-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RVXR3yRwL5rbch4Av2dG2C8xWoVv6wqASvyjLfRyhxkAQKNvM9HO8apNbyUpvC4y BNNQQBkiutv/wdf7hH5cFA== 0000950009-96-000423.txt : 19961001 0000950009-96-000423.hdr.sgml : 19961001 ACCESSION NUMBER: 0000950009-96-000423 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19960803 FILED AS OF DATE: 19960917 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: GANTOS INC CENTRAL INDEX KEY: 0000791182 STANDARD INDUSTRIAL CLASSIFICATION: 5621 IRS NUMBER: 382667266 STATE OF INCORPORATION: MI FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-14577 FILM NUMBER: 96631165 BUSINESS ADDRESS: STREET 1: 3260 PATTERSON SE CITY: GRAND RAPIDS STATE: MI ZIP: 49512 BUSINESS PHONE: 6169497000 MAIL ADDRESS: STREET 1: 3260 PATTERSON SE CITY: GRAND RAPIDS STATE: MI ZIP: 49512 10-Q 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 August 3, 1996 or ---------------- _______ Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. For the transition period from ____________________ to _____________________ Commission file number 0-14577 -------------- Gantos, Inc. - - ------------------------------------------------------------------------------ (Exact name of registrant as specified in its charter) Michigan 38-1414122 - - --------------------------------- -------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 3260 Patterson S.E., Grand Rapids, Michigan 49512 - - ------------------------------------------------------------------------------ (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (616) 949-7000 ------------------------ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ___ X ___ No _________ Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ___ X ___ No _________ Number of shares of common stock outstanding at September 6, 1996: 7,570,953 ----------- GANTOS, INC. Page Number PART I. FINANCIAL INFORMATION Statements of Income (Loss) 3 Balance Sheets 4 Statements of Cash Flows 5 Notes to Financial Statements 6 Management's Discussion and Analysis of Results of Operations and Financial Condition 7-10 PART II. OTHER INFORMATION Submission of Matters to a Vote of Security Holders 11 Exhibits and Reports on Form 8-K 12 Signatures 13 Page 2 of 13 pages.
GANTOS, INC. STATEMENTS OF INCOME (LOSS) (Amounts in thousands, except per share and store data) 13 Weeks Ended 26 Weeks Ended ---------------------------- --------------------------- Aug. 3, July 29, Aug. 3, July 29, 1996 1995 1996 1995 ------ -------- ------- -------- Net sales $ 41,809 $ 45,579 $ 92,174 $ 94,665 Cost of sales (including buying, distribution and occupancy costs) (35,058) (36,935) (73,741) (75,372) ----------- ----------- ----------- ----------- Gross income 6,751 8,644 18,433 19,293 Selling, general and administrative expense (8,881) (9,498) (18,554) (19,977) Finance charge and other revenue 1,119 1,091 2,231 2,141 ----------- ----------- ----------- ----------- Operating income (loss) (1,011) 237 2,110 1,457 Interest expense (581) (528) (1,153) (728) ----------- ----------- ----------- ----------- Income (loss) before reorganization items and income taxes (1,592) (291) 957 729 Reorganization items: Professional fees -- (4) -- (530) Interest earned on accumulating cash from Chapter 11 proceedings -- -- -- 251 ----------- ----------- ----------- ----------- Net reorganization items -- (4) -- (279) Income (loss) before income taxes (1,592) (295) 957 450 Income taxes -- -- -- -- ----------- ----------- ----------- ----------- Net income (loss) $ (1,592) $ (295) $ 957 $ 450 =========== =========== =========== =========== Net income (loss) per share $ (0.21) $ (0.04) $ 0.13 $ 0.07 =========== =========== =========== =========== Outstanding shares 7,577,952 7,700,000 7,577,952 7,700,000 =========== =========== =========== =========== Estimated weighted average shares outstanding 7,578,397 7,700,000 7,578,009 6,021,588 =========== =========== =========== =========== Stores open at end of period 114 113 114 113 =========== =========== =========== =========== See accompanying notes to financial statements.
Page 3 of 13 pages.
GANTOS, INC. BALANCE SHEETS (Amounts in thousands, except share data) Aug. 3, February 3, July 29, 1996 1996 1995 ------- ----------- -------- ASSETS Current assets: Cash and cash equivalents $ 4,088 $ 1,453 $ 1,997 Accounts receivable, less allowance for doubtful accounts of $556, $572 and $504 at August 3, 1996, February 3, 1996 and July 29, 1995, respectively 21,675 22,619 22,259 Merchandise inventories 22,474 23,955 21,266 Prepaid expenses and other 2,778 2,851 2,612 -------- -------- -------- Total current assets 51,015 50,878 48,134 -------- -------- -------- Property and equipment, at cost: Leasehold improvements 28,804 28,375 28,314 Furniture and fixtures 31,409 32,243 28,823 Other 1,351 418 3,575 -------- -------- -------- Total property and equipment 61,564 61,036 60,712 Less - Accumulated depreciation and amortization (46,001) (43,504) (43,622) -------- -------- -------- Net property and equipment 15,563 17,532 17,090 -------- -------- -------- Total assets $ 66,578 $ 68,410 $ 65,224 ======== ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 11,930 $ 12,119 $ 12,100 Accrued expenses and other 10,476 12,716 10,340 Current provision for facilities closings 2,409 2,417 3,568 -------- -------- -------- Total current liabilities 24,815 27,252 26,008 -------- -------- -------- Long-term debt 11,940 12,395 12,840 -------- -------- -------- Liabilities subject to compromise -- -- 1,163 -------- -------- -------- 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 7,578,000 issued and outstanding at August 3, 1996, 7,578,000 issued and outstanding at February 3, 1996 and 7,700,000 issued and outstanding at July 29, 1995 76 76 76 Additional paid-in capital 40,705 40,603 40,322 Accumulated deficit (10,958) (11,916) (15,185) -------- -------- -------- Total shareholders' equity 29,823 28,763 25,213 -------- -------- -------- Commitments -- -- -- -------- -------- -------- Total liabilities and shareholders' equity $ 66,578 $ 68,410 $ 65,224 ======== ======== ======== See accompanying notes to financial statements.
Page 4 of 13 pages
GANTOS, INC. STATEMENTS OF CASH FLOWS (Thousands) 26 Weeks Ended ---------------------- Aug. 3, July 29, 1996 1995 ------- -------- Cash flows from operating activities: Net income $ 957 $ 450 -------- -------- Adjustments to reconcile net income to net cash provided (used) by operating activities: Reorganization items -- 279 Cash used for store closings (7) (18) Depreciation and amortization 2,524 3,214 Restricted stock compensation expense 95 73 Changes in assets and liabilities: Accounts receivable 945 2,818 Merchandise inventories 1,480 1,278 Prepaid expenses and other 73 735 Accounts payable (189) 3,626 Accrued expenses and other (2,240) (1,745) -------- -------- Total adjustments 2,681 10,260 Net cash provided by operating activities before reorganization items 3,638 10,710 -------- -------- Adjustment to reconcile reorganization items to cash used by reorganization items: Net change to liabilities subject to compromise -- (63,778) Net non-cash change to liabilities subject to compromise -- 32,354 -------- -------- Net cash payments on liabilities subject to compromise -- (31,424) -------- -------- Reorganization items -- (279) Change in accrued interest receivable -- 88 Change in accrued bankruptcy expenses -- (1,352) -------- -------- Net cash used by reorganization items -- (32,967) -------- -------- Net cash provided (used) by operating activities 3,638 (22,257) -------- -------- Cash flows from investing activities: Capital expenditures (724) (1,816) -------- -------- Net cash used by investing activities (724) (1,816) -------- -------- Cash flows from financing activities: Principal payments under capital lease obligations and other long-term debt (455) (25) Net borrowings under revolving credit notes payable -- 245 Other 177 (695) -------- -------- Net cash used by financing activities (278) (475) -------- -------- Net increase (decrease) in cash and cash equivalents 2,635 (24,548) Cash and cash equivalents at beginning of period 1,453 26,545 -------- -------- Cash and cash equivalents at end of period $ 4,088 $ 1,997 ======== ======== Supplemental Disclosures of Cash Flow Information: Cash paid during the period for: Interest (net of amount capitalized) $ 903 $ 579 Income taxes $ 28 $ 32 See accompanying notes to financial statements.
Page 5 of 13 pages. GANTOS, INC. NOTES TO FINANCIAL STATEMENTS 1. The interim financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. Nevertheless, it is recommended that these financial statements be read in conjunction with the financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the fiscal year ended February 3, 1996. The accompanying interim financial statements reflect all adjustments which are, in the opinion of management, necessary to a fair statement of the results of the interim periods presented and necessary to present fairly the financial position as of August 3, 1996, February 3, 1996 and July 29, 1995 and the results of operations for the thirteen and twenty-six weeks ended, and cash flows for the twenty-six weeks ended, August 3, 1996 and July 29, 1995. Certain amounts from the prior year have been reclassified to conform with the presentation used in the current year. All other adjustments are of a normal and recurring nature. The results of operations for the twenty-six week periods ended August 3, 1996 and July 29, 1995 are not necessarily indicative of the results to be expected for the full year due to the seasonal nature of the business. 2. Inventories are stated at the lower of cost or market. A physical inventory to determine actual cost of merchandise sold is taken at least two times per year. 3. Net income per share is computed using the weighted average number of common shares outstanding during each period. 4. The Company opened one new store on June 1, 1996. 5. Effective April 25, 1996, the Company amended its Revolving Credit Agreement. The commitment, term, borrowing rate and total credit available under the agreement remain the same but the Amendment allows the Company to reduce the committed amount or terminate the agreement without any reduction fees after March 26, 1996. Other changes include adjustments to the fixed charge ratio covenant and reduction of the earnings before interest, taxes, depreciation and amortization covenant. 6. On March 19, 1996, the Company's Board of Directors adopted the Gantos, Inc. 1996 Stock Option Plan (the "1996 Plan"). Pursuant to the 1996 Plan, which was approved by shareholders on June 20, 1996, 1,000,000 Common Shares are reserved for issuance pursuant to options or stock appreciation rights granted or to be granted, and pursuant to restricted stock awarded or to be awarded, to key employees of the Company, as the Company's Board of Directors or the Compensation Committee shall determine. 7. On March 19, 1996, the Company's Board of Directors adopted the Gantos, Inc. Employee Stock Purchase Plan (the "Stock Purchase Plan"), and on August 15, 1996, the Board of Directors adopted amendments to the Stock Purchase Plan. Pursuant to the Stock Purchase Plan, which was approved by shareholders on June 20, 1996, eligible employees of the Company will be granted the right to purchase a maximum aggregate of 200,000 Common Shares. Shares issued under the Stock Purchase Plan may be authorized but unissued shares, reacquired shares or shares bought on the open market. Page 6 of 13 pages. GANTOS, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Results of Operations Thirteen and Twenty-six Weeks Ended August 3, 1996, Compared to Thirteen and Twenty-six Weeks Ended July 29, 1995 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 August 3, 1996 and July 29, 1995.
