SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended January 28, 1995.
--- 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 1-10491
MERRY-GO-ROUND ENTERPRISES, INC.
(Exact name of registrant as specified in its charter)
Maryland 52-
0913402
(State or other jurisdiction of (I.R.S.
Employer
incorporation or organization) Identification
No.)
3300 Fashion Way, Joppa, Maryland 21085
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (410)
538-1000
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which
Registered
Common Stock, par value New York Stock Exchange, Inc.
$.01 per share
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained
herein, and will not be contained, to the best of
registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]
Aggregate market value of the voting stock held by non-
affiliates of the registrant: $50,560,320 based on the
closing price of the stock on the New York Stock Exchange on
April 25, 1995.
The number of outstanding shares of the registrant's common
stock as of April 25, 1995: 53,931,008
<PAGE>
Part I
Item 1. Business
INTRODUCTION
The Company is a national specialty retailer of
contemporary fashions primarily for young men and women.
Approximately 70% of the Company's sales are of men's
apparel. In addition to its fashion selection, the Company
emphasizes merchandise display, store location and design
and personalized service to the customer. As of January 28,
1995, the geographic distribution of the Company's 1,006
retail stores by regions of the United States was as
follows: East North Central, 231; East South Central, 55;
Middle Atlantic, 167; Mountain, 36; New England, 71;
Pacific, 86; South Atlantic, 208; West North Central, 37;
and West South Central, 115.
On January 11, 1994 (the "petition date"), the Company
and two of its subsidiaries filed voluntary petitions for
relief under Chapter 11 ("Chapter 11") of Title 11 of the
United States Code (the "Bankruptcy Code") in the United
States Bankruptcy Court for the District of Maryland,
Baltimore Division (the "Court"). During fiscal 1995,
various other subsidiaries of the Company filed voluntary
petitions for relief under Chapter 11. The Company and such
subsidiaries (collectively the "MGRE debtors") are presently
operating their businesses as debtors-in-possession under
the jurisdiction of the Court. In connection with its
reorganization, the Company may cause certain other
subsidiaries to file voluntary petitions for relief under
Chapter 11. As debtors-in-possession, the MGRE debtors may
not engage in transactions outside of the ordinary course of
business without approval of the Court, after notice and
hearing. The Bankruptcy Code provides that all liabilities
as of the petition date are subject to restructure under the
terms of a plan of reorganization. The following discussion
sets forth certain aspects of the Chapter 11 filing, but is
not intended to be an exhaustive summary. For additional
information regarding the effect of the filing on the
Company, reference should be made to the Bankruptcy Code.
Automatic Stay
Pursuant to Section 362 of the Bankruptcy Code, the
commencement of the Chapter 11 proceedings created an
automatic stay, applicable generally to creditors and other
parties in interest, of: (i) the commencement or
continuation of any judicial, administrative or other legal
proceedings against the MGRE debtors that was or could have
commenced prior to the filing; (ii) the enforcement against
the MGRE debtors or their property of any judgments obtained
prior to the filing; (iii) the taking of any action to
obtain possession of or to exercise control over any
property of the MGRE debtors, or to otherwise create,
perfect or enforce any lien against their property; or (iv)
the
<PAGE>
collection or assessment of any claims against or other
liabilities of the MGRE debtors that arose prior to the
filing.
Any entity may apply to the Court, upon an appropriate
showing of cause for relief from the automatic stay, to
exercise the foregoing and other remedies.
Resolution of Claims
Schedules were filed with the Court setting forth the
assets and liabilities of the Company and its subsidiaries
as of the petition date as shown in the Company's accounting
records. The Court established a bar date, October 14,
1994, by which date proofs of claim were required to be
filed for all amounts in dispute with or omitted from the
schedules of liabilities filed by the Company. The Company
intends to request that the Court establish a supplemental
bar date to enable the filing of proofs of claim by certain
persons who may not have received timely notice of the
original bar date. Differences between amounts shown by the
Company and claims filed by creditors, if any, are being
investigated and resolved. The ultimate amount and
settlement terms for any such liabilities will be subject to
a plan of reorganization (see "Plan of Reorganization"
below) and, accordingly, are not presently determinable.
Under the Bankruptcy Code, the rights of and ultimate
payments to impaired prepetition creditors and stockholders
may be substantially altered or, as to some classes, even
eliminated.
Acceptance or Rejection of Executory Contracts
Subject to Court approval and certain other
limitations, the Company has the right to assume or reject
real estate leases, personal property leases, service
contracts and other unexpired executory prepetition
contracts. In this context, "assumption" means that the
Company agrees to perform its obligations and cure existing
defaults under the executory contract. "Rejection" means
that the Company is relieved of its obligations to perform
further under the executory contract and is subject only to
a prepetition unsecured claim for damages for the breach
thereof.
Unless the Court, upon request of a party in interest
and after notice and hearing, fixes a date by which the
Company must elect to assume or reject an executory
contract, other than a nonresidential real property lease,
the Company may assume or reject such contracts in a plan of
reorganization (see "Plan of Reorganization" below). The
Court had fixed May 1, 1995, as the date by which the
Company must elect to assume or reject nonresidential real
property leases. The Company has filed a motion with the
Court seeking an extension of this deadline. The Company
expects that an extension will be granted. As of April 1,
1995, with Court approval, 293 retail property leases had
been rejected by the Company, leaving the landlords with the
right to file prepetition unsecured claims.
<PAGE>
The Company cannot presently determine with certainty
the additional number of store leases or other executory
contracts it will seek to reject. Likewise, the ultimate
aggregate liability which will result from the filing of
claims relating to such rejections cannot presently be
determined. Additionally, as a result of its being in
Chapter 11, the Company may experience difficulty renewing
certain leases.
Post Petition Matters
An official committee of unsecured creditors (the
"creditors' committee") has been appointed to represent the
interests of prepetition unsecured creditors and an official
committee of equity security holders (the "equity
committee") has been appointed to represent the interests of
the stockholders. Each of the committees has retained
counsel and financial advisors.
Rejection or modification of leases. When the MGRE
debtors filed their Chapter 11 petitions in January 1994,
the Company operated over 1,400 stores. Since January 1994,
the Company has initiated a comprehensive review of its
operations as part of an ongoing effort to improve financial
performance. As part of that review, the Company has been
analyzing its retail store locations, negotiating where
appropriate with its landlords, and eliminating
underperforming retail locations. Through September 1994,
the Company closed over 200 stores, including rejecting
certain leases.
In September 1994, the Company and its major
landlords negotiated a "blackout" agreement under which the
Company agreed that any store not closed by September 18,
1994 would remain open through December 31, 1994, and the
Company would pay rent through January 31, 1995. As a
result, the Company operated approximately 1,200 stores
through the Holiday season.
Following a careful analysis of store operations
through December 1994, the Company determined to close over
200 additional stores, rejecting leases where appropriate.
The Company has entered into agreements with landlords and
has Court approval of modifications of over 150 leases. In
connection with its ongoing review of operations, the
Company may close additional stores, reject additional
leases and request modifications to others. See "-
Acceptance or Rejection of Executory Contracts" above and
see description of the business plan under "Developments
Since the Third Quarter" below.
Management. In mid 1994, the Company hired new
presidents for each of its divisions, Louis Spagna and Frank
Tworecke. Mr. Spagna, President of the Menz Division,
previously served as President-Retail of Bugle Boy
Industries. Mr. Tworecke, President of Merry-Go-
Round/Cignal Division, previously served as Senior Vice
President and General Manager for men's, young men's and
children's apparel for
<PAGE>
Lazarus, a former division of Federated Department Store.
These new senior executives have led the implementation of
the reorganization of the Company's merchandise strategies
(see "Merchandising and Marketing"). While the Company
believes substantial progress has been made in these areas,
additional time is necessary to assess the results of these
efforts.
In November 1994, the Company hired Meridian
Ventures, Inc., ("Meridian"), a turnaround and venture
management firm, to assist in the turnaround of the Company,
subject to Court approval. In accordance with the Company's
agreement with Meridian, Thomas Shull, a principal of the
firm, was appointed Director and Chief Executive Officer and
another principal of the firm, James Kenney, was appointed
Executive Vice President and Chief Operating Officer. Their
appointment was subject to approval of the creditors' and
equity committees and the Court. In January 1995, the Court
with the consent of the committees approved the appointments
of Messrs. Shull and Kenney, and the former Chairman of the
Board and President resigned. Messrs. Shull and Kenney now
serve, respectively, as Chairman of the Board and Chief
Executive Officer, and President and Chief Operating
Officer. The Company's agreement with Meridian (the
"Meridian Agreement") terminates on June 30, 1995. A
committee comprising representatives of the Stakeholders is
presently conducting a search for a permanent Chief
Executive Officer ("Permanent CEO"). The selection of a
Permanent CEO is subject to approval by the Board and by the
Court. There is no assurance that a Permanent CEO will be
selected and approved by June 30, 1995. By its terms, the
Meridian Agreement may be extended on a month to month basis
until a plan of reorganization is confirmed. Each extension
is subject to the unanimous consent of the Stakeholders.
The parties have not agreed to extend the Meridian Agreement
nor is there certainty that it can be renewed even if a
Permanent CEO is not in place by June 30, 1995. A failure
to have an orderly transition in management could have an
adverse effect on the Company's business.
Developments since the third quarter. In December
1994, the Company's management team began to implement a
major expense reduction program, resulting in a reduction in
work force and the closing of certain underperforming stores
(see above). With Court approval, during January, February
and March, 1995 the Company also conducted going-out-of-
business sales at many of the closing locations.
In late December 1994, the Stakeholders presented the
Company with a term sheet for a proposed plan of
reorganization. The Company agreed to proceed with a plan
of reorganization which embodied the material business terms
of the term sheet. This process, involving extensive
discussions among the Company and the Stakeholders, resulted
in a consensual plan of reorganization (the Plan referred to
below), which was filed jointly by the Company and the
official committees on February 23, 1995.
<PAGE>
In January 1995, the Company produced a three-year
business plan. The business plan was furnished to the
Stakeholders and its material terms were made public by the
Company in late January. The implementation and validation
of the business plan is necessary for the successful
implementation of the Plan. The plan focuses on key
strategic and operational initiatives, including the
elimination of unprofitable store locations and reductions
in overhead. In addition, the plan contemplates a corporate
strategy and certain marketing and merchandising initiatives
designed to improve sales. These initiatives include
priority buying and selling directives which are geared
towards narrow and deep merchandise assortments, selective
vendor partnerships, stronger commitments to key fashion
trends, improved inventory management and effective customer-
driven selling and services. Initiatives designed to
improve selling include customer-driven selling techniques
and incentive compensation, labor scheduling more closely
linked to customer traffic patterns and better in-store
execution of merchandise plans. The business plan included
management's financial targets reflecting positive EBITDA
expectations of $31 million and net sales of $662 million
for fiscal 1996. These targets were based on assumptions as
of January 1995, including comparable store sales growth of
10.5%, 991 stores open, costs of sales, buying and occupancy
of 77.3% of net sales, and selling and administrative
expenses of 21.7% of net sales. The assumptions upon which
these targets are based are subject to major uncertainties,
some assumptions inevitably will not materialize,
unanticipated events and circumstances may occur and,
accordingly, the actual results achieved throughout will
vary from the targets and the variations may be material.
Although the Company believes that the assumptions
underlying the business targets, when considered on an
overall basis, are reasonable, there have been both positive
and negative variances with respect to certain of such
assumptions, more time is needed to validate such
assumptions, and there can be no assurance that the Company
will achieve the business targets.
The Company did not meet its sales targets under the
business plan for February and March 1995, but did meet its
business plan EBITDA targets for the same periods (based on
unaudited figures and subject to normal quarterly
adjustments). The ability to obtain a financing commitment
for post-effective date financing (the "Financing
Commitment") on terms consistent with the Plan is dependent
on the Company's ability to implement and validate the
business plan. The Company continually reviews its business
plan and may revise the targets from time to time.
Plan of Reorganization
The formulation of a plan of reorganization is the
principal effort in a Chapter 11 proceeding. A plan of
reorganization sets forth the means for satisfying the
holders of claims against and interest in the debtor. A
plan of reorganization may provide for terms ranging from a
complex restructuring of a debtor's business and its related
obligations to a simple liquidation of the debtor's assets.
In either event, upon confirmation of a plan it
<PAGE>
becomes binding on the debtor and all of its creditors and
equity holders, and the obligations owed by the debtor to
such parties are compromised and exchanged for the
obligations specified in such plan.
The Bankruptcy Code provides that, if the debtor files
a plan of reorganization during a certain exclusivity
period, which may be extended by the court, no other party
may file a plan of reorganization until 180 days (subject to
extension if the exclusivity period has been extended) have
elapsed after the filing of the Chapter 11 case (the
"Solicitation Period"). Until the end of the Solicitation
Period, a debtor has the exclusive right to solicit
acceptances of a plan. The bankruptcy court may extend the
Solicitation Period. If a debtor fails to obtain the
requisite acceptances of the plan during the Solicitation
Period, then any party-in-interest may file a competing plan
of reorganization.
After a plan of reorganization is filed, the holders of
claims against and interests in a debtor are permitted to
vote and to accept or reject the plan. Before soliciting
acceptances to the proposed plan, Section 1125 of the
Bankruptcy Code requires the debtor to prepare a disclosure
statement containing information of a kind, and in
sufficient detail, to enable an investor to make an informed
judgment about the plan. If all classes of claims and
equity interests accept a plan of reorganization, the
bankruptcy court may confirm the plan if the court
independently determines that the requirements of Section
1129 of the Bankruptcy Code have been satisfied, including
that the plan generally provides holders of claims or equity
interest with value for their interests that is not less
than those parties would receive if the debtor were
liquidated pursuant to a hypothetical liquidation occurring
under Chapter 7 of the Bankruptcy Code and that there is
reasonable probability that the debtor will be able to meet
its obligations under the plan without the need for further
financial reorganization. Under Chapter 11, approval of a
plan by a class of claims requires the approval of a
majority in number and two-thirds in amount of those claims
actually voting in such class. Approval of a plan by the
stockholders requires approval of the holders of two-thirds
of the number of shares actually voting. Only holders of
claims or stockholders whose rights are modified under the
plan ("impaired") will be entitled to vote. Under certain
circumstances, the bankruptcy court may confirm a plan that
has not been approved if such plan does not "discriminate
unfairly" and is "fair and equitable" as those terms are
used under the Bankruptcy Code. Once a plan has been
confirmed by the bankruptcy court it becomes effective upon
the fulfillment of any conditions set forth in the plan.
On February 23, 1995, the Company and its official
creditors' and equity committees (collectively, the "Plan
Proponents") filed a Joint Plan of Reorganization under
Chapter 11 of the Bankruptcy Code (the "Plan"). The
Solicitation Period expired on May 1, 1995, without the Plan
Proponents' having begun to seek acceptances of the Plan.
The Company has requested that the Court extend the
Solicitation Period. The
<PAGE>
Company expects that an extension will be granted. If the
Solicitation Period is not extended by the Court or if the
Plan Proponents fail to obtain acceptance of the Plan as
required by the Bankruptcy Code within the Solicitation
Period as extended, any party in interest may file a
competing plan of reorganization. There can be no assurance
that the Solicitation Period will be extended or that, if it
is extended, the Plan will be accepted by the holders of
claims and stockholders as required by the Bankruptcy Code.
Pursuant to a stipulation approved by the Court in
January 1995, the Company and the Stakeholders agreed that
the Stakeholders would be free to file a competing plan or
plans of reorganization at any time, including during the
Solicitation Period. The Company subsequently received a
copy of an agreement among the Stakeholders pursuant to
which the Stakeholders have agreed among themselves (i) to
ratify the terms of the Plan, (ii) to use their best efforts
to cause the Plan to be confirmed by June 30, 1995, (iii) as
to the official committees, to recommend the Plan (iv) as to
the other Stakeholders, not to support a competing plan of
reorganization and (v) to seek to cause the Company to
engage a nationally-recognized search firm to find a
permanent Chief Executive Officer. The agreement expires by
its terms on October 2, 1995 or on September 5, 1995 if no
Plan confirmation hearing has then been set or if the
hearing is set for after October 2, 1995.
Under the Plan, the Company would continue to exist as
a separate corporate entity with a revised capital
structure. The terms of the Plan provide distribution to
unsecured creditors of up to $130 million in cash and
interest-bearing securities plus 75% of the stock of the
reorganized company, and the distribution to existing
stockholders of 25% of the common stock of the reorganized
company assuming $225 million in allowed unsecured claims.
The Plan further provides that if allowed unsecured claims
exceed $225 million, the common stock issued to the existing
stockholders would be reduced by, and the common stock
issued to unsecured creditors would be increased by, one
percent for each $5.3 million of allowed unsecured claims in
excess of $225 million. Under the Plan, the percentage
ownership of existing stockholders in the reorganized
company would not be reduced below 10%. For each one
percent reduction in the percentage of common stock below
25% (down to 10%) issued to the existing stockholders, the
reorganized company would issue warrants to the existing
Stockholders to purchase one percent of the common stock for
an estimated exercise price of $2.0 million, exercisable for
three years. For each $1 million by which the cash
distributed to unsecured creditors exceeds $25 million,
existing stockholders would receive warrants to purchase
0.2% of the reorganized company's common stock, up to a
maximum of five percent of total new common shares
outstanding. These warrants would be exercisable for three
years at an estimated price of $1.6 million for each one
percent of the reorganized company's common stock.
<PAGE>
Conditions to the confirmation of the Plan are that
1) the Company obtain a Financing Commitment; 2) the notice
for a confirmation hearing be dated not later than September
5, 1995; and 3) the Court confirm the Plan no later than
October 2, 1995. The effectiveness of the Plan is subject
to the satisfaction or waiver of all conditions to the
advancement of funds under the Financing Commitment by the
effective date which may not be later than October 31, 1995.
Any condition may be waived by unanimous consent of the
Company, the creditors' and equity committees and two major
stakeholders, Fidelity Management & Research Company and
Bear, Stearns & Co., Inc. (collectively, the
"Stakeholders"), except for the Financing Commitment which
may be waived by majority consent of such parties.
The Company and the Stakeholders had been hopeful that
the Company would be able to emerge from Chapter 11 the
during summer of 1995. However, in view of the initial
discussions with potential Financing Commitment lenders and
the Company's results in February and March, 1995, the
Company recently announced that it anticipates a delay in
the confirmation of the Plan beyond June 30, 1995.
Successful implementation of the Plan will depend on,
among other things, the successful implementation and
validation of the Company's business plan, the availability
of a Financing Commitment on acceptable terms and
conditions, and acceptance of the Plan by the numbers and
amounts of impaired prepetition creditors and stockholders
required by the Bankruptcy Code. The Company's business
plan contains net sales and EBITDA targets. As previously
reported, the Company did not meet its net sales targets for
February and March, 1995, but did meet its EBITDA targets
for the same periods (based on unaudited figures and subject
to normal quarterly adjustments). There can be no assurance
that the Company will meet net sales and EBITDA targets in
the future or that it will be successful in the
implementation and validation of the present business plan.
In view of the uncertainties regarding the conditions
to the Plan's successful implementation, there can be no
assurance that the Plan will be confirmed or become
effective. The Plan may require material modification and,
in the event of a lack of agreement among the Company and
the Stakeholders as to such modification, could be
rescinded. If no plan of reorganization is successfully
implemented, the Company could be liquidated. Certain
modifications to the Plan or a failure to implement
successfully the Plan could have a material adverse effect
on the value of the stockholders' interest in the Company.
At this time it is not possible to predict the outcome
of the Company's Chapter 11 proceedings as a general matter,
or the effect of the proceedings on the Company or on the
interests of prepetition creditors and stockholders.
Because of this and other uncertainties, the value of the
Company's common stock is highly speculative. The
<PAGE>
uncertainty regarding the eventual outcome of the Chapter 11
proceedings and the effects of other unknown adverse factors
could threaten the Company's existence as a going concern.
Merchandising and Marketing
The Company's merchandising divisions have been
organized into two major divisions, each headed by a
division president and consisting of several operating
concepts. Each concept has one or two merchandise managers
and separate buying staffs. Concept merchandising management
is responsible for purchasing, pricing, markdowns, inventory
planning and allocating merchandise to the concept stores.
A computerized point-of-sale merchandise system aids in
accomplishing these tasks. The Company seeks to cause
frequent shipments to its stores to maintain a continuous
flow of current merchandise.
The Company's operating concepts are organized under
two divisions as follows:
MERRY-GO-ROUND/CIGNAL DIVISION
Merry-Go-Round
As of January 28, 1995, the Company operated 467 Merry-
Go-Round concept stores primarily under the names "Merry-Go-
Round" and "N E T Works". These stores average
approximately 3,000 square feet of selling space and offer
an assortment of moderate to higher-priced fashion apparel
for young men and women between the ages of 15 and 25. The
merchandise includes dress and casual pants, jeans, shirts,
blouses, dresses, outerwear and related men's and women's
accessories.
Cignal
As of January 28, 1995, the Company operated 73 Cignal
concept stores under the name "Cignal." These stores
average approximately 2,100 square feet of selling space and
offer high quality contemporary designer sportswear for men
and women between the ages of 25 and 45.
Boogies Diner
As of January 28, 1995, the Company operated three
Boogies Diner locations. These stores combine a
contemporary fashion boutique (with logo merchandising) with
a 1950's style All-American diner.
<PAGE>
MENZ DIVISION
Dejaiz/Attivo
As of January 28, 1995, the Company operated 232 Dejaiz
concept stores primarily under the names "DJ's - Fashion
Center For Men," "Dejaiz" and "Attivo." These stores
average approximately 2,800 square feet of selling space and
feature a complete collection of fashion apparel for young
men between the ages of 18 and 30. These stores carry a
wider and broader selection of young men's fashion
merchandise than Merry-Go-Round stores, offering a complete
wardrobe including dress and casual pants, jeans, shirts,
suits, sportcoats, outerwear and related accessories.
Chess King
As of January 28, 1995, the Company operated 214 Chess
King concept stores primarily under the names "Chess King"
and "Garage." These stores average approximately 1,900
square feet of selling space and offer a selection of
moderately priced casual pants, jeans, shirts, outerwear and
accessories, most of which consist of
private label merchandise. Chess King's customers are price-
conscious young men between the ages of 15 and 25.
The Company operated a small number of Club
International and Hollywood stores. The stores relating to
these concepts were closed during fiscal 1995 and the
supporting activities were eliminated.
The Company has no manufacturing facilities. It
purchases its merchandise from approximately 600 vendors and
is not dependent upon any single source of supply. It
maintains no material long-term or exclusive purchase
commitments or arrangements with any manufacturer.
Vendors ship virtually all merchandise directly to the
Company's distribution facility near Baltimore, where it is
received, inspected and priced before being shipped to the
stores by common carrier. The Company has a program of
automatic replenishment of merchandise inventory with
certain vendors with the objectives of insuring fresh
merchandise with deep assortments and reducing inventory
carrying costs.
Approximately 30% of the Company's sales are
represented by private label merchandise that focuses on
quality, fashion and value. The Company designs, but does
not manufacture this merchandise, which includes moderately
priced collections of casual apparel for men and women.
<PAGE>
The Company experiences the normal seasonal pattern of
the retail apparel industry with its peak sales occurring
during the Holiday and Back-to-School seasons.
The Company plans merchandise selection and builds inventory
levels prior to these seasons and realizes a substantial
portion of its annual sales during these seasons. Retail
companies in Chapter 11 may experience a limitation in
receipts of merchandise inventory due to their dependence on
trade credit from factors and vendors. The Company has
experienced such limitations from time to time as a result
of a decline in factor and vendor confidence and may
experience such limitations in the future.
The Company's advertising efforts for fiscal 1995 have
been primarily directed to cable music television (MTV and
VH-1) which captures a large portion of the Company's
targeted customers. The Company also advertises in national
fashion magazines and local shopping mall publications. The
Company does not have a major television advertising
campaign planned for fiscal 1996.
Store Operations
As of January 28, 1995, the Company operated 1,006
retail stores in 43 states and Washington, D.C. The stores
are located primarily in enclosed regional shopping malls
and are leased.
During fiscal 1995, the numbers of store openings, net
conversions to other concepts, and closings, were as
follows:
<TABLE>
<CAPTION>
Open at Stores Open at
Jan. 29 Stores Converted, Stores
Jan. 28
1994 Opened Net Closed
1995
<S> <C> <C> <C> <C> <C>
Concept
Merry-Go-Round 517 4 31 (85) 467
Dejaiz/Attivo 395 - (32) (131) 232
Chess King 417 1 (85) (119) 214
Cignal 80 - 2 (9) 73
Club International20 - - (20) -
Boogies Diner 5 - - (2) 3
Fashion Outlets - 3 84 (70) 17
Total 1,434 8 - (436) 1,006
</TABLE>
<PAGE>
The Company's store operations are led by three senior
vice presidents, assisted by several regional vice
presidents and district managers. Each of the Company's
stores is staffed by a manager, assistant manager and full
and part-time sales personnel. Supervisory personnel
regularly visit the stores to review merchandise inventory
levels, content and presentations, staff training, personnel
issues and inventory shrinkage and to monitor overall
operations.
The Company has a program of in-store video training of
personnel to assist them in the identification of customer
needs. Productivity reports and regular reviews are also
used to develop store personnel. Performance, compensation
and incentive programs for rewarding sales personnel are in
place.
Stores are designed with special emphasis on the
display of merchandise. The Company endeavors to keep its
stores in a high state of maintenance and the Company has in
place a remodeling program. The Company's business plan
provides for the remodeling of approximately 26 stores
during fiscal 1996.
The Company's stores conduct primarily a cash business
including sales on a layaway plan. All stores offer credit
through various national credit cards. During fiscal 1995,
credit card sales were approximately 30% of total sales.
Where sales are made on credit cards, the credit agency
assumes the full credit risk and pays the Company directly,
after deducting a service fee. The Company maintains a
policy of offering cash refunds, issuing charge card credits
or giving in-store credits if merchandise is returned within
30 days.
The stores conform to the operating hours of the malls
in which they are located and generally are open from 10:00
a.m. to 9:30 p.m., Monday through Saturday, and from 12:00
p.m. to 5:00 p.m. on Sunday.
Competition
The retail apparel business is highly competitive. The
Company's stores compete with national chains, local
independent retail stores and with regional and national
department store chains. Many of its competitors are
considerably larger than the Company and have substantially
greater financial and other resources. The Company competes
primarily on the basis of fashion selection, price,
merchandise display, store location and design and
personalized service to the customer.
Employees
As of January 28, 1995, the Company had approximately
11,000 employees, approximately 62% of whom were employed
part-time on a regular basis. In addition, a
<PAGE>
number of temporary employees are hired during the peak Back-
to-School and Holiday seasons. The Company has never had a
work stoppage and considers its employee relations to be
good.
Trademarks and Service Marks
"Merry-Go-Round," "DJ's - Fashion Center For Men,"
"Dejaiz," "Attivo," "Chess King," "Cignal" and several other
trademarks of lesser importance have been registered with
the United States Patent and Trademark Office.
Item 2. Properties
The Company's business is conducted from its
headquarters and distribution center located on a 44 acre
site near Baltimore, Maryland in Harford County, Maryland.
This facility is comprised of 240,000 square feet for
headquarters operations and 770,000 square feet for
warehousing and distribution. It is estimated that this
facility has the capacity for receiving, processing and
shipping merchandise for approximately 2,000 stores. The
Company owns the land, land improvements and building
comprising the site.
As of January 28, 1995, the Company owned a single
retail location in Washington, D.C. However, this property
was sold February 28, 1995. See Note 9 to the Consolidated
Financial Statements set forth in Item 8.
The Company leases all of its stores, generally for a
term of ten years. Under most leases, the Company is
required to pay, in addition to fixed minimum rental
payments, additional rent based on a percentage of gross
sales in excess of specified amounts, charges for real
estate taxes, common area maintenance fees, utility charges,
insurance premiums and mall association charges.
Item 3. Legal Proceedings
Except as described below and other than ordinary
routine litigation incidental to the business, neither the
Company nor any of its wholly-owned subsidiaries is a party
to any material pending legal proceedings.
On January 11, 1994 (the "petition date"), the Company
and two of its subsidiaries filed voluntary petitions for
relief under Chapter 11 in the Court (Chapter 11 Case Nos.
94-5-0161, 0162 and 0163 (SD)). During fiscal 1995, various
other subsidiaries of the Company filed voluntary petitions
for relief under Chapter 11. The MGRE debtors are in
possession of their respective properties and are
maintaining and operating their respective businesses as
debtors-in-possession under the jurisdiction of the
<PAGE>
Court pursuant to the provisions of Sections 1107 and 1108
of Chapter 11. The Company intends and desires to continue
the operation of its businesses and the management of its
properties and has filed the Plan (see "Business - Plan of
Reorganization" for further information regarding the Plan).
In connection with its reorganization, the Company may cause
certain other subsidiaries to file voluntary petitions for
relief under Chapter 11.
Under Chapter 11, actions to pursue litigation against
the Company are automatically stayed if the claim arose or
is based on events that occurred on or before the petition
date.
Between December 15, 1993 and January 11, 1994, nine
purported class actions were filed against the Company and
three of its officers in the United States District Court,
District of Maryland, seeking unspecified damages,
attorneys' fees and other relief. The complaints alleged
that during certain periods in 1993, in violation of certain
provisions of the Securities Exchange Act of 1934,
defendants misrepresented and failed to disclose material
facts about the business, financial condition and income of
the Company.
The cases were consolidated and an amended complaint
was filed as to the consolidated case. The plaintiffs in
this consolidated case were a purported class of persons who
acquired common stock, or options to purchase common stock,
of the Company during the period from November 24, 1993
through December 17, 1993. As a result of the Company's
filing a petition under Chapter 11, there is an automatic
stay in effect as to litigation against the Company.
Consequently, in this amended complaint, the Company was not
named as a defendant. On August 19, 1994, the court
dismissed the case against the individual defendants.
Plaintiffs appealed the dismissal and, on March 8, 1995, the
appeal was dismissed with prejudice.
Certain of the plaintiffs filed proofs of claim in the
Court making the same allegations as were made in the United
States District Court described above. The Company has
filed objections to those claims and intends to contest the
claims.
Item 4. Submission of Matters to a Vote of Security Holders
The Company did not submit any matter to a vote of its
security holders during the fourth quarter of fiscal 1995.
<PAGE>
PART II
Item 5. Market For the Registrant's Common Equity and
Related Stockholder Matters
MARKET AND DIVIDEND INFORMATION
The Company's common stock is currently traded on the New
York Stock Exchange (NYSE) under the trading symbol "MGR."
The table below shows the high and low closing prices on the
NYSE for the last two fiscal years.
<TABLE>
<CAPTION>
1995 1994
Period High Low High Low
<S> <C> <C> <C> <C>
First Quarter 3 5/8 2 1/8 17 1/2 12
1/4
Second Quarter 2 1/4 1 3/4 15 9 1/8
Third Quarter 2 1/8 1 1/8 9 5/8 7 1/4
Fourth Quarter 2 11/16 9 3/8 1 5/8
</TABLE>
As of April 25, 1995, there were 2,815 stockholders of
record. This number does not reflect the number of
beneficial owners of the Company's common stock for whom
shares are held by Cede & Co., certain brokerage firms and
others.
For each of the first three quarters of fiscal 1994,
the Company paid a quarterly dividend of $.0133 per share.
In the fourth quarter of fiscal 1994, the Company suspended
the dividend indefinitely. Under the current terms of its
debtor-in-possession financing agreement, the Company cannot
pay a dividend. Also, the Company cannot pay a dividend
without the prior approval of the Court while operating
under its jurisdiction. See "Management's Discussion &
Analysis of Financial Condition and Results of Operations-
Liquidity and Capital Resources."
<PAGE>
Item 6. Selected Financial Data
FIVE YEAR FINANCIAL SUMMARY
(In thousands, except per share and store data, ratios and
percentages.)
<TABLE>
<CAPTION>
Summary of Operations1995 1994(1) 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Net sales $782,816 $959,878 $877,499 $761,163 $628,127
Earnings (loss) before
reorganization costs and
income taxes (benefit)(86,729)(56,876) 59,812 36,038 59,993
Reorganization costs116,490 6,935 - - -
Earnings (loss) before income
taxes (benefit)(2)(203,219)(63,811) 59,812 36,038 59,993
Income taxes (benefit)(16,879)(18,187) 21,831 13,334 22,497
Net earnings (loss)(186,340)(45,624) 37,981 22,704 37,496
PER SHARE DATA
Net earnings (loss)(3.45) (.85) .71 .43 .73
Cash dividends declared - .04 .053 .053 .047
Book value .11 3.55 4.37 3.70 3.00
Weighted average shares outstanding 53,940 53,911 53,720 53,140
51,164
OTHER FINANCIAL INFORMATION
Net earnings (loss) as a
percent of net sales(23.8)% (4.8)% 4.3% 3.0% 6.0%
Working capital (3)$69,361 $174,465 $50,921 $51,721 $67,840
Ratio of current assets to
current liabilities (3)2.1 5.8 1.6 1.8 1.9
Total assets $328,423 $461,879 $364,705 $300,549 $272,954
Long-term debt (4) 10,000 10,000 29,997 30,368 30,813
Liabilities subject to compromise
under reorganization proceedings(4) 238,474 213,142 - - -
Stockholders' equity5,699 191,221 235,616 197,342 155,847
Number of stores at end of year1,006 1,434 989 825 675
</TABLE>
(1) On January 11, 1994, the Company filed voluntary
petitions under chapter 11 of the Bankruptcy Code. See
Management's Discussion and Analysis ("MD&A") and note 1 to
the consolidated financial statements.
(2) Fiscal 1994 includes a third quarter charge of $55.3
million (see MD&A).
(3) Fiscal 1995 and 1994 exclude liabilities subject to
compromise under the reorganization proceedings.
(4) See notes 6 and 9 to the consolidated financial
statements.
<PAGE>
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
MANAGEMENT'S DISCUSSION AND ANALYSIS
The Company is a national specialty retailer of
contemporary fashion primarily for young men and women. As
of January 28, 1995, the Company operated 1,006 stores in 43
states and Washington, D.C. The following discussion
explains material changes in the results of operations
comparing fiscal years 1995 and 1994 and significant
developments affecting the Company's financial condition
since the end of fiscal 1994.
CHAPTER 11 REORGANIZATION
On January 11, 1994, the Company and two of its
subsidiaries filed voluntary petitions for relief under
Chapter 11 in the Court. During fiscal 1995, various other
subsidiaries of the Company filed voluntary petitions for
relief under Chapter 11. The Company and such subsidiaries
are presently operating their businesses as debtors-in-
possession under the jurisdiction of the Court. As debtors-
in-possession, the Company and such subsidiaries may not
engage in transactions outside of the ordinary course of
business without approval of the Court, after notice and
hearing.
On February 23, 1995, the Company and the Plan
Proponents filed the Plan. See "Business - Plan of
Reorganization." Conditions to the confirmation of the Plan
are that 1) the Company obtain a Financing Commitment;
2) the notice for a confirmation hearing be dated not later
than September 5, 1995; and 3) the Court confirm the Plan no
later than October 2, 1995. The effectiveness of the Plan
is subject to the satisfaction or waiver of all conditions
to the advancement of funds under the Financing Commitment
by the effective date which may not be later than October
31, 1995. Any condition may be waived by unanimous consent
of the Company and the Stakeholders except for the Financing
Commitment which may be waived by majority consent of such
parties.
The Company and the Stakeholders had contemplated that
the Company would be able to emerge from Chapter 11 during
the summer of 1995. After considering the results of the
Company's operations in February and March, 1995 and after
holding initial discussions with potential lenders for the
Financing Commitment, the Company concluded that the
confirmation of the Plan would be delayed beyond June 30,
1995.
Successful implementation of the Plan will depend on,
among other things, the successful implementation and
validation of the Company's business plan, the availability
of a Financing Commitment on acceptable terms and
conditions, and acceptance of the Plan by the numbers and
amounts of impaired prepetition creditors and stockholders
required by the Bankruptcy Code. The Company's business
plan contains net sales and EBITDA targets. As previously
reported, the Company did not meet its net
<PAGE>
sales targets for February and March, 1995, but did meet its
EBITDA targets for the same periods (based on unaudited
figures and subject to normal quarterly adjustments). There
can be no assurance that the Company will meet net sales and
EBITDA targets in the future or that it will be successful
in the implementation and validation of the present business
plan.
In view of the uncertainties regarding the conditions
to the Plan's successful implementation, there can be no
assurance that the Plan will be confirmed or become
effective. The Plan may require material modification and,
in the event of a lack of agreement among the Company and
the Stakeholders as to such modification, could be
rescinded. If no plan of reorganization is successfully
implemented, the Company could be liquidated. Certain
modifications to the Plan or a failure to implement
successfully the Plan could have a material adverse effect
on the value of the stockholders' interest in the Company.
At this time it is not possible to predict the outcome
of the Company's Chapter 11 proceedings as a general matter,
or the effect of the proceedings on the Company or on the
interests of prepetition creditors and stockholders.
Because of this and other uncertainties, the value of the
Company's common stock is highly speculative. The
uncertainty regarding the eventual outcome of the Chapter 11
proceedings and the effects of other unknown adverse factors
could threaten the Company's existence as a going concern.
RESULTS OF OPERATIONS
The consolidated financial statements have been
presented on the basis that the Company is a going concern,
which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of
business. As a result of the Chapter 11 filing and
circumstances relating to this event, realization of assets
and satisfaction of liabilities is subject to uncertainty.
The final plan of reorganization could materially change the
amounts reported in the consolidated financial statements,
which do not give effect to all adjustments to the carrying
values of assets and liabilities which may be necessary as a
consequence of a plan of reorganization. The ability of the
Company to continue as a going concern is dependent on,
among other things, confirmation of an acceptable plan of
reorganization, a successful top management transition,
future profitable operations, compliance with debtor-in-
possession financing agreements, availability of a Financing
Commitment on acceptable terms and conditions, maintenance
of vendor and factor confidence, renewal of desirable store
leases and the ability to generate sufficient cash from
operations and financing sources to meet current and future
obligations, none of which can be assured.
The following table sets forth, as a percentage of net
sales, certain items appearing in the consolidated
statements of operations:
<PAGE>
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Net sales 100% 100% 100%
Costs and expenses:
Cost of sales, buying
and occupancy 82.9 81.3 70.8
Selling and administration28.0 24.0 22.2
Interest expense, net .2 .6 .1
Total 111.1 105.9 93.1
Earnings (loss) before
reorganization costs and
income taxes (benefit) (11.1) (5.9) 6.9
Reorganization costs (14.9) (.7) .-
Earnings (loss) before
income taxes (benefit) (26.0) (6.6) 6.9
Income taxes (benefit) (2.2) (1.9) 2.6
Net earnings (loss) (23.8)% (4.7)% 4.3%
</TABLE>
Net Sales - Net sales decreased $177.1 million or 18.4% in
fiscal 1995 compared to fiscal 1994, and increased $82.4
million or 9.4% in fiscal 1994 compared to fiscal 1993. The
decrease in fiscal 1995 was due to several factors including
closing 436 underperforming stores during the year,
resulting in a decrease of 5% in the weighted average number
of stores open during the year. In addition, sales per
selling square foot decreased from approximately $274 in
fiscal 1994 to approximately $231 in fiscal 1995. The
decline in sales productivity has been particularly severe
in the Dejaiz and Chess King concepts. The decrease in
customer purchases in the Dejaiz concept was the result of
low acceptance of its revamped merchandise package. Sales
were also hampered at the Company's Merry-Go-Round and Chess
King concepts by merchandise packages with a
<PAGE>
multiplicity of, rather than depth in, styles. In addition,
approximately $10.2 million in sales at closed stores
realized during closing periods were classified along with
cost of sales and store operating expenses as reorganization
costs.
The Company's new management team began to refocus the
Company's merchandising strategy in December 1994 with the
objective of targeting a younger more fashion-oriented
customer for the Dejaiz concept, a narrowing and deepening
of the assortment strategy of fewer styles and providing
more depth within each style in each concept. This effort
resulted in significant markdowns in the fourth quarter to
liquidate merchandise and to end the fiscal year with
inventory that is more consistent with the new merchandising
strategy. During fiscal 1996, the Menz division continues
to experience weak sales in a difficult young men's market.
The Company is carefully reviewing the performance of the
Dejaiz and Chess King concepts and is assessing all
available alternatives concerning their future. The
increase in net sales in fiscal 1994 was primarily due to
the acquisition of 450 store locations.
Comparable store sales decreased 17.4% in fiscal 1995.
The decrease in comparable store sales in fiscal 1995 is the
result of factors described above.
Net sales per selling square foot decreased from $356
in fiscal 1993 to $274 in fiscal 1994. Comparable store
sales decreased 12.6% in fiscal 1994. These decreases were
due primarily to the continuing absence of a clear fashion
trend, a highly promotional retail environment, a shift by
the Company's customers away from higher-priced branded
merchandise to lower-priced private label merchandise and
certain unsuccessful decisions.
Cost of Sales, Buying and Occupancy - Cost of sales, buying
and occupancy decreased $131.7 million or 16.9% in fiscal
1995 compared to fiscal 1994, and increased $158.7 million
or 25.5% in fiscal 1994 compared to fiscal 1993. As a
percentage of net sales, these costs were 82.9% in fiscal
1995, 81.3% in fiscal 1994 and 70.8% in fiscal 1993. The
costs as a percentage of net sales increased in fiscal 1995
and 1994 primarily due to the lower sales productivity
discussed above. The costs as a percentage of net sales in
fiscal 1994 also increased due to a charge recorded in the
third quarter of fiscal 1994 which included write-downs of
merchandise inventory of approximately $43.3 million and of
certain leasehold improvements of approximately $9.2
million.
Selling and Administrative Expenses - Selling and
administrative expenses decreased $11.6 million or 5.0% in
fiscal 1995 compared to fiscal 1994 and increased $35.4
million, or 18.1% in fiscal 1994 compared to fiscal 1993.
Selling and administrative expenses as a percentage of net
sales were 28.0% in fiscal 1995, 24.0% in fiscal 1994 and
22.2% in fiscal 1993. The increases in these expenses as a
percentage of net sales in fiscal 1995 and 1994 are due to
the decrease in net sales per selling square foot as
described above resulting in decreased leverage over fixed
costs in the stores, the corporate office and the
<PAGE>
distribution center. In addition, advertising expense
increased in fiscal 1995 approximately $8.7 million or 1.1%
of net sales as a result of a television advertising
campaign in the Back-to-School and Holiday selling seasons.
Interest Expense, Net - Interest expense was $1.9 million,
$6.4 million and $1.7 million and interest income was
$59,000, $500,000 and $831,000 for fiscal years 1995, 1994
and 1993, respectively. Under the Bankruptcy Code,
prepetition liabilities generally do not continue to accrue
interest unless the debt is clearly collateralized by assets
having current fair market values in excess of the amount of
the debt. Therefore, interest has not been accrued on any
of the Company's prepetition obligations except for a $10
million note payable secured by the headquarters and
distribution center facility. As a result, interest expense
in fiscal 1995 has decreased. Interest income in the amount
of approximately $1.5 million in fiscal 1995, has been
classified as a reduction in reorganization costs in
accordance with AICPA Statement of Position 90-7, "Financial
Reporting by Entities in Reorganization under the Bankruptcy
Code". Interest income decreased in fiscal 1994 due to
decreased levels of and lower yields on investments.
Reorganization Costs - The Company recorded $116.5 million
and $6.9 million for costs associated with reorganization
under Chapter 11 protection in fiscal 1995 and 1994,
respectively. These costs include:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Write-off of leasehold improvements and
fixtures associated with closed stores $38,026,000
$2,550,000
Estimated lease rejection claims 29,941,000
1,716,000
Losses resulting from store closing sales
and inventory write-downs 29,585,000 -
Professional fees 9,498,000
1,785,000
Severance, retention bonuses and related
payroll taxes and fringe benefits 8,576,000
- -
Other 2,395,000
884,000
Interest income (1,531,000)
- -
Total $116,490,000
$6,935,000
</TABLE>
<PAGE>
The Company anticipates that it will incur additional
reorganization costs for the remainder of its Chapter 11
reorganization.
Income tax (benefit) - The income tax benefit was
approximately $16.9 million for fiscal 1995 representing an
effective tax rate of 8.3%, compared to approximately $18.2
million for fiscal 1994 representing an effective tax rate
of 28.5%. The income tax benefits reflect limitations on
the use of net operating loss carrybacks resulting from
alternative minimum tax rules and reduced realizability of
deferred tax assets.
Net earnings (loss) - The net loss was $186.3 million and
$45.6 million in fiscal 1995 and 1994, respectively. In
fiscal 1993, the Company had net earnings of $38.0 million.
In both fiscal 1995 and 1994, the increases in net loss were
the result of decreases in both total sales and sales per
selling square foot, the costs associated with the
Chapter 11 process and the limitations on the income tax
benefit.
Earnings before interest, income taxes, depreciation,
amortization and reorganization costs (EBITDA), supplemental
financial information generally reported by debtors-in-
possession, were negative $52.5 million in fiscal 1995,
positive $36.1 million (excluding the effects of a $55.3
million charge for the write-down of certain inventory and
leasehold improvements associated with certain under
performing stores and to provide for certain other lease
obligations and the reversal of a $3.1 million incentive
compensation accrual) in fiscal 1994 and $89.7 million in
fiscal 1993.
Liquidity and Capital Resources
Net cash used in operating activities was approximately
$37.5 million for fiscal 1995, compared to net cash provided
of approximately $39.0 million for fiscal 1994. The
decrease in cash generated by operating activities is due
primarily to the net loss for fiscal 1995.
As of January 28, 1995, "available bank cash" was $66.2
million and, as of April 29, 1995, decreased to $26.9
million, reflecting cash used in operations and the seasonal
build-up of inventory which is required for the
Spring/Summer and Back-to-School selling seasons. The
levels of "available bank cash" were consistent with
management expectations as of such dates. "Available bank
cash" is reported to the Stakeholders in connection with the
bankruptcy proceedings and represents cash in the bank, not
reduced by checks outstanding, and differs from cash and
cash equivalents as determined in accordance with generally
accepted accounting principles and reported in the Company's
consolidated financial statements.
Property and equipment expenditures were $17.9 million,
$46.3 million and $63.8 million for fiscal 1995, 1994 and
1993, respectively. Property and equipment expenditures
include approximately $16.5 million and $11.3 million in
fiscal 1994 and
<PAGE>
1993, respectively, expended in connection with the
expansion of the Company's headquarters and distribution
center. The capital expenditures for fiscal 1995, and other
capital expenditures for fiscal 1994 and 1993 were
principally for store openings and remodelings.
In May, 1993 the Company purchased 450 store locations,
comprising the Chess King Division of Melville Corporation,
and related merchandise inventory. The purchase price,
including certain post closing adjustments and other
estimated direct acquisitions costs, was approximately $40.2
million. The Company paid approximately $10.8 million in
cash and issued a convertible fixed rate note for the
balance of the purchase price. Store location acquisition
expenditures for fiscal 1993 were $6.4 million.
The Company's net operating losses for fiscal 1995 and
1994 were carried back to prior fiscal years, resulting in
refundable Federal and state income taxes paid in such
years. The Company expects to receive in May 1995 refunds
of Federal income taxes in the aggregate amount of
approximately $19.5 million.
The Company's business plan currently contemplates that
it will open one new store and remodel 26 stores during
fiscal 1996 at a cost of approximately $5.7 million, and
make other capital expenditures of approximately $4.0
million.
The Company has a $100 million unsecured revolving
credit agreement as debtor-in-possession with a group of
financial institutions. The agreement provides for cash
borrowings and the issuance of up to $80 million in letters
of credit which in the aggregate cannot exceed the lower of
a "borrowing base" or $100 million. The "borrowing base" is
equal to the sum of 40% of eligible inventory, as defined in
the agreement, plus 40% of inventory on order under
international letters of credit, less $2.5 million. As of
April 29, 1995, the borrowing base was $30.3 million, of
which approximately $7.1 million was available under the
credit agreement. The Company is currently seeking
additional availability under its credit agreement in order
to take advantage of increased foreign sourcing
opportunities during peak buying periods. There is no
assurance that such additional financing will be available.
Cash borrowings bear interest at the prime rate
established by Chemical Bank plus 1.25% (9.75% as of January
28, 1995). The agreement also requires a monthly unused
line fee of .5% per annum and an annual agent fee of
$100,000. Letter of credit fees are 2% per annum for
standby letters of credit and 1.75% per annum for
documentary letters of credit.
Cash borrowings and letters of credit issued under the
agreement have been granted super priority status by the
Court over all obligations except certain administrative
expenses, as defined in the agreement.
