MERRY-GO-ROUND ENTERPRISES, INC.
3300 FASHION WAY
JOPPA, MARYLAND 21085
-------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD OCTOBER 11, 1995
-------------------
The Annual Meeting of Stockholders of Merry-Go-Round Enterprises, Inc. will
be held at 10:00 a.m. on October 11, 1995, at the Company's corporate offices,
3300 Fashion Way, Joppa, Maryland 21085 for the following purposes:
1. To elect seven directors to hold office for the ensuing year and
until their successors are elected and qualify.
2. To approve the appointment of KPMG Peat Marwick as independent
auditors of the Company for the fiscal year ending January 27, 1996.
3. To transact such other business as may properly come before the
meeting or any adjournment thereof.
Stockholders of record at the close of business on August 23, 1995 are
entitled to notice of and to vote at the meeting.
All stockholders are cordially invited to attend the meeting in person.
Those who cannot attend are urged to promptly sign, date and mail the enclosed
proxy in the envelope provided for that purpose. Returning your proxy does not
deprive you of your right to attend the meeting and vote your shares in person.
By Order of the Board of Directors
ISAAC KAUFMAN
Secretary
September 20, 1995
<PAGE>
MERRY-GO-ROUND ENTERPRISES, INC.
3300 FASHION WAY
JOPPA, MARYLAND 21085
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PROXY STATEMENT
-------------------
This Proxy Statement is furnished in connection with the solicitation by the
Company of proxies to be voted at the Annual Meeting of Stockholders to be held
at 10:00 a.m. on October 11, 1995 at the Company's corporate offices, 3300
Fashion Way, Joppa, Maryland and at any adjournment thereof. This Proxy
Statement was first mailed or given to stockholders on September 20, 1995.
Solicitation of proxies may be made by mail, personal interview, telephone
and telegraph by officers and employees of the Company. Expenses for such
solicitation will be borne by the Company. In addition, the Company has retained
Hill and Knowlton, Inc., at a cost not to exceed $7,000, plus expenses, to aid
in the solicitation of proxies. Brokers and others will be reimbursed for their
reasonable expenses in forwarding the proxy material to their customers which
have beneficial interests in stock of the Company registered in the name of
nominees.
Any proxy may be revoked by a stockholder at any time prior to its use by
execution of another proxy bearing a later date, by written notice to the
Secretary of the Company at the address set forth above or by oral or written
statement at the meeting. Shares represented by any proxy properly executed and
received prior to the meeting will be voted at the meeting in accordance with
the proxy or, if the proxy does not specify, in accordance with the
recommendation of the Board of Directors.
Stockholders of record at the close of business on August 23, 1995 are
entitled to notice of and to vote at the meeting. On the record date the Company
had 53,931,008 shares of Common Stock outstanding. Each share of Common Stock
outstanding on the record date is entitled to one vote. There is no provision
for cumulative voting.
The directors and executive officers of the Company own beneficially and
have sole or shared power to vote at the meeting 5,266,463 shares or 9.77% of
the Company's outstanding Common Stock. It is anticipated that these shares will
be voted in accordance with the recommendation of management on each matter
described in the accompanying notice. For more detailed information as to
ownership of the Company's Common Stock, see "Security Ownership of Certain
Beneficial Owners and Management."
The number of shares set forth in this Proxy Statement is adjusted to
reflect all previous stock splits and dividends.
<PAGE>
ELECTION OF DIRECTORS
The Board of Directors has proposed seven directors presently in office as
nominees for election as directors to serve for the coming year and until their
successors are elected and qualify. Shares represented by proxies will be voted
for the election of the nominees named below unless authority to do so is
withheld. Management has no reason to believe that any nominee will be unable to
serve if elected. If any nominee should be unable to serve, the shares
represented by a proxy may be voted for a substitute nominee to be designated by
management.
<TABLE>
<CAPTION>
NAME AND AGE OTHER POSITION WITH THE COMPANY DIRECTOR
ON RECORD DATE OR DIRECTOR'S PRINCIPAL OCCUPATION SINCE
--------------------------- ------------------------------------------------------ --------
<S> <C> <C>
Stephen Wertheimer (44).... Chairman of the Board; Private investor 1995
Richard P. Crystal (50).... President and Chief Executive Officer 1995
Raymond F. Altman (54)..... Attorney with the law firm of Freishtat and Sandler 1991
Alan E. Berkowitz (55)..... Certified Public Accountant with the firm of Alan E.
Berkowitz and Associates CPAs Chartered 1991
Isaac Kaufman (48)......... Executive Vice President, Chief Financial Officer,
Secretary and Treasurer 1991
Joseph Nusim (59).......... Chairman of the Board, Chief Executive Officer and
President, Channel Home Centers, Inc. 1995
Charles A. Yamarone (36)... Executive Vice President and Research Director of
Libra Investments, Inc. 1995
</TABLE>
Mr. Wertheimer has been a private investor since 1991. From 1988 to 1991 he
was Managing Director, Group Head of Investment Banking--Asia for Paine Webber.
Mr. Wertheimer is also a director of Greenwich Fine Arts, Inc., AMS, Inc. and
Orion Pictures Corporation. Mr. Wertheimer was recommended for election to the
Board by the official committee of equity security holders appointed by the
Bankruptcy Court in connection with the Chapter 11 proceedings. He was named
Chairman of the Board of the Directors of the Company in July 1995.
Mr. Crystal was elected President and Chief Executive Officer in July 1995,
in connection with the resignation of the former Chief Executive Officer and
President. Prior to joining the Company, he had served as the Chairman and Chief
Executive Officer of Macy Product Development, responsible for private label
product development, and Macy Specialty Stores, which operated Aeropostale and
Charter Club specialty retail stores, both divisions of Federal Department
Stores, Inc. Mr. Crystal had been President of Macy Specialty Stores since prior
to 1990.
Mr. Altman has been a partner with the law firm Freishtat and Sandler for
more than five years.
Mr. Berkowitz has been Chief Executive Officer of Alan E. Berkowitz and
Associates CPAs Chartered for more than five years. He is a certified public
accountant and an attorney. He also serves on the Board of Directors of Eastern
Savings Bank, FSB.