As a percent of net As a percent of net sales for the thirteen sales for the twenty- weeks ended six weeks ended ---------------------- --------------------- Aug. 3, July 29, Aug. 3, July 29, 1996 1995 1996 1995 ------- -------- ------- -------- Net sales 100.0% 100.0% 100.0% 100.0% Cost of sales (including buying, distribution and occupancy costs) (83.9) (81.0) (80.0) (79.6) ----- ----- ----- ----- Gross income 16.1 19.0 20.0 20.4 Selling, general and administrative expense (21.2) (20.8) (20.1) (21.1) Finance charge and other revenue 2.7 2.4 2.4 2.3 ----- ----- ----- ----- Operating income (loss) (2.4) 0.6 2.3 1.6 Interest expense (1.4) (1.2) (1.3) (0.8) ----- ----- ----- ----- Income (loss) before reorganization items and income taxes (3.8) (0.6) 1.0 0.8 Reorganization items: Professional fees -- -- -- (0.6) Interest earned on accumulating cash from Chapter 11 proceedings -- -- -- 0.3 ----- ----- ----- ----- Net reorganization items -- -- -- (0.3) ----- ----- ----- ----- Income (loss) before income taxes (3.8) (0.6) 1.0 0.5 Income taxes -- -- -- -- ----- ----- ----- ----- Net income (loss) (3.8)% (0.6)% 1.0% 0.5% ===== ===== ===== =====
Page 7 of 13 pages. Net sales for the thirteen weeks ended August 3, 1996 were approximately $41.8 million, a decrease of approximately $3.8 million, compared to net sales of approximately $45.6 million in the same period of the prior fiscal year. Net sales for stores in operation throughout both periods decreased 8.6%, or $3.9 million, for the second quarter of 1996 compared to the same period in 1995. The 8.6% decrease in comparable store sales is comprised of a 7.2% decrease in unit sales and a 1.4% decrease in average sales dollars per unit. Net sales for the twenty-six weeks ended August 3, 1996 were approximately $92.2 million, a decrease of approximately $2.5 million, compared to net sales of approximately $94.7 million in the same period of the prior fiscal year. Net sales for stores in operation throughout both periods decreased 2.6%, or $2.5 million, for the first two quarters of 1996 compared to the same period in 1995. The 2.6% decrease in comparable store sales is comprised of a 5.6% decrease in unit sales and a 0.2% decrease due to a change in merchandise mix, partially offset by a 3.2% increase in average sales dollars per unit. Cost of sales decreased $1.9 million in the thirteen weeks ended August 3, 1996 compared to the prior fiscal year. Cost of sales, as a percent of net sales, increased to 83.9% in the thirteen weeks ended August 3, 1996, compared to 81.0% in the same period in the prior fiscal year. Cost of sales decreased $1.6 million in the twenty-six weeks ended August 3, 1996 compared to the prior fiscal year. Cost of sales, as a percent of net sales, increased to 80.0% in the twenty-six weeks ended August 3, 1996, compared to 79.6% in the same period in the prior fiscal year. The increase in cost of sales, as a percent of net sales, for the second quarter of 1996 is primarily due to stable buying, distribution and occupancy cost as a percent of decreased sales volume and increased net markdowns, partially offset by an increase in vendor markdown allowances for the period compared to a year ago. The increase in cost of sales, as a percent of net sales, for the twenty-six weeks ended August 3, 1996 is primarily due to increased net markdowns and an increased shrinkage expense for the period, partially offset by lower buying, distribution and depreciation expenses and an increase in vendor markdown allowances during 1996 compared to 1995. Selling, general and administrative expense for the thirteen and twenty-six weeks ended August 3, 1996 decreased approximately $0.6 million and $1.4 million, respectively, compared to the same periods in the prior fiscal year. The decrease in SG&A for both periods in 1996 is primarily due to lower payroll expense due to improved payroll control at the stores, lower depreciation, the elimination of computer outsourcing fees, and general expense controls. The decrease in SG&A was partially offset by increased occupancy expense and rising bad debt expense in 1996 compared to 1995. In addition, as a percent of net sales, SG&A expense increased from 20.8% to 21.2% for the thirteen weeks ended August 3, 1996 and decreased from 21.1% to 20.1% for the twenty-six week period ended August 3, 1996. The increase in SG&A, as a percent of net sales, for the quarter is primarily due to a decrease in sales, partially offset by a decrease in operating expenses. The decrease in SG&A, as a percent of net sales, for the six months is primarily due to a decrease in operating expenses, partially offset by a decrease in sales. The Company does not expect that these comparable period decreases to continue in future periods. Page 8 of 13 pages. Finance charge and other revenue increased $28,000 to 2.7% of net sales and $90,000 to 2.4% of net sales for the thirteen and twenty-six weeks ended August 3, 1996, respectively, compared to the same periods in the prior fiscal year. The increases in both the thirteen and twenty-six weeks ended August 3, 1996 were primarily due to the late charge fee implemented on the Gantos charge card in October of 1995, partially offset by decreases in finance charge income as a result of lower average Gantos credit card receivable balances outstanding in the first six months of 1996 compared to the first six months of 1995. The decrease in the receivable balances is primarily the result of faster payment by customers. Gantos charge card sales as a percentage of net sales increased from 30.8% to 31.3% for the twenty-six week period ended August 3, 1996. Interest expense for the thirteen and twenty-six weeks ended August 3, 1996 increased approximately $53,000 and $425,000, respectively, compared to the same periods in the prior fiscal year. The increase for the thirteen weeks ended August 3, 1996 was due primarily to a change in classification on the Statements of Income (Loss) for loan arrangement fees coupled with an accelerated amortization period for these fees. The increase for the second quarter was partially offset by a decrease in interest resulting from no revolving credit borrowings during the quarter. The increase for the twenty-six weeks ended August 3, 1996 was primarily due to the Company's emergence from Chapter 11 effective March 31, 1995 resulting in the notes accruing interest for the first six months of 1996 compared to only four months during 1995. The increase in interest expense for the first six months of 1996 was also due to higher loan arrangement fee amortization during the period, partially offset by lower net interest expense on the revolving credit loans due to lower borrowings. During the first two months of 1995, the Company was still in Chapter 11 Proceedings, and was not required to pay interest on its unsecured or undersecured pre-petition debt. Interest income and professional fees, shown separately under "Reorganization Items" in the Statements of Income (Loss), will not be incurred during 1996 as a result of the Company's emergence from Chapter 11 in 1995 and payments made to creditors under the Plan. The Company did not record a provision for taxes during the first two quarters of 1996 or during the first two quarters of 1995 due to the availability of net operating loss carryforwards. These factors resulted in a net loss of approximately $1.6 million, or $0.21 per share, for the thirteen weeks ended August 3, 1996, compared to a net loss of approximately $295,000, or $0.04 per share, in the same period of the prior year. However, the Company reported net income for the twenty-six weeks ended August 3, 1996 of approximately $957,000, or $0.13 per share, compared to net income of $450,000, or $0.07 per share, in the same period of the prior year. Liquidity and Capital Resources Net cash provided by operating activities before reorganization items totaled $3.6 million in the first half of 1996 compared to $10.7 million in the same period a year ago. The decrease was primarily due to a decrease in accounts payable compared to an increase in the prior year, a smaller decrease in accounts receivable compared to the prior year, a smaller decrease in prepaid expenses and other and a larger decrease in accrued expenses and other primarily due to the timing of payments. These decreases were partially offset by an increase in net income and a larger decrease in merchandise inventories compared to the prior year. Net cash used by reorganization items was $33.0 million in the first half of 1995. Pursuant to the Plan of Reorganization, during the first half of 1995, the Company used $28,724,000 of its cash, borrowed approximately $2,700,000 Page 9 of 13 pages. from its new lenders, issued approximately $12,396,000 in original principal amount of six-year notes payable, bearing interest at 12.75% a year, and issued or committed to issue approximately $20,472,000 in Common Shares (valued for this purpose at $4.16 a share), in payment of approximately $58,586,000 of its liabilities subject to compromise, $5,192,000 in long-term debt and $514,000 of accrued expenses, including the settlement costs of the purported class action lawsuit. Net cash used by financing activities in the first half of 1996 was $278,000 compared to net cash used of approximately $475,000 in the same period a year ago. Cash used in 1996 represents an Excess Cash Flow payment made in March of 1996 with respect to the Company's 12.75% notes issued pursuant to the Plan of Reorganization. The decrease in cash used is attributed to cash used in 1995 representing loan arrangement fees paid upon execution of the Fleet revolving credit agreement, partially offset by net borrowings by the Company under its revolving credit facility after its emergence from Chapter 11. The Company has a revolving credit agreement expiring March 31, 1998, with Fleet Bank N.A. (formerly NatWest Bank N.A.) and LaSalle National Bank with a maximum commitment of $40 million, subject to a borrowing base formula and lender reserves. As of September 6, 1996, the Company had no borrowings and $468,000 in letters of credit outstanding under this facility. The Company expects its cash on hand, cash flow from operations and borrowings under the Fleet facility to be sufficient to meet its capital expenditure, working capital and other liquidity needs during the remainder of 1996. Capital expenditures for 1996 are estimated to be $5.0 million. These amounts are expected to be used primarily to complete the on-going remodel and refixturing projects. Page 10 of 13 pages. PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders The Annual Meeting of Shareholders of Gantos, Inc. was held on June 20, 1996, for the purpose of electing two directors and to vote upon the proposals described below. At the annual meeting, the following persons were elected as directors of Gantos, Inc. to serve until the 1999 Annual Meeting of Shareholders and until their respective successors are duly elected and qualified or until their earlier death, resignation or removal and the following votes were cast for or were withheld from voting with respect to the election of each such person:
Votes ----------------------- For Withheld --- -------- Elizabeth M. Eveillard 6,500,770 209,016 S. Amanda Putnam 6,500,770 209,016
