<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 May 1, 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
-----------
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 June 11, 1999: 7,829,216
---------
<PAGE> 2
GANTOS, INC.
Page
Number
------
PART I. FINANCIAL INFORMATION
Statements of Operations 3
Balance Sheets 4
Statements of Cash Flows 5
Notes to Financial Statements 6-7
Management's Discussion and Analysis of
Results of Operations and Financial Condition 8-12
Quantitative and Qualitative Disclosures about
Market Risk 11-12
PART II. OTHER INFORMATION
Exhibits and Reports on Form 8-K 13
Signatures 14
Page 2 of 14 pages
<PAGE> 3
GANTOS, INC.
STATEMENTS OF OPERATIONS
(Amounts in thousands, except per share and store data)
13 Weeks Ended
-------------------------------
May 1, May 2,
1999 1998
---- ----
Net sales $40,765 $39,063
Cost of sales (including buying,
distribution and occupancy costs) (31,863) (30,893)
--------- ---------
Gross income 8,902 8,170
Selling, general and administrative expense (8,888) (9,120)
Finance charge and other revenue 1,082 1,071
--------- ---------
Operating income 1,096 121
Interest expense (1,258) (866)
--------- ---------
Net loss $ (142) $ (745)
========= =========
Net loss per share (basic and diluted) $ (0.02) $ (0.10)
========= =========
Per share amounts:
Weighted average shares outstanding
(basic and diluted) 7,822,755 7,592,159
========= =========
Stores open at end of period 115 115
===== ======
See accompanying notes to financial statements.
Page 3 of 14 pages
<PAGE> 4
GANTOS, INC.
BALANCE SHEETS
(Amounts in thousands, except share data)
<TABLE>
<CAPTION>
ASSETS May 1, January 30, May 2,
- ------ 1999 1999 1998
---- ---- ----
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 1,493 $ 1,275 $ 1,512
Accounts receivable, less allowance for doubtful
accounts of $577, $577 and $573 at May 1, 1999,
January 30, 1999 and May 2, 1998, respectively 17,579 17,634 18,157
Merchandise inventories 31,049 27,808 25,654
Prepaid expenses and other 10,692 8,053 9,220
------- ------- -------
Total current assets 60,813 54,770 54,543
------- ------- -------
Property and equipment, at cost:
Leasehold improvements 31,291 31,290 30,522
Furniture and fixtures 31,936 31,813 31,583
Other 457 88 658
------- ------- -------
Total property and equipment 63,684 63,191 62,763
Less - Accumulated depreciation and amortization (53,247) (52,229) (49,182)
Net property and equipment 10,437 10,962 13,581
Other assets 888 921 609
------- ------- -------
Total assets $72,138 $66,653 $68,733
======= ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable $19,977 $12,189 $12,780
Accrued expenses and other 7,875 7,492 8,163
------- ------- -------
Total current liabilities 27,852 19,681 20,943
------- ------- -------
Long-term debt 35,101 37,651 26,830
------- ------- -------
Shareholders' equity:
Preferred stock, $.01 par value, 2,000,000
shares authorized; none issued
Common stock, $.01 par value, 20,000,000
shares authorized; approximately 7,830,000,
7,820,000 and 7,614,000 issued and
outstanding at May 1, 1999, January 30, 1999,
and May 2, 1998, respectively 78 78 76
Additional paid-in capital 41,439 41,433 41,002
Accumulated deficit (32,332) (32,190) (20,118)
------- ------- -------
Total shareholders' equity 9,185 9,321 20,960
------- ------- -------
Total liabilities and shareholders' equity $72,138 $66,653 $68,733
======= ======= =======
</TABLE>
See accompanying notes to financial statements.
Page 4 of 14 pages
<PAGE> 5
GANTOS, INC.
STATEMENTS OF CASH FLOWS
(Thousands)
<TABLE>
<CAPTION>
13 Weeks Ended
------------------------------
May 1, May 2,
1999 1998
-------- -------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (142) $ (745)
-------- -------
Adjustments to reconcile net loss to
net cash provided by operating activities: -
Depreciation and amortization 1,017 1,186
Restricted stock compensation expense 0 11
Warrant expense
Changes in assets and liabilities:
Accounts receivable 55 450
Merchandise inventories (3,241) (3,115)
Prepaid expenses and other (2,639) (1,015)
Accounts payable 7,787 5,136
Accrued expenses and other 390 (309)
Net cash provided by
operating activities 3,227 1,599
-------- -------
Cash flows from investing activities:
Capital expenditures (493) (618)
-------- -------
Net cash used by investing activities: (493) (618)
-------- -------
Cash flows from financing activities:
Principal payments under capital lease
obligations and other long-term debt (1,148) (775)
Issuance of common shares 0 14
Borrowings under revolving
credit notes payable 42,300 65,705
Repayments under revolving credit notes payable 43,702 65,498
Other 34 (210)
-------- -------
Net cash used in financing activities (2,516) (764)
-------- -------
Net increase in cash and cash equivalents 218 217
Cash and cash equivalents at beginning of period 1,275 1,295
-------- -------
Cash and cash equivalents at end of period 1,493 1,512
======== =======
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest (net of amount capitalized) $ 941 $ 694
Income taxes $ - $ 44
</TABLE>
See accompanying notes to financial statements.
Page 5 of 14 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 be read in conjunction with the financial statements and notes
thereto included in the Company's Annual Report on Form 10-K for the
fiscal year ended 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 May 1, 1999, January 30, 1999 and May
2, 1998 and the results of operations and cash flows for the thirteen
weeks ended May 1, 1999 and May 2, 1998. All adjustments are of a normal
and recurring nature.