Mr. Kaufman has been employed by the Company since 1973. He was elected
Executive Vice President in April 1991. He has served as Chief Financial Officer
and Treasurer since 1983 and as Secretary since 1980. He was Senior Vice
President from 1983 to April 1991. He is a certified public accountant. He is
also a director of Trans World Entertainment Corp., a retailer of prerecorded
music and videos.
2
<PAGE>
Mr. Nusim has been Chairman of the Board, Chief Executive Officer and
President of Channel Home Centers, Inc., a home center chain, since prior to
1990. He is also a director of Roses Stores, Inc., a chain of retail stores. Mr.
Nusim was recommended for election to the Board by certain unsecured creditors
of the Company.
Mr. Yamarone has been Executive Vice President and Research Director of
Libra Investments, Inc., an institutional broker-dealer, since 1994. From 1991
to 1994 he was Senior Vice President and General Counsel of Libra Investments,
Inc. From 1990 to 1991 he was Senior Vice President--Legal and Secretary of
Columbia Savings. Mr. Yamarone is also a director of Bally's Grand, Inc. and
Continental Airlines, Inc. Mr. Yamarone was recommended for election to the
Board by certain unsecured creditors of the Company.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR EACH NOMINEE FOR DIRECTOR.
Messrs. Yamarone and Berkowitz currently serve as the Audit Committee of the
Board of Directors. The Audit Committee recommends independent auditors for
appointment by the Board and reviews the scope of services and reports of the
Company's independent auditors. The Audit Committee, which comprised other
members in fiscal 1995, met one time during the fiscal year ended January 28,
1995.
The Compensation Committee, which currently consists of Messrs. Wertheimer
and Altman, administers the 1989 Long-Term Incentive Plan and reviews proposed
compensation arrangements for members of senior management. The Compensation
Committee, comprising other members in fiscal 1995, met once during the fiscal
year ended January 28, 1995.
In fiscal 1995, 25 meetings of the Board of Directors were held. Each
director attended more than 75% of the aggregate of the number of meetings in
fiscal 1995 of the Board of Directors and committees on which he served. The
Board does not have a standing nominating committee.
In fiscal 1995, the directors of the Company who were not officers each
received $14,000 annually, an additional $1,000 for serving as a committee
chairman, plus $1,000 per board meeting and $750 per committee meeting (one half
of such amounts in the case of telephone meetings). These compensation
arrangements are continuing in fiscal 1996.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION.
Messrs. Berkowitz, Altman and Robert Bank, a former director, served as the
Compensation Committee of the Board of Directors during the 1995 fiscal year. In
fiscal 1995, the Company was billed approximately $135,000 and $200,000,
respectively, by Freishtat and Sandler, with which Mr. Altman is associated, and
by Alan E. Berkowitz & Associates CPAs Chartered, with which Mr. Berkowitz is
associated, respectively, for services rendered during fiscal 1995. In fiscal
1996, the Company expects to continue to obtain services from these firms.
EXECUTIVE COMPENSATION
REPORT OF THE COMPENSATION COMMITTEE
During fiscal 1995, the Company began its Chapter 11 reorganization
proceedings. The Board of Directors was aware of the need to retain certain key
personnel through these proceedings and to focus their efforts on managing the
Company. Compensation and benefits paid or payable to these officers
3
<PAGE>
were adjusted accordingly. During the course of the year it was also determined
that it would be in the best interest of the Company to make certain management
changes. In order to attract qualified executives, the Company entered into
employment agreements with persons selected to fill posts in top management. In
the last fiscal year, the Company entered into contracts with Meridian Ventures,
Inc. for the services of Thomas Shull as Chief Executive Officer and James
Kenney as President and Chief Operating Officer, and with Frank Tworecke and
Louis Spagna. See "--Chief Executive Officer's Fiscal 1995 Compensation" and
"Employment Arrangements" below. As part of the management transition, the
Company entered into severance arrangements with certain former officers. All of
these agreements and arrangements were approved by the Bankruptcy Court.
During the course of the last fiscal year, the Committee consulted with
nationally-recognized compensation consultants in making certain compensation
decisions. In addition, while the Company is subject to the jurisdiction of the
Bankruptcy Court, all increases in the rate of compensation payable to executive
officers are subject to review and approval by the Bankruptcy Court.
Annual Cash Compensation
The Compensation Committee believes that it is necessary to pay salaries
that are competitive within the industry and geographic region and reflect the
risk associated with working for a company in Chapter 11, in order to attract
and retain the types of executives needed to manage the business through the
reorganization. The Committee used retail industry and other compensation
surveys, comparisons to practices at other retail companies, the Committee
members' knowledge of and experience in the retail industry, and information
from the Company's compensation consultants regarding compensation paid by
companies in Chapter 11. The Committee considers compensation paid by other
retail companies, including, but not limited to, those comprising the Company's
Peer Group reflected in the Stock Performance Graph below. The Compensation
Committee believes that the employment market for its officers includes a
broader range of companies than is relevant for purposes of comparing stock
performance and must take into account the Company's status as a Chapter 11
debtor.
In light of the Company's disappointing results of operations during fiscal
1995, cash bonuses were paid to executive officers only to the extent required
by the terms of existing employment agreements or for exceptional contribution
in connection with the reorganization. The bonuses paid for performance in
fiscal 1995 are reflected in the Summary Compensation Table shown below. The
Company's employment agreements with Messrs. Tworecke and Spagna set forth a
minimum salary and cash bonus for fiscal year 1995. See "Employment
Arrangements" below.
Other Compensation
The Committee has from time to time issued stock options and shares of
restricted stock pursuant to the 1989 Long-Term Incentive Plan ("LTIP"). No
grants of options or restricted stock were made to executive officers in fiscal
1995, other than options granted to two officers pursuant to their respective
employment agreements with the Company. See "Employment Arrangements" below.
The Company maintains a Thrift and Savings Plan pursuant to which employees,
including executive officers, may make pre-tax contributions pursuant to Section
401(k) of the Internal Revenue Code and the Company makes certain matching
contributions.
The Company's unfunded deferred compensation plan permits each of its
executive officers to defer receipt of a portion of his annual bonus, if any.