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 L. Douglas Gantos, Fred K. Schomer, Hannah H. Strasser, Mary Elizabeth Burton and Erwin A. Marks continued after the meeting. The Shareholders also voted on the proposal to approve the Gantos, Inc. 1996 Stock Option Plan, pursuant to which 1,000,000 Common Shares are reserved for issuance pursuant to options and stock appreciation rights granted or to be granted, and pursuant to restricted shares to be awarded, to key employees of the Company. The Plan was approved by a vote of a majority of the shares of Gantos, Inc. Common Stock represented in person or by proxy at the Annual Meeting as follows: Shares Voted Shares Voted Shares "FOR" "AGAINST" "ABSTAINING" - - ------------ ------------ ------------ 3,430,799 485,925 18,670 In addition, there were 2,774,392 broker non-votes in connection with the approval of the Gantos, Inc. 1996 Stock Option Plan. The Shareholders also voted on the proposal to approve the Gantos, Inc. Employee Stock Purchase Plan, which grants eligible employees of the Company the right to purchase a maximum aggregate of 200,000 Common Shares through payroll deductions at a price equal to 85% of the lesser of the fair market value of Common Shares on (i) the first trading day of a three-month offering period or (ii) the last trading day of such period. The Plan was approved by a vote of a majority of the shares of Gantos, Inc. Common Stock represented in person or by proxy at the Annual Meeting as follows: Shares Voted Shares Voted Shares "FOR" "AGAINST" "ABSTAINING" - - ------------ ------------ ------------ 3,803,018 154,001 10,325 In addition, there were 2,742,442 broker non-votes in connection with the approval of the Gantos, Inc. 1996 Employee Stock Purchase Plan. Page 11 of 13 pages. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits. 10.1 Letter of Employment, dated June 20, 1996, between Gantos, Inc. and Ms. Arlene H. Stern. 10.2 Gantos, Inc. Employee Stock Purchase Plan, as amended, adopted March 19, 1996 and August 15, 1996. 10.3 Amendment to Lease Agreement between Gantos, Inc. and VRB Corp., dated as of September 13, 1996. 27.1 Financial Data Schedule (b) No reports on Form 8-K were filed by the Registrant during the quarter for which this report is filed. Page 12 of 13 pages. 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: September 11, 1996 GANTOS, INC. ------------------------------------- (Registrant) By: /S/ J. E. BUNKA ------------------------------------- J. E. BUNKA ITS VICE PRESIDENT, CHIEF FINANCIAL OFFICER AND TREASURER (DULY AUTHORIZED OFFICER AND PRINCIPAL FINANCIAL OFFICER) Page 13 of 13 pages. EXHIBIT INDEX Document Number and Description 10.1 Letter of Employment, dated June 20, 1996, between Gantos, Inc. and Ms. Arlene H. Stern. 10.2 Gantos, Inc. Employee Stock Purchase Plan, as amended, adopted March 19, 1996 and August 15, 1996. 10.3 Amendment to Lease Agreement between Gantos, Inc. and VRB Corp., dated as of September 13, 1996. 27.1 Financial Data Schedule EX-10.1 2 EXHIBIT 10.1 Gantos, Inc. 3260 Patterson, S.E. Grand Rapids, Michigan 49512 June 20, 1996 Arlene H. Stern 7 Lucy Way Simsbury, Connecticut 06070 Dear Ms. Stern This letter states our agreement with respect to your employment with Gantos, Inc. ("Gantos"). 1. Position and Duties. Effective as of July 8, 1996 (the "Start Date"), you will be employed as the President and Chief Operating Officer of Gantos, a position to which you will devote your full working time, attention and best efforts. You will report to such persons, perform such duties and have such responsibilities as are described in the attached Exhibit A. Within 30 days after the Start Date, you will reside in the Grand Rapids area. You will also become Gantos' Chief Executive Officer at the time designated by the Board of Directors of Gantos, but not later than October 1, 1996, and at that time you will report to such persons, perform such additional duties and have such additional responsibilities as are described in the attached Exhibit B. In addition, Gantos will cause its Board of Directors to increase its size by one member and appoint you to fill the newly-created vacancy, all effective as of the Start Date, and while you are employed by Gantos, Gantos will nominate you, and will use its reasonable efforts to have you elected, as a director of Gantos. You shall be based in the area in which Gantos' Board of Directors determines Gantos' principal executive offices are located, except for travel incidental to the performance of your duties under this agreement. 2. Term. The term of your employment under this agreement shall begin on the Start Date and shall continue until three years after the Start Date (the "Term"), unless earlier terminated pursuant to the following: (a) Death. Your employment under this agreement shall terminate immediately upon your death. (b) Disability. Your employment under this agreement shall terminate, at Gantos's option, upon notice to you given after your "Disability". Such termination shall be effective when such notice is deemed given pursuant to Paragraph 8.(f). For purposes of this agreement, "Disability" shall mean your physical or mental condition that would entitle you Ms. Arlene H. Stern June 20, 1996 Page 2 to disability benefits under any long-term disability insurance policy or other long-term disability plan provided by Gantos to its executive officers. (c) Cause or Good Reason. Gantos shall have the right to terminate your employment under this agreement immediately for "Cause" (as defined in Paragraph 6.(f)(i)). All determinations concerning whether Cause exists shall be made by Gantos's Board of Directors after (i) notice to you of the actions or omissions potentially constituting Cause and the portion of the definition of Cause being relied upon, and (ii) a reasonable chance for you to be heard by Gantos's Board of Directors concerning whether Cause exists. Such termination shall be effective when notice of the Board's determination that Cause exists (after following the procedures described in the preceding sentence) is deemed given pursuant to Paragraph 8.(f). You shall have the right, upon 30 days prior written notice to Gantos, to terminate your employment under this agreement for "Good Reason" (as defined in Paragraph 6.(f)(ii)). Such termination shall be effective 30 days after such notice is deemed given pursuant to Paragraph 8.(f). (d) Without Cause or Good Reason. You and Gantos shall each have the right, upon written notice to the other, to terminate your employment under this agreement without Cause or Good Reason. Such termination shall be effective 30 days after such notice is deemed given pursuant to Paragraph 8.(f). There is not, nor will there be, unless in writing signed by both of us, any express or implied agreement as to your continued employment by Gantos after the end of the term of your employment under this agreement. Your subsequent employment with Gantos, if any, will be employment "at will". 3. Salary and Bonus. (a) While employed by Gantos, you will receive an annual salary (pro rated for partial fiscal years of employment) of $425,000. Gantos' Compensation Committee will review your base salary annually and will make such adjustments (but not below $425,000 annually) as it believes appropriate. (b) In addition to your salary, you will be eligible to participate in the 1996 Gantos, Inc. Executive Bonus Plan, a copy of which is attached as Exhibit C (the "Bonus Plan"), and receive a pro-rated bonus for fiscal 1996. Your fiscal 1996 allocation under the Bonus Plan will be based upon the total base salary paid to you by Gantos with respect to fiscal 1996, as compared with the total of the base salaries paid to all other Bonus Plan participants with respect to the year and will provide you with a potential maximum bonus of 35% of the actual salary paid to you in fiscal 1996. Ms. Arlene H. Stern June 20, 1996 Page 3 (c) It is expected that while employed by Gantos you will participate in future bonus plans established from time to time by Gantos' Compensation Committee. (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, 1997 and 1998. Therefore, if you are employed by Gantos at the end of the applicable fiscal year, with respect to each of fiscal 1996, 1997 and 1998, 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. (e) Your salary and bonus will be payable in accordance with Gantos' usual payroll procedures for other Gantos executive officers. 4. Stock Compensation. On the Start Date, Gantos will award to you, under the Gantos, Inc. 1996 Stock Option Plan (the "Plan"), subject to shareholder approval of the Plan at the 1996 Annual Meeting of Shareholders, a Nonqualified Option (as defined in the Plan) to purchase 350,000 Gantos common shares at an exercise price equal to the fair market value of the Gantos common shares on the Start Date. The option will vest in one-third cumulative annual installments beginning on the first anniversary of the Start Date, if you are employed by Gantos on these dates. In addition, the option will fully vest (i) if your employment under this agreement is terminated for any reason other than by Gantos for Cause or by you without Good Reason, or (ii) upon any Change in Control (as defined in Paragraph 6.(f)(iii)). Also, the vested portion of the option will remain exercisable for one year after termination of your employment as a result of your death or your Disability, and 90 days after termination of your employment by Gantos without Cause or by you with or without Good Reason. In addition, the vested portion of the option will remain exercisable for ten years after it was granted if (i) your employment is terminated by Gantos without Cause or by you for Good Reason, and (ii) such termination occurs on or before March 31, 1997. 5. Fringe Benefits and Relocation Reimbursement. (a) In addition to your other compensation, while you are employed by Gantos, you will be entitled to receive the following fringe benefits, effective as of the Start Date (except for items (ii) and (iii), which will be effective as of the usual eligibility dates and will be subject to Gantos' eligibility requirements for such benefits): (i) a car allowance of $750 a month, (ii) as long as you are insurable at standard rates, an insurance policy (either an individual policy or equivalent benefits under a group policy) in the amount of twice the amount of your base salary pursuant to Paragraph 3 (which amount includes the $50,000 of group term life insurance currently generally available to other Gantos executive officers) covering your life (the"Life Policy"), and (iii) participation in such plans and additional benefits, currently including, without limitation, vacation time and long-term disability Ms. Arlene H. Stern June 20, 1996 Page 4 insurance, as may from time to time be generally available to other Gantos executive officers; provided that you shall not participate in any life insurance plans or benefits of Gantos, except as described in clause (ii) above. Currently, Gantos provides four weeks vacation a year to its executive officers beginning in the first full fiscal year of employment. You will also be entitled to a pro rata amount of vacation time in fiscal 1996, based on the number of days you work in fiscal 1996. (b) In connection with your relocation to the area in which Gantos' principal executive offices are located at any time within three years after the Start Date, Gantos will (i) pay or reimburse you (upon verification) for the reasonable expenses of moving (and temporarily storing, if necessary) your household items and automobiles from Simsbury, Connecticut to the area in which Gantos' Board of Directors determines its principal executive offices are located and related incidental costs; (ii) if necessary, provide you with or reimburse you for temporary furnished living quarters (at a place mutually acceptable to each of us) in the Grand Rapids area for up to three months after the Start Date (including utilities), up to a maximum reimbursement of $2,000 per month; (iii) pay you an additional amount as compensation to cover your actual taxes owing on the amounts paid