The results of operations for the thirteen week periods ended May 1, 1999
and May 2, 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. A physical
inventory to determine actual cost of merchandise sold is taken at least
two times per year.
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 net loss per share is similarly determined except that the
denominator is increased to include the number of additional common shares
that would have been outstanding if all dilutive potential common shares
had been issued. Dilutive potential shares are principally comprised of
common stock warrants issued in 1998 [and 1997] and employee stock options
issued by the Company and had an insignificant impact on the computation
of diluted net loss per share during the periods presented. As a result of
the net loss in the first quarters of 1999 and 1998, diluted net loss per
share was computed on the same diluted manner as basic net loss per share
for these periods.
4. Long-Term Debt
A summary of long-term debt is as follows:
<TABLE>
<CAPTION>
May 1, January 30,
1999 1999
------------- --------------
(Thousands)
<S> <C> <C>
Revolving Credit Agreement bearing interest at variable
rates $30,407 $31,809
Notes issued pursuant to an Indenture Agreement bearing
Interest at 12.75% 4,694 5,842
------------- --------------
$35,101 $37,651
============= ==============
</TABLE>
Page 6 of 14 pages
<PAGE> 7
As of May 1, 1999, the Company had $30.4 million in borrowings and $0.6
million in letters of credit outstanding under its loan and Security
Agreements with Foothill Capital Corporation and Paragon Capital LLC (the
"Foothill/Paragon Facility"), and approximately $3.0 million was available
for borrowing under the Foothill/Paragon Facility.
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 underlying the Indenture. For
holders of the remaining 4% in principal amount of notes, the payment
schedule remains unaffected. The Company and the Trustee under the
Indenture are in the process of documenting an amendment to the indenture
to reflect the new payment schedule. For the rescheduled holders the
payment schedule will be as follows:
Date Amount Date Amount
----------- ------------- ----------- -------------
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
In exchange for such amendment to the payment schedule, the Company issued
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. The
Company has agreed to issue shares without transfer restrictions upon
exercise of the warrants or to file a registration statement on Form S-3
to register the resale of the Common Shares issuable upon exercise of
those warrants. All stock warrants issued under this arrangement will be
immediately vested and have a term of five years. The fair value of stock
warrants issued, approximately $400,000, will be capitalized 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" borrowing
requirements or liquidity needs are higher than expected, the Company
could have insufficient liquidity to continue its current operation, 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 quarter ended May 1, 1999, the
Company incurred a loss of $142,000 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 expects to engage a financial advisor to assist management in
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.
Page 7 of 14 pages
<PAGE> 8
GANTOS, INC.
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
Results of Operations
Thirteen Weeks Ended May 1, 1999 Compared to Thirteen Weeks Ended May 2, 1998
The following table indicates the percentage relationships to net sales of
various revenue and expense items for the thirteen-week periods ended May 1,
1999 and May 2, 1998.
As a percent of net
sales for the thirteen
weeks ended
------------------------------
May 1, May 2,
1999 1998
------------ ------------
Net sales 100.0 % 100.0 %
Cost of sales (including buying,
distribution and occupancy costs) (78.2) (79.1)
------------ ------------
Gross income 21.8 20.9
Selling, general and administrative expense (21.8) (23.3)
Finance charge and other revenue 2.7 2.7
------------ ------------
Operating income 2.7 0.3
Interest expense (3.0) (2.2)
------------ ------------
Net loss (0.3)% (1.9)%
============ ============
Net sales for the thirteen weeks ended May 1, 1999 were approximately $40.8
million, an increase of approximately $1.7 million, or 4.4%, compared to net
sales of approximately $39.1 million in the same period of the prior fiscal
year. Net sales for stores in operation throughout both periods increased 5.1%,
or $2.0 million, for the first quarter of 1999 compared to the same period in
the prior year. The 5.1% increase in comparable store sales is comprised of a
0.6% increase in unit sales and a 4.5% increase in average sales dollars per
unit.
Cost of sales for the thirteen weeks ended May 1, 1999, increased approximately
$1.0 million, while decreasing as a percent of net sales to 78.2%, compared to
79.1% in the thirteen weeks ended May 2, 1998. The decrease in cost of sales, as
a percentage of net sales, is primarily the result of increased sales volume
with lower buying, distribution and occupancy costs, higher vendor allowances
and higher initial markups than in the previous year, all as a percentage of net
sales, partially offset by higher net markdowns.
Page 8 of 14 pages
<PAGE> 9
Selling, general and administrative (SG&A) expense for the thirteen weeks ended
May 1, 1999 decreased approximately $0.2 million compared to the same period in
the prior fiscal year. As a percent of net sales, SG&A expense decreased from
23.3% to 21.8% for the thirteen weeks ended May 1, 1999. The decrease is
primarily due to lower administrative payroll due to the consolidation of
administrative functions. Further savings were realized in transportation
services and insurance costs.
Finance charge and other revenues were flat in the first quarter of 1999
compared to the first quarter of 1998.
Interest expense increased approximately $372,000 during the thirteen weeks
ended May 1, 1999, compared to the same period in the prior fiscal year. The
increase is due to higher debt levels under the Fleet and Foothill/Paragon
Facility and fees associated with the extension of the credit agreement required
during the negotiations of the proposed HOM Holding and its replacement with the
Foothill/Paragon Facility, partially offset by reduced interest expense on the
Indenture Notes as a result of scheduled principal payments. The increase in
amounts outstanding under the Foothill/Paragon Facility is due to operating
losses and higher inventory purchase levels. Further expenses related to the
issuance of warrants (for long-term debt payment deferral) were charged to
interest expense.
