-17-
BAODOCS1/0019033.01
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
_ _ _ SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 29, 1995
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
_ _ _ SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to _________
Commission file number 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 Identification No.) incorporation or organization)
3300 Fashion Way, Joppa, Maryland
21085
- ---------------------------------------------
- ---------------
(Address of principal executive offices)
(Zip Code)
410-538-1000
- -------------------------------------------------------------
- --
(Registrant's telephone number, including area code)
Neither name, address nor fiscal year has been changed since
the last report.
- -------------------------------------------------------------
- -----------------------------------------
(Former name, former address and formal fiscal year, if
changed since last report.)
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
--- ---
Number of shares of Common Stock outstanding as of June 9,
1995: 53,931,008.
<PAGE>
MERRY-GO-ROUND ENTERPRISES, INC.
INDEX
Part I - Financial Information
Item 1. Financial Statements
Consolidated Statements of Operations (Unaudited) for
the
Three Months Ended April 29, 1995 and April 30, 1994
3
Consolidated Balance Sheets as of April 29, 1995
(Unaudited) and January 28, 1995
4
Consolidated Statements of Cash Flows (Unaudited) for
the
Three Months Ended April 29, 1995 and April 30, 1994
5
Notes to Consolidated Financial Statements (Unaudited)
6
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition
11
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K
18
Signatures 19
<PAGE>
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
MERRY-GO-ROUND ENTERPRISES, INC.
DEBTOR-IN-POSSESSION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
Three Months Ended
______________________________
April 29, 1995 April 30, 1994
____________ ____________
<S> <C> <C>
Net sales $121,400,000 $169,016,000
Costs and expenses:
Costs of sales, buying and
occupancy 103,339,000 139,026,000
Selling and administrative 32,939,000 49,952,000
Interest expense, net 429,000
68,000
___________ ___________
Total 136,707,000 189,046,000
___________ ___________
Earnings (loss) before reorganization costs and
income tax (benefit) expense (15,307,000) (20,030,000)
Reorganization costs, net 3,889,000 7,009,000
___________ ___________
Earnings (loss) before income tax (benefit) expense (19,196,000)
(27,039,000)
Income tax (benefit) expense - (2,974,000)
___________ ___________
Net earnings (loss) $(19,196,000) $(24,065,000)
___________ ___________
Earnings (loss) per share of common stock $ (.36) $
(.45)
___________ ___________
Weighted average number of
shares outstanding 53,931,008 53,932,335
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
MERRY-GO-ROUND ENTERPRISES, INC.
DEBTOR-IN-POSSESSION
CONSOLIDATED BALANCE SHEETS
<CAPTION>
April 29, 1995 January 28, 1995
____________ ______________
(Unaudited) (Note)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $17,609,000 $
58,372,000
Receivables 3,068,000 7,594,000
Merchandise inventories 66,342,000 48,088,000
Prepaid expenses and other 3,410,000
2,348,000
Refundable income taxes 16,596,000 16,811,000
__________ ___________
Total current assets 107,025,000
133,213,000
Property and equipment, at cost:
Land and land improvements 4,307,000
4,495,000
Buildings 32,712,000 36,811,000
Leasehold improvements 110,294,000 111,902,000
Furniture, fixtures and equipment 156,571,000
158,375,000
__________ ___________
303,884,000 311,583,000
Less accumulated depreciation and amortization 121,874,000
117,518,000
___________ ___________
Net property and equipment 182,010,000
194,065,000
___________ ___________
Other 2,094,000 1,145,000
___________ ___________
$291,129,000 $328,423,000
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable, trade $ 14,179,000 $ 14,309,000
Other payables and accrued expenses 37,020,000
49,543,000
___________ ___________
Total current liabilities 51,199,000
63,852,000
Noncurrent liabilities:
Long-term debt 10,000,000 10,000,000
Other 10,150,000 10,398,000
___________ ___________
Total noncurrent liabilities 20,150,000
20,398,000
Liabilities subject to compromise under
reorganization proceedings (note 2) 233,195,000
238,474,000
Stockholders' equity (deficit):
Common stock of $.01 par value per share:
Authorized 100,000,000 shares;
issued and outstanding 53,931,008
shares at April 29, 1995 and
January 28, 1995 539,000
539,000
Additional paid-in capital 71,544,000
71,462,000
Retained earnings (deficit) (85,498,000)
(66,302,000)
____________ ___________
Total stockholders' equity (deficit) (13,415,000)
5,699,000
____________ ___________
$ 291,129,000 $328,423,000
<FN>
Note - The consolidated balance sheet at January 28, 1995 has
been derived from the audited consolidated financial
statements at that date.
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
MERRY-GO-ROUND ENTERPRISES, INC.
DEBTOR-IN-POSSESSION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
Three Months Ended
______________________________
April 29, 1995 April 30,
1994
____________
____________
<S> <C> <C>
Operating activities:
Net loss $(19,196,000)
$(24,065,000)
Adjustments to reconcile net earnings
(loss) to net cash used in operating
activities:
Reorganization items
(3,377,000) 7,341,000
Depreciation and amortization
6,389,000 9,080,000
Provision for deferred income taxes
- - 1,490,000
Loss on disposal of property and
equipment -
196,000
Amortization of restricted
common stock 82,000
139,000
Change in operating assets and liabilities:
(Increase) decrease in:
Receivables 4,526,000
(536,000)
Merchandise inventories
(18,254,000) (29,984,000)
Prepaid expenses and other
(1,062,000) (1,359,000)
Refundable income taxes
215,000 (4,392,000)
Other assets (1,139,000)
(390,000)
Increase (decrease) in:
Accounts payable, trade
(130,000) 19,070,000
Other payables and
accrued expenses
(7,064,000) (7,015,000)
Other noncurrent liabilities
(248,000) 246,000
Operating payables
subject to compromise
under reorganization
proceedings (626,000) (396,000)
__________ ___________
Net cash used in
operating activities (39,884,000) (30,575,000)
Investing activities:
Property and equipment expenditures (883,000)
(3,214,000)
Proceeds from sales of property and
equipment 4,657,000 220,000
___________ ___________
Net cash provided by (used in)
investing activities 3,774,000
(2,994,000)
___________ ___________
Financing activities:
Repayment of secured notes
payable (4,653,000) -
__________ __________
Net cash used in financing activities (4,653,000)
- -
Net decrease in cash and
cash equivalents (40,763,000) (33,569,000)
Cash and cash equivalents at beginning of period 58,372,000
113,119,000
__________ ___________
Cash and cash equivalents at end of period
$17,609,000 $ 79,550,000
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
MERRY-GO-ROUND ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. REORGANIZATION AND BASIS OF REPORTING
Merry-Go-Round Enterprises, Inc. (the "Company"), a
national specialty retailer of contemporary fashions for
young men and women, operated 990 stores in 43 states and
Washington, D.C. at April 29, 1995.
Almost all of the Company's stores are located in
enclosed regional shopping malls and are leased. The
geographic distribution of the retail stores by regions of
the United States was as follows: East North Central, 227
stores; East South Central, 53 stores; Mid-Atlantic, 163
stores; Mountain, 33 stores; New England, 71 stores; Pacific,
87 stores; South Atlantic, 205 stores; West North Central, 36
stores; and West South Central, 115 stores.
During the first quarter of fiscal 1996, the
numbers of stores opened, closed and converted to other
concepts, were as follows:
<TABLE>
<CAPTION>
Open at Open
at
January 28, Stores Stores
Stores April 29,
1995 Opened Closed
Converted 1995
<S> <C> <C> <C> <C> <C>
Concept
Merry-Go-Round 467 - (6)
2 463
Dejaiz/Attivo 232 - (5)
(2) 225
Chess King 214 - (5)
- - 209
Cignal 73 - -
- - 73
Fashion Outlets 17 1 (1)
- - 17
Boogies Diner 3 -
- - - 3
_____ ___ ____ ___
_____
1,006 1 (17)
- - 990
</TABLE>
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.
<PAGE>
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
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, a successful top management
transition, future profitable operations, continued timely
flow of merchandise inventory, maintenance of financing
sources to meet current and future obligations, including
compliance with debtor-in-possession financing agreements,
maintenance of vendor and factor confidence, the ability to
generate sufficient cash from operations, renewal of
desirable store leases, the availability of a financing
commitment for post-effective date financing on acceptable
terms and conditions, and confirmation of an acceptable plan
of reorganization.
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 and debtor-in-possession financing
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 or loss or inadequacy of debtor-in-possession
financing could have a materially adverse effect on the
Company's liquidity and on its operations.
On June 12, 1995, the Company and General Electric
Capital Corporation ("GE Capital") and Citicorp USA ("CUSA")
(together, the "Proposed Lenders") executed a commitment
letter (the "Commitment") and a related fee letter to provide
the Company new debtor-in-possession financing. Pursuant to
the Commitment, GE Capital and CUSA would provide working
capital financing in the principal amounts of up to $50
million and $40 million, respectively (together, the
"Facility"). The Commitment provides for the issuance of
guarantees of letters of credit. Borrowings, including such
guarantees, may not exceed the lesser of (i) $90 million or
(ii) 50% (55% in September through November subject to the
satisfaction of certain conditions and 45% in January and
February 1996) of eligible inventory as defined from time to
time by the Proposed Lenders, after deductions for certain
reserves in the discretion of the Proposed Lenders, including
professional fees and a seasonal reserve in certain periods
(the "Borrowing Base"). Had the Company's
<PAGE>
financing been based on the terms set forth in the
Commitment, the credit availability under the Facility at
May 27, 1995 would have been higher than under its existing
credit agreement.
Advances under the Facility would constitute an
administrative claim with priority over all other
administrative claims in the Chapter 11 case and would be
secured by a fully perfected first priority lien (second
priority in the case of the Company's headquarters and
distribution center facility) in all of the Company's real
and personal property, subject only to valid, enforceable and
non-voidable pre-existing liens. The term of the Facility
would expire on the earlier to occur of (i) October 15, 1996,
(ii) the effective date of a plan of reorganization, or (iii)
default under the terms of, and acceleration of, the loan.
A reduction by the Company in the Commitment below
$50 million, termination of the financing by the Company, or
a conversion of the Company's Chapter 11 case to a Chapter 7
case, would require the payment of a 2% early termination
fee. The Company is required to enter into acceptable cash
sweep bank account arrangements and, for a period of 30
consecutive days in January 1996, the Commitment provides
that there are to be no cash borrowings outstanding under the
Facility.
Cash borrowings would bear interest at a floating
rate equal to 1.5%, plus the higher of (i) the base rate
established by Citibank from time to time, (ii) a rate based
on a three-month average of three-month certificates of
deposit of major U.S. banks or (iii) one-half of one percent
above the Federal Funds rate. Fees would include a Trade
Letter of Credit fee of 2.0% per annum and a Standby Letter
of Credit fee of 2.25% per annum, on the face amount of trade
letters of credit and standby letters of credit,
respectively, subject to guarantees under the Facility,
customary letter of credit issuing and other bank fees and an
Unused Facility Fee of 0.5% per annum on unused amounts under
the Facility. In addition, the Company has agreed to pay
certain additional closing fees and administrative fees, a
portion of which could be credited against fees due in
connection with exit financing. The Company has paid
$200,000 and expects to pay an additional $550,000 upon
authorization of the Commitment by the Bankruptcy Court,
which fees are non-refundable but will be credited against
closing fees.