to you under clauses (i), (ii) and (v) (to the extent not deductible by you on your tax returns) by paying you an amount which is sufficient to pay your taxes on both the amount paid under clauses (i), (ii) and (v) (to the extent not deductible by you on your tax returns, and after giving effect to the deduction of your additional taxes on your other tax returns) and the amount of the additional cash payment under this clause (iii), i.e., a "gross up"; (iv) reimburse you for the first six round trip coach air fare tickets between Simsbury, Connecticut and Grand Rapids, Michigan, and (v) pay all reasonable and customary closing and brokerage costs otherwise payable by you (including loan origination fee or discount points of up to 1% of the principal amount of your mortgage on the new home you are purchasing, reasonable attorneys' fees for the purchase of your new home and for the sale of your Simsbury, Connecticut home, the fees of a house inspector and the costs of any required appraisals and surveys) in connection with (A) your purchase of a home in the area in which Gantos' principal executive offices are located, and (B) the sale of your Simsbury, Connecticut home, if sold within three years after the Start Date. (c) If you decide to sell your Simsbury, Connecticut home (the "Home") at any time during the three years after the Start Date, (i) you shall notify Gantos of your decision, (ii) you shall use your reasonable good faith efforts to maximize the sale price for the Home, net of all closing costs and brokerage fees, if any, payable by you (the "Proceeds"), and (iii) you shall provide Gantos with documentation reasonably satisfactory to Gantos establishing the amount of your costs of purchasing and constructing the Home (the "Cost"). If you sell the Home at any time during the three years after the Start Date and if the Proceeds are less than your Cost, Gantos will pay you the difference, up to $250,000, within 30 days after you provide documentation reasonably satisfactory to Gantos of the amount of the Cost and the Proceeds. If within three years after the Start Date and after you have decided to sell your Home, you receive an offer to purchase your Home and the Ms. Arlene H. Stern June 20, 1996 Page 5 Proceeds would be more than your Cost less $250,000, you must accept that offer, unless Gantos otherwise consents. (d) Except as otherwise provided in Paragraph 5.(b), to the extent taxable to you, you will be responsible for accounting for and payment of taxes on benefits provided to you by Gantos under this Paragraph 5 and you will keep such records regarding usage of these benefits as Gantos requires. (e) In addition to the compensation payable under this agreement, you will be reimbursed for all reasonable and necessary business expenses which you incur in accordance with our existing practice and policies, all to the extent in the performance of your employment duties, upon presentation of expense vouchers for such expenses in accordance with Gantos' usual accounting procedures. 6. Termination Benefits. (a) The termination benefits described in this Paragraph 6 will be in lieu of any termination or severance benefits required by Gantos policy or applicable law (including unemployment compensation benefits, but not including any continued dental, medical or disability coverage to which you or your family are entitled under Gantos' then existing employment policies covering Gantos executives in similar positions to yours or then applicable law, including COBRA) and will constitute your sole and exclusive rights and remedies with respect to the termination of your employment. Gantos may withhold from any payments made under this Paragraph 6 all federal, state, city or other taxes to the extent such taxes are required to be withheld by applicable law. (b) Except for terminations of employment without "Cause" or for "Good Reason" after a Change in Control, which shall be governed exclusively by Paragraph 6.(c), if before the end of the Term Gantos terminates your employment without "Cause", other than because of your death or Disability, or if before the end of the Term you terminate your employment with Gantos for "Good Reason", you will receive the following, as a termination payment: (i) the pro rata portion of your salary under Paragraph 3.(a) through the date of termination; (ii) any bonus which you earned under Paragraph 3.(b), 3.(c) or 3.(d) with respect to the fiscal year immediately preceding the year in which your employment terminates and (notwithstanding any terms of the applicable bonus plan or of Paragraph 3.(b), 3.(c) or 3.(d) requiring you to be employed at any particular time) the pro rata portion of the bonus, if any, that would have been payable to you under Paragraph 3.(b), 3.(c) or 3.(d) if you had been employed by Gantos for the entire year in which your employment terminates, but based on the actual number of days you Ms. Arlene H. Stern June 20, 1996 Page 6 were employed by Gantos in that year and the actual salary paid to you by Gantos in that year, all to the extent such bonuses have not been paid to you by the termination date, which bonus payments will be made at the time and in the manner called for under Paragraph 3.(e); (iii) the pro rata portion of your vacation time under Paragraph 5.(a) for the fiscal year in which such termination occurs (less the amount of vacation actually taken in that year) multiplied by your then current weekly salary rate under Paragraph 3.(a) at the date of termination; (iv) a continuation of your salary under Paragraph 3.(a) in effect as of the date of termination and your bonus under Paragraph 3.(d) (to the extent not otherwise paid to you) for a period ending one year after the date of termination (the "Period"); (v) during the Period, at Gantos's expense, (A) the same medical, long-term disability, dental and prescription drug coverage as may from time to time be generally available to other Gantos executive officers, and (B) the Life Policy; (vi) the option granted to you pursuant to Paragraph 4 will fully vest and the option will remain exercisable for 90 days after such termination or, if such termination occurs before March 31, 1997, until 10 years after the Start Date; and (vii) to the extent assignable, the Life Policy will be assigned to you at the end of the Period, and you will assume all obligations for premiums on the Life Policy with respect to the period after the date of such termination, all if you pay to Gantos the cash surrender value, if any, of the Life Policy. During the period beginning six months after the date of such termination and continuing during the balance of the Period, subject to Paragraphs and , you will be obligated to use your reasonable efforts to seek and obtain new employment. If you obtain other employment at any time during the Period (including self-employment), you will promptly notify Gantos in writing of such employment and the terms of such employment, and Gantos will be entitled to deduct from the termination payments required by this Paragraph 6.(b) any compensation paid or payable to you (whether as salary, bonus, commissions, consulting fees or otherwise) for rendering any services to any person, corporation or entity (including compensation and dividends from an entity owned by you or a sole proprietorship established by you) with respect to any of the Period with respect to which the termination benefits are payable to you; provided that Gantos will not be entitled to deduct dividends from the retail gift business owned by you (or expected to be owned by you) as of the date of this agreement. (c) If, (i) a "Change in Control" (as defined in Paragraph 6.(f)(iii)) occurs before the end of the Term, and (ii) within two years after such Change in Control occurs (A) the "Entity" Ms. Arlene H. Stern June 20, 1996 Page 7 (as defined in Paragraph 6.(f)(vi)) terminates your employment without "Cause", other than because of your death or Disability, or (B) you terminate your employment with the "Entity" for "Good Reason", you will receive the following, as a termination payment, and, to the extent any of the following is a cash payment, Gantos will pay such amount in a lump sum within 30 days after such termination: (i) the pro rata portion of your salary under Paragraph 3.(a) through the date of termination; (ii) any bonus which you earned under Paragraph 3.(b), 3.(c) or 3.(d) with respect to the fiscal year immediately preceding the year in which your employment terminates and (notwithstanding any terms of the applicable bonus plan or of Paragraph 3.(b), 3.(c) or 3.(d) requiring you to be employed at any particular time) the pro rata portion of the bonus, if any, that would have been payable to you under Paragraph 3.(b), 3.(c) or 3.(d) if you had been employed by Gantos for the entire year in which your employment terminates, but based on the actual number of days you were employed by Gantos in that year and the actual salary paid to you by Gantos in that year, all to the extent such bonuses have not been paid to you by the termination date; (iii) the pro rata portion of your vacation time under Paragraph 5.(a) for the fiscal year in which such termination occurs (less the amount of vacation actually taken in that year) multiplied by your then current weekly salary rate under Paragraph 3.(a) at the date of termination; (iv) your salary under Paragraph 3.(a) in effect as of the date of termination and your bonus under Paragraph 3.(d) (to the extent not otherwise paid to you) for a period ending three years after the date of termination (the "Change in Control Period"); (v) during the Change in Control Period, at Gantos's expense, (A) the same medical, long-term disability, dental and prescription drug coverage as may from time to time be generally available to other Gantos executive officers, and (B) the Life Policy; (vi) the option granted to you pursuant to Paragraph 4 will fully vest and the option will remain exercisable for 90 days after such termination or, if such termination occurs before March 31, 1997, until 10 years after the Start Date; and (vii) to the extent assignable, the Life Policy will be assigned to you at the end of the Change in Control Period, and you will assume all obligations for premiums on the Life Policy with respect to the period after the date of such termination, all if you pay to Gantos the cash surrender value, if any, of the Life Policy. Ms. Arlene H. Stern June 20, 1996 Page 8 Notwithstanding the foregoing, the total amount of all payments of cash or property in the nature of compensation contingent on a change in the ownership or effective control of Gantos or in the ownership of a substantial portion of Gantos' assets, including, without limitation, the benefits provided pursuant to this Paragraph 6.(c) and payments relating to any stock options that vest as a result of a Change in Control, shall not exceed the maximum amount that may be paid to you and not be deemed a "parachute payment" resulting in an excise tax to you and a loss of compensation deduction to Gantos, all within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended, or any successor provision. If the benefits otherwise provided pursuant to this Paragraph 6.(c) would result in you receiving such a "parachute payment", they shall be reduced (in the order set forth above) until they are $1.00 less than the amount that would result in you receiving such a "parachute payment". (d) If before the end of the Term your employment with Gantos terminates as a result of your death or Disability, you will receive the following, as a termination payment: (i) the pro rata portion of your salary under Paragraph 3.(a) through the date of termination; (ii) any bonus which you earned under Paragraph 3.