<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 28, 1994
REGISTRATION NO. 33-53639
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
PRE-EFFECTIVE AMENDMENT NO. 2
TO
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
------------------------
MICHAELS STORES, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 75-1943604
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
</TABLE>
5931 CAMPUS CIRCLE DRIVE
IRVING, TEXAS 75063
P.O. BOX 619566
DFW, TEXAS 75261-9566
(214) 714-7000
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
R. DON MORRIS
5931 CAMPUS CIRCLE DRIVE
IRVING, TEXAS 75063
(214) 714-7000
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
------------------------
COPIES TO:
<TABLE>
<S> <C>
CHARLES D. MAGUIRE, JR. KENNETH L. STEWART
JACKSON & WALKER, L.L.P. FULBRIGHT & JAWORSKI L.L.P.
901 Main Street 2200 Ross Avenue
Suite 6000 Suite 2800
Dallas, Texas 75202 Dallas, Texas 75201
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
------------------------
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box: / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. / /
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY
DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION, DATED JUNE 27, 1994
2,000,000 Shares
Common Stock
($.10 PAR VALUE)
--------------
OF THE 2,000,000 SHARES OF COMMON STOCK, $.10 PAR VALUE ("COMMON STOCK"), OF
MICHAELS STORES, INC. ("MICHAELS" OR THE "COMPANY") OFFERED HEREBY, 1,500,000
SHARES ARE BEING SOLD BY THE COMPANY AND 500,000 ARE BEING SOLD BY THE
SELLING STOCKHOLDERS NAMED HEREIN UNDER "SELLING STOCKHOLDERS." THE
COMPANY WILL NOT RECEIVE ANY PROCEEDS FROM THE SALE OF SHARES BY THE
SELLING STOCKHOLDERS. OF THE 2,000,000 SHARES OF COMMON STOCK BEING
OFFERED, 1,600,000 SHARES ARE INITIALLY BEING OFFERED IN THE UNITED
STATES AND CANADA (THE "U.S. SHARES") BY THE U.S. UNDERWRITERS
(THE "U.S. OFFERING") AND 400,000 SHARES ARE INITIALLY BEING
CONCURRENTLY OFFERED OUTSIDE THE UNITED STATES AND CANADA
(THE "INTERNATIONAL SHARES") BY THE MANAGERS (THE
"INTERNATIONAL OFFERING" AND, TOGETHER WITH THE U.S.
OFFERING, THE "COMMON STOCK OFFERING"). THE OFFERING
PRICE AND UNDERWRITING DISCOUNTS OF THE U.S.
OFFERING AND THE INTERNATIONAL OFFERING ARE
IDENTICAL. THE CLOSING OF THE U.S. OFFERING
IS A CONDITION TO THE CLOSING OF THE
INTERNATIONAL OFFERING AND VICE VERSA.
ON JUNE 24, 1994, THE REPORTED LAST
SALE PRICE OF THE COMMON STOCK ON
THE NASDAQ NATIONAL MARKET WAS
$33 7/8 PER SHARE.
--------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR AD-
EQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS COMPANY(1) STOCKHOLDERS
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
PER SHARE................................ $ $ $ $
TOTAL(2)................................. $ $ $ $
<FN>
(1) BEFORE DEDUCTION OF EXPENSES PAYABLE BY THE COMPANY ESTIMATED AT
$ .
(2) THE COMPANY HAS GRANTED THE U.S. UNDERWRITERS AND THE MANAGERS AN OPTION,
EXERCISABLE BY CS FIRST BOSTON CORPORATION, FOR 30 DAYS FROM THE DATE OF
THIS PROSPECTUS TO PURCHASE A MAXIMUM OF 300,000 ADDITIONAL SHARES TO COVER
OVER-ALLOTMENTS OF SHARES. IF THE OPTION IS EXERCISED IN FULL, THE TOTAL
PRICE TO PUBLIC WILL BE $ , UNDERWRITING DISCOUNTS AND COMMISSIONS
WILL BE $ , AND PROCEEDS TO COMPANY WILL BE $ .
</TABLE>
--------------
THE U.S. SHARES ARE OFFERED BY THE SEVERAL U.S. UNDERWRITERS WHEN, AS AND IF
ISSUED BY THE COMPANY, DELIVERED TO AND ACCEPTED BY THE U.S. UNDERWRITERS AND
SUBJECT TO THEIR RIGHT TO REJECT ORDERS IN WHOLE OR IN PART. IT IS EXPECTED THAT
THE U.S. SHARES WILL BE READY FOR DELIVERY ON OR ABOUT , 1994.
CS First Boston
Robertson, Stephens & Company
Nomura Securities International, Inc.
THE DATE OF THIS PROSPECTUS IS JULY , 1994.
<PAGE>
[map]
IN CONNECTION WITH THIS OFFERING, CS FIRST BOSTON CORPORATION ON BEHALF OF
THE U.S. UNDERWRITERS AND THE MANAGERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS
WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT A LEVEL
ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS
MAY BE EFFECTED ON THE NASDAQ STOCK MARKET OR OTHERWISE. SUCH STABILIZING, IF
COMMENCED, MAY BE DISCONTINUED AT ANY TIME. IN CONNECTION WITH THIS OFFERING,
CERTAIN U.S. UNDERWRITERS AND MANAGERS (AND SELLING GROUP MEMBERS, IF ANY) AND
THEIR RESPECTIVE AFFILIATES MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN
THE COMMON STOCK ON THE NASDAQ STOCK MARKET IN ACCORDANCE WITH RULE 10B-6A UNDER
THE SECURITIES EXCHANGE ACT OF 1934. (SEE "UNDERWRITING.")
2
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company with the Commission may be
inspected and copied at the office of the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the following regional offices of
the Commission: Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661; and 7 World Trade Center, 13th Floor, New York, New
York 10048. Copies of such material can also be obtained from the Public
Reference Section of the Commission at Judiciary Plaza, Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates.
This Prospectus does not contain all of the information set forth in the
Registration Statement on Form S-3 and exhibits thereto (collectively, the
"Registration Statement") that the Company filed with the Commission in
connection with the sale of the securities offered hereby under the Securities
Act of 1933, as amended (the "Securities Act"), to which Registration Statement
reference is hereby made. Copies of such Registration Statement are available
from the Commission. The terms "Michaels" and the "Company" when used herein
shall mean Michaels Stores, Inc. and its subsidiaries.
The Company's principal executive offices are located at 5931 Campus Circle
Drive, Irving, Texas, and its mailing address is P.O. Box 619566, DFW, Texas
75261-9566 and the Company's telephone number is (214) 714-7000.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents have been filed with the Commission by the Company
and are incorporated herein by reference and made a part hereof as of their
respective dates: (i) Annual Report on Form 10-K for the year ended January 30,
1994; (ii) definitive Proxy Statement, dated April 25, 1994, relating to the
Company's Annual Meeting of Stockholders held on May 24, 1994; (iii) Current
Report on Form 8-K filed May 23, 1994, as amended by Form 8-K/A filed June 23,
1994; (iv) Quarterly Report on Form 10-Q for the quarter ended May 1, 1994; and
(v) Registration Statement on Form 8-A (No. 0-11822), effective as of September
11, 1991 and any amendments filed thereto.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 and
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination of the Common Stock Offering shall be deemed to be incorporated
by reference herein and to be a part hereof from the date of filing thereof. Any
statement contained herein or in a document incorporated or deemed incorporated
by reference herein shall be deemed to be modified or superseded for all
purposes of this Prospectus to the extent that a statement contained herein or
in any other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
The Company will provide, without charge, to each person to whom a copy of
this Prospectus is delivered, upon the written or oral request of such person, a
copy of any or all of the documents incorporated by reference in this Prospectus
(other than exhibits and schedules thereto, unless such exhibits or schedules
are specifically incorporated by reference into the information that this
Prospectus incorporates). Written or telephonic requests for copies should be
directed to Michaels' principal office: Michaels Stores, Inc., P.O. Box 619566,
DFW, Texas 75261-9566, Attention: Investor Relations (telephone: (214)
714-7100).
3
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS INTENDED TO HIGHLIGHT CERTAIN INFORMATION CONTAINED
ELSEWHERE IN THIS PROSPECTUS. THIS SUMMARY IS NOT INTENDED TO BE A COMPLETE
STATEMENT OF ALL MATERIAL INFORMATION IN THIS PROSPECTUS AND IS QUALIFIED IN ITS
ENTIRETY BY THE MORE DETAILED INFORMATION HEREIN AND IN THE DOCUMENTS
INCORPORATED BY REFERENCE. UNLESS OTHERWISE INDICATED, THE INFORMATION CONTAINED
IN THIS PROSPECTUS ASSUMES THAT THE U.S. UNDERWRITERS' AND THE MANAGERS'
OVER-ALLOTMENT OPTION IS NOT EXERCISED.
THE COMPANY
Michaels Stores, Inc. ("Michaels" or the "Company") is the nation's leading
retailer of arts, crafts and decorative items. Michaels stores offer a wide
selection of competitively priced items, including general crafts, wearable art,
silk and dried flowers, picture framing materials and services, art and hobby
supplies, and party, seasonal and holiday merchandise. The Company's stores
average approximately 15,500 square feet of selling space and offer an
assortment of over 30,000 stock keeping units ("SKUs"). Michaels' merchandising
strategy is to provide a broad selection of products in an appealing store
environment with superior customer service, including in-store "how-to"
demonstrations, project samples displayed throughout the store and instructional
classes for adults and children.
Michaels currently operates 268 stores in 36 states and Canada. As a result
of the recently announced acquisition (the "Leewards Acquisition") of Leewards
Creative Crafts, Inc. ("Leewards"), the Company intends to add approximately 80
Leewards store locations. In addition, Michaels anticipates closing
approximately 5 to 10 overlapping Michaels stores. On a pro forma basis for the
Leewards Acquisition, Michaels' sales for the fiscal year ended January 30, 1994
would have been approximately $780 million. In addition to the Leewards stores
and the 25 stores acquired earlier this year, Michaels currently anticipates
opening approximately 55 new store locations in 1994, of which 23 have been
opened. Assuming the consummation of the Leewards Acquisition, the Company
intends to add approximately 50 to 60 new stores during 1995.
Over the past five fiscal years, the Company's sales have grown from $290
million to $620 million. This sales growth resulted from increases in comparable
store sales in each year since 1989 and an increase in the Company's store
locations from 122 to 220 at the end of the most recent fiscal year. In
addition, operating income over the past five fiscal years has increased from
$15 million to $41 million.
RECENT ACQUISITIONS
On May 10, 1994, Michaels announced that it had signed a definitive merger
agreement for the acquisition of Leewards, an Illinois-based arts and crafts
retailer with approximately 100 stores located primarily in the midwestern and
northeastern United States. It is expected that the Leewards Acquisition will
close on or before July 8, 1994, prior to completion of the Common Stock
Offering. Assuming the Leewards Acquisition closes prior to completion of the
Common Stock Offering, and assuming a five day average closing price of the
Common Stock on The Nasdaq National Market of $33 7/8, the acquisition
consideration will consist of approximately $7.8 million in cash and 1,256,159
shares of Common Stock. It is currently estimated that 500,000 of these shares
will be sold by the Leewards stockholders to the public in this Common Stock
Offering. Upon consummation of the Leewards Acquisition, Michaels will also
repay an estimated $50 million of Leewards' indebtedness. The Leewards
Acquisition will establish Michaels' presence in a number of new markets,
including the northeastern United States, a market in which Michaels does not
currently have a significant presence, and significantly expand its presence in
several existing markets. Following the Leewards Acquisition, Michaels expects
to close approximately 20 Leewards stores and approximately 5 to 10 Michaels
stores due to overlapping locations. Substantially all of the conditions to the
consummation of the Leewards Acquisition have been satisfied, including approval
of Leewards' stockholders and termination of the waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976 ("Hart-Scott-Rodino"). See
"Recent Developments -- Recent Acquisitions," "Leewards Acquisition" and
"Selling Stockholders."
In February 1994, the Company acquired Treasure House Stores, Inc.
("Treasure House"), a chain of nine arts and crafts stores operating primarily
in the Seattle market, for 280,000 shares of Michaels Common Stock. In April
1994, the Company acquired the affiliated arts and crafts store chains of Oregon
Craft & Floral Supply Co. ("Oregon Craft & Floral"), with eight stores located
primarily in the Portland, Oregon area, and H&H Craft & Floral Supply Co. ("H&H
Craft & Floral"), with eight stores located in southern California, for a total
of 455,000 shares of Michaels Common Stock. The Treasure House stores have been
converted to the Michaels format and the Oregon Craft & Floral and H&H Craft &
Floral stores
4
<PAGE>
are being converted to the Michaels format with grand openings scheduled for
July through August of this year. The Company believes that these acquisitions
have significantly increased its presence in Oregon and Washington and further
strengthened its position in southern California. See "Recent Developments --
Recent Acquisitions."
INTEGRATION OF LEEWARDS
The Company has designed a ten-week transition plan to reconfigure the
Leewards stores to be more consistent with the merchandising strategy of
Michaels. In order to minimize disruption to the Company's business, this plan
will be implemented by the Leewards field organization under the supervision of
Michaels' management using detailed plans developed by Michaels. Key aspects of
this plan include:
- Revising and enhancing the product mix to correlate to Michaels'
merchandising strategy;
- Converting merchandise ordering and management information systems;
- Eliminating redundant overhead;
- Retraining employees to provide the level of customer service found in
Michaels stores and to improve operational efficiencies; and
- Closing approximately 20 Leewards and approximately 5 to 10 Michaels store
locations to eliminate overlapping stores.
The continuing 80 Leewards stores will be converted to the Michaels store
format beginning with a four-week phase to eliminate incompatible merchandise.
The second phase will involve the arrival of new merchandise and the
reformatting of the stores to the Michaels prototype. This will be accomplished
department by department, with the stores remaining open for business throughout
the process. The Company anticipates completing the plan prior to the busy
fall/Christmas selling season. See "Leewards Acquisition -- Integration of
Leewards."
THE COMMON STOCK OFFERING
<TABLE>
<CAPTION>
U.S. INTERNATIONAL
OFFERING OFFERING TOTAL
------------ ------------ -----------
<S> <C> <C> <C>
Shares of Common Stock Offered:
By the Company.................................. 1,200,000 300,000 1,500,000
By the Selling Stockholders..................... 400,000 100,000 500,000
------------ ------------ -----------
Total(1).................................... 1,600,000 400,000 2,000,000
------------ ------------ -----------
------------ ------------ -----------
</TABLE>
<TABLE>
<S> <C>
Common Stock to be Outstanding:
After the Leewards Acquisition(2)......... 18,748,967 shares
After the Leewards Acquisition and the
Common Stock Offering(2)................. 20,248,967 shares
Use of Proceeds............................. Payment of outstanding bank debt which is expected to
include indebtedness to be incurred in connection with
the Leewards Acquisition. See "Use of Proceeds."
Nasdaq National Market Symbol............... MIKE
<FN>
- --------------------------
(1) Pursuant to an agreement between the U.S. Underwriters and the Managers,
some or all of the shares underwritten by the Managers may be sold by the
Managers to the U.S. Underwriters for resale in the United States and
Canada, and some or all of the shares underwritten by the U.S.
Underwriters may be sold by the U.S. Underwriters to the Managers for
resale outside the United States and Canada. See "Underwriting."
(2) Reflects shares outstanding as of June 16, 1994 and assumes that the
Leewards Acquisition is consummated and that the consideration payable to
Leewards' stockholders consists of the issuance of 1,256,159 shares of
Common Stock and cash of $7.8 million. Excludes shares held by
wholly-owned subsidiaries of the Company. If the Leewards Acquisition does
not close prior to the closing of the Common Stock Offering, the Leewards
stockholders may receive cash in lieu of up to 500,000 shares of the
Common Stock issuable in the acquisition. See "Recent Developments --
Recent Acquisitions," "Leewards Acquisition" and "Description of Capital
Stock."
</TABLE>
5
<PAGE>
SUMMARY FINANCIAL AND STORE DATA
(IN THOUSANDS, EXCEPT STORE DATA AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FISCAL YEAR (1) QUARTER ENDED
------------------------------------------------------------------- ---------------------------------
1993 MAY 1, 1994
-------------------- ----------------------
PRO MAY 2, PRO
1989 1990 1991 1992 ACTUAL FORMA(2) 1993 ACTUAL FORMA(2)
-------- -------- ----------- -------- -------- --------- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales.............. $289,754 $362,028 $410,899 $493,159 $619,688 $780,302 $112,961 $159,798 $199,305
Operating income....... 14,900 20,694 25,643 34,263 41,356 44,333 5,962 9,071 9,582
Weighted average shares
outstanding assuming
full dilution......... 10,645 10,229 12,411 16,853 19,809 21,065 17,131 17,856 19,112
Earnings per common
share assuming full
dilution.............. $0.00 $0.57 $0.87(3) $1.21 $1.52 $1.41 $0.22 $0.28 $0.25
STORE DATA:
Stores open at period
end................... 122 137 140 168 220 299(4) 180 259 338(4)
Average sales per
square foot (5)....... $193 $206 $213 $226 $218 $206 $ 45 $ 44 $43
Comparable store sales
increase (6).......... 6% 9% 9% 7% 3% 3% 2% 10% 8%
</TABLE>
<TABLE>
<CAPTION>
MAY 1, 1994
-----------------------------------------
PRO FORMA
ACTUAL PRO FORMA (7) AS ADJUSTED(8)
--------- -------------- --------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital..................................................... $ 169,726 $ 137,082 $ 184,908
Total assets........................................................ 463,119 603,525 603,525
Convertible subordinated notes...................................... 97,750 97,750 97,750
Shareholders' equity................................................ 206,596 249,148 296,974
<FN>
- ------------------------------
(1) The Company operates on a 52/53 week fiscal year ending on the Sunday
closest to January 31. For example, references to "fiscal 1993" mean the
fiscal year ended January 30, 1994. Fiscal 1990 included 53 weeks; all
other fiscal years set forth above included 52 weeks.