The consummation of the Financing is subject to
certain conditions, including the completion of the Proposed
Lenders' due diligence investigation and the negotiation and
completion of final financing agreements to the satisfaction
of the Proposed Lenders and their counsel, including
customary representations and warranties and certain
financial covenants (including minimum levels of earnings
before interest, taxes, depreciation and amortization
(EBITDA), capital expenditures, fixed charge coverage ratios
and net worth), measured on a quarterly basis; the approval
of the Bankruptcy Court; the absence of events having a
material adverse change on the Company; and a management
transition satisfactory to the Proposed Lenders. The
Commitment expires on July 13, 1995.
<PAGE>
The consolidated financial statements included
herein do not include all the information and footnote
disclosures normally included in consolidated financial
statements prepared in accordance with generally accepted
accounting principles. For further information, such as the
significant accounting policies followed by the Company,
refer to the notes to consolidated financial statements
contained in the fiscal 1995 Annual Report.
In the opinion of management, all adjustments,
consisting of normal recurring accruals, considered necessary
for a fair presentation for the interim periods have been
included in the consolidated financial statements.
The results of operations for the period ended
April 29, 1995, are not necessarily indicative of the
operating results to be expected for the full year.
2. LIABILITIES SUBJECT TO COMPROMISE
Liabilities subject to compromise as of April 29,
1995 and January 28, 1995 consisted of:
<TABLE>
<CAPTION>
April 29, 1995 January 28,
1995
<S> <C> <C>
Secured note payable $ -
$ 4,997,000
Unsecured liabilities:
Accounts payable, trade 39,022,000
39,176,000
Other payables and accrued expenses 55,240,000
55,368,000
Revolving credit debt 44,520,000
44,520,000
Chess King acquisition debt 29,413,000
29,413,000
Institutional investor notes 65,000,000
65,000,000
$233,195,000
$238,474,000
</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 which is
classified in other payables and accrued expenses at April
29, 1995.
A plan of reorganization ultimately confirmed by
the Bankruptcy Court may materially change the amounts and
terms of these prepetition liabilities.
<PAGE>
3. REORGANIZATION COSTS, NET
Reorganization costs recorded in the first quarter
of fiscal 1996 and 1995 consisted of:
<TABLE>
<CAPTION>
1996 1995
< S> <C> <C>
Write-off of leasehold improvements and
fixtures associated with closed stores $
600,000 $2,722,000
Estimated lease rejection claims -
2,224,000
Professional fees 1,958,000
2,200,000
Employee retention and severance
programs and related payroll taxes
and employee benefits 783,000
- -
Other 969,000
244,000
Interest Income (421,000)
(381,000)
$3,889,000
$7,009,000
</TABLE>
4. INCOME TAX BENEFIT - No income tax benefit has been
recorded for the first quarter of fiscal 1996, as the Company
has exhausted its available net operating loss carrybacks
permitted under the federal and state tax codes. The benefit
of net operating loss carryforwards will be reflected in
future periods when it becomes more likely than not that the
benefit will be realized.
<PAGE>
Item 2. Management's Discussion and Analysis of Results of
Operations
and Financial Condition
MANAGEMENT'S DISCUSSION AND ANALYSIS
The Company is a national specialty retailer of
contemporary fashion primarily for young men and women. As
of April 29, 1995, the Company operated 990 stores in 43
states and Washington, D.C. The following discussion
explains material changes in the results of operations
comparing the first quarter of fiscal years 1996 and 1995 and
significant developments affecting the Company's financial
condition since the end of fiscal 1995.
CHAPTER 11 REORGANIZATION
On January 11, 1994, the Company and two of its
subsidiaries filed voluntary petitions for relief under
Chapter 11 in the U.S. 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.
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"). Conditions
to the confirmation of the Plan are that 1) the Company
obtain a commitment for post-effective date financing (a
"Financing Commitment"); 2) the notice for a confirmation
hearing be given 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. 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,
March or May, 1995. The Company met its EBITDA targets for
February, March and April and its net sales target for April.
The Company does not expect its EBITDA target for May to be
achieved.
In view of sales levels for the first quarter of fiscal
1996 and May 1995, the Company currently is revising its
business plan. The Company has not completed
<PAGE>
revisions to its business plan, but expects on a preliminary
basis that the revised business plan will contain marginally
lower targets for net sales and an EBITDA target for fiscal
1996 in the range of approximately $15 million to $20
million. The anticipated revisions to the business plan
could have an adverse effect on the successful implementation
of the Plan. In view of this and other 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 withdrawn. If no plan of
reorganization is successfully implemented, the Company could
be liquidated. Certain modifications to the Plan or a
failure to successfully implement the Plan could have a
material adverse effect on the value of the stockholders'
interest in the Company.
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, a successful top management transition, future
profitable operations, continued timely flow of merchandise
inventory, maintenance of financing sources to meet current
and future obligations, including compliance with debtor-in-
possession financing agreements, maintenance of vendor and
factor confidence, the ability to generate sufficient cash
from operations, renewal of desirable store leases, the
availability of a financing commitment for post-effective
date financing on acceptable terms and conditions, and
confirmation of an acceptable plan of reorganization, none of
which can be assured.
Net Sales - Net sales decreased $47.6 million or 28.2% in the
first quarter of fiscal 1996 compared to the first quarter of
fiscal 1995. The decrease was due to several factors
including closing 436 underperforming stores during fiscal
1995, resulting in a decrease of 28.7% in the weighted
average number of stores open during the quarter. In
addition, sales per selling square foot decreased from
approximately $46 in the first quarter of fiscal 1995 to
approximately $39 in the first quarter of fiscal 1996. The
decrease in sales is attributable to difficult and highly
competitive and promotional market conditions in the
specialty retail apparel industry, lower than desirable
inventory levels early in the first quarter, the continuing
effects of the merchandising transition in the Dejaiz and
Cignal stores, lower than expected sales of dresses, and a
comparatively higher level of clearance sales of fall
merchandise in the same period last year. In addition,
approximately $9.2 million in sales at closed stores realized
during closing periods were classified along with cost of
sales and store operating expenses as reorganization costs.
<PAGE>
Comparable store sales decreased 12.5% in the first
quarter of fiscal 1996 as a result of factors described
above.
Cost of Sales, Buying and Occupancy - Cost of sales, buying
and occupancy decreased $35.7 million or 25.7% in the first
quarter of fiscal 1996 compared to the first quarter of
fiscal 1995. As a percentage of net sales, these costs were
85.1% for the first quarter of fiscal 1996, compared to 82.3%
for the comparable period in fiscal 1995. The costs as a
percentage of net sales increased in fiscal 1996 primarily
due to the lower sales productivity discussed above.
Selling and Administrative Expenses - Selling and
administrative expenses decreased $17.0 million or 34.1% in
the first quarter of fiscal 1996 compared to the first
quarter of fiscal 1995. Selling and administrative expenses
as a percentage of net sales were 27.1% in fiscal 1996
compared to 29.6% in fiscal 1995. The decrease in these
expenses as a percentage of net sales in fiscal 1996 is the
result of management's program to bring selling and
administrative costs in line with current sales volumes.
This program has resulted in expense reductions in store
operations, the corporate office and the distribution center.
Interest Expense, Net - Interest expense was $461,000 and
$322,000 and interest income was $32,000 and $254,000 for the
first quarter of fiscal years 1996 and 1995, 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. Interest
income in the amount of approximately $421,000 in the first
quarter of fiscal 1996, and $381,000 in the first quarter of
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".
Reorganization Costs - The Company recorded $3.9 million and
$7.0 million for costs associated with reorganization under
Chapter 11 protection in the first quarter of fiscal 1996 and
1995, respectively. These costs include:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Write-off of leasehold improvements and
fixtures associated with closed stores $ 600,000
$2,722,000
Estimated lease rejection claims - 2,224,000
Professional fees 1,958,000
2,200,000
Employee retention and severance programs and
related payroll taxes and fringe benefits
783,000 -
Other 969,000
244,000
Interest income (421,000)
(381,000)
Total $3,889,000 $7,009,000
</TABLE>
<PAGE>
The Company anticipates that it will incur additional
reorganization costs for the remainder of its Chapter 11
reorganization.
Income tax benefit - No income tax benefit has been recorded
for the first quarter of fiscal 1996, as the Company has
exhausted its available net operating loss carrybacks
permitted under the federal and state tax codes. The benefit
of net operating loss carryforwards will be reflected in
future periods when it becomes more likely than not that the
benefit will be realized.
Net loss - The net loss was $19.1 million in the first
quarter of fiscal 1996 as compared to $24.1 million in the
first quarter of fiscal 1995. The reduction in the net loss
is the result of reduced selling and administrative expenses
as a percent of sales and lower reorganization costs, offset
in part by the impact of lower sales productivity.
Earnings before interest, income taxes, depreciation,
amortization and reorganization costs (EBITDA), supplemental
financial information generally reported by debtors-in-
possession, were negative $8.5 million in the first quarter
of fiscal 1996 compared to negative $10.8 million in the
first quarter of fiscal 1995.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities during the first
quarter of fiscal 1996 was approximately $39.9 million
compared to $30.6 million for the first quarter of fiscal
1995. The increase in cash used by operating activities is
due primarily to a decrease of trade payables in the first
quarter of fiscal 1996 compared to an increase in trade
payables in the first quarter of fiscal 1995. Trade payables
at April 30, 1994 increased from January 29, 1994 as a result
of the build-up of merchandise inventory and of the fact that
trade payables were depressed by the January 1994 filing for
bankruptcy protection.
Property and equipment expenditures were $883,000 in the
first quarter of fiscal 1996 compared to $3.2 million for the
first quarter of fiscal 1995. The capital expenditures for
fiscal 1996 and fiscal 1995 were principally for store
openings and remodelings.
The Company's net operating loss for fiscal 1995 was
carried back to prior fiscal years, resulting in refundable
Federal and state income taxes paid in such years. In May,
1995 the Company received refunds of Federal income taxes in
the aggregate amount of approximately $19.5 million.
The Company currently contemplates that it will open one
new store and remodel 19 stores during the remainder of
fiscal 1996 at a cost of approximately $5.0 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
<PAGE>
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 May 27, 1995, the borrowing base
was $34.0 million, of which approximately $3.4 million was
available under the credit agreement.
Cash borrowings bear interest at the prime rate
established by Chemical Bank plus 1.25%. 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 specified minimum and maximum levels, and limit
capital expenditures. 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,
particularly in view of recent and anticipated sales and
EBITDA results, the Company's continued 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.
On June 12, 1995, the Company and General Electric
Capital Corporation ("GE Capital") and Citicorp USA ("CUSA")
(together, the "Proposed Lenders") executed a commitment
letter (the "Commitment") and a related fee letter to provide
the Company new debtor-in-possession financing. Pursuant to
the Commitment, GE Capital and CUSA would provide working
capital financing in the principal amounts of up to $50
million and $40 million, respectively (together, the
"Facility"). The Commitment provides for the issuance of
guarantees of letters of credit. Borrowings, including such
guarantees, may not exceed the lesser of (i) $90 million or
(ii) 50% (55% in September through November subject to the
satisfaction of certain conditions and 45% in January and
February 1996) of eligible inventory as defined from time to
time by the Proposed Lenders, after deductions for certain
reserves in the discretion of the Proposed Lenders, including
professional fees and a seasonal reserve in certain periods
(the "Borrowing Base"). Had the Company's financing been
based on the terms set forth in the Commitment, the credit
availability under the Facility at May 27, 1995 would have
been higher than under its existing credit agreement.