The effective tax rate for the year ended January 30, 1999 was 0% which is less
than the statutory rate of 35% due to the establishment of valuation allowances
against tax assets related to net operating loss carryforwards due to the
Company's inability to determine that it is more likely than not that these
assets will be realized. The Company continues to recognize valuation allowances
for its net operating loss carry forward.
These factors resulted in a net loss of approximately $0.1 million, or $0.02 per
share, in the first quarter of 1999 compared to net loss of approximately $0.7
million, or $0.10 per share, in the first quarter of 1998.
Page 9 of 14 pages
<PAGE> 10
Liquidity and Capital Resources
Net cash provided by operating activities was $3.2 million in the first quarter
of 1999 compared to $1.6 million in the same period a year ago. The increase was
primarily due to an increase in accounts payable due primarily to higher
inventory purchases, an increase in accrued expenses and a lower net loss (net
of non-cash items) compared to 1998. These sources of cash are partially offset
by a larger increase in prepaid expenses and other in 1999 compared to 1998 due
to the increased need for prepayment of merchandise purchases as a result of
tighter trade credit and approximately $2 million of deposits held by factors.
Also offsetting cash provided by operations was a smaller decrease in accounts
receivable partially due to an overall decrease of accounts receivable as a
percent of sales. 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 second quarter of 1999.
Capital expenditures for the first three months of fiscal 1999 were
approximately $493,000, compared to approximately $618,000 for the first three
months of fiscal 1998. Capital expenditures in fiscal 1999 were primarily for
remodeling one store and computer upgrades to become year 2000 compliant.
Net cash used by financing activities in the first quarter of 1999 was
approximately $2.5 million compared to net cash used of approximately $0.8
million in the same period a year ago. The increase in cash used is the result
of the payment in the first quarter of approximately 50% of the sinking fund
payment deferred from the fourth quarter of 1998 and the repayment of borrowings
under the Foothill/Paragon Facility.
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 June 7, 1999, the Company had $32.1 million in borrowings and $1.8 million
in letters of credit outstanding under this facility, and approximately $1.9
million was available for borrowing under this facility. During the first
quarter of 1999, the weighted average interest rate under this facility was
9.75%.
As of June 7, 1999, approximately $4.5 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 payments of the notes
outstanding under the Indenture. For holders of the remaining 4% in principal
amount of notes, the payment schedule. The Company and the Trustee under the
Indenture are in the process of documenting an amendment to the Indenture to
reflect the new payment schedule. For the rescheduled holders, the payment
schedule is as follows:
Date Amount Date Amount
----------- ------------- ----------- -------------
5/1/99 $223,874 10/1/00 $335,811
7/1/99 $223,874 1/1/01 $746,247
10/1/99 $223,874 4/1/01 $671,622
1/1/00 $671,622 7/1/01 $444,577
4/1/00 $671,622
7/1/00 $335,811
In exchange for such amendment to the payment schedule, the Companys has agreed
to issue 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. These warrants
are expected to be issued when the amendment to the Indenture is signed. The
Company has agreed to issue shares without transfer restrictions upon exercise
of the warrants or to file a registration statement of Form S-3 to register the
resale of the Common Shares issuable upon exercise of those warrants. All stock
warrants issued under this arrangement will be immediately
Page 10 of 14 pages
<PAGE> 11
vested and have a term of five years. The fair value of the stock warrants
issued, approximately $400,000, will be capitalized 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 if sales and if trade credit substantially
decrease from current levels.
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. The Company estimates
that the cost to modify its management information systems to become Year 2000
compliant will be approximately $400,000. Through May 1, 1999, the Company has
spent approximately $200,000 to modify its management information systems
to become Year 2000 compliant. Given that the Company expects to complete
installation and testing of its modifications by June 1999, 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 by [early 1999] 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. 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 complaint.
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, and the factors set forth in this Management's
Discussion and Analysis of Results of the Company's ability to obtain
merchandise Operations and Financial Condition.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
The tables below provides information about the Company's financial instruments
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
Page 11 of 14 pages
<PAGE> 12
maturities and the market value of the debt as of May 1, 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.
<TABLE>
<CAPTION>
May 1, 1999
Expected maturity date
- ------------------------------------------------------------------------------------------------------------------------------------
1999 2000 2001 2002 2003 Thereafter Total Fair Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Liabilities
(in thousands)
- ------------------------------------------------------------------------------------------------------------------------------------
Long-term Debt:
- ------------------------------------------------------------------------------------------------------------------------------------
Fixed Rate $2,577 $2,149 $ 1,116 $0 $0 $0 $ $
- ------------------------------------------------------------------------------------------------------------------------------------
Average interest rate 12.75% 12.75% 12.75% N/A N/A N/A %
- ------------------------------------------------------------------------------------------------------------------------------------
Variable Rate $ 0 $ 0 $30,406 $0 $0 $0 $30,406 $
- ------------------------------------------------------------------------------------------------------------------------------------
Average interest rate 0% 0% 9.05% N/A N/A N/A 9.05%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 12 of 14 pages
<PAGE> 13
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
As of April 30, 1999, holders of approximately 96% in principal amount of the
Company's 12.75% Notes issued under its Indenture agreed to reschedule their
portion of the principal payments on the notes outstanding under the Indenture.
