measurement date will commence on September 17, 1999.
SALES:
Measured weekly on a rolling three-week basis, commencing with the third fiscal
week of February 1999, Sales shall not vary negatively from plan by more than
10%. If Sales vary negatively from plan by more than 10%, the advance rate will
be decreased by 1.5 ppts the first week and 0.5 ppt each week until such time as
Sales are within 90% of plan as measured on a rolling three-week basis. In the
event that weekly plan sales figures are not provided by the Company, weekly
plan sales shall be calculated based upon the monthly plan sales figure per the
Company's business plan divided by 4.3 average weeks.
6
<PAGE> 1
Exhibit 10.1
GANTOS, INC.
1266 EAST MAIN STREET, 5TH FLOOR
STAMFORD, CONNECTICUT 06902
March 16, 1999
Ms. Arlene H. Stern
1266 East Main Street, 5th Floor
Stamford, Connecticut 06902
Dear Arlene:
We have entered into a letter agreement, dated June 20, 1996 (the
"Agreement"), as amended by the Termination Agreement, dated as of May 12, 1998
(the "Termination Agreement"), and the letter agreement, dated May 19, 1998 (the
"First Amendment"), with respect to your employment with Gantos, Inc.
("Gantos"). In connection with your continued employment by Gantos, you and
Gantos desire to (i) extend for one year the term and minimum bonus provisions
of the Agreement, (ii) reduce the threshold for a change in control involving a
merger, consolidation, reorganization or share exchange from 50% to 40%, and
(iii) terminate the Termination Agreement. This letter (the "Second Amendment")
states our agreement with respect to the changes to the Agreement and is entered
into in exchange for good and valuable consideration, the receipt and adequacy
of which are acknowledged by both of us.
1. Term. The Agreement, as amended, is further amended by
substituting the phrase "four years" for the phrase "three years" in the
introductory paragraph of Paragraph 2 of the Agreement.
2. Minimum Bonus. The Agreement, as amended, is further amended by
substituting the following for Paragraph 3(d) of the Agreement:
"(d) If you are employed by Gantos at the end of the applicable fiscal
year, you will receive a minimum bonus of $75,000 with respect to each
of fiscal 1996, 1998 and 1999. Therefore, if you are employed by Gantos
at the end of the applicable fiscal year, with respect to each of
fiscal 1996, 1998 and 1999, Gantos will pay to you the excess, if any,
of $75,000 over the amount paid or payable to you pursuant to Paragraph
3.(b) and Paragraph 3.(c). Conversely, if the amount paid or payable to
you pursuant to Paragraph 3.(b) and Paragraph 3.(c) is at least
$75,000, no payment will be made under this Paragraph 3.(d) with
respect to that fiscal year."
3. Change in Control. The Agreement, as amended, is further amended
by substituting the figure "60%" for the figure "50%" in the two places it
appears in Paragraph 6(f)(iii)(2) of the Agreement.
<PAGE> 2
Ms. Arlene H. Stern
March 16, 1999
Page 2
4. Termination Agreement. The Agreement, as amended, is further amended
by terminating the Termination Agreement and treating it as if it had never
existed.
5. No Other Change. Except as modified by this Second Amendment, the
Agreement, as amended, shall continue in full force according to its terms and
is ratified.
6. Counterparts. This Second Amendment may be signed in counterparts,
both of which together will be deemed an original of this Second Amendment. This
Second Amendment will also be effective if evidenced by signed copies
transmitted by telecopier or facsimile transmission.
If this letter correctly expresses our mutual understanding, please
sign and date the enclosed copy and return it to us.
Very truly yours,
GANTOS, INC.
By:
----------------------------------
Its:
-----------------------------
The terms of this agreement
are accepted and agreed to
on _______________________:
- ---------------------------
Arlene H. Stern
<PAGE> 1
Exhibit 10.3
1999 Gantos, Inc. Executive Bonus Plan1
1. Definitions. As used in this Executive Bonus Plan, the
following terms have the following meanings:
"Board" is the Board of Directors of Corporation.
"Committee" is the Compensation Committee of the Board or any
other committee appointed by the Board to administer the Plan
or, at the Board's discretion, the Board itself.
"Corporation" is Gantos, Inc., a Michigan corporation, or any
successor thereto.
"Effective Date" is January 31, 1999.
"Fiscal 1999" is Corporation's fiscal year ending January 29,
2000.
"Fiscal 1999 Target" is the Fiscal 1999 Profit target which
has been determined by the Board or the Committee and
announced to the Participants.
"Participant" means any participant in the Plan pursuant to
paragraph 3 below.
"Plan" is this Executive Bonus Plan.
"Profit" is Corporation's income
(i) before deductions for (1) federal, state and
local income taxes, (2) extraordinary items, and (3)
all bonuses payable under this Plan, and
(ii) plus or minus any items not included in the
projections from which the Fiscal 1999 Profit was
determined and that otherwise decreased or increased
Profit, at the discretion of the Compensation
Committee.
Profit will be determined by Corporation's regular independent
public accountants (1) in accordance with generally accepted
accounting principles and (2) using amounts obtained as part
of the annual audit of Corporation's Fiscal 1999 financial
statements.