(2) On a pro forma basis to reflect the consummation of the Leewards
Acquisition. See "Pro Forma Combined Financial Information." Fiscal 1993
pro forma amounts do not reflect the acquisitions of Treasure House,
Oregon Craft & Floral or H&H Craft & Floral by the Company in February and
April 1994 as such acquisitions were not material in the aggregate.
(3) Before extraordinary item of $3.8 million, or $0.31 per common and common
equivalent share, relating to the redemption premium paid for the early
retirement of the Company's 12.75% Senior Subordinated Notes, which had an
effective interest rate of 15.8%, and the accelerated amortization of
related debt issuance costs.
(4) Includes Leewards stores and Michaels stores open at period end net of 20
Leewards stores anticipated to be closed.
(5) Calculated for stores open the entire period and based on selling square
footage.
(6) The increase for fiscal 1990 was calculated on a comparable 52-week
period.
(7) Pro forma for the Leewards Acquisition. Assumes that the Leewards
Acquisition is consummated and that the consideration payable to Leewards'
stockholders consists of the issuance of 1,256,159 shares of Common Stock
and cash of $7.8 million.
(8) Pro forma for the Leewards Acquisition and as adjusted for the Common
Stock Offering. Assumes that the Leewards Acquisition is consummated and
that the consideration payable to Leewards' stockholders consists of the
issuance of 1,256,159 shares of Common Stock and cash of $7.8 million.
</TABLE>
6
<PAGE>
RECENT DEVELOPMENTS
RECENT ACQUISITIONS
On May 10, 1994, the Company announced that it had signed a definitive
merger agreement for the acquisition of Leewards, an Illinois-based arts and
crafts retailer with approximately 100 stores located primarily in the
midwestern and northeastern United States. It is expected that the Leewards
Acquisition will close on or before July 8, 1994, prior to completion of the
Common Stock Offering. Assuming the Leewards Acquisition closes prior to
completion of the Common Stock Offering, and assuming a five day average closing
price of the Common Stock price on The Nasdaq National Market of $33 7/8, the
acquisition consideration will consist of approximately $7.8 million in cash and
1,256,159 shares of Common Stock. It is currently estimated that 500,000 of
these shares will be sold by the Leewards stockholders to the public in this
Common Stock Offering. Upon consummation of the Leewards Acquisition, Michaels
will also repay the indebtedness under Leewards' bank credit facility and
subordinated notes, expected to total approximately $50 million at closing.
Substantially all of the conditions to the consummation of the Leewards
Acquisition have been satisfied, including approval of Leewards' stockholders
and termination of the waiting period under Hart-Scott-Rodino. Consummation of
the acquisition is nevertheless subject to certain customary conditions to
closing including there having occurred no material adverse changes in the
condition (financial or otherwise), operations, assets or liabilities of
Michaels or Leewards. The Leewards stockholders have agreed they will not engage
in a public distribution of the shares of Common Stock they acquire in
connection with the Leewards Acquisition for a period of 90 days from the date
of this Prospectus. In the event that the Leewards Acquisition closes after the
closing of the Common Stock Offering, the Leewards stockholders may receive cash
in lieu of a portion of the shares of Common Stock issuable in the acquisition.
See "Leewards Acquisition," "Pro Forma Combined Financial Information," "Selling
Stockholders" and "Underwriting."
In February 1994, the Company acquired Treasure House, a chain of nine arts
and crafts stores operating primarily in the Seattle market, for 280,000 shares
of Michaels Common Stock. In April 1994, the Company acquired the affiliated
arts and crafts store chains of Oregon Craft & Floral, with eight stores located
primarily in the Portland, Oregon area, and H&H Craft & Floral, with eight
stores located in southern California, for a total of 455,000 shares of Michaels
Common Stock. The Treasure House stores have been converted to the Michaels
format and the Oregon Craft & Floral and the H&H Craft and Floral stores are
being converted to the Michaels format with grand openings scheduled for July
through August of this year. The Company believes that these acquisitions have
significantly increased its presence in Oregon and Washington and further
strengthened the Company's position in southern California.
OPERATING RESULTS FOR FIRST QUARTER
Michaels reported record first quarter earnings for the quarter ended May 1,
1994 of $5.0 million, or $0.28 per share, compared to $3.8 million, or $0.22 per
share for the first quarter of fiscal 1993. The earnings increase can be
attributed to a 41% increase in net sales to $159.8 million, including a 10%
increase in comparable store sales, and a 52% increase in operating income to
$9.1 million. Operating income as a percentage of net sales increased to 5.7% in
the fiscal 1994 first quarter from 5.3% in the year earlier period. Earnings for
the 1994 first quarter included one-time transaction costs, severance costs and
duplicate pre-merger general and administrative costs associated with the
acquisition of Treasure House during the quarter, which was accounted for as a
pooling of interests and, accordingly, had its sales and earnings included in
the Company's results as of the beginning of the quarter. Without these one-time
costs totaling $0.02 per share, earnings per share would have been $0.30 for the
quarter, an increase of 36% over the year earlier period. The Oregon Craft &
Floral and H&H Craft and Floral acquisitions were purchase transactions that
closed near the end of the quarter and thus had no significant effect on the
Company's results for the quarter.
ANTICIPATED STORE CLOSING AND CONVERSION COSTS
Michaels expects to incur a pretax charge in the quarter in which the
Leewards Acquisition is consummated. The charge will relate to the cost of
closing approximately 5 to 10 existing Michaels store locations in connection
with the integration of Leewards and reconfiguring the 80 continuing
7
<PAGE>
Leewards stores to be more consistent with the merchandising strategy of
Michaels. In accordance with generally accepted accounting principles, the cost
of closing the Company's existing store locations will be expensed while the
cost of closing the acquired Leewards store locations will be included as an
adjustment to the purchase price of the acquisition.
NEW CREDIT FACILITY
In June 1994, Michaels entered into a new three-year, unsecured $150 million
revolving credit facility to replace its existing $100 million revolving credit
facility.
THE COMPANY
OVERVIEW
Michaels is the nation's leading retailer of arts, crafts and decorative
items. Michaels stores offer a wide selection of competitively priced items,
including general crafts, wearable art, silk and dried flowers, picture framing
materials and services, art and hobby supplies, and party, seasonal and holiday
merchandise. Michaels' merchandising strategy is to provide a broad selection of
products in an appealing store environment with superior customer service,
including in-store "how-to" demonstrations, project samples displayed throughout
the store and instructional classes for adults and children. The Company's
primary customers are women aged 25 to 54 with above average median household
incomes, and the Company believes that repeat customers account for a
substantial portion of its sales. The average sale is approximately $13.75.
Michaels currently operates 268 stores in 36 states and Canada. As a result
of the Leewards Acquisition, the Company intends to add approximately 80
Leewards store locations. In addition, Michaels anticipates closing 5 to 10
overlapping Michaels stores. On a pro forma basis for the Leewards Acquisition,
Michaels' sales for fiscal 1993 would have been approximately $780 million. See
"Leewards Acquisition" and "Pro Forma Combined Financial Information."
NEW STORE EXPANSION
In addition to the Leewards stores and the 25 stores acquired earlier this
year, Michaels currently anticipates opening approximately 55 new stores in the
United States and Canada during fiscal 1994, of which 23 have been opened. At
present, the Company intends to add 50 to 60 new stores during fiscal 1995
assuming consummation of the Leewards Acquisition; otherwise, fiscal 1995 store
growth is expected to be between 80 and 100 new stores. Michaels' expansion
strategy is to give priority to adding stores in existing markets or clustering
stores in new markets in order to enhance economies of scale associated with
advertising, distribution, field supervision and other regional expenses.
Management believes that few of its existing markets are saturated, and that
many attractive new markets are available to the Company for expansion. The
anticipated development of Michaels stores in 1995 and the rate at which stores
are developed thereafter will depend upon a number of factors, including the
success of existing Michaels stores and the stores to be added pursuant to the
Leewards Acquisition, the availability of suitable store sites, the availability
of suitable acquisition candidates and the ability to hire and train qualified
managers. The Company intends to continue to review acquisition opportunities in
existing and new markets. The Company has no arrangements or understandings
pending with respect to any acquisitions other than Leewards.
In October 1993, the Company opened its first Michaels Craft and Floral
Warehouse store ("CFW") using a newly-developed "warehouse superstore" format.
It is anticipated that each store following the CFW format will occupy
approximately 30,000 to 40,000 square feet of selling space, carry a wider
selection of certain categories of merchandise than the typical store, and
generally offer merchandise at "everyday" discounted retail prices. To achieve a
lower cost structure than a typical Michaels store, the Company's CFW format is
premised on reduced occupancy expenses per square foot and less extensive
advertising programs. In addition, the CFW format utilizes new computer systems
that provide full point-of-sale scanning and automated receiving of merchandise,
and eliminates the retail price marking of individual products. The Company
plans to open four or five additional CFW stores during 1994, of which three
have been opened, and may accelerate the opening of such stores in the future if
the format continues to be favorably received by consumers.
8
<PAGE>
MERCHANDISING
Michaels' merchandising strategy is to provide a broad selection of products
in an appealing store environment with superior customer service. The commitment
to customer service is evidenced through in-store "how-to" demonstrations,
project samples displayed throughout each store, and instructional classes for
adults and children. The typical Michaels store offers an assortment of over
30,000 SKUs. In general, each store offers products from ten departments. Nine
of the departments offer essentially the same type of merchandise throughout the
year, although the products may vary from season to season. The merchandise
offered by these nine departments includes general craft materials, wearable
art, silk and dried flowers, picture framing materials and services, fine art
materials, hobby items, party items, needlecraft items and ribbon.
In addition to these nine departments, the Company regularly features
seasonal merchandise. Seasonal merchandise is ordered for several holidays,
including Valentine's Day, Easter, Mother's Day, Halloween and Thanksgiving, in
addition to the Christmas season. For example, seasonal merchandise for the
Christmas season includes trees, wreaths, candles, lights and ornaments.
Included in seasonal merchandise is promotional merchandise that is offered with
the intention of generating customer traffic.
The following table shows sales by the largest departments as a percentage
of total sales for fiscal 1992 and 1993:
<TABLE>
<CAPTION>
PERCENTAGE OF SALES
--------------------
DEPARTMENT 1992 1993
- ------------------------------------------------------------------------------------ --------- ---------
<S> <C> <C>
General craft materials and wearable art............................................ 22% 21%
Silk and dried flowers and plants................................................... 18 21
Picture framing..................................................................... 14 15
Seasonal and promotional items...................................................... 15 14
Fine art materials.................................................................. 11 11
Hobby, party, needlecraft and ribbon................................................ 20 18
--- ---
Total............................................................................. 100% 100%
--- ---
--- ---
</TABLE>
CUSTOMER SERVICE
Michaels believes that customer service is critically important to its
merchandising strategy. Many of the craft supplies sold in Michaels stores can
be assembled into unique end-products with an appropriate amount of guidance and
direction. Michaels has hundreds of displays in every store in an effort to
stimulate new project ideas, and supplies project sheets with detailed
instructions on how to assemble the products. In addition, many sales associates
are craft enthusiasts with the experience to help customers with ideas and
instructions. The Company also offers free demonstrations and inexpensive
classes in stores as a means of promoting new craft ideas. Michaels believes
that the in-store "how-to" demonstrations, instructional classes, knowledgeable
sales associates, and customer focus groups have allowed the Company to better
understand and serve its customers. In addition, the Company measures its
customer service in each store at least four times a year through a "mystery
shopper" program.
ADVERTISING
The Company believes that its advertising promotes craft and hobby project
ideas among its customers. Traditionally, the Company has focused on circular
and newspaper advertising. The Company has found full-color circular
advertising, primarily as an insert to newspapers but also through direct mail
or on display within its stores, to be the most effective medium of advertising.
Such circulars advertise numerous products in order to emphasize the wide
selection of products available at Michaels stores. The Company believes that
advertising efficiencies associated with the clustering of its stores in its
markets together with its ability to advertise through circulars and newspapers
approximately once a week in each of its markets provides the Company with an
advantage over its smaller competitors.
9
<PAGE>
The Company has generally limited television advertising to network
television in those major markets in which it had clusters of stores or in which
it was adding new stores. Beginning with the 1994 fall/Christmas season, the
Company expects to implement a marketing program coordinating national cable
television, including The Discovery Channel-TM-, Lifetime Television, and USA
Network-R-, and circular advertisements together with project booklets, in-store
demonstrations, and new point-of-sale techniques. More than one-half of the $4.5
million cost of this new marketing program will be underwritten by Michaels'
vendors. Michaels intends to allocate a portion of its network television budget
to this program.
STORE OPERATIONS
The Company's 268 stores (before the Leewards Acquisition) average
approximately 15,500 square feet of selling space, although newer stores average
approximately 17,000 square feet of selling space. Net sales for fiscal 1993
averaged approximately $3.2 million per store (for stores open the entire fiscal
year) and $218 per square foot of selling space. Store sites are selected based
upon meeting certain economic, demographic and traffic criteria and upon the
Company's strategy of clustering stores in markets where certain operating
efficiencies can be achieved. The Michaels stores currently in operation are
located primarily in strip shopping centers in areas with easy access and ample
parking.
Michaels has developed a standardized procedure which enables the Company to
efficiently open new stores and integrate them into its information and
distribution systems. The Company develops the floor plan and inventory layout,
and organizes the advertising and promotions in connection with the opening of
each new store. In addition, Michaels maintains an experienced store opening
staff to provide new store personnel with in-store training. Michaels generally
opens new stores during the period from February through October because new
store personnel require significant in-store training prior to the first
Christmas selling season for each such store.
Costs for opening stores at particular locations depend upon the type of
building and general cost levels in the area. In fiscal 1993, the average net
cost to the Company of opening a new store was approximately $535,000 per store,
which included leasehold improvements, furniture, fixtures and equipment, and
pre-opening expenses. The Company used more existing real estate, versus
build-to-suit locations, in fiscal 1993 resulting in an average cost of opening
a new store that was $160,000 higher than historical levels due to the increased
level of leasehold improvements. This increase was offset, in part, by lower
rent rates. The initial inventory investment associated with each new store in
fiscal 1993 was approximately $320,000 to $740,000 depending on the time of year
in which the store was opened. The initial inventory investment in new stores is
offset, in part, by extended vendor terms and allowances. The cost for new store
openings, excluding initial inventory investments, in fiscal 1993 was
approximately $29 million and the cost for new store openings in fiscal 1994 is
estimated to be approximately $30 million.
PURCHASING AND DISTRIBUTION
The Company's purchasing strategy is to negotiate directly with its vendors
in order to take advantage of volume purchasing discounts and improve control
over product mix and inventory. For certain substantial product lines, the
Company negotiates directly with a number of major manufacturers to shorten the
distribution chain. Although this requires an increased inventory investment in
the warehouse, it results in substantial savings and allows the Company to
develop products specifically formulated to Michaels' design and quality
standards. Approximately 90% of the merchandise is acquired from vendors on the
Company's "approved list." Of this merchandise, approximately one-half is
received by the stores from the Company's distribution centers and one-half is
received directly from vendors. In addition, each store has the flexibility to
purchase approximately 10% of its merchandise directly from local vendors, which
allows the store managers to tailor the products offered in their stores to
local tastes and trends. All store purchases are monitored by district and
regional managers.
The Company currently operates three distribution centers which supply the
stores with certain merchandise, including substantially all seasonal and
promotional items. The Company's distribution centers are located in Irving,
Texas, Buena Park, California, and Lexington, Kentucky. The Company
10
<PAGE>
also operates a bulk warehouse in Phoenix, Arizona, which allows the Company to
store bulk purchases of seasonal and promotional merchandise prior to
distribution. Michaels stores receive deliveries from the distribution centers
generally once a week.
In fiscal 1993, over 85% of the products sold in Michaels stores were
purchased from manufacturers or distributors located in the United States and
the remainder from manufacturers or distributors located in the Far East and
Mexico. Goods manufactured in the Far East generally require long lead times and
are ordered four to six months in advance of delivery. Such products are either
imported directly by the Company or acquired from distributors based in the
United States. In all cases, purchases are denominated in U.S. dollars (or
Canadian dollars for purchases of certain items delivered directly to stores in
Canada).
INVENTORY CONTROL/MANAGEMENT INFORMATION SYSTEMS
Michaels' management information systems include automated point-of-sale,
merchandising, distribution and financial applications. All orders from the
stores to the Company's distribution centers are processed electronically to
ensure timely delivery of distribution center sourced inventory. The Company's
point-of-sale system captures sales information by department. Due to the large
number of inexpensive items in the stores, the non-fashion nature of the
merchandise, and the long lead times involved for ordering seasonal goods (up to
nine months), the Company does not currently capture item-level sales
information, inventory or margin electronically in all stores. Sales trend
tracking combines item level point-of-sale scanning data from the CFW stores
with point-of-sale department-level sales from all other stores, weekly test
counts of certain SKUs in 40 selected stores, and regular communication from
store managers through the district and regional managers. Inventory and margins
are monitored on a perpetual basis in the distribution centers and in the stores
via physical inventories at least quarterly in groups of 30 to 40 stores and a
year-end complete physical count in most stores. The Company believes that these
procedures and automated systems, together with its other control processes,
allow Michaels to effectively manage and monitor its inventory levels and margin
performance.
COMPETITION
Michaels is the largest nationwide retailer dedicated to serving the arts
and crafts marketplace. The specialty arts, crafts and decorative item retail
business is highly competitive. Michaels competes primarily with regional and
local merchants that tend to specialize in particular aspects of arts and
crafts, other nationwide retailers of craft items and related merchandise, and
mass merchandisers that typically dedicate a portion of their selling space to a
limited selection of arts, crafts, picture framing and seasonal products. The
Company believes that its stores compete based on price, quality and variety of
merchandise assortment, and customer service, such as instructional
demonstrations. Michaels believes the combination of its broad selection of
products, emphasis on customer service, loyal customer base, and capacity to
advertise frequently in all of its markets provides the Company with a
competitive advantage.