The Company will match the amount of each executive officer's deferred bonus up
to the difference between 5% of the participant's annual salary and any
4
<PAGE>
bonus and the matching contribution made by the Company to the Thrift and
Savings Plan for the executive officer's account. The balance of each
participant in the plan currently represents a claim against the Company. The
Company obtained an order from the Bankruptcy Court authorizing it to make
current payments to former officers as required by the plan. Any balance not
permitted to be paid by the court order will continue to represent an unsecured
claim against the Company and may be paid in the future pursuant to an approved
and confirmed plan of reorganization.
Chief Executive Officers' Fiscal 1995 Compensation
Mr. Weinglass' salary for fiscal 1995 was set by the Committee, based upon
his experience in the retail industry, long tenure with, and past successes on
behalf of the Company. As a result of the poor operating results of the Company
in fiscal 1995, Mr. Weinglass was not paid a bonus for fiscal 1995 and was not
awarded stock options or shares of restricted stock under the LTIP.
Thomas Shull became the Chief Executive Officer of the Company in November
1994, in connection with the Company's retention of Meridian Ventures Inc.
("Meridian"), a turnaround and venture management firm. Mr. Shull received
compensation for his services during fiscal 1995 pursuant to a Management
Agreement between the Company and Meridian, the terms of which were negotiated
with the Board of Directors and which received the approval of the Bankruptcy
Court. See "Employment Arrangements" below.
ALAN E. BERKOWITZ
RAYMOND F. ALTMAN
5
<PAGE>
SUMMARY COMPENSATION TABLE
The following table sets forth information concerning compensation paid by
the Company to the two individuals who served as Chief Executive Officer during
fiscal 1995, each of the four most highly compensated executive officers of the
Company (based on salary and bonus), other than the Chief Executive Officers,
who were serving as executive officers as of the end of fiscal 1995, and two
executive officers whose actual compensation, but for their departure, would
have placed them among the four most highly compensated executive officers
excluding the Chief Executive Officers (collectively, the "Named Executive
Officers"), for services rendered in all capacities to the Company and its
subsidiaries during the three fiscal years ended January 28, 1995.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION AWARDS
-------------------------------------- --------------------------------------
OTHER RESTRICTED
FISCAL ANNUAL STOCK OPTIONS ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY(1) BONUS(1) COMPENSATION(2) AWARD(3) (#) COMPENSATION(4)
-------------------------------- ------ --------- -------- --------------- ---------- ------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Leonard Weinglass (5) 1995 $ 261,373 $ 0 $0 0 0 $0
Chairman and Chief Executive 1994 150,780 0 0 0 0 0
Officer 1993 150,780 0 0 0 0 0
Thomas C. Shull (6) 1995 -- -- -- -- -- --
Chairman and Chief Executive 1994
Officer 1993
Michael D. Sullivan (7) 1995 329,207 0 -- 0 0 42,333
President 1994 415,780 0 -- 0 75,000 42,757
1993 401,530 250,000 -- 0 0 46,934
James Kenney (6) 1995 -- -- -- -- -- --
President and Chief Operating 1994
Officer 1993
Isaac Kaufman 1995 225,780 50,000 -- 0 0 22,255
Executive Vice President, Chief 1994 192,780 100,000 -- 0 50,000 23,570
Financial Officer Secretary and 1993 196,498 145,000 -- 0 0 25,448
Treasurer
Ken Rodriguez (7) 1995 162,965 0 -- 0 0 21,744
Cignal Division President 1994 177,780 50,000 -- 0 40,000 21,706
1993 171,530 110,000 -- 0 0 24,049
Frank Tworecke (8) 1995 162,500 40,000 56,472 0 200,000 0
Merry-Go-Round/Cignal Division 1994
President 1993
Louis Spagna (8) 1995 183,333 55,000 52,639 0 200,000 0
Menz Division President 1994
1993
Jeffrey Austin (8) 1995 112,500 45,000 -- 0 5,000 0
Senior Vice President--Human 1994
Resources 1993
</TABLE>
------------
(1) Includes amounts deferred by the officer under the Thrift and Savings Plan
and Executive Deferred Compensation Plan.
(2) In accordance with SEC rules, perquisites constituting less than the lesser
of $50,000 or 10% of total salary and bonus are not reported. Amounts
reported comprise, as to Mr. Tworecke, $36,566 for relocation expenses and
$19,906 for the reimbursement of related taxes and, as to Mr. Spagna,
$34,849 for relocation expenses and $17,790 for the reimbursement of related
taxes.
(3) The aggregate restricted stock holdings of Mr. Kaufman as of January 28,
1995, were 14,000 shares of Common Stock, having an aggregate fair market
value as of January 28, 1995 of $21,000, based upon the 1995 fiscal year-end
closing price of the Company stock of $1.50 per share, net of the purchase
price paid by the officer. See "--Severance Arrangements" with respect to
restricted stock held by Messrs. Sullivan and Rodriguez which is no longer
subject to restrictions.
(Footnotes continued on following page)
6
<PAGE>
(Footnotes continued from preceding page)
(4) For fiscal 1995 comprises employer matching contributions under the Thrift
and Savings Plan and the Executive Deferred Compensation Plan and premiums
paid on life insurance policies held under Supplemental Retirement
Agreements for the Named Executive Officers who received such compensation,
in the following amounts, respectively: Weinglass--$0, $0, $0;
Sullivan--$5,544, $2,355, $34,434; Kaufman--$5,544, $0, $16,711; and
Rodriguez-- $5,168, $1,264, $15,312. Does not include payments to be made to
Messrs. Sullivan and Rodriguez in connection with their resignations in
fiscal 1995. See "--Severance Arrangements" below.
(5) Mr. Weinglass became Chief Executive Officer in January 1994, resigned as
Chief Executive Officer in November 1994 and resigned as Chairman of the
Board in January 1995.
(6) Messrs. Shull and Kenney became officers of the Company in November 1994, in
connection with the Company's retention of Meridian. Mr. Shull succeeded Mr.