The Company and the Trustee under the Indenture are in the process of
documenting an amendment to the Indenture to reflect the new payment schedule.
See Note 4 of the Notes to Financial Statements in Item 1 of Part I of this
report for a description of the charges. In exchange for such amendment to the
payment schedule, the Company has agreed to issue 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. These warrants are expected to be issued when the amendment
to the Indenture is signed. All stock warrants issued under this arrangement
will be immediately vested and have a term of five years. The Company has agreed
to issue shares without transfer restrictions upon exercise of the warrants or
to file a registration statement of Form S-3 to register the resale of the
Common Shares issuable upon exercise of those warrants. Such warrants have not
been registered, but are expected to be issued in reliance on the exemptions
from registration contained in Sections 4(2) and 4(6) under the Securities Act
of 1933, as amended.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
10.1 Letter of Employment, dated May 10, 1999, between
Gantos, Inc. and Trudy Johnston-Chianciola.
10.2 Severance Benefits Letter, dated as of March 16, 1999,
between Gantos, Inc. and Joseph Kuhn.
10.3 Severance Benefits Letter, dated as of March 16, 1999,
between Gantos, Inc. and Diane Abbate-Fox.
10.4 Severance Agreement, dated as of June 7, 1999, between
Gantos, Inc. and Neal Gottfried.
27 Financial Data Schedule
(b) Reports on Form 8-K.
The Company did not file any reports on Form 8-K during its
fiscal quarter ended May 1, 1999.
Page 13 of 14 pages
<PAGE> 14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: June 15, 1999
GANTOS, INC.
---------------------------------------------
(Registrant)
By: /s/ THOMAS J. VILLANO
---------------------------------------------
THOMAS J. VILLANO
ITS CHIEF FINANCIAL OFFICER (DULY
AUTHORIZED OFFICER AND PRINCIPAL
FINANCIAL OFFICER)
Page 14 of 14 pages
<PAGE> 15
EXHIBIT INDEX
DOCUMENT NUMBER AND DESCRIPTION
10.1 Letter of Employment, dated May 10, 1999, between Gantos,
Inc. and Trudy Johnston-Chianciola.
10.2 Severance Benefits Letter, dated as of March 16, 1999,
between Gantos, Inc. and Joseph Kuhn.
10.3 Severance Benefits Letter, dated as of March 16, 1999,
between Gantos, Inc. and Diane Abbate-Fox.
10.4 Severance Agreement, dated as of June 7, 1999, between
Gantos, Inc. and Neal Gottfried.
27 Financial Data Schedule
<PAGE> 1
EXHIBIT 10.1
GANTOS
____________, 1999
Ms. Trudy Johnston-Chianciola
101 Thistledown
Suffield, CT 06078
Dear Trudy:
We are very pleased to offer you the position of Senior Vice President
- -- Stores and Visual Merchandising for Gantos, Inc. (the "Company"). We are very
excited to invite you to join our senior management team. The terms of our offer
supersede any of our prior discussions and agreements, and are as follows:
1. Your initial annual salary will be $225,000.
2. Your date of employment will begin on or before ________, 1999 ("Start
Date").
3. You will be eligible to participate in the Gantos, Inc. Executive Bonus
Plan, beginning with the 1999 plan. The maximum bonus potential under the
current plan is 35% of actual base salary earned during the fiscal year.
4. On the Start Date, you will be granted an option to purchase 25,000
Gantos, Inc. common shares at an exercise price equal to the fair market value
of Gantos, Inc. common shares on the Start Date. The option will vest in
one-fifth (1/5) cumulative annual installments, beginning on the first
anniversary of the Start Date. Thereafter, you will be eligible for annual stock
option grants in amounts commensurate with your position with the Company at the
discretion of the Board of Directors or its Compensation Committee.
5. You will receive twelve (12) months separation pay as your exclusive
severance benefits in the event that your employment is terminated without cause
(and other than pursuant to your death or disability) within the first
twenty-four (24) months of your employment. As a condition of your receipt of
severance pursuant to this agreement, after any termination, you must (a) use
your best efforts to seek and obtain new employment, and (b) advise the Company,
on a timely and regular basis, of the status of your efforts, of the terms of
any employment (including self-employment), and of any remuneration you receive
from such employment. If at any time the Company, in good faith, determines that
you are not so seeking such employment, your right to receive severance benefits
will be immediately terminated. The severance benefits to which you would
otherwise be entitled will be reduced by the remuneration that is paid or
payable to you (whether as salary, bonus, commissions, consulting fees,
compensation and dividends from any entity owned by you or a sole proprietorship
established by you or otherwise) from rendering any services to any person,
corporation or entity during the period that you are eligible to receive
severance benefits under this agreement. Payment on account of death or
disability or for termination without cause after the first twenty-four (24)
months of employment under this Agreement will be in accordance with the Company
policies concerning these areas. You will be entitled to no severance benefits
if you terminate your employment with the Company.
6. You will receive such benefits as the Company provides its other Senior
Vice Presidents. Currently the Company provides (i) a non-contributory group
life insurance policy in the amount of one times your annual base compensation,
(ii) an individual disability policy which provides benefits equal to 60% of
your salary, (iii) a 40% discount on all merchandise purchases at our regular
price stores, (iv) medical prescription coverage under our plan on the first day
of the month following two months of
<PAGE> 2
employment, (v) on the first day of the month after two months of employment,
dental coverage under our plan, (vi) four weeks vacation a year, (vii) after 870
hours of employment are met, eligibility to participate in the Company's 401(k)
Plan, and (viii) after six (6) months of continuous employment, eligibility to
participate in the Employee Stock Purchase Plan. During the health benefits
waiting periods, the Company will reimburse you for the cost of continuing these
coverages under COBRA with your former employer. Enclosed is a complete
breakdown of our benefit plans for your information and review.