LEEWARDS ACQUISITION
PROPOSED ACQUISITION
On May 10, 1994 the Company announced that it had signed a definitive merger
agreement for the acquisition of Leewards, an Illinois-based arts and crafts
retailer with approximately 100 stores located primarily in the midwestern and
northeastern United States. The Leewards stores, which average approximately
14,000 square feet of selling space, are similar in both size and type of
location to the average Michaels store. The Company believes that the Leewards
Acquisition provides it with an opportunity to accelerate its nationwide
expansion strategy in the fragmented arts and crafts retailing industry. The
Leewards Acquisition will establish Michaels' presence in a number of new
markets, particularly in the northeastern United States, including Pennsylvania,
Massachusetts, and New Jersey, and significantly expand its presence in several
existing markets, including northern California, Illinois, Florida, Michigan,
Missouri, Minnesota and New York. Following the Leewards Acquisition, Michaels
expects to close approximately 20 Leewards stores and approximately 5 to 10
Michaels stores due to overlapping locations.
11
<PAGE>
In connection with the Leewards Acquisition, Michaels has designed a plan
that is intended to increase the sales and profitability of the Leewards stores.
The plan includes reconfiguring the layout and staffing of the acquired stores
and increasing the average inventory level at the Leewards stores to be more
consistent with Michaels' fundamental merchandising strategy of providing a
broad selection of products through separate in-store departments with a
commitment to superior customer service. The Company believes that the Leewards
stores will also benefit from the addition of art supplies and party goods
departments, the strengthening of its custom floral and custom framing services,
extensive in-store promotional activities and the implementation of Michaels'
targeted advertising strategies. In addition, Michaels expects the Leewards
stores to benefit from Michaels' centralized purchasing and nationwide
distribution network. Michaels also believes that it will realize cost savings
through the elimination of duplicate corporate overhead in connection with the
acquisition, and that it will benefit from increased purchasing power with its
suppliers.
For the fiscal year ended January 1994, the average sales of the Leewards
stores open for the full fiscal year were $2.1 million compared to the average
sales for Michaels stores open for the full year during the same period of $3.2
million. The average profitability per Leewards store has also historically
trailed the average profitability of Michaels stores. However, Michaels believes
that the Leewards Acquisition provides the Company with many attractive retail
store locations, and that Michaels' plan to convert the Leewards stores to the
Michaels format and to implement Michaels' merchandising strategies will result
in increased sales and profitability in the acquired stores. Michaels' objective
for fiscal 1994 with respect to the continuing Leewards stores is to increase
average sales per store and to increase operating margins to a level achieved by
Michaels stores during their first full fiscal year of operation. If these
objectives, together with the cost savings described in the preceding paragraph,
are achieved in fiscal 1994 and maintained in fiscal 1995, the Company believes
the consummation of both the Leewards Acquisition and the Common Stock Offering
at a per share price of $33 7/8 would not have a dilutive impact on the per
share earnings in fiscal 1994 or fiscal 1995. Although management currently
believes these results can be achieved, no assurance can be given that sales
volumes or operating margins at the continuing Leewards store locations will be
improved or that the cost savings will be realized.
The merger agreement provides for an aggregate merger consideration not to
exceed 1,550,000 shares of Michaels Common Stock. The aggregate consideration is
(i) subject to certain downward adjustments and (ii) payable, in part, in cash
in lieu of shares with respect to certain shares of preferred stock and the net
value of outstanding options to purchase Leewards common stock. It is expected
that the Leewards Acquisition will close on or before July 8, 1994, prior to
completion of the Common Stock Offering. Assuming the Leewards Acquisition
closes prior to completion of the Common Stock Offering, and assuming a five day
average closing price of the Common Stock on The Nasdaq National Market of
$33 7/8, the acquisition consideration will consist of approximately $7.8
million in cash and 1,256,159 shares of Common Stock. It is currently estimated
that 500,000 of these shares will be sold by the Leewards stockholders to the
public in this Common Stock Offering. The merger consideration exceeds the net
tangible assets of Leewards by approximately $60 million. The Company believes
that the economic benefits expected to be derived from the Leewards Acquisition,
including gain in market share and immediate presence in new markets, supports
the payment of such consideration. Upon consummation of the Leewards
Acquisition, Michaels will also repay the indebtedness under Leewards' bank
credit facility and subordinated notes, expected to total approximately $50
million at closing. Substantially all of the conditions to the consummation of
the Leewards Acquisition have been satisfied, including approval of Leewards'
stockholders and termination of the waiting period under Hart-Scott-Rodino.
Consummation of the acquisition is nonetheless subject to certain customary
conditions to closing including there having occurred no material adverse
changes in the condition (financial or otherwise), operations, assets or
liabilities of Michaels or Leewards. See "Pro Forma Combined Financial
Information."
In the event that the Leewards Acquisition closes after the closing of the
Common Stock Offering, the Leewards stockholders would not include any Common
Stock in this Common Stock Offering. In such case, the Leewards stockholders may
receive cash in lieu of a portion of the shares of Common Stock issuable in the
Leewards Acquisition. The merger agreement provides that if the net proceeds
12
<PAGE>
per share in the Common Stock Offering equal or exceed $39.00, the total number
of shares issued in connection with the Leewards Acquisition will be reduced by
25% of the number of shares offered by the Company in the Common Stock Offering
(excluding the over-allotment option), but not to exceed 500,000 shares of
Michaels Common Stock (the "Reduced Share Amount"). In lieu thereof, cash equal
to the net proceeds per share received in the Common Stock Offering times the
Reduced Share Amount will be paid to the Leewards stockholders. If the Leewards
Acquisition does not close prior to closing of the Common Stock Offering, the
Company may increase the number of shares of Common Stock offered by it in the
Common Stock Offering by up to an additional 500,000 shares in order to provide
additional proceeds to fund this cash payment if required. If the Company
determines not to increase the number of shares of Common Stock issued by it in
the Common Stock Offering, any such required cash payment to the Leewards
stockholders will be funded by proceeds of the offering not being utilized for
other purposes and, if required, from other sources of capital available to the
Company.
INTEGRATION OF LEEWARDS
The Company has designed a ten-week transition plan to reconfigure the
Leewards stores to be more consistent with the merchandising strategy of
Michaels. In order to minimize disruption to the Company's business, this plan
will be implemented by the Leewards field organization under the supervision of
Michaels' management using detailed plans developed by Michaels. Key aspects of
this plan include:
- Revising and enhancing the product mix to correlate to Michaels'
merchandising strategy;
- Converting merchandise ordering and management information systems;
- Eliminating redundant overhead;
- Retraining employees to provide the level of customer service found in
Michaels stores and to improve operational efficiencies; and
- Closing approximately 20 Leewards and approximately 5 to 10 Michaels store
locations to eliminate overlapping stores.
The continuing 80 Leewards stores will be converted to the Michaels store
format beginning with a four-week phase to eliminate incompatible merchandise.
The second phase will involve the arrival of new merchandise and the
reformatting of the stores to the Michaels prototype. This will be accomplished
department by department, with the stores remaining open for business throughout
the process. The reformatting of the Leewards stores will include the addition
of art supplies and party goods departments, the strengthening of the custom
floral and custom framing services and the expansion of other departmental
assortments to correlate with Michaels' standard store format. Michaels'
merchandise ordering systems will be installed during this time and other
in-store systems will be converted to Michaels' systems. Upon completion of the
store conversion plan, Leewards' distribution facilities will be closed as
Michaels' existing distribution facilities have adequate capacity to service the
remaining Leewards stores. The Company believes that the cost to implement the
integration of the Leewards stores, including the cost of the physical
conversion of the stores, retraining employees, converting merchandise ordering
and management information systems, and providing new inventory will be
approximately $33 million to $35 million. In addition, the Company expects that
it will incur costs of approximately $13 million to $24 million in connection
with lease termination and store closing costs, severance payments, and closing
of Leewards' corporate office and distribution center. The Company anticipates
completing the plan prior to the busy fall/Christmas selling season.
During the last year, the Company increased its upper level management
capabilities by adding a Vice President -- Store Operations, Vice President --
Store Development and Corporate Operations, Vice President -- Information
Systems and Vice President -- Real Estate. In addition, the Company expects to
retain a number of the field managers from the Leewards organization to
supplement the Company's existing field management. During the conversion
process, the Leewards field organization will be strengthened by an increase in
district and regional management to provide close supervision. The Company
believes that these additions to its management structure, together with the
additional Michaels field management that has been trained to implement the
Company's 1994
13
<PAGE>
growth plan, will provide Michaels with sufficient management capabilities to
absorb the 80 Leewards stores in addition to the approximately 55 new stores to
be opened and 25 stores already acquired by Michaels during 1994. The Company
believes this process will permit the conversion of the Leewards stores without
disruption of the existing Michaels field management or operations during the
busy fall/Christmas selling season. After the conversion and integration of the
Leewards stores is complete, the entire Michaels field organization will be
reorganized with permanent assignments based on the combined entities.
Although the Company has not previously completed an acquisition of similar
size to the Leewards Acquisition, the Company believes that its substantial
experience in opening new stores and recent experience in incorporating acquired
stores into the Michaels format and systems will facilitate the integration of
the Leewards stores into the Company's existing structure.
USE OF PROCEEDS
The net proceeds to the Company from the Common Stock Offering are estimated
to be approximately $47.8 million ($57.5 million assuming the over-allotment
option is exercised in full), assuming a public offering price of $33 7/8 per
share and after deducting the estimated underwriting discounts and commissions
and offering expenses. Assuming the Leewards Acquisition closes prior to the
Common Stock Offering, the Company intends to use all of the net proceeds to
reduce bank debt. The Company's outstanding revolving bank debt at May 1, 1994
was approximately $56 million with a current interest rate of 5.6%. The bank
debt is expected to increase by approximately $62 million prior to the closing
of the Common Stock Offering as a result of borrowings to fund cash required in
connection with the Leewards Acquisition. The Company's new bank debt agreement
expires in June 1997. See "Recent Developments -- New Credit Facility" and
"Leewards Acquisition."
If the Leewards Acquisition does not close prior to the completion of the
Common Stock Offering, the Company intends to use the net proceeds for the
payment of Leewards' outstanding indebtedness. The additional funds necessary to
pay Leewards' outstanding indebtedness in its entirety will be either drawn from
the Company's credit facility or obtained from working capital. See "Recent
Developments -- Recent Acquisitions" and "Leewards Acquisition." Leewards'
outstanding indebtedness at the time of closing of the acquisition is expected
to consist of (i) an estimated $32 million under Leewards' existing credit
facility due August 19, 1994 with a current interest rate of 8.5% and (ii)
approximately $18 million (including a prepayment penalty) under Leewards'
outstanding 13.5% Senior Subordinated Notes due 2000. In addition, if the
Leewards Acquisition does not close prior to the completion of the Common Stock
Offering, the Company may increase the number of shares of Common Stock sold by
the Company in this Common Stock Offering by up to 500,000 shares, to a total of
up to 2,000,000 shares. If an additional 500,000 shares are sold, the additional
net proceeds to the Company would be $16.2 million after deducting the related
estimated underwriting discounts and commissions and offering expenses. If the
net proceeds per share from the Common Stock Offering equal or exceed $39.00,
substantially all of the net proceeds from the sale of the additional shares
will be used to fund a cash payment to the Leewards stockholders in lieu of the
Reduced Share Amount. See "Leewards Acquisition." If the additional shares are
sold and the net proceeds per share from the Common Stock Offering are less than
$39.00, the net proceeds from the sale of the additional shares will be used to
fund planned new store expansion, working capital requirements and future
acquisition opportunities and for other general corporate purposes. If the
Leewards Acquisition is not consummated, all proceeds from the Common Stock
Offering will be used to reduce existing bank debt, fund planned new store
expansion, working capital requirements and future acquisition opportunities and
for other general corporate purposes.
Pending the use of such proceeds for the above purposes, the net proceeds
initially will be invested in short-term interest bearing securities or mutual
funds which invest in such securities. The Company's practice in the past has
been to place its cash balances in a broad range of investment and non-
investment grade securities including equity securities and financial
instruments of various maturities. If attractive opportunities present
themselves, the Company may continue this investment practice in the future. The
Company will not receive any of the proceeds from the sale of shares of Common
Stock by the Selling Stockholders.
14
<PAGE>
CAPITALIZATION
The following table sets forth (i) the capitalization of the Company as of
May 1, 1994, (ii) the capitalization on a pro forma basis for the Leewards
Acquisition, and (iii) the capitalization on a pro forma basis for the Leewards
Acquisition and as adjusted for the issuance of the shares of Common Stock being
offered hereby, assuming consideration payable to Leewards' stockholders of
1,256,159 shares of Common Stock and $7.8 million in cash. See "Leewards
Acquisition" and "Use of Proceeds."
<TABLE>
<CAPTION>
MAY 1, 1994
-------------------------------------------
PRO FORMA
AS ADJUSTED
ACTUAL PRO FORMA (1) (1)(2)
-------- --------------- ---------------
(IN THOUSANDS)
<S> <C> <C> <C>
Short-term bank debt (3).............................................................. $ 56,000 $ 98,914 $ 51,088
-------- --------------- ---------------
-------- --------------- ---------------
Convertible subordinated notes........................................................ $ 97,750 $ 97,750 $ 97,750
Shareholders' equity:
Common stock, $0.10 par value, 50,000,000 shares authorized, 17,462,331 shares
issued and outstanding, 18,718,490 shares issued and outstanding pro forma and
20,218,490 shares issued and outstanding pro forma as adjusted..................... 1,746 1,872 2,022
Additional paid-in capital.......................................................... 126,126 168,552 216,228
Retained earnings................................................................... 78,724 78,724 78,724
-------- --------------- ---------------
Total shareholders' equity.......................................................... 206,596 249,148 296,974
-------- --------------- ---------------
Total capitalization.................................................................. $304,346 $346,898 $394,724
-------- --------------- ---------------
-------- --------------- ---------------
<FN>
- ------------------------
(1) On a pro forma basis to reflect the consummation of the Leewards
Acquisition and the repayment of approximately $36 million of Leewards'
indebtedness as of May 1, 1994.
(2) On a pro forma basis to reflect the receipt by the Company of
approximately $48 million in net proceeds from the Common Stock offered
hereby at an assumed offering price of $33 7/8 after deducting the
estimated underwriting discounts and commissions and offering expenses.
(3) Subsequent to May 1, 1994, the Company sold a portion of its marketable
and other securities and used the proceeds to retire short-term bank debt.
As of June 24, 1994, short-term bank debt was approximately $53.8 million.
</TABLE>
15
<PAGE>
PRICE RANGE OF COMMON STOCK AND DIVIDENDS
The Common Stock of Michaels is quoted through The Nasdaq National Market
under the symbol "MIKE." The following table sets forth, for the periods
indicated, the high and low sales prices per share of the Common Stock, as
reported by The Nasdaq National Market through June 24, 1994.
<TABLE>
<CAPTION>
HIGH LOW
------- -------
<S> <C> <C>
FISCAL YEAR ENDED JANUARY 31, 1993:
First Quarter.................................................................. $26 $19
Second Quarter................................................................. 23 1/2 16 1/2
Third Quarter.................................................................. 29 3/4 20 1/2
Fourth Quarter................................................................. 34 3/4 24 5/8
FISCAL YEAR ENDED JANUARY 30, 1994:
First Quarter.................................................................. $34 $26 1/4
Second Quarter................................................................. 33 25 1/4
Third Quarter.................................................................. 39 26 3/8
Fourth Quarter................................................................. 36 1/2 31 7/8
FISCAL YEAR ENDED JANUARY 29, 1995:
First Quarter.................................................................. $44 3/4 $31
Second Quarter (through June 24, 1994)......................................... 46 1/2 33 1/2
</TABLE>
On June 24, 1994, the reported last sale price of the Common Stock as
reported by The Nasdaq National Market was $33 7/8 per share.
Michaels has never paid dividends on its Common Stock. The Company's current
policy is to retain earnings for use in the Company's business and the financing
of its growth. However, such policy is subject to the discretion of the Board of
Directors. The Company's credit facility contains certain restrictions on the
Company's ability to pay dividends.
16
<PAGE>
SELECTED FINANCIAL AND STORE DATA
The selected financial data presented below are derived from the financial
statements of the Company for the five fiscal years ended January 30, 1994 which
were audited by Ernst & Young, independent auditors, and from unaudited
financial statements for the quarters ended May 2, 1993 and May 1, 1994,
respectively. The data should be read in conjunction with the financial
statements and the related notes incorporated by reference in this Prospectus.
The Company believes that all adjustments, consisting only of normal recurring
accruals, necessary for a fair presentation thereof have been made to the
unaudited financial data. The results for the quarter ended May 1, 1994 are not
necessarily indicative of the results of the full year. Certain amounts in prior
years have been reclassified to conform with the presentation for the current
year. The following unaudited pro forma statement of income data have been
prepared as if the Leewards Acquisition occurred at the beginning of fiscal
1993. The following unaudited pro forma combined balance sheet data have been
prepared as if the Leewards Acquisition occurred on May 1, 1994. The unaudited
pro forma financial data do not purport to represent the financial position or
results of operations which would have occurred had such transaction been
consummated on the dates indicated or the Company's financial position or
results of operations for any future date or period. These unaudited pro forma
financial data should be read in conjunction with the historical financial
statements of the Company and Leewards.