<PAGE>
During the term of the agreement, the Company cannot
pay dividends and is required to meet minimum levels of
earnings before interest, income taxes, depreciation and
amortization and certain reorganization costs, maintain
inventory levels between specified minimum and maximum
levels, and limit capital expenditures to $10 million for
the year ended February 3, 1996, and $3 million from
February 4, 1996, through the April 21, 1996 expiration
date. Financial covenants under the Company's existing
credit facility were based on financial projections which
assumed, among other things, sales forecasts, economic
conditions, the achievement of expense savings initiatives,
inventory management and other factors which are subject to
uncertainties and contingencies, many of which are beyond
the Company's control. Accordingly, the Company's
compliance with its financial covenant requirements under
its existing facility is not assured.
Any borrowings outstanding are payable on the earlier
of April 21, 1996, or the date of consummation of a plan of
reorganization. The existing debtor-in-possession financing
may be replaced with a comparable financing agreement.
In view of the Chapter 11 reorganization, there is
uncertainty with respect to the Company's liquidity. The
Company believes that at the present time its working
capital, including cash on hand, cash management measures,
anticipated net cash provided by operating activities,
factor and vendor trade credit, debtor-in-possession
financing and the Company's fiscal 1995 Federal income tax
refund should enable the Company to meet its short-term
liquidity requirements. However, any change in the current
status of these or other items affecting the Company,
including adverse operating results, a reduction in vendor
or factor trade credit, loss or inadequacy of debtor-in-
possession financing or a delay in the tax refund could have
a materially adverse effect on the Company's liquidity and
on its operations.
New Accounting Standards
The Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed of" (SFAS 121) in March,
1995. SFAS 121 is effective for years beginning after
December 15, 1995. The Company has not yet determined the
effect of the adoption of SFAS 121 on its financial position
and results of operations.
<PAGE>
Item 8. Financial Statements and Supplementary Data
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three year period ended January 28, 1995 1995 1994
1993
<S> <C> <C> <C>
Net sales $782,816,000$959,878,000$877,499
,000
Costs and expenses:
Cost of sales, buying and occupancy648,627,000780,279
,000 621,591,000
Selling and administrative218,990,000230,616,000195,2
24,000
Interest expense, net (note 11)1,928,0005,859,000872,
000
Total costs and expenses869,545,0001,016,754,000
817,687,000
Earnings (loss) before reorganization
costs and income taxes (benefit)(86,729,000)(56,876,000)59
,812,000
Reorganization costs (note 12)116,490,0006,935,000 -
Earnings (loss) before income taxes
(benefit) (203,219,000)(63,811
,000) 59,812,000
Income taxes (benefit)(note 13)(16,879,000)(18,187,000)21,
831,000
Net earnings (loss) $(186,340,000)$(45,624,000)$37,981
,000
Earnings (loss) per share of common
stock (note 10) $(3.45) $(.85)
$.71
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
January 28, 1995 and January 29,19941995 1994
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $58,372,000 $113,119,000
Receivables 7,594,000 3,916,000
Merchandise inventories 48,088,000 71,528,000
Prepaid expenses and other, including deferred
income taxes of $2,323,000 in 1994 (note 13) 2,348,000
4,279,000
Refundable income taxes 16,811,000 18,026,000
Total current assets 133,213,000 210,868,000
Property and equipment, at cost (notes 6 and 9)
Land and land improvements 4,495,000 5,421,000
Buildings 36,811,000
37,428,000
Leasehold improvements 111,902,000 140,301,000
Furniture, fixtures and equipment158,375,000 183,681,000
311,583,000 366,831,000
Less accumulated depreciation and amortization117,518,000
119,691,000
Net property and equipment 194,065,000 247,140,000
Other assets 1,145,000
3,871,000
$328,423,000 $461,879,000
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable, trade $14,309,000 $5,406,000
Other payables and accrued expenses (note 4) 49,543,000
30,997,000
Total current liabilities63,852,000 36,403,000
Noncurrent liabilities:
Long-term debt (note 6) 10,000,000 10,000,000
Other, including deferred income taxes of $196,000
and $648,000 (note 13) 10,398,000 11,113,000
Total noncurrent liabilities20,398,000 21,113,000
Liabilities subject to compromise under reorganization
proceedings (note 9) 238,474,000 213,142,000
<PAGE>
Stockholders' equity (note 10):
Common stock of $.01 par value per share:
Authorized 100,000,000 shares; issued
and outstanding 53,931,008 shares at
January 28,1995 and 53,932,335
shares at January 29, 1994 539,000 539,000
Additional paid-in capital 71,462,000 70,644,000
Retained earnings (deficit)(66,302,000) 120,038,000
Total stockholders' equity5,699,000 191,221,000
$328,423,000 $461,879,000
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Three year period ended Common AdditionalRetained
January 28, 1995 StockPaid-in CapitalEa
rnings(Deficit) Total
<S> <C> <C> <C> <C>
Balance at February 1, 1992$533,000$64,121,000$132,688,000
$197,342,000
Net earnings-fiscal 1993 - - 37,981,000 37,981,
000
Cash dividends-$.053 per share - - (2,856,0
00) (2,856,000)
Issuance of common stock in connection
with the exercise of stock options (note 15)2,000654,000
- - 656,000
Grant and amortization of and tax benefits
related to restricted common stock4,0002,489,000 -
2,493,000
Balance at January 30, 1993539,00067,264,000167,813,000 23
5,616,000
Net loss-fiscal 1994 - - (45,624,000)(45,62
4,000)
Cash dividends-$.04 per share- - (2,151,000)(2,151,
000)
Issuance of common stock in connection
with the exercise of stock options (note 15) - 624,000
- - 624,000
Amortization of and tax benefits
related to restricted common stock - 2,756,000 -
2,756,000
Balance at January 29, 1994539,00070,644,000120,038,000 19
1,221,000
Net loss-fiscal 1995 - - (186,340,000)(186,
340,000)
Issuance of common stock in connection
with the exercise of stock options (note 15) - 24,000
- - 24,000
Amortization of and tax effect
related to restricted common stock - 794,000 -
794,000
Balance at January 28, 1995$539,000$71,462,000$(66,302,000)
$5,699,000
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three year period ended January 28, 1995 1995 1994
1993
<S> <C> <C> <C>
Operating activities:
Net earnings (loss)$(186,340,000)$(45,624,000)$37,981,000
Adjustments to reconcile net earnings (loss)
to net cash provided by (used in)operating activities:
Noncash reorganization costs, including
$38,026,000 of loss on disposal of property
and equipment in 199579,185,000 4,734,000 -
Depreciation and amortization32,282,000 34,800,000 29,042,
000
Provision (credit) for deferred income taxes1,871,000 (985
,000) 117,000
Losses on and provisions related to property
and equipment - 11,467,000 1,303,000
Amortization of restricted common stock819,000 1,740,000
1,309,000
Changes in operating assets and liabilities,
net of effects of store acquisitions:
(Increase) decrease in:
Receivables (3,678,000) 574,000 (369,000)
Merchandise inventories23,440,000 27,146,000 (19,089,000)
Prepaid expenses and other(895,000)1,027,000 2,569,000
Refundable income taxes1,190,000 (17,010,000) -
Other assets 1,975,000 (1,008,000) (530,000)
Increase (decrease) in:
Accounts payable, trade8,903,000 (28,020,000)8,458,000
Other payables and accrued expenses8,582,000 (10,812,000)
466,000
Federal and state income taxes payable - (9,578,000)
10,790,000
Other noncurrent liabilities(263,000)1,365,000 391,000
Operating payables subject to compromise
under reorganization proceedings (4,609,000)69,212,000
- -
Net cash provided by (used in) operating activities(37,
538,000) 39,028,000 72,438,000
Investing activities:
Property and equipment expenditures(17,896,000)(46,301,
000) (63,830,000)
Proceeds from sales of property and equipment 663,000
456,000 914,000
Acquisitions of store locations- (10,769,000)(6,418,000)
Proceeds from redemption of marketable securities -
- - 9,703,000
Net cash used in investing activities(17,233,000)(56,
614,000) (59,631,000)
Financing activities:
Prepetition debt activity:
Net borrowing under revolving credit debt- 44,520,000
- -
Proceeds from issuance of institutional investor notes
- - 65,000,000 -
Repayment of long-term debt - (15,000,000) -
Principal payments on secured notes payable -
(432,000) (284,000)
Procurement costs related to debtor-in-possession
financing - (1,255,000) -
Proceeds from issuance of common stock24,000 624,000
656,000
Dividends paid - (2,867,000)(2,848,000)
Other - - 3,000
Net cash provided by (used in) financing activities24,000
90,590,000 (2,473,000)
Net change in cash and cash equivalents(54,747,000)73,00
4,000 10,334,000
Cash and cash equivalents at beginning of year113,119,000
40,115,000 29,781,000
Cash and cash equivalents at end of year$58,372,000 $113,1
19,000 $40,115,000
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. REORGANIZATION AND BASIS OF REPORTING
Merry-Go-Round Enterprises, Inc. (the "Company"), a
national specialty retailer of contemporary fashions
primarily for young men and women, operated 1,006 stores in
43 states and Washington, D.C. as of January 28, 1995. The
majority of stores operate under the trade names Merry-Go-
Round, N E T Works, DJ's Fashion Center for Men, Dejaiz,
Attivo, Chess King, Cignal and Boogies Diner and are located
in enclosed regional shopping malls. As of January 28, 1995
the geographical distribution of these stores was: East
North Central, 231; East South Central, 55; Middle Atlantic,
167; Mountain, 36; New England, 71; Pacific 86; South
Atlantic, 208; West North Central, 37; and West South
Central, 115.
On January 11, 1994, the Company and two of its
subsidiaries filed voluntary petitions for relief under
Chapter 11 ("Chapter 11") of Title 11 of the United States
Code (the "Bankruptcy Code") in the United States Bankruptcy
Court for the District of Maryland, Baltimore Division (the
"Court"). During fiscal 1995, various other subsidiaries of
the Company filed voluntary petitions for relief under
Chapter 11. The Company and such subsidiaries are presently
operating their businesses as debtors-in-possession under
the jurisdiction of the Court. As debtors-in-possession,
the Company and such subsidiaries may not engage in
transactions outside of the ordinary course of business
without approval of the Court, after notice and hearing.
Under Chapter 11, actions to enforce certain claims
against the Company are stayed if the claims arose, or are
based on events that occurred, on or before the petition
date of January 11, 1994. Other liabilities may arise or be
subject to compromise as a result of rejection of executory
contracts, including leases, or the Court's determination of
the allowed amount of contingent or other disputed claims.
The ultimate terms of settlement of these claims will be
determined in accordance with a plan of reorganization which
requires the approval of impaired prepetition creditors and
stockholders and confirmation by the Court. Liabilities
subject to compromise (see note 9) in the accompanying
consolidated balance sheets represent the Company's estimate
of liabilities as of January 28, 1995 and January 29, 1994,
subject to adjustment in the reorganization process.
On February 23, 1995, the Company and its official
creditors' and equity committees (collectively, the "Plan
Proponents") filed a Joint Plan of Reorganization under
Chapter 11 of the Bankruptcy Code (the "Plan"). The
solicitation period expires on May 1, 1995. The Company
will request that the Court extend the solicitation period.
The Company expects that an extension will be granted. If
the solicitation period is not extended by the Court or if
the Plan Proponents fail to obtain acceptance of the Plan as
required by the Bankruptcy Code within the solicitation
period as extended, any party in
<PAGE>
interest may file a competing plan of reorganization. There
can be no assurance that the solicitation period will be
extended or that, if it is extended, the Plan will be
accepted by the holders of claims and stockholders as
required by the Bankruptcy Code.
Pursuant to a stipulation approved by the Court in
January 1995, the Company and the Stakeholders agreed that
the Stakeholders would be free to file a competing plan or
plans of reorganization at any time, including during the
Solicitation Period. The Company subsequently received a
copy of an agreement among the Stakeholders pursuant to
which the Stakeholders have agreed among themselves (i) to
ratify the terms of the Plan, (ii) to use their best efforts
to cause the Plan to be confirmed by June 30, 1995, (iii) as
to the official committees, to recommend the Plan (iv) as to
the other Stakeholders, not to support a competing plan of
reorganization and (v) to seek to cause the Company to
engage a nationally-recognized search firm to find a
permanent Chief Executive Officer. The agreement expires by
its terms on October 2, 1995 or on September 5, 1995 if no
Plan confirmation hearing has then been set or if the
hearing is set for after October 2, 1995.
Under the Plan, the Company would continue to exist as
a separate corporate entity with a revised capital
structure. The terms of the Plan provide distribution to
unsecured creditors of up to $130 million in cash and
interest-bearing securities plus 75% of the stock of the
reorganized company, and the distribution to existing
stockholders of 25% of the common stock of the reorganized
company assuming $225 million in allowed unsecured claims.
The Plan further provides that if allowed unsecured claims
exceed $225 million, the common stock issued to the existing
stockholders would be reduced by, and the common stock
issued to unsecured creditors would be increased by, one
percent for each $5.3 million of allowed unsecured claims in
excess of $225 million. Under the Plan, the percentage
ownership of existing stockholders in the reorganized
company would not be reduced below 10%. For each one
percent reduction in the percentage of common stock below
25% (down to 10%) issued to the existing stockholders, the
reorganized company would issue warrants to the existing
Stockholders to purchase one percent of the common stock for
an estimated exercise price of $2.0 million, exercisable for
three years. For each $1 million by which the cash
distributed to unsecured creditors exceeds $25 million,
existing stockholders would receive warrants to purchase
0.2% of the reorganized company's common stock, up to a
maximum of five percent of total new common shares
outstanding. These warrants would be exercisable for three
years at an estimated price of $1.6 million for each one
percent of the reorganized company's common stock.
Conditions to the confirmation of the Plan are that
1) the Company obtain a Financing Commitment; 2) the notice
for a confirmation hearing be dated not later than September
5, 1995; and 3) the Court confirm the Plan no later than
October 2, 1995. The effectiveness of the Plan is subject
to the satisfaction or waiver of all conditions to the
advancement of funds under the Financing Commitment by the
effective date which may
<PAGE>
not be later than October 31, 1995. Any condition may be
waived by unanimous consent of the Company and the
Stakeholders except for the Financing Commitment which may
be waived by majority consent of such parties.
The Company and the Stakeholders had contemplated that
the Company would be able to emerge from Chapter 11 the
during summer of 1995. After considering the results of the
Company's operations in February and March, 1995 and after
holding initial discussions with potential lenders for the
Financing Commitment, the Company concluded that the
confirmation of the Plan would be delayed beyond June 30,
1995. However, in view of the initial discussions with
potential Financing Commitment lenders and the Company's
results in February and March, 1995, the Company recently
announced that it anticipates a delay in the confirmation of
the Plan beyond June 30, 1995.
Successful implementation of the Plan will depend on,
among other things, the successful implementation and
validation of the Company's business plan, the availability
of a Financing Commitment on acceptable terms and
conditions, and acceptance of the Plan by the numbers and
amounts of impaired prepetition creditors and stockholders
required by the Bankruptcy Code. There can be no assurance
that the Company will be successful in the implementation
and validation of the present business plan.
In view of the uncertainties regarding the conditions
to the Plan's successful implementation, there can be no
assurance that the Plan will be confirmed or become
effective. The Plan may require material modification and,
in the event of a lack of agreement among the Company and
the Stakeholders as to such modification, could be
rescinded. If no plan of reorganization is successfully
implemented, the Company could be liquidated. Certain
modifications to the Plan or a failure to implement
successfully the Plan could have a material adverse effect
on the value of the stockholders' interest in the Company.
At this time it is not possible to predict the outcome
of the Company's Chapter 11 proceedings as a general matter,
or the effect of the proceedings on the Company or on the
interests of prepetition creditors and stockholders. The
uncertainty regarding the eventual outcome of the Chapter 11
proceedings and the effects of other unknown adverse factors
could threaten the Company's existence as a going concern.
The accompanying consolidated financial statements have
been presented on the basis that the Company is a going
concern, which contemplates the realization of assets and
the satisfaction of liabilities in the normal course of
business. As a result of the Chapter 11 filing and
circumstances relating to this event, realization of assets
and satisfaction of liabilities is subject to uncertainty.
The final plan of reorganization could materially change the
amounts reported in the accompanying consolidated financial
<PAGE>
statements, which do not give effect to adjustments to the
carrying values of assets and liabilities which may be
necessary as a consequence of a plan of reorganization. The
ability of the Company to continue as a going concern is
dependent on, among other things, confirmation of an
acceptable plan of reorganization, a successful top
management transition, future profitable operations,
compliance with debtor-in-possession financing agreements,
availability of a Financing Commitment on acceptable terms
and conditions, maintenance of vendor and factor confidence,
renewal of desirable store leases, the ability to generate
sufficient cash from operations and the maintenance of
financing sources to meet current and future obligations.
In view of the Chapter 11 reorganization, there is
uncertainty with respect to the Company's liquidity. The
Company believes that at the present time its working
capital, including cash on hand, cash management measures,
anticipated net cash provided by operating activities,
factor and vendor trade credit, debtor-in-possession
financing and the Company's fiscal 1995 Federal income tax
refund should enable the Company to meet its short-term
liquidity requirements. However, any change in the current
status of these or other items affecting the Company,
including adverse operating results, a reduction in vendor
or factor trade credit, loss or inadequacy of debtor-in-
possession financing or a delay in the tax refund could have
a materially adverse effect on the Company's liquidity and
on its operations.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Fiscal Year - The Company reports on a 52-53 week year
ending the Saturday nearest January 31. Fiscal years 1995,
1994 and 1993 each consisted of 52 weeks.
Consolidated Financial Statements - The consolidated
financial statements include the accounts of the Company and
its wholly-owned subsidiaries. All material intercompany
transactions and balances have been eliminated.
Cash and Cash Equivalents - Cash equivalents include all
highly liquid investments with maturities, at dates of
purchase, of three months or less.
Merchandise Inventories - Merchandise inventories are stated
at the lower of first-in, first-out cost or market. The
cost of merchandise is determined by the retail method.
Property and Equipment - For financial reporting purposes,
buildings and furniture, fixtures and equipment are
depreciated using the straight-line method over the
estimated lives of the assets. Leasehold improvements are
amortized using the straight-line method over the lesser of
the terms of the respective leases or the lives of the
improvements. Effective January 31, 1993, the Company
extended the useful lives of certain property and equipment
in its headquarters and distribution center and stores, and
established a salvage value of the headquarters and
distribution center. These changes were made to
<PAGE>
more closely reflect the estimated physical and economic
lives and salvage value of the property and equipment. The
effect of these changes decreased the loss before income
taxes and net loss for fiscal 1994 by approximately
$3,600,000 and $2,574,000, respectively, or $.05 per share.
Income Taxes - Effective January 31, 1993, the Company
adopted Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" (SFAS 109). SFAS 109 requires
the use of the asset and liability method to account for
income taxes. Under the asset and liability method,
deferred tax assets and liabilities are recognized for the
estimated future tax consequences attributable to
differences between the financial statement carrying amounts
of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured
using enacted tax rates in effect for the years in which the
temporary differences are expected to be recovered or
settled. However, deferred tax assets are recognized only
to the extent that it is more likely than not that they will
be realized based on the consideration of available evidence
and other factors. The effects of changes in tax rates on
deferred tax assets and liabilities are recognized in the
period that includes the enactment date. The effects of
adopting SFAS 109 as of January 31, 1993, and for fiscal
1994 were not material.
Prior to adoption of SFAS 109, the Company accounted
for income taxes using the deferred method under APB Opinion
No. 11, which required that deferred income taxes be
recognized for income and expense items that were reported
in different years for financial reporting and income tax
purposes. Under the deferred method, deferred income tax
balances were not adjusted for subsequent changes in tax
rates.
Preopening Costs - Expenses associated with the opening of
new stores are charged to expense as incurred.
Reorganization Costs - Professional fees, the write-off of
assets, damages to be paid under rejected leases and other
costs and expenditures related to the reorganization under
Chapter 11 protection are classified as reorganization
costs. (See note 12).
3. ACQUISITIONS OF STORE LOCATIONS
On May 16, 1993, the Company acquired from Melville
Corporation ("Melville") 450 store locations and related
assets operated as men's retail clothing stores under the
names "Chess King," "Garage," "Metro Garage" and "Freefall"
(collectively "Chess King"). The assets acquired included
merchandise inventory, furniture, fixtures, equipment,
leasehold improvements, and leases of the acquired locations
operated by Melville under these names.
The aggregate cost of acquiring the assets from
Melville, including certain post closing adjustments and
other estimated direct acquisition costs, was approximately
$40.2
<PAGE>
million of which $10.8 million was paid in cash and $29.4
million was paid by issuing a convertible note to Melville.
The following unaudited pro forma information has been
prepared assuming the acquisition of the 450 locations
occurred as of the beginning of the Company's 1994 and 1993
fiscal years. Chess King's fiscal years ended on December
31, and it is not practicable to develop meaningful
operating statements for the retail locations conforming to
the Company's fiscal year for pro forma purposes. The
following unaudited pro forma financial information for
fiscal 1993 includes the historical results of operations
for the acquired retail locations for the year ended
December 31, 1992, and the unaudited pro forma financial
information for fiscal 1994 includes the historical results
of operations for the acquired retail locations for the
three months ended March 27, 1993 and the period from May 2,
1993 to May 15, 1993.
<TABLE>
<CAPTION>
Year Ended
January 29, 1994 January
30, 1993
<S> <C> <C>
Net sales $996,624,000
$1,062,227,000
Net earnings (loss) $(53,246,000)
22,702,000
Earnings (loss) per share $ (.99)
$ .42
==========================================
</TABLE>
The Company did not acquire any warehousing and distribution
facilities or corporate personnel. The Company has
substituted its corporate personnel, including senior
management, for that of Chess King. The unaudited pro forma
information may not be indicative of the actual results of
operations that would have occurred had the acquisition of
these retail locations actually been made at the beginning
of the respective periods or of future results of operations
of the Company with the retail locations under the Company's
management and control.
During fiscal 1993, the Company acquired 88 store
locations and certain other assets for approximately $8.9
million, including liabilities assumed. This acquisition
did not have a material effect on results of operations in
fiscal 1993.
<PAGE>
4. OTHER PAYABLES AND ACCRUED EXPENSES
Other payables and accrued expenses consist of the
following:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Accrued wages and benefits $16,748,000
$ 9,444,000
Operating expenses payable ` 11,875,000
10,589,000
Accrued rent and occupancy costs 1,719,000
1,255,000
Accrued taxes - other than income 3,210,000
2,964,000
Accrued reorganization expenses 3,508,000
518,000
Other 12,483,000
6,227,000
$49,543,000
$30,997,000
==========================================
</TABLE>
5. DEBTOR-IN -POSSESSION FINANCING
The Company has a $100 million unsecured revolving
credit agreement with a group of financial institutions.
The agreement, as amended to date, provides for cash
borrowings and the issuance of up to $80 million in letters
of credit which, in the aggregate, cannot exceed the lower
of a "borrowing base" or $100 million. The "borrowing base"
is equal to the sum of 40% of eligible inventory, as defined
in the agreement, plus 40% of inventory on order under
international letters of credit, less $2.5 million.
Cash borrowings bear interest at the prime rate
established by Chemical Bank plus 1.25% (9.75% as of
January 28, 1995). The agreement also requires a monthly
unused line fee of .5% per annum and an annual agent fee of
$100,000. Letter of credit fees are 2% per annum for
standby letters of credit and 1.75% per annum for
documentary letters of credit.
Cash borrowings and letters of credit issued under the
agreement have been granted super priority status by the
Court over all obligations except certain administrative
expenses, as defined in the agreement.
During the term of the agreement, the Company cannot
pay dividends and is required to meet minimum levels of
earnings before interest, income taxes, depreciation and
amortization and certain reorganization costs, maintain
inventory levels between
<PAGE>
specified minimum and maximum levels, and limit capital
expenditures to $10 million for the year ended February 3,
1996, and $3 million from February 4, 1996, through the
April 21, 1996 expiration date.
Any borrowings outstanding are payable on the earlier
of April 21, 1996, or the date of consummation of a plan of
reorganization.
6. LONG-TERM DEBT
The $10 million note payable is secured by property,
fixtures and certain equipment comprising the Company's
headquarters and distribution center. The note bore
interest at 10.36% per annum, payable semi-annually and was
due February 15, 1994. Subsequent to maturity, the note
bears interest at 11.36% per annum.
The Company has continued to accrue interest at the
contractual rate on this note and has not classified the
note as subject to compromise in the accompanying
consolidated balance sheets. However, principal and
interest payments have been suspended until the Court
authorizes payment or confirms a plan of reorganization
defining the repayment terms. (See note 9.)
7. LEASE COMMITMENTS
As of January 28, 1995, the Company was committed under
non-cancelable operating leases for retail stores expiring
at various dates through 2008. Generally, retail store
leases provide for additional rentals based on a percentage
of sales and increases in real estate taxes and various mall
operating expenses.
Rent and other expenses under such leases charged to
operations were as follows:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Minimum rentals $ 76,573,000 $ 82,550,000
$60,956,000
Contingent rentals
and other expenses 42,114,000 47,481,000
36,291,000
$118,687,000 $130,031,000
$97,247,000
==========================================
</TABLE>
<PAGE>
Subject to the approval of the Court, the Company can reject
executory contracts, including leases, under the relevant
provisions of the Bankruptcy Code. Rejection of a lease
gives the lessor the right to assert a prepetition claim
against the Company as though the lease had been terminated
as of the date of the Chapter 11 filing. However, the
amount of the claim may be limited by the Bankruptcy Code.
Estimated allowed claims for rejected leases are included in
reorganization costs (see note 12). The analysis of lease
commitments below has not been adjusted to reflect possible
future lease rejections.
Certain of the Chess King leases acquired in fiscal
1994 (see note 3) are guaranteed by a subsidiary of
Melville. Therefore, the lessors of rejected leases may
have a claim against such subsidiary for unpaid lease
obligations and breach of contract claims beyond the amounts
permitted to be asserted against the Company under the
Bankruptcy Code. As part of the purchase agreement, the
Company has indemnified Melville against any loss under the
lease guarantee. As a result, Melville may assert a
prepetition claim against the Company for the amounts it is
required to pay under the guarantee. (See note 9).
As of January 28, 1995, future minimum rental payments
under noncancelable operating leases are as follows:
<TABLE>
<S> <C>
1996 $ 63,321,000
1997 58,958,000
1998 54,728,000
1999 49,754,000
2000 46,550,000
Subsequent to 2000 $126,743,000
==========================================
</TABLE>
8. CONTINGENCIES
The Company is a party to various lawsuits and other
actions arising in the course of its business. Although the
ultimate resolution of these legal matters is not subject to
determination at the present time, in the opinion of
management, based on a number of factors, their resolution
will not have a material adverse effect on the Company's
liquidity. Under Chapter 11, actions to pursue litigation
against the Company are automatically stayed if the claim
arose, or is based on events that occurred on or before the
petition date of January 11, 1994.
<PAGE>
9. LIABILITIES SUBJECT TO COMPROMISE
Certain prepetition liabilities have been approved by
the Court for payment. As of January 28, 1995 and January
29, 1994, such amounts, to the extent not paid, were
included in accrued expenses and other payables. The
remainder of the Company's liabilities as of January 11,
1994, and certain other prepetition claims, are classified
as liabilities subject to compromise as of January 28, 1995
and January 29, 1994 and consist of:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Secured note payable $ 4,997,000
$ 4,997,000
Unsecured liabilities:
Institutional investor notes
65,000,000 65,000,000
Other payables and accrued expenses
55,368,000 28,331,000
Revolving credit debt 44,520,000
44,520,000
Accounts payable, trade 39,176,000
40,881,000
Chess King acquisition debt 29,413,000
29,413,000
$238,474,000
$213,142,000
==========================================
</TABLE>
The secured note payable was satisfied in part on
February 28, 1995, as a result of the sale of the retail
location securing the note. The creditor received net
proceeds of $4,653,000 and may be allowed an unsecured claim
in Court for the remaining balance of $344,000.
The institutional investor notes were due in various
amounts through September 1, 2003, with $50,000,000 bearing
interest at 7.0% per annum and $15,000,000 bearing interest
at 6.44% per annum. The revolving credit debt bears
interest at the lower of the bank's prime rate less 1/2% or
the federal funds rate plus 1% and was due June 1995. The
Chess King acquisition debt bears interest at 6% per annum
and was due in equal installments in May 1996 and 1997, if
not previously converted at the holders' option to common
stock of the Company.
<PAGE>
The Company has determined that, with the exception of
the $10 million note payable described in note 6, it is not
probable that it will ultimately pay interest on its
prepetition obligations. As a result, the Company stopped
accruing interest on its prepetition obligations as of the
petition date, except for the $10 million note payable.
However, the Court could determine that post-petition
interest should be paid on these obligations. Interest on
the $10 million note payable will not be paid until either a
court order is entered authorizing payment or a plan of
reorganization providing for payment of interest on this
note is confirmed by the Court. Contractual interest on all
obligations exceeds interest expense recorded in the
accompanying consolidated statement of operations by
approximately $ 8,875,000 and $400,000 for fiscal 1995 and
1994, respectively.
The Company is negotiating with creditors to reconcile
claims filed with the Court to the Company's financial
records. The adjustment to recorded liabilities arising
from this reconciliation process is not subject to
reasonable estimation at this time. Additional bankruptcy
claims and prepetition liabilities may arise from the
termination of other contractual obligations and the
settlement of disputed claims. Consequently, the amounts
included in the consolidated balance sheet as liabilities
subject to compromise may be subject to further adjustment.
Included in other payables and accrued expenses above
are claims by landlords, which are permitted by the
Bankruptcy Code, of approximately $31,657,000 arising from
the rejection of approximately 285 store leases. Of these
stores, 79 were leases acquired in the 1993 acquisition of
Chess King and were guaranteed by a subsidiary of Melville.
Therefore, the related lessors may have a claim against such
subsidiary for unpaid lease obligations and breach of
contract claims beyond the amounts permitted by the
Bankruptcy Code. As part of the purchase agreement, the
Company has agreed to indemnify Melville against any loss
under the lease guarantee. As a result, Melville may assert
claims against the Company for amounts, if any, it is
required to pay under the lease guarantees.
If Melville is required to perform under the lease
guarantees relating to these rejected leases, the amount of
any allowed claim against the Company in Court under the
indemnification clause of a purchase agreement is uncertain.
As a result, the Company has recorded a liability subject to
compromise in the amount of the maximum claim permitted the
lessor under the Bankruptcy Code and has not recorded any
amount relating to the potential claims by Melville which
may arise under the indemnification clause of the purchase
agreement. In addition, since landlords are generally
required to mitigate losses under the rejected leases, the
amount of their losses including the portion of their losses
which may represent a claim against Melville, cannot be
estimated at this time. The total lease commitments on the
rejected Chess King stores in excess of the recorded claims
are approximately $20,300,000.
<PAGE>
Additional amounts relating to these leases will be
recorded, if necessary, in the period in which, based on the
legal status of Melville's claim, it becomes probable that
any claims against the Company by Melville will be allowed
by the Court and the amounts can be reasonably estimated.
In the event claims arising from the Melville lease
guarantees are permitted in Court, these claims will be
prepetition claims and will be subject to the payment terms
dictated by a confirmed plan of reorganization.
A plan of reorganization ultimately approved by a
majority of the Company's impaired prepetition creditors and
stockholders and confirmed by the Court may materially
change the amounts and terms of prepetition liabilities.
10. STOCKHOLDERS' EQUITY
EARNINGS PER SHARE - Earnings per share are based on the
weighted average number of shares outstanding each year -
53,939,684 for fiscal 1995, 53,911,376 for fiscal 1994 and
53,719,960 for fiscal 1993.
CASH DIVIDENDS - In December, 1993, the Company discontinued
payments of a dividend on its common stock. Prior to that
date, it had followed a policy of paying a quarterly
dividend.
PREFERRED STOCK - The Company is authorized to issue
1,000,000 shares of Class A Preferred Stock. As of January
28, 1995, no shares were issued or outstanding.
SHAREHOLDER RIGHTS PLAN - The Company has a Shareholder
Rights Plan (the Rights Plan) pursuant to which one Right
was distributed to stockholders for each share of common
stock outstanding on September 30, 1991, and one Right
attaches to each common share issued thereafter. Each Right
initially entitles the holder to purchase one-one thousandth
share of Class A Preferred Stock (Preferred Stock) for the
exercise price of $56. Each one-one thousandth share of
Preferred Stock has voting rights and dividend and
distribution privileges (after giving effect to a $1.00
liquidation preference) equivalent to one share of the
Company's common stock. The Rights Plan, among other
things, provides that each Right may be exercisable if 15%
or more of the Company's stock is beneficially acquired by a
third party or group (Acquiring Person). Under such
circumstances, Rights (other than those held by the
Acquiring Person) may be exercised for common stock of the
Company having a market value of twice the exercise price
(or, in the Company's discretion, for one-one thousandth
share of Preferred Stock for each common share so issuable).
Alternatively, the Company may exchange one share of common
stock (or one-one thousandth share of Preferred Stock) for
each Right (other than Rights of the Acquiring Person). In
addition, the Rights Plan provides that if, after a person
becomes an Acquiring Person, the Company is acquired in a
merger or other similar business combination, or certain
other transactions occur, Rights will be exercisable to
purchase common stock of the acquiring entity having a
market value of
<PAGE>
twice the exercise price. The Rights are not currently
exercisable, do not trade separately from the common stock,
are redeemable at $.01 for each Right at the discretion of
the Board of Directors and expire on September 30, 2001.
Until exercised, Rights carry no dividend or voting rights.
11. INTEREST EXPENSE, NET
Interest expense, net consists of:
<TABLE>
<CAPTION>
____________________________________________________________
____________
1995 1994 1993
<S> <C> <C> <C>
Interest income $ (59,000)$ (500,000)$ (831,000)
Interest expense 1,987,000 6,359,000 1,703,000
--------------------------------------
- ---------
$1,928,000$5,859,000$ 872,000
============================================================
====
</TABLE>
Interest income in the amount of $1,531,000,
attributable to excess cash accumulated during the
reorganization proceedings, is recorded as a reorganization
item and is not included in interest income.
The Company paid interest of approximately $730,000,
$5,616,000 and $1,504,000 in fiscal 1995, 1994 and 1993,
respectively. Interest costs capitalized were $548,000 in
fiscal 1994 and $2,194,000 in fiscal 1993.
<PAGE>
12. REORGANIZATION COSTS
Reorganization costs recorded during fiscal 1995 and 1994
consisted of:
<TABLE>
<CAPTION>
____________________________________________________________
____________
1995 1994
<S> <C> <C>
Write-off of leasehold
improvements and fixtures
associated with closed
stores $38,026,000$2,550,000
Estimated lease rejection
claims 29,941,000 1,716,000
Losses resulting from store
closing sales and inventory
write-downs 29,585,000 -
Professional fees 9,498,000 1,785,000
Severance, retention bonus,
and related payroll taxes
and fringe benefits 8,576,000 -
Other 2,395,000 884,000
Interest income (1,531,000) -
--------------------------------
$116,490,000 $6,935,000
</TABLE>
Inventory write-downs of $22,179,000 included in
reorganization costs for fiscal 1995 represent markdowns
related to merchandise categories and styles discontinued as
a result of inventory repositioning efforts in the fourth
quarter.
<PAGE>
13. INCOME TAXES
The components of income tax expense (benefit) are as
follows:
<TABLE>
<CAPTION>
____________________________________________________________
____________
1995 1994 1993
<S> <C> <C> <C>
Current:
Federal $(19,400,000)$(16,627,000)$18,989,000
State 650,000 (575,000) 2,725,000
------------------------------------------------
(18,750,000)(17,202,000)21,714,000
Deferred:
Federal and state 1,871,000 (985,000) 117,000
---------------------------------------------
$(16,879,000)$(18,187,000)$21,831,000
</TABLE>
<PAGE>
A reconciliation of the Federal statutory rate to the
effective income tax (benefit) rate applicable to earnings
(loss) before income taxes is as follows:
<TABLE>
<CAPTION>
____________________________________________________________
____________
1995 1994 1993
<S> <C> <C> <C>
Statutory rate on earnings
(loss) before income
taxes (34.0)% (34.0)% 34.0%
State and local income
taxes, net of Federal
income tax effect .3 (2.9) 3.7
Provision to reduce deferred
tax assets to estimated
realizable value 20.2 8.1 -
Non deductible
reorganization
costs 2.1 - -
Other, net 3.1 .3 (1.2)
---------------------------------------------
Effective income tax
(benefit) rate (8.3)% (28.5)% 36.5%
</TABLE>
<PAGE>
The tax effects of temporary differences between the
financial reporting and tax bases of assets and liabilities
included in the net deferred tax asset (liability) as of
January 28, 1995 and January 29, 1994 are summarized as
follows:
<TABLE>
<CAPTION>
____________________________________________________________
____________
1995 1994
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforward$ 29,677,000$ -
Accrued rentals and lease
rejection claims 14,198,0004,427,000
Other accrued expenses 5,971,000 639,000
Alternative minimum tax credit
carryforward 5,638,000 2,283,000
Accrued compensation and benefit
costs 4,936,000 3,807,000
Inventory capitalization 1,586,000 1,898,000
------------------------------
62,006,00013,054,000
Valuation allowance (46,287,000)(5,139,000)
------------------------------
15,719,000 7,915,000
------------------------------
Deferred tax liabilities:
Accelerated depreciation and
provisions for property and
equipment disposals 15,915,0005,884,000
Prepaid benefit costs - 356,000
------------------------------
15,915,000 6,240,000
------------------------------
Net deferred tax asset (liability)$ (196,000)$ 1,675,000
</TABLE>
The increase in the total valuation allowance for the
years ended January 28, 1995 and January 29, 1994, was
$41,148,000 and $5,139,000, respectively. The net
realizable balance of deferred tax assets as of January 28,
1995 and January 29, 1994, was determined based on the
extent to which the related deductible amounts could be
applied
<PAGE>
to either prior years' pre-tax income or future years'
taxable amounts related to deferred tax liabilities based on
their estimated scheduled reversals.
The provision for deferred income taxes for fiscal 1993
represents the tax effects of timing differences as follows:
<TABLE>
____________________________________________________________
____________
<S> <C>
Depreciation $2,602,000
Compensation and employee benefit costs (1,798,000)
Inventory capitalization (412,000)
Other, net (275,000)
----------------
$ 117,000
</TABLE>
As of January 28, 1995, the Company has net operating
loss carryforwards for federal income tax purposes of
approximately $87,000,000 which are available to offset
future federal taxable income through fiscal 2010. In
addition, the Company has alternative minimum tax credit
carryforwards of approximately $5,638,000 which are
available to reduce future federal regular income taxes over
an indefinite period. A plan of reorganization or
significant changes in ownership of the Company could limit
the use of the net operating loss carryforward.
The Company paid income taxes of approximately
$475,000, $10,457,000 and $13,892,000 in fiscal 1995, 1994
and 1993, respectively. During fiscal 1995, the Company
received a refund of approximately $19,897,000 related to
net operating losses incurred in fiscal 1994. The Company's
Federal income tax returns have been examined by the
Internal Revenue Service through fiscal 1994.
14. THRIFT PLAN
The Company has a thrift and savings plan (the "Plan") which
meets the qualifications of Section 401(k) of the Internal
Revenue Code. Employees are eligible to participate in the
Plan after reaching age twenty-one and completing one year
of service, as defined. Under the Plan, employee
contributions are matched by the Company at a rate
determined by the
<PAGE>
Board of Directors. The Company's contributions are vested
over a five-year period, where applicable. Thrift and
savings plan expense was approximately $998,000, $986,000
and $780,000 for fiscal 1995, 1994 and 1993, respectively.
15. INCENTIVE AND SEVERANCE PLANS
The Company has incentive plans (the "Plans") pursuant to
which the Company has granted stock options, performance
units and restricted common stock to officers and other key
employees.
As of January 28, 1995, options to purchase 4,246,577
shares of common stock were outstanding. The options are
exercisable over a ten-year period from dates of grants.
A summary of the changes in the outstanding stock
options is as follows:
<TABLE>
<CAPTION>
____________________________________________________________
____________
1995 1994 1993
<S> <C> <C> <C>
Balance at beginning of year 3,187,194 3,443,8761,868,399
Options granted 2,198,100 -1,715,750
Options exercised (15,948) (102,924) (131,635)
Options canceled or expired(1,122,769) (153,758) (8,638)
---------------------------------------------
Balance at end of year 4,246,577 3,187,194 3,443,876
</TABLE>
The options outstanding as of January 28, 1995, are as
follows: 1,221,806 shares at $10.125; 921,305 shares at
$6.556; 181,616 shares at $5.292; 1,262,600 at $3.50;
129,113 shares at $3.102; 2,835 shares at $2.435; 400,000
shares at $2.00; 104,802 shares at $1.51; 20,000 shares at
$1.25 and 2,500 shares at $1.125. As of January 28, 1995
and January 29, 1994, 1,767,418 and 1,360,442 options were
exercisable, respectively.
<PAGE>
During the quarter ended May 1, 1993, the Company
determined that no amounts were payable under a performance
unit incentive arrangement and accordingly, the Company
reversed an accrual for expenses recorded in prior years for
amounts previously estimated to be payable under the
arrangement, of approximately $3.1 million.
The Company has awarded 2,350,876 shares of restricted
common stock under the Plans. The shares vest in equal
annual installments over five years and non-vested shares
are subject to forfeiture if the holder terminates
employment with the Company. The market value of the shares
as of the dates awarded is being charged to compensation
expense over the period that the holders provide the related
service ($ 819,000, $1,740,000 and $1,309,000 in fiscal
1995, 1994 and 1993, respectively). The number of shares of
restricted common stock subject to forfeiture is 66,000 as
of January 28, 1995. During fiscal 1995, 70,000 shares were
forfeited.
The Company established a Severance and Retention Bonus
Program for the duration of its Chapter 11 reorganization.
Under the program, severance payments are made to those
employees whose employment is terminated as a result of the
reorganization of the Company and retention bonuses are
granted to certain key employees who are an integral part of
the reorganization process. Severance and Retention Bonus
Program expenses aggregated approximately $7,794,000 and are
included as reorganization costs for fiscal 1995.
16. DISCLOSURE OF FAIR VALUES OF FINANCIAL INSTRUMENTS
CASH AND CASH EQUIVALENTS - The carrying amount of cash and
cash equivalents approximates their fair value because of
the short-term nature of these instruments.
RECEIVABLES - Receivables consist principally of amounts due
from credit card companies pursuant to merchandise sales and
are normally collected within five days. The carrying
amount of receivables approximates their fair value.
LONG-TERM DEBT AND LIABILITIES SUBJECT TO COMPROMISE -
Subsequent to the filing under Chapter 11, a market has
developed for the trading of prepetition claims against the
Company. However, as the market for claims against
companies under Chapter 11 is not well developed, no
reliable source of market prices is available.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors
Merry-Go-Round Enterprises, Inc.
(Debtors-in-Possession):
We have audited the accompanying consolidated balance
sheets of Merry-Go-Round Enterprises, Inc. and subsidiaries
(Debtors-in-Possession) as of January 28, 1995 and January
29, 1994 and the related consolidated statements of
operations, stockholders' equity and cash flows for each of
the years in the three-year period ended January 28, 1995.
These consolidated financial statements are the
responsibility of the Company's management. Our
responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that
we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the consolidated financial statements
referred to above present fairly, in all material respects,
the financial position of Merry-Go-Round Enterprises, Inc.
and subsidiaries (Debtors-in-Possession) as of January 28,
1995 and January 29, 1994 and the results of their
operations and their cash flows for each of the years in the
three-year period ended January 28, 1995 in conformity with
generally accepted accounting principles.
The accompanying consolidated financial statements have
been prepared assuming that the Company will continue as a
going concern. As discussed in note 1, the Company and
certain of its subsidiaries filed voluntary petitions for
relief under Chapter 11 of the United States Bankruptcy
Court (the "Bankruptcy Court") on January 11, 1994 and
subsequent thereto. The uncertainties inherent in the
bankruptcy process raise substantial doubt about the
Company's ability to continue as a going concern. The
Company is currently operating its business as a debtor-in-
possession under the jurisdiction of the Bankruptcy Court
and continuation of the Company as a going concern is
contingent upon its ability to (1) formulate an acceptable
plan of reorganization that will be confirmed by the
Bankruptcy Court, (2) achieve satisfactory levels of
profitable operations, and (3) maintain compliance with its
debtor-in-possession financing and
<PAGE>
adequate sources of other liquidity, among other things, as
described in note 1 to the consolidated financial
statements. The consolidated financial statements do not
include any adjustments that might result from the outcome
of these uncertainties.
As discussed in note 2, the Company changed its method
of accounting for income taxes as of January 31, 1993 to
adopt the provisions of Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes".
KPMG PEAT MARWICK LLP
Baltimore, Maryland
March 27, 1995
<PAGE>
SUMMARY OF QUARTERLY RESULTS
(Unaudited; in thousands except per share data)
<TABLE>
<CAPTION>
1995 Net Earnings Earnings (Loss)
Net Sales (Loss) (Per Share)
<S> <C> <C> <C>
First Quarter $169,016 $(24,065) $(.45)
Second Quarter 175,969 (37,894) (.70)
Third Quarter 199,090 (10,310) (.19)
Fourth Quarter (1)238,741 (114,071) (2.11)
For the Year $782,816 $(186,340) $(3.45)
1994
First Quarter $185,927 $1,975 $.04
Second Quarter 214,412 (2,519) (.05)
Third Quarter 255,473 (38,522) (.71)
Fourth Quarter (1)304,066 (6,558) (.12)
For the Year $959,878 $(45,624) $(.85)
</TABLE>
(1)Net loss for the fourth quarter of fiscal 1995 and 1994
includes reorganization costs aggregating $82.6 million
and $6.9 million, respectively.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
None.
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
Information regarding Directors of the Company
(including those also serving as executive officers) will be
provided in accordance with General Instruction G. (3) to
Form 10-K.
Item 11. Executive Compensation
Information regarding executive compensation will be
provided in accordance with General Instruction G. (3) to
Form 10-K.
Item 12. Security Ownership of Certain Beneficial Owners and
Management
Information regarding security ownership of certain
beneficial owners and management will be provided in
accordance with General Instruction G. (3) to Form
10-K.
Item 13. Certain Relationships and Related Transactions
Information regarding certain relationships and related
transactions will be provided in accordance with General
Instruction G. (3) to Form 10-K.
<PAGE>
PART IV
Item 14. Exhibits and Reports on Form 8-K
(a) 1. Financial Statements
The Consolidated Financial Statements of Merry-Go-Round
Enterprises, Inc. and subsidiaries (debtors-in-possession)
included herein are as follows:
Consolidated Balance Sheets as of January 28, 1995 and
January 29, 1994
Consolidated Statements of Operations for the three-
year period ended January 28, 1995
Consolidated Statements of Stockholders' Equity for the
three-year period ended January 28, 1995
Consolidated Statements of Cash Flows for the three-
year period ended January 28, 1995
Notes to Consolidated Financial Statements
Independent Auditors' Report
2. All financial statement schedules are omitted
because they are not applicable or not required.
3. Exhibits
The following exhibits are filed as part of this Report
and are all incorporated by reference to the identically
numbered exhibit (except as otherwise indicated) in the
Company's Registration Statements on Form S-1, Registration
Nos. 2-83907 and 2-92347, or its annual reports on Form 10-K
for the fiscal years ended February 2, 1985, February 1,
1986, January 31, 1987, January 30, 1988, January 28, 1989,
February 3, 1990, February 2, 1991, February 1, 1992,
January 30, 1993 and January 29, 1994 (the 1985 "Form 10-K"
through "1994 Form 10-K"), its Form 10-Q for the period
ended August 4, 1990 (the "1990 Form 10-Q") and Form 10-Q
for the period ended July 31, 1993 ("the "1993 Form 10-Q"),
its Forms 8-K, dated September 20, 1991, June 15, 1992, May
16, 1993 and January 11, 1994 (the "1991 Form 8-K" through
"1994 Form 8-K"), and its Proxy Statement dated May 24, 1994
(the "1994 Proxy Statement"), each filed with the
Commission.