2. Administration. The Plan will be administered by the
Committee. Subject to the provisions of the Plan, the Committee is authorized to
interpret the Plan, to make, amend and rescind rules and regulations relating to
the Plan, to make bonus awards under the Plan and to make all other
determinations necessary or advisable for its administration. All Plan
- ---------------------
(1) Adopted by the Gantos, Inc. Board of Directors on August __, 1999.
<PAGE> 2
determinations made by the Committee, and the Committee's interpretation and
construction of any provision of the Plan, will be final and conclusive.
3. Participants; Termination of a Participant's Employment.
(a) The initial persons covered by the Plan are Arlene H. Stern, Dennis
Horstman, Thomas J. Villano, Diane Abbate-Fox, Joseph Kuhn, Trudy
Johnson-Chianciola, Vicki Boudreaux and Donna Rustem. The Committee or the
Corporation's Chief Executive Officer will determine and designate from time to
time, in its, his or her discretion, any additional officers hired by the
Corporation during Fiscal 1999 to be covered by the Plan. The Committee will
determine and designate from time to time, in its discretion, any other key
employees of Corporation to be covered by the Plan.
(b) If a Participant's employment with Corporation terminates before
the end of Fiscal 1999 because of such Participant's death or disability, such
Participant will be eligible to receive a bonus under the Plan. If a
Participant's employment with Corporation terminates before the end of Fiscal
1999 for any other reason, such Participant will receive no bonus under the
Plan.
4. Fiscal 1999 Annual Bonus.
(a) If Corporation's Fiscal 1999 Profit exceeds the Fiscal 1999 Target,
the Fiscal 1999 cash bonus pool will equal 50% of such excess, up to a maximum
cash bonus pool equal to 35% of the actual salaries of all Participants in the
Plan with respect to services performed in Fiscal 1999 for Corporation (the
"Bonus Pool").
(b) Fifty percent of the Bonus Pool will be automatically earned and
payable upon achievement of Fiscal 1999 Profits in excess of the Fiscal 1999
Target. This 50% portion will be paid to each Participant in proportion to the
1999 base salary actually paid to such Participant. The Committee shall
determine, in its discretion, what portion, if any, of the remaining Bonus Pool
will be payable to each Participant, based on its evaluation of senior
management's recommendations, the individual's achievement of his or her
Performance Plan/Objectives and such other factors as the Committee deems
relevant. The Committee, in its discretion, may determine that all, any portion
or none of the remaining Bonus Pool will be payable to any particular
Participant, and the Committee is not required to award the entire amount of the
remaining Bonus Pool to the Participants. Bonuses will be paid promptly after
the Committee certifies the amount of Fiscal 1999 Profit and the calculation of
the portion of the Bonus Pool automatically payable to each Participant
receiving bonuses under the Plan and makes its decisions regarding the merit
portion of the bonus, if any.
The Board reserves the right to pay bonuses to Participants beyond
those, if any, called for by the Plan.
5. Base Salaries. The Plan does not cover Participants' salaries.
2
<PAGE> 3
6. Stock Options. The Plan does not cover stock option grants, which
will be subject to the Board's discretion.
7. Nontransferability of Rights under the Plan. A Participant's rights
under the Plan may not be transferred, assigned or pledged.
8. Employment Agreement/Continuation of Employment. Nothing contained
in the Plan nor any action taken by the Committee in connection with the Plan
will confer upon any Participant any right to continuation of employment by
Corporation or any subsidiary of Corporation, nor interfere in any way with the
right of Corporation or any subsidiary to terminate such Participant's
employment at any time. Notwithstanding the preceding sentence, nothing in the
Plan affects the rights of any Participant under any written employment
agreement between such Participant and Corporation.
9. Withholding Payments. Participants will be responsible for all taxes
on bonuses awarded to them under the Plan, and Corporation will be entitled to
make all appropriate withholding from amounts due to Participants under the
Plan.
10. Effectiveness of Plan. This Plan becomes effective on the Effective
Date and will remain in effect through the end of Fiscal 1999.
3
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL
STATEMENTS OF GANTOS, INC. AS OF, AND FOR THE SIX-MONTH PEROID ENDED, AUGUST 1,
1998 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> 6-MOS
<FISCAL-YEAR-END> JAN-29-2000
<PERIOD-END> JUL-31-1999
<CASH> 215
<SECURITIES> 0
<RECEIVABLES> 16,060
<ALLOWANCES> 578
<INVENTORY> 31,038
<CURRENT-ASSETS> 59,691
<PP&E> 64,036
<DEPRECIATION> (54,263)
<TOTAL-ASSETS> 70,446
<CURRENT-LIABILITIES> 28,367
<BONDS> 36,893
0
0
<COMMON> 78
<OTHER-SE> 41,735
<TOTAL-LIABILITY-AND-EQUITY> 5,187
<SALES> 73,725
<TOTAL-REVENUES> 73,725
<CGS> (60,030)
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (2,507)
<INCOME-PRETAX> (4,437)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,437)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,437)
<EPS-BASIC> (1.69)
<EPS-DILUTED> (1.69)
</TABLE>
