After weeks of negotiating and a 1 a.m. conference call to bless the deal, parties in Merry-Go-Round's bankruptcy case agreed yesterday to sharply reduce potential pay for the fashion retailer's new bosses.
Also, as expected, Merry-Go-Round announced its intention to file a reorganization plan by Feb. 15 with the U.S. Bankruptcy Court in Baltimore.
Creditors and shareholders for the Joppa-based clothing chain agreed last week on a tentative plan, which company managers have agreed to support.
Under the deal reached yesterday, Meridian Ventures, the consulting firm that has been managing Merry-Go-Round since November, could earn a bonus of between $500,000 and $1.2 million after the company reorganizes, officials said.
Thomas Shull, Meridian partner and Merry-Go-Round's president, said it's unlikely that the bonus would reach $1 million. Even if it does, it will be far less than the multiple millions that Mr. Shull and his partner, James Kenney, could have earned under an earlier plan.
Merry-Go-Round's board of directors had proposed a bonus scale that started at zero and rose as high as $8.8 million, depending on what the company would have been worth upon emerging from bankruptcy proceedings. Meridian said the likelihood of its collecting $8.8 million was extremely small. The fashion chain's creditors, including Fidelity Investments and Bear, Stearns & Co., objected to the bonus size and other terms of Meridian's compensation. Early yesterday morning, pressed by a court deadline, the players finally struck an accord.
Meridian's monthly fee is the same: $90,000 plus $5,000 for expenses. Its contract is now for six months instead of a year, reflecting an agreement reached last week to shorten Merry-Go-Round's bankruptcy proceedings. Meridian was hired to run the chain during bankruptcy and yield to permanent managers afterward.
Mr. Shull's and Mr. Kenney's bonus will now be tied to how quickly they can craft a reorganization; how well they can weed out undeserved creditor claims; how much Merry-Go-Round is worth after it reorganizes and how much cash is paid to creditors.
While Meridian's pay has been settled, another compensation controversy at Merry-Go-Round continues. The company has proposed a severance package that could include up to $790,000 in cash -- close to two years' pay -- for Michael Sullivan, its former president, who resigned in November.
Creditors want the severance cut to about six months' pay. Creditors and Merry-Go-Round "are far apart" on a court proposal that includes the severance, lawyer Thomas E. Biron said at a hearing in U.S. Bankruptcy Court yesterday. Mr. Biron represents Merry-Go-Round's creditors' committee.
Also yesterday, Merry-Go-Round said its store-for-store sales fell 11 percent in December, compared with the same month in 1993, continuing a long string of sharply lower monthly results. But managers said bright spots were apparent.
"We exceeded plan in December -- not obviously at the level they [sales] have been in the past," Mr. Shull said. "We also exceeded our cash plan by $5 million."
The results came with sharp markdowns, officials have said. Expenses generated by layoffs, bankruptcy expenses and store closings also are expected to hurt the quarter's profits.
Last week Merry-Go-Round investors agreed to a plan that could bring the company out of bankruptcy as early as June and would give 75 percent of the reorganized company to creditors and 25 percent to present shareholders.
The company's continuing losses could threaten the plan. Also, a group led by a former department store executive has said it is interested in submitting an alternative plan that would give it control of Merry-Go-Round.
Yesterday, Bankruptcy Judge E. Stephen Derby said he was "delighted" that Merry-Go-Round's reorganization plan "seems to be coming together." Then he added, "I'll hold my breath."