<PAGE>
Advances under the Facility would constitute an
administrative claim with priority over all other
administrative claims in the Chapter 11 case and would be
secured by a fully perfected first priority lien (second
priority in the case of the Company's headquarters and
distribution center facility) in all of the Company's real
and personal property, subject only to valid, enforceable and
non-voidable pre-existing liens. The term of the Facility
would expire on the earlier to occur of (i) October 15, 1996,
(ii) the effective date of a plan of reorganization, or (iii)
default under the terms of, and acceleration of, the loan.
A reduction by the Company in the Commitment below
$50 million, termination of the financing by the Company, or
a conversion of the Company's Chapter 11 case to a Chapter 7
case, would require the payment of a 2% early termination
fee. The Company is required to enter into acceptable cash
sweep bank account arrangements and, for a period of 30
consecutive days in January 1996, the Commitment provides
that there are to be no cash borrowings outstanding under the
Facility.
Cash borrowings would bear interest at a floating
rate equal to 1.5%, plus the higher of (i) the base rate
established by Citibank from time to time, (ii) a rate based
on a three-month average of three-month certificates of
deposit of major U.S. banks or (iii) one-half of one percent
above the Federal Funds rate. Fees would include a Trade
Letter of Credit fee of 2.0% per annum and a Standby Letter
of Credit fee of 2.25% per annum, on the face amount of trade
letters of credit and standby letters of credit,
respectively, subject to guarantees under the Facility,
customary letter of credit issuing and other bank fees and
offer bank fees and an Unused Facility Fee of 0.5% per annum
on unused amounts under the Facility. In addition, the
Company has agreed to pay certain additional closing fees and
administrative fees, a portion of which could be credited
against fees due in connection with exit financing. The
Company has paid $200,000 and expects to pay an additional
$550,000 upon authorization of the Commitment by the
Bankruptcy Court, which fees are non-refundable but will be
credited against closing fees.
The consummation of the Financing is subject to
certain conditions, including the completion of the Proposed
Lenders' due diligence investigation and the negotiation and
completion of final financing agreements to the satisfaction
of the Proposed Lenders and their counsel, including
customary representations and warranties and certain
financial covenants (including minimum levels of earnings
before interest, taxes, depreciation and amortization
(EBITDA), capital expenditures, fixed charge coverage ratios
and net worth), measured on a quarterly basis; the approval
of the Bankruptcy Court; the absence of events having a
material adverse change on the Company; and a management
transition satisfactory to the Proposed Lenders. The
Commitment expires on July 13, 1995.
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 and debtor-in-possession financing
<PAGE>
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 or loss or inadequacy of debtor-in-possession
financing could have a materially adverse effect on the
Company's liquidity and on its operations.
<PAGE>
Part II: Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Number Description
3(b) Bylaws of Registrant, amended as of
May 4, 1995
10(ah) Letter Agreement dated June 9,
1995 among
General Electric Capital
Corporation,
Citicorp USA and the Registrant
27 Financial Data Schedule
(b) Reports on Form 8-K
None.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly
authorized.
MERRY-GO-ROUND ENTERPRISES, INC.
DATE June 13, 1995 /s/ Isaac Kaufman
Isaac Kaufman
Executive Vice President, Chief
Financial Officer, Secretary and
Treasurer (Principal Financial
Officer)
DATE June 13, 1995 /s/ Robert J. Reiners
Robert J. Reiners
Vice President of Finance and
Corporate Controller
(Principal Accounting Officer)
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly
authorized.
MERRY-GO-ROUND ENTERPRISES, INC.
DATE June 13, 1995
Isaac Kaufman
Executive Vice President, Chief
Financial Officer and Treasurer
(Principal Financial Officer)
DATE June 13, 1995
Robert J. Reiners
Vice President of Finance and
Corporate Controller
(Principal Accounting Officer)
[CAPTION]
[FN]
<PAGE>
Exhibit 3(b)
Amended as of May 4, 1995
BYLAWS
MERRY-GO-ROUND ENTERPRISES, INC.
ARTICLE I.
Stockholders
Section 1. Annual Meetings.
The annual meeting of the stockholders of the
Corporation shall be held on such date within the month of
September as may be fixed from time to time by the Board of
Directors. Not less than ten nor more than 90 days written
or printed notice stating the place, day and hour of each
annual meeting shall be given in the manner provided in
Section 1 of Article IX hereof. The business to be
transacted at the annual meetings shall include the election
of directors and may include consideration and action upon
the reports of officers and directors and any other business
within the power of the Corporation. All annual meetings
shall be general meetings at which any business may be
considered without being specified as a purpose in the
notice unless otherwise required by law.
Section 2. Special Meetings Called by Chairman of the
Board, President or Board of Directors.
At any time in the interval between annual meetings,
special meetings of stockholders may be called by the
Chairman of the Board, or by the President, or by the Board
of Directors. Not less than ten days nor more than 90 days'
written notice stating the place, day and hour of such
meeting and the matters proposed to be acted on thereat
shall be given in the manner provided in Section 1 of
Article IX. No business shall be transacted at any special
meeting except that specified in the notice.
Section 3. Special Meeting Called by Stockholders.
Upon the request in writing delivered to the Secretary
by stockholders entitled to cast at least 25% of all the
<PAGE>
votes entitled to be cast at the meeting, it shall be the
duty of the Secretary to call forthwith a special meeting of
the stockholders. Such request shall state the purpose of
such meeting and the matters proposed to be acted on
thereat, and no other business shall be transacted at any
such special meeting. The Secretary shall inform such
stockholders of the reasonably estimated costs of preparing
and mailing the notice of the meeting, and upon payment to
the Corporation of such costs, the Secretary shall give not
less than ten nor more than 90 days' notice of the time,
place and purpose of the meeting in the manner provided in
Section I of Article IX. If, upon payment of such costs the
Secretary shall fail to issue a call for such meeting within
thirty days after the receipt of such payment (unless such
failure is excused by law), then the stockholders entitled
to cast 25% or more of the outstanding shares entitled to
vote may do so upon giving not less than ten days' nor more
than 90 days' notice of the time, place and purpose of the
meeting in the manner provided in Section I of Article IX.
Unless requested by stockholders entitled to cast a majority
of all the votes entitled to be cast at the meeting, a
special meeting need not be called to consider any matter
which is substantially the same as a matter voted on at any
special meeting of the stockholders held during the
preceding l2 months.
Section 4. Place of Meetings.
All meetings of stockholders shall be held at the
principal office of the Corporation in the State of Maryland
or at such other place within the United States as may be
fixed from time to time by the Board of Directors and
designated in the notice.
Section 5. Quorum.
At any meeting of stockholders the presence in person
or by proxy of stockholders entitled to cast a majority of
the votes thereat shall constitute a quorum.
<PAGE>
Section 6. Adjourned Meetings.
A meeting of stockholders convened on the date for
which it was called may be adjourned from time to time
without further notice to a date not more than 120 days
after the record date, and any business may be transacted at
any adjourned meeting which could have been transacted at
the meeting as originally called. If notice of the
adjourned meeting is given in the manner required for a
special meeting, any business specified in the notice may be
transacted.
Section 7. Voting.
A majority of the votes cast at a meeting of
stockholders, duly called and at which a quorum is present,
shall be sufficient to take or authorize action upon any
matter which may properly come before the meeting, unless
more than a majority of votes cast is required by statute or
by the Charter. A plurality of all the votes cast at a
meeting at which a quorum is present is sufficient to elect
a director. The Board of Directors may fix the record date
for the determination of stockholders entitled to vote in
the manner provided in Article VIII, Section 3 of these
Bylaws.
Section 8. Proxies.
A stockholder may vote the shares owned of record by
him either in person or by proxy executed in writing and
signed by the stockholder or by his duly authorized attorney-
in-fact. Every proxy shall be dated, but need not be
sealed, witnessed or acknowledged. No proxy shall be valid
after 11 months from its date, unless otherwise provided in
the proxy. In the case of stock held of record by more than
one person, any co-owner or co-fiduciary may execute the
proxy without the joinder of his co-owner(s) or co-
fiduciary(ies), unless the Secretary of the Corporation is
notified in writing by any co-owner or co-fiduciary that the
joinder of more than one is to be required. At all meetings
of stockholders, the proxies shall be filed with
<PAGE>
and verified by the Secretary of the Corporation, or, if the
meeting shall so decide, by the Secretary of the meeting.
Section 9. Order of Business.
At all meetings of stockholders, unless otherwise
determined by the Chairman of the meeting, the order of
business shall be as follows:
(1) Organization
(2) Proof of notice of meeting or of waivers
thereof. (The certificate of the Secretary of the
Corporation, or the affidavit of any other person who
mailed or published the notice or caused the same to be
mailed or published, shall be proof of service of
notice.)
(3) If an annual meeting, or a special meeting
called for that purpose, the election of directors.
(4) Other business.
(5) Adjournment.
Section 10. Removal of Directors.
At any special meeting of the stockholders called in
the manner provided for by this Article, the stockholders,
by the affirmative vote of a majority of all the votes
entitled to be cast for the election of directors, may
remove any director or directors from office, with or
without cause, and may elect a successor or successors to
fill any resulting vacancies for the remainder of his or
their terms.
Section 11. Informal Action by Stockholders.
Any action required or permitted to be taken at any
meeting of stockholders may be taken without a meeting if a
consent in writing setting forth such action is signed by
all the stockholders entitled to vote thereon and such
consent is filed with the records of stockholders' meetings.
<PAGE>
Section 12. Advance Notice of Matters to be Presented at an
Annual Meeting of Stockholders.
At an annual meeting of the stockholders, only such
business shall be conducted as shall have been properly
brought before the meeting. To be properly brought before
an annual meeting, business must be specified in the notice
of the meeting (or any supplement thereto) given by or at
the direction of the Board of Directors, otherwise be
properly brought before the meeting by or at the direction
of the Board of Directors or otherwise be properly brought
before the meeting by a stockholder. In addition to any
other applicable requirements, for business to be properly
brought before an annual meeting by a stockholder, the
stockholder must have given timely notice thereof in writing
to the Secretary. To be timely, a stockholder's notice must
be delivered to or mailed and received at the principal
executive offices of the Corporation, not less than 15 days
nor more than 30 days prior to the meeting (or, with respect
to a proposal required to be included in the Company's proxy
statement pursuant to Rule 14a-8 of the Securities Exchange
Act of 1934, or its successor provision, the earlier date
such proposal was received); provided, however, that in the
event that less than 30 days' notice or prior public
disclosure of the date of the date of the meeting is given
or made to stockholders, notice by the stockholder to be
timely must be so received not later than the close of
business on the 10th day following the day on which such
notice of the date of the annual meeting was mailed or such
public disclosure was made. A stockholder's notice to the
Secretary shall set forth as to each matter the stockholder
proposes to bring before the annual meeting (i) a brief
description of the business desired to be brought before the
annual meeting and the reasons for conducting such business
at the annual meeting, (ii) the name and record address of
the stockholder proposing such business, (iii) the class and
number of shares of the Corporation which are beneficially
owned by the stockholder, and (iv) any material interest of
the stockholder in such business.