Weinglass as Chief Executive Officer in November 1994 and as Chairman in
January 1995. Messrs. Shull and Kenney resigned as officers from the Company
in July 1995. Messrs. Shull and Kenney received compensation for their
services only pursuant to a Management Agreement between the Company and
Meridian. See "Certain Relationships and Related Transactions."
(7) Messrs. Rodriguez and Sullivan resigned as officers from the Company in
December 1994 and November 1994, respectively.
(8) Messrs. Austin, Spagna and Tworecke joined the Company in February 1994,
June 1994 and August 1994, respectively.
EMPLOYMENT ARRANGEMENTS
Effective July 10, 1995, the Company entered into an employment agreement
with Richard Crystal to serve as President and Chief Executive Officer of the
Company for a term of three years, subject to earlier termination for Cause (as
defined in such agreement). The agreement restricts Mr. Crystal's ability to
compete with the Company following his departure from the Company for a time
which varies depending on the reason for his departure. The agreement provides
for an annual salary of $650,000 the first and second years of the agreement,
and $700,000 the third year. The agreement provides for an incentive cash
payment of $250,000 payable upon the expiration of his first year of employment,
if he is still then employed by the Company. In each of fiscal years 1997, 1998
and 1999, Mr. Crystal is eligible to receive a bonus of 25% to 100% of his then
current salary (pro-rated to apply for six months and five months, respectively,
in the cases of fiscal years 1997 and 1999), depending upon the Company's
achievement of certain financial performance thresholds established by the Board
and utilized by comparable companies in the specialty retail industry. Mr.
Crystal received a $350,000 signing bonus and will receive a bonus of $200,000
upon his permanent relocation to the Baltimore area. The Company's payment
obligations under the agreement are secured by a letter of credit.
Pursuant to the agreement Mr. Crystal has been granted an option to purchase
up to 2% of the common stock of the Company issued and outstanding upon the
reorganization of the Company following its emergence from Chapter 11, at a
price per share equal to 50% of the average of the trading price per share of
New Common Stock over the 10-day period commencing on the 20th day on which New
Common Stock is first traded publicly. The option would vest in full on the
later of June 28, 1996 or the effective date of a plan of reorganization. On
each of July 10, 1996 and 1997, Mr. Crystal will receive an additional option to
purchase up to 1% of the New Common Stock (assuming exercise of all then
outstanding options, warrants and other convertible securities, other than
options and warrants issued with respect to New Common Stock in connection with
a plan of reorganization) at a price equal to the average of the trading price
of the New Common Stock over the 20 days immediately preceding the date of such
grants or, if the effective date of the plan of reorganization has not then
occurred, the 10-day period commencing on the 20th day on which the New Common
Stock is first traded. These additional options will each vest in three equal
annual increments on the first, second and third
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anniversaries, respectively, of the date of grant. All options shall vest
immediately upon his death or in the event of termination by the Company without
Cause or by him for Good Reason (as defined in the agreement). If his employment
is terminated for Cause or he terminates other than for Good Reason, all
unvested options shall immediately terminate. These options shall expire upon
the tenth anniversary of the date of grant and are subject to antidilution
protection except with respect to the issuance of warrants, options or other
similar rights with respect to common stock issued in connection with a plan of
reorganization.
If the Company terminates Mr. Crystal's employment without Cause and other
than for death and disability or if Mr. Crystal terminates his employment for
Good Reason, which includes the Company's conversion to a Chapter 7 bankruptcy,
an assumption of control of the Company by a competitor to which Mr. Crystal is
not agreeable, or the Company's failure to cause Mr. Crystal to be elected
Chairman of the Board within one year following the Company's emergence from
Chapter 11, and such termination occurs prior to the effective date of a plan of
reorganization, he is entitled under his agreement to receive $2,250,000, which
amount shall be reduced by $54,167 monthly, if terminated during this first year
of employment; $975,000, if terminated during the second year of employment; or
$1,050,000, if terminated during the third year. If such termination occurs on
or after the effective date of a plan of reorganization, Mr. Crystal is entitled
to $975,000 if terminated during his first or second year of employment, or
$1,050,000 if terminated during his third year of employment. In addition, Mr.
Crystal would receive any then accrued but unpaid compensation. If such
termination occurs prior to the effective date of a plan of reorganization and
following an assumption of control by a competitor which prevents, or will
prevent, the issuance of New Common Stock of the Company to Mr. Crystal upon the
exercise of his options, then the Company shall pay an option cancellation fee
to Mr. Crystal, such fee to be calculated by multiplying the value of the
stockholders' equity in the Company (as determined by the Bankruptcy Court) by a
percentage ranging from 2% if the termination occurs in the first year of the
employment agreement to 4% if during the third year, and then reducing that
amount by the price Mr. Crystal would have had to pay to exercise options to
purchase the shares. If the Company fails to renew Mr. Crystal's agreement upon
expiration of its term, the Company shall pay him $700,000 plus any then accrued
but unpaid compensation.
The agreement provides for such additional benefits as are customary for
executives of the Company, for the payment of relocation costs and certain legal
expenses, for the maintenance for Mr. Crystal's benefit of a term life insurance
policy and disability insurance, and for an automobile allowance.
Mr. Tworecke has an employment agreement with the Company for a term
expiring on December 31, 1996, subject to earlier termination for Cause (as
defined in such agreement). The agreement contains an agreement not to compete
against the Company. Pursuant to the agreement, Mr. Tworecke is entitled to a
minimum salary of $325,000 and to a bonus of up to 40% of salary (based on
achievement of Company earnings and return on investment targets established by
the Board), with a minimum bonus for fiscal 1995 of $40,000. The agreement
provides for a grant of options to purchase 200,000 shares of common stock at an
exercise price of $2.00 per share (the fair market value on the date of grant)
pursuant to the 1989 Long Term Incentive Plan and for such additional benefits
as are customary for executives of the Company, and for the payment of certain
relocation expenses.
If the Company terminates Mr. Tworecke's employment without Cause and other
than for death and disability or if, following certain changes of control of the
Company Mr. Tworecke is assigned substantially modified duties and he terminates
his employment, he is entitled under his agreement to
8
<PAGE>
receive one year's salary and benefits, a pro rata share of any accrued bonus
and the vested portion of his retirement benefit (See "--Retirement Plan"),
offset by any earnings and benefits from new employment.