7. You will receive a car allowance in the amount of $750 a month.
8. Your employment will be at will and may be terminated by either of us,
with or without cause, reason or notice. Upon such a termination, as your
exclusive severance benefits, you will be entitled to your salary through the
termination date and amounts, if any, payable to you or your estate as described
in paragraph 5 above, if such termination is without cause and occurs within the
first twenty-four (24) months of your employment under this Agreement, or
amounts payable under any Company policies then applicable to you if such
termination is on account of death or disability, on account of termination for
cause, or on account of termination without cause after the first twenty-four
(24) months of your employment under this Agreement, and, in either case, no
other payment.
9. You will comply with, and be bound by, all Company policies, procedures
and guidelines, as they may be amended and supplemented from time to time during
your employment with the Company.
Please date, sign and return the enclosed copy of this letter to
indicate your acceptance of employment on these terms.
If I can be of assistance in answering any questions that you may have,
please don't hesitate to contact my office.
Very truly yours,
GANTOS, INC.
By:
Arlene H. Stern
Its: President
Accepted and agreed on _________, 1999
Trudy Johnston-Chianciola
<PAGE> 1
EXHIBIT 10.2
GANTOS
March 16, 1999
Mr. Joseph Kuhn
1266 East Main Street, 5th Floor
Stamford, Connecticut 06902
Dear Joe:
As a valued member of our management team, we are pleased to offer you
the following severance benefits: You will receive six (6) months separation pay
as your exclusive severance benefits in the event that your employment is
terminated without cause (and other than pursuant to your death or disability)
within the first twenty-four (24) months of your employment under this
Agreement. As a condition of your receipt of severance pursuant to this
agreement, after any termination you must (a) use your best efforts to seek and
obtain new employment, and (b) advise the Company, on a timely and regular
basis, of the status of your efforts, of the terms of any employment (including
self-employment), and of any remuneration you receive from such employment. If
at any time the Company, in good faith, determines that you are not so seeking
such employment, your right to receive severance benefits will be immediately
terminated. The severance benefits to which you would otherwise be entitled will
be reduced by the remuneration that is paid or payable to you (whether as
salary, bonus, commissions, consulting fees, compensation and dividends from any
entity owned by you or a sole proprietorship established by you or otherwise)
from rendering any services to any person, corporation or entity during the
period that you are eligible to receive severance benefits under this agreement.
Payment on account of death or disability or for termination without cause after
the first twenty-four (24) months of employment under this Agreement will be in
accordance with the Company policies concerning these areas. You will be
entitled to no severance benefits if you terminate your employment with the
Company.
Your employment will be at will and may be terminated by either of us,
with or without cause, reason or notice. Upon such a termination, as your
exclusive severance benefits, you will be entitled to your salary through the
termination date and amounts, if any, payable to you or your estate as described
in paragraph 5 above, if such termination is without cause and occurs within the
first twenty-four (24) months of your employment under this Agreement, or
amounts payable under any Company policies then applicable to you if such
termination is on account of death or disability, on account of termination for
cause, or on account of termination without cause after the first twenty-four
(24) months of your employment under this Agreement, and, in either case, no
other payment.
Please date, sign and return the enclosed copy of this letter to
indicate your acceptance of the terms of this letter.
Very truly yours,
GANTOS, INC.
By:
Arlene H. Stern
Its: President
Accepted and agreed on March 16, 1999
Joseph Kuhn
<PAGE> 1
Mr. Joseph Kuhn
March 16, 1999
Page 3
EXHIBIT 10.3
GANTOS
March 29, 1999
Ms. Diane Abbate-Fox
1266 East Main Street, 5th Floor
Stamford, Connecticut 06902
Dear Diane:
As a valued member of our management team, we are pleased to offer you
the following severance benefits: You will receive six (6) months separation pay
as your exclusive severance benefits in the event that your employment is
terminated without cause (and other than pursuant to your death or disability)
within the first twenty-four (24) months of your employment under this
Agreement. As a condition of your receipt of severance pursuant to this
agreement, after any termination you must (a) use your best efforts to seek and
obtain new employment, and (b) advise the Company, on a timely and regular
basis, of the status of your efforts, of the terms of any employment (including
self-employment), and of any remuneration you receive from such employment. If
at any time the Company, in good faith, determines that you are not so seeking
such employment, your right to receive severance benefits will be immediately
terminated. The severance benefits to which you would otherwise be entitled will
be reduced by the remuneration that is paid or payable to you (whether as
salary, bonus, commissions, consulting fees, compensation and dividends from any
entity owned by you or a sole proprietorship established by you or otherwise)
from rendering any services to any person, corporation or entity during the
period that you are eligible to receive severance benefits under this agreement.
Payment on account of death or disability or for termination without cause after
the first twenty-four (24) months of employment under this Agreement will be in
accordance with the Company policies concerning these areas. You will be
entitled to no severance benefits if you terminate your employment with the
Company.