<TABLE>
<CAPTION>
FISCAL YEAR (1) QUARTER ENDED
---------------------------------------------------------- ----------------------------
1993 MAY 1, 1994
------------------ ------------------
PRO MAY 2, PRO
1989 1990 1991 1992 ACTUAL FORMA(2) 1993 ACTUAL FORMA(2)
-------- -------- -------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT STORE DATA AND PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales.......................... $289,754 $362,028 $410,899 $493,159 $619,688 $780,302 $112,961 $159,798 $199,305
Cost of sales and occupancy
expense........................... 195,864 246,656 274,375 323,577 403,869 511,067 73,279 103,511 130,987
Selling, general and administrative
expense........................... 78,990 94,678 110,881 135,319 174,463 224,902 33,720 47,216 58,736
-------- -------- -------- -------- -------- -------- -------- -------- --------
Operating income................... 14,900 20,694 25,643 34,263 41,356 44,333 5,962 9,071 9,582
Interest expense................... 9,896 9,739 6,971 263 6,378 8,042 1,522 2,026 2,535
Other (income) and expense, net.... 4,444 1,213 913 538 (7,666) (7,031) (1,735) (1,031) (986)
-------- -------- -------- -------- -------- -------- -------- -------- --------
Income before income taxes and
extraordinary item................ 560 9,742 17,759 33,462 42,644 43,322 6,175 8,076 8,033
Provision for income taxes......... 547 3,887 7,020 13,084 16,357 17,227 2,377 3,109 3,222
-------- -------- -------- -------- -------- -------- -------- -------- --------
Income before extraordinary item... 13 5,855 10,739 20,378 26,287 26,095 3,798 4,967 4,811
Extraordinary item(3).............. -- -- 3,843 -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- -------- -------- --------
Net income......................... $ 13 $ 5,855 $ 6,896 $ 20,378 $ 26,287 $ 26,095 $ 3,798 $ 4,967 $ 4,811
-------- -------- -------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- -------- -------- --------
Earnings per common share assuming
full dilution..................... $ 0.00 $ 0.57 $ 0.87(4) $ 1.21 $ 1.52 $ 1.41 $ 0.22 $ 0.28 $ 0.25
Weighted average shares outstanding
assuming full dilution............ 10,645 10,229 12,411 16,853 19,809 21,065 17,131 17,856 19,112
STORE DATA:
Stores open at period end.......... 122 137 140 168 220 299(5) 180 259 338(5)
Average sales per square foot(6)... $ 193 $ 206 $ 213 $ 226 $ 218 $ 206 $ 45 $ 44 $ 43
Comparable store sales
increase(7)....................... 6% 9% 9% 7% 3% 3% 2% 10% 8%
BALANCE SHEET DATA (AT END OF
PERIOD):
Working capital.................... $ 58,680 $ 44,080 $ 74,786 $104,462 $181,816 $ -- $103,134 $169,726 $137,082
Total assets....................... 150,817 144,238 180,913 322,099 397,830 -- 321,868 463,119 603,525
Total long-term debt............... 73,168 52,983 -- 97,750 97,750 -- 97,750 97,750 97,750
Shareholders' equity............... 40,377 46,615 126,299 155,277 185,415 -- 159,075 206,596 249,148
<FN>
- ------------------------------
(1) The Company operates on a 52/53 week fiscal year ending on the Sunday
closest to January 31. For example, references to "fiscal 1993" mean the
fiscal year ended January 30, 1994. Fiscal 1990 included 53 weeks; all
other fiscal years set forth above included 52 weeks.
(2) On a pro forma basis to reflect the consummation of the Leewards
Acquisition. See "Pro Forma Combined Financial Information." Fiscal 1993
pro forma amounts do not reflect the acquisitions of Treasure House, Oregon
Craft & Floral or H&H Craft & Floral by the Company in February and April
1994 as such acquisitions were not material in the aggregate.
(3) Extraordinary item relates to the redemption premium paid for the early
retirement of the Company's 12.75% Senior Subordinated Notes, which had an
effective interest rate of 15.8%, and the accelerated amortization of
related debt issuance costs.
(4) Before extraordinary item of $3.8 million, or $0.31 per common and common
equivalent share, relating to the redemption premium paid for the early
retirement of the Company's 12.75% Senior Subordinated Notes, which had an
effective interest rate of 15.8%, and the accelerated amortization of
related debt issuance costs.
(5) Includes Michaels and Leewards stores open at period end net of 20 Leewards
stores anticipated to be closed.
(6) Calculated for stores open the entire period and based on selling square
footage.
(7) The increase for fiscal 1990 was calculated on a comparable 52-week period.
</TABLE>
17
<PAGE>
PRO FORMA COMBINED FINANCIAL INFORMATION
The accompanying unaudited pro forma combined statements of income of the
Company for the year ended January 30, 1994 and the quarter ended May 1, 1994
have been prepared as if the Leewards Acquisition, which will be accounted for
by the purchase method of accounting, occurred on February 1, 1993, the
beginning of fiscal year 1993. The accompanying unaudited pro forma combined
balance sheet of the Company as of May 1, 1994 has been prepared as if the
Leewards Acquisition occurred on that date.
The historical financial information of the Company and Leewards has been
derived from the respective historical financial statements incorporated by
reference or included herein. Certain amounts in the statements of operations of
Leewards for fiscal year 1993 and the quarter ended May 1, 1994 included in the
pro forma combined statements of income have been reclassified to conform to the
method of presentation used by Michaels. The pro forma adjustments are
preliminary and are based upon available information and assumptions that
management of the Company believes are reasonable. The unaudited pro forma
combined financial statements do not purport to represent the financial position
or results of operations which would have occurred had such transactions been
consummated on the dates indicated or the Company's financial position or
results of operations for any future date or period. These unaudited pro forma
financial statements should be read in conjunction with the historical financial
statements of the Company and Leewards.
The pro forma combined financial statements do not include the financial
statements of 1) Treasure House, which was acquired by the Company in February
1994 and will be accounted for using the pooling-of-interests method of
accounting, or 2) Oregon Craft & Floral and H&H Craft & Floral, which were
acquired as of May 1, 1994 and will be accounted for using the purchase method
of accounting, since the acquisitions are not considered material, individually
or in the aggregate, to the operating results or financial position of the
Company. Sales of Treasure House were approximately $15.6 million and $3.8
million for the year ended January 30, 1994 and the quarter ended May 1, 1994,
respectively. Combined sales of Oregon Craft & Floral and H&H Craft & Floral for
the same periods were approximately $41.8 million and $7.4 million,
respectively.
18
<PAGE>
PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED JANUARY 30, 1994
(UNAUDITED)
<TABLE>
<CAPTION>
PRO
PRO FORMA FORMA
MICHAELS LEEWARDS ADJUSTMENTS TOTAL
-------- -------- ------------ --------
<S> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Net sales....................................................................... $619,688 $191,136 $(30,522)(A) $780,302
Cost of sales and occupancy expense............................................. 403,869 130,638 (21,537)(A) 511,067
(1,903)(B)
Selling, general and administrative expense..................................... 174,463 57,000 (8,515)(A) 224,902
443(C)
1,511(D)
-------- -------- ------------ --------
Operating income................................................................ 41,356 3,498 (521) 44,333
Interest expense................................................................ 6,378 3,439 (1,775)(E) 8,042
Other (income) and expense, net................................................. (7,666) 635 (7,031)
-------- -------- ------------ --------
Income before income taxes...................................................... 42,644 (576) 1,254 43,322
Provision for income taxes...................................................... 16,357 (236) 1,106(F) 17,227
-------- -------- ------------ --------
Net income before non-recurring charge (J)...................................... $ 26,287 $ (340) $ 148 $ 26,095
-------- -------- ------------ --------
-------- -------- ------------ --------
Earnings per common and common equivalent share................................. $ 1.53 $ 1.41
Earnings per common share -- assuming full dilution............................. $ 1.52 $ 1.41
Weighted average common and common equivalent shares............................ 17,231 1,256 18,487
Weighted average shares assuming full dilution.................................. 19,809 1,256 21,065
</TABLE>
See accompanying Notes to Pro Forma Combined Financial Statements.
19
<PAGE>
PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE QUARTER ENDED MAY 1, 1994
(UNAUDITED)
<TABLE>
<CAPTION>
PRO
PRO FORMA FORMA
MICHAELS LEEWARDS ADJUSTMENTS TOTAL
-------- -------- ------------ --------
<S> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Net sales....................................................................... $159,798 $ 46,507 $ (7,000)(A) $199,305
Cost of sales and occupancy expense............................................. 103,511 33,207 (5,112)(A) 130,987
(619)(B)
Selling, general and administrative expense..................................... 47,216 14,332 (1,856)(A) 58,736
(1,334)(C)
378(D)
-------- -------- ------------ --------
Operating income................................................................ 9,071 (1,032) 1,543 9,582
Interest expense................................................................ 2,026 994 (485)(E) 2,535
Other (income) and expense, net................................................. (1,031) 45 (986)
-------- -------- ------------ --------
Income before income taxes...................................................... 8,076 (2,071) 2,028 8,033
Provision for income taxes...................................................... 3,109 (849) 962(F) 3,222
-------- -------- ------------ --------
Net income before non-recurring charge (J)...................................... $ 4,967 $ (1,222) $ 1,066 $ 4,811
-------- -------- ------------ --------
-------- -------- ------------ --------
Earnings per common and common equivalent share................................. $ 0.28 $ 0.25
Earnings per common share -- assuming full dilution............................. $ 0.28 $ 0.25
Weighted average common and common equivalent shares............................ 17,785 1,256 19,041
Weighted average shares assuming full dilution.................................. 17,856 1,256 19,112
</TABLE>
See accompanying Notes to Pro Forma Combined Financial Statements.
20
<PAGE>
PRO FORMA COMBINED BALANCE SHEET INFORMATION
MAY 1, 1994
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
PRO
PRO FORMA FORMA
MICHAELS LEEWARDS ADJUSTMENTS TOTAL
-------- -------- ------------ --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Current assets:
Cash and equivalents.............................................................. $ 2,867 $ 3,217 $ -- $ 6,084
Marketable and other securities................................................... 67,734 -- -- 67,734
Merchandise inventories........................................................... 230,406 48,833 (6,770)(H) 272,469
Deferred income taxes............................................................. -- 523 (523)(H) 15,356
15,356(H)
Prepaid expenses and other........................................................ 21,971 5,785 (1,211)(H) 26,545
-------- -------- ------------ --------
Total current assets............................................................ 322,978 58,358 6,852 388,188
-------- -------- ------------ --------
Property and equipment, net......................................................... 87,840 18,454 (3,757)(H) 102,537
Costs in excess of net assets of acquired operations, net........................... 43,954 -- 60,448(H) 104,402
Other assets........................................................................ 8,347 6,387 (6,336)(H) 8,398
-------- -------- ------------ --------
$463,119 $ 83,199 $ 57,207 $603,525
-------- -------- ------------ --------
-------- -------- ------------ --------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................................................. $ 47,741 $ 9,551 $ -- $ 57,292
Short-term bank debt.............................................................. 56,000 18,118 7,835(G) 98,914
16,961(I)
Subordinated debentures........................................................... -- 16,961 (16,961)(I) --
Income taxes payable.............................................................. 4,252 -- 1,309(H) 5,561
Accrued liabilities and other..................................................... 45,259 14,572 3,976(G) 89,339
25,532(H)
-------- -------- ------------ --------
Total current liabilities....................................................... 153,252 59,202 38,652 251,106
-------- -------- ------------ --------
Convertible subordinated notes...................................................... 97,750 -- -- 97,750
Deferred income taxes and other..................................................... 5,521 2,852 (2,852)(H) 5,521
-------- -------- ------------ --------
Total long-term liabilities..................................................... 103,271 2,852 (2,852) 103,271
-------- -------- ------------ --------
Redeemable preferred stock.......................................................... -- 29,845 (29,845)(H) --
Shareholders' equity:
Common stock...................................................................... 1,746 2 (2)(H) 1,872
126(G)
Additional paid-in capital........................................................ 126,126 733 (733)(H) 168,552
42,426(G)
Retained earnings................................................................. 78,724 (9,435) 9,435(H) 78,724
-------- -------- ------------ --------
Total shareholders' equity...................................................... 206,596 (8,700) 51,252 249,148
-------- -------- ------------ --------
$463,119 $ 83,199 $ 57,207 $603,525
-------- -------- ------------ --------
-------- -------- ------------ --------
</TABLE>
See accompanying Notes to Pro Forma Combined Financial Statements.
21
<PAGE>
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
Adjustments to the pro forma combined statement of income to reflect the
consummation of the Leewards Acquisition as of February 1, 1993 are as follows:
(A) To eliminate revenues and related operating expenses of 20
overlapping Leewards stores to be closed subsequent to the consummation of
the Leewards Acquisition. Revenues are expected to increase in nearby
Michaels stores; however, the anticipated revenue increase has not been
reflected.
(B) To eliminate nonrecurring costs, primarily rental and related
occupancy costs, associated with the Leewards distribution center, net of
incremental costs to be incurred at the Company's distribution center. Upon
consummation of the Leewards Acquisition and completion of the conversion of
the Leewards stores, the Leewards distribution center is to be closed.
(C) To adjust selling, general and administrative expense to (i) account
for pre-opening costs incurred by Leewards consistent with the Company's
accounting policy whereby pre-opening costs are expensed in the fiscal year
in which the store opens by increasing (decreasing) expense by $2.0 million
and $(840,000) for the year ended January 30, 1994 and the quarter ended May
1, 1994, respectively, and (ii) eliminate nonrecurring costs, primarily
salaries and related benefits, associated with reductions of Leewards
corporate personnel and other costs of approximately $1.6 million and
$494,000 for the year ended January 30, 1994 and the quarter ended May 1,
1994, respectively.
(D) To amortize costs in excess of net assets acquired over a 40-year
period on a straight-line basis. The Company will assess the recoverability
of costs in excess of net assets acquired annually based on existing facts
and circumstances. The Company will generally consider projected earnings
before interest, taxes, depreciation and amortization, on an undiscounted
basis, as the on-going measure of recoverability.
(E) To reduce the interest expense on the Leewards indebtedness
consisting of approximately $17 million of subordinated debentures and
short-term borrowings (average outstanding borrowings approximated $11.5
million for the year ended January 30, 1994 and $16.8 million for the
quarter ended May 1, 1994) from their stated rates of 13.5% and 7.75%,
respectively, to 4.9%, which rate approximates the Company's incremental
borrowing rate for both of the periods presented. In connection with the
Leewards Acquisition, the Leewards subordinated debentures and short-term
borrowings are required to be repaid.
(F) To reflect the tax effects applicable to the above entries,
exclusive of the amortization of costs in excess of net assets acquired, at
a 40% effective tax rate.
Adjustments to the pro forma balance sheet to reflect the consummation
of the Leewards Acquisition as of May 1, 1994 are as follows:
(G) To record the costs of the Leewards Acquisition. Cash payments and
shares issued are based on an assumed five day average closing stock price
of $33 7/8.
<TABLE>
<C> <S> <C> <C>
1. Cash consideration to be paid (funded with
short-term bank debt) $ 7,835
2. Shares to be issued in connection with the
Leewards Acquisition (1,256,159 shares) 42,552
3. Liabilities incurred by Leewards in
connection with the Leewards Acquisition
by Michaels $ 2,726
4. Transaction costs 1,250 3,976
--------- ---------
Total acquisition costs $ 54,363
---------
---------
</TABLE>
22
<PAGE>
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(H) To adjust the carrying values of the net assets acquired to
estimated fair value as of May 1, 1994 and to accrue various liabilities
assumed in connection with the Leewards Acquisition.
<TABLE>
<C> <S> <C> <C>
1. Write-down inventories to liquidate
incompatible merchandise of Leewards $ 6,770
2. Write-off deferred pre-opening costs to
conform Leewards' accounting policy to
that of Michaels 1,211
3. Write-off tradenames and other deferred
costs of Leewards 6,336
4. Accrue costs of closing Leewards' corporate
office and distribution center (including
lease termination costs, severance pay and
other costs) and costs associated with the
anticipated closing of certain Leewards'
stores (accrued closing costs relate only
to Leewards' stores) 25,532
5. Write-off of the carrying values of
leasehold improvements related to
facilities to be closed and other
adjustments to state other property and
equipment at estimated fair value 3,757
6. Record deferred tax assets related to the
above adjustments (15,356)
7. Eliminate net deferred tax liabilities of
Leewards as of the Leewards Acquisition
date (2,329)
8. Record income tax liabilities assumed by
Michaels in connection with the Leewards
Acquisition related primarily to the
termination of the LIFO method of
inventory valuation for tax reporting
purposes, net of the tax benefits related
to certain transaction costs 1,309
9. Eliminate redeemable preferred stock and
common stockholders' deficit of Leewards
as of the Leewards Acquisition date (21,145)
---------
Excess of fair value of liabilities over
net
assets acquired 6,085
Total acquisition costs 54,363
---------
Costs in excess of the net assets acquired $ 60,448
---------
---------
</TABLE>
(I) To reflect additional borrowings on Michaels' credit facility to
fund the required repayment of the Leewards subordinated notes in connection
with the Leewards Acquisition.
(J) Upon completion of the Leewards Acquisition, the Company will
implement a plan to reconfigure the Leewards stores to be more consistent
with the merchandising strategy of Michaels. The Company expects to incur a
one-time pretax charge in connection with the reconfiguration of the
Leewards stores of approximately $3.2 million.
23
<PAGE>
SELLING STOCKHOLDERS
The following table sets forth certain information regarding the Selling
Stockholders' beneficial ownership of the Company's Common Stock assuming that
an aggregate of 1,152,810 shares of Common Stock will be issued to the Leewards
stockholders (net of shares to be held in escrow) in the Leewards Acquisition,
and as adjusted to reflect the sale by the Company and the Selling Stockholders
of the Common Stock offered pursuant to the Common Stock Offering:
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
PRIOR TO
THE COMMON STOCK OFFERING SHARES BENEFICIALLY OWNED AFTER
THE COMMON STOCK OFFERING
-------------------------- NUMBER OF SHARES --------------------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENT(1) BEING OFFERED NUMBER PERCENT(1)
- -------------------------------------- ----------- ------------- ----------------- ----------------- -------------
<S> <C> <C> <C> <C> <C>
Alan Altschuler....................... 3,812 * % 1,654 2,158 * %
Stephen J. Berman..................... 3,812 * 1,654 2,158 *
David E. Bolen........................ 24,381 * 10,574 13,807 *
The Teachers' Retirement System of the
State of Illinois.................... 261,156 1.4 113,269 147,887 *
Frontenac Venture V Limited
Partnership.......................... 179,899 1.0 78,026 101,873 *
GIPEN & Co............................ 39,954 * 17,329 22,625 *
Alan L. Magdovitz..................... 3,812 * 1,654 2,158 *
MONY Life Insurance Company of
America.............................. 13,293 * 5,765 7,528 *
The Mutual Life Insurance Company of
New York............................. 168,755 * 73,193 95,562 *
John A. Popple........................ 32,965 * 14,298 18,667 *
Prudential-Bache Capital Partners I,
L.P.................................. 87,221 * 37,829 49,392 *
Prudential-Bache Capital Partners II,
L.P.................................. 58,400 * 25,329 33,071 *
The Prudential Insurance Company of
America.............................. 271,538 1.4 117,772 153,766 *
John E. Welsh, III.................... 3,812 * 1,654 2,158 *
-- --
----------- -------- --------
Total............................... 1,152,810 6.1% 500,000 652,810 3.2%
-- --
-- --
----------- -------- --------
----------- -------- --------
<FN>
- ------------------------
* less than 1%
(1) Percentage based on the Company's Common Stock outstanding.