Mr. Spagna's employment agreement is on substantially the same terms as Mr.
Tworecke's agreement, except that the agreement provides for a minimum annual
salary for Mr. Spagna of $275,000 and for a minimum bonus for fiscal 1995 of
$55,000. If the Company terminates Mr. Spagna's employment without Cause and
other than for disability, he is entitled under his agreement to receive one
year's salary and benefits, a pro rata share of any accrued bonus and the vested
portion of his retirement benefit (See "--Retirement Plan"), offset by any
earnings and benefits from new employment.
In November 1994, the Company retained the services of Meridian Ventures,
Inc. ("Meridian") to assist in the turnaround and management of the Company. In
accordance with the terms of the agreement, Thomas C. Shull and James P. Kenney,
both principals of Meridian, served as full-time officers of the Company.
Messrs. Shull and Kenney, and any other Meridian personnel deemed appropriate by
Meridian, were responsible for providing the management services required of
Meridian under the agreement in a manner consistent with the policies adopted by
the Board of Directors of the Company and consistent with Chapter 11 of the
United States Bankruptcy Code. Under the agreement, the Company provided
director and officer liability insurance coverage for Messrs. Shull and Kenney
and had agreed under certain circumstances to indemnify and hold harmless
Meridian and Messrs. Shull and Kenney for claims arising in connection with the
agreement and the services provided thereunder. For such service, the Company
agreed to pay Meridian a monthly management fee of $95,000 and to provide
reimbursement for reasonable out-of-pocket business expenses.
The Company's agreement with Meridian expired pursuant to its terms on June
30, 1995. Following the expiration of the agreement, the Company entered into a
new agreement with Meridian on substantially similar terms. Pursuant to the
terms of the new agreement, the Company also agreed to pay Meridian a bonus of
$75,000 upon the consummation of the replacement debtor-in-possession financing
facility and a bonus of $50,000 upon the confirmation of a plan of
reorganization. This agreement expired on July 31, 1995.
Each of these agreements has been approved by the Bankruptcy Court.
SEVERANCE ARRANGEMENTS
In December 1994, Mr. Rodriguez, former officer, resigned from the Company
after 23 years with the Company. In January 1995, Mr. Sullivan, former officer,
resigned after 23 years of service. The Board of Directors approved, and the
Bankruptcy Court approved, severance arrangements with Messrs. Rodriguez and
Sullivan. Pursuant to these arrangements, the Company agreed to pay Messrs.
Sullivan and Rodriguez up to $440,967 and $298,792, respectively, representing,
in the case of Mr. Sullivan, one year's salary, and in the case of Mr.
Rodriguez, eighteen months' salary. These payments may be reduced by the Company
by an amount equal to any earnings received from new employment during the
period commencing six months from the date of termination. The Company also has
agreed to accelerate the vesting of 36,000 shares of restricted stock and
options to purchase 165,000 shares as to Mr. Sullivan and of 15,000 shares of
restricted stock and options to purchase 69,392 shares as to Mr. Rodriguez. All
of such stock and options had previously been issued. In addition, Messrs.
9
<PAGE>
Sullivan and Rodriguez were paid for unused vacation time and were given
automobiles used by them when they were employed by the Company.
The Company also has a severance arrangement with Mr. Kaufman, approved by
the Bankruptcy Court. Under the terms of this agreement, in the event that Mr.
Kaufman is terminated by the Company other than for Cause (as defined in his
agreement) the Company has agreed to pay Mr. Kaufman one year's salary plus
salary equal to one week for each year of service with the Company. These
payments may be reduced by the Company by an amount equal to any earnings
received from new employment during the period commencing six months from the
date of termination.
Mr. Austin is a participant in the Company's severance plan for certain
employees. In accordance with the terms of such plan, upon termination other
than for Cause (as defined in this plan), Mr. Austin would receive cash equal to
10 months' salary and additional cash equal to one week's salary for each year
of service as of the date of termination. Amounts in excess of the equivalent of
six months' salary would be subject to reduction by the Company in an amount
equal to any earnings received by the officer within a stated period following
termination.
OPTION GRANTS
The following table shows, as to each Named Executive Officer, options to
purchase Common Stock granted by the Company under the 1989 Long Term Incentive
Plan in fiscal 1995.
OPTION GRANTS IN FISCAL 1995
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED ANNUAL
RATES OF APPRECIATION
INDIVIDUAL GRANTS FOR STOCK PRICE
-------------------------------------------------- APPRECIATION FOR OPTION
% OF OPTIONS TERM
OPTIONS GRANTED TO ALL EXERCISE (END-OF-YEAR VALUE)(1)
GRANTED EMPLOYEES IN PRICE EXPIRATION -------------------------
NAME (SHARES) FISCAL 1995 PER SHARE DATE 0% 5% 10%
--------------------------------------- -------- -------------- --------- ---------- --- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
L. Weinglass........................... 0 0 % $-- -- 0 $ 0 $ 0
T. Shull............................... 0 0 -- -- 0 0 0
M. Sullivan............................ 0 0 -- -- 0 0 0
J. Kenney.............................. 0 0 -- -- 0 0 0
I. Kaufman............................. 0 0 -- -- 0 0 0
K. Rodriguez........................... 0 0 -- -- 0 0 0
F. Tworecke............................ 200,000 9.10 2.00 8/1/04 0 251,558 637,497
L. Spagna.............................. 200,000 9.10 2.00 6/1/04 0 251,558 637,497
J. Austin.............................. 5,000 0.23 3.50 2/15/04 0 11,006 27,890
</TABLE>
------------
(1) Represents arbitrarily assumed rates of appreciation of the Common Stock
price, mandated by the SEC's rules, compounded annually over the term of the
option and are not intended to forecast possible future appreciation, if
any, of the Company's Common Stock. The Company did not use an alternative
valuation for a grant date valuation, as the Company is not aware of any
formula which will determine with reasonable accuracy a present value of
such options based on future unknown or volatile factors. The market value
of the Common Stock on the date of grant was $2.00; the value of the Common
Stock at the end of the options' term, based on a 5% compounded growth rate,
would be $3.26 per share and based on a 10% compounded growth rate would be
$5.19 per share. No gain to the optionees is possible without an increase in
stock price which will benefit all shareholders commensurately. A zero
percent gain in stock price will result in zero dollars for the optionee.