Notwithstanding anything in the By-Laws to the
contrary, no business shall be conducted at the annual
<PAGE>
meeting except in accordance with the procedures set forth
in this Section 12; provided, however, that nothing in this
Section 12 shall be deemed to preclude discussion by any
stockholder of any business properly brought before the
annual meeting in accordance with said procedure.
No matter shall be considered at any meeting of the
stockholders except upon a motion duly made and seconded.
Any motion or second of a motion shall be made only by a
natural person present at the meeting who either is a
stockholder of the Company or is acting on behalf of a
stockholder of the Company; provided, that if the person is
acting on behalf of a stockholder, he or she must present a
written statement executed by the stockholder or the duly
authorized attorney of the stockholder on whose behalf he or
she purports to act.
The presiding officer at the meeting shall, if the
facts warrant, determine and declare to the meeting that
business was not properly brought before the meeting in
accordance with the provisions of this Section 12, and if he
should so determine, he shall so declare to the meeting and
any such business not properly brought before the meeting
shall not be transacted.
Section 13. Advance Notice of Nominees for Directors.
Only persons who are nominated in accordance with the
following procedures shall be eligible for election as
Directors. Nominations of persons for election to the Board
of Directors of the Corporation may be made at a meeting of
stockholders by or at the direction of the Board of
Directors, or by any nominating committee or person
appointed by the Board of Directors, or by any stockholder
of the Corporation entitled to vote for the election of
Directors at the meeting who complies with the notice
procedures set forth in this Section 13. Such nominations,
other than those made by or at the direction of the Board of
Directors, shall be made pursuant to timely notice in
writing to he Secretary. To be timely, a stockholder's
notice shall be delivered to or mailed and received at the
principal executive offices of the Corporation not less than
<PAGE>
15 days nor more than 30 days prior to the meeting;
provided, however, that in the event that less than 30 days'
notice or prior public disclosure of the date of the meeting
is given or made to stockholders, notice by the stockholder
to be timely must be so received no later than the close of
business on the 10th day following the day on which such
notice of the date of the meeting was mailed or such public
notice of the date of the meeting was mailed or such public
disclosure was made. Such stockholder's notice shall set
forth: (a) as to each person who the stockholder proposes
to nominate for election or re-election as a Director, (i)
the name, age, business address and residence address of the
person, (ii) the principal occupation or employment of the
person, (iii) the class and number of shares of stock of the
Corporation which are beneficially owned by the person and
(iv) any other information relating to the person that is
required to be disclosed in solicitations for proxies for
election of Directors pursuant to Rule 14a under the
Securities Exchange Act of 1934 or any successor rule
thereto; and (b) as to the stockholder giving the notice,
(i) the name and record address of the stockholder and (ii)
the class and number of shares of the Corporation which are
beneficially owned by the stockholder. The Corporation may
require any proposed nominee to furnish such other
information as may reasonably be required by the Corporation
to determine the eligibility of such proposed nominee to
serve as a Director of the Corporation. No person shall be
eligible for election as a Director of the Corporation
unless nominated in accordance with the procedures set forth
herein.
The presiding officer at the meeting shall, if the
facts warrant, determine and declare to the meeting that a
nomination was not made in accordance with the foregoing
procedure, and if he should so determine, he shall so
declare to the meeting and the defective nomination shall be
disregarded.
Section 14. Maryland Control Share Act
The provisions of Subtitle 7 of Title 3 of the Maryland
General Corporation Law shall not apply to the voting rights
of
<PAGE>
shares of capital stock of the Corporation acquired by any
person, and any acquisition of such shares is hereby
exempted from said Subtitle 7."
ARTICLE II.
Directors
Section 1. Powers.
The business and affairs of the Corporation shall be
managed under the direction of its Board of Directors. All
powers of the Corporation may be exercised by or under the
authority of the Board of Directors except as conferred on
or reserved to the stockholders by law, by the Charter or by
these Bylaws. A director need not be a stockholder. The
Board of Directors shall keep minutes of its meetings and
full and fair accounts of its transactions.
Section 2. Number; Term of Office; Removal.
The number of directors of the Corporation shall be not
less than three or the same number as the number of
stockholders, whichever is less; provided, however, that
such number may be increased and/or decreased from time to
time by vote of a majority of the entire Board of Directors
to a number not exceeding 15. Directors shall hold office
for the term of one year, or until their successors are
elected and qualify. A director may be removed from office
as provided in Article I, Section 10 of these Bylaws.
Section 3. Annual Meeting; Regular Meetings.
As soon as practicable after each annual meeting of
stockholders, the Board of Directors shall meet for the
purpose of organization and the transaction of other
business. No notice of the annual meeting of the Board of
Directors need be given if it is held immediately following
the annual meeting of stockholders and at the same place.
Other regular meetings of the Board of Directors may be held
<PAGE>
at such times and at such places, within or without the
State of Maryland, as shall be designated in the notice for
such meeting by the party making the call. All annual and
regular meetings shall be general meetings, and any business
may be transacted thereat.
Section 4. Special Meetings.
Special meetings of the Board of Directors may be
called by the Chairman of the Board, or the President, or by
a majority of the directors.
Section 5. Quorum; Voting.
A majority of the Board of Directors shall constitute a
quorum for the transaction of business at every meeting of
the Board of Directors; but, if at any meeting there be less
than a quorum present, a majority of those present may
adjourn the meeting from time to time, but not for a period
exceeding ten days at any one time or 60 days in all,
without notice other than by announcement at the meeting,
until a quorum shall attend. At any such adjourned meeting
at which a quorum shall be present, any business may be
transacted which might have been transacted at the meeting
as originally called. Except as hereinafter provided or as
otherwise provided by the Charter or by law, directors shall
act by a vote of a majority of those members in attendance
at a meeting at which a quorum is present.
Section 6. Notice of Meetings.
Notice of the time and place of every regular and
special meeting of the Board of Directors shall be given to
each director in the manner provided in Section 2 of Article
VIII hereof. Subsequent to each Board meeting, each
director shall be furnished with a copy of the minutes of
said meeting. The purpose of any meeting of the Board of
Directors need not be stated in the notice.
Section 7. Vacancies.
(a) If the office of a director becomes vacant for any
reason other than removal or increase in the size of the
<PAGE>
Board, such vacancy may be filled by the Board by a vote of
a majority of directors then in office, although such
majority is less than a quorum.
(b) If the vacancy occurs as a result of the removal
of a director, the stockholders may elect a successor or may
delegate that authority to the Board of Directors.
(c) If the vacancy occurs as a result of an increase
in the number of directors, it may be filled by vote of a
majority of the entire Board of Directors.
(d) If the entire Board of Directors shall become
vacant, any stockholder may call a special meeting in the
same manner that the Chairman of the Board, the Vice
Chairman of the Board or the President may call such
meeting, and directors for the unexpired term may be elected
at such special meeting in the manner provided for their
election at annual meetings.
(e) A director elected by the Board of Directors to
fill a vacancy shall serve until the next annual meeting of
stockholders and until his successor is elected and
qualifies. A director elected by the stockholders to fill a
vacancy shall serve for the unexpired term and until his
successor is elected and qualifies.
Section 8. Rules and Regulations.
The Board of Directors may adopt such rules and
regulations for the conduct of its meetings and the
management of the affairs of the Corporation as it may deem
proper and not inconsistent with the laws of the State of
Maryland or these Bylaws or the Charter.
Section 9. Committees.
The Board of Directors may appoint from among its
members an executive committee and other committees of the
Board of Directors, each committee to be composed of two or
more of the directors of the Corporation. The Board of
Directors may, to the extent provided in the resolution and
<PAGE>
except those powers specifically denied by law, delegate to
any committee, in the intervals between meetings of the
Board of Directors, any or all of the powers of the Board of
Directors in the management of the business and affairs of
the Corporation. A committee or committees shall have the
name or names as may be determined from time to time by the
Board of Directors. Unless the Board of Directors
designates one or more directors as alternate members of any
committee, who may replace an absent or disqualified member
at any meeting of the committee, the members of the
committee present at any meeting and not disqualified from
voting may, whether or not they constitute a quorum,
unanimously appoint another member of the Board of Directors
to act at the meeting in the place of any absent or
disqualified member of the committee. Two members of a
committee shall constitute a quorum for the transaction of
business and the act of a majority of the members and
alternate members present at any meeting at which a quorum
is present shall be the act of the committee. Action may be
taken without a meeting if unanimous written consent is
signed by all of the members of the Committee, and if such
consent is filed with the records of the Committee. A
committee shall have the power to elect one of its members
to serve as its Chairman unless the Board of Directors shall
have designated such Chairman. Any action taken by a
committee within the limits permitted by law shall have the
force and effect of Board action unless and until revised or
altered by the Board.
Section 10. Compensation.
The directors may receive reasonable compensation for
their services, including an annual retainer and a fixed sum
and expenses of attendance at each regular or special
meeting, as determined by resolution of the Board; provided,
however, that nothing herein contained shall be construed as
precluding a director from serving the Corporation in any
other capacity and receiving compensation therefor.
Section 11. Place of Meetings.
Regular or special meetings of the Board may be held
within or without the State of Maryland, as the Board may
<PAGE>
from time to time determine. The time and place of meeting
may be fixed by the party making the call.
Section 12. Informal Action by the Directors.
Any action required or permitted to be taken at any
meeting of the Board may be taken without a meeting, if a
written consent to such action is signed by all members of
the Board and such consent is filed with the minutes of the
Board.
Section 13. Telephone Conference.
Members of the Board of Directors or any committee
thereof may participate in a meeting of the Board or such
committee by means of a conference telephone or similar
communications equipment by means of which all persons
participating in the meeting can hear each other at the same
time and participation by such means shall constitute
presence in person at the meeting.
ARTICLE III.
Officers
Section 1. In General.
The Board of Directors may choose a Chairman of the
Board and a Vice Chairman of the Board from among the
directors. The Board of Directors shall elect a President,
one or more Vice Presidents, a Treasurer, a Secretary, and
such Assistant Secretaries and Assistant Treasurers as may
be chosen by the Board of Directors. All officers shall
hold office for a term of one year and until their
successors are chosen and qualify. Any two of the above
offices, except those of President and Vice President, may
be held by the same person, but no officer shall execute,
acknowledge or verify any instrument in more than one
capacity when such instrument is required to be executed,
acknowledged or verified by any two or more officers. The
Board of Directors may from time to time appoint such other
agents and employees with such powers and duties as they may
<PAGE>
deem proper. In its discretion, the Board of Directors may
leave unfilled any offices except those of President,
Treasurer and Secretary.
Section 2. Chairman of the Board.
The Chairman of the Board, if one is elected, shall
preside over the meetings of the Board at which he is
present and shall have such other duties as may be
determined by the Board of Directors.
Section 3. Vice Chairman of the Board.
The Vice Chairman, if one is elected, shall have such
duties as may be determined by the Board of Directors and,
in the absence of the Chairman of the Board, shall preside
over the meetings of the Board at which he is present.
Section 4. President.
The President shall have such duties as may be
determined by the Board of Directors. In the absence of the
Chairman of the Board and Vice Chairman of the Board, he
shall preside over the meetings of the Board at which he is
present. He shall preside over meetings of the stockholders
at which he is present and shall perform such other duties
as may be assigned to him by the Board of Directors. The
President shall have the authority on the Corporation's
behalf to endorse securities owned by the Corporation and to
execute any documents requiring the signature of an
executive officer.