</TABLE>
Each of the Selling Stockholders will acquire the shares listed in the table
above pursuant to the Leewards Acquisition in exchange for shares of capital
stock of Leewards owned by it. Pursuant to the merger agreement with Leewards,
Michaels agreed that in the event Michaels engaged in an underwritten public
offering of Common Stock after the merger the Leewards stockholders would be
offered the opportunity to include in the underwritten public offering the
shares of Common Stock received by them in the merger. Thus, assuming the
Leewards Acquisition closes prior to the closing of the Common Stock Offering,
the Leewards stockholders will have the right to include in the Common Stock
Offering all of the shares received by them in the Leewards Acquisition, subject
to the right of the managing underwriters to require the Leewards stockholders
to reduce the number of shares sold by the Leewards stockholders if the managing
underwriters determine that inclusion of the full amount of shares requested
would materially and adversely affect the offering. However, in no event may the
managing underwriters require the Leewards stockholders to reduce the number of
shares included in the Common Stock Offering to an amount less than 25% of the
number of shares being sold in the offering (excluding shares in the
underwriters' over-allotment option). The Leewards stockholders are not
obligated to include any shares in the Common Stock Offering. For purposes of
the table above, the Company has assumed the Leewards stockholders will sell
500,000 shares in the Common Stock Offering, which is equal to 25% of the total
number of shares intended to be sold in the
24
<PAGE>
Common Stock Offering (excluding shares in the over-allotment option). The
actual number of shares to be sold by the Leewards stockholders may change
depending upon existing circumstances at or near the date of pricing of the
Common Stock Offering. Assuming the Leewards Acquisition is consummated prior to
the closing of the Common Stock Offering, this right to include shares will
expire upon consummation of the Common Stock Offering. Following the closing of
the Leewards Acquisition, the Company will be obligated to cause a "shelf"
registration to be filed on behalf of Leewards' stockholders and to cause the
registration statement to remain effective for a period of three years following
the closing of the acquisition. All of Leewards' stockholders who will receive
shares of Common Stock in the acquisition have agreed not to offer, sell, pledge
or otherwise dispose of, directly or indirectly, any shares of Common Stock
received in connection with the acquisition without the prior written consent of
CS First Boston Corporation for a period of 90 days after the date of this
Prospectus, except that such stockholders may dispose of such shares in a
transaction not involving a public distribution if the transferee executes a
similar agreement. See "Underwriting."
DESCRIPTION OF CAPITAL STOCK
Michaels is authorized to issue 50,000,000 shares of Common Stock, par value
$0.10 per share, and 2,000,000 shares of Preferred Stock, par value $0.10 per
share. As of June 16, 1994, 17,492,808 shares of Common Stock were outstanding
(excluding 50,779 shares held by wholly-owned subsidiaries of the Company) and
no shares were held in treasury, and no shares of Preferred Stock were
outstanding. The outstanding shares of Common Stock are, and the shares offered
hereby will be, when issued, fully paid and nonassessable.
COMMON STOCK
Holders of the Common Stock are entitled to one vote per share on all
matters submitted to a vote of shareholders. Shares of Common Stock do not have
cumulative voting rights, which means that the holders of a majority of the
shares voting for the election of the Board of Directors can elect all members
of the Board of Directors. Upon any liquidation, dissolution or winding up of
the Company, holders of Common Stock are entitled to receive pro rata all of the
assets of the Company available for distribution to shareholders, subject to any
prior rights of holders of any outstanding Preferred Stock. Shareholders do not
have any preemptive rights to subscribe for or purchase any stock, obligations,
warrants or other securities of the Company.
Holders of record of shares of Common Stock are entitled to receive
dividends when and if declared by the Board of Directors out of funds of the
Company legally available therefor. Michaels has never paid dividends on its
Common Stock. The Company's present policy is to retain earnings for the
foreseeable future for use in the Company's business and the financing of its
growth. However, such policy is subject to the discretion of the Board of
Directors.
PREFERRED STOCK
The Board of Directors of the Company is authorized to issue Preferred Stock
in one or more series and to fix the voting rights, liquidation preferences,
dividend rates, conversion rights, redemption rights and terms, including
sinking fund provisions, and certain other rights and preferences. The issuance
of Preferred Stock, while providing flexibility in connection with possible
acquisitions and other corporate purposes, could, among other things, adversely
affect the voting power of the holders of the Common Stock and, under certain
circumstances, make it more difficult for a third party to gain control of the
Company.
TRANSFER AGENT
The transfer agent for the Common Stock is Society National Bank.
25
<PAGE>
CERTAIN SPECIAL FEDERAL TAX CONSIDERATIONS
FOR NON-UNITED STATES HOLDERS
The following is a general discussion of certain special United States
federal income and estate tax considerations relevant to non-United States
holders of the Common Stock, but does not purport to be a complete analysis of
all the potential tax considerations relating thereto.
As used herein, "non-United States holder" means a corporation, individual
or partnership that is, as to the United States, a foreign corporation, a
nonresident alien individual or a foreign partnership, and any estate or trust
if such estate or trust is not subject to United States taxation on income from
sources without the United States that is not effectively connected with the
conduct of a trade or business within the United States.
This discussion is based upon the Code, Treasury Regulations, IRS rulings
and judicial decisions now in effect, all of which are subject to change
(possibly with retroactive effect) or different interpretations. This discussion
does not purport to deal with all aspects of federal income and estate taxation
that may be relevant to a particular non-United States holder's decision to
purchase the Common Stock.
ALL PROSPECTIVE NON-UNITED STATES HOLDERS OF THE COMMON STOCK ARE ADVISED TO
CONSULT THEIR OWN TAX ADVISORS REGARDING THE UNITED STATES FEDERAL, STATE, LOCAL
AND FOREIGN TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE
COMMON STOCK.
DIVIDENDS
Dividends paid to a non-United States holder of the Common Stock will be
subject to withholding of United States federal income tax at a 30% rate or such
lower rate as may be specified by an applicable income tax treaty. Currently,
dividends paid to an address in a foreign country are presumed to be paid to a
resident of such country in determining the applicability of a treaty for such
purposes. However, proposed Treasury Regulations which have not been finally
adopted would require non-United States holders to satisfy certain certification
and other requirements to obtain the benefit of any applicable income tax treaty
providing for a lower rate of withholding tax on dividends.
Except as may be otherwise provided in an applicable income tax treaty, a
non-United States holder will be taxed at ordinary federal income tax rates (on
a net income basis) on dividends that are effectively connected with the conduct
of a trade or business of such non-United States holder within the United States
and might not be subject to the withholding tax described above. If such
non-United States holder is a foreign corporation, it may also be subject to a
United States branch profits tax at a 30% rate or such lower rate as may be
specified by any applicable income tax treaty. Non-United States holders must
comply with certain certification and disclosure requirements to claim treaty
benefits or an exemption from withholding tax under the foregoing rules.
DISPOSITION OF COMMON STOCK
Non-United States holders generally will not be subject to United States
federal income tax in respect of gain recognized on a disposition of the Common
Stock unless (i) the gain is effectively connected with a trade or business
conducted by the non-United States holder within the United States (in which
case the branch profits tax described under "Dividends" above may also apply if
the holder is a foreign corporation), (ii) in the case of a non-United States
holder who is a nonresident alien individual and holds the Common Stock as a
capital asset, such holder is present in the United States for 183 or more days
in the taxable year of the disposition and either the income from the
disposition is attributable to an office or other fixed place of business
maintained by the holder in the United States or the holder has a "tax home" in
the United States (within the meaning of the Code), or (iii) the Company is or
has been a "United States real property holding corporation" and certain other
requirements are met. The Company does not believe it has been or is currently,
and does not anticipate becoming, a United States real property holding
corporation.
26
<PAGE>
FEDERAL ESTATE TAXES
Common Stock that is owned or treated as being owned by a non-United States
holder who is a natural person (as determined for United States federal estate
tax purposes) at the time of death will be included in such holder's gross
estate for United States federal estate tax purposes, unless an applicable
estate tax treaty provides otherwise. Common Stock that has been transferred by
such a non-United States holder in a "generation-skipping transfer" may be
subject to a generation-skipping transfer tax in addition to estate tax.
INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING
United States information reporting requirements and 31% backup withholding
tax generally will not apply to dividends paid on the Common Stock if the
dividends are subject to either the 30% withholding tax or such lower rate as
may be specified by an applicable income tax treaty, or are exempt from such
withholding tax under the rules discussed above relating to dividends that are
effectively connected with the conduct of a trade or business of such holder
within the United States, or are paid to a non-United States holder at an
address outside the United States provided that the holder certifies to its
non-United States status on the appropriate form and the payer has no actual
knowledge that the holder is a United States person. As a general matter,
information reporting and backup withholding will also not apply to a payment of
the proceeds of a sale effected outside the United States of Common Stock by a
foreign office of a foreign broker. However, information reporting requirements
(but under current proposed Treasury regulations not backup withholding) will
apply to a payment of the proceeds of a sale effected outside the United States
of Common Stock by a foreign office of a broker that (i) is a United States
person, (ii) is a foreign person that derives 50% or more of its gross income
for certain periods from the conduct of a trade or business in the United
States, or (iii) is a "controlled foreign corporation" (generally, a foreign
corporation controlled by United States shareholders) with respect to the United
States, unless the broker has documentary evidence in its records that the
holder is a non-United States holder and certain conditions are met, or the
holder otherwise establishes an exemption. Payment by a United States office of
a broker of the proceeds of a sale of Common Stock is subject to both backup
withholding and information reporting unless the holder certifies to the payor
in the manner required as to its non-United States status under penalties of
perjury or otherwise establishes an exemption.
A non-United States holder may obtain a refund of any excess amounts
withheld under the backup withholding rules by filing an appropriate claim for
refund with the IRS.
27
<PAGE>
UNDERWRITING
Under the terms and subject to the conditions contained in an Underwriting
Agreement dated , 1994 (the "U.S. Underwriting Agreement"), the
underwriters named below (the "U.S. Underwriters"), for whom CS First Boston
Corporation, Robertson, Stephens & Company, L.P. and Nomura Securities
International, Inc. are acting as representatives (the "Representatives"), have
severally but not jointly agreed to purchase from the Company and the Selling
Stockholders the following respective numbers of U.S. Shares:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER U.S. SHARES
- ------------------------------------------------------------------------------------------ ------------
<S> <C>
CS First Boston Corporation...............................................................
Robertson, Stephens & Company, L.P........................................................
Nomura Securities International, Inc......................................................
------------
Total................................................................................. 1,600,000
------------
------------
</TABLE>
The U.S. Underwriting Agreement provides that the obligations of the U.S.
Underwriters are subject to certain conditions precedent and that the U.S.
Underwriters will be obligated to purchase all the U.S. Shares offered hereby if
any are purchased. The U.S. Underwriting Agreement provides that, in the event
of a default by a U.S. Underwriter, in certain circumstances, the purchase
commitments of non-defaulting U.S. Underwriters may be increased or the U.S.
Underwriting Agreement may be terminated.
The Company and the Selling Stockholders have entered into a Subscription
Agreement (the "Subscription Agreement") with the Managers of the International
Offering (the "Managers") providing for the concurrent offer and sale of the
International Shares outside the United States and Canada. The closing of the
U.S. Offering is a condition to the closing of the International Offering and
vice versa. The Managers named below have, pursuant to the Subscription
Agreement, severally and not jointly, agreed with the Company and the Selling
Stockholders to subscribe and pay for the following respective numbers of
International Shares:
<TABLE>
<CAPTION>
NUMBER OF
INTERNATIONAL
MANAGER SHARES
- ------------------------------------------------------------------------------------------ ------------
<S> <C>
CS First Boston Limited...................................................................
Robertson, Stephens & Company, L.P........................................................
Nomura International plc..................................................................
------------
Total................................................................................. 400,000
------------
------------
</TABLE>
The Company has granted to the U.S. Underwriters and the Managers an option,
exercisable by CS First Boston Corporation, expiring at the close of business on
the 30th day after the date of the initial public offering of the Common Stock
offered hereby, to purchase up to 300,000 additional shares at the public
offering price, less the underwriting discounts and commissions, all as set
forth on the cover page of this Prospectus. The U.S. Underwriters and the
Managers may exercise such option only to cover over-allotments in the sale of
the shares of Common Stock offered hereby. To the extent
28
<PAGE>
that this option to purchase is exercised, each U.S. Underwriter and each
Manager will become obligated, subject to certain conditions, to purchase
approximately the same percentage of additional shares being sold to the U.S.
Underwriters and the Managers as the number of U.S. Shares set forth next to
such U.S. Underwriter's name in the preceding table bears to the total number of
U.S. Shares in such table and as the number set forth next to such Manager's
name in the corresponding table in the prospectus relating to the International
Offering bears to the total number of International Shares in such table.
The Company and the Selling Stockholders have been advised by the
Representatives that the U.S. Underwriters propose to offer the U.S. Shares in
the United States and Canada to the public initially at the public offering
price set forth on the cover page of this Prospectus and, through the
Representatives, to certain dealers at such price less a concession of $ per
share, that the Underwriters and such dealers may allow a discount of $ per
share on sales to certain other dealers, and that after the initial public
offering, the public offering price and concession and discount to dealers may
be changed by the Representatives.
In connection with the Common Stock Offering, CS First Boston Corporation
and certain of the U.S. Underwriters, Managers and selling group members (if
any) and their respective affiliates may engage in passive market making
transactions in the Common Stock on The Nasdaq Stock Market in accordance with
Rule 10b-6A under the Exchange Act during a period before commencement of offers
or sales of the Common Stock offered hereby. The passive market making
transactions must comply with applicable volume and price limits and be
identified as such.
The public offering price, the aggregate underwriting discounts and
commissions per share and per share concession and discount to dealers for the
U.S. Offering and the concurrent International Offering will be identical.
Pursuant to an Agreement between the U.S. Underwriters and the Managers (the
"Agreement Between") relating to the Common Stock Offering, changes in the
public offering price, concession and discount to dealers will be made only upon
the mutual agreement of CS First Boston Corporation, as representative of the
U.S. Underwriters, and CS First Boston Limited ("CSFBL"), on behalf of the
Managers.
Pursuant to the Agreement Between, each of the U.S. Underwriters has agreed
that, as part of the distribution of the U.S. Shares and subject to certain
exceptions, (a) it is not purchasing any shares of Common Stock for the account
of anyone other than a U.S. or Canadian Person (as defined below) and (b) it has
not offered or sold, and will not offer to sell, directly or indirectly, any
shares of Common Stock or distribute any prospectus relating to the Common Stock
to any person outside the United States or Canada or to anyone other than a U.S.
or Canadian Person nor to any dealer who does not so agree. Each of the Managers
has agreed or will agree that, as part of the distribution of the International
Shares and subject to certain exceptions, (i) it is not purchasing any shares of
Common Stock for the account of any U.S. or Canadian Person and (ii) it has not
offered or sold, and will not offer or sell, directly or indirectly, any shares
of Common Stock or distribute any prospectus relating to the Common Stock in the
United States or Canada or to any U.S. or Canadian Person nor to any dealer who
does not so agree. The foregoing limitations do not apply to stabilization
transactions or to transactions between the U.S. Underwriters and the Managers
pursuant to the Agreement Between. As used herein, "United States" means the
United States of America (including the States and the District of Columbia),
its territories, possessions and other areas subject to its jurisdiction,
"Canada" means Canada, its provinces, territories, possessions and other areas
subject to its jurisdiction, and "U.S. or Canadian Person" means a citizen or
resident of the United States or Canada, or a corporation, partnership or other
entity created or organized in or under the laws of the United States or Canada
(other than a foreign branch of such an entity) or an estate or trust the income
of which is subject to United States or Canadian federal income taxation,
regardless of its source of income, and includes any United States or Canadian
branch of a non-U.S. or non-Canadian Person.
Pursuant to the Agreement Between, sales may be made between the U.S.
Underwriters and the Managers of such number of shares of Common Stock as may be
mutually agreed upon. The price of
29
<PAGE>
any shares so sold will be the initial public offering price, less such amount
as may be mutually agreed upon by CS First Boston Corporation, as representative
of the U.S. Underwriters, and CSFBL, on behalf of the Managers, but not
exceeding the selling concession applicable to such shares. To the extent there
are sales between the U.S. Underwriters and the Managers pursuant to the
Agreement Between, the number of shares of Common Stock initially available for
sale by the U.S. Underwriters or by the Managers may be more or less than the
amount appearing on the cover page of this Prospectus. There are no limits on
the number of shares of Common Stock that may be sold between the U.S.
Underwriters and the Managers. Neither the U.S. Underwriters nor the Managers
are obligated to purchase from the other any unsold shares of Common Stock.
This Prospectus may also be used in connection with resales of International
Shares in the United States by dealers.
The Company and certain of its directors, executive officers and
shareholders have agreed not to offer, sell, contract to sell, pledge or
otherwise dispose of, directly or indirectly, or file with the Securities and
Exchange Commission a registration statement under the Securities Act relating
to, any additional shares of its Common Stock or securities convertible or
exchangeable into or exercisable for any shares of its Common Stock without the
prior written consent of CS First Boston Corporation for a period of 90 days
after the date of this Prospectus other than (a) issuances and sales by the
Company of Common Stock in accordance with the terms of certain of the Company's
benefit plans, (b) issuances of Common Stock by the Company upon the conversion
of securities or the exercise of warrants outstanding at the date of this
Prospectus and (c) the filing of a registration statement to permit the resale
of shares of Common Stock by the Leewards stockholders. See "Selling
Stockholders." The stockholders of Leewards have agreed not to offer, sell,
contract to sell, pledge or otherwise dispose of, directly or indirectly, any
shares of Common Stock received in connection with the acquisition without the
prior written consent of CS First Boston Corporation for a period of 90 days
after the date of this Prospectus except that such stockholders may dispose of
such shares in a transaction not involving a public distribution if the
transferee executes a similar agreement.