Your employment will be at will and may be terminated by either of us,
with or without cause, reason or notice. Upon such a termination, as your
exclusive severance benefits, you will be entitled to your salary through the
termination date and amounts, if any, payable to you or your estate as described
in paragraph 5 above, if such termination is without cause and occurs within the
first twenty-four (24) months of your employment under this Agreement, or
amounts payable under any Company policies then applicable to you if such
termination is on account of death or disability, on account of termination for
cause, or on account of termination without cause after the first twenty-four
(24) months of your employment under this Agreement, and, in either case, no
other payment.
Please date, sign and return the enclosed copy of this letter to
indicate your acceptance of the terms of this letter.
Very truly yours,
GANTOS, INC.
By:
Arlene H. Stern
Its: President
Accepted and agreed on March 29, 1999
Diane Abbate-Fox
<PAGE> 1
EXHIBIT 10.4
SEVERANCE AGREEMENT AND RELEASE
THIS SEVERANCE AGREEMENT AND RELEASE ("Agreement") is made June 7, 1999 between
Gantos, Inc., a Michigan corporation (the "Company"), and Neal Gottfried ("Mr.
Gottfried "). The Company and Mr. Gottfried are sometimes referred to together
as the "Parties" and individually as a "Party".
R E C I T A L S
A. Mr. Gottfried is the Senior Vice President, Store Operations and Visual
Merchandising of the Company.
B. Mr. Gottfried wishes to resign from all of his positions with the
Company and to settle and resolve all actual and potential claims
against the Company and its affiliates in accordance with this
Agreement.
C. The Company wishes to accept Mr. Gottfried's resignation and to settle
and resolve all actual and potential claims against Mr. Gottfried in
accordance with this Agreement.
THEREFORE, THE PARTIES AGREE AS FOLLOWS:
1. TERMINATION OF MR. GOTTFRIED'S EMPLOYMENT. Effective as of May 7, 1999
(the "Effective Date"), Mr. Gottfried resigns from all of his positions
with the Company, including, without limitation, as Senior Vice
President, Store Operations and Visual Merchandising.
(a) For a reasonable period after Effective Date, Mr.Gottfried
will answer inquiries from Company concerning aspects of the
Company's business affairs of which he has knowledge and which
occurred during his employment.
2. SEVERANCE COMPENSATION
(a) CASH PAYMENT: The Company will pay Mr.Gottfried $56,250.00,
representing thirteen (13) weeks salary, as his exclusive
severance benefit. In addition to severance, the Company will
pay Mr. Gottfried $16,197.82, representing 149.74 hours of
accrued vacation pay. Mr. Gottfried agrees that he is not
otherwise entitled to the severance consideration. The cash
payments described in this paragraph 2(a) shall be paid in a
lump sum on the first regular payroll date that is at least
seven (7) days after the date this agreement is signed by both
parties.
(b) MEDICAL AND DENTAL BENEFITS: The Company will provide Mr.
Gottfried with the opportunity to continue his current Company
health insurance coverage pursuant to the Consolidated Omnibus
Budget Reconciliation Act ("COBRA"). Mr. Gottfried
1
<PAGE> 2
will pay the cost of such insurance, including any premiums
relating to such insurance, beginning as of the Effective Date
in accordance with the Company policy on "COBRA" payments.
(c) NO OTHER PAYMENT OR BENEFITS: Mr. Gottfried will not be
entitled to any other payments or benefits whatsoever,
including participation after the Effective Date in the 401(k)
Plan or the 1999 Gantos, Inc. Executive Bonus Plan. For no
purpose (including 401(k) contributions, the 1999 Gantos, Inc.
Executive Bonus Plan, vacation benefits, or other benefits)
shall the payments and benefits described in this paragraph 2
be considered salary to Mr. Gottfried or be deemed to continue
his employment beyond the Effective Date.
(d) STOCK OPTIONS: As of the Effective Date, (1) Mr. Gottfried's
stock option agreements with the Company, and (2) the letter
agreement, dated as of April 14, 1997, between the Company and
Mr. Gottfried, are cancelled, and Mr. Gottfried shall have no
further rights under such agreements.
(d) TAXES: The Company will withhold from the cash payments
described in this paragraph 2, withholding for federal, state,
city and other taxes.
3. CONFIDENTIALITY AND NON-SOLICITATION
(a) CONFIDENTIALITY: Mr. Gottfried will not, at any time,
directly or indirectly, disclose or make accessible to any
person or entity or use in any way for his own personal gain
or to the Company's detriment (I) any confidential or secret
information as to the Company, including information as to the
prices, costs, discounts or profit margins of any goods or
services sold, purchased or handled by the Company, (ii) any
confidential or secret information relating to the Company's
business, sales, financial structure, store layouts, supply
sources, designs, procedures, information systems, personnel
decisions, payroll of associates, store leases, relationships
with landlords, administration, future plans or operations, or
(iii) this Agreement or its terms (except to his counsel, his
tax adviser and his immediate family, but only after advising
them of the confidential nature thereof and instructing them
to keep the information confidential), all except as
authorized or directed by the Company and except that the
foregoing restrictions will not apply to information generally
available to others in the Company's line of business,
information in the public domain (other than as a result of
Mr. Gottfried's violation of this paragraph 3(a)), information
disclosed or made available by the Company to any other person
on a non-confidential basis or disclosures Mr. Gottfried is
required by law to make. These provisions against disclosure
expressly include all documents, notes, memoranda,
correspondence and other information, whether written or oral,
regardless of whether prepared by Mr. Gottfried or another
person or entity. Mr. Gottfried represents and warrants that
he has returned to the Company all confidential materials and
files over which he exercises any control and all other
materials and files relating to the Company, its stores or its
business.