Section 5. Vice Presidents.
The Board of Directors may elect one or more Executive,
Senior or other Vice Presidents. The Vice Presidents, in
the order of priority designated by the Board of Directors,
shall be vested with all the power and may perform all the
duties of the President in his absence. They may perform
such other duties as may be prescribed by the Board of
Directors or the President.
<PAGE>
Section 6. Treasurer.
The Treasurer shall be the chief financial officer of
the Corporation and shall have general supervision over its
finances. He shall perform such other duties as may be
assigned to him by the Board of Directors or the President.
If required by resolution of the Board, he shall furnish
bond (which may be a blanket bond) with such surety and in
such penalty for the faithful performance of his duties as
the Board of Directors may from time to time require, the
cost of such bond to be defrayed by the Corporation.
Section 7. Secretary.
The Secretary shall keep the minutes of the meetings of
the stockholders and of the Board of Directors and shall
attend to the giving and serving of all notices of the
Corporation required by law or these Bylaws. He shall
maintain at all times in the principal office of the
Corporation at least one copy of the Bylaws with all
amendments to date, and shall make the same, together with
the minutes of the meeting of the stockholders, the annual
statement of affairs of the Corporation and any voting trust
or other stockholders agreement on file at the office of the
Corporation, available for inspection by any officer,
director or stockholder during reasonable business hours.
He shall perform such other duties as may be assigned to him
by the Board of Directors.
Section 8. Assistant Treasurer and Secretary.
The Board of Directors may designate from time to time
Assistant Treasurers and Secretaries, who shall perform such
duties as may from time to time be assigned to them by the
Board of Directors or the President.
Section 9. Compensation; Removal; Vacancies.
The Board of Directors shall have power to fix the
compensation of all officers of the Corporation. It may
authorize any committee or officer, upon whom the power of
appointing subordinate officers may have been conferred, to
<PAGE>
fix the compensation of such subordinate officers. The
Board of Directors shall have the power at any regular or
special meeting to remove any officer, if in the judgment of
the Board the best interest of the Corporation will be
served by such removal. The Board of Directors may
authorize any officer to remove subordinate officers. The
Board of Directors may authorize the Corporation's
employment of an officer for a period in excess of the term
of the Board. The Board of Directors at any regular or
special meeting shall have power to fill a vacancy occurring
in any office for the unexpired portion of the term.
Section 10. Substitutes.
The Board of Directors may from time to time in the
absence of any one of its officers or at any other time,
designate any other person or persons, on behalf of the
Corporation to sign any contracts, deeds, notes or other
instruments in the place or stead of any of such officers,
and may designate any person to fill any one of said
offices, temporarily or for any particular purpose; and any
instruments so signed in accordance with a resolution of the
Board shall be the valid act of the Corporation as fully as
if executed by any regular officer.
ARTICLE IV.
Resignation
Any director or officer may resign his office at any
time. Such resignation shall be made in writing and shall
take effect from the time of its receipt by the Corporation,
unless some time be fixed in the resignation, and then from
that date. The acceptance of a resignation shall not be
required to make it effective.
<PAGE>
ARTICLE V.
Commercial Paper, Etc.
All bills, notes, checks, drafts and commercial paper
of all kinds to be executed by the Corporation as maker,
acceptor, endorser or otherwise, and all assignments and
transfers of stock, contracts, or written obligations of the
Corporation, and all negotiable instruments, shall be made
in the name of the Corporation and shall be signed by any
one or more of the following officers, i.e., the Chairman of
the Board, the President, any Vice President, or the
Treasurer, or by such other person or persons as the Board
of Directors may from time to time designate.
ARTICLE VI.
Seal
The seal of the Corporation shall be in the form of two
concentric circles inscribed with the name of the
Corporation and the year and State in which it is
incorporated. The Secretary or Treasurer, or any Assistant
Secretary or Assistant Treasurer, or any other person
authorized to do so the Board of Directors, is authorized to
attest and to affix to the corporate seal to any document of
the Corporation. In lieu of affixing the corporate seal to
any document, it shall be sufficient to meet the
requirements of any law, rule or regulation relating to a
corporate seal to affix the word "(SEAL)" adjacent to the
signature of the authorized officer or other person.
ARTICLE VII.
Stock
Section 1. Issue.
Each stockholder shall be entitled to a certificate or
certificates which shall represent and certify the number
<PAGE>
and class of shares of stock owned by him in the
Corporation. Each certificate shall be signed by the
Chairman of the Board, the President or any Vice President,
and countersigned by the Secretary or any Assistant
Secretary or the Treasurer or any Assistant Treasurer, and
may be sealed with the seal of the Corporation. The
signatures of the Corporation's officers and its corporate
seal appearing on stock certificates may be facsimiles if
each such certificate is authenticated by the manual
signature of an officer of a duly authorized transfer agent.
Stock certificates shall be in such form not inconsistent
with law or with the Charter, as shall be approved by the
Board of Directors. In case any officer of the Corporation
who has signed any certificate ceases to be an officer of
the Corporation, whether by reason of death, resignation or
otherwise, before such certificate is issued, then the
certificate may nevertheless be issued by the Corporation
with the same effect as if the officer had not ceased to be
such officer as of the date of such issuance.
Section 2. Transfers.
The Board of Directors shall have power and authority
to make all such rules and regulations as they may deem
expedient concerning the issue, transfer and registration of
stock certificates. The Board of Directors may appoint one
or more transfer agents and/or registrars for its
outstanding stock, and their duties may be combined. No
transfer of stock shall be recognized or binding upon the
Corporation until recorded on the books of the Corporation,
or, as the case may be, of its transfer agent and/or of its
registrar, upon surrender and cancellation of a certificate
or certificates for a like number of shares.
Section 3. Record Dates for Dividends and Stockholders'
Meeting.
The Board of Directors may fix a date not exceeding 90
days preceding the date of any meeting of stockholders, any
dividend payment date or any date for the allotment of
rights, as a record date for the determination of the
stockholders entitled to notice of and to vote at such
<PAGE>
meeting, or entitled to receive such dividends or rights, as
the case may be, and only stockholders of record on such
date shall be entitled to notice of and to vote at such
meeting or to receive such dividends or rights, as the case
may be. In the case of a meeting of stockholders, the
record date shall be fixed not less than ten days prior to
the date of the meeting.
Section 4. New Certificates.
In case any certificate of stock is lost, stolen,
mutilated or destroyed, the Board of Directors may authorize
the issue of a new certificate in place thereof upon
indemnity to the Corporation against loss and upon such
other terms and conditions as it may deem advisable. The
Board of Directors may delegate such power to any officer or
officers of the Corporation or to any transfer agent or
registrar of the Corporation; but the Board of Directors,
such officer or officers or such transfer agent or registrar
may, in their discretion, refuse to issue such new
certificate save upon the order of some court having
jurisdiction in the premises.
ARTICLE VIII
Notice
Section 1. Notice to Stockholders.
Whenever by law or these Bylaws notice is required to
be given to any stockholder, such notice shall be in writing
and may be given to each stockholder by leaving the same
with him or at his residence or usual place of business, or
by mailing it, postage prepaid, and addressed to him at his
address as it appears on the books of the Corporation or its
transfer agent. Such leaving or mailing of notice shall be
deemed the time of giving such notice.
Section 2. Notice to Directors and Officers.
Whenever by law or these Bylaws notice is required to
be given to any director or officer, such notice may be
<PAGE>
given in any one of the following ways: by personal notice
to such director or officer, by telephone communication with
such director or officer personally, by telecopy, telegram,
cablegram or radiogram, addressed to such director or
officer at his then address or at his address as it appears
on the books of the Corporation, or by depositing the same
in writing in the post office or in a letter box in a
postage paid, sealed wrapper addressed to such director or
officer at his address as it appears on the books of the
Corporation. The time when such notice shall be consigned
to a communication company for delivery shall be deemed to
be the time of the giving of such notice, and 48 hours after
the time when such notice shall be mailed shall be deemed to
be the time of the giving of such notice by mail.
Section 3. Waiver of Notice.
Notice to any stockholder or director of the time,
place and/or purpose of any meeting of stockholders or
directors required by these Bylaws may be dispensed with if
such stockholder shall either attend in person or by proxy,
or if such director shall attend in person, or if such
absent stockholder or director shall, in writing filed with
the records of the meeting either before or after the
holding thereof, waive such notice.
ARTICLE IX.
Voting of Stock in Other Corporations
Any stock in other corporations, which may from time to
time be held by the Corporation, may be represented and
voted at any meeting of stockholders of such other
corporations by the President or a Vice-President or by
proxy or proxies appointed by the President or a Vice-
President, or otherwise pursuant to authorization of the
Board of Directors.
<PAGE>
ARTICLE X.
Indemnification
The Corporation shall indemnify its directors to the
fullest extent that indemnification of directors is
permitted by the Maryland General Corporation Law. The
Corporation shall indemnify its officers to the same extent
as its directors and to such further extent as is consistent
with law. The Corporation shall indemnify its directors and
officers who, while serving as directors or officers of the
Corporation, also serve at the request of the Corporation as
a director, officer, partner, trustee, employee, agent or
fiduciary of another corporation, partnership, joint
venture, trust, other enterprise or employee benefit plan to
the fullest extent consistent with law. The indemnification
and other rights provided by this Section shall continue as
to a person who has ceased to be a director or officer and
shall inure to the benefit of the heirs, executors and
administrators of such a person.
Any director or officer seeking indemnification within
the scope of this Section shall be entitled to advances from
the Corporation for payment of the reasonable expenses
incurred by him in connection with the matter as to which he
is seeking indemnification in the manner and to the fullest
extent permissible under the Maryland General Corporation
Law without a preliminary determination of ultimate
entitlement to indemnification.
The Board of Directors may make further provision
consistent with law for indemnification and advance of
expenses to directors, officers, employees and agents by
resolution, agreement or otherwise. The indemnification
provided by this Section shall not be deemed exclusive of
any other right, with respect to indemnification or
otherwise, to which those seeking indemnification may be
entitled under any insurance or other agreement or
resolution of stockholders or disinterested directors or
otherwise.
References in this Section are to the Maryland General
Corporation Law as from time to time amended. No amendment
<PAGE>
of these By-Laws shall affect any right of any person under
this Section based on any event, omission or proceeding
prior to the amendment.
ARTICLE XI.
Amendments
These Bylaws may be added to, altered, amended,
repealed or suspended by the Board of Directors.
Exhibit 10(ah)
GENERAL ELECTRIC CAPITAL CORPORATION CITICORP USA
3RD FLOOR 6TH FLOOR/ZONE 4
501 MERRITT SEVEN 399 PARK AVENUE
NORWALK, CONNECTICUT 06851 NEW YORK, NEW YORK 10043
CONFIDENTIAL
June 9, 1995
Merry-Go-Round Enterprises, Inc.
3300 Fashion Way
Joppa, Maryland 21085
Attention: Mr. Thomas Shull,
Chairman and Chief Executive Officer
Mr. James Kenney
President and Chief Operating Officer
Dear Tom and Jim:
You have advised us that on January 11, 1994 (the ``Petition
Date''), Merry-Go-Round Enterprises, Inc., a Maryland corporation
(``MGRE''), and several of its subsidiaries filed a petition for
relief as debtors-in-possession under chapter 11, title 11 of the
United States Code (the ``Bankruptcy Code'') with the United
States Bankruptcy Court for the District of Maryland, at
Baltimore (the ``Court''), and certain other subsidiaries have
since filed petitions (such proceedings, Case Nos. 94-5-0161-SD
through 94-5-0163-SD and 94-5-3774-SD et al., are hereinafter
referred to as the ``Chapter 11 Case'').