The Company and the Selling Stockholders have agreed to indemnify the U.S.
Underwriters and the Managers against certain liabilities, including civil
liabilities under the Securities Act, or to contribute to payments that the U.S.
Underwriters and the Managers may be required to make in respect thereof.
Certain of the U.S. Underwriters and Managers and their affiliates have from
time to time performed, and continue to perform, various investment banking and
commercial banking services for the Company, for which customary compensation
has been received.
NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of the Common Stock in Canada is being made only on a
private placement basis exempt from the requirement that the Company prepare and
file a prospectus with the securities regulatory authorities in each province
where trades of Common Stock are effected. Accordingly, any resale of the Common
Stock in Canada must be made in accordance with applicable securities laws which
will vary depending on the relevant jurisdiction, and which may require resales
to be made in accordance with available statutory exemptions or pursuant to a
discretionary exemption granted by the applicable Canadian securities regulatory
authority. Purchasers are advised to seek legal advice prior to any resale of
the Common Stock.
REPRESENTATIONS OF PURCHASERS
Each purchaser of Common Stock in Canada who receives a purchase
confirmation will be deemed to represent to the Company, the Selling
Stockholders and the dealer from whom such purchase confirmation is received
that (i) such purchaser is entitled under applicable provincial securities laws
to purchase such Common Stock without the benefit of a prospectus qualified
under such securities laws, (ii) where required by law, that such purchaser is
purchasing as principal and not as agent, and (iii) such purchaser has reviewed
the text under "Resale Restrictions."
30
<PAGE>
RIGHTS OF ACTION AND ENFORCEMENT
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
section 32 of the Regulation under the SECURITIES ACT (Ontario). As a result,
Ontario purchasers must rely on other remedies that may be available, including
common law rights of action for damages or rescission or rights of action under
the civil liability provisions of the U.S. Federal securities laws.
All of the issuer's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be possible
for Ontario purchasers to effect service of process within Canada upon the
issuer or such persons. All or a substantial portion of the assets of the issuer
and such persons may be located outside of Canada and, as a result, it may not
be possible to satisfy a judgment against the issuer or such persons in Canada
or to enforce a judgment obtained in Canadian courts against such issuer or
persons outside of Canada.
NOTICE TO BRITISH COLUMBIA RESIDENTS
A purchaser of Common Stock to whom the SECURITIES ACT (British Columbia)
applies is advised that such purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any
Common Stock acquired by such purchaser pursuant to this offering. Such report
must be in the form attached to British Columbia Securities Commission Blanket
Order BOR #88/5, a copy of which may be obtained from the Company. Only one such
report must be filed in respect of Common Stock acquired on the same date and
under the same prospectus exemption.
LEGAL MATTERS
The validity of the Common Stock offered hereby and the issuance thereof
have been passed upon for the Company by Jackson & Walker, L.L.P., Dallas, Texas
and for the Underwriters by Fulbright & Jaworski L.L.P., Dallas, Texas. Michael
C. French, a partner in Jackson & Walker, L.L.P., is a director of the Company.
EXPERTS
The consolidated financial statements of Michaels Stores, Inc. appearing or
incorporated by reference in the Company's Annual Report on Form 10-K for the
year ended January 30, 1994, have been audited by Ernst & Young, independent
auditors, as set forth in their report thereon incorporated by reference therein
and incorporated herein by reference. Such consolidated financial statements are
incorporated herein by reference in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
The financial statements of Leewards Creative Crafts, Inc. at January 30,
1994 and January 31, 1993, and for each of the years ended January 30, 1994, and
January 31, 1993 appearing elsewhere herein have been audited by Deloitte &
Touche, independent auditors, as set forth in their report thereon appearing
elsewhere herein, which report expresses an unqualified opinion and includes an
explanatory paragraph relating to the Agreement and Plan of Merger whereby
Leewards Creative Crafts, Inc. will become a subsidiary of Michaels Stores,
Inc., and are included in reliance upon such report given upon the authority of
such firm as experts in accounting and auditing.
31
<PAGE>
LEEWARDS CREATIVE CRAFTS, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
INDEPENDENT AUDITORS' REPORT............................................................................... F-2
FINANCIAL STATEMENTS FOR THE YEARS ENDED JANUARY 31, 1993, JANUARY 30, 1994 AND (UNAUDITED) FOR THE THREE
MONTHS ENDED MAY 2, 1993 AND MAY 1, 1994
Balance Sheets........................................................................................... F-3
Statements of Operations................................................................................. F-5
Statements of Redeemable Preferred Stock and Common Stockholders' Equity................................. F-6
Statements of Cash Flows................................................................................. F-7
Notes to Financial Statements............................................................................ F-8
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Leewards Creative Crafts, Inc.
Elgin, Illinois
We have audited the accompanying balance sheets of Leewards Creative Crafts,
Inc. as of January 31, 1993 and January 30, 1994 and the related statements of
operations, of redeemable preferred stock and common stockholders' equity, and
of cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Leewards Creative Crafts, Inc. as of January
31, 1993 and January 30, 1994 and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
As discussed in Note 11, the Company has entered into an Agreement and Plan
of Merger (the "Agreement") whereby it will become a wholly owned subsidiary of
Michaels Stores, Inc. ("Michaels"). The Agreement also provides that
simultaneously with the merger closing, Michaels shall cause the Company to
repay its long-term debt.
DELOITTE & TOUCHE
Chicago, Illinois
March 4, 1994
(May 11, 1994 as to Note 11)
F-2
<PAGE>
LEEWARDS CREATIVE CRAFTS, INC.
BALANCE SHEETS
(IN 000'S EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
JANUARY 31, JANUARY 30, MAY 1,
1993 1994 1994
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents.................................... $ 2,619 $ 2,946 $ 3,217
Accounts receivable, net of allowance for doubtful accounts
of $3, $2 and $2, respectively.............................. 654 1,372 1,008
Merchandise inventories...................................... 37,530 53,090 48,833
Prepaid expenses and other current assets.................... 2,745 3,898 4,777
Deferred income taxes........................................ 495 343 523
----------- ----------- -----------
Total current assets..................................... 44,043 61,649 58,358
PROPERTY AND EQUIPMENT:
Land......................................................... 733 732 732
Buildings and improvements................................... 972 987 1,009
Leasehold improvements....................................... 5,169 6,918 6,975
Machinery and equipment...................................... 13,860 20,822 20,731
Construction in progress..................................... 20 84 397
----------- ----------- -----------
20,754 29,543 29,844
Less accumulated depreciation and amortization............... 8,631 10,598 11,390
----------- ----------- -----------
Property and equipment -- net............................ 12,123 18,945 18,454
OTHER ASSETS:
Trade name, less accumulated amortization of $719, $871 and
$908, respectively.......................................... 5,340 5,188 5,151
Other intangibles, less accumulated amortization of $11,113,
$11,557 and $11,629, respectively........................... 1,040 596 524
Deferred financing costs, less accumulated amortization of
$2,299, $2,687 and $2,740, respectively..................... 892 656 603
Notes receivable............................................. -- 70 --
Miscellaneous assets......................................... 7 7 109
----------- ----------- -----------
Total other assets....................................... 7,279 6,517 6,387
----------- ----------- -----------
TOTAL.......................................................... $ 63,445 $ 87,111 $ 83,199
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
See notes to financial statements.
F-3
<PAGE>
LEEWARDS CREATIVE CRAFTS, INC.
BALANCE SHEETS
(IN 000'S EXCEPT SHARE DATA)
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
JANUARY 31, JANUARY 30, MAY 1,
1993 1994 1994
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT LIABILITIES:
Accounts payable............................................. $ 9,147 $ 15,157 $ 9,551
Accrued expenses............................................. 11,193 12,851 13,673
Taxes other than income taxes................................ 798 712 899
Current maturities of long-term debt......................... 7,348 17,602 20,195
Long-term debt classified as current (Note 4)................ -- 14,884 14,884
Income taxes payable......................................... 1,098 -- --
----------- ----------- -----------
Total current liabilities................................ 29,584 61,206 59,202
LONG-TERM DEBT................................................. 16,961 -- --
DEFERRED INCOME TAXES.......................................... 3,926 3,538 2,852
----------- ----------- -----------
Total liabilities........................................ 50,471 64,744 62,054
COMMITMENTS AND CONTINGENCIES (Note 10)
REDEEMABLE PREFERRED STOCK:
Class A Cumulative Exchangeable Senior Preferred Stock, $0.01
par value; shares authorized: 1993 -- 2,135; 1994 -- 4,000;
shares outstanding: 1993 -- 2,135; 1994 -- 2,349............ 9 10 68
Class B Cumulative Exchangeable Senior Preferred Stock, $0.01
par value; shares authorized: 1993 -- 2,514; 1994 -- 4,700;
shares outstanding: 1993 -- 2,514; 1994 -- 2,765............ 10 11 80
Exchangeable Preferred Stock, $0.01 par value; shares
authorized: 1993 -- 393,472; 1994 -- 800,000; shares
outstanding: 1993 -- 393,472; 1994 -- 427,322 and 470,054,
respectively................................................ 255 325 4
Class C Senior Convertible Preferred Stock, $0.01 par value;
562,500 shares authorized: 549,629 shares outstanding....... 5 5 5
Class D Senior Convertible Preferred Stock, $0.01 par value;
shares authorized: 1994 -- 194,050; shares outstanding,
194,035..................................................... -- 2 2
Class E Senior Convertible Preferred Stock, $0.01 par value;
shares authorized and outstanding: 1994 -- 129,712.......... -- 1 1
Undesignated Preferred Stock, $0.01 par value; shares
authorized and outstanding: 1993 -- 2,039,379; 1994 --
1,605,038; 0 shares issued..................................
Additional paid-in capital................................... 18,579 29,229 29,685
----------- ----------- -----------
Total redeemable preferred stock......................... 18,858 29,583 29,845
COMMON STOCKHOLDERS' DEFICIENCY:
Common stock, $0.01 par value; shares authorized: 1993 --
2,800,000; 1994 -- 4,000,000; shares outstanding: 78,281.... 1 1 1
Class B Common Stock, $0.01 par value; shares authorized:
1993 -- 200,000; 1994 -- 300,000; shares outstanding:
73,275...................................................... 1 1 1
Class C Common Stock, $0.01 par value; shares authorized:
1994 -- 600,000; 0 shares issued............................
Additional paid-in capital................................... 746 733 733
Deficit...................................................... (6,632) (7,951) (9,435)
----------- ----------- -----------
Common stockholders' deficiency.......................... (5,884) (7,216) (8,700)
----------- ----------- -----------
TOTAL.......................................................... $ 63,445 $ 87,111 $ 83,199
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
See notes to financial statements.
F-4
<PAGE>
LEEWARDS CREATIVE CRAFTS, INC.
STATEMENTS OF OPERATIONS
(IN 000'S)
<TABLE>
<CAPTION>
YEAR ENDED QUARTER ENDED
------------------------ --------------------
JANUARY 31, JANUARY 30, MAY 2, MAY 1,
1993 1994 1993 1994
----------- ----------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
NET SALES....................................................... $ 169,014 $ 190,261 $ 39,064 $ 46,246
COST OF SALES................................................... 86,431 99,093 19,615 24,252
----------- ----------- --------- ---------
82,583 91,168 19,449 21,994
OPERATING EXPENSES:
Selling and delivery.......................................... 63,845 76,219 16,288 19,483
General and administrative.................................... 5,754 6,900 1,511 1,801
Amortization of deferred pre-opening expenses................. 1,092 1,387 105 840
Depreciation and amortization................................. 3,431 3,549 834 954
----------- ----------- --------- ---------
74,122 88,055 18,738 23,078
----------- ----------- --------- ---------
OPERATING EARNINGS (LOSS)....................................... 8,461 3,113 711 (1,084)
OTHER INCOME (EXPENSE):
Restructuring expenses (Notes 1, 4 and 6)..................... (1,632) (24) -- (12)
Gain (loss) on asset disposal................................. 503 (226) -- 19
Other......................................................... 22 -- -- --
Interest expense:
Related parties............................................. (2,137) (2,285) (572) (572)
Other....................................................... (1,759) (1,154) (218) (422)
----------- ----------- --------- ---------
INCOME (LOSS) BEFORE INCOME TAXES............................... 3,458 (576) (79) (2,071)
INCOME TAXES
Currently payable............................................. 1,159 93 -- --
Deferred income taxes (benefit)............................... 394 (329) (32) (849)
----------- ----------- --------- ---------
1,553 (236) (32) (849)
----------- ----------- --------- ---------
NET INCOME (LOSS)............................................... $ 1,905 $ (340) $ (47) $ (1,222)
----------- ----------- --------- ---------
----------- ----------- --------- ---------
</TABLE>
See notes to financial statements.
F-5
<PAGE>
LEEWARDS CREATIVE CRAFTS, INC.
STATEMENTS OF REDEEMABLE PREFERRED STOCK AND COMMON STOCKHOLDERS' EQUITY
(IN 000'S)
<TABLE>
<CAPTION>
REDEEMABLE PREFERRED STOCK
-------------------------------------------------------------------------------------------------
EXCHANGEABLE ADDITIONAL
EXCHANGEABLE EXCHANGEABLE PREFERRED CONVERTIBLE CONVERTIBLE CONVERTIBLE PAID-IN
CLASS A CLASS B STOCK CLASS C CLASS D CLASS E CAPITAL
------------ ------------ ------------ ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, FEBRUARY 2, 1992..... $ 439 $ 759 $ 371 $-- -$- -$- $ 5,890
Amortization of issuance
fees....................... -- -- -- -- -- -- 56
Class A, Class B and
exchangeable preferred
dividends accrued.......... 330 390 447 -- -- -- --
Sale of Class C preferred
stock...................... -- -- -- $ 30 -- -- 10,146
Sale of common stock........ -- -- -- -- -- -- --
Repurchase and cancellation
of outstanding shares...... -- -- -- -- -- -- --
Paid-in-kind dividend....... (760) (1,139) (563) -- -- -- 2,462
Reverse split-common stock
and Class C preferred...... -- -- -- (25) -- -- 25
Repurchase options.......... -- -- -- -- -- -- --
Net income.................. -- -- -- -- -- -- --
------ ------------ ------ ----------- ----- ----- ----------
BALANCE, JANUARY 31, 1993..... 9 10 255 5 -- -- 18,579
Amortization of issuance
fees....................... -- -- -- -- -- -- 104
Class A, Class B and
Exchangeable preferred
dividends accrued.......... 215 252 408 -- -- -- --
Sale of Class D preferred
stock...................... -- -- -- -- 2 -- 5,840
Sale of Class E preferred
stock...................... -- -- -- -- -- 1 3,903
Paid-in-kind dividend, May
1, 1993.................... -- -- (338) -- -- -- 338
Repurchase options.......... -- -- -- -- -- -- --
Paid-in-kind dividend,
January 15, 1994........... (214) (251) -- -- -- -- 465
Net loss.................... -- -- -- -- -- -- --
------ ------------ ------ ----------- ----- ----- ----------
BALANCE, JANUARY 30, 1994 10 11 325 5 2 1 29,229
(UNAUDITED):
Net loss.................... -- -- -- -- -- -- --
Amortization of issuance
fees....................... -- -- -- -- -- -- 29
Class A, Class B and
Exchangeable preferred
dividends accrued.......... 58 69 106 -- -- -- --
Paid-in-kind dividend, May
1, 1994.................... -- -- (427) -- -- -- 427
------ ------------ ------ ----------- ----- ----- ----------
BALANCE, MAY 1, 1994.......... $ 68 $ 80 $ 4 $ 5 $ 2 $ 1 $29,685
------ ------------ ------ ----------- ----- ----- ----------
------ ------------ ------ ----------- ----- ----- ----------
<CAPTION>
COMMON STOCKHOLDERS' EQUITY
--------------------------------------
CLASS ADDITIONAL
COMMON B PAID-IN
STOCK COMMON CAPITAL DEFICIT
------ ------ ---------- -------
<S> <C> <C> <C> <C>
BALANCE, FEBRUARY 2, 1992..... $5 $5 $1,190 $(7,314)
Amortization of issuance
fees....................... -- -- -- (56)
Class A, Class B and
exchangeable preferred
dividends accrued.......... -- -- -- (1,167)
Sale of Class C preferred
stock...................... -- -- -- --
Sale of common stock........ -- -- 100 --
Repurchase and cancellation
of outstanding shares...... (1) -- (527) --
Paid-in-kind dividend....... -- -- -- --
Reverse split-common stock
and Class C preferred...... (3) (4) 7 --
Repurchase options.......... -- -- (24) --
Net income.................. -- -- -- 1,905
-- --
---------- -------
BALANCE, JANUARY 31, 1993..... 1 1 746 (6,632)
Amortization of issuance
fees....................... -- -- -- (104)
Class A, Class B and
Exchangeable preferred
dividends accrued.......... -- -- -- (875)
Sale of Class D preferred
stock...................... -- -- -- --
Sale of Class E preferred
stock...................... -- -- -- --
Paid-in-kind dividend, May
1, 1993.................... -- -- -- --
Repurchase options.......... -- -- (13) --
Paid-in-kind dividend,
January 15, 1994........... -- -- -- --
Net loss.................... -- -- -- (340)
-- --
---------- -------
BALANCE, JANUARY 30, 1994 1 1 733 (7,951)
(UNAUDITED):
Net loss.................... -- -- -- (1,222)
Amortization of issuance
fees....................... -- -- -- (29)
Class A, Class B and
Exchangeable preferred
dividends accrued.......... -- -- -- (233)
Paid-in-kind dividend, May
1, 1994.................... -- -- -- --
-- --
---------- -------
BALANCE, MAY 1, 1994.......... $1 $1 $ 733 $(9,435)
-- --
-- --
---------- -------
---------- -------
</TABLE>
See notes to financial statements.