(b), 3.(c) or 3.(d) with respect to the fiscal year immediately preceding the year in which your employment terminates and (notwithstanding any terms of the applicable bonus plan or of Paragraph 3.(b), 3.(c) or 3.(d) requiring you to be employed at any particular time) the pro rata portion of the bonus, if any, that would have been payable to you under Paragraph 3.(b), 3.(c) or 3.(d) if you had been employed by Gantos for the entire year in which your employment terminates, but based on the actual number of days you were employed by Gantos in that year and the actual salary paid to you by Gantos in that year, all to the extent such bonuses have not been paid to you by the termination date, which bonus payments will be made at the time and in the manner called for under Paragraph 3.(e); (iii) the pro rata portion of your vacation time under Paragraph 5.(a) for the fiscal year in which such termination occurs (less the amount of vacation actually taken in that year) multiplied by your then current weekly salary rate under Paragraph 3.(a) at the date of termination; (iv) during the period beginning on the date of such termination and ending one year after such date, at Gantos's expense, (A) the same medical, dental and prescription drug coverage as may from time to time be generally available to other Gantos executive officers, and (B) if such termination is not a result of your death, the Life Policy; (v) the option granted to you pursuant to Paragraph 4 will fully vest and the option will remain exercisable for one year after such termination; Ms. Arlene H. Stern June 20, 1996 Page 9 (vi) if such termination is not a result of your death, to the extent assignable, the Life Policy will be assigned to you one year after the date of such termination, and you will assume all obligations for premiums on the Life Policy with respect to the period after the date of such termination, all if you pay to Gantos the cash surrender value, if any, of the Life Policy; and (vii) no other termination payment, except for any benefits under a Gantos disability or life insurance policy (including the Life Policy) covering you. (e) If at or before the end of the Term Gantos terminates your employment for "Cause" or you terminate your employment with Gantos without "Good Reason", you will receive the following, as a termination payment: (i) the pro rata portion of your salary under Paragraph 3.(a) through the date of termination; (ii) any bonus which you earned under Paragraph 3.(b), 3.(c) or 3.(d) with respect to the fiscal year immediately preceding the year in which your employment terminates to the extent such bonus has not been paid to you by the termination date, which bonus payments will be made at the time and in the manner called for under Paragraph 3.(e); and (iii) no other termination payment. Immediately upon such termination, you will reimburse Gantos for a pro rata portion of the expenses incurred by Gantos described in Paragraphs 5.(b)(i) through (v) and Paragraph 5.(c); such portion shall be the same portion of such expenses as the portion of the days from the date of such termination to the end of the Term bears to the total number of days in the Term. (f) For purposes of this agreement: (i) Termination of your employment for "Cause" means termination for (A) your continued failure to either (1) devote substantially full time to your employment duties (except because of illness or disability) or (2) make a good faith effort to perform your employment duties, (B) any other willful act or omission which you knew or had reason to know would materially injure Gantos, (C) any breach by you of any of the terms of Paragraph 7, (D) (1) any misrepresentation or breach by you of your representations or warranties under Paragraph 8.(g), (2) any lawsuit or arbitration proceeding involving any of your former employers and Gantos relating in any way to any allegation that, if true, would result in a misrepresentation or breach by you of your representations or warranties under Paragraph 8.(g) (including any claim that Gantos interfered with any of your agreements or induced you in any way to breach any of your agreements), if such lawsuit or arbitration is Ms. Arlene H. Stern June 20, 1996 Page 10 not dismissed on a motion to dismiss or for summary judgment before a trial or other hearing on the merits, or (3) any allegation by any of your former employers against you that, if true, would result in a misrepresentation or breach by you of your representations or warranties under Paragraph 8.(g) and that either results in an injunction prohibiting you from performing all or any part of your duties under this agreement or, in Gantos's sole judgment, results in your inability to fully perform your duties under this agreement for any 60 days during the Term, (E) your conviction of a felony involving dishonesty or fraud, (F) any act of omission by you which is contrary to the direction of Gantos' Board of Directors, if such direction relates to your duties to Gantos under this agreement that are reasonably performable, or (G) except to the extent covered by clause (A) or (B) of this Paragraph 6.(f)(i), any material breach by you of any of the terms or provisions of this agreement; provided, that the matters described in clauses (A) and (B) shall constitute "Cause" only if you fail to terminate such actions and remedy any harm or damage resulting from such actions within 30 days after written notice from Gantos to you of the actions or omissions potentially constituting Cause and the portion of the definition of Cause being relied upon. (ii) Termination of your employment for "Good Reason" means your voluntary termination of employment with Gantos as a result of (A) a reduction by Gantos (without your consent) in your duties, responsibilities, benefits or compensation, unless the decrease is proposed by you for yourself or substantially all other executive officers of Gantos, (B) any material breach by Gantos of any of the terms or provisions of this agreement, (C) your not becoming Chief Executive Officer of Gantos on or before October 1, 1996, (D) any requirement by Gantos (to which you do not consent) that you perform your duties under this agreement outside the areas provided in Paragraph 1, or (E) the failure of the successor to Gantos' business to assume Gantos' obligations under this agreement after a Change in Control pursuant to Paragraph 6.(f)(iii)(3) occurring during the Term. "Good Reason" will not include your death, Disability, retirement, resignation or assignment of this agreement to a purchaser of Gantos unless one of the events described in the preceding sentence also occurs. (iii) A "Change in Control" occurs on the first day any one or more of the following occurs: (1) any person (as such term is used in Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")), together with all affiliates and associates of such person (as such terms are defined in Rule 12b-2 under the Exchange Act) but excluding all "Excluded Persons" (as defined in Paragraph 6.(f)(iv)), becomes the direct or indirect beneficial owner (within the meaning of Rule 13d-3 under the Exchange Act) of securities of Gantos representing (A) 30% or more of the combined voting power of all of Gantos' outstanding Ms. Arlene H. Stern June 20, 1996 Page 11 securities entitled to vote generally in the election of Gantos' directors, or (B) 30% or more of the combined shares of Gantos' capital stock then outstanding, all except in connection with any merger, consolidation, reorganization or share exchange involving Gantos; (2) the consummation of any merger, consolidation, reorganization or share exchange involving Gantos, unless the holders of Gantos' capital stock outstanding immediately before such transaction own more than 50% of the combined outstanding shares of capital stock and have more than 50% of the combined voting power in the surviving entity after such transaction and they own such securities in substantially the same proportions (relative to each other) as they owned Gantos' capital stock immediately before such transaction; (3) the consummation of any sale or other disposition (in one transaction or a series of related transactions) of all, or substantially all, of Gantos' assets to a person whose acquisition of 30% or more of the combined shares of Gantos' capital stock then outstanding would have caused a Change in Control under Paragraph 6.(6)(iii)(1); (4) the "Continuing Directors" (as defined in Paragraph 6.(f)(v)) cease to be a majority of Gantos' directors; or (5) Gantos dissolves and liquidates substantially all of its assets. (iv) The "Excluded Persons" are (i) you, (ii) any "group" (as that term is used in Section 13(d) of the Exchange Act and the rules thereunder) that includes you or in which you are, or have agreed to become, an equity participant, (iii) any entity in which you are, or have agreed to become, an equity participant, (iv) Gantos, (v) any subsidiary of Gantos, (vi) any employee benefit plan of Gantos or any subsidiary of Gantos or the related trust, (vii) any entity to the extent it is holding capital stock of Gantos for or pursuant to the terms of any employee benefit plan of Gantos or any subsidiary of Gantos, and (viii) any director, officer or beneficial owner of at least 10% of Gantos' outstanding common shares as of the date of this agreement. For purposes of this agreement, you shall not be deemed an "equity participant" in any group or entity (i) in which you own for investment purposes only no more than 5% of the stock of a publicly-traded entity whose stock is either listed on a national stock exchange or quoted in The Nasdaq National Market, if you are not otherwise affiliated with such group or entity, or (ii) if your participation is fully-disclosed to, and approved by, Gantos' Board of Directors and the Continuing Directors before the Change in Control occurs. Ms. Arlene H. Stern June 20, 1996 Page 12 (v) The "Continuing Directors" are the directors of Gantos as of the date of this Agreement, and any person who subsequently becomes a director if such person is appointed to be a director by a majority of the Continuing Directors or if such person's initial nomination for election or initial election as a director is recommended or approved by a majority of the Continuing Directors. (vi) For purposes of this Agreement, the "Entity" shall mean both (1) Gantos and, (2) in connection with a Change in Control defined in Paragraph 6.(f)(iii)(2) or Paragraph 6.(f)(iii)(3), the survivor of the merger, consolidation, reorganization or share exchange involving Gantos and the buyer of all, or substantially all, of Gantos' assets, if such additional entity described in this clause (2) (if other than Gantos) has offered to employ you on such terms that would not constitute "Good Reason" for termination of your employment if imposed by Gantos. Therefore, for purposes of Paragraph 6.(c), you shall not be deemed to have terminated your employment with the Entity for "Good Reason" and the "Entity" shall not be deemed to have terminated your employment without "Cause" unless such actions are taken by all entities included within the definition of "Entity". In addition, for purposes of this Paragraph 6.(c), you shall not be deemed to have terminated your employment with the Entity for "Good Reason" and the "Entity" shall not be deemed to have terminated your employment without "Cause" if (1) the survivor of the merger, consolidation, reorganization or share exchange involving Gantos and the buyer of all, or substantially all, of Gantos' assets has assumed this agreement (either by agreement or by operation of law), (2) you refuse such employment, and (3) Gantos terminates your employment for any reason or for no reason. 