10
<PAGE>
OPTION EXERCISES
The following table shows, as to the individuals named in the Summary
Compensation Table above, information concerning stock option exercises during
fiscal 1995 and fiscal year-end values.
AGGREGATE OPTION EXERCISES IN FISCAL 1995
AND FISCAL 1995 YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES ACQUIRED VALUE 1995 FISCAL YEAR END 1995 FISCAL YEAR(1)
NAME ON EXERCISE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
-------------------------- --------------- -------- ------------------------- ------------------------
<S> <C> <C> <C> <C>
L. Weinglass.............. 0 0 0/0 0/0
T. Shull.................. 0 0 0/0 0/0
M. Sullivan............... 0 0 481,893/0 0/0
J. Kenney................. 0 0 0/0 0/0
I. Kaufman................ 0 0 149,814/85,750 0/0
K. Rodriguez.............. 0 0 169,393/0 0/0
F. Tworecke............... 0 0 0/200,000 0/0
L. Spagna................. 0 0 0/200,000 0/0
J. Austin................. 0 0 0/5000 0/0
</TABLE>
------------
(1) Based upon an assumed fair market value of $1.50 per share, which was the
closing price on January 28, 1995.
RETIREMENT PLAN
The Company has supplemental retirement agreements with Messrs. Sullivan,
Kaufman, Rodriguez, Tworecke, Spagna and Austin. The agreements provide for
lifetime annual benefits payable upon retirement at age 65, adjusted annually
for inflation up to 5% per year, or upon retirement at age 60, without such
adjustment. If an officer dies, his designated beneficiary will receive up to 15
annual payments. If he is disabled, annual benefits will be paid commencing at
age 65. If his employment ends prior to retirement, he will receive the full
annual benefit commencing at age 65 if he has been employed for seven years and
a pro rata benefit if for fewer than seven years. The Company has obtained
insurance on each officer to fund benefits payable under the agreements. The
annual benefits payable to each Named Executive Officer upon retirement at age
65, based upon amounts payable as of August 23, 1995, are: Sullivan and Kaufman,
$150,000 each; Rodriguez, $100,000; Tworecke, Spagna and Austin, $0 each.
11
<PAGE>
STOCK PERFORMANCE GRAPH
The following stock performance graph compares the five-year cumulative
total return, as of January 31 of each year, on shares of the Company's Common
Stock to the cumulative total return for the same period of the Standard &
Poor's 500 Index and of an index of peer group companies containing the
companies which the Company believes are its most direct competitors in the
specialty apparel business. The graph assumes that the value of the investment
in the Company and each index at January 31, 1990 was $100 and that all
dividends were reinvested.
COMPARISON OF CUMULATIVE TOTAL RETURN
(ASSUMES INITIAL INVESTMENT OF $100 AND REINVESTMENT OF DIVIDENDS)
[STOCK PERFORMANCE GRAPH]
1990 1991 1992 1993 1994 1995
---- ------ ------ ------ ------ ------
Merry-Go-Round 100 201.93 174.51 237.39 47.38 22.74
Peer Group(1) 100 120.80 182.00 166.39 137.79 116.48
S&P 500 100 108.38 132.99 147.06 166.00 166.88
------------
(1) Peer Group comprises Charming Shoppes, Inc., DEB Shops, Inc., Edison
Brothers Stores, Inc., Gantos, Inc., The GAP, Inc., Jay Jacobs, Inc., The
Limited, Inc., Melville Corporation, Petrie Stores Corporation, United
States Shoe Corporation and The West Seal, Inc.
12
<PAGE>
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of August 15, 1995, based on
information known to the Company or, in the case of certain persons, on
Schedules 13D or 13G filed to date, with respect to beneficial ownership of
shares of the Company's Common Stock by each person known to the Company to own
5% or more of its Common Stock (determined in accordance with the applicable
rules of the SEC) including outstanding options exercisable within 60 days, by
each director, nominee director, Named Executive Officer, and by all directors
and current executive officers as a group.
<TABLE>
<CAPTION>
PERCENT
NAME NUMBER OF SHARES OUTSTANDING
---------------------------------------------------------- ---------------- -----------
<S> <C> <C>
FMR Corp. 7,201,602(l) 13.35%
82 Devonshire Street
Boston, Massachusetts
Beth H. Goldsmith 5,006,277(2) 9.29
c/o Alan E. Berkowitz & Associates
802 Mercantile Bank & Trust Building
Baltimore, Maryland 21201
Alan E. Berkowitz 4,937,356(2)(3) 9.15
Alan E. Berkowitz & Associates
802 Mercantile Bank & Trust Building
Baltimore, Maryland 21201
Neil Ambach 4,536,588(2) 8.41
c/o Alan E. Berkowitz &: Associates
802 Mercantile Bank & Trust Building
Baltimore, Maryland 21201
Leonard Weinglass 2,853,019(4) 5.29
P.O. Box 1509
Aspen, Colorado 81612
T. Rowe Price Associates, Inc. 2,757,200(5) 5.11
100 East Pratt Street
Baltimore, Maryland 21202
Michael D. Sullivan 607,841(6) 1.12
Isaac Kaufman 179,644(7) *
Ken Rodriguez 175,062(8) *
Joseph Nusim 0 *
Stephen Wertheimer 50,000 *
Charles Yamarone 0 *
Frank Tworecke 40,000(9) *
Louis Spagna 40,000(9) *
Raymond F. Altman 410,213(10) *
Thomas Shull 0 *
James Kenney 0 *
Jeffrey Austin 1,000(11) *
All current directors and executive officers as a group 5,266,463(12) 9.77%
(11 persons)
</TABLE>
------------
* Less than 1%.