(b) NON-DISPARAGEMENT: Mr. Gottfried will not at any time (I) make
any statements to any third party or to any employees of the
Company about the Company, or any of its employees, officers,
directors, agents or affiliates in disparaging terms, or (ii)
2
<PAGE> 3
engage in any other activity calculated to damage the Company
or its best interests. The Company will not at any time (I)
make any statements to any third party about Mr. Gottfried in
disparaging terms,or (ii) engage in any other activity
calculated to damage Mr. Gottfried or his best interests.
(c) NON-SOLICITATION: Mr. Gottfried will not at any time during
the twelve (12) months after the Effective Date, directly or
indirectly, solicit for any purposes, interfere with, entice
away from the Company, or hire, any employee or agent of the
Company.
(d) ENFORCEABILITY: Paragraphs 3(a) and (b) are intended, among
other things, to protect the confidential information of the
Company. If for any reason a court determines that any part of
this paragraph 3 is unreasonable in scope or otherwise
unenforceable, such provisions will be modified and fully
enforceable, as so modified, to the maximum extent the court
determines lawful and enforceable under the circumstances.
4. TERMINATION OF PRIOR AGREEMENTS: This Agreement supersedes all prior
understandings and agreements between the parties (written or
otherwise). Mr. Gottfried acknowledges that he is not entitled to any
severance or termination payments whatsoever in connection with the
termination of his employment with the Company, except as otherwise
provided in paragraph 2.
5. RELEASE
(A) RELEASE: In consideration of, and in reliance on, the
Parties entering into this Agreement and agreeing to the terms and
conditions of this Agreement, including the severance compensation
provided in paragraph 2, which Mr. Gottfried acknowledges as
adequate, Mr. Gottfried hereby unconditionally and forever
releases and discharges the Company and its employees, officers,
directors, shareholders, affiliates, agents, trusts, partnerships,
attorneys and successors and assigns from, and hereby waives, any
and all causes of action, suits, damages, claims and demands which
Mr. Gottfried ever had, which is now existing or which may
hereafter arise between him and the Company, directly or
indirectly, by reason of any facts existing on or prior to the
Effective Date, whether known or unknown, except for a Party's
violation of this Agreement, and specifically including, but not
limited to, any and all claims for defamation, wrongful discharge,
breach of contract, negligence and any other tort actions, and/or
discrimination, harassment and/or retaliation on account of age,
sex, sexual orientation, race, color, religion, marital status,
disability, height, weight, national origin, or any other
classification recognized under the common law of the State of
Michigan or the State of Connecticut, local law and/or ordinance,
any and all claims or relating to Mr. Gottfried's employment with
the Company, or any of its affiliates or the termination of such
employment (including severance pay, vacation pay, any rights to
any participation in the 1999 Gantos, Inc. Executive Bonus Plan,
and all other forms of any pay or benefits), and specifically
including any and all claims arising under or in connection with
the civil rights statutes, including, but not limited to,Title VII
of the Civil Rights Act of 1964, The Age Discrimination Act of
1967, The Age Discrimination in Employment Act, and/or the
Rehabilitation Act of 1973, the Older Workers Benefit Protection
Act, the Americans with Disabilities Act,
3
<PAGE> 4
the Family and Medical Leave Act of 1993, the Elliott-Larsen Civil
Rights Act, the Michigan Persons with Disabilities Civil Rights
Act, the Michigan Whistleblower's Protection Act, the Fair Labor
Standards Act, 42 USC 1981, 1985, 1986, 1988; 20 USC 621, any and
all amendments to such statutes, all other federal, state or local
laws, the common law of the State of Michigan or the State of
Connecticut and any actions based upon tort, breach of contract,
defamation or injuries on the job. Mr. Gottfried understands and
agrees that this is a total and complete release and waiver by Mr.
Gottfried of all claims which he has or may have against the
Company, based on facts existing as of the Effective Date, whether
known or unknown by Mr. Gottfried at that time and even though
there may be facts and consequences which are unknown to Mr.
Gottfried. Mr. Gottfried further agrees that he has suffered no
work-related injury or illness, and that he has been properly paid
all of his past wages and benefits as of this date. Neither party
will bring suit or make a claim or charge in any manner with
respect to any claim released under this Agreement.
(b) BENEFIT PLANS: Mr. Gottfried is not releasing any rights he
may have to benefits arising under the 401(k) Plan; provided, that
Mr. Gottfried acknowledges that he will no longer be an employee
of the Company as of the Effective Date and, therefore, is not
entitled to future contributions to the 401(k) Plan on his behalf
on or after the Effective Date.
6. REMEDIES: The Parties' rights, undertakings and provisions under this
Agreement are related to matters which are of a special and unique
character, and a violation of any of the terms of this Agreement will
cause irreparable injury, the amount of which will be difficult, if not
impossible, to determine and cannot be adequately compensated by
monetary damages alone. Therefore, if a Party breaches or threatens to
breach any of the terms of this Agreement, in addition to any other
remedies that may be available under this Agreement, applicable law or
equity, the Party injured or threatened to be injured by such breach
will be entitled, as a matter of course, to specific performance, an
injunction, a restraining order, or any other equitable relief from any
court of competent jurisdiction, requiring compliance with this
Agreement or restraining any violation or threatened violation of any
such terms by a Party or by such other persons as the court may order.
7. MISCELLANEOUS:
(A) SUCCESSORS: This Agreement will be binding upon the Parties
and their respective successors, assigns, heirs, executors and
administrators.