<PAGE>
<TABLE>
<CAPTION>
Number Description
<S> <C>
3(a) - Articles of Restatement of the Registrant,
dated September 5, 1991 (1992 Form 10-K, Exhibit
3(a))
3(a1) - Articles Supplementary, dated September 23,
1991 (1991 Form 8-K, Exhibit B to Exhibit 4(a))
3(b) - By-laws of the Registrant, as amended,
including amended Sections 3, 12 and 13 (filed
herewith)
4(a) - Rights Agreement dated as of September 20,
1991, between the Registrant and the Rights Agent,
including Form of Rights Certificate (1991 Form 8-
K, Exhibit 4(a))
10(a) - Loan Agreement and Related Notes dated June
28, 1993 between Signet Bank/Maryland National
Westminster Bank USA, Boatmen's National Bank of
St. Louis, Credit Suisse and the Registrant (1993
Form 10-Q, Exhibit 10(a))
10(c) - Lease, dated October 24, 1983, and lease
dated February 27, 1984, between The Arcade
Partnership and the Registrant (1984 Form 10-K,
Exhibit 10(g))
10(d) - Sublease and Assignment Option Agreement,
dated February 28, 1984, and lease dated October
5, 1984, between The Arcade Partnership and the
Registrant (1985 Form 10-K, Exhibit 10(e))
10(e) - Lease, dated March 5, 1986, between The
Arcade Partnership and the Registrant (1986 Form
10-K, Exhibit 10(f))
10(i) - Form of Deferred Compensation Agreement,
dated January 2, 1985, of the Registrant with
certain officers of the Registrant (1985 Form 10-
K, Exhibit 10(q))
10(j) - 1985 Employee Stock Option Plan of the
Registrant and forms of option agreements (1986
Form 10-K, Exhibit 10(s))
10(l) - Note Agreement, dated January 27, 1989, of
MGRR, Inc., as maker, in the original principal
amount of $25,000,000 and Form of Senior Secured
Note (1989 Form 10-K, Exhibit 10(q))
<PAGE>
10(m) - 1989 Long-Term Incentive Plan of the
Registrant, as amended (1994 Proxy Statement,
Appendix A)
10(n) - Form of Restricted Share Award Agreement, as
amended (1990 Form 10-K, Exhibit 10(s))
10(o) - Deferred Compensation Plan, dated April 1989
and Form of Deferred Compensation Agreement, dated
April 1989 (1989 Form 10-K, Exhibit 10(t))
10(p) - Form of Incentive Stock Option Agreement,
dated September 26, 1990 (1991 Form 10-K, Exhibit
10(p))
10(q) - Form of 1992 Director Stock Option Agreement
and Form of Stock Option Agreement (1993 Form 10-
K, Exhibit 10(q))
10(s) - Note Purchase Agreements and Related Notes,
dated as of August 1, 1993, between Principal
Mutual Life Insurance Company, Aid Association for
Lutherans, TMG Life Insurance Company and the
Registrant (1993 Form 10-Q, Exhibit 10(b))
10(t) - Stock Purchase Agreement dated March 17,
1993, between the Registrant and Melville
Corporation (1993 Form 10-K, Exhibit 10(r))
10(u) - First Supplemental Agreement dated as of May
14, 1993, between the Registrant and Melville
Corporation (1993 Form 8-K, Exhibit 2(ii))
10(v) - Convertible Fixed Rate Note dated as of May
16, 1993, issued by the Registrant to Melville
Corporation (1993 Form 8-K, Exhibit 2(iii))
10(w) - Revolving Credit Agreement, dated as of
January 14, 1994, among the Registrant and MGR
Distribution Corporation as Borrowers, MGRR, Inc.
as Guarantor, the financial institutions party
thereto, as Lenders, and The CIT Group/Business
Credit, Inc., as Agent (1994 Form 8-K, Exhibit
99.3)
10(x) - First Amendment, dated as of January 21,
1994, among the Borrowers, the Guarantor, the
Lenders and the Agent (1994 Form 8-K, Exhibit
99.4)
10(y) - Second Amendment, dated as of February 28,
1994, among the Borrowers, the Guarantor, the
Lenders and the Agent (1994 Form 10-K)
10(z) - Third Amendment dated, August 1, 1994 among
the Borrowers, the Guarantor, the Lenders and the
Agent (1994 Form 10-Q)
10(aa) - Fourth Amendment, dated December 19, 1994,
among the Borrowers, the Guarantor, the Lenders
and the Agent (filed herewith)
10(ab) - Fifth Amendment, dated January 13, 1995,
among the Borrowers, the Guarantor, the Lenders
and the Agent (filed herewith)
<PAGE>
10(ac) - Sixth Amendment, dated February 13, 1995,
among the Borrowers, the Guarantor, the Lenders
and the Agent (filed herewith)
10(ad) - Contract between Meridian Ventures, Inc. and
the Company dated January 5, 1995 (filed
herewith).
10(ae) - Joint Plan of Reorganization Under Chapter 11
of the United States Bankruptcy Code dated
February 23, 1995 (filed herewith)
10(af) Employment Agreement dated as of August 1,
1994 between the Registrant and Frank Tworecke
(filed herewith)
10(ag) Employment Agreement dated as of June 1, 1994
between the Registrant and Louis Spagna (filed
herewith)
11 - Computation of earnings per share (filed
herewith)
21 - Subsidiaries of the Registrant (filed
herewith)
23 - Consent of Independent Auditors (filed
herewith)
</TABLE>
Item 14. (b) Reports on Form 8-K
None.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of
the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
MERRY-GO-ROUND ENTERPRISES, INC.
(Registrant)
Date: May 3, 1995 By /s/ Thomas C.
Shull
Name: Thomas C. Shull
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange
Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the
capacities and on the date indicated.
Signature Title Date
/s/ Thomas C. Shull Chairman of the Board, Chief May 3,
1995
Thomas C. Shull Executive Officer and Director
(Principal Executive Officer)
/s/ Isaac Kaufman Executive Vice President, May 3,
1995
Isaac Kaufman Secretary, Treasurer and Director
(Principal Financial Officer)
/s/ Robert J. Reiners Vice President,
Finance May 3, 1995
Robert J. Reiners (Principal Accounting Officer)
/s/ Alan E. Berkowitz Director May
3, 1995
Alan E. Berkowitz
/s/ Raymond F. Altman Director May
3, 1995
Raymond F. Altman
EXHIBIT 10(aa)
FOURTH AMENDMENT
TO
REVOLVING CREDIT AGREEMENT
Fourth Amendment, dated as of December 19, 1994,
to the Revolving Credit Agreement, dated as of January 14,
1994, as amended prior to the date hereof (as so amended,
the "Credit Agreement"), among MERRY-GO-ROUND ENTERPRISES,
INC., a Maryland corporation ("MGRE"), MGR DISTRIBUTION
CORPORATION, a Maryland corporation ("MGRD," and together
with MGRE, collectively, the "Borrowers" and individually, a
"Borrower"), MGRR, INC., a Delaware corporation (the
"Guarantor"), the financial institutions from time to time
party thereto (collectively, the "Lenders" and individually,
a "Lender"), and THE CIT GROUP/BUSINESS CREDIT, INC.
("CIT"), as agent for the Lenders (in such capacity, the
"Agent").
The Borrowers, the Guarantor and the Lenders
desire to increase the amount of assets (other than
Inventory) that may be sold or otherwise disposed of by the
Borrowers and the Guarantors from $10,000,000 to
$20,000,000, on the terms and conditions hereinafter set
forth. Accordingly, the Borrowers, the Guarantor, the Agent
and the Lenders hereby agree as follows:
1. Definitions. All capitalized terms used
herein and not otherwise defined herein are used herein as
defined in the Credit Agreement.
2. Disposition of Assets. Section 9.09 of the
Credit Agreement is hereby amended by deleting the amount
"$10,000,000" contained in clause (ii) of paragraph (b) and
in paragraph (c) thereof and substituting therefor
"$20,000,000."
3. Conditions to Effectiveness. This Amendment
shall become effective only upon satisfaction in full of the
following conditions precedent (the first date upon which
all such conditions have been satisfied being herein called
the "Effective Date");
(i) The Agent shall have received counterparts of
this Amendment which bear the signatures of the Borrowers,
the Guarantor and the Required Lenders.
(ii) All legal matters incident to this Amendment
shall be satisfactory to the Agent and its counsel.
4. Representations and Warranties. Each of the
Borrowers and the Guarantor represents and warrants to the
Lenders as follows:
<PAGE>
(a) The execution, delivery and performance
by the Borrowers and the Guarantor of this Amendment and the
performance by the Borrowers and the Guarantor of the Credit
Agreement as amended hereby (i) have been duly authorized by
all necessary corporate action and (ii) do not and will not
contravene their organizational documents or any applicable
law.
(b) This Amendment and the Credit Agreement,
as amended hereby, constitute the legal, valid and binding
obligations of the Borrowers and the Guarantor, enforceable
against the Borrowers and the Guarantor in accordance with
their terms.
(c) The representations and warranties
contained in Article VI of the Credit Agreement are correct
on and as of the Effective Date as though made on and as of
the Effective Date (except to the extent such
representations and warranties expressly relate to an
earlier date), and no Event of Default or Potential Default,
has occurred and is continuing on and as of the Effective
Date.
5. Waivers and Consents. (a) Pursuant to the
request of the Borrowers and the Guarantor and in accordance
with Section 11.03 of the Credit Agreement, and subject to
the satisfaction of the conditions to effectiveness set
forth in Section 3 of this Amendment, the Lenders and the
Agent hereby consent to, and waive any Event of a Default
that would otherwise arise (i) under paragraph (d) of
Section 10.01 of the Credit Agreement from any non-
compliance by the Borrowers with the provisions of
paragraphs (b) and (c) of Section 8.01 of the Credit
Agreement by reason of the failure of MGRE to furnish to
each of the Lenders, on or before the dates set forth in
such paragraphs, an unaudited consolidated statement of
operations and cash flows of MGRE and its Consolidated
Subsidiaries and an unaudited consolidated balance sheet of
MGRE and its Consolidated Subsidiaries for the fiscal
quarter and the fiscal month ended July 31, 1994, (ii) under
paragraph (b) of Section 10.01 of the Credit Agreement from
any false representation, warranty and/or statement made by
the Borrowers in the Borrowing Base Certificates delivered
by the Borrowers to the Agent and the Lenders prior to
September 17, 1994 and in the Certificate made as of April
27, 1994 by the Borrowers and the Guarantor and delivered to
the Agent by reason of the inclusion of certain ineligible
inventory in the Borrowing Base Certificates delivered by
the Borrowers to the Agent and the Lenders prior to
September 17, 1994, provided that the consent and waiver set
forth in this clause (ii) shall only be effective for the
period prior to February 1, 1995, and (iii) under paragraph
(c) of Section 10.01 of the Credit Agreement from the
Borrowers' maintaining Inventory (valued at Book Value) at
the end of the October 1994 fiscal month of MGRE of more
than $166,060,000, provided that the consent and waiver set
forth in clause (iii) above is expressly subject to and
conditional upon MGRE providing to the each of the Lenders,
on or before December 16, 1994, financial projections of
MGRE and its Consolidated Subsidiaries, in form and
substance
<PAGE>
satisfactory to the Required Lenders, for the remainder of
the 1995 fiscal year of MGRE and for the 1996 fiscal year of
MGRE.
(b) The waivers and consents in this Section
5 shall be effective only in this specific instance and for
the specific purposes set forth herein and do not allow for
any other or further departure from the terms and conditions
of the Credit Agreement or any other Related Document, which
terms and conditions shall continue in full force and
effect.
6. Continued Effectiveness of Credit Agreement.
Each of the Borrowers and the Guarantor hereby (i) confirms
and agrees that each Related Document to which it is a party
is, and shall continue to be, in full force and effect and
is hereby ratified and confirmed in all respects except that
on and after the Effective Date of this Amendment all
references in any such Related Document to "the Credit
Agreement," "thereto," "thereof," "thereunder" or words of
like import referring to the Credit Agreement shall mean the
Credit Agreement, as amended by this Amendment, and (ii)
confirms and agrees that to the extent that any such Related
Document purports to assign or pledge to the Agent, or to
grant to the Agent a security interest in or Lien on, any
collateral as security for the Obligations of the Borrowers
or the Guarantor from time to time existing in respect of
the Credit Agreement and the Related Documents, such pledge,
assignment and/or grant of the security interest or Lien is
hereby ratified and confirmed in all respects.
7. Miscellaneous.
a. This Amendment may be executed in any
number of counterparts and by different parties hereto in
separate counterparts, each of which shall be deemed to be
an original, but all of which taken together shall
constitute one and the same agreement.
b. Section and paragraph headings herein
are included for convenience of reference only and shall not
constitute a part of this Amendment for any other purpose.
c. This Amendment shall be governed by, and
construed in accordance with, the laws of the State of New
York.
d. The Borrowers will pay on demand all
fees, costs and expenses of the Agent in connection with the
preparation, execution and delivery of this Amendment,
including, without limitation, the reasonable fees,
disbursements and other charges of Schulte Roth & Zabel,
counsel to the Agent.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused
this Amendment to be executed by their respective officers
thereunto duly authorized as of the day and year first above
written.
BORROWERS:
MERRY-GO-ROUND ENTERPRISES, INC., as debtor and as debtor-in-
possession
By: /s/ Isaac Kaufman
Name: Isaac Kaufman
Title: Chief Financial Officer
MGR DISTRIBUTION CORPORATION, as debtor and as debtor-in-
possession
By: /s/ Isaac Kaufman
Name: Isaac Kaufman
Title: Secretary
GUARANTOR:
MGRR, INC., as debtor and as debtor-in-possession
By: /s/ Isaac Kaufman
Name: Isaac Kaufman
Title: Secretary
AGENT AND LENDER:
THE CIT GROUP/BUSINESS CREDIT, INC.
By: /s/ Anthony Vassallo
Name: Anthony Vassallo
Title: Assistant Vice President
<PAGE>
LENDERS:
THE BANK OF NEW YORK
COMMERCIAL CORPORATION
By:
Name:
Title:
CONGRESS FINANCIAL CORPORATION
By: /s/ Janet S. Last
Name: Janet S. Last
Title: Assistant Vice President
IBJ SCHRODER BANK & TRUST COMPANY
By: /s/ Alfred J. Sconyi
Name: Alfred J. Sconyi
Title: Assistant Vice President
LASALLE BUSINESS CREDIT, INC.
By: /s/ Donald J. Flores
Name: Donald J. Flores
Title: Vice President
PNC BANK, NATIONAL ASSOCIATION
By:
Name:
Title:
<PAGE>
STERLING NATIONAL BANK
& TRUST COMPANY OF NEW YORK
By: /s/ Leonard Rudolph
Name: Leonard Rudolph
Title: Senior Vice President
EXHIBIT 10(ab)
FIFTH AMENDMENT
TO
REVOLVING CREDIT AGREEMENT
Fifth Amendment, dated as of January 13, 1995, to
the Revolving Credit Agreement, dated as of January 14,
1994, as amended prior to the date hereof (as so amended,
the "Credit Agreement"), among MERRY-GO-ROUND ENTERPRISES,
INC., a Maryland corporation ("MGRE"), MGR DISTRIBUTION
CORPORATION, a Maryland corporation ("MGRD", and together
with MGRE, collectively, the "Borrowers" and individually, a
"Borrower"), MGRR, INC., a Delaware corporation (the
"Guarantor"), the financial institutions from time to time
party thereto (collectively, the "Lenders" and individually,
a "Lender"), and THE CIT GROUP/BUSINESS CREDIT, INC.
("CIT"), as agent for the Lenders (in such capacity, the
"Agent").
The Borrowers, the Guarantor, the Agent and the
Lenders desire to amend the Credit Agreement on the terms
and conditions hereinafter set forth. Accordingly, the
Borrowers, the Guarantor, the Agent and the Lenders hereby
agree as follows:
1. Definitions. All capitalized terms used
herein and not otherwise defined herein are used herein as
defined in the Credit Agreement.
2. Eligible Inventory. The definition of the
term "Eligible Inventory" in Section 1.01 of the Credit
Agreement is hereby amended by (i) deleting the word "and"
at the end of clause (iii) thereof, (ii) redesignating the
existing clause (iv) thereof as new clause (v) thereof, and
(iii) adding the following new clause (iv):
"(iv) it is not Inventory that is or was
Merchandise (as defined in the GOB Sales
Agreement) to be sold pursuant to the
terms of the GOB Sales Agreement and the
GOB Sales Order or that is designated by
the Borrowers to be sold pursuant to any
going-out-of-business sale; and"
3. New Definitions. The following definitions
of the terms "GOB Sales Order", "GOB Sales Accounts", "GOB
Sales Agreement" and "Inventory Liquidator" are is hereby
added to Section 1.01 of the Credit Agreement:
"'GOB Sales Order' shall mean the Order
of the Bankruptcy Court Authorizing
Store Closings at Certain Retail
Locations and the Retention of an
Inventory Liquidation Agent."
<PAGE>
"'GOB Sales Accounts' shall mean the
deposit accounts in the name of MGRE,
for which the Inventory Liquidator has
the sole signature authority, into which
the Proceeds (as defined in the GOB
Sales Agreement) of the going-out-of-
business sales conducted pursuant to the
GOB Sales Order and the GOB Sales
Agreement shall be deposited."
"'GOB Sales Agreement' shall mean the
Agreement dated January 10, 1995 between
the Inventory Liquidator and MGRE."
"'Inventory Liquidator' shall mean
Gordon Brothers Partners, Inc."
4. Collections and Cash Concentration Account
Arrangements. Section 5.02 of the Credit Agreement is
hereby amended in its entirety to read as follows:
"5.02. Collections and Cash
Concentration Account Arrangements. All
cash of the Borrowers and the Guarantor,
all proceeds from the sale of the
Inventory of the Borrowers and all
proceeds of Collateral shall be
deposited in Depository Accounts or
Collection Accounts established by the
Borrowers and the Guarantor in the
ordinary course of business consistent
with past practice, provided that the
Proceeds (as defined in the GOB Sales
Agreement) of all going-out-business
sales conducted pursuant to the GOB
Sales Order and the GOB Sales Agreement
shall be deposited in the GOB Sales
Accounts. Pursuant to the customary
operating procedures of the Borrowers
and the Guarantor and the financial
institutions maintaining the Depository
Accounts, all funds contained in the
Depository Accounts shall be transferred
promptly to the Collection Accounts or
the Cash Concentration Account.
Pursuant to agreements ("Collection
Account Agreements") in form and
substance reasonably satisfactory to the
Agent, or other similar arrangements,
all funds contained in the Collection
Accounts shall be transferred promptly
into the Cash Concentration Account.
Except with respect to Proceeds (as
defined in the GOB Sales Agreement), any
collection by the Borrowers and the
Guarantor of cash and proceeds of the
sale of the Inventory of the Borrowers
shall be made for the Agent, and the
Borrowers shall receive all payments
thereon as the Agent's
<PAGE>
trustee, and immediately transfer all
such payments into the Cash
Concentration Account, any Collection
Account or any Depository Account in
their original form. With respect to
the Cash Concentration Account, the
Borrowers shall, in accordance with
Section 8.08, deliver to the Agent an
agreement, duly executed by the
Borrowers and the Cash Concentration
Account Bank, in form and substance
reasonably satisfactory to the Agent
(the "Restricted Account Agreement"),
authorizing and directing the Cash
Concentration Account Bank to remit all
amounts deposited in the Cash
Concentration Account to the Agent or as
the Agent may direct. The Agent may, at
any time whether or not an Event of
Default has occurred or is continuing,
instruct the Cash Concentration Account
Bank to remit all amounts deposited in
the Cash Concentration Account to the
Agent or as the Agent shall direct.
Prior to providing such instructions to
the Cash Concentration Account Bank, the
Agent shall direct the Cash
Concentration Account Bank to make all
cash in the Cash Concentration Account
available to the Borrowers for general
corporate purposes in accordance with
Section 2.09."
5. Maintenance of Accounts.
(a) The second sentence of Section 8.08 of
the Credit Agreement is hereby amended in its entirety to
read as follows:
"Each of the Borrowers and the Guarantor agrees and
covenants that all cash, all proceeds of Inventory and
all proceeds of Collateral, including, without
limitation, all remittances from credit card sales by
the Borrowers and the Guarantor and
excluding all Proceeds (as defined in
the GOB Sales Agreement), shall be
deposited in a Depository Account, a
Collection Account or the Cash
Concentration Account in a matter
consistent with past practices."
(b) The fourth sentence of Section 8.08 of
the Credit Agreement is hereby amended in its entirety to
read as follows:
<PAGE>
"In addition, each of the Borrowers and
the Guarantor shall cause all
remittances or other proceeds of credit
card sales, other than credit card sales
resulting from the sale of Merchandise
(as defined in the GOB Sales Agreement),
to be promptly transferred from the
financial institution that receives such
remittances or other proceeds to a
Collection Account or the Cash
Concentration Account."
6. Liens. Section 9.03 of the Credit Agreement
is hereby amended by (i) deleting the word "and" at the end
of clause (g) thereof, (ii) redesignating the existing
clause (h) thereof as new clause (i) thereof, and (iii)
adding the following new clause (h):
"(h) the Lien of the Inventory
Liquidator in the Proceeds (as defined
in the GOB Sales Agreement) deposited in
the GOB Sales Accounts pursuant to the
terms of the GOB Sales Agreement and the
GOB Sales Order; and"
7. Disposition of Assets. Section 9.09 of the
Credit Agreement is hereby amended by (i) deleting the
amount "$20,000,000" in clause (ii) of paragraph (b) and
paragraph (c) thereof and substituting in lieu thereof
"$32,000,000 from November 1, 1994 through the Termination
Date" and (ii) deleting clause (A) in the second proviso of
paragraph (b) thereof and substituting in lieu thereof "(A)
not more than three hundred twenty (320) stores, in the
aggregate, shall be closed pursuant to clauses (i), (ii) and
(iii) of this Section 9.09(b) from November 1, 1994 through
the Termination Date."
8. Conditions to Effectiveness. This Amendment
shall become effective only upon satisfaction in full of the
following conditions precedent (the first date upon which
all such conditions have been satisfied being herein called
the "Effective Date"):
(i) The Agent shall have received counterparts of
this Amendment which bear the signatures of the Borrowers,
the Guarantor and the Required Lenders.
(ii) All legal matters incident to this Amendment
shall be satisfactory to the Agent and its counsel.
9. Representations and Warranties. Each of the
Borrowers and the Guarantor represents and warrants to the
Lenders as follows:
(a) The execution, delivery and performance
by the Borrowers and the Guarantor of this Amendment and the
performance by the Borrowers and the Guarantor of the Credit
Agreement as amended hereby (i) have been duly authorized by
all necessary corporate action and (ii) do not and will not
contravene their organizational documents or any applicable
law.
<PAGE>
(b) This Amendment and the Credit Agreement,
as amended hereby, constitute the legal, valid and binding
obligations of the Borrowers and the Guarantor, enforceable
against the Borrowers and the Guarantor in accordance with
their terms.
(c) The representations and warranties
contained in Article VI of the Credit Agreement are correct
on and as of the Effective Date as though made on and as of
the Effective Date (except to the extent such
representations and warranties expressly relate to an
earlier date), and no Event of Default or Potential Default,
has occurred and is continuing on and as of the Effective
Date.
10. Waivers and Consents.
(a) The Lenders and the Agent hereby consent
to the transfer of the Proceeds (as defined in the GOB Sales
Agreement) into the GOB Sales Accounts, the Inventory
Liquidator's security interest in the GOB Sales Accounts
securing all sums due to the Inventory Liquidator under the
GOB Sales Agreement and the use, transfer and retention of
the Proceeds by the Inventory Liquidator, in each case
pursuant to the terms of the GOB Sales Agreement and the GOB
Sales Order.
(b) The consents in this Section 10 shall be
effective only in this specific instance and for the
specific purposes set forth herein and do not allow for any
other or further departure from the terms and conditions of
the Credit Agreement or any other Related Document, which
terms and conditions shall continue in full force and
effect.
11. Continued Effectiveness of Credit Agreement.
Each of the Borrowers and the Guarantor hereby (i) confirms
and agrees that each Related Document to which it is a party
is, and shall continue to be, in full force and effect and
is hereby ratified and confirmed in all respects except that
on and after the Effective Date of this Amendment all
references in any such Related Document to "the Credit
Agreement," "thereto," "thereof," "thereunder" or words of
like import referring to the Credit Agreement shall mean the
Credit Agreement, as amended by this Amendment, and
(ii) confirms and agrees that to the extent that any such
Related Document purports to assign or pledge to the Agent,
or to grant to the Agent a security interest in or Lien on,
any collateral as security for the Obligations of the
Borrowers or the Guarantor from time to time existing in
respect of the Credit Agreement and the Related Documents,
such pledge, assignment and/or grant of the security
interest or Lien is hereby ratified and confirmed in all
respects.
<PAGE>
12. Miscellaneous.
a. This Amendment may be executed in any
number of counterparts and by different parties hereto in
separate counterparts, each of which shall be deemed to be
an original, but all of which taken together shall
constitute one and the same agreement.
b. Section and paragraph headings herein
are included for convenience of reference only and shall not
constitute a part of this Amendment for any other purpose.
c. This Amendment shall be governed by, and
construed in accordance with, the laws of the State of New
York.
d. The Borrowers will pay on demand all
fees, costs and expenses of the Agent in connection with the
preparation, execution and delivery of this Amendment,
including, without limitation, the reasonable fees,
disbursements and other charges of Schulte Roth & Zabel,
counsel to the Agent.
IN WITNESS WHEREOF, the parties hereto have caused
this Amendment to be executed by their respective officers
thereunto duly authorized as of the day and year first above
written.
BORROWERS:
MERRY-GO-ROUND ENTERPRISES,
INC., as debtor and as debtor-in-
possession
By: /s/ Isaac Kaufman
Name: Isaac Kaufman
Title: Chief Financial
Officer
MGR DISTRIBUTION CORPORATION, as
debtor and as debtor-in-
possession
By: /s/ Isaac Kaufman
Name: Isaac Kaufman
Title: Secretary
<PAGE>
GUARANTOR:
MGRR, INC., as debtor and as
debtor-in-possession
By: /s/ Isaac Kaufman
Name: Isaac Kaufman
Title: Secretary
AGENT AND LENDER:
THE CIT GROUP/BUSINESS CREDIT,
INC.
By: /s/ Anthony Vassallo
Name: Anthony Vassallo
Title: Assistant Vice
President
LENDERS:
THE BANK OF NEW YORK
COMMERCIAL CORPORATION
By:
Name:
Title:
CONGRESS FINANCIAL CORPORATION
By: /s/ Janet S. Last
Name: Janet S. Last
Title: Assistant Vice
President
<PAGE>
IBJ SCHRODER BANK & TRUST COMPANY
By: /s/ Alfred J. Sconyi
Name: Alfred J. Sconyi
Title: Assistant Vice
President
LASALLE BUSINESS CREDIT, INC.
By: /s/ Donald J. Flores
Name: Donald J. Flores
Title: Vice President
PNC BANK, NATIONAL ASSOCIATION
By:
Name:
Title:
STERLING NATIONAL BANK
& TRUST COMPANY OF NEW YORK
By: /s/ Leonard Rudolph
Name: Leonard Rudolph
Title: Senior Vice President
EXHIBIT 10(ac)
SIXTH AMENDMENT
TO
REVOLVING CREDIT AGREEMENT
Sixth Amendment, dated as of February 13, 1995, to the
Revolving Credit Agreement, dated as of January 14, 1994, as
amended prior to the date hereof (as so amended, the "Credit
Agreement"), among MERRY-GO-ROUND ENTERPRISES, INC., a
Maryland corporation ("MGRE"), MGR DISTRIBUTION CORPORATION,
a Maryland corporation ("MGRD", and together with MGRE,
collectively, the "Borrowers" and individually, a
"Borrower"), MGRR, INC., a Delaware corporation (the
"Guarantor"), the financial institutions from time to time
party thereto (collectively, the "Lenders" and individually,
a "Lender"), and THE CIT GROUP/BUSINESS CREDIT, INC.
("CIT"), as agent for the Lenders (in such capacity, the
"Agent").
The Borrowers, the Guarantor, the Agent and the Lenders
desire to amend the Credit Agreement on the terms and
conditions hereinafter set forth. Accordingly, the
Borrowers, the Guarantor, the Agent and the Lenders hereby
agree as follows:
1. Definitions. All capitalized terms used herein
and not otherwise defined herein are used herein as defined
in the Credit Agreement.
2. Background. The "Background" section of the
Credit Agreement is hereby amended by (i) deleting the
amount "$125 million" in the second sentence thereof and
substituting in lieu thereof "$100 million" and
(ii) deleting the amount "$90 million" in the second
sentence thereof and substituting in lieu thereof "$80
million."
3. Existing Definitions.
(a) Borrowing Base. The definition of the term
"Borrowing Base" in Section 1.01 of the Credit Agreement is
hereby amended in its entirety to read as follows:
<PAGE>
"Borrowing Base" shall mean at any time an amount
equal to the difference between (1) the sum of
(A) 40% of the Book Value of Eligible Inventory
and (B) 40% of the value of L/C Inventory and
(ii) $2,500,000."
(b) Cash Concentration Account Blockage Date. The
definition of the term "Cash Concentration Account Blockage
Date" in Section 1.01 of the Credit Agreement is hereby
amended in its entirety to read as follows:
"Cash Concentration Account Blockage Date" shall
mean the date on which the Agent instructs the
Cash Concentration Account Bank, pursuant to the
Restricted Account Agreement, to remit all amounts
deposited in the Cash Concentration Account to the
Agent or as the Agent shall direct."
(c) Cumulative FIFO EBITDA. The definition of the
term "Cumulative FIFO EBITDA" in Section 1.01 of the Credit
Agreement is hereby amended in its entirety to read as
follows:
"'Cumulative FIFO EBITDA' shall mean (i) for each
fiscal month of MGRE beginning with the November
1994 fiscal month and ending with the January 1995
fiscal month, the aggregate FIFO EBITDA for the
period beginning with the November 1994 fiscal
month and ending at the end of such fiscal month
and (ii) for each fiscal month in such fiscal year
of MGRE thereafter, the aggregate FIFO EBITDA for
the period beginning with the first fiscal month
in such fiscal year and ending at the end of such
fiscal month."
(d) The definition of the term "FIFO EBITDA" in
Section 1.01 of the Credit Agreement is hereby amended by
deleting the words "fiscal year" in the proviso at the end
thereof and substituting in lieu thereof "fiscal month."
(e) Regular Rate. The definition of the term
"Regular Rate" in Section 1.01 of the Credit Agreement is
hereby amended in its entirety to read as follows:
<PAGE>
"'Regular Rate' shall mean, for any day, the Prime
Rate for such day plus 1.25%."
(f) Revolving Credit Commitment. The definition
of the term "Revolving Credit Commitment" in Section 1.01 of
the Credit Agreement is hereby amended by (i) deleting the
reference to "Schedule 1.02" therein and substituting in
lieu thereof "Schedule 1.02A" and (ii) deleting the amount
"$125 million" contained therein and substituting in lieu
thereof "$100 million."
(g) Tax Refund. The definition of the term "Tax
Refund" in Section 1.01 of the Credit Agreement is hereby
amended in its entirety to read as follows:
"'Tax Refund' shall mean the Federal income tax
refund claimed by MGRE from the Internal Revenue
Service in the consolidated Federal income tax
return to be filed by MGRE for its taxable year
ended January 28, 1995."
4. New Definition. The following definition of the
term "Cash Equivalents" is hereby added to Section 1.01 of
the Credit Agreement:
"'Cash Equivalents' shall mean (i) securities with
maturities of one year or less from the date of
acquisition issued or fully guaranteed or insured
by the United States of America government or any
agency thereof, (ii) certificates of deposit,
eurodollar time deposits, overnight bank deposits
and bankers' acceptances of any Lender having
maturities of one year or less from the date of
acquisition, (iii) commercial paper of an issuer
rated at least A-1 by Standard & Poor's
Corporation or P-1 by Moody's Investors Service,
Inc., or carrying an equivalent rating by a
nationally recognized rating agency if both of the
two named rating agencies publishing ratings of
investments, (iv) money market funds acceptable to
the Agent, (v) repurchase agreements related to
<PAGE>
the securities described in clause (i) above, and
(vi) prior to February 28, 1995, MGRE's interest
in the Merrill Lynch Pierce Fenner & Smith
Government Fund.
5. Revolving Credit Commitment. Section 2.01(a) of
the Credit Agreement is hereby amended by (i) deleting the
second sentence thereof in its entirety and substituting in
lieu thereof the following:
"The Current Commitment at any time shall be equal
to the lesser of (A) $100,000,000 during the
period when the Final Bankruptcy Court Order is in
effect, as such amount may have been reduced under
Section 2.04(a) hereof at such time and (B) the
Borrowing Base."
and (ii) deleting the proviso to the third sentence thereof.
6. Eurodollar Loans. Paragraph (a) of Section 2.03
of the Credit Agreement shall be amended by adding the
following at the end thereof:
"Notwithstanding anything to the contrary
contained in this Agreement, commencing January 1,
1995, the Borrowers shall not be entitled to
request and the Lenders shall not be obligated to
make Eurodollar Loans."
7. Interest Rate. Section 2.05 of the Credit
Agreement is hereby amended in its entirety to read as
follows:
"2.05 Interest Rate. Each Loan shall bear
interest for each day until paid at the rate per
annum for each day equal to the Regular Rate for
such day."
<PAGE>
8. Unused Line Fee. Section 2.08(e) of the Credit
Agreement is hereby amended by deleting the percentage
"three-eighths of one percent (0.375%)" contained in the
first sentence thereof and substituting therefore "one-half
of one percent (0.50%)."
9. Letter of Credit Fees.
(a) The first sentence of Section 2.08(f) of the
Credit Agreement is hereby amended in its entirety to read
as follows:
"From and after the Entry Date until the
Termination Date, the Borrowers shall pay to the
Agent, for the account of each Lender in
accordance with such Lender's Pro Rata Share,
subject to Section 11.18, a letter of credit fee
(the "Letter of Credit Fee") accruing at a rate of
(i) 2.00% per annum on the average daily Undrawn
Letter of Credit Availability of standby Letters
of Credit and (ii) 1.75% per annum on the average
daily Undrawn Letter of Credit Availability of
documentary Letters of Credit."
(b) The third sentence of Section 2.08(f) of the
Credit Agreement is hereby amended in its entirety to read
as follows:
"The Borrowers shall also pay the nominal Letter
of Credit fees and charges of the Letter of Credit
Issuer for the administration, issuance and
processing of Letters of Credit issued by the
Letter of Credit Issuer, including a fronting fee
of .25% of the Stated Amount of standby Letters of
Credit."
10. Letters of Credit.
(a) The third sentence of Section 3.01(a) of the
Credit Agreement is hereby amended in its entirety to read
as follows:
<PAGE>
"CIT shall have no obligation to arrange for the
issuance of Letters of Credit on or after the
Termination Date for which, when added to the
aggregate amount of all outstanding and
contemporaneous Loans and the Letter of Credit
Exposure at such time, would cause the amount of
all Loans and the Letter of Credit Exposure at any
time to exceed the Current Commitment at such
time."
(b) The first two sentences contained in Section
3.01(a)(i) of the Credit Agreement are hereby amended in
their entirety to read as follows:
"During the period when the Final Bankruptcy Court
Order is in effect, the aggregate Letter of Credit
Exposure shall not exceed $80,000,000 of which not
more than $10,000,000 shall be Letter of Credit
Exposure with respect to standby Letters of
Credit."
(c) Clause (z) in the last sentence of Section
3.01(a)(i) of the Credit Agreement is hereby amended in its
entirety to read as follows:
"(z) Letters of Credit for the benefit of domestic
trade creditors in connection with the purchase of
merchandise or goods of either Borrower may be
issued in the sole discretion of the Agent and
aggregate Letter of Credit Exposure at any one
time in excess of $7,000,000 resulting from the
issuance of such Letters of Credit shall not in
any event be permitted."
(d) Section 3.01(a)(ix) of the Credit Agreement is
hereby amended in its entirety to read as follows:
"(ix) intentionally omitted"
11. Grant of Lien and Security Interest. Paragraph
(a) of Section 5.01 of the Credit Agreement is hereby
amended in its entirety to read as follows:
<PAGE>
"(a) To secure the joint and several Obligations
of the Borrowers to the Agent, CIT and the Lenders
under this Agreement and the Related Documents,
each Borrower hereby assigns, pledges, transfers,
grants, bargains and sells, mortgages, conveys,
aliens, releases, confirms and acts over unto the
Agent for the ratable benefit of each of the
Lenders and hereby grants and creates in favor of
the Agent for the ratable benefit of each of the
Lenders a security interest in and to, all right,
title and interest of such Borrower in, to or
under the Letter of Credit Cash Collateral
Account, all funds held therein from time to time
and all certificates and Instruments, if any, from
time to time representing or evidencing the same
and all proceeds and profits of any of the
foregoing and the Tax Refund (all property of the
Borrowers subject to the security interest
referred to in this Section 5.01 being hereinafter
referred to as the "Collateral")."
12. Cash Concentration Account Arrangements. Section
5.02 of the Credit Agreement is hereby amended by adding the
following sentences at the end thereof:
"After all mandatory prepayments required by
Section 2.04(b)(iii) have been made and all other
payments required to be made by the terms of this
Agreement, including the provision of cash
collateral for Letters of Credit as required by
this Agreement, have been made, any amounts
remaining in the Cash Concentration Account shall
be made available to the Borrowers for general
corporate purposes in accordance with Section
2.09. The Borrowers and the Guarantor shall
(i) cause all cash and all proceeds from the sale
of inventory by Worth Stores Corp. including all
remittances from credit card sales by Worth Stores
Corp., to be deposited in a Depository Account, a
Collection Account or the Cash Concentration
Account in a manner consistent with past practices
<PAGE>
and (ii) cause all such amounts to be applied
toward the repayment of the advances and loans
made by the Borrowers and the Guarantor to Worth
Stores Corp."
13. Location of Accounts. Schedule 6.22 to the Credit
Agreement is hereby amended by adding the following account
(the "Merrill Lynch Bond Account"):
"Merrill Lynch Pierce Fenner & Smith
Government Fund
Account No. 3219818"
14. Conditions Precedent. Section 7.02(d) of the
Credit Agreement is hereby amended by deleting the proviso
thereto.
15. Reports on Senior Management; GOB Sales. The
following is hereby added to the end of paragraph (h) of
Section 8.01(h) of the Credit Agreement:
"On May 31, 1995 and thereafter as soon as
practicable and in any event within five (5) days
after an officer of either Borrower or the
Guarantor becomes aware of any change or proposed
change in the chief executive officer, chief
operating officer, chief financial officer or any
division president of the Borrowers (including any
extension of the term or other modification of any
management agreement), the Borrowers and the
Guarantor shall deliver to the Agent a report on
the change or proposed change in such senior
managers (or in such management agreement),
including any information concerning such change
or proposed change that the Agent may reasonably
require. In addition, MGRE shall deliver to the
Agent a copy of all documents, reports and
searches that MGRE receives from or is required to
deliver to the Inventory Liquidator pursuant to
the terms of the GOB Sales Agreement promptly
after any such receipt or delivery."
<PAGE>
16. Projections. Section 8.01(j) of the Credit
Agreement is hereby in its entirety to read as follows:
"(j) Projections. The Borrower shall furnish
to each of the Lenders on or before
December 1, 1995 financial projections, in
form and substance reasonably satisfactory to
the Agent, for the first half of the 1997
fiscal year of MGRE and such projections
shall be prepared in accordance with the
standards set forth in the second sentence of
Section 6.16 hereof."
17. Inventory Markdown Report. Paragraph (c) of
Section 8.01 of the Credit Agreement is hereby amended by
adding a new subparagraph (iii) at the end thereof to read
as follows:
"(iii) As soon as practicable and in any
event within ten (10) days after the end of
each fiscal month of MGRE, the Borrowers
shall furnish to each of the Lenders a
monthly Inventory markdown report, in form
and substance reasonably satisfactory to the
Agent, certified by a Designated Financial
Officer."
18. Maintenance of Accounts. Section 8.08 of the
Credit Agreement is hereby amended by adding the following
sentence at the end thereof:
"Each of the Borrowers and the Guarantor
agrees and covenants that it shall (i) cause
all cash and all proceeds of Inventory of
Worth Stores Corp., including, without
limitation, all remittances from credit card
sales of Worth Stores Corp., to be deposited
in a Depository Account, a Collection Account
or the Cash Concentration Account in a manner
consistent with past practices and (ii) cause
<PAGE>
all such amounts to be applied toward the
repayment of the advances and loans made by
the Borrowers and the Guarantor to Worth
Stores Corp."
19. Cumulative FIFO EBITDA. Section 9.02 of the
Credit Agreement is hereby amended in its entirety to read
as follows:
"9.02. Cumulative FIFO EBITDA. The
Borrowers shall not permit Cumulative FIFO EBITDA
for the fiscal months listed below to be less than
the amount specified opposite each such fiscal
month:
<TABLE>
<CAPTION>
Month Ending FIFO EBITDA
<S> <C>
November 1994 ($19,239,000)
December 1994 ($32,775,000)
January 1995 ($58,310,000)
February 1995 ($ 9,640,000)
March 1995 ($11,378,000)
April 1995 ($14,150,000)
May 1995 ($14,662,000)
June 1995 ($12,756,000)
July 1995 ($14,529,000)
August 1995 ($ 7,881,000)
September 1995 ($ 2,596,000)
October 1995 ($ 1,277,000)
November 1995 $ 3,404,000
December 1995 $32,345,000
January 1996 $25,746,000"
</TABLE>
Upon receipt of the financial projections for
the first-half of the 1997 fiscal year of
MGRE required to be delivered to the Lenders
pursuant to Section 8.01(j), MGRE and the
Agent shall negotiate in good faith to
determine Cumulative FIFO EBITDA for each
month of the first-half of the 1997 fiscal
<PAGE>
year of MGRE and, in the event that MGRE and
the Agent are unable to agree upon such
amounts on or before the date that is thirty
days after the date that the Agent has
received such projections, the Borrowers
shall have available cash and Cash
Equivalents, less the aggregate amount of all
outstanding Loans (but not less than the
aggregate amount of Letters of Credit) of
$30,000,000 for the period from and including
January 31, 1996 through and including
April 30, 1996 (the "Clean-Up Period"),
provided that (i) during the Clean-Up Period
all liabilities of the Borrowers and the
Guarantor shall be current and (ii) the
Borrowers shall (A) certify in writing to the
Lenders that all liabilities of the Borrowers
and the Guarantor are current during the
Clean-Up Period and (B) provide the Agent
with evidence reasonably satisfactory to the
Agent, of the existence of such available
cash and Cash Equivalents, in each case on
February 2, 1996 and on the Friday of each
week thereafter during the Clean-Up Period."
20. Investments. Clause (c) of Section 9.06 of the
Credit Agreement is hereby amended in its entirety to read
as follows:
"(c) the Letter of Credit Cash Collateral
Account and other accounts permitted or
required to be maintained pursuant hereto and
any investment of funds on deposit in the
foregoing accounts in Cash Equivalents,
subject to the provisions of 11 U.S.C.
Section 345 or as otherwise authorized by the
Bankruptcy Court:"
21. Capital Expenditures. Section 9.12 of the Credit
Agreement is hereby amended in its entirety to read as
follows:
<PAGE>
"9.12. Capital Expenditures. MGRE shall not
permit aggregate capital expenditures for MGRE and
its Consolidated Subsidiaries to exceed in the
aggregate (i) $18,000,000 during the period from
the Entry Date through January 31, 1995;
(ii) $10,000,000 during the period from
February 1, 1995 through January 31, 1996, and
$3,000,000 during the period from February 1, 1996
through the Termination Date."
22. Maintenance of Inventory. Section 9.16 of the
Credit Agreement is hereby amended in its entirety to read
as follows:
"9.16. Maintenance of Inventory. The
Borrowers shall not permit the aggregate amount of
their Inventory (valued at Book Value) at the end
of each fiscal month set forth below to be less
than or more than the amounts specified opposite
each such month set forth below:
<TABLE>
<CAPTION>
Fiscal Month Minimum Amount Maximum Amount
<S> <C> <C>
November 1994 $142,964,000 $193,422,000
December 1994 $ 65,545,000 $ 98,317,000
January 1995 $ 41,038,000 $ 61,558,000
February 1995 $ 54,525,000 $ 73,769,000
March 1995 $ 59,039,000 $ 79,877,000
April 1995 $ 61,889,000 $ 83,733,000
May 1995 $ 62,950,000 $ 85,168,000
June 1995 $ 62,098,000 $ 84,014,000
July 1995 $ 82,988,000 $101,430,000
August 1995 $ 80,204,000 $ 98,027,000
September 1995 $ 73,970,000 $ 90,408,000
October 1995 $ 86,821,000 $106,115,000
November 1995 $100,503,000 $122,837,000
December 1995 $ 57,086,000 $ 69,772,000
January 1996 $ 51,260,000 $ 62,651,000
</TABLE>
, provided that the Borrowers and the Agent shall
negotiate in good faith to determine an adjustment
to the minimum amount and maximum amount of
Inventory set forth above in connection with the
<PAGE>
store closings permitted by Section 9.09(b)(i)
and(iii) hereof. Upon receipt of the financial
projections for the first-half of the 1997 fiscal
year of MGRE required to be delivered to the
Lenders pursuant to Section 8.01(j), MGRE and the
Agent shall negotiate in good faith to determine
the minimum and maximum amounts of Inventory for
each month of the first-half of the 1997 fiscal
year of MGRE and in the event that MGRE and the
Agent are unable to agree upon such amounts on or
before the date that is thirty days after the date
that the Agent has received such projections, the
Borrowers shall have available cash and Cash
Equivalents, less the aggregate amount of all
outstanding Loans (but not less the aggregate
amount of Letters of Credit) of $30,000,000 during
the Clean-Up Period, provided that (i) during the
Clean-Up Period all liabilities of the Borrowers
and the Guarantor shall be current and (ii) the
Borrowers shall (A) certify in writing to the
Lenders that all liabilities of the Borrowers and
the Guarantor are current during the Clean-Up
Period and (B) provide the Agent with evidence
reasonably satisfactory to the Agent, of the
existence of such available cash and Cash
Equivalents, in each case on February 2, 1996 and
on the Friday of each week thereafter during the
Clean-Up Period."
23. Cash and Cash Equivalents. Article IX of the
Credit Agreement is hereby amended by adding the following
additional covenants:
"9.18. Cash and Cash Equivalents. The Borrowers
shall have available cash and Cash Equivalents, less
the aggregate amount of all outstanding Loans (but not
less the aggregate amount of Letters of Credit), of not
less than (i) $46,324,000 on December 31, 1994, (ii)
$35,591,000 on January 28, 1995, and (iii) $39,358,000
on February 25, 1995, provided that (A) on each such
day, all liabilities of the Borrowers and the Guarantor
shall be current and (B) the Borrowers shall (x)
certify in writing to the Lenders that all liabilities
<PAGE>
of the Borrowers and the Guarantor are current on
such days and (y) provide the Agent with evidence,
reasonably satisfactory to the Agent, of the existence
of such available cash and Cash Equivalents, in each
case not later than 12 noon (New York City time) on the
day which is five (5) Business Days after each such
day.
9.19. Tax Refund. MGRE shall have received the
Tax Refund in an amount of not less than $15,000,000 on
or prior to June 30, 1995 and MGRE shall provide the
Agent with evidence, reasonably satisfactory to the
Agent, of the receipt of such Tax Refund not later than
the day which is five (5) Business Days after such
day."
24. Event of Default. Section 10.01 of the Credit
Agreement is hereby amended by (i) redesignating the
existing paragraph (m) thereof as new paragraph (n) thereof
and (ii) adding the following new paragraph (m):
"(m) (i) on or before June 30, 1995, the Borrowers and
the Guarantor shall have failed to (A) extend the
management agreement with Meridian Ventures, Inc.
("Meridian") to the Termination Date or make other
arrangements with Meridian reasonably satisfactory to
the Agent or (B) hire, for the period through the
Termination Date, a chief executive officer and a chief
operating officer reasonably acceptable to the Required
Lenders (the "Senior Managers") to manage and be
involved in the day-to-day operations of the Borrowers
and the Guarantor or (ii) after January 6, 1995
Meridian or any of the Senior Managers shall cease to
manage and be involved in the day-to-day operations of
the Borrowers and the Guarantor and replacements
reasonably acceptable to the Required Lenders in their
sole discretion shall not be retained within thirty
(30) days thereof."
<PAGE>
25. Schedules and Exhibits. Schedule 1.02 to the
Credit Agreement is hereby amended to read in its entirety
as set forth in Annex I to this Amendment. Exhibit D to the
Credit Agreement is hereby amended in its entirety as set
forth in Annex II to this Amendment.
26. Conditions to Effectiveness. This Amendment shall
become effective only upon satisfaction in full of the
following conditions precedent (the first date upon which
all such conditions have been satisfied being herein called
the "Effective Date"):
(i) The Agent shall have received counterparts of this
Amendment which bear the signatures of the Borrowers, the
Guarantor and the Required Lenders.
(ii) The Borrowers shall have paid to the Agent, for
the account of each Lender in accordance with such Lender's
Pro Rata Share, a non-refundable amendment fee of $625,000.
The Borrowers and the Lenders hereby authorize the Agent to
charge the Borrowers' Account on the Effective Date in the
amount of such amendment fee.