You have requested that General Electric Capital Corporation
(``GE Capital'') and Citicorp USA (``CUSA'') consider providing
financing for MGRE's plan of reorganization in the Chapter 11
Case to MGRE and certain of its debtor subsidiaries
(collectively, ``Borrower'') initially during the pendency of the
Chapter 11 Case in the maximum aggregate amount of $90,000,000
(the ``DIP Facility'') in order to (i) fund Borrower's working
capital requirements and (ii) provide funds for certain other
payments, all as described below.
<PAGE>
Borrower and GE Capital Commercial Finance, Inc. (``CF'')
previously entered into a letter agreement, dated March 15, 1995,
pursuant to which CF agreed to undertake discussions, analysis
and due diligence in order to better evaluate the proposed
financing (as supplemented, the ``Letter of Interest'').
Borrower has previously paid fully earned and nonrefundable
due diligence fees to each of CF and CUSA in the amount of
$100,000 (collectively, the ``Due Diligence Fee''). Borrower has
further made due diligence deposits in the amount of $50,000 with
CF and in the amount of $25,000 with CUSA (such deposits
collectively with all additional due diligence deposits provided
for in this letter, the ``Due Diligence Deposit'').
Based on the information you have provided to us and subject
to the terms and conditions set forth herein, GE Capital is
pleased to commit to provide up to $50,000,000 of the DIP
Facility and CUSA is pleased to commit toprovide up to
$40,000,000 of the DIP Facility to Borrower. In addition,
although this is not a commitment to provide financing for a plan
of reorganization (the ``POR Financing''), each of GE Capital and
CUSA is pleased to continue its evaluation of the possibility of
providing such financing to Borrower.
Each of GE Capital and CUSA reserves the right to arrange
for another financial institution or financial institutions
(together with GE Capital and CUSA, each a ``Lender'' and
collectively, the ``Lenders'') acceptable to GE Capital and CUSA
to provide a portion of the DIP Facility and to apportion the
total amount of the DIP Facility among the Lenders. The
obligations of each of GE Capital and CUSA hereunder are
(a) several and neither shall have any liability with respect to
the failure of the other to perform its obligations hereunder and
(b) contingent upon the performance by the other of its
obligations hereunder.
Borrower: Merry-Go-Round Enterprises, Inc. as debtor-in-
possession and certain of its debtor
subsidiaries to be determined.
Co-Agents: GE Capital and CUSA (collectively referred to
as ``Agents'').
Lenders: GE Capital, Citicorp USA and, if syndicated,
the other Lenders.
Facility: A revolving credit facility of up to
$90,000,000, with a subfacility of up to
$75,000,000 for guarantees of trade letters
of credit (the
<PAGE>
``Trade L/C Subfacility'') and a subfacility
of up to $15,000,000 for guarantees of
standby letters of credit (the ``Standby L/C
Subfacility''). Letters of Credit shall be
issued by a bank, and on terms, acceptable to
Agents, and shall be guaranteed by Lenders.
Maturity: The earliest of: (a) October 15, 1996;
(b) the effective date of the plan of
reorganization in the Chapter 11 Case; or
(c) default and acceleration.
Use of Proceeds: Proceeds would be used for working capital
purposes and to fund certain fees and
expenses associated with the DIP Facility.
Availability: The sum of (a) aggregate advances outstanding
at any given time under the DIP Facility
(``Advances'') plus (b) the aggregate face
amount of all letters of credit guaranteed
under the Standby L/C Subfacility and the
Trade L/C Subfacility shall not exceed the
lesser of (i) $90,000,000 and (ii) 50% (the
``Advance Percentage'') of Borrower's
Eligible Inventory, in each case after deduc
tion of such reserves from availability as
Agents may deem appropriate from time to time
in their discretion, including, without
limitation, reserves for payment of profes
sional fees and expenses related to the
Chapter 11 Case and the Seasonal Reserve set
forth below (the ``Available Amount'').
Eligible Inventory shall be determined on the
basis of such eligibility criteria as Agents
may deem appropriate from time to time in
their discretion and will be valued on a
lower of cost (determined on a first-in,
first-out basis) or market basis. Eligible
Inventory will include otherwise eligible
inventory being purchased pursuant to a trade
letter of credit guaranteed under the Trade
L/C Subfacility provided that at the time the
trade letter of credit is drawn upon and
thereafter, Borrower will have title to such
inventory, Agents will have a valid and
perfected security interest in such
inventory, and Agents will have received
satisfactory evidence that such inventory is
in good condition and covered by insurance
naming Agents as a loss payee thereunder
covering any risk of loss of such inventory.
<PAGE>
The Advance Percentage shall be increased
from 50% to 55% for the months of September,
October and November, 1995; provided that
certain conditions to be determined by Agents
are satisfied, including, without limitation,
an update of Gordon Brothers appraisal of the
inventory and an earnings test. The Advance
Percentage shall revert back to 50% on
December 1, 1995 and remain at 50%
thereafter. Commencing December 1, 1995
through February 28, 1996, Agents may, in
addition to any other reserves deemed
appropriate, take a seasonal reserve of five
percent (5%) against the availability of the
DIP Facility (the ``Seasonal Reserve'').
Mandatory Advances will be mandatorily prepaid on a
daily basis out of
Prepayments: available cash pursuant to appropriate lock-
box and cash sweep bank account arrangements
satisfactory to Agents. For a period of
thirty consecutive days in January 1996, no
Advances shall be outstanding.
Optional Borrower may prepay outstanding Advances and
permanently
Prepayments: reduce the commitments under the DIP Facility
without penalty from time to time upon three
business days' notice to Agents and in mini
mum amounts of $5,000,000 and integral
multiples of $1,000,000 in excess of that
amount; provided that if Borrower desires to
reduce the commitments under the DIP Facility
to less than $50,000,000, then Borrower must
terminate the commitments under the DIP
Facility in full.
Letters of Credit: Lenders will incur letter of credit obliga
tions generally in the form of guarantees of
letters of credit issued by CUSA or one or
more other banks (the ``Issuing Bank'')
acceptable to Agents and on terms
satisfactory to Agents for the benefit of
Borrower, provided that such letter of credit
obligations outstanding at any one time shall
not exceed the lesser of (a) the Available
Amount and (b) $75,000,000 for trade letters
of credit or (c) $15,000,000 for standby
letters of credit. While outstanding, letter
of credit obligations will reduce
availability under the DIP Facility, and any
drawing under a letter of credit obligation
shall constitute an Advance under the DIP
Facility. Borrower shall pay a Trade Letter
of Credit Fee equal to two percent (2.0%) per
annum (calculated on the basis of a 360-day
year
<PAGE>
andactual days elapsed) on the face amount of
all letters of credit guaranteed under the
Trade L/C Subfacility and a Standby Letter of
Credit Fee equal to two and one quarter
percent (2.25%) per annum (calculated on the
basis of a 360-day year and actual days
elapsed) on the face amount of all letters of
credit guaranteed under the Standby Letter of
Credit Subfacility, each payable monthly in
arrears, plus any charges assessed by the
Issuing Bank.
Interest: Advances shall bear interest at a floating
rate equal to the Base Rate plus one and one-
half percent (1.5%) per annum. All interest
shall be calculated on the basis of a 360-day
year and actual days elapsed. Interest shall
be payable monthly in arrears and shall be
adjusted on each change of the Base Rate.
``Base Rate'' means a fluctuating interest
rate per annum in effect from time to time,
which rate per annum shall at all times be
equal to the highest of:
(a) the rate of interest announced publicly
by Citibank in New York, New York
(``Citibank''), from time to time, as
Citibank's base rate;
(b) the sum (adjusted to the nearest 1/4 of 1%
or, if there is no nearest 1/4 of 1%, to
the next higher 1/4 of 1%) of (i) 1/2 of 1%
per annum, plus (ii) the rate obtained
by dividing (A) the latest three-week
moving average of secondary market
morning offering rates in the United
States for three-month certificates of
deposit of major United States money
market banks, such three-week moving
average (adjusted to the basis of a year
of 360 days) being determined weekly on
each Monday (or, if such day is not a
business day, on the next succeeding
business day) for the three-week period
ending on the previous Friday by
Citibank on the basis of such rates
reported by certificate of deposit
dealers to and published by the Federal
Reserve Bank of New York or, if such
publication shall be suspended or
terminated, on the basis of quotations
for such rates received by Citibank from
three New York certificate of deposit
dealers of recognized standing selected
by Citibank by (B) a percentage equal to
100% minus the average of the daily
percentages specified
<PAGE>
during such three-week period by the
Board of Governors of the Federal
Reserve System (or any successor) for
determining the maximum reserve
requirement (including, but not limited
to, any emergency, supplemental or other
marginal reserve requirement) for
Citibank with respect to liabilities
consisting of or including (among other
liabilities) three-month U.S. dollar non-
personal time deposits in the Unites
States, plus (iii) the average during
such three-week period of the annual
assessment rates estimated by Citibank
for determining the then current annual
assessment payable by Citibank to the
Federal Deposit Insurance Corporation
(or any successor) for insuring U.S.
dollar deposits of Citibank in the
United States; and
(c) 1/2 of one percent per annum above the
Federal Funds Rate.
So long as any default or event of default
shall be continuing, the interest rate
applicable to Advances and the Trade Letter
of Credit Fee and the Standby Letter of
Credit Fee shall each be increased by two
percent (2.0%) per annum over the rate
otherwise applicable and shall be payable on
demand.
Agents may charge the DIP Facility for any or
all interest and other charges and fees
payable by Borrower.
Unused One-half percent (0.5%) per annum on the
average daily unused
Facility Fee: balance of the DIP Facility (giving effect to
outstanding letter of credit obligations),
payable monthly in arrears (on the first
business day of the following month) and
calculated on the basis of a 360-day year and
the actual number of days elapsed.
Security: To secure all Advances, outstanding letter of
credit obligations and all other obligations
of Borrower to Agents and Lenders
(collectively, the ``Obligations''), Agents
shall receive for the benefit of Lenders
through a Court financing order acceptable to
Agents, a fully perfected first priority (or
second priority in the case of the
Distribution Center and Headquarters
Facility) security interest in all
<PAGE> existing and after acquired real and personal
property of Borrower and any guarantors,
subject only to valid, enforceable and non-
voidable pre-existing liens acceptable to
Agents, including, without limitation, all
cash, cash equivalents, accounts receivable,
inventory (wherever located), equipment,
documents, instruments, securities (whether
or not marketable), franchise rights,
patents, trade names, trademarks, copyrights,
general intangibles and contract rights and
all substitutions, accessions and proceeds
thereof (including insurance proceeds). In
addition, Borrower and any guarantors shall
grant a negative pledge with respect to all
assets.
All collateral granted to Lenders shall be
free and clear of all other liens, claims and
encumbrances (except for the existing first
mortgages on the Distribution Center and
Headquarters Facility). All obligations
owing by Borrower to Lenders shall be
guaranteed by any and all material direct and
indirect subsidiaries of MGRE (other than
subsidiaries who are Borrowers) as may be
determined by Agents.