(Footnotes on following page)
13
<PAGE>
(Footnotes for preceding page)
(1) FMR Corp. beneficially owns, through Fidelity Management Research Company
("Fidelity"), a wholly owned subsidiary, as investment advisor to certain
funds generally offered to limited groups of investors ("Fidelity Funds"),
3,067,921 shares, or approximately 5.49% of the outstanding shares of the
Company, and through Fidelity Management Trust Co., ("FMTC"), the managing
agent for various private investment accounts, primarily employee benefit
plans and certain other funds which are generally offered to limited groups
of investors (the "Accounts"), 4,133,681 shares, or approximately 7.39% of
the outstanding shares of the Company. The number of shares held by the
Fidelity Funds includes 792,321 shares of Common Stock resulting from the
assumed conversion of $11,884,934 principal amount of a Convertible Fixed
Rate Note due May 16, 1997 ("Convertible Note") (66.666 shares of Common
Stock for each $1,000 principal amount of the note). The number of shares
held by the Accounts includes 1,188,481 shares of Common Stock resulting
from the assumed conversion of $17,827,400 principal amount of the
Convertible Note.
The Fidelity Funds and the Accounts have the option to convert the
Convertible Note until May 31, 1995, although the Fidelity Funds and the
Accounts have informed the Company that they do not intend to exercise
the conversion option. Without converting the Convertible Note the
Fidelity Funds and Accounts own 9.33% of the outstanding shares of the
Company.
FMR, through its control of Fidelity, investment advisor to the Fidelity
Funds, and the Funds each has sole power to dispose of the shares. FMR
does not have the sole power to vote or direct the voting of the 3,067,921
Shares owned directly by the Fidelity Funds, which power resides with the
Funds' Boards of Trustees. Fidelity carries out the voting of the shares
under written guidelines established by the Funds' Board of Trustees. FMR,
through its control of FMTC, investment manager to the Accounts, and the
Accounts each has sole dispositive power over 4,133,681 shares and sole
power to vote or to direct the voting of 4,133,681 shares.
(2) Schedule 13D states that Beth H. Goldsmith, Alan E. Berkowitz and Neil
Ambach are trustees with shared voting and dispositive power with respect
to four testamentary trusts which each holds 946,500 shares of Company
Common Stock. Mrs. Goldsmith is the beneficiary of one of these trusts and
her deceased husband's three children are beneficiaries of the remaining
three trusts. She may disclaim beneficial ownership of shares held by such
three trusts. Mrs. Goldsmith is a trustee of The Goldsmith Foundation,
Inc., which holds 75,939 shares of Company Common Stock, with respect to
which she has shared voting and dispositive power and of which she may
disclaim beneficial ownership. Mrs. Goldsmith and Mr. Berkowitz are
trustees and officers of the Goldsmith Family Foundation, Inc. and Mrs.
Goldsmith, Mr. Berkowitz and Mr. Ambach are trustees of the Goldsmith Life
Insurance Trust which hold 393,750 and 750,000 shares, respectively, of
Company Common Stock, with respect to which they have shared voting and
dispositive power and of which they each may disclaim beneficial ownership.
Mrs. Goldsmith and Messrs. Berkowitz and Ambach also are the personal
representatives of the Estate of Harold Goldsmith, which holds 588 shares,
with respect to which they have shared voting and investment power and as
to which each of such persons may disclaim beneficial ownership.
The shares held by the testamentary trusts, The Goldsmith Family
Foundation, Inc., The Goldsmith Life Insurance Trust and the Estate are
included in the numbers of shares owned beneficially by Mr. Berkowitz and
Mrs. Goldsmith shown in the table above. Also included in Mrs. Goldsmith's
number are the shares held by The Goldsmith Foundation, Inc. The shares
held by the testamentary trusts and the Estate are also included in the
number of shares owned beneficially by Mr. Ambach.
(Footnotes continued on following page)
14
<PAGE>
(Footnotes continued from preceding page)
(3) Includes 6,000 shares which may be acquired upon exercise of options
exercisable within 60 days and 18 shares owned by Mr. Berkowitz's daughter.
Mr. Berkowitz may disclaim beneficial ownership of these shares.
(4) Includes 72,294 shares held of record by The Weinglass Foundation, Inc., of
which Mr. Weinglass is president and a trustee. Mr. Weinglass may disclaim
beneficial ownership of these shares. The shares owned by Mr. Weinglass
individually are owned with sole voting and investment powers.
(5) These shares are held by various individual and institutional investors for
which T. Rowe Price Associates, Inc. ("Price Associates") serves as
investment adviser with power to direct investments and/or sole power to
vote the shares. Price Associates expressly disclaims beneficial ownership
of such shares.
(6) Includes 481,893 shares which may be acquired upon exercise of options
within 60 days.
(7) Includes 165,644 shares which may be acquired upon exercise of options
within 60 days and 14,000 restricted shares subject to forfeiture as to
which Mr. Kaufman has sole voting and no investment power.
(8) Includes 169,393 shares which may be acquired upon exercise of options
within 60 days.
(9) Includes 40,000 shares which may be acquired upon exercise of options
within 60 days.
(10) Includes 6,000 shares which may be acquired upon exercise of options within
60 days and 5,287 shares owned by Mr. Altman's minor children. Mr. Altman
may disclaim beneficial ownership of these shares. Mr. Altman is a trustee
of the Goldsmith Family Foundation, Inc. which holds 393,750 shares of
Company Common Stock with respect to which he shares voting and dispositive
power and of which he may disclaim beneficial ownership.
(11) Includes 1,000 shares which may be acquired upon exercise of options within
60 days.
(12) Includes 244,894 shares which may be acquired upon exercise of options
within 60 days and 14,000 restricted shares subject to forfeiture as to
which the officers have sole voting and no investment power.
The shares owned beneficially by directors, nominees and executive officers
were owned with sole voting and investment powers except as indicated above.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
In fiscal 1995, Messrs. Shull, Kenney, Tworecke, Spagna, Austin and Reiners
did not file Forms 3 in connection with their respective appointments as
executive officers of the Company. On such forms or on a subsequent Form 5,
Messrs. Tworecke, Spagna and Austin would have reported one grant of options
each.