F-6
<PAGE>
LEEWARDS CREATIVE CRAFTS, INC.
STATEMENTS OF CASH FLOWS
(IN 000'S)
<TABLE>
<CAPTION>
YEAR ENDED QUARTER ENDED
------------------------- --------------------
JANUARY 31, JANUARY 30, MAY 2,
1993 1994 1993 MAY 1, 1994
----------- ----------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)........................................................ $ 1,905 $ (340) $ (47) $ (1,222)
Adjustments to reconcile net income (loss) to net cash flows from
operating activities:
Depreciation and amortization.......................................... 3,290 3,549 834 954
Deferred income taxes.................................................. 503 (236) (64) (1,209)
Loss (gain) on disposal of fixed assets................................ (503) 226 -- (19)
Changes in:
Accounts receivable.................................................. 521 (718) (202) 707
Merchandise inventories.............................................. 6,969 (15,560) (272) 4,257
Prepaid expenses and other current assets............................ 1,303 (1,153) 47 (879)
Accounts payable..................................................... (11,952) 6,010 306 (5,606)
Accrued expenses and other liabilities............................... (448) 4 (2,475) (447)
Taxes other than income.............................................. (46) (86) 100 187
Notes receivable..................................................... 88 (70) -- --
Miscellaneous assets................................................. (1) -- (154) (32)
----------- ----------- ------- -----------
Net cash flows from operating activities........................... 1,629 (8,374) (1,927) (3,309)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment....................................... (1,141) (9,670) (872) (282)
Proceeds from sale of property........................................... 1,503 57 -- --
----------- ----------- ------- -----------
Net cash flows from investing activities........................... 362 (9,613) (872) (282)
CASH FLOWS FROM FINANCING ACTIVITIES:
Financing fees paid for restructuring revolving and term credit
agreements.............................................................. (433) (152) (8) --
Proceeds from issuance of stock.......................................... 10,276 9,746 -- --
Repurchase of stock...................................................... (551) (13) -- --
Issuance of subordinated debt accrual notes.............................. 2,077 -- -- --
Net borrowings (repayments) under revolving credit agreement............. (13,934) 8,177 2,375 2,593
Increase in checks outstanding........................................... 474 556 3 1,269
----------- ----------- ------- -----------
Net cash flows from financing activities........................... (2,091) 18,314 2,370 3,862
----------- ----------- ------- -----------
NET INCREASE (DECREASE) IN CASH............................................ (100) 327 (429) 271
CASH AND CASH EQUIVALENTS -- Beginning of year............................. 2,719 2,619 2,619 2,946
----------- ----------- ------- -----------
CASH AND CASH EQUIVALENTS -- End of year................................... $ 2,619 $ 2,946 $ 2,190 $ 3,217
----------- ----------- ------- -----------
----------- ----------- ------- -----------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest:
Related parties........................................................ $ -- $ 2,290 $ -- $ --
----------- ----------- ------- -----------
----------- ----------- ------- -----------
Other.................................................................. $ 1,804 $ 1,130 $ 270 $ 496
----------- ----------- ------- -----------
----------- ----------- ------- -----------
Cash paid during the year for income taxes............................... $ 188 $ 1,103 $ 25 $ 19
----------- ----------- ------- -----------
----------- ----------- ------- -----------
</TABLE>
See notes to financial statements.
F-7
<PAGE>
LEEWARDS CREATIVE CRAFTS, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF ACCOUNTING POLICIES:
QUARTERLY FINANCIAL STATEMENTS BASIS OF PRESENTATION -- The accompanying
financial statements and related footnote disclosures of Leewards Creative
Crafts, Inc. (the "Company") as of May 1, 1994 and for the three months then
ended and for the three months ended May 2, 1993 are unaudited. In the opinion
of management, these statements have been prepared on the same basis as the
audited financial statements and include all adjustments, which are of a normal
and recurring nature necessary for the fair presentation of financial position,
results of operations and cash flows. The results of operations for the three
months ended May 1, 1994 and May 2, 1993 are not necessarily indicative of the
results which may be expected for the entire year.
OPERATIONS AND RESTRUCTURING
The Company engages in the retail sale of craft and home decor products. The
Company maintained the following number of Company-operated and franchised
stores at:
<TABLE>
<CAPTION>
COMPANY-
OPERATED FRANCHISES TOTAL
--------------- --------------- -----
<S> <C> <C> <C>
January 31, 1993......................................................... 85 2 87
January 30, 1994......................................................... 99 3 102
</TABLE>
During the year ended January 31, 1993, the Company effected a restructuring
of its debt (Note 4), capital structure (Note 6) and ongoing operations. Costs
associated with these efforts, other than those directly associated with the
debt and capital restructurings, are included in restructuring expenses. Such
expenses include store closing, severance and other costs incurred in connection
with these efforts.
FISCAL YEAR-END -- The Company's fiscal year-end is the Sunday closest to
January 31.
CASH AND CASH EQUIVALENTS -- Cash and cash equivalents include cash; amounts
due from major credit card companies, which are collected within 1 to 2 days
after date of sale; and highly liquid investments which, at time of purchase,
have maturities of three months or less.
MERCHANDISE INVENTORIES -- Merchandise inventories are stated at the lower
of last-in, first-out (LIFO) cost or market. During the year ended January 31,
1993, LIFO inventories were reduced from levels at the beginning of the year,
which reduction of LIFO inventory quantities had no material effect on 1993
operating earnings. Inventories at January 31, 1993, January 30, 1994, May 2,
1993 and May 1, 1994 were valued at market which was lower than LIFO cost.
PRE-OPENING COSTS -- Pre-opening costs incurred for the opening of retail
locations are deferred and amortized over 12 months, commencing in the month
after the location opens. Unamortized deferred pre-opening costs included in
prepaid expenses were $97,000 and $2,208,000 at January 31, 1993 and January 30,
1994, respectively.
PROPERTY AND EQUIPMENT -- Property and equipment are stated at cost.
Depreciation and amortization are provided on the straight-line method over the
estimated useful lives of the respective assets, which are as follows:
<TABLE>
<S> <C>
Buildings and improvements.................. 25-30 years
Leasehold improvements...................... Shorter of lease term or 10 years
Machinery and equipment..................... 3-10 years
</TABLE>
INTANGIBLE ASSETS -- Intangible assets, primarily the trade name, and
favorable lease agreements, are reported net of accumulated amortization. The
assets are being amortized on a straight-line basis over their useful lives
which range from 3 to 40 years.
INCOME TAXES -- The Company adopted SFAS No. 109, "Accounting for Income
Taxes," in the year ended January 31, 1993 and, accordingly, computes deferred
taxes using the liability method.
F-8
<PAGE>
LEEWARDS CREATIVE CRAFTS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF ACCOUNTING POLICIES: (CONTINUED)
Deferred tax assets and liabilities are recorded based on differences between
the financial statements and income tax basis of assets and liabilities and the
tax rate in effect when these differences are expected to reverse.
2. ACCRUED EXPENSES
Accrued expenses include the following (in 000's):
<TABLE>
<CAPTION>
JANUARY 31, JANUARY 30,
1993 1994
--------------- ---------------
<S> <C> <C>
Outstanding checks................................................... $ 4,339 $ 4,895
Accrued payroll...................................................... 2,970 2,396
Other................................................................ 3,884 5,560
--------------- ---------------
Total................................................................ $ 11,193 $ 12,851
--------------- ---------------
--------------- ---------------
</TABLE>
3. INCOME TAXES
The provision (benefit) for income taxes consists of the following (in
000's):
<TABLE>
<CAPTION>
JANUARY 31, JANUARY 30,
1993 1994
--------------- ---------------
<S> <C> <C>
Current:
Federal............................................................ $ 829
State.............................................................. 330 $ 93
------- ------
1,159 93
------- ------
Deferred:
Federal............................................................ 310 (273)
State.............................................................. 84 (56)
------- ------
394 (329)
------- ------
Total provision (benefit) for income taxes........................... $ 1,553 $ (236)
------- ------
------- ------
</TABLE>
Provision for deferred taxes results from temporary differences in the
recognition of revenue and expense for financial statement and tax purposes.
Temporary differences arise principally from the following (in 000's):
<TABLE>
<CAPTION>
JANUARY 31, JANUARY 30,
1993 1994
--------------- ---------------
<S> <C> <C>
Amortization of intangibles.......................................... $ (285) $ (203)
Deferred store pre-opening costs..................................... (321) 708
Accrued liabilities.................................................. 137 (294)
Inventory capitalization............................................. 205 (416)
Inventory reserves................................................... 118 127
Depreciation......................................................... 183 343
State taxes and effect of changes in state tax rates................. 109 70
Alternative minimum tax.............................................. 171 (47)
Net operating loss................................................... (667)
Other................................................................ 77 50
------ ------
Total................................................................ $ (394) $ (329)
------ ------
------ ------
</TABLE>
F-9
<PAGE>
LEEWARDS CREATIVE CRAFTS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. INCOME TAXES (CONTINUED)
The difference between the statutory federal income tax rate and the
effective tax rate is as follows:
<TABLE>
<CAPTION>
JANUARY 31, JANUARY 30,
1993 1994
------------- -------------
<S> <C> <C>
Statutory federal income tax rate.......................................... 34.0% (34.0)%
State taxes, net of federal benefit........................................ 6.1 (6.9)
Deferred tax adjustment.................................................... 4.8 --
----- -----
Effective income tax rate.................................................. 44.9% (40.9)%
----- -----
----- -----
</TABLE>
At January 31, 1993 and January 30, 1994, the components of the deferred
income tax liability and asset were as follows (in 000's):
<TABLE>
<CAPTION>
JANUARY 31, JANUARY 30,
1993 1994
----------- -----------
<S> <C> <C>
Deferred tax liability:
Intangibles.............................................................. $ 2,558 $ 2,368
Property and equipment................................................... 1,487 1,894
Other, net............................................................... (119) (54)
Net operating loss carryforward.......................................... -- (670)
----------- -----------
Total.................................................................. $ 3,926 $ 3,538
----------- -----------
----------- -----------
Deferred tax asset:
Inventory................................................................ $ 337
Accrued expenses......................................................... $ 487 860
Prepaid expenses......................................................... (184) (1,129)
AMT credit carryforward.................................................. 91 218
Other -- net............................................................. 101 57
----------- -----------
Total.................................................................. $ 495 $ 343
----------- -----------
----------- -----------
</TABLE>
At January 30, 1994, the Company has $218,000 of AMT credits available for
carryforward to future years and an NOL carryforward of $1,635,000 which expires
in 2009.
4. LONG-TERM DEBT
Long-term debt consists of (in 000's):
<TABLE>
<CAPTION>
JANUARY 31, JANUARY 30,
1993 1994
----------- -----------
<S> <C> <C>
Revolving and term loan(a)................................................. $ 7,348 $ 15,525
Subordinated debentures(b),(c)............................................. 16,961 16,961
----------- -----------
Total long-term debt (See Note 11)......................................... 24,309 32,486
Less current maturities.................................................... (7,348) (32,486)
----------- -----------
Total.................................................................... $ 16,961 $ --
----------- -----------
----------- -----------
</TABLE>
(a) In August 1988, the Company entered into a secured revolving credit and
term loan agreement (the "agreement") which enabled the Company to borrow up to
a maximum of $25,000,000. On June 13, 1990, the Company restructured the
agreement to provide for additional borrowings up to $32,000,000 through August
19, 1993. On April 2, 1993 the borrowing limit was reduced to $29,920,000.
F-10
<PAGE>
LEEWARDS CREATIVE CRAFTS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. LONG-TERM DEBT (CONTINUED)
Borrowings outstanding under the agreement are (in 000's):
<TABLE>
<CAPTION>
JANUARY 31, JANUARY 30,
1993 1994
----------- -----------
<S> <C> <C>
Revolving loans............................................................ $ 4,235 $ 14,067
Term loan.................................................................. 3,113 1,458
----------- -----------
Total.................................................................... $ 7,348 $ 15,525
----------- -----------
----------- -----------
</TABLE>
The borrowings under the agreement are collateralized by the assets of the
Company. Interest is payable monthly based on the rate of interest publicly
announced by Citibank in New York, New York as Citibank's "base rate" ("Base
Rate"). In the year ended January 30, 1994, the interest rate was Base Rate plus
2% for the period from February 1, 1993 to April 2, 1993 and Base Rate plus
1.75% for the period from April 3, 1993 to January 30, 1994. During the prior
year ended January 31, 1993, the interest rate was Base Rate plus 5% for the
period from February 3, 1992 to June 22, 1992 and Base Rate plus 2% for the
period from June 23, 1992 to January 31, 1993. In the year ended January 30,
1994, the interest rate fluctuated between 7.75% and 8.0% and was 7.75% at
year-end; in the prior year, the rate fluctuated between 8.0% and 11.5% and was
8.0% at year-end.
Under the revolving credit loan, as restructured, the full availability of
this credit line is contingent on the cost of collateralized inventory, less
certain adjustments. Commitment fees on the revolving loan are one-half of one
percent of the average daily unused portion of the total facility, payable
monthly.
The term loan, as restructured, requires quarterly principal payments of
$413,750 and the balance on August 19, 1994.
The Company is in the preliminary stages of negotiating a new and expanded
credit facility.
In consideration for expanding the credit facility, the Company paid a
one-time fee of $200,000 and issued warrants to Citicorp to purchase 3,250
shares of Class B Common Stock, par value $0.01 per share, subject to adjustment
under certain antidilution provisions. The warrants are exercisable from the
date of issuance at $141.65 per share and expire the later of June 13, 1995 or
upon full payment of the credit facility.
The agreement has covenants providing for mandatory prepayment provisions
and requiring the Company to meet specified financial ratios and income tests.
Such tests include, but are not limited to, net worth and earnings before
interest, depreciation and taxes. The covenants impose limitations on, among
other things, the amount of capital expenditures for each year, creating or
incurring liens, and selling assets or granting guarantees, and prohibit
declaring or paying dividends on common stock unless specifically permitted
under the terms of the agreement. The Company has received waivers for all
events of noncompliance with such covenants during the fiscal year ended January
31, 1993. The Company was not in compliance with all covenants at January 30,
1994 and at May 1, 1994. Accordingly, at those dates, all amounts outstanding
under the agreement were due on demand (See Note 11).
(b) In August 1988, the Company sold $14,884,000 of subordinated debentures
to a related party. Interest is payable semi-annually at 13.5%. Annual principal
payments of $3,742,000 begin May 15, 1997 and the remaining balance is due May
15, 2000. Included in interest expense are $2,285,000 and $2,137,000 for the
years ended January 30, 1994 and January 31, 1993, respectively, for the
indebtedness.
The debentures contain covenants, including limitations on indebtedness,
liens, and the incurrence of other subordinated indebtedness, and restrict
payments such as dividends on common stock. The Company has received waivers for
all events of noncompliance with such covenants during the
F-11
<PAGE>
LEEWARDS CREATIVE CRAFTS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. LONG-TERM DEBT (CONTINUED)
fiscal year ended January 31, 1993. At January 30, 1994, and at May 1, 1994,
because of cross default provisions with respect to the agreement referred to in
(a) above, all amounts outstanding at those dates under the subordinated
debentures also were due on demand and have been classified as currently payable
(See Note 11).
(c) RESTRUCTURING -- On June 22, 1992, the subordinated debentures were
restructured and amended to provide, among other things, for the interest
payments due on May 15 and November 15, 1992 to be made in the form of
additional promissory notes ("accrual notes") in the principal amount of the
interest payable at each date. The accrual notes bear interest at 13.5% per
annum, payable semi-annually, and $1,038,000 was due on March 15, 1994 with the
balance due on November 15, 1994. All amounts due under these debentures remain
unpaid at May 1, 1994.
In addition, an acquirer of the Class C Senior Convertible Stock (Note 6)
acquired $5,000,000 of the subordinated debentures.
Scheduled principal maturities of long-term debt classified as current for
fiscal years subsequent to January 30, 1994 are as follows (in 000's):
<TABLE>
<CAPTION>
YEARS ENDED
- ---------------------------------------------------------------------------------------------
<S> <C>
February 1, 1998............................................................................. $ 3,742
January 31, 1999............................................................................. 3,742
Thereafter................................................................................... 7,400
---------
Total........................................................................................ $ 14,884
---------
---------
</TABLE>
Unamortized deferred financing costs of $892,000 and $656,000 at January 31,
1993 and January 30, 1994, respectively, consist of professional and commitment
fees incurred in connection with the Company's revolving and term loan facility
and subordinated debentures. Such costs are being amortized on a straight-line
basis over the terms of the related debt.
5. PENSION PLAN
The Company has a defined benefit pension plan for its hourly workers with
benefits based on a fixed dollar rate per year of service. The plan assets are
invested primarily in short-term bonds and in equity securities. The Company's
funding policy is to contribute annually the minimum amount required by the
applicable Internal Revenue Code regulation. In April 1992, as part of a series
of cost reductions, the Company froze the hourly pension plan. As a result,
there will be no new entrants to the plan and no additional benefits accruing to
current participants beyond those earned as of the date the plan was frozen.