All Obligations shall constitute super
priority administrative claims as described
below under the heading ``Conditions
Precedent''. Borrower shall obtain all
regulatory and judicial consents and
approvals in form and substance satisfactory
to Agents for the granting of such security
interests and super-priority administrative
claim status as Agents may reasonably
request.
Agents may, in its discretion and at
Borrower's expense, take whatever actions to
perfect its security interests that it deems
necessary or desirable including, without
limitation, filing financing statements or
other instruments, and Borrower shall execute
any such documents upon Agents' reasonable
request.
Representations Those customarily found in Agents' loan
agreements for debtor-in-
and Warranties: possession financings and others determined
by Agents to be appropriate in the context of
the proposed transaction.
<PAGE>
Affirmative and Those affirmative and financial covenants
customarily found in
Financial Covenants: Agents' loan agreements for debtor-in-
possession financings and other covenants
determined by Agents to be appropriate in the
context of the proposed transaction which may
include, without limitation, minimum EBITDA
(FY 96 expected to be $15 million), minimum
fixed charge coverage ratio, minimum net
worth, and maximum capital expenditures (to
be established on basis of Borrower's
Budgeted Plan), covenants with respect to
conduct of business and maintenance of
existence, payment of obligations, access to
books and records (including collateral moni
toring ability), notice of certain
occurrences, compliance with law, maintenance
of insurance, and other affirmative covenants
relating to Borrower's and its subsidiaries'
business. Financial covenants will be
measured on a quarterly basis.
Negative Covenants: Those negative covenants customarily found in
Agents' loan agreements for debtor-in-
possession financings and other negative cove
nants determined by Agents to be appropriate
in the context of the proposed transaction
which may include, without limitation,
prohibitions or limitations on indebtedness,
liens, advances, guaranties, capital
expenditures, issuance of equity, sales of
assets, payment of dividends and
distributions and repurchases of stock by
Borrower and its subsidiaries, payments in
respect of pre-petition obligations,
executive compensation, mergers,
acquisitions, investments, leases and
transactions with officers, directors,
employees and affiliates, amendments or
modifications of material agreements and
other negative covenants relating to
Borrower's and its subsidiaries' business.
Financial Borrower shall be required to provide Agents
with unaudited
Reporting monthly and quarterly and audited annual
financial statements, in
Requirements: form and scope acceptable to Agents. Such
statements shall be compared to Borrower's
current budget and to the preceding year's
comparable period and, in the case of annual
and quarterly statements, be accompanied by a
satisfactory management letter. Borrower
shall provide any additional budgets prepared
during the
<PAGE> course of the DIP Facility. Borrower shall
provide borrowing base certificates and such
collateral reports and verifications and
other reports and information as Agents may
request, on a frequency to be determined by
Agents and in any event upon Agents' request.
Events of Default: Those customarily found in Agents' loan
agreements for debtor-in-possession
financings and others determined by Agents to
be appropriate in the context of the proposed
transaction, including, without limitation,
(i) failure by Borrower to pay its
Obligations as they become due; (ii) failure
to comply with the covenants and conditions
contained in the definitive loan
documentation; (iii) cross-default to breach,
termination or expiration of material
contracts which have been assumed in the
Chapter 11 Case; (iv) the occurrence of any
event (including judgments) which would have
a material adverse effect on Borrower's and
its subsidiaries' business, assets or
financial condition or on Borrower's and its
subsidiaries' ability to perform their
obligations under the definitive
documentation; (v) impairment of the
collateral securing the Obligations or the
rights and remedies under the DIP Facility;
(vi) dismissal of the Chapter 11 Case or
conversion of the Chapter 11 Case from one
under chapter 11 to one under chapter 7 of
the Bankruptcy Code; (vii) the granting of
relief from the automatic stay in favor of
any party other than Agents and Lenders
(subject to such exceptions as may be
mutually agreed upon by Borrower and Agents);
(viii) the assertion or granting of claims
under Section 506(c) of the Bankruptcy Code
or other actions adverse to Agents and
Lenders or their rights and remedies under
the definitive documentation or their
interests in the collateral; (ix) the appoint
ment of a trustee or examiner in the Chapter
11 Case with enlarged powers; (x) the incur
rence of an ERISA termination or withdrawal
liability in excess of specified amount;
(xi) a change in control (to be defined as
mutually agreed to by the parties) or (xii) a
change in any of the orders approving or
affecting the documents relating to the DIP
Facility or the rights, remedies and
obligations of Agents or Lenders thereunder
without the prior written consent of Agents.
<PAGE>
Conditions Those customarily found in Agents' loan
agreements for debtor-in-
Precedent to Closing: possession financings and others
determined by Agents to be appropriate in the
context of the proposed transaction, includ
ing, without limitation:
(a) Completion of the due diligence
investigation by Agents of the business,
affairs, capital structure, material
agreements, properties and prospects of
Borrower and its subsidiaries including,
without limitation, analysis of all
material contracts, the Chapter 11 Case
and pending and threatened ligation
(subject to attorney-client and work
product privileges), with results
satisfactory to Agents and their
counsel.
(b) Borrower shall have obtained a Court
order in form and substance satisfactory
to Agents and their counsel approving
the DIP Facility and Borrower's and its
subsidiaries' and Agents' roles and posi
tions in respect thereto. Such order
shall include without limitation the fol
lowing:
(i) a finding by the Court
based on the record and the
evidence presented that the DIP
Facility constitutes a good faith
arm's length transaction between
Borrower, Agents and Lenders and
that the benefits of Section 364(e)
of the Bankruptcy Code shall apply
to the DIP Facility;
(ii) an order stating that
Borrower's obligations under the
DIP Facility will constitute admini
strative expense claims of Borrower
with priority over all other such
expenses, subject to a carve-out
for certain professional fees and
expenses permitted by the Court on
a final basis in an amount not to
exceed $5,000,000 (determined
without regard to fees and expenses
awarded or otherwise paid on an
interim basis);
(iii) an order granting
Agents on behalf of Lenders a
validly perfected first priority
(or second priority in the case of
the Distribution Center and Head
quarters Facility) security
interest in the assets described
under the heading ``Security''
above and approving the DIP
Facility and the definitive
documentation
<PAGE>
relating thereto, and
providing that upon the occurrence
of an event of default under the
definitive documentation, Agents
and Lenders are not required to
seek relief from the automatic stay
or otherwise
obtain Court approval
before exercising their remedies
and further providing that neither
such security interest nor the
exercise of any rights or remedies
by Agents and Lenders in connection
therewith will result in any
breach, violation or infringement
of (i) any trademark, copyright or
other intellectual property right
of Borrower or any third party or
(ii) any contract to which Borrower
or any of its properties is
subject. The foregoing notwith
standing, Agents shall give
Borrower, the official creditors
and equity holders committees in
the Chapter 11 Case, Bear Stearns &
Co., Inc. and Fidelity Management
and Research Company three business
days' notice of any enforcement
action against the collateral;
(iv) an order prohibiting
other liens on the collateral
securing the DIP Facility or any
other property of the Borrower
other than Permitted Liens (as such
term will be defined in the defini
tive documentation in a manner
acceptable to Agents);
(v) an order requiring
Borrower to pay its obligations
under the DIP Facility on maturity
or upon acceleration;
(vi) appropriate findings of
fact and conclusions of law to the
effect that Agents and Lenders
shall not be deemed to be in
control of Borrower or to be acting
as ``responsible persons'',
``owners'' or ``operators'' with
respect to the operation or
management of Borrower (as such
terms, or similar terms, are used
in the Comprehensive Environmental
Response, Compensation and
Liability Act of 1980, as amended
by the Superfund Amendments and
Reauthorizations Act of 1986) and
an order that shall, in any event,
permit Agents at their option to
exclude from their security
interest any assets discovered to
have a risk
<PAGE>
of environmental liabili
ties which Agents, in their discre
tion, deems unacceptable;
(vii) a provision that the
terms of such order may not be
modified and that any such
modification would constitute an
event of default under the
definitive documentation;
(viii) an order providing
that Borrower may not assert any
claims against Agents, Lenders or
the collateral under Section 506(c)
of the Bankruptcy Code;
(ix) an order providing that
upon an event of default,
(1) Agents may enter upon any
leased premises of Borrower and its
subsidiaries for the purpose of
enforcing the security interests in
collateral granted to Agents, and
(2) Agents may cure any defaults
and perform such of Borrower's
obligations under applicable leases
that are required to be performed
and, in such event, Agents shall be
entitled to all rights and
privileges of the lessee under such
leases without interference from
the lessors thereunder; and
(x) such other terms as
Agents may deem necessary or
appropriate.
(c) Agents, on behalf of Lenders, shall have
received perfected security interests as
set forth in ``Security'' above and
shall also have received such third
party consents or other assurances as
may be required by Agents to ensure
access to collateral and the ability to
exercise rights and remedies in respect
thereof. In addition, Agents shall have
received evidence satisfactory to them
that as of the closing date Borrower's
and its subsidiaries' assets are free of
all security interests and liens except
liens approved in writing by Agents.
(d) Since January 31, 1995, there shall have
been no material adverse change in the
financial condition, business, operating
properties or prospects of Borrower and
its subsidiaries,
<PAGE>
other than as would normally result from
the commencement of the Chapter 11 Case.
There shall be (i) no litigation
(x) which might have a material adverse
effect on the financial condition,
business, operating properties or
prospects of Borrower and its
subsidiaries or (y) which challenges any
of the transactions contemplated hereby
and (ii) no information or analyses
which result in a material change in
Agents' understanding of Borrower and
its subsidiaries or the proposed trans
action.
(e) Excess availability under the DIP
Facility, on a pro forma basis, shall be
at least $5,000,000 and Borrower shall
have a minimum of $15,000,000 in
unencumbered cash and cash equivalents
(as defined in a manner acceptable to
Agents) on hand as of the closing date.
(f) Receipt of evidence of insurance
coverage regarding Borrower and its
subsidiaries satisfactory to Agents,
with Agents listed as loss payee on all
property and casualty insurance and as
an additional insured on all liability
insurance, with each policy providing
for at least 30 days' notice to Agents
of cancellation, non-renewal or material
change.
(g) Establishment of a cash management
system acceptable to Agents.
(h) If requested by Agents, Borrower shall
provide an environmental review of owned
commercial property of Borrower and its
subsidiaries by a firm acceptable to
Agents with results satisfactory to
Agents.
(i) No default or event of default under any
of the definitive documents for the DIP
Facility shall exist (or would result
therefrom) and the representations and
warranties of Borrower contained therein
shall be true and correct.
(j) The structure, terms and documentation
of the DIP Facility shall be
satisfactory to Agents and their
counsel.
<PAGE>
(k) The replacement of the chief executive
officer of MGRE and/or Meridian Ventures
contract with MGRE and continued
involvement shall be satisfactory to
Agents.
(l) Lenders shall have received
(i) satisfactory opinions of counsel to
Borrower on such matters as Agents may
request, including as to enforceability,
the perfection of all security interests
under the DIP Facility, compliance with,
and no conflict under, applicable laws
and agreements and (ii) such corporate
resolutions, certificates and other
documents as Agents shall reasonably
request.
(m) All fees due and payable hereunder and
under the Fee Letter (as hereinafter
defined) and Agents' accrued Transaction
Expenses (as hereinafter defined) shall
have been paid.