15
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In July 1995, Mr. Wertheimer, the Chairman of the Board of the Company, and
the Company agreed that Mr. Wertheimer provide assistance to the Chief Executive
Officer by overseeing the bankruptcy administrative process and certain other
Company matters in order to enable the Chief Executive Officer to focus on
operations. In exchange for such services, the Company will pay Mr. Wertheimer
$250,000 annually.
The Company leases three cooperative apartments in a building in New York
City from a partnership of which Mr. Weinglass is a 50% partner and which the
Estate of Harold Goldsmith, of which Mr. Berkowitz is a personal representative,
is a 50% partner, for use during approximately 40 weeks of each year by the
Company's merchandise managers and buyers when they travel to New York City's
garment district. The apartments are not used as residences by any corporate
personnel. In fiscal 1995, the Company paid aggregate rent of $103,200 with
respect to these apartments. The monthly rentals paid by the Company for the
three apartments currently total $8,600. The Company pays for all utilities and
repairs not paid by the cooperative association.
The Company leases storage space, totaling approximately 136,000 square
feet, in Towson, Maryland from The Arcade Partnership. Mr. Weinglass and the
Estate of Harold Goldsmith are each a 50% partner in the partnership. The
aggregate payments by the Company under the leases were approximately $166,000
in fiscal 1995.
INDEPENDENT AUDITORS
The Board of Directors has selected and recommends the ratification of the
appointment of KPMG Peat Marwick as the Company's independent auditors for the
fiscal year ending January 27, 1996.
Representatives of KPMG Peat Marwick are expected to be present at the
meeting. They will be given the opportunity to make a statement if they desire
to do so and will be available to respond to appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR RATIFICATION OF THE APPOINTMENT
OF THE INDEPENDENT AUDITORS.
VOTING INFORMATION
A quorum for the meeting requires the presence in person or by proxy of
holders of a majority of the outstanding shares of common stock. Votes cast by
proxy or in person at the meeting will be tabulated by the Company in accordance
with Maryland law. Abstentions, "broker non-votes" (i.e., proxies from brokers
or nominees indicating that such persons have not received instructions from the
beneficial owner or other persons entitled to vote shares as to a matter with
respect to which the brokers or nominees do not have discretionary power to
vote) and votes withheld will be treated as present for purposes of determining
the presence of a quorum but will be disregarded in calculating the votes cast
as to any matter.
16
<PAGE>
The Company's ByLaws provide that no business, including a nomination for
election of a director, may be brought before a meeting of shareholders by any
shareholder unless the shareholder has given written notice of the business to
the Company's Secretary not less than 15 days nor more than 30 days prior to the
meeting (or, with respect to a proposal required to be included in the Company's
proxy statement pursuant to Rule 14a-8 of the Securities Exchange Act of 1934,
or its successor provision, the earlier date such proposal was received). If
less than 30 days' public notice of the meeting has been given, the shareholder
notice must be received within 10 days following notice or publication of the
date of the meeting. The notice must include certain information concerning the
shareholder, the business the shareholder proposes to bring before the meeting
and, in the case of a nomination for director, the nominee. To be considered at
the meeting matters must be raised upon a motion duly made by a natural person
present at the meeting who either is a shareholder of the Company or is acting
on behalf of a shareholder of the Company, and seconded. A copy of the ByLaws
may be obtained from the Secretary of the Company at the address set forth in
the accompanying notice.
DATE FOR SUBMISSION OF STOCKHOLDER PROPOSALS
Stockholder proposals to be included in the Company's proxy material for the
1996 Annual Meeting of Stockholders must be received at the Company's principal
executive offices not later than May 23, 1996.
OTHER BUSINESS
As of the date of this Proxy Statement, the Company does not intend to bring
any other matters before the meeting requiring action of the stockholders, nor
does it have any information that other matters will be brought before the
meeting. However, if any other matters requiring the vote of the stockholders
properly comes before the meeting, it is the intention of the persons named in
the enclosed form of proxy to vote the proxy in accordance with their best
judgment in the interest of the Company.
ISAAC KAUFMAN
Secretary
September 20, 1995
17
<PAGE>
MERRY-GO-ROUND ENTERPRISES, INC.
3300 Fashion Way
Joppa, Maryland 21085
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Richard Crystal and Isaac Kaufman and
each or either of them, as proxies of the undersigned with several powers of
substitution, to act and vote all shares of the Common Stock of Merry-Go-Round
Enterprises, Inc. which the undersigned is entitled to vote at the Annual
Meeting of Stockholders of the Company to be held on October 11, 1995 and at any
adjournments thereof. The undersigned acknowledges receipt of notice of the
meeting and the Proxy Statement.
<PAGE>
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS DIRECTED BELOW OR, IF A
DIRECTION IS NOT INDICATED, WILL BE VOTED FOR PROPOSALS 1 AND 2. THE BOARD
RECOMMENDS A VOTE "FOR" EACH PROPOSAL.
1. ELECTION OF DIRECTORS:
FOR all nominees WITHHOLD AUTHORITY
listed to the right to vote for all nominees
(except as marked listed to the right
to the contrary)
[ ] [ ]
NOMINEES: Richard P. Crystal, Stephen Wertheimer, Raymond F. Altman,
Alan E. Berkowitz, Isaac Kaufman, Joseph Nusim and Charles A.
Yamarone.
INSTRUCTIONS: To withhold authority to vote for any individual
nominee, print that nominee's name in the space provided below.
_______________________________________________________________________________
2. RATIFICATION OF KPMG PEAT MARWICK AS
INDEPENDENT AUDITORS FOR THE COMPANY:
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
3. In their discretion, the proxies are authorized to vote upon such other
matters as may properly come before the meeting.
Dated:_________________________, 1995
____________________________________(SEAL)
____________________________________(SEAL)
Please sign exactly as name appears at
left. When shares are held by joint
tenants, both should sign. When signing
as attorney, executor, administrator,
trustee, or guardian, please give full
title as such. If a corporation, please
sign in full corporate name by President
or other authorized officer. If a
partnership, please sign in partnership
name by authorized person.
PLEASE MARK, SIGN, DATE AND MAIL IN THE ENCLOSED ENVELOPE
NO POSTAGE NEEDED IF MAILED IN THE UNITED STATES