7. Non-Competition; Confidentiality and Non-Solicitation. (a) You will not, during your employment with Gantos, directly or indirectly engage in any activity which is competitive with any business in which Gantos engages. (b) You will not at any time during or after your employment with Gantos, directly or indirectly, disclose or make accessible to any person or entity or use in any way for your own personal gain (i) any confidential and secret information as to the prices, costs, discounts, or profit margins of any goods or services sold, purchased or handled by Gantos (or its subsidiaries), or (ii) any confidential or secret information relating to Gantos' (or its subsidiaries') financial structure, store layouts, supply sources, designs, procedures, information systems, administration or operations, except as authorized or directed by Gantos and except that the foregoing restrictions will not apply to information generally available to others in Gantos' line of business, information in the public domain, information disclosed or made available by Gantos to any other person on a non-confidential basis or disclosures you are required by law to make. Upon termination of your employment with Gantos for any reason, you will immediately return to Gantos all confidential materials over which you exercise any control. Ms. Arlene H. Stern June 20, 1996 Page 13 (c) You will not at any time during your employment by Gantos and for twelve months thereafter, directly or indirectly, hire any employee or agent of Gantos (or its subsidiaries) who was employed by Gantos within one year before the termination of your employment. In addition, you will not at any time during your employment by Gantos and for eighteen months thereafter, directly or indirectly, solicit for any purpose, interfere with, or entice away from Gantos (or its subsidiaries) any employee or agent of Gantos (or its subsidiaries) who was employed by Gantos within one year before the termination of your employment. (d) Paragraphs 7.(a), 7.(b) and 7.(c) are intended, among other things, to protect the confidential information described in Paragraph 7.(b) and relate to matters which are of a special and unique character, and their violation may cause irreparable injury to Gantos, the amount of which will be extremely difficult, if not impossible, to determine and which cannot be adequately compensated by monetary damages alone. Therefore, if you breach or threaten to breach any of those Paragraphs, in addition to any other remedies which may be available to Gantos under this agreement or at law or equity, Gantos may obtain an injunction, restraining order, or other equitable relief against you and such other persons and entities as are appropriate. 8. Miscellaneous. (a) This agreement is the complete agreement between us and may be modified only by a written instrument executed by both of us. (b) The laws of the State of Michigan shall govern this agreement, its construction, and the determination of any rights, duties or remedies of the parties arising out of or relating to this agreement (regardless of the laws that might otherwise govern under applicable Michigan principles of conflicts of law), including, without limitation, matters of validity, construction, effect, performance and remedies. Each of the parties consents to be subject to personal jurisdiction of the courts of Michigan, including the federal courts in Michigan. The parties acknowledge that the United States District Court for the Western District of Michigan or the Michigan Circuit Court for the County of Kent shall have exclusive jurisdiction over any case or controversy arising out of, or relating to, this agreement and that all litigation arising out of or relating to this agreement shall be commenced in the United States District Court for the Western District of Michigan or the Kent County (Michigan) Circuit Court. (c) The provisions of this agreement will be deemed severable, and if any part of any provision is held illegal, void or invalid under applicable law, such provision may be changed to the extent reasonably necessary to make the provision, as so changed, legal, valid and binding. If any provision of this agreement is held illegal, void or invalid in its entirety, the remaining provisions of this agreement will not in any way be affected or impaired but will remain binding in accordance with their terms. Ms. Arlene H. Stern June 20, 1996 Page 14 (d) If either party commences an action against the other party to enforce any of the terms, covenants, conditions or provisions of this agreement or because of a default by a party under this agreement, the prevailing party in any such action shall be entitled to recover its reasonable attorneys' fees, costs and expenses incurred in connection with the prosecution or defense of such action from the losing party. (e) This agreement will be binding upon and inure to the benefit of Gantos and its successors and assigns, but is personal to you and cannot be sold, assigned or pledged by you without Gantos' written consent. This agreement will be binding upon and inure to the benefit of you and your successors and permitted assigns. (f) Any notice to be given under this agreement by Gantos to you will be deemed to be given when delivered to you in person or three business days after mailed to you by certified or registered mail, postage prepaid, return receipt requested, or one business day after sent to you by recognized overnight courier, to your address on Gantos' corporate records. Any notice to be given by you to Gantos will be deemed to be given three business days after mailed by certified or registered mail, postage prepaid, return receipt requested, or one business day after sent by recognized overnight courier, to us at the address listed on this letter (attention: Chief Executive Officer or, if you are Chief Executive Officer, to Gantos' Corporate Secretary), or at such other address as Gantos will have advised you pursuant to this Paragraph 8.(f). A copy of such notice will also be given in like manner to Gantos' Director of Legal Services at the same address. (g) You represent and warrant that you are not now a party to or bound in any way by any agreement, commitment, obligation or company policy (written or otherwise), including any with your former employer, which in any way restricts your ability to enter into, or perform your obligations under, this agreement or under which a breach or default occurs, or with notice, lapse of time or both will occur, as a result of your entry into, or performance of your obligations under, this agreement. (h) This agreement may be signed in counterparts, both of which together will be deemed an original of this agreement. This agreement will also be effective if evidenced by signed copies transmitted by telecopier or facsimile transmission. (i) You will cooperate with Gantos in connection with its obtaining the Life Policy (including having a physical examination). (j) Your sole and exclusive remedy against Gantos for breach of this agreement is the collection of any compensation due you as provided in Paragraphs 3-6. Ms. Arlene H. Stern June 20, 1996 Page 15 (k) The terms and conditions of this agreement may be waived, only by a written instrument signed by the party waiving compliance. No delay on the part of any party in exercising any right, power or privilege under this agreement shall operate as a waiver of such right, power or privilege, nor shall any waiver on the part of any party of any right, power or privilege under this agreement, nor any single or partial exercise of any right, power or privilege under this agreement, preclude any other or further exercise of such right, power or privilege under this agreement. 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: /s/ L. Douglas Gantos ----------------------------------------------- L. Douglas Gantos, Chairperson of the Board The terms of this agreement are accepted and agreed to on June 20, 1996: /s/ Arlene H. Stern - - ------------------- Arlene H. Stern Enclosure EX-10.2 3 EXHIBIT 10.2 GANTOS, INC. EMPLOYEE STOCK PURCHASE PLAN 1. Purpose. The Gantos, Inc. Employee Stock Purchase Plan (the "Plan") is intended to encourage employee stock ownership by offering employees of Gantos, Inc. and its subsidiaries Purchase Rights (as such term is defined in Section 2 hereof) to purchase shares of Common Stock. The Plan is intended to be an "employee stock purchase plan" as defined in Section 423 of the Internal Revenue Code of 1986, as amended (the "Code"). The provisions of the Plan shall, accordingly, be construed so as to extend and limit the participation in a manner consistent with the requirements of Section 423 of the Code. 2. Certain Definitions. "Pay" means regular straight-time and overtime earnings received from the Company, including payments for incentive compensation, bonuses and other special payments, but excluding any referral bonuses, car allowances and annual bonuses. "Board" means the Board of Directors of the Company. "Committee" means the Compensation Committee of the Board. "Common Stock" means the Common Shares, par value $.01 per share, of the Company. "Company" means Gantos, Inc. and each of its majority-owned subsidiaries. "Custodian" means such firm or person as the Committee shall designate from time to time. "Exercise Date" means the last day of a Purchase Period (as such term is defined in Section 4(b) hereof), on which date all Participants' outstanding Purchase Rights will automatically be exercised. "Fair Market Value" means the closing sale price of a share of Common Stock reported in the table entitled "NASDAQ National Market Issues" or any successor table in The Wall Street Journal for such date or, if no shares of Common Stock were traded on that date, on the next preceding day on which there was such a trade, or, if the Common Stock is not traded in The Nasdaq National Market, "Fair Market Value" shall be determined by a method determined by the Committee. "NASDAQ" means the National Association of Securities Dealers Automated Quotation System. "Participant" means an employee of the Company who has enrolled in the Plan by filing a Participation Form (as such term is defined in Section 5 hereof) with the Plan Administrator. "Plan Administrator" means such person so designated by the Committee. "Purchase Right" means a Participant's option to purchase shares of Common Stock that is deemed to be outstanding during a Purchase Period. A Purchase Right represents an "option" as such term is used under Section 423 of the Code. "Section 16(b) Insider" means those persons subject to the requirements of Section 16(b) of the Securities Exchange Act of 1934, as amended. "Trading Day" refers to a day during which the NASDAQ National Market System is available for trading shares of Common Stock. 