(iii) The Bankruptcy Court shall have approved an order,
substantially in the form of Annex III attached hereto.
(iv) The Agent shall have received a report on the
Inventory of the Borrowers, prepared by Alco Capital Group,
Inc. ("Alco"), which report shall be in form and substance
satisfactory to the Agent.
(v) All legal matters incident to this Amendment shall
be satisfactory to the Agent and its counsel.
27. Representations and Warranties. Each of the
Borrowers and the Guarantor represents and warrants to the
Lenders as follows:
<PAGE>
(a) The execution, delivery and performance by
the Borrowers and the Guarantor of this Amendment and the
performance by the Borrowers and the Guarantor of the Credit
Agreement as amended hereby (i) have been duly authorized by
all necessary corporate action and (ii) do not and will not
contravene their organizational documents or any applicable
law.
(b) This Amendment and the Credit Agreement, as
amended hereby, constitute the legal, valid and binding
obligations of the Borrowers and the Guarantor, enforceable
against the Borrowers and the Guarantor in accordance with
their terms.
(c) The representations and warranties contained
in Article VI of the Credit Agreement are correct on and as
of the Effective Date as though made on and as of the
Effective Date (except to the extent such representations
and warranties expressly relate to an earlier date), and no
Event of Default or Potential Default, has occurred and is
continuing on and as of the Effective Date.
28. Waivers and Consents. (a) Pursuant to the request
of the Borrowers and the Guarantor and in accordance with
Section 11.03 of the Credit Agreement, and subject to the
satisfaction of the conditions to effectiveness set forth in
Section 26 of this Amendment, the Lenders and the Agent
hereby consent to, and waive any Event of a Default that
would otherwise arise (i) under paragraph (b) of Section
10.01 of the Credit Agreement from any false representation,
warranty and/or statement made by the Borrowers in the
Borrowing Base Certificates delivered by the Borrowers to
the Agent and the Lenders prior to September 17, 1994 and in
the Certificate made as of April 27, 1994 by the Borrowers
and the Guarantor and delivered to the Agent by reason of
the inclusion of certain inventory owned by Worth Stores
Corp. in the Borrowing Base Certificates delivered by the
Borrowers to the Agent and the Lenders prior to September
17, 1994, (ii) under paragraph (c) of Section 10.01 of the
Credit Agreement from any non-compliance by the Borrowers
and the Guarantor with the provisions of Section 9.06 of the
Credit Agreement by reason of the Borrowers and the
Guarantor making loans or advances to and/or investments in
Worth Stores Corp., provided that
<PAGE>
the consent and waiver set forth in this clause (ii)
shall only be effective for the period prior to June 30,
1995, (iii) under paragraph (c) of Section 10.01 of the
Credit Agreement from any non-compliance by the Borrowers
and the Guarantor with clause (ii) of paragraph (b) and
paragraph (c) of Section 9.09 by reason of the Borrowers and
the Guarantor disposing of assets (other than Inventory) and
worn-out and obsolete equipment and fixtures with a Book
Value in excess of $10,000,000, (iv) under paragraph (c) of
Section 10.01 of the Credit Agreement from the Borrowers'
maintaining Inventory (valued at Book Value) at the end of
the October 1994 fiscal month of MGRE of more than
$166,060,000, and (v) under paragraphs (b) and (c) of
Section 10.01 of the Credit Agreement from MGRE maintaining
the Merrill Lynch Bond Account.
(b) The waivers and consents in this Section 28
shall be effective only in this specific instance and for
the specific purposes set forth herein and do not allow for
any other or further departure from the terms and conditions
of the Credit Agreement or any other Related Document, which
terms and conditions shall continue in full force and
effect.
29. Continued Effectiveness of Credit Agreement. Each
of the Borrowers and the Guarantor hereby (i) confirms and
agrees that each Related Document to which it is a party is,
and shall continue to be, in full force and effect and is
hereby ratified and confirmed in all respects except that on
and after the Effective Date of this Amendment all
references in any such Related Document to "the Credit
Agreement", "thereto", "thereof", "thereunder" or words of
like import referring to the Credit Agreement shall mean the
Credit Agreement, as amended by this Amendment, and
(ii) confirms and agrees that to the extent that any such
Related Document purports of assign or pledge to the Agent,
or to grant to the Agent a security interest in or Lien on,
any collateral as security for the Obligations of the
Borrowers or the Guarantor from time to time existing in
respect of the Credit Agreement and the Related Documents,
such pledges, assignment and/or grant of the security
interest or Lien is hereby ratified and confirmed in all
respects.
<PAGE>
30. Miscellaneous.
a. This Amendment may be executed in any number
of counterparts and by different parties hereto in separate
counterparts, each of which shall be deemed to be an
original, but all of which taken together shall constitute
one and the same agreement.
b. Section and paragraph headings herein are
included for convenience of reference only and shall not
constitute a part of this Amendment for any other purpose.
c. This Amendment shall be governed by, and
construed in accordance with, the laws of the State of New
York.
d. The Borrowers will pay on demand all fees,
costs and expenses of the Agent in connection with the
preparation, execution and delivery of this Amendment,
including, without limitation, the reasonable fees,
disbursements and other charges of Schulte, Roth & Zabel,
counsel to the Agent. The Borrowers acknowledge that the
Agent shall retain Alco to conduct quarterly Inventory
examinations and analysis updating the Inventory report
required by Section 26(iv) of this Amendment and the
Borrowers agree to pay all fees and expenses of Alco in
connection with such examinations, analysis and reports.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be executed by their respective officers
thereunto duly authorized as of the day and year first above
written.
BORROWERS:
MERRY-GO-ROUND ENTERPRISES,
INC., as debtor and as
debtor-in-possession
<PAGE>
By: /s/ Isaac Kaufman
Name: Isaac Kaufman
Title: Chief Financial
Officer
MGR DISTRIBUTION CORPORATION,
as debtor and as debtor-in-
possession
By: /s/ Isaac Kaufman
Name: Isaac Kaufman
Title: Secretary
GUARANTOR:
MGRR, INC., as debtor and as
debtor-in-possession
By: /s/ Isaac Kaufman
Name: Isaac Kaufman
Title: Secretary
AGENT AND LENDER:
THE CIT GROUP/BUSINESS CREDIT,
INC.
By: /s/ Anthony Vassallo
Name: Anthony Vassallo
Title: Assistant Vice
President
<PAGE>
LENDERS:
THE BANK OF NEW YORK
COMMERCIAL CORPORATION
By:
Name:
Title:
CONGRESS FINANCIAL CORPORATION
By: /s/ Janet S. Last
Name: Janet S. Last
Title: Assistant Vice
President
IBJ SCHRODER BANK & TRUST
COMPANY
By: /s/ Alfred J. Sconyi
Name: Alfred J. Sconyi
Title: Assistant Vice
President
LASALLE BUSINESS CREDIT, INC.
By: /s/ Donald J. Flores
Name: Donald J. Flores
Title: Vice President
PNC BANK, NATIONAL ASSOCIATION
By:
Name:
Title:
<PAGE>
STERLING NATIONAL BANK & TRUST
COMPANY OF NEW YORK
By: /s/ Leonard Rudolph
Name: Leonard Rudolph
Title: Senior Vice
President
<PAGE>
ANNEX I
Schedule 1.02A
<TABLE>
<CAPTION>
LENDER COMMITMENT AMOUNT
<S> <C>
The CIT Group/Business Credit, Inc. $ 36,000,000
The Bank of New York Commercial Corporation $ 8,000,000
Congress Financial Corporation $ 16,000,000
IBJ Schroder Bank & Trust Company $ 12,000,000
LaSalle Business Credit, Inc. $ 12,000,000
PNC National Association $ 8,000,000
Sterling National Bank & Trust Company $ 8,000,000
of New York
$100,000,000
</TABLE>
<PAGE>
Annex II to Sixth Amendment to
Revolving Credit Agreement
EXHIBIT D
BORROWING BASE CERTIFICATE
Dated as of __________
Certificate No. ______
1. Inventory of the Borrowers at Book
Value in any of the locations
listed in Schedule 1.01(A) to the
Revolving Credit Agreement before
deductions in Line 2 below.<F1> __________
2. Sum of A-J Below: $__________
(Based on definition of Eligible
Inventory)
(A)Inventory subject to any Lien,
security interest or prior
assignment
(B)Inventory held on consignment
(C)Inventory in-transit
(D)Reserves for markdowns
(E)Reserves for shrinkage
(F)Reserves for lay-a-ways
(G)Reserve for displays and open stock
(H)Reserves for rejected, damaged,
aged or other unsalable inventory
_________________________
<F1> Prior to the entry of the Final Bankruptcy Court Order
such Inventory must be located in (i) one of the
jurisdictions listed on Schedule 1.01(B) to the
Revolving Credit Agreement or (ii) any other
jurisdiction for which the Agent has received UCC
searches or other evidence reasonably satisfactory to
the Agent establishing the absence of any Liens on the
Inventory of the Borrowers in such jurisdictions.
<PAGE>
(I)Packaging
(J)Other reserves required by the
Agent
3. Book Value of Eligible Inventory
(Line 1 less Line 2 to the extent
included in Line 1) $__________
4. 40% of line 5 $__________
5. L/C Inventory (excluding Inventory
supported by Letters of Credit
issued for domestic trade
creditors) $__________
6. 40% of Line 5 $__________
7. Borrowing Base Reduction
($2,500,000) $__________
8. Borrowing Base (Line 4 plus Line 6
less Line 7) $__________
9. Maximum amount of Revolving Credit
Commitment permitted under Final
Bankruptcy Court Order $100,000,000
10. Amount of Loans Outstanding plus
Letter of Credit Exposure (sum of
sublines A through C below) $__________
(A) Standby letters of credit
_____
(B) Documentary letter of credit
_____
(C) Direct borrowings
_____
11. Availability: (Lower of (i) Line 8
and (ii) Line 9) less Line 10 $__________
12. Borrower's estimate of cash on hand $__________
<PAGE>
I, the undersigned Designated Borrowing Officer of each
of Merry-Go-Round Enterprises, Inc., a Maryland corporation,
and MGR Distribution Corporation, a Maryland corporation, as
debtors and as debtors-in-possession (collectively, the
"Borrowers") DO HEREBY CERTIFY, individually and on behalf
of the Borrowers, as follows:
(1) This Certificate is furnished to The CIT
Group/Business Credit, Inc. as agent (the "Agent")
pursuant to Section 4.04 of that certain Revolving
Credit Agreement, dated as of January __, 1994
(the "Revolving Credit Agreement"), among the
Borrowers, MGRR, Inc., the Lenders party thereto
and the Agent. Unless otherwise defined herein,
capitalized terms used in this Certificate have
the meanings assigned to such terms in the
Revolving Credit Agreement.
(2) This Borrowing Base Certificate has been prepared
in accordance with the provisions of the Revolving
Credit Agreement.
(3) This Borrowing Base Certificate and the
information attached hereto and the schedules, if
any, delivered herewith represent an accurate
statement of the matters purported to be set forth
herein or therein as of the date set forth above.
(4) Pursuant to Section 4.04(d) of the Revolving
Credit Agreement, you are entitled to request
backup schedules showing the derivation of this
Borrowing Base Certificate.
Name: _________________________
Title:_________________________
Date:________________________
<PAGE>
Annex III to the Sixth
Amendment to Revolving Credit
Agreement
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF MARYLAND
IN RE: *
* In Proceedings for a
MERRY-GO-ROUND ENTERPRISES, * Reorganization Under
INC., MGR DISTRIBUTION COR- * Chapter 11
PORATION, and MGRR, INC., and* Case Nos. 94-5-0161-SD
ALMEDA CROSS KING, INC., * through 94-5-0163-SD,
et al., * 94-5-3774-SE, et al.
*
Debtors. *
______________________________ *
DEBTORS' MOTION FOR APPROVAL OF SIXTH
AMENDMENT TO REVOLVING CREDIT AGREEMENT
Merry-Go-Round Enterprises, Inc., MGR Distribution
Corporation and MGRR, Inc. (collectively, the "Debtors"), by
counsel, hereby move this Court for entry of an order
approving the sixth amendment to revolving credit agreement
entered into with The CIT Group/Business Credit, Inc., as
agent ("CIT"), and in support thereof state as follows:
1. These cases were commenced by Voluntary Petitions
under Chapter 11 of Title 11 of the United States Bankruptcy
Code filed on January 11, 1994. Pursuant to Court Order,
the cases are being jointly administered.
<PAGE>
2. Merry-Go-Round Enterprises, Inc. ("MGRE"), is a
national specialty retailer of contemporary fashion apparel
for young men and women, with mor than 1,000 retail stores
across the country. The Debtors have continued to operate
their businesses since the filing of the Petitions pursuant
to 11 U.S.C. SS 1107 and 1108. MGRE and its subsidiaries,
including MGR Distribution Corporation and MGRR, Inc.,
function as an integrated whole in arranging for the
purchase, distribution and retail sale of apparel
nationwide.
3. On January 21, 1994, this Court entered an interim
order authorizing post-petition financing ("DIP Agreement")
and on February 1, 1994, this Court entered a final order
authorizing post-petition financing.
4. Since that time, the Debtors and CIT have entered
in five amendments to the DIP Agreement.
5. On February 13, 1995, the Debtors and CIT entered
into a sixth amendment to revolving credit agreement (the
"Sixth DIP Amendment"). A copy of the Sixth DIP Amendment
is attached hereto and incorporated herein by reference.
<PAGE>
6. The Sixth DIP Amendment provides in part that the
maximum borrowing amount will be reduced from $125 million
to $100 million and that the maximum aggregate letter of
credit exposure shall be reduced from $90 million to $?0
million. Also, the Sixth DIP Amendment includes a change in
the definition of the borrowing base. These changes reflect
the reduced number of stores that the Debtors are operating.
7. Under the Sixth DIP Amendment, CIT shall be
granted a security interest in the federal tax refund
claimed by MGRE for the consolidated federal tax return to
be filed by MGRE for its taxable year ended January 28,
1995.
8. The Debtors believe that court approval of the
Sixth DIP Amendment is in the best interests of the
creditors and the estates.
9. The Official Unsecured Creditors Committee, the
Official Committee of Equity Security Holders, Bear Stearns
Co., Inc., and Fidelity Management & Research Company have
approved the terms of the Sixth DIP Amendment.
<PAGE>
10. The Debtors elect not to submit a memorandum in
support of this motion, as provided in Local Bankruptcy Rule
41.
WHEREFORE, the Debtors respectfully request entry of
the Proposed Order approving the Sixth DIP Amendment, and
granting such other and further relief as is just and
proper.
Respectfully submitted,
SWIDLER & BERLIN, CHARTERED
By: ______________________________
_
Roger Frankel, Bar No. 10366
Richard H. Wyron, Bar No.
10355
Michael J. Lichtenstein, Bar
No. 05504
3000 K Street, N.W., Suite 300
Washington, DC 20007
(202) 424-7500
Attorneys for the Debtors
<PAGE>
UNITED STATES BANKRUPTCY COURT FOR THE
DISTRICT OF MARYLAND
AT BALTIMORE
IN RE: *
* In Proceedings for a
MERRY-GO-ROUND ENTERPRISES, * Reorganization Under
INC., MGR DISTRIBUTION COR- * Chapter 11
PORATION, and MGRR, INC., and* Case Nos. 94-5-0161-SD
ALMEDA CROSS KING, INC., * through 94-5-0163-SD,
et al., * 94-5-3774-SE, et al.
*
Debtors. *
______________________________ *
CONSENT ORDER APPROVING SIXTH AMENDMENT
TO REVOLVING CREDIT AGREEMENT
Upon consideration of the motion (the "Motion") filed
by Merry-Go-Round Enterprises, Inc. ("MGRE"), MGR
Distribution Corporation and MGRR, Inc. (collectively, the
"Debtors"), on notice and after opportunity for a hearing,
and upon the consent of the parties as indicated below, and
for good cause, it is this _____ day of _________, 1995,
ORDERED that the Motion be, and the same hereby is,
granted; and it is further
ORDERED that the Sixth Amendment to Revolving Credit
Agreement, a copy of which is attached to the Motion be, and
the same hereby is, approved; and it is further
<PAGE>
ORDERED that The CIT Group/Business Credit, Inc., as
agent, be, and the same hereby is, granted a security
interest in and to, inter alia, the Federal income tax
refund claimed by MGRE in the consolidated Federal income
tax return to be filed by MGRE for its taxable year ended
January 28, 1995.
_____________________________
E. Stephen Darby
United States Bankruptcy Judge
SEEN AND CONSENTED:
SWIDLER & BERLIN, CHARTERED
By: _______________________________
Roger Frankel, Bar No. 10366
Richard H. Wyron, Bar No. 10355
Michael J. Lichtenstein, Bar No.
05504
3000 K Street, N.W., Suite 300
Washington, DC 20007
(202) 424-7500
Attorneys for the Debtors
SCHULTE ROTH & ZABEL
By: _______________________________
Frederic L. Ragucci
900 Third Avenue
New York, New York 10022
<PAGE>
Attorneys for The CIT Group/Business
Credit, Inc., as agent
By: _______________________________
Bonnie Fatell
Official Committee of Unsecured
Creditors
Blank Ross Cozisky & McCauley
Four Penn Center Plaza, 10th Floor
Philadelphia, Pennsylvania 19103
By: _______________________________
Stephen B. Selbert
Official Committee of Equity
Security Holders
Garlock Israels & Liberman
120 West 45th Street
New York, New York 10036
WEIL GOTSHAL & MANGES
By: _______________________________
Mishelle Levitt
747 Fifth Avenue
New York, New York 10153
Attorneys for Fidelity Management &
Research Company
LATHAM & WATKINS
By: _______________________________
Patrick Duvall
83rd at Third, Suite 1000
Third Avenue
New York, New York 10022-4802
Attorneys for Bear Stearns Co.,
Inc.
EXHIBIT 10(ad)
Management Agreement
This Management Agreement (the Agreement) is entered
into as of the ____ day of January, 1995, between Merry-Go-
Round Enterprises, Inc., a Maryland corporation (the
Company), and Meridian Ventures, Inc., a South Carolina
corporation (Meridian).
Recitals
A. The Company filed a petition under Chapter 11 of
the Bankruptcy Code in the Bankruptcy Court for the District
of Maryland, Baltimore Division (the Bankruptcy Court) on
January 11, 1994 (the Chapter 11 case of the Company, Case
No. 94-5-0161-SD, is referred to as the Bankruptcy Case).
B. The Company and Meridian desire to enter into this
Agreement to set forth the terms upon which Meridian shall
perform certain management and other services to and on
behalf of the Company.
C. The Board of Directors of the Company (the Board)
has determined that this Agreement is in the best interest
of the bankruptcy estate of the Company.
Agreement
Now, therefore, in consideration of the foregoing and
other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties
hereby agree as follows:
1. Retention. The Company hereby retains Meridian,
and Meridian hereby agrees to perform services for the
Company, upon the terms and subject to the conditions set
forth in this Agreement.
2. Term. The term of this Agreement shall commence
as of November 19, 1994 and shall terminate on June 30,
1995, unless earlier terminated pursuant to paragraph 7 or
8(n). If a plan of reorganization is not confirmed in the
Bankruptcy Case on or before June 30, 1995, the Company,
upon thirty (30) days prior written notice to Meridian, may
extend the term of this Agreement, on a month to month
basis, until a plan of reorganization is confirmed in the
Bankruptcy Case; provided that with respect to each
extension, the Company must obtain the prior approval of the
Official Committee of Unsecured Creditors and the Official
Committee of Equity Security Holders in the Bankruptcy Case
(the "Committees"), Fidelity Management & Research Company
("Fidelity") and Bear Stearns Securities, Inc. ("Bear
Stearns"). In the event the Company exercises its right to
extend the term of this Agreement, the term shall be
extended for the period set forth in the Company's election
notice, upon the same terms and conditions as
<PAGE>
set forth herein, which extension shall be effective as of
the then current expiration date of this Agreement.
3. Services.
(a) Scope of Services. Meridian shall perform,
or shall cause to be performed, the management of all
aspects of the Company's operations, including, but not
limited to the administration of the Company with respect to
matters relating to the Bankruptcy Case, real estate
operations and leasing, legal and personnel administration
and Company operations. Meridian shall perform all of its
obligations and services hereunder in a manner consistent
with the policies adopted by the Board and consistent with
Chapter 11 of the United States Bankruptcy Code, based upon
the advice of qualified bankruptcy counsel of the Company.
(b) Shull and Kenney. Meridian shall furnish,
and the Company shall accept, the services of (i) Thomas C.
Shull (Shull), who shall serve as the Company's Chief
Executive Officer and President of the Company, and (ii)
James P. Kenney (Kenney), who shall serve as the Company's
Executive Vice President and Chief Operating Officer. Shull
and Kenney shall perform the services required of Meridian
under this Agreement, and may utilize the services of such
other Meridian personnel from time to time, as Meridian
deems appropriate. Shull and Kenney shall serve as full-
time officers of the Company, devote substantially all of
their business time, energy and abilities to the business,
affairs and interest of the Company and its affiliates and
perform the services contemplated by this Agreement and such
other duties and services customarily performed by officers
serving in the positions held by Shull and Kenney in
accordance with policies established by the Board and in a
manner consistent with Chapter 11 of the Bankruptcy Code.
Notwithstanding the foregoing, the parties acknowledge and
agree that each of Shull and Kenney shall be permitted to
continue as principals of Meridian; provided that neither
Shull nor Kenney shall lead or act as the principal or
material consultant in any other assignment or pursuant to
any other agreement to which they or Meridian are a party
during the term hereof.
(c) Board Representation. Shull shall become a
member of the Board upon obtaining Bankruptcy Court Approval
and shall be nominated for reelection to the Board, when
appropriate, during the term of this Agreement. Kenney may
attend meetings of the Board, but will not be a member of
the Board nor be entitled to vote on matters presented to
the Board.
(d) Duties of Shull and Kenney. Shull, Kenney
and all other employees, representatives, agents or
consultants of Meridian performing services for or on behalf
of the Company, agree to observe and comply with the
policies of the Company as adopted by the Board with respect
to the performance of Meridian's duties and the duties
delegated to Shull and Kenney, and agree to carry out and
perform such orders,
<PAGE>
directions and policies of the Company and the Board as may
be stated either orally or in writing from time to time.
(e) Employment Decisions. Shull and Kenney shall
have the ability to hire new employees on behalf of the
Company, provided that neither Shull nor Kenney may hire any
new employee on behalf of the Company for a position
providing an annual aggregate of salary and benefits in
excess of $150,000 without obtaining the prior written
approval of the Board. No employment contracts shall be
entered into and no benefits exceeding tier 2 benefits (as
defined in Retention Incentive and Severance Plan approved
by the Bankruptcy Court by Order entered October 25, 1994)
shall be granted, except upon approval of the Board, the
Committees, Fidelity and Bear Stearns. Shull and Kenney
shall have the ability to fire employees of the Company
without obtaining the prior approval of the Board with
respect to all positions within the Company, except for the
Executive Vice President and Chief Financial Officer of the
Company and the Presidents of each division of the Company.
In addition, neither Shull nor Kenney may cause the Company
to hire employees or affiliates of Meridian, or hire, retain
or terminate professionals of or on behalf of the Company,
without obtaining the prior written approval of the Board.
(f) Other Meridian Personnel. Meridian, at its
option, may furnish the services of other Meridian personnel
or affiliates as Meridian may from time to time deem
necessary or appropriate to perform Meridian's obligations
hereunder and such personnel or affiliates shall have the
duties assigned to them by Meridian, consistent with the
policies of the Company as adopted by the Board and with
Chapter 11 of the Bankruptcy Code; provided that no
additional fees shall be paid to such personnel or
affiliates for such services without the prior written
approval of the Board, the Committees, Fidelity and Bear
Stearns.
(g) Employees of Meridian; No Benefits. The
parties acknowledge and agree that: (i) by furnishing the
services of Shull and Kenney and other Meridian personnel to
the Company, Meridian is functioning as an independent
contractor to the Company; (ii) Shull, Kenney and other
personnel provided by Meridian shall remain employees of
Meridian, and Meridian retains the right (subject to the
terms hereof) to direct and control the performance of all
Meridian employees, including Shull and Kenney, consistent
with the policies of the Company; (iii) Meridian is solely
responsible for the payment of salary, employee benefits and
all other compensation due to Meridian personnel rendering
services to the Company, including Shull and Kenney, and for
all applicable federal, state and local tax withholding with
respect to compensation and benefits payable to them under
this Agreement or otherwise; (iv) the compensation to
Meridian set forth in paragraph 4 shall be exclusive and
Meridian personnel, including Shull and Kenney, shall not
participate in or be eligible to participate in any
compensation or benefit plan or perquisite of the Company;
and (v) all amounts of cash which may be paid to Shull,
Kenney or any other Meridian personnel pursuant to this
<PAGE>
Agreement shall be paid to and received by such persons
solely as nominees for and on behalf of Meridian and not on
their own account.
4. Fees. In consideration of the services to be
performed hereunder and for providing the services of Shull,
Kenney, and other Meridian personnel, Meridian shall receive
the fees set forth in this paragraph 4; provided, that if
this Agreement is terminated pursuant to paragraph 7 of this
Agreement, such compensation shall be adjusted or forfeited
as provided in paragraph 7 or 8(n). The amounts payable
pursuant to this paragraph 4 shall constitute the exclusive
compensation payable to Meridian for its services provided
under this Agreement and for the services provided by Shull,
Kenney and all other Meridian personnel hereunder, and no
other compensation or consideration shall be payable to
Meridian or any other individual provided by Meridian in
connection with the services provided hereunder, except as
otherwise expressly provided in this Agreement.
(a) Monthly Management Fee.
(i) During the term of this
Agreement, the Company shall pay
Meridian a monthly management fee of
$95,000 per month; provided that in the
event that either Shull or Kenney should
die or become permanently disabled
during the term of this Agreement,
subject to paragraph 7(c), upon the
occurrence of such event, the monthly
Management Fee shall thereupon be
reduced to $47,500 per month (collect
ively, the Management Fees). For
purposes of this Agreement, a person
shall be deemed to be "permanently
disabled" if any ailment, illness or
other physical or mental incapacity
prevents such person from performing its
duties as specified in this Agreement
for a period of 17 consecutive business
days during any 180 day period, or if
such disability meets the criteria of
"permanent and total disability" within
the meaning of Section 22(e)(3) of the
Internal Revenue Code.
(ii) The Management Fees shall
be payable in arrears on the first day
of each month commencing on the first
day of the first month following the
commencement of the term of this
Agreement. Management Fees for any
partial month during the term of the
Agreement shall be proportionately
adjusted. To the extent that Meridian
performs services on behalf of the
Company prior to the commencement of the
term of this Agreement, within five (5)
business days following Bankruptcy Court
Approval, or such earlier date as the
Company and Meridian mutually agree not
to
<PAGE>
continue to seek
Bankruptcy Court Approval, the Company
shall pay Meridian a Management Fee for
such services, proportionately adjusted
to reflect the period during which such
services were provided.
(b) Bonus Fee. In addition to Management Fees,
and provided that the Plan (defined below) is confirmed on
or before October 2, 1995, the Company shall pay Meridian
bonus compensation comprised of the following components
(collectively, the Bonus Fee):
(i) Distributed Cash Bonus.
On the effective date of a Chapter 11
plan of reorganization for the Company
confirmed pursuant to Section 1129 of
the Bankruptcy Code (the Plan), the
Company shall pay to Meridian an amount
in cash (the Distributed Cash Bonus)
equal to (aa) $50,000 if the cash
distributed to unsecured creditors under
the Plan on the effective date of the
Plan is $30,000,000, (bb) $150,000 if
the cash distributed to unsecured
creditors under the Plan on the
effective date is $40,000,000,
(cc) $250,000 if the cash distributed to
unsecured creditors under the Plan on
the effective date is $50,000,000 and
(dd) $350,000 if the cash distributed to
unsecured creditors under the Plan on
the effective date is $60,000,000. No
cash bonus shall be paid to Meridian
pursuant to this paragraph 4(b)(i) in
the event that the cash distributed to
unsecured creditors on the effective
date of the Plan is less than
$30,000,000, and no cash bonus shall be
paid to Meridian pursuant to this
paragraph 4(b)(i) in excess of $350,000.
In the event that cash distributed to
unsecured creditors on the effective
date of the Plan, is between $30,000,000
and $60,000,000 the Distributed Cash
Bonus shall be proportionately adjusted
to correspond to the actual amount of
cash distributed. For example, if the
cash distributed to unsecured creditors
on the effective date of the Plan is
$45,000,000, the Distributed Cash Bonus
payable to Meridian pursuant to this
paragraph will be $200,000. As further
illustration of this paragraph, if the
cash distributed to unsecured creditors
on the effective date of the Plan is
$51,000,000, the Distributed Cash Bonus
payable to Meridian will be $260,000.
(ii) Unsecured Claims Bonus.
On the earlier of the date of a final
distribution under the Plan or at such
time as all material uninsured disputed
claims are resolved, the
<PAGE>
Company shall pay to
Meridian in cash an amount (the
Unsecured Claims Bonus) (aa) between
$187,500 and $287,500 if the allowed
unsecured claims in the Bankruptcy Case,
determined without regard to post-
petition interest (collectively, the
Unsecured Claims), are between $245
million and $240 million, (bb) between
$287,500 and $387,500 if Unsecured
Claims are between $240 million and
$230 million, and (cc) $387,500 if
Unsecured Claims are less than
$230,000,000. No Unsecured Claims Bonus
shall be paid to Meridian pursuant to
this paragraph 4(b)(ii) if the Unsecured
Claims exceed $245,000,000. The actual
amount of the Unsecured Claims Bonus
shall be determined by proportionately
adjusting the bonus amounts described in
this paragraph 4(b)(ii) to correspond to
the amount of the Unsecured Claims,
within the ranges set forth in this
section. For example, if Unsecured
Claims are $242,500,000, the Unsecured
Claims Bonus payable to Meridian will be
$237,500. As further illustration of
this paragraph, if Unsecured Claims are
$231,000,000, the Unsecured Claims Bonus
will be $377,500.
(iii) Confirmation Date
Bonus. On the effective date of the
Plan, the Company shall pay to Meridian
in cash an amount (the Confirmation Date
Bonus) equal to (aa) $312,500 if the
Bankruptcy Court enters its order
confirming the Plan on or before June
30, 1995, (bb) $237,500 if the
Bankruptcy Court enters its order
confirming the Plan after June 30, 1995
but on or before July 31, 1995,
(cc) $162,500 if the Bankruptcy Court
enters its order confirming the Plan
after July 31, 1995 but on or before
August 31, 1995, or (dd) $87,500 if the
Bankruptcy Court enters its order
confirming the Plan after August 31,
1995 but on or before October 2, 1995.
No Confirmation Date Bonus shall be
payable if the Bankruptcy Court enters
its order confirming the Plan after
October 2, 1995.
(iv) Anniversary Distributed
Value Bonus. On the first anniversary
of the effective date of the Plan, the
Company shall pay Meridian an amount in
cash equal to the following applicable
amount (the Anniversary DV Bonus):
(aa) $250,000 if
Anniversary Distributed Value is
equal to or greater than
$270,000,000;
<PAGE>
(bb) an amount
between $250,000 and $0.00 if
Anniversary Distributed Value is
between $220,000,000 and
$270,000,000, which amount shall be
proportionately adjusted to corres
pond to the actual Anniversary
Distributed Value within such
range; and
(cc) $0.00 if
Anniversary Distributed Value is
less than $220,000,000.
(v) Bonuses Calculated
Independently. The bonus amounts set
forth in paragraphs 4(b)(i)-(iv) above
are separate and independent, and the
failure to achieve a bonus under one
subparagraph shall have no effect upon
the bonuses payable pursuant to the
remaining subparagraphs.
(vi) Certain Definitions. For
purposes of this Agreement, the
following terms shall have the following
meanings:
(aa) Anniversary
Distributed Value shall mean the
value of property distributed
pursuant to the Plan to creditors
and shareholders (but excluding all
administrative claims except any
section 503(b)(3)(D) claims of Bear
Stearns and Fidelity), computed as
the sum of (x) cash distributed on
the effective date of the Plan,
(y) the face value of promissory
notes distributed on the effective
date of the Plan (assuming such
notes contain market terms) and (z)
the Anniversary Share Value.
(bb) Anniversary
Share Value shall mean an amount
equal to (x) the sum of (i) the
daily closing price per share or
unit of the Equity Securities as
reported on the New York Stock
Exchange (or if not traded on such
exchange, with reference to such
other national exchange or market
upon which such Equity Securities
may be traded) on each trading day
during the one-year period
commencing on the effective date of
the Plan, and ending on the date
that is one year thereafter,
multiplied by (ii) the number of
shares or units of Equity
Securities outstanding on such day,
for each trading day during such
one-year period, divided by (y) the
number of trading days in such one-
year period.
<PAGE>
(cc) Equity
Securities shall mean all capital
stock and warrants of the
reorganized Company that are
publicly traded.
5. Expense Reimbursement. Shull and Kenney
shall be entitled to be reimbursed by the Company from time
to time (but not more frequently than monthly) for
reasonable out-of-pocket business expenses incurred by Shull
and Kenney, including expenses in connection with bona fide
business travel on behalf of the Company, upon presentation
from time to time of an itemized written account of such
expenses. Notwithstanding the foregoing, neither Meridian,
Shull, Kenney nor any other Meridian personnel shall be
entitled to be compensated or reimbursed for any out-of-
pocket or other expenses not related to the business and
services performed hereunder, including but not limited to
commuter travel and lodging expenses.
6. D&O Liability Coverage; Indemnification.
(a) D&O Insurance. Shull and Kenney, in their
respective official capacities on behalf of the Company,
shall be covered by the Company's Director and Officer
Liability Insurance Policy, to the same extent as other
officers and directors of the Company. Such coverage shall
continue for Shull and Kenney following the expiration or
earlier termination of this Agreement (other than as a
result of a termination pursuant to paragraph 7(a)) for the
same duration as such coverage is available to other
officers and directors of the Company.
(b) Indemnification.
(i) Indemnified Parties.
Except as otherwise expressly provided
in this Agreement, the Company agrees to
indemnify and hold Meridian, Shull and
Kenney (collectively, the Indemnified
Parties) harmless from and against any
and all actions, claims, damages and
liabilities, including the costs of
investigating, preparing or defending
any such action or claim, whether or not
in connection with litigation in which
an Indemnified Party is a party, caused
by, relating to, based upon or arising
out of such Indemnified Party's
acceptance of or the performance or non-
performance of its obligations under
this Agreement; provided, however, that
such indemnity and hold harmless
obligation shall not apply to any such
action, claim, damage, liability or cost
to the extent arising out of or
attributable to the gross negligence,
willful misconduct or fraud of, or
breach of this Agreement by, an
Indemnified Party.
<PAGE>
(ii) Indemnification Demand.
If any action, proceeding or
investigation is commenced for which an
Indemnified Party proposes to demand
such indemnification, it will notify the
Company with reasonable promptness;
provided, however, that any failure by
an Indemnified Party to notify the
Company will not relieve the Company
from its obligations hereunder, except
to the extent that such failure shall
have prejudiced the defense of any such
action, proceeding or investigation.
The Company shall promptly pay expenses
reasonably and actually incurred by an
Indemnified Party in defending or
settling any action, proceeding or
investigation in which an Indemnified
Party is a party or is threatened to be
made a party by reason of its
relationship with the Company hereunder,
upon submission of invoices therefor.
The Indemnified Parties shall repay any
and all such amounts so advanced if it
shall be determined that such
Indemnified Party is not entitled to be
indemnified therefor. If any such
action, proceeding, or investigation in
which an Indemnified Party is a party is
also against the Company or any of its
affiliates, the Company may, in lieu of
advancing the expenses of separate
counsel for such Indemnified Party,
provide such Indemnified Party with
legal representation by the same counsel
who represents the Company or its
affiliates, as applicable, at no cost to
such Indemnified Party; provided,
however, that if such counsel or counsel
to such Indemnified Party shall
determine that due to the existence of
actual or potential conflicts of
interest between such Indemnified Party
and any one or more of the Company or
its affiliates, such counsel is unable
to represent both the Indemnified Party
and one or more of the Company or its
affiliates, then the Indemnified Party
shall be entitled to use separate
counsel of its own choice, and the
Company shall promptly pay the
Indemnified Party's reasonable expenses
of such separate counsel upon submission
of invoices therefor. Nothing herein
shall prevent any Indemnified Party from
using separate counsel of its own choice
at its own expense. The Company shall
only be liable for settlements of claims
against any Indemnified Party made with
the Company's written consent, which
consent shall not be unreasonably
withheld.
(iii) Contribution If
Indemnification Provisions Not Enforced.
In order to provide for just and
equitable contribution if a
<PAGE>
claim for indemnification
pursuant to these indemnification
provisions is made but it is found by a
court of competent jurisdiction that
such indemnification may not be enforced
in such case, even though the express
provisions hereof would require
indemnification, then the Company, on
the one hand, and the applicable
Indemnified Party, on the other hand,
shall contribute to the amount paid or
payable as a result of the losses,
claims, damages, liabilities and costs
in such proportion as is appropriate to
reflect the relative fault of the
Company and Indemnified Party in
connection with the acts or omissions
which resulted in such losses, claims,
damages, liabilities and costs, as well
as any other relevant equitable
considerations. The amount paid or
payable by a party as a result of the
losses, claims, damages and liabilities
and expenses referred to above shall be
deemed to include, subject to the
limitations set forth in paragraph
6(b)(ii) above, any legal or other fees
or expenses reasonably incurred by such
party in connection with any
investigation or proceeding.
(iv) Indemnification Remains
in Effect. Neither the termination of
this Agreement nor completion of the
retention of Meridian, Shull and Kenney
hereunder shall affect these
indemnification provisions, which shall
hereafter remain operative and in full
force and effect for a period of two (2)
years after such termination or
completion.
(v) Indemnification Under
Agreement Not Exclusive; Limitation.
The rights provided in this paragraph
6(b) shall not be deemed exclusive of
any other rights to which the
Indemnified Parties may be entitled
under the articles of incorporation and
bylaws of the Company, any other
agreements, any vote of stockholders or
disinterested directors of the Company,
any applicable law or otherwise, but
shall nevertheless in all respects be
limited to the maximum extent permitted
by applicable law.
7. Termination. This Agreement may be terminated
prior to the term of this Agreement only as provided in this
paragraph 7 or 8(n).
(a) Termination by the Company for Cause. The
Company shall have the right to terminate this Agreement for
cause at any time prior to June 30, 1995 (as such date may
be extended pursuant to paragraph 2) by giving written
notice to Meridian. The Company shall have "cause" if,
prior to such termination, the Board makes a
<PAGE>
determination in good faith of: (i) Shull's or Kenney's
personal dishonesty, gross negligence, willful misconduct,
habitual abuse of alcoholic beverages or other substance
abuse, breach of fiduciary duty or intentional failure to
perform stated or assigned duties, or upon Shull's or
Kenney's conviction of any offense punishable by
imprisonment of one year or more, (ii) Meridian's gross
negligence, willful misconduct, breach of fiduciary duty or
intentional failure to perform its obligations hereunder,
(iii) Shull, Kenney or Meridian (collectively, the Meridian
Parties) commits any act of fraud or dishonesty in
connection with the services rendered hereunder, (iv) any of
the Meridian Parties commits a material breach of any of
their respective obligations hereunder or under any other
agreement between the Meridian Parties, or any of them, and
the Company, and shall fail to remedy such breach within
thirty (30) days after having received written notice from
the Company, or (v) Shull and Kenney die or become
permanently disabled (as defined in paragraph 4(a)(i). If
this Agreement is terminated by the Company for cause under
this paragraph 7(a), the Meridian Parties shall not be
entitled to receive any further compensation under this
Agreement, including, but not limited to, Management Fees
(other than Management Fees accrued, but unpaid as of the
date of termination with respect to the period prior to
termination), Meridian shall not be entitled to receive any
Bonus Fee payable pursuant to paragraph 4(b), and the
Company shall be entitled to pursue such remedies against
Meridian, Shull and Kenney as may be available at law, in
equity or otherwise.
(b) Termination by Meridian for Cause; Expiration
of Term Without Renewal.
(i) Meridian shall have the
right to terminate this Agreement for
cause at any time prior to June 30, 1995
by giving 30 days prior written notice
to the Company. Meridian shall have
"cause" if (aa) the Company commits a
material breach of any of its
obligations hereunder or under any other
agreement between Meridian and the
Company and shall fail to remedy such
breach within 30 days after having
received written notice thereof from
Meridian, (bb) the Company, without the
prior written consent of Meridian,
materially diminishes the titles and
responsibilities initially given Shull
or Kenney or materially diminishes the
duties of Shull or Kenney to a level
where either's duties are substantially
dissimilar to the duties performed by
persons employed in similar positions
with other retail companies of
comparable size, or (cc) the Board
establishes limitations, instructions,
directions or controls applicable to
either Shull's or Kenney's performance
of their respective duties hereunder
which are materially inconsistent with
the bylaws of the Company or are not
(except as warranted by
<PAGE>
the Company's
circumstances) customary for the offices
held by Shull or Kenney, as the case may
be.
(ii) In the event that this
Agreement expires by its terms prior to
the entry of an order by the Bankruptcy
Court confirming a plan of
reorganization for the Company, this
Agreement shall be deemed terminated as
of the last day of the then current term
of this Agreement.
(iii) In the event that
this Agreement is terminated by Meridian
for cause, the Company shall continue to
pay Meridian the Management Fees through
and until June 30, 1995 on a monthly
basis, as if this Agreement had not been
terminated. In addition, in the event
that this Agreement (x) is terminated by
Meridian for cause or (y) expires by its
terms, without renewal, prior to the
entry of an order of the Bankruptcy
Court confirming the Plan, then
notwithstanding such termination (or
expiration), the Company shall pay to
Meridian the Bonus Fee pursuant to
paragraph 4(b), if any, but no other
amounts shall be due and payable
hereunder by the Company (other than
Management Fees accrued, but unpaid as
of the date of termination with respect
to the period prior to termination).
(c) Termination On Death Or Disability. The
Company shall have the right to terminate this Agreement, by
giving written notice to Meridian upon the occurrence of any
of the following events:
(i) If Shull dies or becomes
permanently disabled (as defined in
paragraph 4(a)(i)); or
(ii) If Kenney dies or becomes
permanently disabled (as defined in
paragraph 4(a)(i)) and within three
weeks is not replaced by an individual
satisfactory to the Committees, Fidelity
and Bear Stearns.
If this Agreement is terminated under this paragraph, the
Meridian Parties shall be entitled to receive Management
Fees in accordance with paragraph 4(a)(i) until June 30,
1995, and Meridian shall be entitled to receive any Bonus
Fee payable pursuant to paragraph 4(b), less any amount
payable to unaffiliated third parties who are engaged to
replace the Meridian Parties, but in no event shall the
Meridian Parties receive less than one-half of the Bonus Fee
otherwise earned.
<PAGE>
8. General.
(a) Bankruptcy Court Approval. The effectiveness
of this Agreement shall be conditioned upon the entry of an
order of the Bankruptcy Court approving this Agreement with
respect to which no appeal has been taken, or if an appeal
has been taken, no stay pending such appeal has been
obtained (Bankruptcy Court Approval).
(b) Amendment. No modification or amendment of,
or waiver under, this Agreement shall be valid unless in
writing and signed by each of the parties hereto, and
approved by the Committees, Fidelity and Bear Stearns.
(c) Binding Agreement. This Agreement shall
inure to the benefit of and be binding upon the parties
hereto and their respective successors and assigns.
(d) Authorization. Subject to Bankruptcy Court
approval, each of the Company and Meridian each represent
and warrant that its execution, delivery and performance of
this Agreement has been duly authorized by all necessary
corporate action.
(e) Governing Law. This Agreement shall be
governed by and construed in accordance with the laws of the
State of Maryland.
(f) Severability. If any term, provision,
covenant or restriction herein is held by a court of
competent jurisdiction to be invalid, void or unenforceable,
the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force
and effect and shall in no way be affected, impaired or
invalidated thereby.
(g) Notices. All notices, requests, demands and
other communications hereunder shall be in writing and shall
be deemed to have been duly given when delivered personally
or sent by overnight courier express service or two days
after having been deposited in the United States mail,
registered or certified, return receipt requested, postage
prepaid, addressed as follows:
If to Meridian, to:
Thomas C. Shull
James P. Kenney
Meridian Ventures, Inc.
2 Corpus Christi Circle
Hilton Head, South Carolina 29928
FAX: 803-842-3920
PHONE: 803-842-2920
<PAGE>
with a copy to:
Alan Aronson, Esquire
Rosenfeld & Wolff
2049 Century Park East, Suite 600
Los Angeles, California 90067
FAX: 310-556-0401
PHONE: 310-556-1221
If to the Company, to:
Merry-Go-Round Enterprises, Inc.
3300 Fashion Way
Joppa, Maryland 21085
Attention: Leonard Weinglass
FAX: 410-676-5577
PHONE: 410-538-1000
with a copy to:
Roger Frankel, Esquire
Richard H. Wyron, Esquire
Swidler & Berlin, Chartered
3000 K Street, N.W., Suite 300
Washington, D.C. 20007
FAX: 202-424-7645
PHONE: 202-424-7500
and with copies to the Committees, Fidelity and Bear Stearns
at such address as each shall designate by giving notice
hereunder to Meridian and the Company or to such other
address or addresses as each of the parties hereto may
communicate in writing to the other. Written notice given
by any other method shall be deemed effective only when
actually received by the party to whom given.
(h) Attorneys' Fees. In the event that any party
to this Agreement shall default in the performance of any of
its obligations hereunder, in addition to any and all other
rights or remedies which the non-defaulting party may have
against the defaulting party, the defaulting party shall be
liable to the non-defaulting party for all court costs and
attorneys' fees incurred by the non-defaulting party in
enforcing its rights hereunder.
(i) Tax Indemnification. Meridian, Shull and
Kenney agree jointly and severally to indemnify and hold the
Company harmless against, and to reimburse the Company on
demand for any federal, state or local taxes, workers
compensation, health or disability benefits, and any
penalties and interest thereon, payable by or on behalf of
<PAGE>
the Company in respect of the services of Meridian, Shull,
Kenney or any of the other Meridian personnel whose services
are furnished to the Company pursuant to this Agreement.
(j) Entire Agreement. This Agreement contains
the entire understanding of the parties hereto respecting
the subject matter hereof and supersedes all prior
discussions and understandings.
(k) Confidentiality; Agreement of Meridian, Shull
and Kenney Not to Compete.
(i) The Meridian Parties
acknowledge that neither they nor any of
their respective agents or employees
will at any time during the term of this
Agreement and thereafter, either
directly or indirectly, use for his or
their own account, or disclose,
Confidential Information (as hereafter
defined) to any person, firm or
corporation except that Confidential
Information may be disclosed to (aa)
authorized officers, directors and
employees of the Company or its
affiliates, (bb) to the extent necessary
in connection with the services provided
hereunder during the term of this
Agreement, to Meridian personnel who in
Shull's and Kenney's good faith judgment
have a need to be familiar with or aware
of the Confidential Information in order
to perform their responsibilities to the
Company provided that such personnel are
bound by the terms of this Agreement,
(cc) to professionals retained by or on
behalf of the Company, and (dd) as
appropriate, to the Committees, Fidelity
and to other persons or entities bound
by the terms of a valid confidentiality
agreement with the Company. As used
herein, Confidential Information means
information of any kind, nature or
description which is disclosed to or
otherwise known by or to the Meridian
Parties (which information is not
generally known in the business in which
the Company is engaged) or which
information relates to specific
investment opportunities within the
scope of the Company's business which
were considered by the Meridian Parties
or the Company during the term of this
Agreement.
(ii) During a period of one
year following the termination or
expiration of this Agreement, the
Meridian Parties shall not induce any
current employee (or an employee
terminated within the then most recent
twelve (12) month period) of
<PAGE>
the Company or any of its
subsidiaries to terminate his or her
employment by the Company or its
subsidiaries in order to obtain
employment with any other person, firm
or corporation.
(iii) For a period of one
year following the termination or
expiration of this Agreement, neither
Shull nor Kenney shall serve as an
officer, director, employee of or
consultant to any retailer with annual
sales in excess of $50 million that
specializes in and derives fifty percent
or more of their business from young
mens and/or young womens casual
sportswear, or fashion forward attire,
including but not limited to The Gap,
Inc., Structure, Abercrombie & Fitch,
Edison Brothers and their respective
parents, subsidiaries, divisions and
affiliates.
