Michael D. Sullivan, whose 20-year career helping to build Merry-Go-Round Enterprises Inc. into a huge specialty retailer was marred by the company's bankruptcy filing this year, could receive a severance package of more than $790,000, documents show.
But Merry-Go-Round shareholders may object to the deal, which was disclosed in papers that became available yesterday in U.S. Bankruptcy Court in Baltimore.
Mr. Sullivan resigned last month as Merry-Go-Round's president and chief operating officer after the company was unable to reverse severe losses caused by disappointing sales.
Under an agreement reached with the retailer's board of directors, he would continue to receive his $416,000 annual salary for 23 months -- 18 months plus one week for each year of service.
The agreement would also continue Mr. Sullivan's medical and life insurance benefits for the same period and preserve certain stock options, whose value wasn't clear.
The deal, which could be reduced in value if Mr. Sullivan finds new employment, requires the approval of the U.S. Bankruptcy Court in Baltimore. That approval is far from certain.
The official shareholders committee in Merry-Go-Round's bankruptcy case is still negotiating with the company over severance pay for Mr. Sullivan and another former executive as well as pay for the company's new management, said Stephen Selbst, a New York attorney representing the shareholders.
"We have objections" to proposed pay for both present and previous managers, Mr. Selbst said. "We're trying to work them out. I'm still hopeful that we can reach a settlement."
Thomas E. Biron, a lawyer who represents Merry-Go-Round's official creditors' committee, did not return a phone call yesterday.
Mr. Sullivan, whose last day at Joppa-based Merry-Go-Round was Nov. 23, was unavailable for comment.
A Chicago native, Mr. Sullivan, 55, joined Merry-Go-Round in 1974 when it was still a small string of boutiques, and helped it build it into a 1,400-store chain.
He became president in the 1980s.
With founders Harold Goldsmith and Leonard "Boogie" Weinglass, he helped build Merry-Go-Round into a nationwide purveyor of high-fashion apparel for teens and young adults.
The company's store nameplates include Merry-Go-Round, Cignal, Chess King and Dejaiz.
Merry-Go-Round was very successful in the 1980s, when Mr. Sullivan became president, but lost its way last year, overexpanding and filling stores with unpopular fashions.
It sought protection from creditors under Chapter 11 of federal bankruptcy law in January.
From February through September, Merry-Go-Round's operating losses have totaled $44.9 million on revenue of $494.5 million.
Its net worth has declined from $198 million in January to $124.5 million on Oct. 1.
Severance pay for Mr. Sullivan and Ken Rodriguez, former head of Merry-Go-Round's Cignal division, would pare Merry-Go-Round's assets even more.
Creditors, shareholders and Merry-Go-Round's board are having tense discussions about those severance packages as well as proposed pay for present managers.
Creditors and shareholders are concerned about preserving Merry-Go-Round's dwindling resources.
They also disagree about proposed incentives for managers to speed up the company's progress in bankruptcy proceedings.
Creditors, who get paid before shareholders, want a quick reorganization so they can get their money back. Shareholders, who receive only what's left after creditors are paid, prefer a longer process that builds Merry-Go-Round's value and boosts their return.
Court papers made public yesterday confirmed earlier reports that Merry-Go-Round intends to pay Meridian Ventures executives James Kenney and Thomas Shull a total of $95,000 a month for operating the company.
Mr. Shull is acting chief executive; Mr. Kenney is acting chief operating officer. Both were hired last month, replacing Mr. Sullivan and Mr. Weinglass, who resigned his CEO job but still is chairman.
Court papers made available yesterday also disclosed that Merry-Go-Round would like to give Chief Financial Officer Isaac Kaufman his second raise of the year and award him a bonus, too, upon completion of the bankruptcy process.
Mr. Kaufman's salary would rise to $250,000 annually as of last Oct. 1. He would also receive a bonus equal to 100 percent of annual pay if a reorganization plan is confirmed by April 30, 1996. If a plan is confirmed after Sept. 30, 1996, he would receive a
bonus equal to 50 percent of annual salary.