3. Eligibility. (a) Participation in the Plan is voluntary. All employees of the Company, including officers and directors who are employees, are eligible to participate in the Plan. (b) Notwithstanding any provision of the Plan to the contrary, no employee may participate in the Plan: (i) if following a grant of Purchase Rights under the Plan the employee would own, directly or by attribution, stock, Purchase Rights or other stock options to purchase stock representing 5% or more of the total combined voting power or value of all classes of the Company's stock; or (ii) to the extent a grant of Purchase Rights under the Plan would permit the employee's rights to purchase stock under all the Company's Code Section 423 employee stock purchase plans to accrue at a rate exceeding $25,000.00, based on the Fair Market Value of the stock (at the time of grant), for each calendar year in which such Purchase Rights are outstanding; or (iii) if the employee has been employed by the Company for less than 6 months; or (iv) if the employee's customary employment with the Company is 20 hours or less per week or is for not more than 5 months in any calendar year. -2- 4. Securities Subject to the Plan and Purchase Periods. (a) The Plan covers an aggregate of 200,000 shares of Common Stock (subject to adjustment as provided in Section 15 hereof), which may be authorized but unissued shares, reacquired shares or shares bought on the open market. If any Purchase Right that shall have been granted shall expire or terminate for any reason without having been exercised in full, the unpurchased underlying shares of Common Stock shall again become available for purposes of the Plan, unless the Plan shall have been terminated. (b) The first purchase period (a "Purchase Period") under the Plan will begin on August 1, 1996 and end on October 31, 1996. Thereafter, for so long as the Plan remains in effect, there will be quarterly Purchase Periods with the following beginning and ending dates: Quarterly Purchase Periods Beginning Date Ending Date November 1 January 31 February 1 April 30 May 1 July 31 August 1 October 31 5. Participation. Eligible employees become Participants in the Plan by authorizing payroll deductions for that purpose through a form (the "Participation Form") filed with the Plan Administrator no later than fifteen (15) days prior to the beginning date of a Purchase Period. 6. Payroll Deductions. (a) In order to purchase Common Stock, an employee must indicate on the Participation Form the contribution amount he or she wishes to authorize the Company to deduct (i) out of Pay, (ii) out of the Participant's annual bonus payment (such as bonuses under the Executive Bonus Plan or the Corporate Management Bonus Plan), (iii) out of other particular earnings received by the employee from the Company that are paid separately from regular straight-time earnings, or (iv) any combination of the foregoing, during each Purchase Period. The authorized contribution amount must be in integral percentage amounts ranging from 1% to 25% of such Participant's Pay, annual bonus payment, other particular earnings received by the employee from the Company that are paid separately from regular straight-time earnings, or any combination of the foregoing, up to a maximum of 25% of such Participant's Pay, annual bonus payment and other particular earnings received from the Company that are paid separately from regular straight-time earnings. The -3- Participation Form will include authorization for the Company to make payroll deductions from the Participant's Pay, annual bonus payment, other particular earnings received from the Company that are paid separately from regular straight-time earnings or any combination of the foregoing, as applicable. (b) In order to comply with the Federal tax laws, a Participant may not be granted Purchase Rights under the Plan or any other Code Section 423 employee stock purchase plan of the Company with respect to more than $25,000.00 worth of Common Stock for any calendar year such Purchase Rights to purchase Common Stock are outstanding pursuant to the terms of the Plan. The $25,000.00 limit is determined according to the Fair Market Value of the Common Stock on the first day (grant date) of the Purchase Period. Participants will be notified if these limitations become applicable to them. (c) The amounts deducted shall be credited to the Participant's account under the Plan, but no actual separate account will be established by the Company to hold such amounts. There shall be no interest paid on the balance outstanding in a Participant's account. The deducted amounts may be commingled with the general assets of the Company and may be used for its general corporate purposes. (d) Payroll deductions begin on the first payday of each Purchase Period, and end on the last payday of each Purchase Period. Eligible employees may participate in the Plan and purchase shares only by means of payroll deductions, except as set forth in the following sentence. A Participant may not make any separate cash payment into his or her account, except that employees on an approved leave of absence may continue participating in the Plan, at the sole discretion of the Plan Administrator, by making cash payments to the Company on a normal payday equal to the amount of the normal payroll deduction had a leave of absence not occurred. The right of a Participant on an approved leave of absence to continue participating in the Plan shall terminate if such leave of absence exceeds 90 days, unless and so long as the Participant's right to re-employment by the Company after a longer leave is guaranteed by statute or contract. (e) So long as a Participant remains an employee of the Company qualified to participate in the Plan, payroll deductions will continue in effect from Purchase Period to Purchase Period unless, at least fifteen (15) days before the end of the current Purchase Period, the Participant: (i) elects a different contribution percentage by filing a new Participation Form with the Plan Administrator; such change in contribution percentage will become effective by the tenth day following the Plan Administrator's receipt of the Participant's new Participation Form; or (ii) withdraws from the Plan in accordance with Section 9 hereof. (f) Unless a Participant elects a different contribution percentage as permitted by Section 6(e)(i) or elects to withdraw prior to 15 days before the end of the current Purchase Period -4- as permitted under Section 9 of the Plan, such Participant's payroll deductions will continue throughout the next Purchase Period and his or her Purchase Right to purchase Common Stock will be deemed to be fully and automatically exercised on the last day of such Purchase Period with respect to payroll deductions made during that period. 7. Purchase Price. (a) On the first day of each Purchase Period, a Participant is deemed to have been granted a Purchase Right to purchase on the last day of the Purchase Period as many shares of Common Stock as such Participant will be able to purchase with the payroll deductions credited to such Participant's account during such period. (b) The price at which each Purchase Right to purchase Common Stock may be exercised is the lower of: (i) 85% of the Fair Market Value of the Common Stock on the first Trading Day of a Purchase Period; or (ii) 85% of the Fair Market Value of the Common Stock last Trading Day of such Purchase Period. (c) The number of shares purchasable by each Participant per Purchase Period will be the number of shares obtained by dividing the amount collected from the Participant (through payroll deductions during that Purchase Period) by the purchase price in effect for that Purchase Period. 8. Exercise of Purchase Right. (a) Each outstanding Purchase Right will be exercised automatically on the Exercise Date. The exercise of the Purchase Right is to be effected by applying the amount credited to each Participant's account as of the Exercise Date to the purchase on the Exercise Date of shares of Common Stock at the purchase price in effect for the Purchase Period. (b) Fractional shares will be credited to each Participant's account as of the Exercise Date, but no certificates for fractional shares of Common Stock will be issued under the Plan. If at the time any Participant withdraws from the Plan, such Participant has fractional shares of Common Stock credited to his or her account under the Plan, the Custodian will pay to such Participant in cash the Fair Market Value of a share of Common Stock as of the date such withdrawal is effective multiplied by such fraction of a share. -5- (c) If the number of shares for which Purchase Rights are exercised exceeds the number of shares available in any Purchase Period under the Plan, the shares available for sale will be allocated by the Plan Administrator pro rata among the Participants in such Purchase Period in proportion to the relative amounts in their accounts. Any amounts not thereby applied to the purchase of Common Stock under the Plan will be refunded to the Participants after the end of the Purchase Period. 9. Withdrawal and Termination of Purchase Rights. (a) A Participant may withdraw from the Plan by providing written notice to the Plan Administrator at any time prior to 15 days before the end of the current Purchase Period. Such notice shall be on a form (the "Withdrawal Form") provided by the Plan Administrator for that purpose. The Withdrawal Form will permit such a Participant to make the following election: (i) The Participant may elect to immediately terminate his or her outstanding Purchase Rights, and such withdrawal will become effective by the tenth day following the Plan Administrator's receipt of the Participant's Withdrawal Form, at which time all outstanding Purchase Rights will be terminated and all accumulated payroll deductions will be refunded without penalty; or (ii) The Participant may elect to continue his or her participation in the Plan through the end of the current Purchase Period, and thus exercise such Participant's outstanding Purchase Rights on the following Exercise Date, but terminate his or her participation in the Plan for subsequent Purchase Periods. Payroll deductions for such a Participant will continue until the end of the current Purchase Period. After the Exercise Date, no further Purchase Rights will be granted to the Participant, and no further payroll deductions will be made. (b) Any Participant who withdraws from the Plan pursuant to Section 9(a) will not be eligible to rejoin the Plan for the Purchase Period under way at the time of withdrawal, and will have to re-enroll in the Plan by completing and filing a new Participation Form should such individual wish to resume participation in a subsequent Purchase Period; provided, however, that such Participant may not re-enroll in the Plan earlier than 90 days from the effective date of such withdrawal. (c) In the event a Section 16(b) Insider Participant ceases participation in the Plan, whether as a result of a withdrawal during a Purchase Period or of such Participant's decision to discontinue his or her enrollment for subsequent Purchase Periods, such insider may not re-enroll in the Plan earlier than six (6) months after the decision to cease participation, to the extent required by Rule 16b-3 under the Securities Exchange Act of 1934, as amended, or any successor rule. -6- (d) If a Participant ceases to be an employee of the Company for any reason during a Purchase Period, his or her outstanding Purchase Right will immediately terminate, and all sums previously collected from such Participant during such Purchase Period under the terminated Purchase Right will be refunded. (e) The Committee may, at its option, treat any attempt to borrow by an employee on the security of his or her accumulated payroll deductions as an election under Section 9(a)(i) hereof to withdraw such deductions. 10. Rights as Shareholder. (a) A Participant is not a shareholder until the Participant exercises his or her Purchase Right, and then only with respect to whole shares of Common Stock credited to the Participant's account. Thus, a Participant will not have a right to any dividend or distribution made prior to the Exercise Date. (b) The Participant will be entitled to receive, as soon as practicable after the Exercise Date, a stock certificate for the number of whole purchased shares upon a written request made to the Custodian. The Custodian may impose upon, or pass through to, the Participant a reasonable fee for withdrawal of shares of Common Stock in the form of stock certificates. It is the responsibility of each Participant to keep his or her address current with the Company through the Plan Administrator and with the Custodian. 