(l) Specific Performance. The parties agree that
irreparable damage will result if this Agreement is not
performed in accordance with its terms, and the parties
agree that any damages available at law for a breach of this
Agreement would not be an adequate remedy. Therefore, the
provisions hereof and the obligations of the parties
hereunder shall be enforceable in a court of equity, or
other tribunal with jurisdiction, by a decree of specific
performance, and appropriate injunctive relief may be
applied for and granted in connection therewith. Such
remedies and all other remedies provided for in this
Agreement shall, however, be cumulative and not exclusive
and shall be in addition to any other remedies that a party
may have under this Agreement, at law or in equity.
(m) Effective Date Defined. For purposes of this
Agreement, the term "effective date" shall mean the date on
which the Company makes the initial distribution of cash,
other property and/or securities to parties-in-interest
pursuant to the Plan.
(n) Permanent Management. Notwithstanding the
provisions of paragraph 7(b)(i) of this Agreement, nothing
in this Agreement shall preclude the Company from employing
during the term of this Agreement permanent management
approved by the Committees, Fidelity and Bear Stearns. In
addition to ease the transition to permanent management, the
Company may terminate this Agreement upon delivery of
written notice of such termination to Meridian, provided,
however, (i) Meridian shall remain entitled to Management
Fees through June 30, 1995, and (ii) the Company shall pay
to Meridian any Bonus Fee if, when and to the extend such
Bonus Fee is payable pursuant to paragraph 4(b).
<PAGE>
In witness whereof, the parties have executed this
Agreement as of the date and year first above written.
Company:
Merry-Go-Round Enterprises,
Inc.
By: /s/ Isaac Kaufman
Name: Isaac Kaufman
Title: Chief Financial
Officer
Meridian:
Meridian Ventures, Inc.
By: /s/ James Kenney
Name: James Kenney
Title:
EXHIBIT 10(ae)
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF MARYLAND
IN RE: *
* In Proceedings for a
MERRY-GO-ROUND ENTERPRISES, INC., * Reorganization Under
MGR DISTRIBUTION CORPORATION, and * Chapter 11
MGRR, INC., and * Case Nos. 94-5-
0161-SD
ALMEDA CHESS KING, INC., et al., * through 94-5-
0163-SD and
* 94-5-3774-SD, et al.
Debtors. *
JOINT PLAN OF REORGANIZATION
UNDER CHAPTER 11 OF THE UNITED STATES BANKRUPTCY CODE
OF MERRY-GO-ROUND ENTERPRISES, INC.
and its Affiliates that are debtors
in the Chapter 11 Cases
Roger Frankel, Esquire
Richard H. Wyron, Esquire
Swidler & Berlin,
Chartered
3000 K Street, N.W.,
Suite 300
Washington, D.C. 20007
(202) 424-7500
Attorneys for Debtors and
Debtors-in-Possession
Thomas E. Biron, Esquire
Blank Rome Comisky &
McCauley
Four Penn Center Plaza,
10th Floor
Philadelphia,
Pennsylvania 19103
(215) 569-5562
Attorneys for the
Creditors' Committee
Stephen B. Selbst,
Esquire
Berlack Israels &
Liberman
120 West 45th Street
New York, New York 10036
(212) 704-0100
<PAGE>
Dated: February 23, 1995 Attorneys for
the Equity Committee
<PAGE>
TABLE OF CONTENTS
Introduction 1
Article I. Definitions, Rules of Constructions
and Interpretation. 1
1.1 Definitions. 1
1.2 Construction and Interpretation. 13
1.3 Application of Definitions and Rules of
Construction Contained in the Bankruptcy
Code. 13
1.4 Other Terms. 13
1.5 Exhibits. 13
Article II. Provisions For Payment of Administrative
Claims
and Priority Tax Claims. 13
2.1 Administrative Claims. 13
(a) In General.
13
(b) Statutory Fees.
14
(c) The CIT Superpriority Claim.
14
(d) The MGRR Administrative Claim.
14
(e) Bar Date for Administrative Claims.
14
(a) In General. 14
(b) Professionals.
14
2.2 Priority Tax Claims. 15
Article III. Classification of Claims and
Old Equity Interests. 15
3.1 Class 1 Claims. 15
<PAGE>
3.2 Class 2 Claims. 15
3.3 Class 3 Claims. 15
3.4 Class 4 Claims. 15
3.5 Class 5 Claims. 15
3.6 Class 6 Claims. 15
3.7 Class 7 Claims. 15
3.8 Class 8 Old Equity Interests. 16
3.9 Class 9 Old Equity Interests. 16
3.10 Class 10 Claims. 16
3.11 Class 11 Claims. 16
3.12 Class 12 Equity Interests. 16
Article IV. Treatment of Classes of Claims
and Interests. 16
4.1 Class 1 Claims (Other Priority Claims).16
4.2 Class 2 Claims (MGRR Claims). 16
4.3 Class 3 Claims (Secured Claims). 16
(a) Class 3A Claim (AAL Secured Claim).
16
(b) Class 3B Claim (Georgetown Boogies
Secured Claim). 17
(c)Class 3C Claims (Other Secured Claims).
17
4.4 Class 4 Claims (Unsecured Claims). 18
(a) Treatment.
18
(b) Distribution.
19
<PAGE>
4.5 Class 5 Claims (Convenience Claims). 19
4.6 Class 6 Claims (Insured Tort Claims). 19
4.7 Class 7 Claims (Intercompany Claims). 19
4.8 Class 8 Old Equity Interests
(Old Common Stock). 19
(a) Treatment.
19
(b) Distribution.
20
4.9 Class 9 Old Equity Interests
(Old Stock Options). 20
4.10 Class 10 Claims (Fairground Claims). 20
4.11 Class 11 Claims (Liquidating Chess
King Debtor Claims). 21
4.12 Class 12 Liquidating Debtor Equity
Interests. 21
Article V. Means for Implementation of the Plan.
21
5.1 Distributions Under the Plan. 21
(a) In General.
21
(b) Claims Aggregated.
21
(c) Method of Cash Payments.
21
(d) Timing of Payment.
22
(e) Fractional Shares.
22
(f) Denominations of Notes.
22
(g) De Minimis Distributions.
22
5.2 Unclaimed Distributions. 22
<PAGE>
(a) Non-Negotiated Checks.
22
(b) Returned Distributions.
22
(c)Revesting of Unclaimed Distributions.
23
5.3 Treatment of Disputed Claims and
Distributions
after the Effective Date. 23
(a) Objections to Claims.
23
(b) Authority to Prosecute.
23
(c) Treatment of Disputed Claims and
Subsequent Distributions. 23
(d) Disbursement Reserve.
24
(e) Minimum Size of Distributions.
24
(f)Minimum Exercise Period for Warrants.
24
5.4 Cancellation of Existing Securities. 24
5.5 Issuance of New Common Stock. 25
5.6 Distribution Record Date. 25
5.7 Surrender of Notes, Instruments and
Securities. 25
5.8 New Stock Option Plan. 26
5.9 Securities Exchange Listings. 26
5.10 Registration Rights. 26
Article VI. Substantive Consolidation;
Corporate Restructuring. 26
6.1 MGRD. 26
6.2 Worths and Merging Chess Kings. 27
<PAGE>
6.3 Liquidating Chess King Debtors;
Fairground (Liquidating Debtors). 27
6.4 Liquidating Chess King Nondebtors;
Hollywood; Suntan; Liquidating MGRE 1000's.
28
6.5 Surviving MGRE 1000's. 28
6.6 Effectiveness of Consolidation and
Restructuring. 28
Article VII Executory Contracts and Unexpired Leases.
28
7.1 Assumption or Rejection of Executory
Contracts
and Unexpired Leases. 28
(a)Executory Contracts and Unexpired Leases
of Personal Property. 28
(b) Unexpired Real Property Leases.
28
(c)Approval of Assumption or Rejection of
Leases and Contracts. 29
(d) Cure of Defaults.
29
(e)
Executory Contracts and Unexpired leases
Entered into After the Applicable Petition
Date. 29
(f)
Bar Date for Filing Proofs of Claim Relating
to Executory Contracts and Unexpired
Leases
Rejected Pursuant to the Plan. 29
7.2 Indemnification. 30
7.3 Compensation and Benefit Programs. 30
7.4 Retiree Benefits. 30
Article VIIICorporate Governance of the Reorganized Company.
30
8.1 Board of Directors. 30
<PAGE>
8.2 Officers. 31
8.3 No Corporate Action Required. 31
8.4 Amended Charter and Bylaws. 31
Article IX. Title to Property; Discharge; Injunction.
31
9.1 Revesting of Assets. 31
9.2 Discharge of Debtors. 32
9.3 Injunction. 32
Article X. Conditions Precedent to Confirmation and
Effectiveness of the Plan. 33
10.1 Condition to Confirmation. 33
10.2 Conditions to Effectiveness. 33
10.3 Waiver of Conditions. 33
10.4 Effect of Failure of Condition. 34
Artilce XI. Confirmation Without Acceptance by all
Impaired Classes. 34
11.1 Confirmability of the Plan. 34
11.2 Cramdown. 34
Article XII. Releases.
34
12.1 Release by Holders of Claims and
Old Equity Interests. 34
Article XIII. Retention of Jurisdiction.
35
13.1 Jurisdiction. 35
<PAGE>
Article XIV. Rights and Obligations of the
Disbursing Agent. 36
14.1 Powers and Duties of the Disbursing Agent.
36
Article XV. Miscellaneous.
36
15.1 Effectuating Documents; Further
Transactions; Timing. 36
15.2 Exemption from Transfer Taxes. 36
15.3 Exculpation. 37
15.4 Modifications. 37
15.5 Revocation or Withdrawal of the Plan. 37
15.6 Severability. 37
15.7 Binding Effect. 37
15.8 Construction. 37
15.9 Time. 38
15.10 Headings.
38
15.11 Governing Law.
38
15.12 Notices.
38
15.13 Existence of Creditors' Committee and
Equity Committee After Effective Date.40
<PAGE>
JOINT PLAN OF REORGANIZATION
UNDER CHAPTER 11 OF THE UNITED STATES BANKRUPTCY CODE
FOR MERRY-GO-ROUND ENTERPRISES, INC.
and its Affiliates that are debtors
in the Chapter 11 Cases
Introduction
Merry-Go-Round Enterprises, Inc. (MGRE) and the other
Entities set forth on Schedule 1 (together with MGRE, the
Debtors), The Official Committee of Unsecured Creditors and
The Official Committee of Equity Security Holders
(collectively, the Plan Proponents) propose the following
joint plan of reorganization (the Plan) for the resolution
of the outstanding claims against and interests in the
Debtors. The Plan Proponents are proponents of the Plan
under Section 1129 of the Bankruptcy Code. ALL HOLDERS OF
CLAIMS AGAINST AND INTERESTS IN THE DEBTORS ARE ENCOURAGED
TO READ THE PLAN AND THE RELATED DISCLOSURE STATEMENT IN
THEIR ENTIRETY BEFORE VOTING TO ACCEPT OR REJECT THE PLAN.
Article I. Definitions, Rules of Constructions and
Interpretation.
1.1 Definitions. The capitalized terms used in the
Plan shall have the meanings set forth below. Any term used
in the Plan that is not defined in the Plan, but is used in
the Bankruptcy Code or the Bankruptcy Rules, will have the
meaning assigned to that term in the Bankruptcy Code or in
the Bankruptcy Rules, as applicable.
(a) AAL shall mean The Aid Association for
Lutherans.
(b) AAL Secured Claim shall mean the Claim of AAL
arising out of the loan made by AAL to MGRR in the original
principal amount of $10,000,000, secured by a guaranty from
MGRE and by a deed of trust on MGRE's interest in the
headquarters and merchandise distribution center located in
Joppa, Maryland, only to the extent of the value of the
collateral that secures payment of such Claim; provided,
however, if the holder of such Claim makes the election
provided in Section 1111(b)(2) of the Bankruptcy Code, the
entire amount of such Claim shall constitute the AAL Secured
Claim.
(c) Administrative Claim shall mean a Claim
incurred by any Debtor on or after the applicable Petition
Date and before the Effective Date for a cost or expense of
administration of the Chapter 11 Cases entitled to priority
under Sections 503(b) and 507(a)(1) of the Bankruptcy Code,
including, without limitation (i) the actual and
<PAGE>
necessary costs and expenses incurred after the applicable
Petition Date of preserving the Estates and operating the
businesses of the Debtors, (ii) compensation for legal,
financial advisory, accounting and other services and
reimbursement of expenses awarded or allowed under Sections
330(a) or 331 of the Bankruptcy Code; (iii) any fees or
charges assessed against the Estate under Section 1930,
Chapter 123 of Title 28 of the Bankruptcy Code; (iv) Claims
for reclamation allowed in accordance with Section 546(c)(2)
of the Bankruptcy Code; and (v) other Claims as ordered by
the Bankruptcy Court.
(d) Administrative Claims Bar Date shall mean the
date that is sixty (60) days after the entry of the
Confirmation Order, except with respect to Administrative
Claims Filed pursuant to Section 2.1(e)(ii) of the Plan.
(e) Affiliate shall have the meaning given such
term in Section 101(2) of the Bankruptcy Code.
(f) Allowed, when used with respect to any Claim,
except for a Claim that is an Administrative Claim, shall
mean a Claim: (i) that has been listed by a Debtor in its
Schedules as other than disputed, contingent or
unliquidated, to the extent that it is not otherwise a
Disputed Claim; (ii) for which a proof of Claim has been
Filed by the applicable Bar Date or has otherwise been
deemed timely Filed under applicable law, to the extent that
it is not otherwise a Disputed Claim; (iii) to the extent it
is a Disputed Claim as of the Effective Date, proof of which
was timely Filed with the Bankruptcy Court, and (A) as to
which no objection was Filed by the Objections Bar Date,
unless such Claim is to be determined in a forum other than
the Bankruptcy Court, in which case such Claim shall not
become allowed until determined by Final Order of such other
forum; (B) as to which an objection was Filed by the
Objections Bar Date, to the extent such Claim is Allowed by
a Final Order; or (C) which otherwise becomes an Allowed
Claim as provided in the Plan; and when used with respect to
any Old Equity Interest, shall mean an Old Equity Interest
that is reflected on the books and records of MGRE and its
agents as of the Distribution Record Date, as to which no
objection has been Filed by the Objections Bar Date.
(g) Allowed Administrative Claim shall mean an
Administrative Claim that has become Allowed pursuant to the
procedures set forth in Article II of the Plan.
(h) Amended AAL Loan Documents shall mean those
certain agreements, instruments and other documents executed
in connection with the Amended AAL Secured Note to the
extent necessary to reflect the terms set forth in the
Amended AAL Secured Note. The Amended AAL Loan Documents
shall be Plan Documents.
(i) Amended AAL Secured Note shall mean that
certain promissory note made by the Reorganized MGRE and
reflecting the terms set forth in Section 4.3(a) of the
Plan. The Amended AAL Secured Note shall be a Plan Document
<PAGE>
(j) Amended Bear Stearns Loan Documents shall
mean those certain agreements, instruments and other
documents executed in connection with the restructuring of
the obligations relating to the Georgetown Boogies Secured
Claim, to the extent necessary to reflect the terms set
forth on Exhibit A. The Amended Bear Stearns Loan Documents
shall be Plan Documents.
(k) Amended Bylaws shall mean the Amended and
Restated bylaws of the Reorganized MGRE in substantially the
form attached as Exhibit B to the Plan.
(l) Amended Charter shall mean the Amended and
Restated Articles of Incorporation of the Reorganized MGRE
in substantially the form attached as Exhibit C to the Plan.
(m) Applicable Federal Rate shall mean the
applicable annual rate of interest reported in the Internal
Revenue Bulletin published most recently prior to the
Effective Date.
(n) Bankruptcy Code shall mean the Bankruptcy
Reform Act of 1978, as amended and as applicable to the
Chapter 11 Cases.
(o) Bankruptcy Court shall mean the United States
Bankruptcy Court for the District of Maryland, Baltimore
Division having jurisdiction over the Chapter 11 Cases.
(p) Bankruptcy Rules shall mean collectively the
Local Rules of the Bankruptcy Court and the Federal Rules of
Bankruptcy Procedure, as prescribed by the United States
Supreme Court pursuant to 28 U.S.C. S 2075, which govern the
forms of process, writs, pleadings and motions, and the
practice and procedure in cases under the Bankruptcy Code.
(q) Bar Date shall mean: (i) the applicable date
fixed by order of the Bankruptcy Court by which a proof of
Claim must be Filed with the clerk of the Bankruptcy Court
against the respective Debtors as set forth on Schedule 2 to
the Plan; or (ii) the applicable deadline for Filing Claims
as set forth in Sections 2.1(e)(i), 2.1(e)(ii) and 7.1(f) of
the Plan.
(r) Bear Stearns shall mean Bear, Stearns & Co.
Inc., a Delaware corporation.
(s) Business Day shall mean any day other than a
Saturday, Sunday or "legal holiday" (as defined in
Bankruptcy Rule 9006(a)).
<PAGE>
(t) Cash shall mean legal tender of the United
States of America or cash equivalents.
(u) Cash Portion shall mean the amount of Cash to
be distributed to the holders of Allowed Claims in the
Comparison Classes pursuant to the Plan, as a component of
the Distributed Amount.
(v) Chapter 11 Cases shall mean, collectively,
the cases under Chapter 11 of the Bankruptcy Code pending
before the Bankruptcy Court styled as In re Merry-Go-Round
Enterprises, Inc., MGR Distribution Corporation and MGRR,
Inc., and Almeda Chess King, Inc., et al, Case Nos. 94-5-
0161-SD through 94-5-0163-SD and 94-5-3774-SD, et al.
(w) CIT Superpriority Claim shall mean the
administrative superpriority claim granted pursuant to
Sections 364(c)(1) and (2) of the Bankruptcy Code in favor
of The CIT Group/Business Credit, Inc., as agent for certain
lenders, pursuant to the Final Order approving Post-Petition
Financing entered by the Bankruptcy Court on February 1,
1994, as amended.
(x) Claim shall mean: (i) any right to payment
from a Debtor, whether or not such right is reduced to
judgment, liquidated, unliquidated, fixed, contingent,
matured, unmatured, disputed, undisputed, legal, equitable,
secured or unsecured; or (ii) any right to an equitable
remedy for breach or performance if such breach gives rise
to a right of payment from a Debtor, whether or not such
right to an equitable remedy is reduced to judgment, fixed,
contingent, matured, unmatured, disputed, undisputed,
secured or unsecured.
(y) Class shall mean a class of Claims or Old
Equity Interests as identified in Article III of the Plan.
(z) Comparison Classes shall mean, collectively,
Class 2, Class 4 and Class 5.
(aa) Confirmation Date shall mean the date on
which the clerk of the Bankruptcy Court enters the
Confirmation Order on its docket.
(ab) Confirmation Hearing shall mean the hearing
held by the Bankruptcy Court, as it may be continued from
time to time, at which the Proponents shall seek
Confirmation of the Plan.
(ac) Confirmation Order shall mean the order of
the Bankruptcy Court confirming the Plan.
<PAGE>
(ad) Creditor New Common Stock shall mean the
number of shares of New Common Stock issued to holders of
Allowed Class 4 Claims pursuant to Section 4.4(a)(ii) of the
Plan.
(ae) Creditors' Committee shall mean The Official
Committee of Unsecured Creditors in the Chapter 11 Cases.
(af) Disallowed, when used with respect to a
Claim, shall mean a Claim that: (i) has been disallowed
pursuant to a Final Order; or (ii) is listed in the
Schedules of the Debtor as disputed, contingent or
unliquidated, for which no proof of Claim has been Filed,
and as to which the applicable Bar Date has passed.
(ag) Disbursing Agent shall mean the Person,
designated and agreed to by a majority in number of the
Stakeholders that: (i) is retained, pursuant to the Plan,
the Confirmation Order, or any other relevant Final Order
entered by the Bankruptcy Court, to hold, manage, liquidate
and distribute the consideration to be distributed to
holders of Allowed Claims and Allowed Old Equity Interests
under the Plan; and (ii) will perform any other act or task
that is or may be delegated to the Disbursing Agent under
the Disbursement Agreement. The Reorganized Company may act
as the Disbursing Agent with the consent of a majority in
number of the Stakeholders.
(ah) Disbursement Agreement shall mean the
agreement to be entered into pursuant to the Plan under
which the Disbursing Agent shall hold, manage, liquidate and
distribute the consideration to be distributed to the
holders of Allowed Claims and Allowed Old Equity Interests
under the Plan. The Disbursement Agreement shall be a Plan
Document and shall be in form and substance satisfactory to
a majority in number of the Stakeholders.
(ai) Disbursement Reserve shall mean the reserve
established pursuant to Section 5.3(d) for Disputed Claims
and for other Claims for which the applicable Bar Date has
not then passed.
(aj) Disclosure Statement shall mean the Debtors'
Disclosure Statement (including all exhibits and schedules
thereto or referenced therein), as approved by order of the
Bankruptcy Court pursuant to Section 1125 of the Bankruptcy
Code.
(ak) Disputed, when used with respect to a Claim,
shall mean a Claim: (i) to the extent such Claim, or a
portion thereof, is listed in the Schedules of a Debtor as
disputed, contingent or unliquidated and as to which a proof
of Claim has been Filed; (ii) to the extent a proof of Claim
Filed exceeds the amount set forth in the Schedules; (iii)
as to which an objection has been Filed before the
Objections Bar Date; or (iv) the characterization of which,
as set forth in the proof of Claim Filed by the holder
thereof, does not correspond to the Debtors'
characterization, such as a proof of Claim that asserts
<PAGE>
priority status for a Claim, whereas the Debtors' Schedules
reflect such Claim as non-priority; provided, however, that
neither (A) a Claim to the extent that it is Allowed by
Final Order or pursuant to the Plan, nor (B) a Claim to the
extent that it is Disallowed, shall constitute a Disputed
Claim.
(al) Distributed Amount shall mean an amount equal
to $120,000,000, comprised in part of Notes and in part of
the Cash Portion, in the proportion proposed by the Debtors
and agreed to by a majority in number of the Stakeholders.
(am) Distribution Date, when used with respect to
any Claim or Old Equity Interest, shall mean: (i) the
Initial Distribution Date; (ii) the next Semi-Annual
Distribution Date following the date such Claim or Old
Equity Interest becomes Allowed as to any Claim or Old
Equity Interest that is not Allowed on or before the
Effective Date, provided that the minimum distribution
levels described in Section 5.3(e) of the Plan have been
met, or (iii) any Special Distribution Date.
(an) Distribution Record Date shall mean 11:59
p.m., Eastern Time, on the Confirmation Date.
(ao) Effective Date shall mean the first Business
Day on which the conditions to effectiveness set forth in
Section 10.2 have been satisfied.
(ap) Entity shall have the meaning given such term
in Section 101(15) of the Bankruptcy Code.
(aq) Equity Committee shall mean The Official
Committee of Equity Security Holders in the Chapter 11
Cases.
(ar) Equity Interest shall mean any equity
security, as such term is defined in Section 101(16) of the
Bankruptcy Code.
(as) Estate shall mean, as to each Debtor, the
estate created with respect to that Debtor pursuant to
Section 541 of the Bankruptcy Code.
(at) Estate Assets shall mean all of the assets
that are included in the Estate of a Debtor.
(au) Estimated Claims Order shall mean an order of
the Bankruptcy Court that estimates the aggregate amount of
Claims, including any Claims for which the applicable Bar
Date has not then passed, to aid in calculating
distributions under the Plan.
<PAGE>
(av) Extraordinary Cash Receipts shall mean,
collectively, an amount equal to the proceeds received by
the Reorganized Company within one hundred twenty (120) days
after the Initial Distribution Date, to the extent such
receipts are actually distributed in Cash to holders of
Allowed Class 4 Claims (including distributions of Cash in
redemption of New Notes) within thirty (30) days after
receipt by the Reorganized Company in connection with: (i)
the tax refund anticipated by MGRE; (ii) the sale or other
disposition of MGRE's headquarters and distribution facility
located in Joppa, Maryland, or the equipment located
therein, pursuant to an agreement entered into prior to the
Effective Date; or (iii) any Store Closing Proceeds received
by the Reorganized MGRE after the Initial Distribution Date.
(aw) Face Amount shall mean, when used with
reference to a Claim, either: (i) the full stated amount
claimed by the holder of such Claim in a proof of Claim
Filed by the applicable Bar Date or otherwise deemed timely
Filed under applicable law if the proof of Claim specifies
only a liquidated amount; or (ii) notwithstanding subsection
(i), if such Claim is estimated, the amount set forth in the
Estimated Claims Order or such other order entered with
respect to such Claim.
(ax) Fairground shall mean Fairground Enterprises,
Inc., a Maryland corporation.
(ay) Fairground Claims shall mean, collectively,
all Claims against Fairground, other than Administrative
Claims.
(az) Fidelity shall mean Fidelity Management &
Research Company, a Massachusetts corporation, on behalf of
the funds that it manages.
(ba) File, Filed or Files means file, filed or
files with the Bankruptcy Court in the Chapter 11 Cases.
(bb) Final Order shall mean: (i) an order of the
Bankruptcy Court as to which the time to appeal, petition
for certiorari, or move for reargument or rehearing has
expired and as to which no appeal, petition for certiorari,
or other proceedings for reargument or rehearing shall then
be pending or as to which any right to appeal, petition for
certiorari, reargue or rehear shall have been waived in
writing in form and substance satisfactory to the Debtors
and the Stakeholders; or (ii) in the event that an appeal,
writ of certiorari, reargument or rehearing thereof has been
sought, such order of the court shall have been affirmed by
the highest court to which such order was appealed, or
certiorari has been denied, or from which reargument or
rehearing was sought, and the time to take any further
appeal, petition for certiorari or move for reargument or
rehearing shall have expired; provided, however, that no
order shall fail to be a Final Order solely because of the
possibility that a motion pursuant to Bankruptcy Rule 7060
or Rule 60 of the Federal Rules of Civil Procedure may be
filed with respect to such order.
<PAGE>
(bc) Georgetown Boogies Diner shall mean that real
property owned by MGRE and located at 1229 Wisconsin Avenue,
N.W., Washington D.C.
(bd) Georgetown Boogies Secured Claim shall mean
the Claim arising out of the loan made by Signet
Bank/Maryland to MGRE, which loan is secured by a deed of
trust on the Georgetown Boogies Diner, only to the extent of
the value of the collateral that secures payment of such
Claim; provided, however, if the holder of such Claim makes
the election provided in Section 1111(b)(2) of the
Bankruptcy Code, the entire amount of such Claim shall
constitute the Georgetown Boogies Secured Claim.
(be) Hollywood shall mean The Hollywood Stores,
Inc., a Maryland corporation.
(bf) Initial Distribution Date shall mean a date
that is as soon as practicable, but in no event later than
fifteen (15) days, after the Effective Date, as to any Claim
or Old Equity Interest that becomes Allowed on or before the
occurrence of the Effective Date.
(bg) Insured Tort Claims shall mean any tort Claim
arising from an incident or occurrence to the extent that it
is covered under a Debtor's insurance policy.
(bh) Intercompany Claims shall mean all Claims of
a Debtor against another Debtor arising prior to the
Petition Date of such other Debtor against which the Claim
is asserted.
(bi) Lien shall have the meaning given to it in
Section 101(37) of the Bankruptcy Code.
(bj) Liquidating Chess King Debtor Claims shall
mean, as to each Liquidating Chess King Debtor, all Claims
against such Liquidating Chess King Debtor other than
Administrative Claims.
(bk) Liquidating Chess King Debtors shall mean
those Liquidating Chess Kings that are also Debtors in the
Chapter 11 Cases.
(bl) Liquidating Chess King Nondebtors shall mean
those Liquidating Chess Kings that are not Liquidating Chess
King Debtors.
(bm) Liquidating Chess Kings shall mean those
entities listed on Schedule 3 to the Plan.
(bn) Liquidating Debtors shall mean, collectively,
the Liquidating Chess King Debtors and Fairground.
<PAGE>
(bo) Liquidating MGRE 1000's shall mean,
collectively, MGRE 1002, Inc., MGRE 1003, Inc., MGRE 1004,
Inc. and MGRE 1007, Inc.
(bp) Merging Chess King Debtors shall mean the
Merging Chess Kings that are also Debtors in the Chapter 11
Cases.
(bq) Merging Chess Kings shall mean those entities
listed on Schedule 4 to the Plan.
(br) MGRD shall mean MGR Distribution Corporation,
a Maryland corporation.
(bs) MGRE shall mean Merry-Go-Round Enterprises,
Inc., a Maryland corporation.
(bt) MGRE 1000's shall mean, collectively, those
Subsidiaries of MGRE identified on Schedule 5 to the Plan.
(bu) MGRR shall mean MGRR, Inc., a Delaware
corporation.
(bv) MGRR Claims shall mean those Claims held by
creditors of MGRR (other than the AAL Secured Claim).
(bw) MGRR Administrative Claim shall mean the
Claim held by MGRR against MGRE and identified as the "MGRR
Claim" in that certain Order Authorizing Payment from MGRR,
Inc. to Merry-Go-Round Enterprises, Inc. entered by the
Bankruptcy Court on June 10, 1994.
(bx) New Common Stock shall mean the new common
stock, to be issued by the Reorganized MGRE pursuant to the
Plan.
(by) New Indenture shall mean the indenture
governing the New Notes, which indenture shall be in
substantially the form attached hereto as Exhibit D.
(bz) New Notes shall mean the promissory notes, in
substantially the form described in or attached to the New
Indenture, which are to be issued to the holders of Allowed
Class 4 Claims pursuant to Section 4.4(a)(iii) of the Plan.
(ca) New Stock Option Plan shall mean the stock
option plan to be adopted by the Reorganized MGRE in
accordance with Section 5.8 of the Plan, which stock option
plan shall be a Plan Document.
<PAGE>
(cb) New Stock Options shall mean the new stock
options issued by the Reorganized MGRE pursuant to the New
Stock Option Plan.
(cc) Objections Bar Date shall mean the later of:
(i) Effective Date; or (ii) sixty (60) days after the
applicable Bar Date.
(cd) Old Common Stock shall mean the issued and
outstanding shares of common stock of MGRE, as of the
Distribution Record Date, including any associated rights
under the Shareholders Rights Agreement, but excluding the
Old Stock Options.
(ce) Old Equity Interest shall mean any equity
security (as such term is defined in Section 101(16) of the
Bankruptcy Code) of MGRE, including the Old Common Stock and
the Old Stock Options.
(cf) Old Equity New Common Stock shall mean the
number of shares of New Common Stock issued to holders of
Allowed Class 8 Old Equity Interests pursuant to
Section 4.8(a)(i) of the Plan.
(cg) Old Stock Options shall mean those certain
options to purchase shares of the Old Common Stock of MGRE
granted prior to the Confirmation Date.
(ch) Other Priority Claim means a Claim against
any Debtor that is entitled to priority in payment pursuant
to Section 507(a) of the Bankruptcy Code and that is not an
Administrative Claim or a Priority Tax Claim.
(ci) Other Secured Claim shall mean a Secured
Claim against any Debtor other than a Liquidating Debtor
that is not classified in Class 3A or Class 3B.
(cj) Person shall have the meaning given such term
in Section 101(41) of the Bankruptcy Code.
(ck) Petition Date shall mean, as to each Debtor,
the date upon which such Debtor filed its voluntary petition
for protection under Chapter 11 of the Bankruptcy Code,
which date is set forth on Schedule 6 to the Plan.
(cl) Plan shall mean this Chapter 11 plan of
reorganization, either in its present form or as it may be
altered, amended or modified from time to time in accordance
herewith.
(cm) Plan Documents shall mean the documents that
aid in effecting the Plan and that are either specifically
identified herein as Plan Documents or that are attached as
schedules or exhibits to the Plan. The Plan Documents shall
be Filed and served on the parties listed on the Service
List for Administrative Order No. 1, as amended, entered by
the Bankruptcy Court in the Chapter 11 Cases at least ten
(10) day s
<PAGE>
prior to the commencement of the Confirmation Hearing or
such later time as may be specified by the Stakeholders.
(cn) Priority Tax Claim shall mean a Claim of a
governmental unit of the kind specified in Section 507(a)(8)
of the Bankruptcy Code against any Debtor.
(co) Professional shall mean a Person retained or
to be compensated pursuant to Sections 327, 328, 330, 503(b)
and 1103 of the Bankruptcy Code.
(cp) Proponents shall mean, collectively, the
Debtors, the Creditors' Committee and the Equity Committee,
the proponents of the Plan.
(cq) Pro Rata or Pro Rata Share shall mean: (i)
with respect to Claims, the proportion that the amount of an
Allowed Claim in a particular Class of Claims bears to the
aggregate amount of all Claims in such Class of Claims,
including the Face Amount of Disputed Claims and other
Claims for which the applicable Bar Date has not then
passed, but not including Disallowed Claims, as calculated
by the Debtors or the Disbursing Agent ten (10) Business
Days before any Distribution Date; and (ii) with respect to
Class 8 Old Equity Interests, the proportion that the number
of shares of Old Common Stock held by a particular holder in
a particular Class bears to the entire number of issued and
outstanding shares of Old Common Stock in such Class on the
Distribution Record Date, as calculated by the Debtors or
the Disbursing Agent ten (10) Business Days before a
Distribution Date.
(cr) Reorganized Company shall mean MGRE and its
Surviving Subsidiaries, as reorganized or restructured in
accordance with the terms of the Plan.
(cs) Reorganized MGRE shall mean MGRE, as
reorganized or restructured in accordance with the terms of
the Plan.
(ct) Schedules shall mean, with respect to each
Debtor, the schedules of assets and liabilities and the
statement of financial affairs filed by such Debtor as
required by Section 521 of the Bankruptcy Code and the
Official Bankruptcy Forms of the Bankruptcy Rules, as such
schedules may from time to time be amended through the date
of the order approving the adequacy of the Disclosure
Statement, unless otherwise allowed by the Bankruptcy Court.
(cu) Secured Claims shall mean, collectively, the
AAL Secured Claim and the Georgetown Boogies Secured Claim
and any Allowed Other Secured Claims.
(cv) Semi-Annual Distribution Date shall mean the
last Business Day of the month following the end of each six
month period after the Effective Date, as such date may be
postponed from time to time pursuant to Section 5.3(e) of
the Plan.
<PAGE>
(cw) Series A Warrant Amount shall mean an amount
of Series A Warrants issued to holders of Allowed Class 8
Old Equity Interests pursuant to Section 4.8(a)(ii) of the
Plan, in the amount described therein.
(cx) Series A Warrants shall mean those warrants
issued by the Reorganized MGRE to the holders of Allowed
Class 8 Old Equity Interests in accordance with the Plan,
pursuant to the Series A Warrant Agreement in substantially
the form attached hereto as Exhibit E.
(cy) Series B Warrant Amount shall mean an amount
of Series B Warrants issued to holders of Allowed Class 8
Old Equity Interests pursuant to Section 4.8(a)(iii) of the
Plan, in the amount described therein.
(cz) Series B Warrants shall mean those warrants
issued by the Reorganized MGRE to the holders of Allowed
Class 8 Old Equity Interests in accordance with the Plan,
pursuant to the Series B Warrant Agreement in substantially
the form attached hereto as Exhibit F.
(da) Shareholders Rights Agreement shall mean the
Shareholders Protection Rights Agreement dated as of
September 20, 1991, between MGRE and Security Trust Company,
N.A., as Rights Agent.
(db) Special Distribution Date shall mean a
Distribution Date, other than the Initial Distribution Date
and any Semi-Annual Distribution Date: (i) as determined by
the Reorganized MGRE's board of directors in its discretion;
(ii) on which at least $10,000,000 in aggregate value of
property and Cash is then available for distribution to the
holders of Allowed Claims and Allowed Old Equity Interests
pursuant to the Plan; or (iii) on which Extraordinary Cash
Receipts are available for distribution.
(dc) Stakeholders shall mean, collectively, the
Creditors' Committee, the Equity Committee, Fidelity and
Bear Stearns.
(dd) Store Closing Proceeds shall mean an amount
paid to the Debtors or the Reorganized Company, as the case
may be, after December 30, 1994, equal to the aggregate net
proceeds, not to exceed $10,000,000, arising from the
closure of stores or the disposition of leases.
(de) Store Opening Expenditures shall mean the
amount equal to the aggregate amount of expenditures
incurred by the Debtors during the period commencing on
January 1, 1995 and ending on the Effective Date in
connection with opening those stores of the Debtors to which
the Equity Committee has objected expressly in writing
within thirty (30) days after the date the Equity Committee
receives notice of the Store Opening Expenditures, unless
extended by the agreement of the Stakeholders, but in no
event later than the Confirmation Date.
<PAGE>
(df) Subsidiaries shall mean those Entities listed
on Schedule 7 to the Plan.
(dg) Suntan shall mean Suntan Ltd., a Delaware
corporation.
(dh) Surviving Subsidiaries shall mean MGRD, MGRR
and the MGRE 1000's (other than the Liquidating MGRE
1000's).
(di) Tax Code shall mean the Internal Revenue Code
of 1986, as now in effect or hereafter amended.
(dj) Unclaimed Distributions shall mean
distributions made pursuant to the Plan that are refused,
returned or not claimed by the holder of the applicable
Claim or Old Equity Interest, which distributions shall be
treated as provided in Section 5.2 of the Plan.
(dk) Unsecured Claim shall mean a Claim against
any of the Debtors (except any Liquidating Debtor) other
than a Secured Claim, an Administrative Claim, a Priority
Tax Claim, an Intercompany Claim, an Other Priority Claim,
an Insured Tort Claim or an MGRR Claim; provided, however,
to the extent that any such Claim against any such Debtor is
duplicative of a Claim against any other such Debtor, such
duplicative Claim, however arising, shall be Disallowed to
the full extent of any duplication.
(dl) Warrants shall mean, collectively, the Series
A Warrants and the Series B Warrants.
(dm) Worths shall mean Worths Stores Corp., a
Delaware corporation.
1.2 Construction and Interpretation. Unless otherwise
specified, all section, article, schedule and exhibit
references in the Plan are to the respective section in,
article of or schedule or exhibit to the Plan, as the same
may be amended, waived or modified from time to time. The
headings in the Plan are for convenience of reference only
and shall not limit or otherwise affect the provisions of
the Plan. Words denoting the singular number shall include
the plural number and vice versa, and words denoting one
gender shall include the other gender, unless the context
otherwise requires a different construction. The Disclosure
Statement may be referred to for purposes of interpretation
to the extent any term or provision of the Plan is
determined by the Bankruptcy Court to be ambiguous.
<PAGE>
1.3 Application of Definitions and Rules of
Construction Contained in the Bankruptcy Code. Words and
terms defined in Section 101 of the Bankruptcy Code shall
have the same meaning when used in the Plan, unless a
different definition is given in the Plan. The rules of
construction contained in Section 102 of the Bankruptcy Code
shall apply to the construction of the Plan.
1.4 Other Terms. The words "herein", "hereof",
"hereto", "hereunder" and others of similar import refer to
the Plan as a whole and not to any particular section,
subsection or clause contained in the Plan.
1.5 Exhibits. All schedules and exhibits to the Plan
and the Plan documents are incorporated into the Plan by
this reference and are a part of the Plan as if set forth in
full herein.
Article II. Provisions For Payment of Administrative Claims
and Priority Tax Claims.
Administrative Claims and Priority Tax Claims are not
classified in the Plan.
2.1 Administrative Claims.
(a) In General. Each holder of an Allowed
Administrative Claim against any Debtor shall be paid by the
Reorganized MGRE in respect of such Allowed Administrative
Claim the full amount thereof in Cash after the later of:
(i) the Initial Distribution Date; (ii) thirty (30) days
after the date on which an order allowing such Allowed
Administrative Claim becomes a Final Order; or (iii) such
other time that is agreed to by the holder of an Allowed
Administrative Claim and the applicable Debtor or the
Reorganized Company, except as provided in Section
2.1(e)(ii). Notwithstanding the foregoing, Administrative
Claims based on liabilities incurred by a Debtor in the
ordinary course of its business (including Administrative
Claims of governmental units for taxes) shall be assumed and
paid pursuant to the terms and conditions of the particular
transaction giving rise to such Administrative Claims
without any further action by the holders of such Claims,
including, without limitation, the requirements of Section
2.1(e)(i).
(b) Statutory Fees. On or before the Effective
Date, Administrative Claims for fees payable pursuant to
Section 1930 of title 28 of the United States Code, as
determined by the Bankruptcy Court at the Confirmation
Hearing, shall be paid in Cash.
(c) The CIT Superpriority Claim. On the
Effective Date, or as soon thereafter as is practicable, the
CIT Superpriority Claim shall be paid in full in Cash or
otherwise satisfied.
<PAGE>
(d) The MGRR Administrative Claim. The MGRR
Administrative Claim shall be deemed satisfied and
discharged in full by the payment in full by MGRE of the
MGRR Claims.
(e) Bar Date for Administrative Claims.
(i) In General. Unless otherwise ordered by
the Bankruptcy Court, requests for payment of Administrative
Claims must be Filed and served on the Debtors or the
Reorganized Company and the Stakeholders by no later than
the Administrative Claims Bar Date. Any Entity that is
required to File and serve a request for payment of an
Administrative Claim that fails to timely File and serve
such request shall be forever barred, estopped and enjoined
from asserting such Claim against the Debtors, the Estates,
the Reorganized Company and their respective property.
Objections to any requests for payment of an Administrative
Claim must be Filed and served on the Debtors, or the
Reorganized Company and the requesting party, no later than
sixty (60) days after the Administrative Claims Bar Date.
(ii) Professionals. Notwithstanding the
provisions of Section 2.1(e)(i), Professionals or other
Entities requesting compensation or reimbursement of
expenses pursuant to Sections 327, 328, 330, 331, 503(b) and
1103 of the Bankruptcy Code for services rendered before the
Effective Date shall File an application for final allowance
of compensation and reimbursement of expenses no later than
sixty (60) days after the Effective Date and such
applications and all related pleadings and documents shall
be served, and objections shall be Filed and served, as
provided in Administrative Order No. 2, as amended.
2.2 Priority Tax Claims. Pursuant to Section
1129(a)(9)(C) of the Bankruptcy Code, each holder of an
Allowed Priority Tax Claim shall be paid in respect of such
Claim by the applicable Debtor deferred Cash payments over a
period not exceeding six (6) years from the date of the
assessment of such Claim. Payments shall be made in arrears
in equal annual installments of principal, plus simple
interest accruing from the Effective Date at the Applicable
Federal Rate per annum on the unpaid portion of each Allowed
Priority Tax Claim. The first payment shall be made on the
first Business Day following the first anniversary of the
Effective Date; provided, however, that any such Allowed
Priority Tax Claim, or any remaining balance of such Claim,
may be paid in full or in part, at any time on or after the
Effective Date without premium or penalty.
Article III. Classification of Claims and Old Equity
Interests.
For purposes of the Plan, all Claims and Old Equity
Interests, except Administrative Claims and Priority Tax
Claims, are classified as follows:
<PAGE>
3.1 Class 1 Claims. Class 1 Claims shall consist of
all Other Priority Claims. Class 1 Claims are not impaired.
3.2 Class 2 Claims. Class 2 Claims shall consist of
the MGRR Claims. The Class 2 Claims are not impaired.
3.3 Class 3 Claims. Class 3 Claims shall consist of
the Secured Claims. The Class 3 Claims shall consist of
three subclasses (a) the AAL Secured Claim, which shall be
identified as the Class 3A Claim; (b) the Georgetown Boogies
Secured Claim, which shall be identified as the Class 3B
Claim, and (c) the Other Secured Claims, which shall be
identified as the Class 3C Claims. The Class 3 Claims are
impaired.
3.4 Class 4 Claims. Class 4 Claims shall consist of
all Unsecured Claims that are not otherwise separately
classified in Class 5. The Class 4 Claims are impaired.
3.5 Class 5 Claims. Class 5 Claims shall consist of
all Unsecured Claims of $400 or less and any Unsecured Claim
in excess of $400 that, by written election of the holder of
such Claim is reduced to $400. The Class 5 Claims are not
impaired. The holder of any Unsecured Claim that elects to
have such Claim treated as a Class 5 Claim shall be deemed
for all purposes to have voted to accept the Plan.
3.6 Class 6 Claims. Class 6 Claims shall consist of
all Insured Tort Claims. The Class 6 Claims are not
impaired.
3.7 Class 7 Claims. Class 7 Claims shall consist of
all Intercompany Claims. The Class 7 Claims are impaired.
3.8 Class 8 Old Equity Interests. Class 8 Old
Equity Interests shall consist of all shares of Old Common
Stock. The Class 8 Old Equity Interests are impaired.
3.9 Class 9 Old Equity Interests. Class 9 Old Equity
Interests shall consist of all Old Equity Interests,
excluding the Old Common Stock, but including, without
limitation, the Old Stock Options. The Class 9 Old Equity
Interests are impaired.
3.10 Class 10 Claims. Class 10 Claims shall consist of
all Fairground Claims. The Class 10 Claims are impaired.
To the extent required by the Bankruptcy Code or the
Bankruptcy Court, the Claims against Fairground shall be
deemed separately classified.
3.11 Class 11 Claims. Class 11 Claims shall consist of
all claims against each Liquidating Chess King Debtor. The
Class 11 Claims are impaired. To the extent required by the
Bankruptcy Code or the Bankruptcy Court, the Claims against
each Liquidating Chess King Debtor shall be deemed
separately classified and shall constitute a separate Class
of Claims for each Liquidating Chess King Debtor under the
Plan.
<PAGE>
3.12 Class 12 Equity Interests. Class 12 Equity
Interests shall consist of all Equity Interests of MGRE in
each of the Liquidating Debtors. The Class 12 Equity
Interests are impaired. To the extent required by the
Bankruptcy Code or the Bankruptcy Court, the Equity Interest
of MGRE in the Liquidating Debtors shall be deemed
separately classified.
Article IV. Treatment of Classes of Claims and Interests.
4.1 Class 1 Claims (Other Priority Claims). Each
holder of an Allowed Class 1 Claim shall be paid in respect
of such Claim the full amount thereof: (a) in Cash, on the
Effective Date or as soon thereafter as is practicable; or
(b) upon such other terms as may be agreed upon by the
holder of such Allowed Class 1 Claim.
4.2 Class 2 Claims (MGRR Claims). The holders of
Allowed Class 2 Claims shall be paid in respect of such
Claims the full amount thereof in Cash, on the Effective
Date or as soon thereafter as is practicable. Such payment
shall be full and complete satisfaction, settlement, release
and discharge of the obligations of MGRE to MGRR arising out
of the MGRR Administrative Claim. Such Cash payments shall
directly reduce the Cash Portion available for distribution
to the holders of Allowed Class 4 Claims and shall
constitute part of the Cash Portion for purposes of
determining the amount of Series A Warrants to be
distributed pursuant to the Plan.
4.3 Class 3 Claims (Secured Claims). The Class 3
Claims shall be treated as follows:
(a) Class 3A Claim (AAL Secured Claim). On the
Effective Date, all defaults by MGRE and MGRR under the
notes and the loan documents held by the holder of the Class
3A Claim shall be deemed cured or waived in full. On the
Effective Date, the Reorganized MGRE shall execute and
deliver to the holder of the Allowed Class 3A Claim the
Amended AAL Secured Note and the Amended AAL Loan Documents.
The Amended AAL Secured Note shall provide, among other
things, for the following: (i) the principal amount of the
Amended AAL Secured Note shall be equal to the outstanding
principal balance of the indebtedness evidenced by the AAL
Secured Claim plus all interest accrued at the contract rate
of interest and unpaid as of the Confirmation Date; (ii) the
Reorganized MGRE shall make equal monthly payments of
principal and interest, beginning on the first day of the
first calendar month following the Effective Date, based
upon a 25 year amortization schedule with interest accruing
at an annual rate equal to the interest rate paid on U.S.
Treasury Securities maturing on the tenth anniversary of the
Effective Date, plus 1.25%; (iii) the Amended AAL Secured
Note shall mature and the unpaid balance thereof shall be
due and payable in full on the tenth anniversary of the
Effective Date, (iv) the Reorganized MGRE may, at its
option, prepay all or any portion of the Amended AAL Secured
Note, at any time without any penalty or premium; and (v)
the Amended AAL Secured Note shall be given in full
satisfaction of the Allowed Class
<PAGE>
3A Claim. The promissory note originally made by MGRR
giving rise to the Class 3A Claim shall be cancelled as of
the Effective Date. In addition, the Amended AAL Secured
Note shall be secured by the Reorganized MGRE's interest in
the headquarters and merchandise distribution center located
in Joppa, Maryland. On the Effective Date, for purposes of
effectuating this Section 4.3(a), MGRE or the Reorganized
MGRE, as the case may be, shall satisfy the AAL Secured
Claim against MGRE and acquire any such AAL Secured Claim
against MGRR in consideration for the payment of the
consideration to be paid in respect of such Claim pursuant
to the Plan and shall contribute such acquired Claim to the
capital of MGRR.