(B) GOVERNING LAW: This Agreement will be governed by and
construed in accordance with, the internal laws of Connecticut.
The Parties select the state and federal court of appropriate
jurisdiction in Connecticut as the sole proper forms having
jurisdiction over all disputes arising from or in connection with
this Agreement. The Parties consent to be subject to personal
jurisdiction of the courts of Connecticut with respect to any such
dispute.
(c) COUNTERPARTS: This Agreement may be signed in counterparts
both of which together will be deemed an original of this
Agreement.
(d) ENTIRE AGREEMENT AMENDMENT: This Agreement constitutes the
entire
4
<PAGE> 5
Agreement of the Parties with respect to the subject matter of
this Agreement and such other Agreements; this Agreement may be
amended only by a written instrument executed by both parties.
(e) LEGAL FEES: DAMAGES FOR BREACH: The prevailing Party in any
action under this Agreement will be entitled to recover from the
other Party, in addition to any other relief provided by law, such
costs and expenses as may be incurred by the prevailing Party
(including court costs and reasonable attorneys fees) in
connection with enforcing or establishing the applicability or
validity of this Agreement (including investigating and responding
to any demand of claim) and in prosecuting any counterclaim or
cross-claim based thereon. Each party shall be liable to the other
Party for any damages (including costs and reasonable attorneys'
fees) resulting from any breach of this Agreement by such Party.
The rights and remedies set forth in this paragraph 7(e) are in
addition to the rights and remedies otherwise available to the
Parties under any applicable agreement between the Parties or
applicable law (including injunctive or other equitable relief).
(f) SEVERABILITY: The provisions of this Agreement will be deemed
severable, and if any part of any provision is held illegal, void
or unenforceable under applicable law, such provision may be
changed to the extent necessary to make the provision, as so
changed, legal, valid, binding and enforceable. If any provision
of this Agreement is held illegal, void, invalid or unenforceable
in its entirety, the remaining provisions of this Agreement will
not in any way be affected or impaired but will remain valid,
binding and enforceable in accordance with their terms.
(g) NO DURESS OR COERCION: This Agreement (including the release
contained in paragraph 5) is freely and voluntarily entered into
by each Party without duress or coercion and after consultation
with counsel or the right to such consultation; and each Party has
carefully and completely read all of the terms and provisions of
this Agreement.
IN WITNESS WHEREOF, the Parties have signed this Agreement on the date set forth
in the introductory paragraph above.
THIS IS AN AGREEMENT FOR RELEASE AND WAIVER OF CLAIMS
______________________________ GANTOS,INC.
Neal Gottfried
Date:________________ By: ____________________________
Arlene H. Stern
Its: President & CEO
Date:___________________
5
<PAGE> 6
I UNDERSTAND THAT BY THIS AGREEMENT I AM WAIVING ANY RIGHTS I MAY PRESENTLY HAVE
UNDER THE AGE DISCRIMINATION IN EMPLOYMENT ACT, AS AMENDED. I ENTER INTO THIS
AGREEMENT FREELY AND VOLUNTARILY WITHOUT ANY DURESS OR COERCION, AND AFTER I
HAVE CAREFULLY AND COMPLETELY READ ALL OF THE TERMS AND PROVISIONS OF THIS
AGREEMENT. I HAVE BEEN ADVISED TO CONSULT WITH LEGAL COUNSEL AND UNDERSTAND I
WILL BE ALLOWED TO CONSIDER THIS AGREEMENT FOR TWENTY-ONE (21) DAYS, PRIOR TO
SIGNING IT. I UNDERSTAND THAT THIS AGREEMENT SHALL NOT BECOME EFFECTIVE FOR
SEVEN (7) DAYS FOLLOWING THE DATE IT IS SIGNED, DURING WHICH TIME I MAY REVOKE
THE AGREEMENT BY WRITTEN NOTICE TO THE EMPLOYER. I UNDERSTAND FURTHER THAT
PAYMENTS TO BE MADE TO ME AS PROVIDED IN THIS AGREEMENT WILL NOT COMMENCE UNTIL
THE EXPIRATION OF SUCH SEVEN (7) DAYS.
WITNESSES:
- --------------------------------- ------------------------------------
EMPLOYER
- --------------------------------- ------------------------------------
EMPLOYEE
6
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF GANTOS, INC. AS OF, AND FOR THE THREE-MONTH PERIOD
ENDED, MAY 1, 1999 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> 3-MOS
<FISCAL-YEAR-END> JAN-29-2000
<PERIOD-END> MAY-01-1999
<CASH> 1,493
<SECURITIES> 0
<RECEIVABLES> 18,156
<ALLOWANCES> 577
<INVENTORY> 31,049
<CURRENT-ASSETS> 60,813
<PP&E> 63,684
<DEPRECIATION> 53,247
<TOTAL-ASSETS> 72,138
<CURRENT-LIABILITIES> 27,852
<BONDS> 35,101
0
0
<COMMON> 78
<OTHER-SE> 9,107
<TOTAL-LIABILITY-AND-EQUITY> 72,138
<SALES> 40,765
<TOTAL-REVENUES> 40,765
<CGS> 31,863
<TOTAL-COSTS> 31,863
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,238
<INCOME-PRETAX> (142)
<INCOME-TAX> 0
<INCOME-CONTINUING> (142)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (142)
<EPS-BASIC> (0.02)
<EPS-DILUTED> (0.02)
</TABLE>