11. Sale of Common Stock Acquired Under the Plan. (a) Participants may sell the whole shares of Common Stock they acquire under the Plan at any time without restriction, provided they are not Section 16(b) Insiders. Section 16(b) Insiders may be subject to certain restrictions in connection with their transactions under the Plan. (b) A Participant shall immediately provide information to the Plan Administrator if the Participant transfers any shares purchased through the Plan within two (2) years from the date of grant of the related Purchase Right. Such transfer shall include disposition by sale, gift or other manner. The Participant may be requested to disclose the manner of the transfer, the date of the transfer, the number of shares involved and the transfer price. By executing the Participation Form, each Participant obligates himself or herself to provide such information to the Plan Administrator. (c) The Company is authorized to withhold from any payment to be made to a Participant, including any payroll and other payments not related to the Plan, amounts of withholding and other taxes due in connection with any transaction under the Plan, and a Participant's enrollment in the Plan will be deemed to constitute his or her consent to such withholding. -7- 12. Plan Administration. (a) The Plan shall be administered by the Committee. No member of the Board will be eligible to Participate in the Plan during his or her period of Committee service. (b) The Committee shall have the plenary power, subject to and within the limits of the express provisions of the Plan: (i) to determine the commencement and termination date of the offering of Common Stock under the Plan; and (ii) to interpret the terms of the Plan, establish and revoke rules for the administration of the Plan and correct or reconcile any defect or inconsistency in the Plan. (c) The Committee may delegate all or part of its authority to administer the Plan to the Plan Administrator, who may in turn delegate the day-to-day operations of the Plan to the Custodian. The Custodian will establish and maintain, as agent for the Participants, accounts for the purpose of holding shares of Common Stock and/or cash contributions as may be necessary or desirable for the administration of the Plan. (d) The Board may waive or modify any requirement that a notice or election be made or filed under the Plan a specified period in advance in an individual case or by adoption of a rule or regulation under the Plan, without the necessity of an amendment to the Plan. 13. Transferability. (a) Any account maintained by the Custodian for the benefit of a Participant with respect to shares acquired pursuant to the Plan may only be in the name of the Participant; provided, however, that the Participant may elect to maintain such account with right of joint ownership with such Participant's spouse. Such election may only be made on a form provided by the Company. (b) Neither payroll deductions credited to a Participant's account nor any Purchase Rights or other rights to acquire Common Stock under the Plan may be assigned, transferred, pledged or otherwise disposed of by Participants other than by will or the laws of descent and distribution and, during the lifetime of a Participant, Purchase Rights may be exercised only by the Participant. -8- 14. Merger or Liquidation of the Company. In the event the Company merges with another entity and the Company is not the surviving entity, or in the event all or substantially all of the stock or assets of the Company are acquired by another entity, or in the event of certain other similar transactions, the Committee may, in connection with such transaction, cancel each outstanding Purchase Right and refund all sums previously collected from Participants under the canceled Purchase Rights, or, in its discretion, cause each Participant with outstanding Purchase Rights to have his or her outstanding Purchase Rights exercised immediately prior to such transaction and thereby have the balance of his or her account applied to the purchase of shares of Common Stock at the purchase price in effect for the Purchase Period, which would be treated as ending with the effective date of such transaction. In the event of a merger in which the Company is the surviving entity, each Participant is entitled to receive, for each share as to which such Participant's Purchase Rights are exercised, the securities or property that a holder of one share of Common Stock was entitled to receive upon the merger. 15. Adjustment and Termination. To prevent dilution or enlargement of the rights of Participants under the Plan, appropriate adjustments may be made in the event any change is made to the Company's outstanding Common Stock by reason of any stock dividend, stock split, combination of shares, exchange of shares or other change in the Common Stock effected without the Company's receipt of consideration. Adjustments may be made to the maximum number and class of securities issuable under the Plan, the maximum number and class of securities purchasable per outstanding Purchase Right and the number and class of securities and price per share in effect under each outstanding Purchase Right. Any such adjustments will be made by the Committee in its sole discretion. 16. Amendment and Termination. The Committee may terminate or amend the Plan at any time; provided, however, such termination or amendment may not affect or change Purchase Rights previously granted under the Plan without the consent of the affected Participant, and any amendment that materially increases the benefits or number of shares under the Plan (except for certain allowable adjustments in the event of changes to the Company's capital structure or for changes authorized by the Plan to be made by the Committee or the Plan Administrator), or materially modifies the eligibility requirements of the Plan shall be subject to shareholder approval to the extent required by Rule 16b-3 under the Securities Exchange Act of 1934, as amended, any successor rule, or the Code. If not sooner terminated by the Committee, the Plan shall terminate at the time Purchase Rights have been exercised with respect to all shares of Common Stock reserved for acquisition under the Plan. 17. Shareholder Approval. -9- The Plan is subject to the approval of shareholders of the Company by the affirmative votes of the holders of a majority of the securities of the Company present, or represented, and entitled to vote at a meeting of the Company's shareholders. Purchase Rights may be granted under the Plan prior to shareholder approval of the Plan, but such rights may not be exercised (and Participants' payroll deductions will be returned to them) if shareholder approval of the Plan is not obtained prior to the Exercise Date of the rights. 18. No Employment Rights. Participation in the Plan will not impose any obligations upon the Company to continue the employment of a Participant for any specific period and will not affect the right of the Company to terminate a Participant's employment at any time, with or without cause. 19. Costs. Except as set forth in Section 10(b), costs and expenses incurred in the administration of the Plan and the maintenance of accounts with the Custodian will be paid by the Company, to the extent provided in this Section 19. Any brokerage fees and commissions for the purchase of Common Stock under the Plan (including shares of Common Stock purchased upon reinvestment of dividends and distributions) will be paid by the Company, but any brokerage fees and commissions for the sale of shares of Common Stock under the Plan by a Participant will be borne by such Participant. 20. Reports. After the close of each Purchase Period, each Participant in the Plan will receive a report from the Custodian indicating the amount of the Participant's contributions to the Plan during the Purchase Period, the amount of the contributions applied to the purchase of Common Stock for the Purchase Period, and the purchase price per share in effect for the Purchase Period. 21. Governing Law. The validity, construction and effect of the Plan and any rules and regulations relating to the Plan will be determined in accordance with laws of the State of Michigan, without giving effect to principles of conflict of laws, and applicable Federal law. -10- 22. Compliance With Legal and Other Requirements. The Plan, the granting and exercising of Purchase Rights hereunder, and the obligations of the Company, the Plan Administrator and the Custodian under the Plan will be subject to all applicable federal and state laws, rules, and regulations, and to such approvals by any regulatory or governmental agency as may be required. The Company may, in its discretion, postpone the issuance or delivery of shares of Common Stock upon exercise of Purchase Rights until completion of such registration or qualification of such shares of Common Stock or other required action under any federal or state law, rule, or regulation, listing or other required action with respect to any automated quotation system or stock exchange upon which the shares of Common Stock or other Company securities are designated or listed, or compliance with any other contractual obligation of the Company, as the Company may consider appropriate, and may require any Participant to make such representations and furnish such information as it may consider appropriate in connection with the issuance or delivery of shares of Common Stock in compliance with applicable laws, rules, and regulations, designation or listing requirements, or other contractual obligations. -11- EX-10.3 4 September 13, 1996 Mr. Larry Voight VRB CORPORATION One Detroit Center 500 Woodward Avenue 3rd Floor Detroit, MI 48275-3204 Re: Gantos Lease at 3260 Patterson SE, Grand Rapids, Michigan Dear Larry: Pursuant to our conversations regarding the Lease dated April 1, 1995, between VRB Corp., as Landlord, and Gantos, Inc., as Tenant, for the above-referenced premises, this shall serve as our agreement in the event a new lease for the premises is never formalized prior to the current lease expiration date of July 31, 1996. In the event a new lease for the premises is not executed prior to the current lease expiration date, then notwithstanding any provisions to the contrary contained in the Lease, Tenant will be on a month-to-month tenancy on the same rental and terms and conditions of the current Lease, except either Landlord or Tenant shall have the right to terminate the Lease by providing the other party with at least six (6) months prior written notice. If this adequately reflects our understanding, please sign this letter and return a copy to my attention. In the event you have any questions or comments concerning the foregoing, please give me a call. Very truly yours, GANTOS, INC. Kenneth Green Vice President and General Counsel KG/sra Accepted and Agreed as of the date set forth above VRB CORP. By /s/ Larry Voight ---------------------------- Larry Voight, Vice President EX-27 5 FINANCIAL DATA SCHEDULE
5 THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF GANTOS, INC. AS OF, AND FOR THE SIX-MONTH PERIOD ENDED, AUGUST 3, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS, AND ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 1,000 FEB-01-1997 AUG-03-1996 6-MOS $ 4,088 0 22,231 (556) 22,474 51,015 61,564 (46,001) 66,578 24,815 11,940 76 0 0 29,747 66,578 92,174 92,174 73,741 73,741 0 0 1,153 957 0 957 0 0 0 957 .13 .13
-----END PRIVACY-ENHANCED MESSAGE-----