(b) Class 3B Claim (Georgetown Boogies Secured
Claim). If prior to the Effective Date the Georgetown
Boogies Diner has not been sold and the net proceeds from
such sale have not been distributed to the holder of the
Class 3B Claim in accordance with the term sheet approved by
the Bankruptcy Court on September 15, 1994, then on the
Effective Date, the Class 3B Claim shall be treated as
described on Exhibit A. To the extent that the Allowed
Class 3B Claim exceeds the net proceeds from such sale, the
holder of the Allowed Class 3B Claim shall have a deficiency
Claim, in an amount to be agreed upon by the parties in
interest or otherwise determined by the Bankruptcy Court,
which shall be treated as a Class 4 Claim.
(c) Class 3C Claims (Other Secured Claims). At
the option of the Reorganized Company, the Reorganized
Company will: (i) notwithstanding any contractual provision
or applicable non-bankruptcy law that entitles the holder of
any Allowed Other Secured Claim to demand or receive
accelerated payment of such Claim after the occurrence of a
default, leave unaltered and unimpaired the legal, equitable
and contractual rights to which such Claim entitles the
holder thereof in accordance with Section 1124 of the
Bankruptcy Code and will cure any default by the Debtors in
the payment of such Claim, other than a default of the kind
specified in section 365(b)(2) of the Bankruptcy Code; (ii)
pay in full in Cash to the holder thereof such Allowed Claim
as soon as is practicable after such Claim is Allowed; (iii)
abandon the collateral securing such Claim to the holder
thereof as soon as is practicable after such Claim is
Allowed; (iv) pay in full over ten (10) years, from the net
cash flow attributable to such collateral, such Allowed
Claim with simple interest from the Effective Date at the
rate in effect under 26 U.S.C. S 6621(b)(3) on the
Confirmation Date unless the Bankruptcy Court determines
that a different rate of interest should be used; or (v)
provide such other treatment as the holder of the Claim and
the Reorganized Company may otherwise agree. The holder of
such a Claim shall retain its Lien on the collateral
securing its Allowed Claim until full payment has been made
as provided herein.
4.4 Class 4 Claims (Unsecured Claims). The Class 4
Claims shall be treated as follows:
(a) Treatment. Each holder of an Allowed Class 4
Claim shall receive its Pro Rata Share of:
<PAGE>
(i) the Cash Portion available to be paid to
holders of Allowed Class 4 Claims;
(ii) the Creditor New Common Stock, which
shall be equal to 75% of the number of shares of New Common
Stock issued in respect of Allowed Class 4 Claims and
Allowed Class 8 Old Equity Interests pursuant to the Plan,
which percentage shall increase by an amount equal to
.0000001875 multiplied by the amount of dollars by which (A)
the aggregate amount of Allowed Claims in the Comparison
Classes exceeds (B) $225,000,000; provided, however, in no
event shall the amount of Creditor New Common Stock exceed
90% of the shares of New Common Stock issued in respect of
Allowed Class 4 Claims and Allowed Class 8 Old Equity
Interests pursuant to the Plan. The aggregate amount of
Creditor New Common Stock shall be calculated on each
Distribution Date. For purposes of calculating the amount
of Creditor New Common Stock: (x) the amount of Allowed
Claims shall be determined without regard to post-petition
interest, if any; (y) the percentage calculation shall be
rounded to the nearest sixth decimal place; and (z) the
number of shares of New Common Stock issued pursuant to the
Plan shall be reduced by the maximum number of shares of New
Common Stock reserved for issuance pursuant to the New Stock
Option Plan.
(iii) the New Notes, which shall
constitute promissory notes issued by the Reorganized MGRE
pursuant to the New Indenture, in the aggregate principal
amount equal to the amount by which (A) the Distributed
Amount exceeds (B) the Cash Portion;
(iv) the Store Closing Proceeds, to the
extent received prior to the Initial Distribution Date; and
(v) subject to the provisions of the New
Indenture, the Extraordinary Cash Receipts.
(b) Distributions. On the Initial Distribution
Date, each holder of an Allowed Class 4 Claim shall receive
its Pro Rata Share of each type of the consideration
described in Section 4.4(a). On each subsequent
Distribution Date, each holder of an Allowed Class 4 Claim
shall receive: (i) its Pro Rata Share of each type of the
consideration described in Section 4.4(a), less (ii) the
aggregate amount of each type of such consideration
previously distributed in respect of such Allowed Class 4
Claim.
4.5 Class 5 Claims (Convenience Claims). The holders
of Allowed Class 5 Claims shall be paid in respect of such
Claims the full amount thereof in Cash on the Initial
Distribution Date. Such Cash payments shall directly reduce
the Cash Portion available for distribution to the holders
of Allowed Class 4 Claims and shall constitute part of the
Cash Portion for purposes of determining the amount of
Series A Warrants to be distributed pursuant to the Plan.
<PAGE>
4.6 Class 6 Claims (Insured Tort Claims). No
distribution shall be made by the Reorganized Company to the
holders of Allowed Class 6 Claims on the Effective Date or
thereafter, except to the extent of insurance proceeds
received by the Debtors or the Reorganized Company on
account of such Allowed Class 6 Claims and not previously
distributed, and the holders of such Allowed Class 6 Claims
shall look solely to any insurance proceeds available in
respect of such Claims.
4.7 Class 7 Claims (Intercompany Claims). On the
Effective Date, each Intercompany Claim shall be cancelled
and extinguished, and the holder of an Allowed Intercompany
Claim shall receive no distribution in respect thereof.
4.8 Class 8 Old Equity Interests (Old Common Stock).
(a) Treatment. Each holder of an Allowed Class 8
Old Equity Interest shall receive its Pro Rata Share of:
(i) the Old Equity New Common Stock, which
shall be equal to ten percent (10%) of the number of shares
of New Common Stock issued in respect of Allowed Class 4
Claims and Allowed Class 8 Old Equity Interests pursuant to
the Plan, which percentage shall increase by an amount equal
to .0000001875 times the amount of dollars by which
$305,000,000 exceeds the sum of (A) the Allowed Claims in
the Comparison Classes and (B) Disputed Claims in the
Comparison Classes; provided, however, in no event shall the
percentage of Old Equity New Common Stock be less than ten
percent (10%) of the number of shares of New Common Stock
issued in respect of Allowed Class 4 Claims and Allowed
Class 8 Old Equity Interests pursuant to the Plan. The
percentage of Old Equity New Common Stock shall be
calculated on each Distribution Date. For purposes of such
calculation: (x) the amount of Allowed Claims and Disputed
Claims in the Comparison Classes shall be determined without
regard to post-petition interest, if any; (y) the percentage
calculation shall be rounded to the nearest sixth decimal
place; and (z) the number of shares of New Common Stock
issued pursuant to the Plan shall be reduced by the maximum
number of shares of New Common Stock reserved for issuance
pursuant to the New Stock Option Plan.
(ii) the Series A Warrant Amount, which shall
be equal to a number of Series A Warrants expressed as a
percentage of the sum of: (A) the maximum number of shares
of Creditor New Common Stock and Old Equity New Common Stock
available to be issued pursuant to the Plan; and (B) the
additional number of shares of New Common Stock which would
be issued as a result of the exercise of all of the Series A
Warrants to be issued pursuant to the Plan, equal to an
amount calculated (1) by subtracting $25,000,000 from the
sum of: (w) the Cash Portion; (x) the Store Closing
Proceeds; (y) fifty percent (50%) of any Store Opening
Expenditures; and (z) Extraordinary Cash Receipts, (2) by
dividing the amount under clause (1) by $1,000,000, and (3)
by multiplying the result obtained under clause (2) by .20;
provided, however, in
<PAGE>
no event shall such percentage be greater than five percent
(5%). The number of shares which have been or may be issued
as a result of the exercise of any Series B Warrants or New
Stock Options shall not be included in determining the
Series A Warrant Amount; and
(iii) the Series B Warrant Amount, which
shall be equal to a number of Series B warrants, expressed
as a percentage of the sum of: (A) the maximum number of
shares of Creditor New Common Stock and Old Equity New
Common Stock available to be issued pursuant to the Plan;
and (B) the additional number of shares of New Common Stock
which would be issued as a result of the exercise of all of
the Series B Warrants issued pursuant to the Plan, equal to
the percentage by which Creditor New Common Stock exceeds
75%. The number of shares which have been or may be issued
as a result of the exercise of any Series A Warrants or New
Stock Options shall not be included in determining the
Series B Warrant Amount.
(b) Distribution. On the Initial Distribution
Date, each holder of an Allowed Class 8 Old Equity Interest
shall receive its Pro Rata Share of the consideration
described in Section 4.8(a). On each subsequent
Distribution Date, each holder of an Allowed Class 8 Old
Equity Interest shall receive: (i) its Pro Rata Share of
the consideration described in Section 4.8(a); less (ii) the
aggregate amount of such consideration previously
distributed in respect of such Allowed Class 8 Old Equity
Interest.
4.9 Class 9 Old Equity Interests (Old Stock Options).
The Old Stock Options shall be deemed cancelled and
extinguished and each holder of any such Old Stock Option
shall not receive any distribution in respect thereof.
4.10 Class 10 Claims (Fairground Claims). Promptly
following the Effective Date, Fairground shall be liquidated
and the net proceeds of such liquidation shall be
distributed to the holders of Allowed Fairground Claims in
accordance with the priority of payment required under the
Bankruptcy Code. To the extent any holders of Allowed
Fairground Claims shall have equal priority, the liquidation
proceeds available for distribution to holders of such
priority shall be distributed among such holders Pro Rata.
Any liquidation proceeds remaining after the satisfaction of
all Allowed Fairground Claims shall be distributed to the
Reorganized MGRE in respect of MGRE's interest in
Fairground.
4.11 Class 11 Claims (Liquidating Chess King Debtor
Claims). Promptly following the Effective Date, each
Liquidating Chess King Debtor shall be liquidated and the
net proceeds of such liquidation shall be distributed to the
holders of Allowed Liquidating Chess King Debtor Claims
against such Liquidating Chess King Debtor in accordance
with the priority of payment required under the Bankruptcy
Code. To the
<PAGE>
extent holders of Allowed Liquidating Chess King Debtor
Claims against a Liquidating Chess King Debtor shall have
equal priority, the liquidation proceeds of such Liquidating
Chess King Debtor available for distribution to holders of
such priority shall be distributed among such holders Pro
Rata. Any liquidation proceeds remaining after the
satisfaction of all Allowed Liquidating Chess King Debtor
Claims against a particular Liquidating Chess King Debtor
shall be distributed to the Reorganized MGRE in respect of
MGRE's interest in such Liquidating Chess King Debtor.
4.12 Class 12 Liquidating Debtor Equity Interests. The
Equity Interest of MGRE in each of the Liquidating Debtors
shall be deemed cancelled and extinguished upon dissolution
of the respective Liquidating Debtors, and, in respect of
such Equity Interests, MGRE shall be paid, as to each
Liquidating Debtor, any liquidated proceeds remaining after
the satisfaction of the Allowed Class 10 Claims and Allowed
Class 11 Claims, as applicable.
Article V. Means for Implementation of the Plan.
5.1 Distributions Under the Plan.
(a) In General. All property to be distributed
pursuant to the Plan, shall be delivered by the Reorganized
Company to the Disbursing Agent on the Effective Date,
except in the case of Extraordinary Cash Receipts, for
distribution in accordance with the Plan. All distributions
under the Plan shall be made by the Disbursing Agent to the
holder of each Allowed Claim or Allowed Old Equity Interest
as of the Distribution Record Date, unless otherwise agreed
to by a holder and the Disbursing Agent. The Disbursing
Agent will serve without bond, and such Disbursing Agent may
employ or contract with other entities to assist in or make
the distributions made by the Plan.
(b) Claims Aggregated. Any holder of multiple
Claims in Class 4 and/or 5 shall be deemed to have a single
Claim in the aggregate amount of all such Claims.
(c) Method of Cash Payments. Any Cash payment
made by the Disbursing Agent to a holder of an Allowed Claim
on a Distribution Date pursuant to the Plan shall be in U.S.
dollars, by check drawn on the distribution account or if
requested by a holder of an Allowed Claim, and such Cash
payment is greater than $50,000, by wire transfer to such
account as may be designated by such holder in writing to
the Disbursing Agent at least ten (10) days prior to such
Distribution Date.
(d) Timing of Payment. Any payment or
distribution required to be made under the Plan on a day
other than a Business Day shall be due on the next
succeeding Business Day.
<PAGE>
(e) Fractional Shares. Notwithstanding any other
provision of the Plan, no fractional shares or units of New
Common Stock or Warrants will be distributed under the Plan.
On the last Distribution Date, the number of shares or units
of New Common Stock and Warrants to be distributed under the
Plan will be rounded up or down to the nearest whole number
(a number less than .5 shall be rounded down and a number
equal to or greater than .5 shall be rounded up).
(f) Denominations of Notes. The New Notes shall
be issued in denominations of $1000, and to the extent
necessary, $100, and no other denominations of New Notes
shall be issued. In the event that the holder of an Allowed
Class 4 Claim is entitled to receive New Notes in an amount
which, when divided by 100, results in a number other than a
whole number, such holder shall be paid on the final
Distribution Date under the Plan an amount, in Cash, from
the sale of any New Notes then remaining in the Disbursement
Reserve or otherwise in accordance with the Disbursement
Agreement, equal to the proceeds of such sale.
(g) De Minimis Distributions. The Reorganized
Company shall not be required to make any distribution to
any holder of an Allowed Claim or Allowed Old Equity
Interest in an impaired Class on any Distribution Date, if
the aggregate value of Cash and property to be distributed
to such holder on such Distribution Date is less than $50
with respect to a Distribution Date other than the final
Distribution Date, and $10 with respect to the final
Distribution Date. Any property or Cash not distributed
pursuant to this provision shall revest in and become the
property of the Reorganized Company on the final
Distribution Date.
5.2 Unclaimed Distributions.
(a) Non-Negotiated Checks. If the holder of an
Allowed Claim fails to negotiate a check issued to such
holder pursuant to the Plan within one (1) year of the date
such check was issued, then the amount of Cash attributable
to such check shall be deemed to be Unclaimed Distributions
and the payee of such check shall be deemed to have no
further Claim in respect of such check and shall not be
entitled to participate in any further distributions under
the Plan.
(b) Returned Distributions. In the case of
distributions to the holders of Allowed Claims or Allowed
Old Equity Interests in Cash, Notes, New Common Stock and/or
Warrants pursuant to the Plan that are returned to the
Reorganized Company or the Disbursing Agent, refused or not
claimed by the applicable holder, in each case within
eighteen (18) months following the first distribution made
to such holder under the Plan, if such holder fails to claim
any such distribution by the Reorganized Company or the
Disbursing Agent within such eighteen (18) month period,
then the Cash, Notes, New Common Stock and/or Warrants to be
distributed to such holder shall be deemed to be Unclaimed
Distributions and such holder shall be deemed to have no
further Claim or Old Equity Interest in respect of such
distributions and shall not be entitled to participate
<PAGE>
in any further distributions under the Plan. If the holder
of an Allowed Claim or Allowed Old Equity Interest contacts
the Reorganized Company or the Disbursing Agent in writing
within such eighteen (18) month period to claim its
distributions, then the Cash, Notes, New Common Stock and/or
Warrants previously returned, refused or not claimed shall
be redistributed to such holder. During the applicable
redemption periods set forth in subsections (a) and (b)
above, such Cash, New Notes, New Common Stock and/or
Warrants shall be held by the Disbursing Agent in the
Disbursement Reserve.
(c) Revesting of Unclaimed Distributions. After
the expiration of the applicable redemption period set forth
in subsections (a) and (b) above, all Unclaimed
Distributions in respect of Class 4 Claims and Class 5
Claims shall be redistributed Pro Rata among the holders of
Allowed Class 4 Claims, and all Unclaimed Distributions in
respect of Class 8 Old Equity Interests shall be
redistributed Pro Rata among the holders of Allowed Class 8
Old Equity Interests, in each case, on the next succeeding
Distribution Date, except that Unclaimed Distributions
arising from distributions made on the final Distribution
Date or which become Unclaimed Distributions thereafter
shall revest in the Reorganized Company.
5.3 Treatment of Disputed Claims and Distributions
after the Effective Date. Disputed Claims shall be treated
as follows under the Plan:
(a) Objections to Claims. Except as otherwise
provided by the Bankruptcy Court or in the Plan, all
objections to Claims shall be Filed and served on the
holders of such Claims on or before the later of (i) the
Objections Bar Date, or (ii) such date as the Bankruptcy
Court may fix upon application of the Debtors; provided,
however, that the Debtors shall not be required to File an
Objection to any Disallowed Claim.
(b) Authority to Prosecute. The Reorganized
Company shall have the sole and exclusive authority to file
objections, settle, compromise, withdraw or litigate to
judgment objections to Claims. The Reorganized Company may
not settle or compromise any Claim, or withdraw an objection
to any Claim, without the approval of the Bankruptcy Court.
(c) Treatment of Disputed Claims and Subsequent
Distributions. No payments shall be made on account of a
Disputed Claim until such Claim becomes Allowed in its
entirety, except as may be agreed upon by the applicable
Debtor or the Reorganized Company and the holder of such
Claim; provided, however, for purposes of this provision
only, the aggregation principles of Section 5.1(b) shall not
apply. When any Disputed Claim becomes an Allowed Claim
after the Effective Date, on the next succeeding
Distribution Date, the Disbursing Agent shall make: (i) the
distribution to which the holder of such Claim becomes
entitled, and, (ii) to the extent applicable, the
distributions to which the holders of Allowed Claims and
Allowed Equity Interests become entitled as a result of the
resolution of such Disputed Claim. Each such
<PAGE>
distribution shall include, to the extent applicable:
(i) such holder's Pro Rata Share of any dividends or other
distributions, including interest received by the Disbursing
Agent on account of any previously paid but undistributed
dividends; that have theretofore been paid to the Disbursing
Agent in respect of any New Common Stock included in such
distribution; (ii) such holder's Pro Rata Share of the
interest or other proceeds received by the Disbursing Agent
on account of New Notes included in such distribution; and
(iii) such holder's Pro Rata Share of any interest or other
income received by the Disbursing Agent on account of the
investment of any Cash included in such distribution.
(d) Disbursement Reserve. On each Distribution
Date, the Disbursing Agent shall reserve from distribution
in the Disbursement Reserve a sufficient amount of Cash, the
Cash Portion, New Notes, New Common Stock and Warrants, as
the case may be, to satisfy the Face Amount of any Disputed
Claims then outstanding, the Face Amount of any other Claims
for which the applicable Bar Date has not then passed and
any additional distributions to be made to the holders of
Allowed Class 8 Old Equity Interests.
(e) Minimum Size of Distributions.
Notwithstanding any provision to the contrary contained
herein, except in the case of the final Distribution Date
and unless the Board of Directors of the Reorganized MGRE
determines otherwise, no distributions shall be made on any
Semi-Annual Distribution Date unless and until the aggregate
value of Cash and property to be distributed on such
Distribution Date exceeds $5,000,000, and any such
distributions shall be postponed until the next Semi-Annual
Distribution Date on which such minimum distribution levels
are reached. In the event that any Semi-Annual Distribution
Date is postponed as provided in this Section, the
Reorganized Company shall notify the holder of Claims and
Old Equity Interests of such postponement by placing an
advertisement to that effect in The Washington Post and The
Wall Street Journal within ten (10) days of such postponed
Semi-Annual Distribution Date and any such postponement
shall be disclosed by the Reorganized Company in the next
periodic filing made by the Reorganized MGRE with the
Securities and Exchange Commission.
(f) Minimum Exercise Period for Warrants. In the
event that on any Distribution Date, Warrants are
distributed to holders of Allowed Class 8 Old Equity
Interests for which the exercise period: (i) shall have
expired in accordance with their terms; or (ii) shall expire
in accordance with their terms within ninety (90) days
following such Distribution Date, then notwithstanding
anything to the contrary contained in the Warrants, each
Warrant shall be exercisable for ninety (90) days following
such Distribution Date.
<PAGE>
5.4 Cancellation of Existing Securities. On the
Effective Date: (a) the Old Common Stock, the Old Stock
Options and the Shareholders Rights Agreement, and any
rights arising thereunder, shall be deemed cancelled without
further act or action under any applicable agreement, law,
regulation, order or rule; (b) the obligations of MGRE under
the Old Common Stock, Old Stock Options and the Shareholder
Rights Agreement shall be discharged; and (c) the rights of
the holders of such Old Common Stock, Old Stock Options and
other rights from and after such date shall be governed by,
and shall exist only as provided in, the Plan.
5.5 Issuance of New Common Stock. On the Effective
Date, the Reorganized MGRE shall be authorized to issue [ ]
million shares of New Common Stock, of which [ ] million
shares will be issued to the Disbursing Agent for
distribution to holders of Allowed Class 4 Claims and Old
Common Stock pursuant to the Plan. All shares of New Common
Stock shall bear the same rights and privileges and shall
not bear any restrictive legends on the stock certificates.
5.6 Distribution Record Date. The Distribution Record
Date shall be the date for determining the holders of
Allowed Claims and Allowed Old Equity Interests entitled to
receive distributions provided under the Plan. For the
purpose of making distributions under the Plan, the transfer
ledger in respect of the Old Equity Interests shall be
closed as of the Distribution Record Date, and the
Disbursing Agent and its agents shall be entitled to
recognize and deal for all purposes herein with only those
holders of record stated on the transfer ledger maintained
by the stock transfer agent for the Old Equity Interests as
of the Distribution Record Date, unless otherwise agreed to
by the Disbursing Agent and a holder.
5.7 Surrender of Notes, Instruments and Securities.
As a condition to receiving distributions provided for by
the Plan, each holder of a promissory note, share
certificate or other instrument evidencing a Claim or Old
Equity Interest shall surrender such promissory note, share
certificate or instrument to the Debtors or the Disbursing
Agent. All promissory notes, share certificates and other
instruments surrendered pursuant to the preceding sentence
shall be marked "Compromised and Settled as provided in the
Debtors' Plan or Reorganization." Unless waived by the
Debtors or the Disbursing Agent, any person seeking the
benefits of being a holder of an Allowed Claim or Old Equity
Interest evidenced by a promissory note, share certificate
or other instrument, who fails to surrender such promissory
note, share certificate or other instrument must: (a)
establish the unavailability of such promissory note, share
certificate or other instrument to the reasonable
satisfaction of the Debtors and the Disbursing Agent; and
(b) provide an indemnity bond in form and amount acceptable
to the Debtors or the Disbursing Agent from and against any
and all damages, liabilities and costs incurred as a result
of treating such Entity as a holder of an Allowed Claim or
Old Equity Interest, except that holders that are investment
companies, investment partnerships, commercial banks or
broker-dealers, in each case having a net worth in excess of
<PAGE>
$10,000,000, may provide an unsecured indemnification.
Thereafter, such Entity shall be treated as a holder of an
Allowed Claim or Old Equity Interest, as applicable, for all
purposes under the Plan. Notwithstanding the foregoing, any
holder of a promissory note, share certificate or other
instrument evidencing a Claim or Old Equity Interest that
fails within three years of the Effective Date to surrender
to the Debtors or the Disbursing Agent such note, share
certificate or other instrument, or alternatively, to
satisfy the requirements of the third sentence of this
Section 5.9, shall be deemed to have forfeited all rights
and Claims against, and Old Equity Interests in, the Debtors
and shall not be entitled to receive any distribution under
the Plan.
5.8 New Stock Option Plan. The Reorganized Company
shall reserve shares of New Common Stock, representing (i)
with respect to management and employees, an amount equal to
five percent (5%) of the New Common Stock to be issued under
the Plan, and (ii) with respect to current employees of the
Reorganized Company as of the Effective Date, an additional
amount not to exceed one percent (1%) of the New Common
Stock, in each case, after the exercise of all of the New
Stock Options. All decisions regarding the granting of
options, the pricing of the options (which shall not be less
than the fair market value of the New Common Stock on the
date of grant), the term of the options (which shall not
exceed ten years), and the exercise of the options (which
shall not be permitted to occur sooner than six months from
the date of grant) will be made by the board of directors
(or a Committee thereof) of the Reorganized Company in
compliance with Rule 16b-3 under the Securities Exchange Act
of 1934. The Plan and Disclosure Statement shall be deemed
a solicitation to the holders of Old Common Stock and/or the
holders of New Common Stock for approval of the New Stock
Option Plan and the Confirmation Order shall constitute
approval of the New Stock Option Plan for purposes of Rule
16b-3 under the Securities Exchange Act of 1934.
5.9 Securities Exchange Listings. The Reorganized
MGRE shall use its best efforts to cause the New Common
Stock, the New Notes and the Warrants to be listed on one or
more national securities exchanges.
5.10 Registration Rights. The Reorganized MGRE shall
enter into a registration rights agreement for the benefit
of each holder of not less than 10% of the New Common Stock,
which agreement shall be in substantially the form attached
as Exhibit G to the Plan.
Article VI. Substantive Consolidation; Corporate
Restructuring.
6.1 MGRD. Any holder of an Allowed Claim against MGRD
shall be deemed to have a single Allowed Claim, subject to
the provisions of the Plan, against MGRE to the same extent,
in the same priority and for the same amount as that
holder's Allowed Claim against MGRD, except to the extent
any such Claim is duplicative of a Claim of the holder
against MGRE. Any such duplicative Claim, however arising,
shall be
<PAGE>
disallowed to the full extent of any duplication.
Notwithstanding the foregoing treatment of Claims, MGRD
shall not be merged into MGRE, and MGRD shall maintain its
separate corporate existence. On the Effective Date, all
property of the Estate of MGRD shall become property of MGRD
and ownership of such property shall be vested in MGRD, free
and clear of all Liens, encumbrances and Claims. On the
Effective Date, for purposes of effectuating this Section
6.1, MGRE or the Reorganized MGRE, as the case may be, shall
satisfy any such Allowed Claims to the extent such claims
are asserted against MGRE and shall acquire any such Allowed
Claims against MGRD in consideration for the payment of the
consideration to be paid in respect of such Allowed Claims
pursuant to the Plan, and shall contribute such acquired
Allowed Claims to the capital of MGRD.
6.2 Worths and Merging Chess Kings.
(a) The Confirmation Order shall provide for:
(i) the merger of Worths and each of the Merging Chess Kings
to the extent such Entities are not Debtors into MGRE; and
(ii) the substantive consolidation of the Estates of Worths
(to the extent it becomes a Debtor) and the Merging Chess
King Debtors with the Estate of MGRE, and the merger of
Worths and the Merging Chess King Debtors, into MGRE, in
each case with MGRE being the surviving corporation, subject
to the provisions of the Plan.
(b) As a result of the merger of (or to the
extent applicable, substantive consolidation of the Estates
of) the Merging Chess Kings and Worths with MGRE:
(i) all shares of stock of each of the
Merging Chess Kings and Worths shall be extinguished;
(ii) with respect to each of the Merging
Chess King Debtors and Worths (to the extent it becomes a
Debtor), after substantive consolidation, any holder of an
Allowed Claim against any of such Merging Chess King Debtors
or Worths shall be deemed to have a single Allowed Claim,
subject to the provisions of the Plan, against MGRE to the
same extent and for the same amount as that holder's Allowed
Claim against the Merging Chess King Debtors or Worths, as
applicable, except to the extent any such Claim is
duplicative of a Claim of the holder against MGRE. Any such
duplicative Claim, however arising, shall be Disallowed to
the full extent of any duplication; and
(iii) all property of the Merging Chess
Kings and Worths (including the property of the Estates of
such entities which are or become Debtors) shall become
property of the Reorganized MGRE and the ownership of such
property shall be vested in the Reorganized MGRE upon the
Effective Date, free and clear of all Liens, encumbrances
and Claims.
<PAGE>
6.3 Liquidating Chess King Debtors; Fairground
(Liquidating Debtors). The Reorganized MGRE shall have the
authority to take such steps as are necessary to liquidate
the assets of the Liquidating Debtors, upon such terms as
the board of directors of the Reorganized MGRE deems
appropriate. As to each of the Liquidating Debtors,
following liquidation, all proceeds of such liquidation
shall first be used to satisfy any Allowed Claims against
such Liquidating Debtor, with any remaining proceeds
distributed to the Reorganized MGRE. Following the
completion of such liquidation, the Reorganized MGRE shall
take such steps as are necessary to dissolve each of the
Liquidating Debtors in accordance with applicable non-
bankruptcy law.
6.4 Liquidating Chess King Nondebtors; Hollywood;
Suntan; Liquidating MGRE 1000's.
Upon the Effective Date, the Reorganized MGRE
shall have the authority to take such steps as are necessary
to liquidate the assets of the Liquidating Chess King
Nondebtors, Hollywood, Suntan and the Liquidating MGRE
1000's, upon such terms as the board of directors of the
Reorganized MGRE deems appropriate. Following such
liquidation, as to each Entity, all proceeds of such
Entity's liquidation shall first be used to satisfy any
obligations of such Entity to its separate creditors, if
any, to the extent of such proceeds. Following the
completion of such liquidation, the Reorganized MGRE shall
take such steps as are necessary to dissolve each of the
Liquidating Chess King Nondebtors, Hollywood, Suntan and the
Liquidating MGRE 1000's in accordance with applicable non-
bankruptcy laws.
6.5 Surviving MGRE 1000's. Notwithstanding any other
provision of the Plan to the contrary, MGRE 1001, Inc., MGRE
1005, Inc. and MGRE 1006, Inc. shall not be merged into the
Reorganized MGRE, and shall each maintain its respective
separate corporate existence as a Subsidiary of the
Reorganized MGRE.
6.6 Effectiveness of Consolidation and Restructuring.
The matters provided in this Article VI shall be effective
on the Effective Date.
Article VII. Executory Contracts and Unexpired Leases.
7.1 Assumption or Rejection of Executory Contracts and
Unexpired Leases.
(a) Executory Contracts and Unexpired Leases of
Personal Property. All executory contracts and unexpired
leases of personal property that exist between a Debtor and
any Entity shall be deemed rejected as of the Effective
Date, except for any executory contract: (i) that has been
assumed pursuant to an order of the Bankruptcy Court entered
prior to the Confirmation Date; (ii) as to which a motion
for approval of the assumption of such executory contract
has been Filed prior to the Confirmation Date; or (iii) that
is assumed pursuant to the Plan because such executory
contract is set forth in
<PAGE>
Schedule 8 annexed hereto. The insurance policies set forth
in Schedule 9 annexed hereto and any agreements, documents
or instruments relating thereto, including, without
limitation, any retrospective premium rating plans relating
to such policies, are treated as executory contracts under
the Plan and are hereby assumed pursuant to Section 365(a)
of the Bankruptcy Code. Nothing contained herein shall
constitute a waiver of any claim, right or cause of action
that a Debtor may hold against any party to any executory
contract with a Debtor, including the insurer under any
policy of insurance.
(b) Unexpired Real Property Leases. All
unexpired real property leases that exist between a Debtor
and any Entity shall be deemed assumed as of the Effective
Date, except for any unexpired lease: (i) that has been
rejected pursuant to an order of the Bankruptcy Court
entered prior to the Confirmation Date; (ii) as to which a
motion for approval of the rejection of such lease has been
Filed prior to the Confirmation Date; or (iii) that is
rejected pursuant to the Plan because such unexpired lease
is set forth in Schedule 10 annexed hereto. Nothing
contained herein shall constitute a waiver of any claim,
right or cause of action that a Debtor may hold against a
lessor.
(c) Approval of Assumption or Rejection of Leases
and Contracts. Entry of the Confirmation Order shall
constitute: (i) the approval, pursuant to Section 365(a) of
the Bankruptcy Code, of the assumption of those executory
contracts and unexpired leases assumed pursuant to the Plan;
and (ii) the approval, pursuant to Section 365(a) of the
Bankruptcy Code, of the rejection of those executory
contracts and unexpired leases rejected pursuant to the
Plan. Notwithstanding anything contained herein to the
contrary, the Debtors shall have the right to amend
Schedules 8, 9 and 10 to add or delete any executory
contract or unexpired lease at any time prior to the
Confirmation Date.
(d) Cure of Defaults. On the Effective Date or
as soon thereafter as is practicable, the Reorganized
Company shall cure any and all defaults under any executory
contract or unexpired lease assumed pursuant to the Plan in
accordance with Section 365(b) of the Bankruptcy Code.
(e) Executory Contracts and Unexpired leases
Entered into After the Applicable Petition Date. Executory
contracts and unexpired leases entered into and other
obligations incurred after the applicable Petition Date by a
Debtor shall be performed by such Debtor or the Reorganized
Company, as applicable, in the ordinary course of its
business. Accordingly, such executory contracts, unexpired
leases and other obligations shall survive and remain
unaffected by entry of the Confirmation Order.
(f) Bar Date for Filing Proofs of Claim Relating
to Executory Contracts and Unexpired Leases Rejected
Pursuant to the Plan. Any and all proofs of Claim arising
out of the rejection of an executory contract or unexpired
lease pursuant to this Article VII must be Filed with the
Bankruptcy Court within thirty (30) days after notice of
entry of the Confirmation Order. Any holder of a Claim
arising out of the
<PAGE>
rejection of an executory contract or unexpired lease who
fails to File a proof of Claim within such time shall be
forever barred, estopped and enjoined from asserting such
Claim against the Debtors, the Estates, the Reorganized
Company and their respective property. Unless otherwise
ordered by the Bankruptcy Court, all Claims arising from the
rejection of executory contracts and unexpired leases shall
be treated as Unsecured Claims under the Plan.
7.2 Indemnification. For purposes of the Plan, the
obligation of the Debtors and the Reorganized Company to
indemnify, reimburse or limit the liability of its current
and former directors, officers and employees, respectively,
against any obligations, pursuant to the Debtors' respective
certificate or articles of incorporation, bylaws, applicable
state law or specific agreement, or any combination of the
foregoing, shall survive confirmation of the Plan, remain
unaffected thereby, and shall not be discharged,
irrespective of whether indemnification, reimbursement or
limitation of liability is owed in connection with an event
occurring on or after the applicable Petition Date.
7.3 Compensation and Benefit Programs. The employment
and severance practices and policies, and the compensation
and benefit plans, policies and programs of each Debtor
applicable to its directors, officers and employees,
including, without limitation, the savings plans, retirement
plans, health care plans, benefit plans, incentive plans,
and life, disability and other insurance plans, as set forth
on Schedule 11 to the Plan, and excluding expressly the Old
Stock Option plan are treated as executory contracts under
the Plan and are hereby assumed pursuant to Section 365(a)
of the Bankruptcy Code.
7.4 Retiree Benefits. Payments, if any, due to any
person for the purpose of providing or reimbursing payments
for retired employees and their spouses and dependents for
medical, surgical or hospital care benefits, or benefits in
the event of sickness, accident, disability or death under
any plan, fund or program (through the purchase of insurance
or otherwise) maintained or established in whole or in part
by a Debtor prior to the applicable Petition Date shall be
continued for the duration of the period such Debtor is
obligated to provide such benefits.
Article VIII. Corporate Governance of the Reorganized
Company.
8.1 Board of Directors. On and after the Effective
Date, the management, control and operation of the
Reorganized Company shall become the responsibility of the
board of directors of the Reorganized MGRE. Notwithstanding
anything contained herein to the contrary, the board of
directors of the Reorganized MGRE on the Effective Date
shall be composed of seven (7) members, two (2) of which
shall be designated by the Equity Committee and five (5) of
which shall be designated based upon the mutual
<PAGE>
agreement of the Creditors' Committee, Fidelity and Bear
Stearns, provided, that the two (2) members designated by
the Equity Committee must be reasonably satisfactory to the
Creditors' Committee, Bear Stearns and Fidelity. Provided
no changes of control of the Reorganized MGRE has occurred
as determined in accordance with the Amended Bylaws, each
member of the initial Board of Directors of the Reorganized
MGRE shall be nominated for reelection at the next two (2)
consecutive annual meetings of shareholders of the
Reorganized MGRE, except in the case of death, permanent
disability, removal for cause or unwillingness to serve, and
the Amended Bylaws shall provide for such nomination. In
addition, the Board of Directors shall designate a
subcommittee of its members for the purpose of overseeing
the resolution of Disputed Claims; provided that at least
one member of such subcommittee shall be a member of the
Board of Directors designated by the Equity Committee.
8.2 Officers. The officers of MGRE immediately prior
to the Effective Date shall serve as the initial officers of
the Reorganized MGRE on and after the Effective Date in
accordance with any employment agreement with the
Reorganized MGRE and applicable nonbankruptcy law. Any
employment agreement between a current officer and a Debtor
that either: (a) has been assumed by such Debtor pursuant
to Section 365 of the Bankruptcy Code; or (b) has been
entered into by and between such officer and such Debtor
subsequent to the applicable Petition Date, shall be deemed
an employment agreement with the Reorganized MGRE, subject
to the terms of the Plan. This provision shall not modify
or affect the agreement between MGRE and Meridian Ventures,
Inc. approved by the Bankruptcy Court pursuant to an order
entered on January 6, 1995.
8.3 No Corporate Action Required. As of the Effective
Date and notwithstanding any otherwise applicable non-
bankruptcy laws: (a) the adoption of the Amended Charter and
Amended Bylaws or regulations or similar constituent
documents for the Reorganized Company; (b) the initial
selection of directors and officers for the Reorganized
Company; (c) the distribution of Cash and the issuance and
distribution of the Notes, the New Common Stock and the
Warrants; (d) the adoption, execution, delivery and
implementation of all contracts, leases, instruments,
releases and other agreements related to or contemplated by
the Plan, including but not limited to the New Stock Option
Plan; (e) the merger or dissolution of any Subsidiary
pursuant to the Plan; and (f) other matters provided for
under or in furtherance of the Plan involving corporate
action to be taken by or required of a Debtor or the
Reorganized Company, shall be deemed to have validly
occurred and be effective as provided herein, and shall be
authorized, ratified and approved in all respects without
further order of the Bankruptcy Court or any requirement of
further action by stockholders or directors of a Debtor or
the Reorganized Company.
8.4 Amended Charter and Bylaws. As of the Effective
Date, the certificate of incorporation and bylaws of the
Reorganized Company shall be amended and restated
substantially in the forms of the Amended Charter and
Amended Bylaws.
<PAGE>
Article IX. Title to Property; Discharge; Injunction.
9.1 Revesting of Assets. Subject to the provisions of
the Plan: (a) the property of the Estates of each of the
Debtors other than MGRD, MGRR, Fairground and the
Liquidating Chess King Debtors shall vest or revest in the
Reorganized MGRE on the Effective Date, (b) the property of
the Estate of MGRD shall revest in the reorganized MGRD on
the Effective Date, and (c) the property of the Estate of
MGRR shall revest in MGRR on the Effective Date. As of the
Effective Date, all such property of the Debtors shall be
free and clear of all Liens, Claims and Old Equity Interests
of holders thereof, except as otherwise provided herein.
From and after the Effective Date, the Reorganized Company
may operate its business, and may use, acquire and dispose
of its property free of any restrictions on the Bankruptcy
Code, except as otherwise provided in the Plan.
9.2 Discharge of Debtors. Except as provided in the
Plan or the Confirmation Order, the rights afforded under
the Plan and the treatment of Claims and Old Equity
Interests under the Plan shall be in exchange for and in
complete satisfaction, discharge and release of all Claims
and termination of all Old Equity Interests, including any
interest accrued on Claims from the applicable Petition
Date. Except as provided in the Plan or the Confirmation
Order, the entry of the Confirmation Order shall, as of the
Effective Date: (a) discharge the Debtors, other than Fair
ground and the Liquidating Chess Kings, from all Claims, and
other debts or obligations that arose before the
Confirmation Date, and all debts of the kind specified in
Sections 502(g), 502(h) or 502(i) of the Bankruptcy Code,
whether or not: (i) a proof of Claim based on such debt is
Filed or deemed Filed pursuant to Section 501 of the
Bankruptcy Code; (ii) a Claim based on such debt is allowed
pursuant to Section 502 of the Bankruptcy Code; or (iii) the
holder of a Claim based on such debt has accepted the Plan;
and (b) terminate all Old Equity Interests and other rights
of equity security holders in the Debtors, other than
Fairground and the Liquidating Chess Kings.
9.3 Injunction. Except as provided in the Plan or the
Confirmation Order, as of the Effective Date, all Entities
that have held, currently hold or may hold a Claim or other
debt or liability that is discharged or an Old Equity
Interest or other right of an equity security holder that is
terminated pursuant to the terms of the Plan are permanently
enjoined from taking any of the following actions on account
of any such discharged Claims, debts or liabilities or
terminated Old Equity Interests or rights: (a) commencing or
continuing in any manner any action or other proceeding
against a Debtor, the Estates, the Reorganized Company or
their respective property; (b) enforcing, attaching,
collecting or recovering in any manner any judgment, award,
decree or order against any Debtor, the Estates, the
Reorganized Company or their respective property; (c)
creating, perfecting or enforcing any Lien or encumbrance
against any Debtor, the Estates, the Reorganized Company or
their respective property; (d) asserting a setoff, right of
<PAGE>
subrogation or recoupment of any kind against any debt,
liability or obligation due to any Debtor, the Estates, the
Reorganized Company or their respective property; and (e)
commencing or continuing any action, in any manner, in any
place, that does not comply with or is inconsistent with the
provisions of the Plan; provided, however, that each holder
of a Disputed Claim may continue to prosecute its proof of
Claim in the Bankruptcy Court or such other court to which
the matter may be referred in the manner provided in the
Plan, and all holders of Claims and Old Equity Interests
shall be entitled to enforce their rights under the Plan.
Article X. Conditions Precedent to Confirmation and
Effectiveness of the Plan.
10.1 Condition to Confirmation. It is a condition to
the confirmation of the Plan that: (a) the Reorganized
Company shall have obtained a commitment for post-Effective
Date financing (b) notice of a Confirmation Hearing is made
by no later than September 5, 1995; and (c) the Bankruptcy
Court shall enter the Confirmation Order no later than
October 2, 1995.
10.2 Conditions to Effectiveness. The Plan shall not
become effective unless and until each of the following
conditions shall have been satisfied or waived:
(a) The Confirmation Order shall have been
entered in form and substance satisfactory to MGRE and all
of the Stakeholders, unless the Confirmation Order has been
stayed, in which case the Effective Date shall occur as soon
as practicable, but in no event later than thirty (30) days
after: (i) the date of the entry of an order vacating any
such stay pending appeal of the Confirmation Order; or (ii)
the date on which any such stay expires or is no longer in
effect;
(b) All conditions to the making of advances
under the post-Effective Date financing referred to in
Section 10.1(a) shall have been satisfied or waived as
provided in the documentation for such financing;
(c) An Estimated Claims Order shall have been
entered, in form and substance acceptable to all of the
Stakeholders, estimating the maximum amount of Disputed
Claims and any other Claims for which the applicable Bar
Date has not then passed, for the purpose of determining the
amount of property to be placed in the Disbursement Reserve;
(d) The New Indenture shall have been duly
qualified by the Securities and Exchange Commission under
the Trust Indenture Act of 1939, as amended;
(e) The Effective Date shall have occurred no
later than October 31, 1995; and
<PAGE>
(f) All indentures, mortgages, security
agreements and other agreements and instruments to be
delivered under or necessary to effectuate the Plan, shall
have been executed and delivered.
10.3 Waiver of Conditions. MGRE and all of the
Stakeholders may waive, by a writing signed by their
respective authorized representatives and served pursuant to
Administrative Order No. 1, as amended, entered in the
Chapter 11 Cases, one or more of the conditions to
confirmation and effectiveness of the Plan set forth in
Sections 10.1 and 10.2 of the Plan; provided, however, the
conditions to Confirmation set forth in Section 10.1(a) may
be waived by a majority in number of MGRE and the
Stakeholders.
10.4 Effect of Failure of Condition. In the event that
a condition specified in Section 10.2 has not been satisfied
within ninety (90) days after the Confirmation Date, the
Debtors or any of the Stakeholders may seek, upon notice to
the service list established by Administrative Order No. 1,
as amended, in accordance with the Bankruptcy Code and the
Bankruptcy Rules, to vacate the Confirmation Order;
provided, however, if the Effective Date has not occurred by
October 31, 1995, then the Confirmation Order shall be
vacated unless otherwise agreed by the Debtors and all of
the Stakeholders. In the event that the Bankruptcy Court
vacates the Confirmation Order: (a) the Debtors and all
holders of Claims and Old Equity Interests shall be restored
to the status quo ante as of the day immediately preceding
the Confirmation Date as though the Confirmation Date had
never occurred; and (b) all of the Debtors' obligations with
respect to the Claims and Old Equity Interests shall remain
unchanged and nothing contained herein shall be deemed to
constitute a waiver or release of any Claims by or against
the Debtors or any other person or to prejudice in any
manner the rights of the Debtors or any other person in any
further proceedings involving the Debtors.
Article XI. Confirmation Without Acceptance by all Impaired
Classes.
11.1 Confirmability of the Plan. The confirmation
requirements of Section 1129 of the Bankruptcy Code must be
satisfied with respect to the Debtors and the Plan. If the
Bankruptcy Court determines that any provisions of the Plan
are prohibited by the Bankruptcy Code, or render the Plan
unconfirmable under Section 1129 of the Bankruptcy Code, the
Plan Proponents reserve the right to sever such provisions
with the consent of Fidelity and Bear Stearns, and to
request that the Plan, as so modified, be confirmed.
11.2 Cramdown. In the event that any impaired Class of
Claims (other than Unsecured Claims) or Old Equity Interests
shall fail to accept the Plan in accordance with Section
1129(a) of the Bankruptcy Code, the Plan Proponents may
utilize the provisions in Section 1129(b) of the Bankruptcy
Code to satisfy the requirement for confirmation of the
Plan.
<PAGE>
Article XII. Releases.
12.1 Release by Holders of Claims and Old Equity
Interests. As of the Effective Date, and in consideration
of the property to be distributed to or on behalf of holders
of Allowed Claims and Old Equity Interests pursuant to the
Plan, such holders of Claims and Old Equity Interests shall
be deemed to have released the Debtors, the Reorganized
Company, the Stakeholders, and each of their respective
agents, Affiliates, members, advisors, retained
professionals, representatives, shareholders, officers and
directors of and from any and all Claims, causes of action,
obligations, rights and liabilities (other than the right to
enforce the Debtors' or the Reorganized Company's
obligations under the Plan) that such holder may be entitled
to assert, whether known or unknown, foreseen or unforeseen,
then existing or thereafter arising, based in whole or in
part upon any act, omission or other occurrence taking place
on or prior to the Effective Date in any way relating to the
Debtors, the Chapter 11 Cases or the Plan.
Article XIII. Retention of Jurisdiction.
13.1 Jurisdiction. Notwithstanding the entry of the
Confirmation Order and the occurrence of the Effective Date,
the Bankruptcy Court shall retain such jurisdiction over the
Chapter 11 Cases after the Effective Date as is legally
permissible, including jurisdiction to:
(a) Allow, disallow, determine, liquidate,
classify, estimate or establish the priority or secured or
unsecured status of any Claim, including the resolution of
any request for payment of any Administrative Claim and the
resolution of any and all objections to the allowance or
priority of Claims;
(b) Grant or deny any applications for allowance
of compensation or reimbursement of expenses authorized
pursuant to the Bankruptcy Code or the Plan, for periods
ending on or before the Effective Date;
(c) Resolve any matters related to the
assumption, assumption and assignment, or rejection of any
executory contract or unexpired lease to which a Debtor is a
party or with respect to which a Debtor may be liable and to
hear, determine and if necessary liquidate, any Claims
arising therefrom or cure amounts related thereto;
(d) Ensure that distributions to holders of
Allowed Claims and Allowed Old Equity Interests are
accomplished pursuant to the provisions of the Plan;
(e) Decide or resolve any motions, adversary
proceedings, contested or litigated matters and any other
matters and grant or deny any applications involving a
Debtor that may be pending on the Effective Date;
<PAGE>
(f) Enter such orders as may be necessary or
appropriate to implement or consummate the provisions of the
Plan and all contracts, instruments, releases and other
agreements or documents created in connection with the Plan
or the Disclosure Statement, except as otherwise provided
herein;
(g) Resolve any cases, controversies, suits or
disputes that may arise in connection with the consummation,
interpretation or enforcement of the Plan or any Entity's
obligations incurred in connection with the Plan;
(h) To the extent authorized by the Bankruptcy
Code, modify the Plan before or after the Effective Date
pursuant to Section 1127 of the Bankruptcy Code or modify
the Disclosure Statement or any contract, instrument,
release or other agreement or document created in connection
with the Plan or the Disclosure Statement; or remedy any
defect or omission or reconcile any inconsistency in any
Bankruptcy Court order, the Plan, the Disclosure Statement
or any contract, instrument, release or other agreement or
document created in connection with the Plan or the
Disclosure Statement, in such manner as may be necessary or
appropriate to consummate the Plan;
(i) Issue injunctions, enter and implement other
orders or take such other actions as may be necessary or
appropriate to restrain interference by any Entity with
consummation or enforcement of the Plan, except as otherwise
provided herein;
<PAGE>
(j) Enter and implement such orders as are
necessary or appropriate if the Confirmation Order is for
any reason modified, stayed, reversed, revoked or vacated;
(k) Determine any other matters that may arise in
connection with or relate to the Plan, the Disclosure
Statement, the Confirmation Order or any contract,
instrument, release or other agreement or document created
in connection with the Plan or the Disclosure Statement,
except as otherwise provided herein; and
(l) Enter an order concluding the Chapter 11
Cases.