Conditions Precedent At the time of each Advance, no default
or event of default under
to Each Advance: any of the definitive documents for the DIP
Facility shall exist (or would result
therefrom) and the representations and
warranties of Borrower contained therein
shall be true and correct in all material
respects.
Assignability: Each Lender will have the right, in its
discretion, to sell, transfer, assign,
participate or otherwise dispose of, subject
to approval of Agents and Borrower
(Borrower's approval not to be unreasonably
withheld), all or any part of its rights and
obligations in respect of the DIP Facility,
and its commitment hereunder to one or more
eligible assignees (to be defined). Borrower
shall assist each Lender in whatever manner
reasonably necessary in order to effectuate
any such disposition.
Syndication: If requested by Agents, Borrower shall assist
Agents in syndicating the DIP Facility Such
assistance shall include, but not be limited
to, assistance and preparation of any
offering materials, certification as to
correctness, completeness and accuracy of all
information regarding Borrower and its
affiliates included in such offering
materials, and participation of relevant
management in any meetings with potential
lenders.
<PAGE>
Expenses: All Transaction Expenses (as hereinafter
defined) are to be paid by Borrower whether
or not the transaction closes or definitive
documentation is entered into.
Governing Law: New York
This letter is delivered to you with the understanding that
neither this letter nor its substance shall be disclosed publicly
or privately except to those of your counsel, accountants,
directors, officers, advisors, employees or agents involved in
the proposed transaction. Without limiting the generality of the
foregoing, none of such persons shall use or refer to Agents'
names in any disclosures made in connection with any of the
transactions described above without Agents' prior written
consent. Any disclosure of this letter or its contents or of
Agents' involvement with Borrower by counsel, officers,
employees, agents, affiliates or advisers of Borrower other than
as required by law will entitle Agents to keep the Commitment Fee
and the Due Diligence Deposit without any further obligation on
the part of Agents to Borrower. Agents' consent to the delivery
of this letter to the Court, the official creditors and equity
holders committees appointed in the Chapter 11 Case, Bear Stearns
& Co., Inc., Fidelity Management and Research Company, the Office
of the United States Trustee and such other parties upon whom
service is required by the Court rules, solely for the purpose of
facilitating and obtaining the Letter Approval (as defined
below). Each of the Agents has executed a confidentiality
agreement in favor of Borrower, which agreements shall survive
the execution and delivery of this letter.
Each Agent has made its own independent investigation of the
financial condition and affairs of Borrower in connection with
making its commitment hereunder and has made and shall continue
to make its own appraisal of the creditworthiness of Borrower.
Each Agent may share with the other Agent credit and other
information about Borrower whether coming into its possession
before the date hereof or at any time or times hereafter;
provided that neither Agent shall have any duty or responsibility
to provide information to the other Agent and shall have no
responsibility or liability with respect to the accuracy or
completeness of any information provided to the other Agent.
If the terms of this commitment are acceptable to you, we
ask that you return to us an executed copy of this letter and the
Fee Letter, dated the date hereof, between Agents and MGRE (the
``Fee Letter'') and, upon the Letter Approval, the non-refundable
Commitment Fee referred to in the Fee Letter and an increase to
the Due Diligence Deposit in an amount equal to $200,000. You
agree to proceed expeditiously to obtain any necessary Court
approval to the payment of the Commitment Fee (including approval
to effect increases to the Due Diligence Deposit from time to
time without further Court order) and the incurrence of the
indemnity and reimbursement
<PAGE>
obligations hereunder and any other financial obligations
hereunder requiring Court approval as soon as possible (the
``Letter Approval'').
The Due Diligence Deposit will be applied towards the
Transaction Expenses. If at any time (and from time to time) the
Due Diligence Deposit does not exceed accrued Transaction
Expenses at such time by at least $25,000, Borrower shall, at
Agents' request, deposit with CUSA an amount requested by Agents
(which in any event, shall not be less than $25,000) necessary to
cause the Due Diligence Deposit to exceed accrued Transaction
Expenses by at least $25,000 at all times. The Due Diligence
Deposit will be applied against Transaction Expenses. Upon
closing of the DIP Facility, any excess of the Due Diligence
Deposit over Transaction Expenses shall be applied against the
Closing Fee referred to in the Fee Letter. If the DIP Facility
does not close, any excess of the Due Diligence Deposit over
Transaction Expenses shall be refunded to Borrower.
Agents' offers of the commitments hereunder shall expire at
the close of business on (a) June 12, 1995 unless on or prior to
such date, you accept this letter by returning a fully executed
copy of this letter and the Fee Letter (without change,
reservation or condition) to Agents and (b) June 15, 1995 unless
on or before that date you shall have obtained the Letter
Approval, pursuant to a Court order acceptable to Agents, and
paid the Commitment Fee and the increase to the Due Diligence
Deposit described above. Subject to the foregoing, Agents'
commitments set forth herein shall expire at 11:59 P.M. on
July 13, 1995, unless all of the transactions contemplated hereby
shall have theretofore been consummated; provided that Borrower
will use its best efforts to get all necessary approvals to
consummate the transactions contemplated hereby on or before
July 7, 1995. Notwithstanding the expiration of Agents'
commitments hereunder, the obligations set forth herein of
Borrower with respect to the payment of fees and expenses,
confidentiality and indemnification shall survive such
expiration.
Borrower agrees to indemnify and hold harmless Agents and
their respective affiliates and their respective officers,
directors, employees, attorneys and agents, and all persons
controlling any of them or any of their affiliates within the
meaning of the Securities Act of 1933 or the Securities Exchange
Act of 1934 (all such person being hereinafter referred to as
``Indemnified Persons''), whether or not definitive documentation
is executed or Advances or other extensions of credit under the
DIP Facility are actually made, from and against all claims,
losses, damages, liabilities or expenses of any kind or nature
whatsoever (each, a ``Claim'') that may be incurred by or
asserted against or involve any Indemnified Person in any and all
actions, suits, proceedings (including any investigations or
inquiries) or Claims with respect to this letter, the Letter of
Interest, the Fee Letter, the DIP Facility, the Chapter 11 Case
or any of the other transactions contemplated hereby (whether or
not consummated), and the preparation, execution and delivery of
this letter and the definitive documentation; and, upon demand by
Agents, to pay or reimburse any such Indemnified Person for any
reasonable legal or other expenses incurred in connection with
investigating, defending (or preparing to defend) or
participating in any such action, suit, proceeding (including any
inquiry or investigation) or Claim, whether commenced or
threatened, it being understood that each
<PAGE>
Indemnified Person shall have the right to select its own counsel
in connection with such matters; provided, that Borrower shall
not be responsible to any such Indemnified Person to the extent
that any such losses, damages, liabilities or expenses result
solely from such Indemnified Person's gross negligence or willful
misconduct. The indemnification provisions set forth herein
shall apply whether or not any Indemnified Person is a party to
any such action, suit, proceeding or Claim, and are expressly
intended to cover, but not be limited to, reimbursement of legal
and other expenses, including expenses incurred in depositions or
other discovery proceedings. The indemnity obligations of
Borrower hereunder shall be in addition to, and not in limitation
of, any other liability or obligation that Borrower or any other
person or entity may have to any Indemnified Person, at common
law or otherwise, including but not limited to any obligation of
contribution. None of CF, Agents or any other Indemnified Person
shall be responsible or liable to any other party hereto or any
other person or entity for consequential, indirect, punitive or
exemplary damages which may be alleged as a result of this
letter, the DIP Facility or the transactions contemplated hereby.
The costs and expenses (collectively, the ``Transaction
Expenses'') of Agents and their affiliates and agents (including,
without limitation, the reasonable fees and expenses of O'Melveny
& Myers, special counsel to Agents, or any other counsel retained
by Agents, and of any auditors, appraisers, record search firms,
environmental consultants, management consultants or other
professionals deemed necessary or advisable by Agents or their
counsel) incurred in connection with the preparation, execution
and delivery of this letter, the Letter of Interest, the Fee
Letter and the financing documentation, the evaluation of the
transaction and the collateral, and the consummation of the
transactions contemplated hereby and thereby, shall be paid by
Borrower, whether or not any financing is made available by
Agents and whether or not definitive documentation is entered
into.
This letter: (a) may be executed in counterparts, each of
which shall be deemed an original and all of which counterparts
shall constitute one and the same document, (b) shall be governed
by the internal law of the State of New York applicable to
contracts made and to be performed within that state;
(c) supersedes any and all discussions, written or oral, between
Agents and their affiliates and Borrower and its affiliates
(including, without limitation, the Letter of Interest (other
than the expense and indemnification provisions thereof); and
(d) may not be contradicted by evidence of any actual or alleged
prior, contemporaneous or subsequent understandings or agreements
of the parties, written or oral, express or implied, other than a
writing signed by Agents which expressly amends or supersedes
this letter. There are no unwritten understandings or agreements
between the parties. The terms of this commitment may not be
changed except pursuant to a writing signed by Agents and
Borrower. This letter is solely for the benefit of Agents and
the Borrower, and there shall be no third party beneficiaries
hereof other than the Indemnified Persons. THE PARTIES HAVING
DETERMINED IT TO BE IN THEIR BEST INTERESTS TO SECURE FOR THEM
SELVES THE ADVANTAGES OF THE BEST ASPECTS OF EACH OF ARBITRATION
AND THE JUDICIAL SYSTEM BY PRESERVING FOR THEMSELVES THE RIGHT TO
TRIAL
<PAGE>
BY JUDGE ALONE, EACH PARTY HEREBY EXPRESSLY WAIVES ANY RIGHT TO
TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION
ARISING UNDER THIS LETTER, ANY TRANSACTION RELATING HERETO, OR
ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED
IN CONNECTION HEREWITH, WHETHER SOUNDING IN CONTRACT, TORT OR
OTHERWISE.
[Remainder of this page intentionally left blank]
<PAGE>
We look forward to working with you to bring the proposed
transaction to completion.
Very truly yours,
GENERAL ELECTRIC CAPITAL CITICORP USA
CORPORATION
By: By:
Charles Chiodo Robert Kosian
Duly Authorized Signatory
Attorney-in-Fact
ACCEPTED THIS ___ DAY
OF JUNE, 1995
MERRY-GO-ROUND ENTERPRISES, INC.
By:
Name:
Title:
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from
Merry-Go-Round Enterprises, Inc. unaudited financial statements for the
three months ended April 29, 1995, and is qualified in its entirety by
reference to such financial statements and the notes thereto.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-03-1996
<PERIOD-END> APR-29-1995
<CASH> 17,609
<SECURITIES> 0
<RECEIVABLES> 3,068
<ALLOWANCES> 0
<INVENTORY> 66,342
<CURRENT-ASSETS> 107,025
<PP&E> 182,010
<DEPRECIATION> 6,389
<TOTAL-ASSETS> 291,129
<CURRENT-LIABILITIES> 51,199
<BONDS> 0
<COMMON> 539
0
0
<OTHER-SE> (13,954)
<TOTAL-LIABILITY-AND-EQUITY> 291,129
<SALES> 121,400
<TOTAL-REVENUES> 121,400
<CGS> 103,339
<TOTAL-COSTS> 136,278
<OTHER-EXPENSES> 3,889
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 429
<INCOME-PRETAX> (19,196)
<INCOME-TAX> 0
<INCOME-CONTINUING> (19,196)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (19,196)
<EPS-PRIMARY> (.36)
<EPS-DILUTED> (.36)
</TABLE>