Article XIV. Rights and Obligations of the Disbursing
Agent.
14.1 Powers and Duties of the Disbursing Agent. The
Disbursing Agent shall be empowered and directed to exercise
such powers as may be vested in the Disbursing Agent
pursuant to the Disbursement Agreement, the Plan or the
order of the Bankruptcy Court appointing such Disbursing
Agent.
Article XV. Miscellaneous.
15.1 Effectuating Documents; Further Transactions;
Timing. Each of the officers of the Debtors and the
Reorganized Company is authorized to execute, deliver, file
or record such contracts, instruments, releases and other
agreements or documents and to take such actions as may be
necessary or appropriate to effectuate and further evidence
the terms and conditions of the Plan and any securities
issued pursuant to the Plan. All transactions that are
required to occur on the Effective Date under the terms of
the Plan shall be deemed to have occurred simultaneously.
15.2 Exemption from Transfer Taxes. Pursuant to
Section 1146(c) of the Bankruptcy Code, the issuance,
transfer or exchange of property, including, without
limitation, equity securities, under the Plan shall not be
subject to any stamp, real estate, transfer, mortgage,
recording or other similar tax.
15.3 Exculpation. The Reorganized Company, the
Debtors, each of the Stakeholders and each of their
respective officers, directors, employees, agents,
Affiliates, members, retained professionals and
representatives, are hereby exculpated by all Entities from
any and all acts or omissions, claims, causes of action and
other assertions of liability (including breach of fiduciary
duty) in connection with or arising out of confirmation or
consummation of the Plan, the administration of the Plan,
the property to be distributed under the Plan or otherwise
in connection with the Chapter 11 Cases, except for willful
misconduct or gross negligence, and in all respects, shall
be entitled to rely upon the advice of counsel with respect
to their duties and responsibilities under the Plan.
<PAGE>
15.4 Modifications. The Plan and the Plan Documents
may be altered, amended or modified by the Debtors before or
after the Confirmation Date as permitted under Section 1127
of the Bankruptcy Code or as provided in Bankruptcy Rule
3019; provided, however, that the Stakeholders have
consented to each such alteration, amendment or modification
in writing.
15.5 Revocation or Withdrawal of the Plan. The Plan
Proponents acting unanimously and with the written consent
of Fidelity and Bear Stearns reserve the right to revoke or
withdraw the Plan at any time prior to the Confirmation
Date; provided that any of the Plan Proponents, acting
individually and without the need for consent by Fidelity or
Bear Stearns, may revoke or withdraw the Plan at any time
after October 2, 1995, if the Confirmation Date has not
occurred by such date. If the Plan Proponents, with the
written consent of Fidelity and Bear Stearns, revoke or
withdraw the Plan as provided above, then the Plan shall be
deemed null and void and nothing contained herein shall be
deemed to constitute a waiver of any Claims by or against a
Debtor or any other Entity or shall prejudice in any manner
the rights of the Debtors or any Entity in any further
proceedings involving the Debtors. Notwithstanding the
foregoing, any Plan Proponent may at any time, without the
consent of any other Entity, withdraw as a Plan Proponent.
15.6 Severability. Should any provision in the Plan be
determined to be unenforceable following the Effective Date,
such determination shall in no way limit the enforceability
and operative effect of any and all other provisions of the
Plan.
15.7 Binding Effect. The Plan shall be binding upon,
and shall inure to the benefit of, the Debtors, the holders
of all Claims and Old Equity Interests and their respective
successors, legal representatives and assigns.
15.8 Construction. The rules of construction set forth
in Section 102 of the Bankruptcy Code shall apply to
construction of the Plan.
15.9 Time. In computing any period of time prescribed
or allowed by the Plan, unless otherwise set forth herein,
the provisions of the Bankruptcy Rule 9006 shall apply.
15.10 Headings. The headings used in the Plan are
inserted for convenience only and neither constitute a
portion of the Plan nor are intended in any manner to affect
any interpretation of the provisions of the Plan.
15.11 Governing Law. Except to the extent that the
Bankruptcy Code or other federal law is applicable or a Plan
Document expressly provides otherwise, the duties and
obligations of the Debtors and any other Entity arising
under the Plan shall be governed by, and construed and
enforced in accordance with, the internal laws of the State
of Maryland.
<PAGE>
15.12 Notices. Any notice required or permitted to
be provided under the Plan shall be in writing and served by
either: (a) certified mail, return receipt requested,
postage prepaid; (b) hand-delivery; or (c) reputable
overnight courier service, freight prepaid, to be addressed
as follows:
If to the Debtors, to:
Merry-Go-Round Enterprises, Inc.
3300 Fashion Way
Joppa, Maryland 21085
Attention: Thomas C. Shull
with a copy to:
Swidler & Berlin, Chartered
3000 K Street, N.W., Suite 300
Washington, D.C. 20007
Attention: Roger Frankel, Esq.
If to the Creditors' Committee, to:
R. Jerry Scheel, Chairman
Aid Association for Lutherans
222 West College Avenue
Appleton, Wisconsin 54919-0001
with a copy to:
Thomas E. Biron, Esq.
Blank Rome Comisky & McCauley
Four Penn center Plaza, 10th Floor
Philadelphia, Pennsylvania 19103
and
Brooke Schumm, III, Esq.
Semmes Bowen & Semmes
250 West Pratt Street
Baltimore, Maryland 21201
<PAGE>
If to the Equity Committee, to:
Mr. Stephen Wertheimer, Co-Chairman
Water Capital Corporation
15 Steeple Chase
Greenwich, Connecticut 06831
and
Ms. Linda Selbach, Co-Chairman
Wells Fargo Institutional Trust Co.
45 Fremont Street
San Francisco, California 94105
with a copy to:
Stephen B. Selbst, Esq.
Berlack, Israels & Liberman
120 West 45th Street
New York, New York 10036
If to Fidelity, to:
82 Devonshire Street, F7D
Boston, Massachusetts 02109-3614
Attention: Judy K. Mencher, Vice President
with a copy to:
Bruce Zirinsky, Esq.
Weil Gotshal & Manges
767 Fifth Avenue
New York, New York 10153
If to Bear Stearns, to:
Mr. Steve Gidumal
Bear, Stearns & Co., Inc.
245 Park Avenue, Fourth Floor
New York, New York 10167
<PAGE>
with a copy to:
Patrick W. Duval, Esq.
Latham & Watkins
53rd at Third, Suite 1000
885 Third Avenue
New York, New York 10022-4068
15.13 Existence of Creditors' Committee and Equity
Committee After Effective Date. On the Effective Date, the
Creditors' Committee and the Equity Committee each shall be
deemed disbanded and the duties of the Creditors' Committee
and the Equity Committee shall be deemed discharged and
terminated, except for matters relating to fee applications
for professionals.
MERRY-GO-ROUND ENTERPRISES, INC.
By:/s/Thomas C. Shull
Thomas C. Shull,
Chairman and Chief Executive
Officer
MGR DISTRIBUTION CORPORATION
By:/s/Thomas C. Shull
Thomas C. Shull,
Chairman and Chief Executive
Officer
MGRR, INC.
By:/s/Thomas C. Shull
Thomas C. Shull,
Chairman and Chief Executive
Officer
<PAGE>
SWIDLER & BERLIN, CHARTERED
Attorneys for the Debtors
By:/s/Roger Frankel
Roger Frankel
Richard H. Wyron
3000 K Street, N.W., Suite 300
Washington, D.C. 20007
(202) 424-7500
THE OFFICIAL COMMITTEE OF
UNSECURED CREDITORS
By: /s/ R. Jerry Scheel
Name: R. Jerry Scheel
Title: Chairman
BLANK ROME COMISKY & McCAULEY
Attorneys for the Creditors'
Committee
By:/s/Thomas E. Biron
Thomas E. Biron
Four Penn Center Plaza, 10th
Floor
Philadelphia, PA 19103
(215) 569-5562
and
<PAGE>
SEMMES BOWEN & SEMMES
Attorneys for the Creditors'
Committee
By:/s/Brooke Schumm III
Brooke Schumm III
250 West Pratt Street
Baltimore, MD 21201
(410) 576-4761
THE OFFICIAL COMMITTEE OF
EQUITY SECURITY HOLDERS
By: /s/Stephen N. Wertheimer
Name: Stephen N. Wertheimer
Title: Chairman
BERLACK, ISRAELS & LIBERMAN
Attorneys for the Equity Committee
By: /s/Stephen B. Selbst
Stephen B. Selbst
120 West 45th Street
New York, New York 10036
(212) 704-0100
Schedule 1
Debtors
Merry-Go-Round Enterprises 94-5-0161-
SD
MGR Distribution Corporation 94-5-0162-SD
MGRR, Inc. 94-5-0163-SD
Almeda Chess King, Inc. 94-5-3774-SD
Echelon Chess King, Inc. 94-5-3775-SD
Esplanade Chess King, Inc. 94-5-3776-
SD
Governor's Square Chess King, Inc. 94-5-3777-
SD
Harbor/Orangethorpe Garage, Inc. 94-5-3778-
SD
Kendall Garage, Inc. 94-5-3779-
SD
<PAGE>
New Haven Chapel Square Chess King, Inc. 94-5-
3780-SD
Northwest Chess King, Inc. 94-5-3781-
SD
Philadelphia Gallery Chess King, Inc. 94-5-
3782-SD
San Jose Westgate Chess King, Inc. 94-5-3783-
SD
Tampa Bay Chess King, Inc. 94-5-3784-
SD
Whittwood Garage, Inc. 94-5-3785-SD
University San-Diego Chess King, Inc. 94-5-3874-
SD
Camp Hill Chess King, Inc. 94-5-4517-
SD
Logan Valley Chess King, Inc. 94-5-4518-SD
Nittany Chess King, Inc. 94-5-4519-SD
Lycoming Chess King, Inc. 94-5-4520-
SD
Broward Chess King, Inc. 94-5-5099-SD
Great Eastern Chess King, Inc. 94-5-5100-
SD
Carlsbad Chess King, Inc. 94-5-5101-
SD
Dover Delaware Chess King, Inc. 94-5-5102-
SD
Newport City Chess King, Inc. 94-5-5103-SD
Southgate (FL) Chess King, Inc. 94-5-5439-
SD
Alexandria Chess King, Inc. 94-5-5440-
SD
Puente Hills Chess King, Inc. 94-5-5441-
SD
Pyramid-Utica Chess King, Inc. 94-5-5442-
SD
Hadley Chess King, Inc. 94-5-5443-SD
Aviation Mall Chess King, Inc. 94-5-5444-
SD
Ithaca Mall Chess King, Inc. 94-5-5445-
SD
Texarkana Chess King, Inc. 94-5-5446-
SD
Chris-Town Chess King, Inc. 94-5-6023-
SD
Coastland Garage, Inc. 94-5-6024-
SD
Fashion Mall (FL) Chess King, Inc. 94-5-6025-
SD
Kenner Chess King, Inc. 94-5-6026-SD
Orland Park, IL. Garage, Inc. 94-5-6027-
SD
Amarillo-Westgate Chess King, Inc. 95-50162-
SD
Arlington Chess King, Inc. 95-50163-
SD
Barton Creek Square Chess King, Inc. 95-
50164-SD
Battlefield-Springfield Chess King, Inc. 95-
50165-SD
Belle Promenade Chess King, Inc. 95-50166-
SD
Bridgewater Commons Chess King, Inc. 95-50167-
SD
Brookfield Chess King, Inc. 95-50168-
SD
Chicago Yard Chess King, Inc. 95-50169-SD
Clackamas Chess King, Inc. 95-50170-
SD
Coral Square Chess King, Inc. 95-50171-
SD
Eastfield Mall Chess King, Inc. 95-50172-
SD
Eastland Chess King, Inc. 95-50173-
SD
Enfield Chess King, Inc. 95-50174-SD
Evanston Galleria Chess King, Inc. 95-50175-
SD
Everett Mall (Wash.) Chess King, Inc. 95-50176-
SD
<PAGE>
Fashion Square-Saginaw Chess King, Inc. 95-50177-
SD
Florida-Sarasota Chess King, Inc. 95-50178-
SD
Ft. Lauderdale Chess King, Inc. 95-50179-
SD
Galleria Mall Chess King, Inc. 95-
50180-SD
Garden State Chess King, Inc. 95-50181-
SD
Gurnee Mills Garage, Inc. 95-50182-
SD
Hanes Mall Chess King, Inc. 95-50183-
SD
Huntington-West VA Chess King, Inc. 95-50184-
SD
Kings Highway Chess King, Inc. 95-50185-
SD
Kitsap Mall Chess King, Inc. 95-50186-
SD
Latham Chess King, Inc. 95-50187-SD
Long Island Chess King, Inc. 95-50188-
SD
Lufkin Chess King, Inc. 95-50189-SD
Meriden Chess King, Inc. 95-50190-SD
Miami-Flagler Chess King Garage, Inc. 95-50191-
SD
Midland Park (Texas) Chess King, Inc. 95-50192-
SD
Montclair Chess King, Inc. 95-50193-
SD
Normal (IL.) Chess King, Inc. 95-50194-
SD
Omni International Chess King, Inc. 95-
50195-SD
Onondaga County Chess King, Inc. 95-50196-
SD
Oxford Valley Chess King, Inc. 95-50197-
SD
Parkway-Pitts Chess King, Inc. 95-50198-
SD
Parmatown Chess King, Inc. 95-50199-
SD
Pecanland Chess King, Inc. 95-50200-
SD
Permian Mall Chess King, Inc. 95-50201-SD
Pompano Chess King, Inc. 95-50202-SD
Pompano Garage, Inc. 95-50203-
SD
Raceway Chess King, Inc. 95-50204-SD
Rhode Island-Warwick Chess King, Inc. 95-50205-
SD
<PAGE>
Ridgmar Chess King, Inc. 95-50206-SD
Rockaway Chess King, Inc. 95-50207-
SD
Rockingham Park Chess King, Inc. 95-50208-
SD
Rosedale Chess King, Inc. 95-50209-
SD
Route 360 Arlington Chess King, Inc. 95-
50210-SD
Shoppingtown Chess King, Inc. 95-50211-SD
Southlake Chess King, Inc. 95-50214-
SD
Southridge Chess King, Inc. 95-50215-
SD
Stanford Mall Chess King, Inc. 95-50212-
SD
Sterling Heights Chess King, Inc. 95-50213-
SD
Summit Place Chess King, Inc. 95-50216-SD
Sunset Mall Chess King, Inc. 95-50217-
SD
Towne East-Wichita Chess King, Inc. 95-
50219-SD
Tri-County Chess King, Inc. 95-50218-
SD
Trumbull Park Chess King, Inc. 95-50220-
SD
Union City Chess King, Inc. 95-50221-
SD
Valley Fair Chess King, Inc. 95-50222-
SD
Valley View (TX) Chess King, Inc. 95-50223-
SD
Victoria Mall Chess King, Inc. 95-50224-
SD
Viejo Chess King, Inc. 95-50225-
SD
Washington Street Chess King, Inc. 95-50226-
SD
Wayne Hills Chess King, Inc. 95-50227-
SD
Wilton Chess King, Inc. 95-50228-SD
W. Mifflin Chess King, Inc. 95-50229-
SD
<PAGE>
Schedule 2
Bar Dates
The Bar Date for the following entities is October 14, 1994:
Merry-Go-Round Enterprises, Inc. 94-5-0161-
SD
MGR Distribution Corporation 94-5-0162-SD
MGRR, Inc. 94-5-0163-SD
The Bar Date for the following entities is October 18, 1994:
Almeda Chess King, Inc. 94-5-3774-SD
Echelon Chess King, Inc. 94-5-3775-SD
Esplanade Chess King, Inc. 94-5-3776-
SD
Governor's Square Chess King, Inc. 94-5-3777-
SD
Harbor/Orangethorpe Garage, Inc. 94-5-3778-
SD
Kendall Garage, Inc. 94-5-3779-
SD
New Haven Chapel Square Chess King, Inc. 94-5-
3780-SD
Northwest Chess King, Inc. 94-5-3781-
SD
Philadelphia Gallery Chess King, Inc. 94-5-
3782-SD
San Jose Westgate Chess King, Inc. 94-5-3783-
SD
Tampa Bay Chess King, Inc. 94-5-3784-
SD
Whittwood Garage, Inc. 94-5-3785-SD
University San-Diego Chess King, Inc. 94-5-3874-
SD
The Bar Date for the following entitites is November 15,
1994:
Camp Hill Chess King, Inc. 94-5-4517-
SD
Logan Valley Chess King, Inc. 94-5-4518-SD
Nittany Chess King, Inc. 94-5-4519-SD
Lycoming Chess King, Inc. 94-5-4520-
SD
The Bar Date for the following entity is December 11, 1994:
Fairground Entertainment, Inc. 94-5-4929-
SD
<PAGE>
The Bar Date for the following entities is December 18,
1994:
Broward Chess King, Inc. 94-5-5099-SD
Great Eastern Chess King, Inc. 94-5-5100-
SD
Carlsbad Chess King, Inc. 94-5-5101-
SD
Dover Delaware Chess King, Inc. 94-5-5102-
SD
Newport City Chess King, Inc. 94-5-5103-SD
The Bar Date for the following entities is December 27,
1994:
Southgate (FL) Chess King, Inc. 94-5-5439-
SD
Alexandria Chess King, Inc. 94-5-5440-
SD
Puente Hills Chess King, Inc. 94-5-5441-
SD
Pyramid-Utica Chess King, Inc. 94-5-5442-
SD
Hadley Chess King, Inc. 94-5-5443-SD
Aviation Mall Chess King, Inc. 94-5-5444-
SD
Ithaca Mall Chess King, Inc. 94-5-5445-
SD
Texarkana Chess King, Inc. 94-5-5446-
SD
The Bar Date for the following entities is January 24, 1995:
Chris-Town Chess King, Inc. 94-5-6023-
SD
Coastland Garage, Inc. 94-5-6024-
SD
Fashion Mall (FL) Chess King, Inc. 94-5-6025-
SD
Kenner Chess King, Inc. 94-5-6026-SD
Orland Park, IL. Garage, Inc. 94-5-6027-
SD
The Bar Date for the following entities is May 18, 1995:
Amarillo-Westgate Chess King, Inc. 95-50162-
SD
Arlington Chess King, Inc. 95-50163-
SD
Barton Creek Square Chess King, Inc. 95-
50164-SD
Battlefield-Springfield Chess King, Inc. 95-
50165-SD
Belle Promenade Chess King, Inc. 95-50166-
SD
Bridgewater Commons Chess King, Inc. 95-50167-
SD
Brookfield Chess King, Inc. 95-50168-
SD
Chicago Yard Chess King, Inc. 95-50169-SD
Clackamas Chess King, Inc. 95-50170-
SD
Coral Square Chess King, Inc. 95-50171-
SD
Eastfield Mall Chess King, Inc. 95-50172-
SD
Eastland Chess King, Inc. 95-50173-
SD
<PAGE>
Enfield Chess King, Inc. 95-50174-SD
Evanston Galleria Chess King, Inc. 95-50175-
SD
Everett Mall (Wash.) Chess King, Inc. 95-50176-
SD
Fashion Square-Saginaw Chess King, Inc. 95-50177-
SD
Florida-Sarasota Chess King, Inc. 95-50178-
SD
Ft. Lauderdale Chess King, Inc. 95-50179-
SD
Galleria Mall Chess King, Inc. 95-
50180-SD
Garden State Chess King, Inc. 95-50181-
SD
Gurnee Mills Garage, Inc. 95-50182-
SD
Hanes Mall Chess King, Inc. 95-50183-
SD
Huntington-West VA Chess King, Inc. 95-50184-
SD
Kings Highway Chess King, Inc. 95-50185-
SD
Kitsap Mall Chess King, Inc. 95-50186-
SD
Latham Chess King, Inc. 95-50187-SD
Long Island Chess King, Inc. 95-50188-
SD
Lufkin Chess King, Inc. 95-50189-SD
Meriden Chess King, Inc. 95-50190-SD
Miami-Flagler Chess King Garage, Inc. 95-50191-
SD
Midland Park (Texas) Chess King, Inc. 95-50192-
SD
Montclair Chess King, Inc. 95-50193-
SD
Normal (IL.) Chess King, Inc. 95-50194-
SD
Omni International Chess King, Inc. 95-
50195-SD
Onondaga County Chess King, Inc. 95-50196-
SD
Oxford Valley Chess King, Inc. 95-50197-
SD
Parkway-Pitts Chess King, Inc. 95-50198-
SD
Parmatown Chess King, Inc. 95-50199-
SD
Pecanland Chess King, Inc. 95-50200-
SD
Permian Mall Chess King, Inc. 95-50201-SD
Pompano Chess King, Inc. 95-50202-SD
Pompano Garage, Inc. 95-50203-
SD
Raceway Chess King, Inc. 95-50204-SD
Rhode Island-Warwick Chess King, Inc. 95-50205-
SD
Ridgmar Chess King, Inc. 95-50206-SD
Rockaway Chess King, Inc. 95-50207-
SD
Rockingham Park Chess King, Inc. 95-50208-
SD
Rosedale Chess King, Inc. 95-50209-
SD
Route 360 Arlington Chess King, Inc. 95-
50210-SD
Shoppingtown Chess King, Inc. 95-50211-SD
Southlake Chess King, Inc. 95-50214-
SD
Southridge Chess King, Inc. 95-50215-
SD
Stanford Mall Chess King, Inc. 95-50212-
SD
Sterling Heights Chess King, Inc. 95-50213-
SD
Summit Place Chess King, Inc. 95-50216-SD
<PAGE>
Sunset Mall Chess King, Inc. 95-50217-
SD
Towne East-Wichita Chess King, Inc. 95-
50219-SD
Tri-County Chess King, Inc. 95-50218-
SD
Trumbull Park Chess King, Inc. 95-50220-
SD
Union City Chess King, Inc. 95-50221-
SD
Valley Fair Chess King, Inc. 95-50222-
SD
Valley View (TX) Chess King, Inc. 95-50223-
SD
Victoria Mall Chess King, Inc. 95-50224-
SD
Viejo Chess King, Inc. 95-50225-
SD
Washington Street Chess King, Inc. 95-50226-
SD
Wayne Hills Chess King, Inc. 95-50227-
SD
Wilton Chess King, Inc. 95-50228-SD
W. Mifflin Chess King, Inc. 95-50229-
SD
<PAGE>
Schedule 3
Liquidating Chess Kings
To be provided.
<PAGE>
Schedule 4
Merging Chess Kings
To be provided.
<PAGE>
Schedule 5
MGRE 1000's
MGRE 1001, Inc.
MGRE 1002, Inc.
MGRE 1003, Inc.
MGRE 1004, Inc.
MGRE 1005, Inc.
MGRE 1006, Inc.
MGRE 1007, Inc.
<PAGE>
Schedule 6
Petition Dates
The Petition Date for the following entities is January 11,
1994:
Merry-Go-Round Enterprises, Inc. 94-5-0161-
SD
MGR Distribution Corporation 94-5-0162-SD
MGRR, Inc. 94-5-0163-SD
The Petition Date for the following entities is June 10,
1994:
Almeda Chess King, Inc. 94-5-3774-SD
Echelon Chess King, Inc. 94-5-3775-SD
Esplanade Chess King, Inc. 94-5-3776-
SD
Governor's Square Chess King, Inc. 94-5-3777-
SD
Harbor/Orangethorpe Garage, Inc. 94-5-3778-
SD
Kendall Garage, Inc. 94-5-3779-
SD
New Haven Chapel Square Chess King, Inc. 94-5-
3780-SD
Northwest Chess King, Inc. 94-5-3781-
SD
Philadelphia Gallery Chess King, Inc. 94-5-
3782-SD
San Jose Westgate Chess King, Inc. 94-5-3783-
SD
Tampa Bay Chess King, Inc. 94-5-3784-
SD
Whittwood Garage, Inc. 94-5-3785-SD
The Petition Date for the following entity is June 15, 1994:
University San-Diego Chess King, Inc. 94-5-3874-
SD
The Petition Date for the following entitites is July 14,
1994:
Camp Hill Chess King, Inc. 94-5-4517-
SD
Logan Valley Chess King, Inc. 94-5-4518-SD
Nittany Chess King, Inc. 94-5-4519-SD
Lycoming Chess King, Inc. 94-5-4520-
SD
The Petition Date for the following entity is August 2,
1994:
Fairground Entertainment, Inc. 94-5-4929-
SD
<PAGE>
The Petition Date for the following entities is August 9,
1994:
Broward Chess King, Inc. 94-5-5099-SD
Great Eastern Chess King, Inc. 94-5-5100-
SD
Carlsbad Chess King, Inc. 94-5-5101-
SD
Dover Delaware Chess King, Inc. 94-5-5102-
SD
Newport City Chess King, Inc. 94-5-5103-SD
The Petition Date for the following entities is August 23,
1994:
Southgate (FL) Chess King, Inc. 94-5-5439-
SD
Alexandria Chess King, Inc. 94-5-5440-
SD
Puente Hills Chess King, Inc. 94-5-5441-
SD
Pyramid-Utica Chess King, Inc. 94-5-5442-
SD
Hadley Chess King, Inc. 94-5-5443-SD
Aviation Mall Chess King, Inc. 94-5-5444-
SD
Ithaca Mall Chess King, Inc. 94-5-5445-
SD
Texarkana Chess King, Inc. 94-5-5446-
SD
The Petition Date for the following entities is September
19, 1994:
Chris-Town Chess King, Inc. 94-5-6023-
SD
Coastland Garage, Inc. 94-5-6024-
SD
Fashion Mall (FL) Chess King, Inc. 94-5-6025-
SD
Kenner Chess King, Inc. 94-5-6026-SD
Orland Park, IL. Garage, Inc. 94-5-6027-
SD
The Petition Date for the following entitites is January 9,
1995:
Amarillo-Westgate Chess King, Inc. 95-50162-
SD
Arlington Chess King, Inc. 95-50163-
SD
Barton Creek Square Chess King, Inc. 95-
50164-SD
Battlefield-Springfield Chess King, Inc. 95-
50165-SD
Belle Promenade Chess King, Inc. 95-50166-
SD
Bridgewater Commons Chess King, Inc. 95-50167-
SD
Brookfield Chess King, Inc. 95-50168-
SD
Chicago Yard Chess King, Inc. 95-50169-SD
Clackamas Chess King, Inc. 95-50170-
SD
Coral Square Chess King, Inc. 95-50171-
SD
Eastfield Mall Chess King, Inc. 95-50172-
SD
Eastland Chess King, Inc. 95-50173-
SD
Enfield Chess King, Inc. 95-50174-SD
<PAGE>
Evanston Galleria Chess King, Inc. 95-50175-
SD
Everett Mall (Wash.) Chess King, Inc. 95-50176-
SD
Fashion Square-Saginaw Chess King, Inc. 95-50177-
SD
Florida-Sarasota Chess King, Inc. 95-50178-
SD
Ft. Lauderdale Chess King, Inc. 95-50179-
SD
Galleria Mall Chess King, Inc. 95-
50180-SD
Garden State Chess King, Inc. 95-50181-
SD
Gurnee Mills Garage, Inc. 95-50182-
SD
Hanes Mall Chess King, Inc. 95-50183-
SD
Huntington-West VA Chess King, Inc. 95-50184-
SD
Kings Highway Chess King, Inc. 95-50185-
SD
Kitsap Mall Chess King, Inc. 95-50186-
SD
Latham Chess King, Inc. 95-50187-SD
Long Island Chess King, Inc. 95-50188-
SD
Lufkin Chess King, Inc. 95-50189-SD
Meriden Chess King, Inc. 95-50190-SD
Miami-Flagler Chess King Garage, Inc. 95-50191-
SD
Midland Park (Texas) Chess King, Inc. 95-50192-
SD
Montclair Chess King, Inc. 95-50193-
SD
Normal (IL.) Chess King, Inc. 95-50194-
SD
Omni International Chess King, Inc. 95-
50195-SD
Onondaga County Chess King, Inc. 95-50196-
SD
Oxford Valley Chess King, Inc. 95-50197-
SD
Parkway-Pitts Chess King, Inc. 95-50198-
SD
Parmatown Chess King, Inc. 95-50199-
SD
Pecanland Chess King, Inc. 95-50200-
SD
Permian Mall Chess King, Inc. 95-50201-SD
Pompano Chess King, Inc. 95-50202-SD
Pompano Garage, Inc. 95-50203-
SD
Raceway Chess King, Inc. 95-50204-SD
Rhode Island-Warwick Chess King, Inc. 95-50205-
SD
Ridgmar Chess King, Inc. 95-50206-SD
Rockaway Chess King, Inc. 95-50207-
SD
Rockingham Park Chess King, Inc. 95-50208-
SD
Rosedale Chess King, Inc. 95-50209-
SD
Route 360 Arlington Chess King, Inc. 95-
50210-SD
Shoppingtown Chess King, Inc. 95-50211-SD
Southlake Chess King, Inc. 95-50214-
SD
Southridge Chess King, Inc. 95-50215-
SD
Stanford Mall Chess King, Inc. 95-50212-
SD
Sterling Heights Chess King, Inc. 95-50213-
SD
Summit Place Chess King, Inc. 95-50216-SD
Sunset Mall Chess King, Inc. 95-50217-
SD
Towne East-Wichita Chess King, Inc. 95-
50219-SD
<PAGE>
Tri-County Chess King, Inc. 95-50218-
SD
Trumbull Park Chess King, Inc. 95-50220-
SD
Union City Chess King, Inc. 95-50221-
SD
Valley Fair Chess King, Inc. 95-50222-
SD
Valley View (TX) Chess King, Inc. 95-50223-
SD
Victoria Mall Chess King, Inc. 95-50224-
SD
Viejo Chess King, Inc. 95-50225-
SD
Washington Street Chess King, Inc. 95-50226-
SD
Wayne Hills Chess King, Inc. 95-50227-
SD
Wilton Chess King, Inc. 95-50228-SD
W. Mifflin Chess King, Inc. 95-50229-
SD
<PAGE>
Schedule 7
MGRE Subsidiaries
To be provided.
<PAGE>
Schedule 8
Assumed Executory Contracts
To be provided.
<PAGE>
Schedule 9
Assumed Insurance Policies
To be provided.
<PAGE>
Schedule 10
Assumed Leases
To be provided.
<PAGE>
Schedule 11
Compensation and Benefit Plan
To be provided.
<PAGE>
Exhibit A
Treatment of Georgetown Boogies Secured Claim
To be provided.
<PAGE>
Exhibit B
Form of Amended Bylaws
To be provided.
<PAGE>
Exhibit C
Form of Amended and Restated Articles of Incorporation
To be provided.
<PAGE>
Exhibit D
Form of New Indenture
To be provided.
<PAGE>
Exhibit E
Form of Series A Warrant Agreement
To be provided.
<PAGE>
Exhibit F
Form of Series B Warrant Agreement
To be provided.
<PAGE>
Exhibit G
Registration Rights Agreement
To be provided.
EXHIBIT 10(a)(f)
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement"), is made
and entered into as of August 1, 1994, by MERRY-GO-ROUND
ENTERPRISES, INC. (the "Company"), and
________
FRANK TWORECKE (the "Employee").
WITNESSETH:
WHEREAS the Company desires to employ the Employee, and
the Employee desires to accept such employment, on the terms
and conditions set forth in this Agreement;
THEREFORE, in consideration of the promises and the
covenants contained in this Agreement, and other good and
valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the Company and the Employee hereby
agree as follows:
1. EMPLOYMENT. The Company hereby employs the
Employee, and the Employee hereby accepts such employment,
upon the terms and conditions set forth in this Agreement.
The parties recognize and acknowledge that this Agreement is
entered into subject to the approval of the Bankruptcy
Court.
2. TERM. The term of this agreement shall commence
on the date of this agreement or Employee's first date of
employment, whichever is later, and, subject to the
provisions of paragraph 11, end on the 31st day of December,
1996. This Agreement may be extended for successive three
(3) year terms beyond December 31, 1996 by mutual agreement
of the parties, and in this regard the Company will notify
the Employee
<PAGE>
on or before January 1, 1996 of its intentions for renewal
beyond the current December 31, 1996 expiration date. If
the Company advises the Employee that it wishes to renew the
Agreement, Employee will provide the Company with his
response within forty-five (45) days of receipt of the
Company's desire to renew.
3. DUTIES OF THE EMPLOYEE. During the term of this
Agreement, the Employee shall, under the direction of the
Chief Executive Officer and President of the Company,
perform the duties of President of the Company's Merry-Go-
Round Division and such other executive, management, and
other such duties that the Chief Executive Officer and
President may from time to time reasonably assign. The
Employee shall devote all of his business time, attention,
and energy to the Company and shall not, during the term of
his employment, be actively engaged in any managerial or
employment capacity in any other business activity for gain,
profit, or other pecuniary advantage; provided that the
foregoing does not prohibit the Employee from making
investments that do not unreasonably interfere with the
performance of his duties with the Company.
4. COMPENSATION.
4.1 Base Compensation. The Employee shall receive as
compensation for his services hereunder an annual salary of
$325,000.00, which sum shall be payable in equal weekly
installments (the "Base Compensation"). The Employee shall
be reviewed annually and shall be entitled to such increases
in his Base Compensation as the Chief
2
<PAGE>
Executive Officer and President of the Company may
determine, subject to the approval of the Board of
Directors.
4.2. Incentive Compensation. The Employee will also be
entitled to participate in a bonus incentive plan to be
established by the Company's Board of Directors and
Compensation Committee that will afford the Employee the
opportunity to earn incentive compensation of up to 40% of
the Employee's Base Compensation. During the first fiscal
year of Employee's employ, his incentive compensation shall
be $40,000.00. After the first fiscal year of his employ
there shall not be any guaranteed minimum incentive
compensation, but rather his incentive compensation shall be
determined by meeting certain goals and benchmarks. The
amount payable to the Employee under such incentive plan
will be based on the Company's earnings and return on
investment, according to objectives and guidelines to be
determined by the Board of Directors and Compensation
Committee.
In order to qualify for full incentive compensation,
Employee must remain in the active employ of the Company at
the time that incentive compensation is awarded. If
Employee's employment terminates due to death, disability,
or "without cause" prior to the time that incentive
compensation is awarded, Employee will be entitled to a "pro
rata" share of the incentive bonus -- as determined by the
Board of Directors and Compensation Committee in their
discretion -- to be paid at the normal time (February or
March after close of fiscal year) that incentive
compensation is awarded. If Employee's
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<PAGE>
employment terminates voluntarily or "for cause" prior to
the time that the incentive compensation is awarded,
Employee will not be entitled to any incentive compensation.
5. STOCK OPTIONS. Subject to the terms and
conditions of the Company's stock option plan, standard
Company vesting schedules (currently 5 year, 20% vesting
period), Employee shall have the option to purchase, at the
market price of such stock on the date of Employee's first
day of employment with the Company, up to 200,000 shares of
the Company's common stock.
The Employee will also have the opportunity to be
granted restricted stock in an amount to be determined by
the Board of Directors upon completion of the Company's
final reorganization plan.
6. LIFE INSURANCE. The Company shall purchase an
insurance policy in the name of the Employee which shall
provide:
(a) that any death benefit under such policy be
payable to the Company; and
(b) that subject to the vesting schedule described
below, and subject to divesting as described in sub-
paragraph 6(c), Employee (or in the event of Employee's
death his designated beneficiary or estate) shall be paid
the vested portion of $150,000 per year for 15 years, such
payments to begin (a) the year after Employee's employment
with the Company terminates, or (b) Employee reaches age 60,
whichever is the later of
4
<PAGE>
these two dates. Employee's entitlement to the benefit
described in this sub-paragraph (6(b)) shall vest
proportionately as follows:
<TABLE>
<CAPTION>
FULL YEARS OF
ACTIVE SERVICE VESTED PERCENTAGE
<S> <C>
Less than 1 0
1 14.3
2 28.6
3 42.9
4 57.2
5 71.5
6 85.8
7 100
</TABLE>
Only years of active employment are counted for vesting
purposes. Periods of salary continuation (for example,
termination pay described in Section 12.1, sick or
disability pay, etc.) or leaves of absence are not
considered active employment for vesting purposes.
(c) In the event that Employee's employment is
terminated due to gross misconduct, or Employee resigns due
to gross misconduct, Employee shall forfeit, and be divested
of all benefits described in sub-paragraph Section 6(b).
Gross misconduct shall include fraud, misappropriation,
embezzlement, and crimes of moral turpitude that impair
5
<PAGE>
the business reputation of the Company. Any disagreement
concerning the application of Section 6(c) shall be subject
to arbitration.
7. BENEFITS. The Company will provide the Employee
with benefits, which shall include but are not limited to,
life insurance, medical, health and accident, and disability
plans as provided to the Company's other executives on the
same terms and conditions as applicable to such executives.
The Company reserves the right to modify or alter its
executive benefits from time to time. The Employee agrees
to take a physical examination performed by the physician(s)
of the Company's choosing as a condition of the Company's
offer of employment. The Employee will receive additional
benefits as customarily afforded other Company executives
such as automobile allowances, and access to Company credit
cards.
8. RELOCATION EXPENSES.
(a) The Company shall pay for the physical
transportation of Employee's household goods in connection
with moving Employee and his family from Cincinnati, Ohio to
Maryland. The Company shall select the moving company.
(b) For the interim period prior to the time that
Employee has relocated his family to the Maryland area, the
Company shall, for a maximum of six (6) months, make
temporary residence available to the Employee either in the
Company condominium or by reimbursing Employee for rental
payments up to $2,000.00 per month.
6
<PAGE>
(c) In connection with the sale of Employee's current
residence in Cincinnati, Ohio and purchase of a residence in
Maryland, the Company will reimburse Employee for reasonable
and customary fees relating to closing costs, broker and
realtor fees (up to 6%), reasonable travel expenses for
Employee and wife incurred in selecting a new residence
(maximum of three (3) trips), and reasonable and customary
fees associated with purchase of new residence, such as
mortgage points (2 point maximum).
(d) In the event that Employee purchases a principal
residence in Maryland before he has sold his current
residence in Cincinnati, the Company will defray the cost of
any "double mortgage payments" by paying the lesser of the
two mortgages for up to a maximum of six (6) months.
Additionally, the Company will provide Employee with a
reasonable bridge loan if Employee needs such a loan to make
a downpayment on his new Maryland residence before he has
sold his current Cincinnati, Ohio residence. Employee will
reimburse the Company for this bridge loan, without
interest, upon the sale of his Cincinnati, Ohio residence.
(e) Within thirty (30) days after completion of the
move by Employee of his family from Cincinnati, Ohio to
Maryland, the Company shall pay Employee an additional
payment of Five Thousand Dollars ($5,000.00) to compensate
for additional moving and relocation expenses;
(f) If Employee voluntarily leaves the Company's
employ within 12 months of his initial employment with the
Company, he will reimburse the Company for all
7
<PAGE>
expenses incurred by the Company in (a) - (e) above. If
Employee leaves the Company voluntarily more than 12 months
after his initial employ, but less than 24 months after his
initial employ, he will reimburse the Company 50% of the
expenses incurred by the Company in (a) - (e) above.
(g) Upon review of the Employee's completed tax
return(s) for the applicable year(s), the Company will
reimburse employee for any State or Federal income taxes
imposed in connection with benefits received under sub-
paragraphs (a) - (e) above.
9. VACATION. Employee shall be entitled to a
noncumulative paid vacation of four (4) weeks for each full
year of the term hereof, each of which weeks may be taken
separately or together, and such additional paid vacation as
may be mutually agreed upon by Employee and the Company;
provided, however, any allotted vacation time which has not
been used in any particular year of the term hereof shall
not be carried over to the next ensuing year without the
express written consent of the Company.
10. LIMITED REIMBURSEMENT OF ATTORNEY FEES. The
Company will reimburse the Employee for attorney fees
incurred by employee in the review of this Employment
Agreement up to a maximum of $1,000.00.
11. TERMINATION.
(a) Death. The Employee's employment shall terminate
upon his death, in which event the Company shall not
thereafter be obligated to make any further payments
8
<PAGE>
of any type or amount other than (1) any death payments due
under Company benefit programs (if any); (2) any benefits
required by Federal and State law; (3) a pro rata share of
any accrued incentive compensation as described in Section
4.2; and (4) Employee's vested portion of the insurance
benefit described in Section 6(b), but such payments shall
not be due and payable to Employee's designated beneficiary
or estate until the date that Employee would have reached
age 60, if he dies prior to age 60.
(b) Disability. In the event Employee becomes, in the
good faith opinion of the Board of Directors, incapable of
performing his duties due to physical or mental illness, or
the Employee shall have been absent from his duties
hereunder excluding allowable vacation time) on a full-time
basis for the entire period of 2 consecutive months, or for
more than 90 working days in the aggregate during a 12 month
period, the Company may terminate the Employee's employment
upon not less than 5 days notice. Upon such termination the
Company shall not thereafter be obligated to make any
further payments other than amounts accrued as of the date
of termination, and any pro rata share of accrued incentive
compensation as described in Section 4.2. Thereafter, the
Employee will be eligible for such payments as may be
provided by the Company's disability plans.
(c) Cause. The Company may terminate the Employee's
employment hereunder for Cause. Cause shall include the
following (described in (i)-(vi) below), to be determined in
the reasonable judgment of the Company. The Employee shall
be given
9
<PAGE>
notice and have the opportunity to respond to any claimed
deficiencies prior to the Company's rendering a final
decision to terminate this Agreement, but this notice
provision shall not be deemed a right to cure deficiencies
unless mutually agreed by the parties.
Cause shall include:
(i) Employee's fraud, misappropriation,
embezzlement or willful misconduct;
(ii) Employee's material violation of any
provision of this Agreement;
(iii) Employee's conviction of a felony
involving moral turpitude, or any crime that
would impair employee's ability to perform
his duties or impair the business reputation
of the Company;
(iv) Employee's willful failure to adequately
perform any duties assigned under this
agreement;
(v) Employee's willful failure or refusal to
comply with Company standards, policies or
procedures;
(vi) Employee's willful violation of any
warranties or promises contained herein.
12. COMPENSATION UPON TERMINATION.
12.1. Without Cause. If the Company terminates the
Employee's employment without cause (For purposes of this
Agreement, termination "without cause" shall mean that the
Company terminates the Employee's employment for any reason
other than for Employee's death, disability (paragraph
11(b)) or cause (paragraph 11(c)), the Employee shall
receive:
10
<PAGE>
(i) The greater of (a) salary continuation paid
in normal payroll intervals through December
31, 1995, or (b) 12 months salary
continuation paid on regular payroll
intervals;
(ii) through December 31, 1995 (or 12 months after
Employee's termination, whichever is greater)
all life insurance, medical, health and
accident, and disability plans, programs or
arrangements in which the Employee was
entitled to participate immediately prior to
the date of termination provided that the
Employee's continued participation is
possible under the general terms and
provisions of such plans and programs. In
the event that the Employee's participation
in any such plan or program is barred, the
Company shall arrange to provide the Employee
with benefits substantially similar to those
which the Employee was entitled to receive
under such plans and programs; provided that
these benefits are available and can be
purchased by the Company without paying in
excess of the regular rates it pays for other
executives;
(iii) Pro rata share of accrued incentive
bonus (as of date of termination) as
described in Section 4.2.
(iv) Employee's vested portion of the insurance
benefit described in Section 6(b), but such
payments shall not be due and payable to
Employee, his beneficiary or his estate until
the date on which Employee reaches age 60,
or, in the event of death, would have reached
age 60.
(v) To qualify for (i) and (ii) above, Employee
must actively seek other comparable
employment, and any earnings or other
benefits from such employment will offset the
Company's obligations for severance pay in
(i) and (ii) above for the duration of the
period.
In the event that Employee voluntarily resigns, he
agrees to give the Company at least eight (8) weeks' notice
to allow for smooth transition of duties.
12.2. For Cause. If Employee is terminated for
cause as described in paragraph 11(c), he shall not be
entitled to any further compensation whatsoever, with the
exception
11
<PAGE>
of the vested portion of any insurance benefit as described
in Section 6(b). However, if Employee is terminated for
gross misconduct as described in Section 6(c), then he shall
be divested of all insurance benefits described in Section
6(b) and not entitled to any payments thereunder.
13. NON-COMPETITION AND COVENANT NOT TO COMPETE. The
Employee acknowledges that his employment with the Company
will, of necessity, provide him with specialized, unique
knowledge and confidential information which, if used in
competition with the Company, could cause harm to the
Company which is engaged in a highly competitive business on
a national basis. In consideration of the Employee's
employment or continued employment, and in further
consideration of the substantial obligations the Company
must make under this Agreement, the Employee agrees:
13.1. While engaged as an Employee of the Company,
the Employee may only use confidential information of the
Company for purposes which are necessary to the carrying out
of the Employee's duties as an Employee of the Company, and
the Employee may not make use of any confidential
information of the Company after he is no longer an employee
of the Company. For the purpose of this Agreement, all
information, whether written or otherwise, regarding the
Company's customers, customer lists,
12
<PAGE>
prospective customers, costs and pricing, supplier
information, earnings, contracts, employees, subcontractors,
business plans, marketing strategies, and other business
arrangements is considered to be confidential information of
the Company.
The Employee further agrees that he will, immediately
upon termination of his employment with the Company, and in
no event later than 24 hours after termination, return to
the Company all books, records, customer and pricing lists,
correspondence, contracts (other than this Employment
Agreement) or orders, advertising or promotional material,
and other written, typed or printed materials, whether
furnished by the Company or prepared by the Employee, which
contain any information relating to the Company's business,
and the Employee agrees that he will neither make nor retain
any copies of such materials.
13.2. While engaged as an employee of the Company,
the Employee agrees that he will not, directly or
indirectly, be employed by or work for any other person,
firm or entity.
13.3. For a period of one (1) year after he is no
longer employed by the Company, where the separation from
the Company's payroll is (a) voluntary or (b) involuntary
due to a breach of Section 13 (Non-Competition and Covenant
Not To Compete) of the Agreement, the Employee will not,
directly or indirectly, either as a proprietor, stockholder,
partner, officer, employee, consultant, advisor or
otherwise:
13
<PAGE>
(a) work or render services of any kind to the
following companies (including their parents,
subsidiaries, divisions, officers, agents or
employees):
* The GAP Inc.
* Structure
* Abercrombie & Fitch
* Edison Brothers
* Any other retailer with annual sales in
excess of 50 million dollars that specializes
in and derives 50% or more of their business
from young men's and/or young women's casual
sportswear, or fashion forward attire.
Or
(b) induce, entice or hire, or attempt to hire or
employ any employee of the Company or former employee
of the Company who had been an employee of the Company
at anytime during the one year period prior to the
employee's attempted hiring of such individual.
The employee will be relieved of his commitment not to
work for competitors described in Section 13.3(a) above if
the Employee is involuntarily discharged by the Company for
reasons other than breaches of Section 13 (Non-Competition
and Covenant Not To Compete) of the Agreement.
13.4. The Employee represents and warrants that the
knowledge, skills and abilities he currently possesses
and/or possessed prior to employment are sufficient to
permit him, in the event of the termination of his
employment hereunder for any reason, to earn a livelihood
satisfactory to himself without violating any provision of
this
14
<PAGE>
Agreement, for example, by using such knowledge, skills and
abilities, or some of them, in the service of a
noncompetitor of the Company.
13.5. Nothing in this Agreement shall be deemed to
prevent the Employee from owning securities of any publicly-
owned corporation engaged in a similar business, provided,
however, that the total amount of securities of each class
owned by the Employee in such publicly-owned corporation
does not exceed one percent (1%) of the outstanding
securities of such class.
13.6. In the event of a breach or threatened breach
by the Employee of the provisions of sub-paragraphs 13.1,
13.2, 13.3, or 13.4 of this Agreement, the Company will be
authorized and entitled to obtain, from any court of
competent jurisdiction, an injunction restraining the
Employee from such breach and from rendering any services to
any person, firm, or entity in breach of such paragraphs.
Nothing in this Agreement shall be construed as prohibiting
the Company from pursuing any other remedies available to it
for a breach or threatened breach of paragraphs 13.1, 13.2,
13.3 or 13.4.
13.7. In the event any provision of paragraphs
13.1, 13.2, 13.3 or 13.4 above is held to be an unreasonable
restriction upon the Employee, the court so holding may
reduce the territory to which it pertains and/or the period
of time in which it operates, or order any other change to
the extent necessary to render such provision enforceable.
15
<PAGE>
13.8. Compliance with paragraphs 13.1, 13.2, 13.3
or 13.4 is a condition precedent to the Company's obligation
to make payments of any nature to the Employee.
13.9. In consideration of the Employee's right to
terminate his employment with the Company at any time for
any reason, Employee agrees that he is employed by the
Company on an at-will basis. Nothing contained in this
Agreement or elsewhere shall be construed as limiting the
effect of this paragraph.
13.10. Should the Company bring an action in any
court of competent jurisdiction to enforce any provision[s]
contained in this Agreement, the Employee and Company agree
that each will bear their own expenses, costs and attorneys
fees incurred in such action(s).
13.11. The Employee agrees that if he should breach
any provision[s] contained in Section 13.1 through 13.7 (Non-
Competition and Covenant Not To Compete), damages in such
event would be difficult to ascertain. Therefore, in
addition to whatever damages are capable of being
quantified, the Company will be entitled to liquidated
damages in the amount of $1,000 per day as a result of the
Employee's breach of any provision(s) of the Agreement. The
Employee agrees that such amount is a reasonable and fair
estimate of the liquidated damages which would be sustained
by the Company in the event of a breach of this Agreement.
16
<PAGE>
14. ARBITRATION. Any dispute or controversy arising
under or in connection with this Agreement or in any manner
associated with Employee's employment (other than those
described in Section 13 - Non-Competition and Covenant Not
to Compete) shall be settled exclusively by arbitration in
Maryland, in accordance with the rules of the American
Arbitration Association then in effect. The parties agree
to execute and be bound by the mutual agreement to arbitrate
claims attached hereto as Attachment A.
15. REPRESENTATION AND WARRANTIES OF EMPLOYEE.
Employee represents and warrants to the Company that:
A. Employee is under no contractual or other
restriction or obligation, compliance with which
is inconsistent with the execution of this
Agreement, the performance of Employee's
obligations hereunder, or the other rights of the
Company hereunder.
B. Employee is under no physical or mental disability
that would hinder the performance of Employee's
obligations under this Agreement.
16. CONSOLIDATION, MERGER OR SALE OF ASSETS.
16.1 In the event of a future disposition of the
properties and businesses of the Company by merger,
acquisition, consolidation, or sale of assets, then the
Company may elect:
17
<PAGE>
A. To assign this Agreement and all of its rights and
obligations hereunder to the acquiring or
surviving person or entity; provided that such
corporation, person or entity shall assume in
writing all of the obligations of the Company
hereunder; or
B. In addition to the Company's other rights of
termination, to terminate this Agreement upon at
least five days' written notice by paying Employee
the compensation owed him in accordance with
Section 12.1 (Without Cause Termination) of this
Agreement.
16.2 In the event of a consolidation, merger or sale of
assets as described in Section 16.1 that results in a
substantial and material modification of Employee's duties
and responsibilities, or requires employee to relocate his
residence out of the State of Maryland, Employee shall have
the right to terminate this Agreement and receive the
compensation described in Section 12.1.
16.3 A change or changes in Company ownership due to
acquisition of Company stock shall not be considered a
consolidation, merger or sale of assets for purposes of
Sections 16.1 or 16.2.
17. WAIVER OF BREACH. The waiver by either the
Company or the Employee of any breach of any provision of
this Agreement by the other party shall not operate or be
construed as a waiver of any subsequent breach of any
provision of this
18
<PAGE>
Agreement. No waiver of any provision of this Agreement
shall be valid unless in writing and signed by both the
Employee and an authorized officer of the Company.
18. ASSIGNMENT. The Employee acknowledges that the
services to be rendered by him are unique and personal.
Accordingly, the Employee may not assign any of his rights
or delegate any of his duties or obligations under this
Agreement. The rights and obligations of the Company under
this Agreement shall inure to the benefit of and shall be
binding upon the successors and assigns of the Company.
19. NOTICE. For purposes of this Agreement, notices
and all other communications provided for in the Agreement
shall be in writing and shall be deemed to have been duly
given when delivered or mailed by United States certified
mail, return receipt requested, postage prepaid, as follows:
If to the Company:
Chief Executive Officer
Merry-Go-Round Inc.
3300 Fashion Way
Joppa, MD 21085
If to the Employee:
Frank Tworecke
(Address)
19
<PAGE>
or such other addresses either party may have furnished to
the other in writing in accordance herewith, except that
notices of change of address shall be effective only upon
receipt.
20. VALIDITY. The invalidity or unenforceability of
any provision of this Agreement shall not affect the
validity or enforceability of any other provision of his
Agreement, which shall remain in full force and effect.
21. BINDING EFFECT. This Agreement shall be binding
upon and shall inure to the benefit of the respective
successors, assigns, legal representatives and heirs to the
parties hereto.
22. APPLICABLE LAW. This Agreement is made pursuant
to and shall be governed, construed and enforced in all
respects and for all purposes in accordance with the laws of
the State of Maryland.
23. ENTIRE AGREEMENT. This Agreement contains the
entire understanding of the parties. It may not be changed
orally but only by an agreement in writing signed by the
party against whom enforcement of any waiver, change,
modification, extension, or discharge is sought.
20
<PAGE>
IN WITNESS WHEREOF the parties have executed this
Agreement.
/s/ Frank Tworecke /s/ Michael D. Sullivan
___________________________ ___________________________
Frank Tworecke For Merry-Go-Round
Enterprises, Inc.
Date: July 15, 1994 Date: July
16, 1994
_____________________ ______________________
21
ATTACHMENT A
MUTUAL AGREEMENT TO ARBITRATE CLAIMS
1. I, Frank Tworecke, recognize that differences
could arise between Merry-Go-Round Enterprises, Inc. ("the
Company") and me during or following my employment with the
Company. I understand and agree that by entering into this
Agreement to Arbitrate Claims ("Agreement"), I gain the
benefits of a speedy, impartial dispute-resolution
procedure.
2. I understand that any reference in this Agreement
to the Company will be a reference also to all stockholders,
directors, officers, employees, parents, subsidiaries and
affiliated entities, all benefit plans, the benefit plans'
sponsors, fiduciaries, administrators, and all successors
and assigns of any of them.
Claims Covered by the Agreement
3. The Company and I mutually agree to the resolution
by arbitration of all claims or controversies ("claims"),
whether or not arising out of my employment (or its
termination), that the Company may have against me or that I
may have against the Company. The claims covered by this
Agreement include, but are not limited to, under my
Employment Agreement, claims for wages or other compensation
due; claims for breach of any contract or covenant (express
or implied); tort claims; claims for discrimination
(including, but not limited to, race, sex, color, religion,
national origin, age (state or federal Age Discrimination in
Employment Act), marital status, veterans status, sexual
preference, medical condition, handicap or disability);
claims for benefits (except where an employee benefit or
pension plan specifies that its claims procedure shall
culminate in an arbitration procedure different from this
one); and claims for violation of any federal, state, or
other law, statute, regulation, or ordinance, except claims
excluded in the following paragraphs.
Claims Not Covered by the Agreement
4. Claims I may have for workers' compensation or
unemployment compensation benefits are not covered by this
Agreement.
5. Also not covered are claims by the Company for
injunctive and/or other equitable relief to enforce the Non-
Competition and Covenant Not to Compete provision of Section
13 (Subsection 13.1 through 13.4 of the Employment
Agreement), as to which I understand and agree that the
Company may seek and obtain relief from a Court of competent
jurisdiction.
<PAGE>
Required Notice of All Claims
6. The Company and I agree that the aggrieved party
must give written notice of any claim to the other party
within the applicable state or federal statute of
limitations. The other party shall have 15 working days to
serve a written notice of its defenses.
7. Written notice to the Company, or its officers,
directors, employees or agents, shall be sent to its CEO at
the Company's Joppa, Maryland address. I will be given
written notice at the last address recorded in my personnel
file.
8. The written notice shall identify and describe the
nature of all claims or defenses asserted and the facts upon
which such claims or defenses are based. The notice shall
be sent to the other party by certified or registered mail,
return receipt requested.
9. In order to avoid delay, the Company will not
defend a claim of employment discrimination on the grounds
that I have not received a notice of right to sue, if I am
not yet eligible to receive such a notice.
Representation
10. Any party may be represented by an attorney or
other representative selected by the party.
Discovery
11. Each party shall have the right to take the
deposition of one individual and any expert witness
designated by another party. Each party also shall have the
right to make requests for production of documents to any
party. The subpoena right specified below shall be
applicable to discovery pursuant to this paragraph.
Additional discovery may be had only where the Arbitrator
selected pursuant to this Agreement so orders, upon a
showing of substantial need.
Designation of Witnesses
12. At least 30 days before the arbitration, the
parties must exchange lists of witnesses, including any
expert, and copies of all exhibits intended to be used at
the arbitration.
Subpoenas
13. Each party shall have the right to subpoena
witnesses and documents for the arbitration.
2
<PAGE>
Arbitration Procedures
14. The Company and I agree that, except as provided
in this Agreement, any arbitration shall be in accordance
with the then-current Model Employment Arbitration
Procedures of the American Arbitration Association ("AAA")
before an arbitrator who is licensed to practice law.
15. The Arbitrator shall be selected as follows. The
AAA shall give each party a list of 11 arbitrators drawn
from its panel of labor and employment arbitrators. Each
side may strike all names on the list its deems
unacceptable. If only one common name remains on the lists
of all parties, said individual shall be designated as the
Arbitrator. If more than one common name remains on the
lists of all parties, the parties shall strike names
alternately until only one remains, the Company to exercise
the first strike. If no common name remains on the lists of
all parties, the AAA shall furnish an additional list or
lists until an arbitrator is selected.
16. The Arbitrator shall apply the substantive law
(and the law of remedies, if applicable) of the state in
which the claim arose, or federal law, or both, as
applicable to the claim(s) asserted. The Federal Rules of
Civil Procedure shall not apply. The Arbitrator, and not
any federal, state, or local court or agency, shall have
exclusive authority to resolve any dispute relating to the
interpretation, applicability, enforce-ability or formation
of this Agreement, including but not limited to any claim
that all or any part of the Agreement is void or voidable.
The arbitration shall be final and binding upon the parties.
17. The Arbitrator shall have jurisdiction to hear and
rule on pre-hearing disputes and is authorized to hold pre-
hearing conferences by telephone or in person as the
Arbitrator deems necessary. The Arbitrator shall have the
authority to entertain a motion to dismiss and/or a motion
for summary judgment by any party and shall apply the
standards governing such motions under the Federal Rules of
Civil Procedure.
18. Either party, at its expense, may arrange for and
pay the cost of a court reporter to provide a stenographic
record of proceedings.
19. Either party, upon request at the close of hearing
shall be given leave to file a post-hearing brief. The time
for filing such a brief shall be set by the Arbitrator.
20. Either party may bring an action in any court of
the competent jurisdiction to compel arbitration under this
Agreement and to enforce an arbitration award. Except as
otherwise provided in this Agreement, both the Company and I
agree that neither of us shall initiate or prosecute any
lawsuit in any way related to any claim covered by this
Agreement.
3
<PAGE>
21. The Arbitrator shall render an award and opinion
in the form typically rendered in labor arbitrations.
Arbitration Fees and Costs
22. The Company and I shall equally share the fees and
costs of the Arbitrator. Each party will deposit funds in
escrow for its share of the Arbitrator's fee, in an amount
to be determined in advance by the Arbitrator.
23. Each party to the arbitration shall pay for its
own costs and attorneys' fees, if any. However, if a party
prevails on a claim which under law affords the prevailing
party costs or attorneys' fees, the Arbitrator may award
reasonable costs or attorneys' fees to the prevailing party.
Authority for this Agreement.
24. This Agreement is governed by the Federal
Arbitration Act, 9 U.S.C. Section 1, et seq, and the
Maryland Uniform Arbitration Act.
Requirements for Modification or Revocation
25. This Agreement to arbitrate shall survive the
termination of my employment. It can only be revoked or
modified by a writing signed by the parties which
specifically states a mutual intent to revoke or modify this
Agreement.
Sole and Entire Agreement
26. This is the complete agreement of the parties on
the subject of arbitration of disputes [except for any
arbitration agreement in connection with any pension or
benefit plan]. This Agreement supersedes any prior or
contemporaneous oral or written understanding on the
subject.
27. No party is relying on any representations, oral
or written, on the subject of the effect, enforceability or
meaning of this Agreement, except as specifically set forth
in this Agreement.
Construction
28. If any provision of this Agreement is found to be
void or otherwise unenforceable, in whole or in part, such
adjudication shall not affect the validity of the remainder
of the Agreement.
4
<PAGE>
Consideration
29. The promises by the Company and by me to arbitrate
differences, rather than litigate them before courts or
other bodies, provide consideration for each other. In
addition, I have entered into an Employment Agreement as
further consideration for entering into this Agreement.
Not an Employment Agreement
30. This Arbitration Agreement is purely procedural.
It does not provide any substantive rights in addition to
those provided by applicable law or my Employment Agreement.
Voluntary Agreement
31. I acknowledge that I have carefully read this
agreement, that I understand its terms, that all
understandings and agreements between the company and me
relating to the subjects covered in the agreement are
contained in it, and that I have entered into the agreement
voluntarily and not in reliance on any promises or
representations by the company other than those contained in
this agreement itself.
32. The Age Discrimination in Employment Act protects
individuals over 40 years of age from age discrimination.
The ADEA contains some special requirements before an
employee can give up the right to file a lawsuit in court.
The following provisions are designed to comply with those
requirements.
a. I agree that this Agreement to arbitrate is
valuable to me, because it permits a faster resolution of
claims that I would receive in court.
b. I have been advised to consult an attorney before
signing this Agreement.
c. I have 21 days to consider this Agreement.
However, I may sign it sooner if I wish.
d. I have 7 days following my signing this Agreement
to revoke my signature, and the Agreement will not be
legally binding until the 7 day period has gone by.
5
<PAGE>
33. I FURTHER ACKNOWLEDGE THAT I HAVE BEEN GIVEN THE
OPPORTUNITY TO DISCUSS THIS AGREEMENT WITH MY PRIVATE LEGAL
COUNSEL AND HAVE AVAILED MYSELF TO THAT OPPORTUNITY TO THE
EXTENT I WISH TO DO SO.
Merry-Go-Round Enterprises Frank Tworecke
/s/ Michael D. Sullivan /s/ Frank Tworecke
___________________________
___________________________
Signature of Authorized Signature of Mr.
Tworecke
Company Representative
President
___________________________
Title of Representative
___________________________
___________________________
Date Date
6
EXHIBIT 10(a)(g)
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement"), is made
and entered into as of June 1, 1994, by MERRY-GO-ROUND, INC.
(the "Company"), and LOUIS SPAGNA
_______
(the "Employee").
WITNESSETH:
WHEREAS the Company desires to employ the Employee, and
the Employee desires to accept such employment, on the terms
and conditions set forth in this Agreement;
THEREFORE, in consideration of the promises and the
covenants contained in this Agreement, and other good and
valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the Company and the Employee hereby
agree as follows:
1. EMPLOYMENT. The Company hereby employs the
Employee,
and the Employee hereby accepts such employment, upon the
terms and conditions set forth in this Agreement. The
parties recognize and acknowledge that this Agreement is
entered into subject to the approval of the Bankruptcy
Court.
2. TERM. The term of this agreement shall commence
on the date of this agreement or Employee's first date of
employment, whichever is later, and, subject to the
provisions of paragraph 11, end on the 31st day of December,
1996, and shall thereafter be automatically renewed for
successive terms of one (1) year each unless one party shall
give to the other notice in writing at least three (3)
months prior to the end of the original
<PAGE>
or any such renewal term that this agreement shall terminate
at the end of the then current term.
3. DUTIES OF THE EMPLOYEE. During the term of this
Agreement, the Employee shall, under the direction of the
Chief Executive Officer and President of the Company,
perform the duties of President of the Company's MENZ
Division and such other executive, management, and other
duties that the Chief Executive Officer and President may
from time to time assign. The Employee shall devote all of
his business time, attention, and energy to the Company and
shall not, during the term of his employment, be actively
engaged in any managerial or employment capacity in any
other business activity for gain, profit, or other pecuniary
advantage; provided that the foregoing does not prohibit the
Employee from making investments that do not unreasonably
interfere with the performance of his duties with the
Company.
4. COMPENSATION.
4.1 Base Compensation. The Employee shall receive as
compensation for his services hereunder an annual salary of
$275,000, which sum shall be payable in equal weekly
installments (the "Base Compensation"). The Employee shall
be reviewed annually and shall be entitled to such increases
in his Base Compensation as the Chief Executive Officer and
President of the Company may determine, subject to the
approval of the Board of Directors.
2
<PAGE>
4.2. Incentive Compensation. The Employee will also be
entitled to participate in a bonus incentive plan to be
established by the Company's Board of Directors and
Compensation Committee that will afford the Employee the
opportunity to earn incentive compensation of up to 40% of
the Employee's Base Compensation, but shall not be less than
20% of Employee's Base Compensation during the first fiscal
year of the Employee's employ. After the first fiscal year
of the Employee's employ, there shall not be any guaranteed
minimum incentive compensation, but rather his incentive
compensation shall be determined by meeting certain goals
and benchmarks. The amount payable to the Employee under
such incentive plan will be based on the Company's earnings
and return on investment, according to objectives and
guidelines to be determined by the Board of Directors and
Compensation Committee.
In order to qualify for full incentive compensation,
Employee must remain in the active employ of the Company at
the time that incentive compensation is awarded. If
Employee's employment terminates due to death, disability,
or "without cause" prior to the time that incentive
compensation is awarded, Employee will be entitled to a "pro
rata" share of the incentive bonus, to be paid at the normal
time that incentive compensation is awarded. If Employee's
employment terminates voluntarily or "for cause" prior to
the time that the incentive compensation is awarded,
Employee will not be entitled to
any incentive compensation.
3
<PAGE>
5. STOCK OPTIONS. Subject to the terms and
conditions of the Company's stock option plan, standard
Company vesting schedules (currently 5 year, 20% vesting
period), and subject to stockholder approval, Employee shall
have the option to purchase up to 200,000 shares of the
Company's common stock at the market price of such stock on
the date of Employee's first day of employment with the
Company.
The Employee will also have the opportunity to be
granted restricted stock in an amount to be determined by
the Board of Directors upon completion of the Company's
final reorganization plan.
6. LIFE INSURANCE. The Company shall purchase an
insurance policy in the name of the Employee which shall
provide:
(a) that any death benefit under such policy be
payable to the Company; and
(b) that subject to the vesting schedule
described below, and subject to divesting as described in
sub-paragraph 6(c), Employee (or in the event of Employee's
death his designated beneficiary or estate) shall be paid
the vested portion of $150,000 per year for 15 years, such
payments to begin (a) the year after Employee's employment
with the Company terminates, or (b) Employee reaches age 60,
whichever is the later of these two dates. Employee's
entitlement to the benefit described in this sub-paragraph
(6(b)) shall vest proportionately as follows:
4
<PAGE>
<TABLE>
<CAPTION>
FULL YEARS OF
ACTIVE SERVICE VESTED PERCENTAGE
<S> <C>
Less than 1 0
1 14.3
2 28.6
3 42.9
4 57.2
5 71.5
6 85.8
7 100
</TABLE>
Only years of active employment are counted for vesting
purposes. Periods of salary continuation (for example,
termination pay described in Section 12.1, sick or
disability pay, etc.) or leaves of absence are not
considered active employment for vesting purposes.
(c) In the event that Employee's employment is
terminated due to gross misconduct, or Employee resigns due
to gross misconduct, Employee shall forfeit, and be divested
of all benefits described in sub-paragraph Section 6(b).
Gross misconduct shall include fraud, misappropriation,
embezzlement, and crimes of moral turpitude that impair the
business reputation of the Company. Any disagreement
concerning the application of Section 6(c) shall be subject
to arbitration.
5
<PAGE>
7. BENEFITS. The Company will provide the Employee
with benefits, which shall include but are not limited to,
life insurance, medical, health and accident, and disability
plans as provided to the Company's other executives on the
same terms and conditions as applicable to such executives.
The Company reserves the right to modify or alter its
executive benefits from time to time. The Employee will
receive additional benefits as customarily afforded other
Company executives such as automobile allowances, and access
to Company credit cards.
8. RELOCATION EXPENSES.
(a) The Company shall pay for the physical
transportation of Employee's household goods in connection
with moving Employee and his family from California to
Maryland. The Company shall select the moving company.
(b) For the interim period prior to the time that
Employee has relocated his family to the Maryland area, the
Company shall, for a maximum of six (6) months, make
temporary residence available to the Employee either in the
Company condominium or by reimbursing Employee for rental
payments up to $2,000.00 per month.
(c) In connection with the sale of Employee's current
residence in California and purchase of a residence in
Maryland, the Company will reimburse Employee for reasonable
and customary fees relating to closing costs, broker and
realtor fees (up to 6%), reasonable travel expenses for
Employee and wife incurred in selecting a new residence
(maximum of three (3) trips), and reasonable and customary
fees associated
6
<PAGE>
with purchase of new residence, such as mortgage points (2
point maximum). In addition, the Company will reimburse
Employee up to $25,000.00 in the event that Employee
sustains a loss from the sale of his residence in
California. (Employee has represented that his acquisition
price of his current California residence was $775,000.00,
and therefore the Company would reimburse Employee for his
loss up to $25,000.00 between his acquisition price
($775,000.00) and his sale price if the sale price is less
than $775,000.00.)
(d) In the event that Employee purchases a principal
residence in Maryland before he has sold his current
residence in California, the Company will defray the cost of
any "double mortgage payments" by paying the lesser of the
two mortgages for up to a maximum of six (6) months.
Additionally, the Company will provide Employee with a
reasonable bridge loan if Employee needs such a loan to make
a downpayment on his new Maryland residence before he has
sold his current California residence. Employee will
reimburse the Company for this bridge loan, without
interest, upon the sale of his California residence.
(e) Within thirty (30) days after completion of the
move by Employee of his family from California to Maryland,
the Company shall pay Employee an additional payment of Five
Thousand Dollars ($5,000.00) to compensate for additional
moving and relocation expenses;
7
<PAGE>
(f) If Employee voluntarily leaves the Company's
employ within 12 months of his initial employment with the
Company, he will reimburse the Company for all expenses
incurred by the Company in (a) - (e) above. If Employee
leaves the Company voluntarily more than 12 months after his
initial employ, but less than 24 months after his initial
employ, he will reimburse the Company 50% of the expenses
incurred by the Company in (a) - (e) above.
(g) Upon review of the Employee's completed tax
return(s) for the applicable year(s), the Company will
reimburse employee for any State or Federal income taxes
imposed in connection with benefits received under sub-
paragraphs (a) - (e) above.
9. VACATION. Employee shall be entitled to a
noncumulative paid vacation of three (3) weeks for each full
year of the term hereof, each of which weeks may be taken
separately or together, and such additional paid vacation as
may be mutually agreed upon by Employee and the Company;
provided, however, any allotted vacation time which has not
been used in any particular year of the term hereof shall
not be carried over to the next ensuing year without the
express written consent of the Company.
10. LIMITED REIMBURSEMENT OF ATTORNEY FEES. The
Company will reimburse the Employee for attorney fees
incurred by Employee in the review of this Employment
Agreement up to a maximum of $1,000.00.
8
<PAGE>
11. TERMINATION.
(a) Death. The Employee's employment shall terminate
upon his death, in which event the Company shall not
thereafter be obligated to make any further payments of any
type or amount other than (1) any death payments due under
Company benefit programs (if any); (2) any benefits required
by Federal and State law; (3) a pro rata share of any
accrued incentive compensation as described in Section 4.2;
and (4) Employee's vested portion of the insurance benefit
described in Section 6(b), but such payments shall not be
due and payable to Employee's designated beneficiary or
estate until the date that Employee would have reached age
60, if he dies prior to age 60.
(b) Disability. In the event Employee becomes, in the
good faith opinion of the Board of Directors, incapable of
performing his duties due to physical or mental illness, or
the Employee shall have been absent from his duties
hereunder excluding allowable vacation time) on a full-time
basis for the entire period of 2 consecutive months, or for
more than 90 working days in the aggregate during a 12 month
period, the Company may terminate the Employee's employment
upon not less than 5 days notice. Upon such termination the
Company shall not thereafter be obligated to make any
further payments other than amounts accrued as of the date
of termination, and any pro rata share of accrued incentive
compensation as described in Section 4.2. Thereafter, the
Employee will be eligible for such payments as may be
provided by the Company's disability plans.
(c) Cause. The Company may terminate the Employee's
employment hereunder for Cause. Cause shall include the
following, to be determined in the reasonable judgment of
the Company, upon notice to the Employee, who shall have the
opportunity to respond to and to cure, where appropriate,
any claimed deficiencies prior to the Company's rendering a
final decision to terminate this Agreement:
(i) Employee's fraud, misappropriation,
embezzlement or willful misconduct;
(ii) Employee's material violation of any
provision of this Agreement;
(iii) Employee's conviction of a felony
involving moral turpitude, or any crime or
activity that would impair employee's ability
to perform his duties or impair the business
reputation of the Company;
(iv) Employee's willful failure to adequately
perform any duties assigned under this
agreement;
(v) Employee's willful failure or refusal to
comply with Company standards, policies or
procedures;
(vi) Employee's willful violation of any
warranties or promises contained herein.
12. COMPENSATION UPON TERMINATION.
12.1. Without Cause. If the Company terminates the
Employee's employment without cause (For purposes of this
Agreement, termination "without cause" shall mean that the
company terminates the Employee's employment for any reason
other than for disability (paragraph 11(b)) or cause
(paragraph 11(c)), the Employee shall receive:
(i) The greater of (a) salary continuation paid
in normal payroll intervals through December
31, 1995, or (b) 12 months salary
continuation paid on regular payroll
intervals;
(ii) through December 31, 1995 (or 12 months after
Employee's termination, whichever is greater)
all life insurance, medical, health and
accident, and disability plans, programs or
arrangements in which the Employee was
entitled to participate immediately prior to
the date of termination provided that the
Employee's continued participation is
possible under the general terms and
provisions of such plans and programs. In
the event that the Employee's participation
in any such plan or program is barred, the
Company shall arrange to provide the Employee
with benefits substantially similar to those
which the Employee was entitled to receive
under such plans and programs; and
(iii) Pro rata share of accrued incentive
bonus (as of date of termination based on 20%
of base compensation) as described in Section
4.2.
(iv) Employee's vested portion of the insurance
benefit described in Section 6(b), but such
payments shall not be due and payable to
Employee, his beneficiary or his estate until
the date on which Employee reaches age 60,
or, in the event of death, would have reached
age 60.
(v) To qualify for (i) and (ii) above, Employee
must actively seek other comparable
employment, and any earnings or other
benefits from such employment will offset the
Company's obligations for severance pay in
(i) and (ii) above for the duration of the
period.
12.2. For Cause. If Employee is terminated for
cause as described in paragraph 11(c), he shall not be
entitled to any further compensation whatsoever, with the
exception of the vested portion of any insurance benefit as
described in Section 6(b). However, if Employee is
terminated for gross misconduct as described in Section
6(c), then he shall be divested of all insurance benefits
described in Section 6(b) and not entitled to any payments
thereunder.
13. NON-COMPETITION AND COVENANT NOT TO COMPETE. The
Employee acknowledges that his employment with the Company
will, of necessity, provide him with specialized, unique
knowledge and confidential information which, if used in
competition with the Company, could cause harm to the
Company which is engaged in a highly competitive business on
a national basis. In consideration of the Employee's
employment or continued employment, and in further
consideration of the substantial obligations the Company
must make under this Agreement, the Employee agrees:
13.1. While engaged as an Employee of the Company,
the Employee may only use confidential information of the
Company for purposes which are necessary to the carrying out
of the Employee's duties as an Employee of the Company, and
the Employee may not make use of any confidential
information of the Company after he is no longer an employee
of the Company. For the purpose of this Agreement, all
information, whether written or otherwise, regarding the
Company's customers, customer lists, prospective customers,
costs and pricing, supplier information, earnings,
contracts, employees, subcontractors, business plans,
marketing strategies, and other business arrangements is
considered to be confidential information of the Company.
The Employee further agrees that he will, immediately
upon termination of his employment with the Company, and in
no event later than 24 hours after termination, return to
the Company all books, records, customer and pricing lists,
correspondence, contracts or orders, advertising or
promotional material, and other written, typed or printed
materials, whether furnished by the Company or prepared by
the Employee, which contain any information relating to the
Company's business, and the Employee agrees that he will
neither make nor retain any copies of such materials.
13.2. While engaged as an employee of the Company,
the Employee agrees that he will not, directly or
indirectly, be employed by or work for any other person,
firm or entity.
13.3. For a period of one (1) year after he is no
longer employed by the Company, whether the separation from
the Company's payroll is (a) voluntary or (b) involuntary
due to a breach of Section 13 (Non-Competition and Covenant
Not To Compete) of the Agreement, the Employee will not
directly or indirectly, either as a proprietor, stockholder,
partner, officer, employee, consultant, advisor or
otherwise:
(a) work or render services of any kind to
the following companies (including their parents,
subsidiaries, divisions, officers, agents or
employees):
* The GAP, Inc.
* Structure
* Abercrombie & Fitch
* Edison Brothers
*Any other retailer with annual sales
in excess of 50 million dollars that
specializes in and derives 50% or more
of their business from young men's
and/or young women's casual
sportswear, or fashion forward attire.
(b) induce, entice or hire, or attempt to
hire or employ any employee of the Company or
former employee of the Company who had been an
employee of the Company at anytime during the one
year period prior to the Employee's attempted
hiring of such individual.
The employee will be relieved of his commitment not to
work for competitors described in Section 13.3(a) above if
the Employee is involuntarily discharged by the Company for
reasons other than breached of Section 13 (Non-Competition
and Covenant Note to Compete) of the Agreement.
13.4. The Employee represents and warrants that the
knowledge, skills and abilities he currently possesses
and/or possessed prior to employment are sufficient to
permit him, in the event of the termination of his
employment hereunder for any reason, to earn a livelihood
satisfactory to himself without violating any provision of
this Agreement, for example, by using such knowledge, skills
and abilities, or some of them, in the service of a
noncompetitor of the Company.
13.5. Nothing in this Agreement shall be deemed to
prevent the Employee from owning securities of any publicly-
owned corporation engaged in a similar business, provided,
however, that the total amount of securities of each class
owned by the Employee in such publicly-owned corporation
does not exceed one percent (1%) of the outstanding
securities of such class.
13.6. In the event of a breach or threatened breach
by the Employee of the provisions of sub-paragraphs 1, 2, 3,
or 4 of this Agreement, the Company will be authorized and
entitled to obtain, from any court of competent
jurisdiction, an injunction restraining the Employee from
such breach and from rendering any services to any person,
firm, or entity in breach of such paragraphs. Nothing in
this Agreement shall be construed as prohibiting the Company
from pursuing any other remedies available to it for a
breach or threatened breach of paragraphs 1, 2, 3 or 4.
13.7. In the event any provision of paragraphs 1,
2, 3 or 4 above is held to be an unreasonable restriction
upon the Employee, the court so holding may reduce the
territory to which it pertains and/or the period of time in
which it operates, or order any other change to the extent
necessary to render such provision enforceable.
13.8. Compliance with paragraphs 1, 2, 3 or 4 is a
condition precedent to the Company's obligation to make
payments of any nature to the Employee.
13.9. In consideration of the Employee's right to
terminate his employment with the Company at any time for
any reason, Employee agrees that he is employed by the
Company on an at-will basis. Nothing contained in this
Agreement or elsewhere shall be construed as limiting the
effect of this paragraph.
13.10. Should the Company bring an action in any
court of competent jurisdiction to enforce any provision[s]
contained in this Agreement, the Employee and Company agree
that each will bear their own expenses, costs and attorneys
fees incurred in such action(s).
13.11. The Employee agrees that if he should breach
any provision[s] contained in Section 13.1 through 13.7 (Non-
Competition and Covenant Not To Compete), damages in such
event would be difficult to ascertain. Therefore, in
addition to whatever damages are capable of being
quantified, the Company will be entitled to liquidated
damages in the amount of $1,000 per day as a result of the
Employee's breach of any provision(s) of the Agreement. The
Employee agrees that such amount is a reasonable and fair
estimate of the liquidated damages which would be sustained
by the Company in the event of a breach of this Agreement.
14. ARBITRATION. Any dispute or controversy arising
under or in connection with this Agreement or in any manner
associated with Employee's employment (other than those
described in Section 13 - Non-Competition and Covenant Not
to Compete) shall be settled exclusively by arbitration in
Maryland, in accordance with the rules of the American
Arbitration Association then in effect. The parties agree
to execute and be bound by the mutual agreement to arbitrate
claims attached hereto as Attachment A.
15. REPRESENTATION AND WARRANTIES OF EMPLOYEE.
Employee represents and warrants to the Company that:
A. Employee is under no contractual or other
restriction or obligation, compliance with which
is inconsistent with the execution of this
Agreement, the performance of Employee's
obligations hereunder, or the other rights of the
Company hereunder.
B. Employee is under no physical or mental
disability that would hinder the performance of
Employee's obligations under this Agreement.
16. CONSOLIDATION, MERGER OR SALE OF ASSETS. In the
event of a future disposition of the properties and
businesses of the Company by merger, acquisition,
consolidation, sale of assets, or otherwise, then the
Company may elect:
A. To assign this Agreement and all of its
rights and obligations hereunder to the acquiring
or surviving person or entity; provided that such
corporation, person or entity shall assume in
writing all of the obligations of the Company
hereunder; or
B. In addition to the Company's other rights of
termination, to terminate this Agreement upon at
least five days' written notice by paying Employee
the compensation owed him in accordance with
Section 12.1 (Without Cause Termination) of this
Agreement.
17. WAIVER OF BREACH. The waiver by either the
Company or the Employee of any breach of any provision of
this Agreement by the other party shall not operate or be
construed as a waiver of any subsequent breach of any
provision of this Agreement. No waiver of any provision of
this Agreement shall be valid unless in writing and signed
by both the Employee and an authorized officer of the
Company.
18. ASSIGNMENT. The Employee acknowledges that the
services to be rendered by him are unique and personal.
Accordingly, the Employee may not assign any of his rights
or delegate any of his duties or obligations under this
Agreement. The rights and obligations of the Company under
this Agreement shall inure to the benefit of and shall be
binding upon the successors and assigns of the Company.
19. NOTICE. For purposes of this Agreement, notices
and all other communications provided for in the Agreement
shall be in writing and shall be deemed to have been duly
given when delivered or mailed by United States certified
mail, return receipt requested, postage prepaid, as follows:
If to the Company:
Chief Executive Officer
Merry-Go-Round Inc.
3300 Fashion Way
Joppa, MD 21085
If to the Employee:
Louis Spagna
(Address)
or such other addresses either party may have furnished to
the other in writing in accordance herewith, except that
notices of change of address shall be effective only upon
receipt.
20. VALIDITY. The invalidity or unenforceability of
any provision of this Agreement shall not affect the
validity or enforceability of any other provision of his
Agreement, which shall remain in full force and effect.
21. BINDING EFFECT. This Agreement shall be binding
upon and shall inure to the benefit of the respective
successors, assigns, legal representatives and heirs to the
parties hereto.
22. APPLICABLE LAW. This Agreement is made pursuant
to and shall be governed, construed and enforced in all
respects and for all purposes in accordance with the laws of
the State of Maryland.
23. ENTIRE AGREEMENT. This Agreement contains the
entire understanding of the parties. It may not be changed
orally but only by an agreement in writing signed by the
party against whom enforcement of any waiver, change,
modification, extension, or discharge is sought.
IN WITNESS WHEREOF the parties have executed this
Agreement.
/S/ Louis Spagna /S/ Michael D. Sullivan
__________________________ __________________________
Louis Spagna For Merry-Go-Round, Inc.
Date: June 8, 1994 June 21, 1994
__________________________ __________________________
ATTACHMENT A
June 6, 1994
MUTUAL AGREEMENT TO ARBITRATE CLAIMS
1. I, Louis Spagna, recognize that differences could
arise between Merry-Go-Round ("the Company") and me during
or following my employment with the Company. I understand
and agree that by entering into this Agreement to Arbitrate
Claims ("Agreement"), I gain the benefits of a speedy,
impartial dispute-resolution procedure.
2. I understand that any reference in this Agreement
to the Company will be a reference also to all stockholders,
directors, officers, employees, parents, subsidiaries and
affiliated entities, all benefit plans, the benefit plans'
sponsors, fiduciaries, administrators, and all successors
and assigns of any of them.
Claims Covered by the Agreement
3. The Company and I mutually agree to the resolution
by arbitration of all claims or controversies ("claims"),
whether or not arising out of my employment (or its
termination), that the Company may have against me or that I
may have against the Company. The claims covered by this
Agreement include, but are not limited to, under my
Employment Agreement, claims for wages or other compensation
due; claims for breach of any contract or covenant (express
or implied); tort claims; claims for discrimination
(including, but not limited to, race, sex, color, religion,
national origin, age (state or federal Age Discrimination in
Employment Act), marital status, veterans status, sexual
preference, medical condition, handicap or disability);
claims for benefits (except where an employee benefit or
pension plan specifies that its claims procedure shall
culminate in an arbitration procedure different from this
one); and claims for violation of any federal, state, or
other law, statute, regulation, or ordinance, except claims
excluded in the following paragraphs.
Claims Not Covered by the Agreement
4. Claims I may have for workers' compensation or
unemployment compensation benefits are not covered by this
Agreement.
5. Also not covered are claims by the Company for
injunctive and/or other equitable relief to enforce the Non-
Competition and Covenant Not to Compete provision of Section
13 (Subsection 13.1 through 13.4 of the Employment
Agreement), as to which I understand and agree that the
Company may seek and obtain relief from a Court of competent
jurisdiction.
Required Notice of All Claims
6. The Company and I agree that the aggrieved party
must give written notice of any claim to the other party
within the applicable state or federal statute of
limitations. The other party shall have 15 working days to
serve a written notice of its defenses.
7. Written notice to the Company, or its officers,
directors, employees or agents, shall be sent to its CEO at
the Company's Joppa, Maryland address. I will be given
written notice at the last address recorded in my personnel
file.
8. The written notice shall identify and describe the
nature of all claims or defenses asserted and the facts upon
which such claims or defenses are based. The notice shall
be sent to the other party by certified or registered mail,
return receipt requested.
9. In order to avoid delay, the Company will not
defend a claim of employment discrimination on the grounds
that I have not received a notice of right to sue, if I am
not yet eligible to receive such a notice.
Representation
10. Any party may be represented by an attorney or
other representative selected by the party.
Discovery
11. Each party shall have the right to take the
deposition of one individual and any expert witness
designated by another party. Each party also shall have the
right to make requests for production of documents to any
party. The subpoena right specified below shall be
applicable to discovery pursuant to this paragraph.
Additional discovery may be had only where the Arbitrator
selected pursuant to this Agreement so orders, upon a
showing of substantial need.
Designation of Witnesses
12. At least 30 days before the arbitration, the
parties must exchange lists of witnesses, including any
expert, and copies of all exhibits intended to be used at
the arbitration.
Subpoenas
13. Each party shall have the right to subpoena
witnesses and documents for the arbitration.
Arbitration Procedures
14. The Company and I agree that, except as provided
in this Agreement, any arbitration shall be in accordance
with the then-current Model Employment Arbitration
Procedures of the American Arbitration Association ("AAA")
before an arbitrator who is licensed to practice law.
15. The Arbitrator shall be selected as follows. The
AAA shall give each party a list of 11 arbitrators drawn
from its panel of labor and employment arbitrators. Each
side may strike all names on the list its deems
unacceptable. If only one common name remains on the lists
of all parties, said individual shall be designated as the
Arbitrator. If more than one common name remains on the
lists of all parties, the parties shall strike names
alternately until only one remains. If no common name
remains on the lists of all parties, the AAA shall furnish
an additional list or lists until an arbitrator is selected.
16. The Arbitrator shall apply the substantive law
(and the law of remedies, if applicable) of the state in
which the claim arose, or federal law, or both, as
applicable to the claim(s) asserted. The Federal Rules of
Civil Procedure shall not apply. The Arbitrator, and not
any federal, state, or local court or agency, shall have
exclusive authority to resolve any dispute relating to the
interpretation, applicability, enforce-ability or formation
of this Agreement, including but not limited to any claim
that all or any part of the Agreement is void or voidable.
The arbitration shall be final and binding upon the parties.
17. The Arbitrator shall have jurisdiction to hear and
rule on pre-hearing disputes and is authorized to hold pre-
hearing conferences by telephone or in person as the
Arbitrator deems necessary. The Arbitrator shall have the
authority to entertain a motion to dismiss and/or a motion
for summary judgment by any party and shall apply the
standards governing such motions under the Federal Rules of
Civil Procedure.
18. Either party, at its expense, may arrange for and
pay the cost of a court reporter to provide a stenographic
record of proceedings.
19. Either party, upon request at the close of hearing
shall be given leave to file a post-hearing brief. The time
for filing such a brief shall be set by the Arbitrator.
20. Either party may bring an action in any court of
the competent jurisdiction to compel arbitration under this
Agreement and to enforce an arbitration award. Except as
otherwise provided in this Agreement, both the Company and I
agree that neither of us shall initiate or prosecute any
lawsuit in any way related to any claim covered by this
Agreement.
21. The Arbitrator shall render an award and opinion
in the form typically rendered in labor arbitrations.
Arbitration Fees and Costs
22. The Company and I shall equally share the fees and
costs of the Arbitrator. Each party will deposit funds in
escrow for its share of the Arbitrator's fee, in an amount
to be determined in advance by the Arbitrator.
23. Each party to the arbitration shall pay for its
own costs and attorneys' fees, if any. However, if a party
prevails on a claim which under law affords the prevailing
party costs or attorneys' fees, the Arbitrator may award
reasonable costs or attorneys' fees to the prevailing party.
Authority for this Agreement.
24. This Agreement is governed by the Federal
Arbitration Act, 9 U.S.C. Section 1, et seq, and the
Maryland Uniform Arbitration Act.
Requirements for Modification or Revocation
25. This Agreement to arbitrate shall survive the
termination of my employment. It can only be revoked or
modified by a writing signed by the parties which
specifically states a mutual intent to revoke or modify this
Agreement.
Sole and Entire Agreement
26. This is the complete agreement of the parties on
the subject of arbitration of disputes [except for any
arbitration agreement in connection with any pension or
benefit plan]. This Agreement supersedes any prior or
contemporaneous oral or written understanding on the
subject.
27. No party is relying on any representations, oral
or written, on the subject of the effect, enforceability or
meaning of this Agreement, except as specifically set forth
in this Agreement.
Construction
28. If any provision of this Agreement is found to be
void or otherwise unenforceable, in whole or in part, such
adjudication shall not affect the validity of the remainder
of the Agreement.
Consideration
29. The promises by the Company and by me to arbitrate
differences, rather than litigate them before courts or
other bodies, provide consideration for each other. In
addition, I have entered into an Employment Agreement as
further consideration for entering into this Agreement.
Not an Employment Agreement
30. This Arbitration Agreement is purely procedural.
It does not provide any substantive rights in addition to
those provided by applicable law or my Employment Agreement.
Voluntary Agreement
31. I acknowledge that I have carefully read this
agreement, that I understand its terms, that all
understandings and agreements between the company and me
relating to the subjects covered in the agreement are
contained in it, and that I have entered into the agreement
voluntarily and not in reliance on any promises or
representations by the company other than those contained in
this agreement itself.
32. The Age Discrimination in Employment Act protects
individuals over 40 years of age from age discrimination.
The ADEA contains some special requirements before an
employee can give up the right to file a lawsuit in court.
The following provisions are designed to comply with those
requirements.
a. I agree that this Agreement to arbitrate is
valuable to me, because it permits a faster resolution of
claims that I would receive in court.
b. I have been advised to consult an attorney before
signing this Agreement.
c. I have 21 days to consider this Agreement.
However, I may sign it sooner if I wish.
d. I have 7 days following my signing this Agreement
to revoke my signature, and the Agreement will not be
legally binding until the 7 day period has gone by.
33. I FURTHER ACKNOWLEDGE THAT I HAVE BEEN GIVEN THE
OPPORTUNITY TO DISCUSS THIS AGREEMENT WITH MY PRIVATE LEGAL
COUNSEL AND HAVE AVAILED MYSELF TO THAT OPPORTUNITY TO THE
EXTENT I WISH TO DO SO.
Merry-Go-Round Enterprises Louis Spagna
/S/ Michael D. Sullivan /S/ Louis Spagna
__________________________ _________________________
Signature of Authorized Signature of Mr. Spagna
Company Representative
President
__________________________
Title of Representative
June 21, 1994 June 8, 1994
__________________________ __________________________
Date Date
4295.1
3
BA0DOCS1\16615.02
EXHIBIT 11
MERRY-GO-ROUND ENTERPRISES, INC.
"DEBTORS-IN-POSSESSION"
COMPUTATIONOF EARNINGS (LOSS) PER SHARE
<TABLE>
<CAPTION>
Fiscal YearFiscal YearFiscal Year
1995 1994 1993
<S> <C> <C> <C>
Net earnings (loss) $(186,340,000)$(45,624,000)$37,981,000
Number of shares of
common stock
outstanding at
beginning of year 53,932,335 53,862,886 53,341,251
Shares of restricted
common stock as of the
dates awarded - - 356,785
Exercise of common stock
options 9,675 48,490 21,924
Cancellation of
restricted common
stock (2,326) - -
------------ -----------------------
Weighted average
number of
shares outstanding 53,939,684 53,911,376 53,719,960
Earnings (loss) per
share $ (3.45) $ (.85) $ .71
</TABLE>
2
BA0DOCS1\16615.02
EXHIBIT 21
MERRY-GO-ROUND ENTERPRISES, INC.
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
Name of Subsidiary State of Incorporation
<S> <C>
MGRR, Inc. Delaware
MGR Distribution, Inc. Maryland
Worth Stores Corp. Delaware
MGRE 1001, Inc. Maryland
MGRE 1002, Inc. Maryland
MGRE 1003, Inc. Maryland
MGRE 1004, Inc. Maryland
MGRE 1005, Inc. Maryland
MGRE 1006, Inc. Maryland
MGRE 1007, Inc. Maryland
Check Assurance Systems Maryland
Fairground Entertainment, Inc. Maryland
The Hollywood Stores, Inc. Maryland
Rosedale Chess King, Inc. Minnesota
</TABLE>
3
BA0DOCS1\16615.02
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Merry-Go-Round Enterprises, Inc.
(Debtors-in-Possession)
We consent to incorporation by reference in the Registration
Statements (No. 33-15207, No. 33-35947 and No. 33-68048) on
Form S-8 of Merry-Go-Round Enterprises, Inc. (Debtors-in-
Possession) of our report dated March 27, 1995, relating to
the consolidated balance sheets of Merry-Go-Round
Enterprises, Inc. (Debtors-in-Possession) as of January 28,
1995 and January 29, 1994, and the related consolidated
statements of operations, stockholders' equity and cash
flows for each of the years in the three-year period ended
January 28, 1995, which appears in the annual report on Form
10-K of Merry-Go-Round Enterprises, Inc. (Debtors-in-
Possession) for the fiscal year ended January 28, 1995.
Our report on the consolidated financial statements of the
Company, dated March 27, 1995, contains an explanatory
paragraph that states that the uncertainties inherent in the
bankruptcy process raise substantial doubt about the
Company's ability to continue as a going concern. The
consolidated financial statements do not include any
adjustments that might result from the outcome of these
uncertainties.
Our report on the consolidated financial statements of the
Company also refers to a change in accounting for income
taxes.
KPMG PEAT MARWICK LLP
Baltimore, Maryland
May 1, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-28-1995
<PERIOD-END> JAN-28-1995
<CASH> 58,372
<SECURITIES> 0
<RECEIVABLES> 7,594
<ALLOWANCES> 0
<INVENTORY> 48,088
<CURRENT-ASSETS> 133,213
<PP&E> 311,583
<DEPRECIATION> 117,518
<TOTAL-ASSETS> 328,423
<CURRENT-LIABILITIES> 63,852
<BONDS> 0
<COMMON> 539
0
0
<OTHER-SE> 5,160
<TOTAL-LIABILITY-AND-EQUITY> 328,423
<SALES> 782,816
<TOTAL-REVENUES> 782,816
<CGS> 648,627
<TOTAL-COSTS> 867,617
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,928
<INCOME-PRETAX> (203,219)
<INCOME-TAX> (16,879)
<INCOME-CONTINUING> (203,219)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (186,340)
<EPS-PRIMARY> (3.45)
<EPS-DILUTED> (3.45)
</TABLE>