F-12
<PAGE>
LEEWARDS CREATIVE CRAFTS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. PENSION PLAN (CONTINUED)
The following presents the funded status of the plan (in 000's):
<TABLE>
<CAPTION>
JANUARY 31, JANUARY 30,
1993 1994
----------- -----------
<S> <C> <C>
Actuarial present value of benefit obligation:
Estimated accumulated benefit obligation, including vested benefits......... $ 1,866 $ 2,076
----------- -----------
----------- -----------
Estimated accumulated vested obligation....................................... $ 1,709 $ 1,857
----------- -----------
----------- -----------
Projected benefit obligation.................................................. $ (1,866) $ (2,076)
Plan assets at market value................................................... 2,012 2,084
----------- -----------
Plan assets in excess of projected benefit obligation......................... 146 8
Unrecognized prior service cost............................................... 16 13
Unrecognized net gain......................................................... (234) (75)
----------- -----------
Accrued pension cost.......................................................... $ (72) $ (54)
----------- -----------
----------- -----------
</TABLE>
Pension expense includes the following components (in 000's):
<TABLE>
<CAPTION>
JANUARY 31, JANUARY 30,
1993 1994
------------ ------------
<S> <C> <C>
Interest cost on projected benefit obligation................................ $ 142 $ 143
Actual return on assets..................................................... (102) (151)
Net amortization and deferral............................................... (59) (9)
------ ------
Net periodic pension income................................................. $ (19) $ (17)
------ ------
------ ------
Actuarial assumptions:
Discount rate............................................................... 8.0% 7.25%
Asset rate of return........................................................ 8.0% 8.0%
</TABLE>
The Company has a trusteed profit-sharing plan, providing employees a
deferred compensation (401(k)) provision and Company matching provision. Under
the plan, eligible employees are permitted to contribute up to 15% of gross
compensation into the plan, and the Company will match each employee
contribution up to 4% of gross compensation at a rate established by the Board
of Directors.
The Company and its employees made the following contributions to the plan
during the years ended (in 000's):
<TABLE>
<CAPTION>
JANUARY 31, JANUARY 30,
1993 1994
------------- -------------
<S> <C> <C>
Employee contributions........................................................ $ 672 $ 752
Company matching contributions................................................ 117 141
----- -----
Total profit-sharing contributions............................................ $ 789 $ 893
----- -----
----- -----
</TABLE>
6. REDEEMABLE PREFERRED AND COMMON STOCK
a. EXCHANGEABLE PREFERRED STOCK -- Each share of Exchangeable Preferred
Stock is exchangeable for subordinated debentures due May 2, 2003 at the option
of the Company, but, if not exchanged, must be redeemed at that date or upon
sale of the Company, if earlier. The exchange rate and redemption price is
$10.00 per share.
b. CLASS A AND CLASS B CUMULATIVE EXCHANGEABLE SENIOR PREFERRED STOCK -- On
June 13, 1990, the Company authorized and issued 1,375 shares each of Class A
and Class B 30% Cumulative Exchangeable Senior Preferred Stock, $0.01 par value
per share, for $1,000 per share. Each share of
F-13
<PAGE>
LEEWARDS CREATIVE CRAFTS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. REDEEMABLE PREFERRED AND COMMON STOCK (CONTINUED)
Class A and Class B preferred stock is, at the option of the Company,
exchangeable for subordinated debentures due May 2, 2003, but if not exchanged,
must be redeemed on that date or upon sale of the Company, if earlier. The
exchange rate and redemption price is $1,000 per share.
On June 22, 1992, the terms of the preferred stock were amended to reduce
the annual dividend rate on the Class A and Class B Cumulative Exchangeable
Senior Preferred Stock to 10% annually ($100 per share) from 30% annually ($300
per share), payable on January 15, and to reduce the dividend rate on the
Exchangeable Preferred Stock to 10% annually ($1.00 per share) from 14% annually
($1.40 per share), payable on May 1. All dividends in arrears as of June 22,
1992 on the preferred shares were paid in kind in lieu of cash payments. For so
long as the Class C, Class D, and Class E Preferred Stock is outstanding, future
dividends on the Class A and Class B Cumulative Exchangeable Senior Preferred
Stock and Exchangeable Preferred Stock must be paid in kind.
Accrued and undeclared dividends at January 30, 1994 and January 31, 1993
were as follows (in 000's):
<TABLE>
<CAPTION>
1993 1994
--------- ---------
<S> <C> <C>
Class A Cumulative Exchangeable Senior Preferred Stock.................................. $ 9 $ 10
Class B Cumulative Exchangeable Senior Preferred Stock.................................. 10 11
Exchangeable Preferred Stock............................................................ 251 321
</TABLE>
Such accrued and undeclared dividends have been added to the carrying values
of the stock to which they accrue.
Issuance fees totalling approximately $287,000 related to the Redeemable
Preferred Stock were deducted from the related paid-in capital at the time of
issuance of these shares. Such fees are being amortized over the period ending
May 2, 2003.
c. CLASS C SENIOR CONVERTIBLE PREFERRED STOCK -- On June 22, 1992, the
Company issued 549,629 shares of Class C Senior Convertible Preferred Stock
("Class C Preferred Stock"), par value $0.01 per share, for $10,561,700. The
Class C Preferred Stock is convertible into common stock at the option of the
holder on a one-for-one basis. If unconverted, the Class C Preferred Stock must
be redeemed on June 15, 1999 or upon sale of the Company, if earlier. The
initial redemption price is $19.22 per share, increasing 10.0% per annum.
Issuance fees totalling approximately $386,000 related to the Class C Senior
Convertible Preferred Stock were deducted from the related paid-in capital at
the time of issuance of these shares. Such fees are being amortized over the
period ending June 15, 1999.
d. CLASS D AND CLASS E SENIOR CONVERTIBLE PREFERRED STOCK -- On May 28,
1993, the Company issued 194,035 and 129,712 shares of Class D and Class E
Senior Convertible Stock, respectively ("Class D and Class E Preferred Stock"),
par value $0.01 per share, for $6,000,000 and $4,010,000, respectively. The
Class D and Class E Preferred Stock is convertible into common stock at the
option of the holder on a one-for-one basis. If unconverted, the Class D and
Class E Preferred Stock must be redeemed on June 15, 1999 or upon sale of the
Company, if earlier. The initial redemption price is $30.92 per share,
increasing 10.0% per annum.
Issuance fees totalling approximately $158,000 and $106,000, respectively,
related to the Class D and Class E Preferred Stock, were deducted from the
related paid-in capital at the time of issuance of these shares. Such fees are
being amortized over the period ending June 15, 1999.
The Class C, Class D and Class E Preferred Stock rank pari passu and are
senior to the Exchangeable Preferred Stock and Class A and Class B Cumulative
Exchangeable Senior Preferred Stock.
F-14
<PAGE>
LEEWARDS CREATIVE CRAFTS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. REDEEMABLE PREFERRED AND COMMON STOCK (CONTINUED)
e. COMMON STOCK -- Common stockholders have voting rights. Class B Common
Stock is non-voting and convertible into common stock at the option of the
stockholder at a conversion rate of 4.88884 shares of common stock for each
share of Class B Common Stock. Class C Common Stock is nonvoting and convertible
into common stock at the option of the stockholder at a conversion rate of 1
share of common stock for each share of Class C Common Stock.
7. STOCK SPLIT
On September 18, 1992, the Company amended and restated its charter which,
among other things, reduced the number of preferred shares authorized for
issuance to 3,000,000 and reduced the number of common shares authorized for
issuance to 3,000,000. In addition, a reverse stock split of the Company's
common stock, Class B Common Stock, and Class C Senior Convertible Preferred
Stock was accomplished, whereby one share was issued to replace each 5.333332
shares outstanding at the date of the split. All share and per share data, for
the year ended January 31, 1993, has been restated to reflect this split.
8. STOCK OPTIONS (ALL DATA REFLECTS THE STOCK SPLIT DESCRIBED IN NOTE 7)
In January 1989, the Company adopted a compensatory stock option plan (the
"1989 Plan"). Under the 1989 Plan, the Company granted restricted stock options
to purchase 41,759 shares of common stock at an exercise price of $2.00 or
$19.22 per share to key executives and employees. The right to exercise a stock
option was contingent upon the Company's achieving a cumulative earnings level
within four years of the date of the Plan or upon length of service. Options are
exercisable within ten years of the date of the grant. In addition, in June and
December 1992, the Company granted certain key executives 71,875 restricted
stock options at an exercise price of $19.22. The right to exercise these
options is contingent upon the Company's achieving a cumulative earnings target
through January 29, 1995. Options are exercisable within ten years of date of
the grant. In August 1993, the Company adopted an additional compensatory stock
option plan (the "1993 Plan"). Under the 1993 Plan, the Company granted
restricted options to purchase 58,500 shares of common stock at an exercise
price of $19.22 or $30.92 per share to key executives, directors and employees.
The right to exercise these options is contingent upon the Company's achieving a
cumulative earnings target through January 29, 1995. Options are exercisable
within ten years of the date of grant.
The following summarizes activity in the plans for the years ended:
<TABLE>
<CAPTION>
JANUARY 31, JANUARY 30,
1993 1994
--------------- ---------------
<S> <C> <C>
Shares authorized.................................................... 113,634 172,134
--------------- ---------------
Outstanding shares granted, beginning of year........................ 50,000 111,258
Shares granted....................................................... 79,475 39,300
Shares canceled...................................................... (18,217) (7,204)
--------------- ---------------
Outstanding shares granted, end of year.............................. 111,258 143,354
--------------- ---------------
Shares available for grant........................................... 2,376 28,780
--------------- ---------------
--------------- ---------------
</TABLE>
Options for approximately 43,237 and 45,770 shares of common stock are
vested at January 31, 1993 and January 30, 1994, respectively.
9. LEASES
The Company leases certain store premises and computer equipment. Certain
leases contain renewal options. The store leases generally provide that the
Company shall pay for property taxes, insurance and common area maintenance.
F-15
<PAGE>
LEEWARDS CREATIVE CRAFTS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
9. LEASES (CONTINUED)
Future minimum rentals required under noncancelable operating leases which
have an original term of more than one year are as follows at January 30, 1994
(in 000's):
<TABLE>
<CAPTION>
YEAR ENDED
- ---------------------------------------------------------------------------------
<S> <C>
January 29, 1995................................................................. $ 18,146
January 28, 1996................................................................. 17,252
February 2, 1997................................................................. 15,822
February 1, 1998................................................................. 14,131
January 31, 1999................................................................. 11,701
Thereafter....................................................................... 40,542
-----------
Total............................................................................ $ 117,594
-----------
-----------
</TABLE>
Rental expense for operating leases was $13,547,000 and $15,882,000 for the
years ended January 31, 1993 and January 30, 1994, respectively.
Certain store leases have percentage rent lease provisions. Percentage rent
paid totalled $182,000 and $258,000 for the years ended January 31, 1993 and
January 30, 1994, respectively.
10. COMMITMENTS AND CONTINGENCIES
The Company is a defendant in a number of claims encountered in the normal
course of business. Management believes, based on advice of counsel, that the
ultimate outcome of all these matters will have no material adverse effect on
the Company.
The Company had arranged for letters of credit totalling $153,000 and
$343,000 as of January 31, 1993 and January 30, 1994, respectively, to secure
inventory purchases.
11. SUBSEQUENT EVENT
On May 10, 1994, the Company entered into an Agreement and Plan of Merger
(the "Agreement") whereby it will merge with a subsidiary of Michaels Stores,
Inc. ("Michaels") and thereby become a wholly owned subsidiary of Michaels. The
merger is expected to close in July, 1994. The Agreement also provides that
simultaneously with the closing, Michaels shall cause the Company to repay its
long-term debt.
F-16
<PAGE>
- -------------------------------------------
- -------------------------------------------
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THE PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY, ANY SELLING STOCKHOLDER OR ANY
UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY
JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER IN SUCH
JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE SUCH DATE.
--------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-------
<S> <C>
Available Information................................................. 3
Incorporation of Certain Documents by Reference....................... 3
Prospectus Summary.................................................... 4
Recent Developments................................................... 7
The Company........................................................... 8
Leewards Acquisition.................................................. 11
Use of Proceeds....................................................... 14
Capitalization........................................................ 15
Price Range of Common Stock and Dividends............................. 16
Selected Financial and Store Data..................................... 17
Pro Forma Combined Financial Information.............................. 18
Selling Stockholders.................................................. 24
Description of Capital Stock.......................................... 25
Certain Special Federal Tax Considerations For Non-United States
Holders.............................................................. 26
Underwriting.......................................................... 28
Notice to Canadian Residents.......................................... 30
Legal Matters......................................................... 31
Experts............................................................... 31
Index to Financial Statements......................................... F-1
</TABLE>
2,000,000 Shares
Common Stock
($.10 par value)
PROSPECTUS
CS First Boston
Robertson, Stephens & Company
Nomura Securities International, Inc.
- ------------------------------------
- ------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses to be incurred in connection with the issuance and
distribution of the Common Stock covered by this Registration Statement, all of
which will be paid by Michaels Stores, Inc. (the "Registrant"), are as follows:
<TABLE>
<S> <C>
Printing, Shipping and Engraving Expenses................................ $ *
Accounting Fees and Expenses............................................. *
Legal Fees and Expenses of Qualification under State Securities Laws..... *
Legal Fees and Expenses.................................................. *
Transfer Agent and Registrar Fees and Expenses........................... *
SEC Registration Fee..................................................... $ 50,788
NASD filing fee.......................................................... 15,463
Miscellaneous............................................................ *
---------
Total.................................................................. $ 700,000
---------
---------
<FN>
- ------------------------
* To be filed by amendment.
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law empowers a corporation
to indemnify its directors and officers or former directors or officers and to
purchase insurance with respect to liability arising out of their capacity or
status as directors and officers. Such law provides further that the
indemnification permitted thereunder shall not be deemed exclusive of any other
rights to which the directors and officers may be entitled under the
corporation's certificate of incorporation, bylaws, any agreement or otherwise.
Reference is made to Article Nine of the Registrant's Restated Certificate
of Incorporation, as amended, Exhibit 4.1 of this Registration Statement, which
provides for indemnification of directors and officers.
Reference is made to Article IX of the Registrant's Bylaws, Exhibit 4.2 to
this Registration Statement, which provides for indemnification of directors and
officers.
In addition, the Registrant has entered into Indemnity Agreements with
certain of its directors and executive officers.
The Registrant has procured insurance that purports (i) to insure it against
certain costs of indemnification that may be incurred by it pursuant to the
provisions referred to above or otherwise and (ii) to insure the directors and
officers of the Registrant against certain liabilities incurred by them in the
discharge of their functions as directors and officers except for liabilities
arising from their own malfeasance.
ITEM 16. EXHIBITS.
The following is a list of all exhibits filed as a part of this Registration
Statement on Form S-3, including those incorporated herein by reference.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ----------- ----------------------------------------------------------------------------------------------------------
<C> <S>
1.1 -- Underwriting Agreement.(2)
1.2 -- Subscription Agreement.(2)
2.1 -- Agreement and Plan of Merger among Michaels Stores, Inc. LWA Acquisition Corporation and Leewards
Creative Crafts, Inc.(2)
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ----------- ----------------------------------------------------------------------------------------------------------
<C> <S>
2.2 -- First Amendment to Agreement and Plan of Merger dated as of June 2, 1994 among Michaels Stores, Inc.,
LWA Acquisition Corporation and Leewards Creative Crafts, Inc.(3)
2.3 -- Stock Purchase Agreement, dated as of February 16, 1994, among Michaels Stores, Inc., Treasure House
Stores, Inc. and the stockholders of Treasure House Stores, Inc.(4)
2.4 -- Amendment No. 1 to Stock Purchase Agreement.(4)
2.5 -- Agreement and Plan of Merger, dated as of March 3, 1994, among Michaels Stores, Inc. and the other
parties listed therein.(2)
2.6 -- Amendment No. 1 to Agreement and Plan of Merger, dated as of March 3, 1994, among Michaels Stores, Inc.
and the other parties listed therein.(2)
4.1 -- Restated Certificate of Incorporation of Michaels Stores, Inc.(5)
4.2 -- Bylaws of Michaels Stores, Inc. as amended and restated.(6)
4.3 -- Form of Common Stock Certificate.(6)
4.4 -- Common Stock and Warrant Agreement dated as of October 16, 1984 between Michaels Stores, Inc. and
Peoples Restaurants, Inc., including form of Warrant.(7)
4.5 -- First Amendment to Common Stock and Warrant Agreement dated October 31, 1984 between The First Dallas
Group, Ltd. and Michaels Stores, Inc.(7)
4.6 -- Second Amendment to Common Stock and Warrant Agreement dated November 28, 1984 between First Dallas
Investments -- Michaels I, Ltd. and Michaels Stores, Inc.(7)
4.7 -- Third Amendment to Common Stock and Warrant Agreement dated February 27, 1985 between First Dallas
Investments -- Michaels I, Ltd., The First Dallas Group, Ltd., Sam Wyly, Charles J. Wyly, Jr. and
Michaels Stores, Inc.(8)
4.8 -- Amendment to Common Stock and Warrant Agreement dated September 1, 1992 between Michaels Stores, Inc.,
The Andrew David Sparrow Wyly Trust, Charles J. Wyly, Jr., The Martha Caroline Wyly Trust, The Charles
Joseph Wyly, III Trust, The Emily Ann Wyly Trust, The Jennifer Lynn Wyly Trust, Donald R. Miller, Jr.,
Evan A. Wyly, The Laurie Louise Wyly Trust, The Lisa Lynn Wyly Trust, The Sam Wyly and Rosemary Wyly
Children's Trust No. 1 of 1965 fbo Kelly Wyly and Tallulah, Ltd.(5)
4.9 -- Indenture, dated as of January 22, 1993, between Michaels Stores, Inc. and NationsBank of Texas, N.A.,
as Trustee, including the form of 4 3/4%/6 3/4% Step-up Convertible Subordinated Note, included
therein.(7)
5 -- Opinion of Jackson & Walker.(2)
8 -- None.
12 -- None.
15 -- None.
23.1 -- Consent of Ernst & Young.(1)
23.2 -- Consent of Deloitte & Touche.(1)
23.3 -- Consent of Jackson & Walker (included in the opinion of Jackson & Walker, L.L.P. filed as Exhibit 5 to
this Registration Statement).
24 -- Power of Attorney.(2)
25 -- None.
26 -- None.
27 -- None.
28 -- None.
99 --Credit Agreement dated as of June 17, 1994 among Michaels Stores, Inc., NationsBank of Texas, N.A. and
the other lenders signatory thereto.(1)
<FN>
- ------------------------
(1) Filed herewith.
</TABLE>
II-2
<PAGE>
<TABLE>
<S> <C>
(2) Previously filed.
(3) Previously filed as an exhibit to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended May 1, 1994 and incorporated herein by
reference.
(4) Previously filed as an exhibit to the Registrant's Registration Statement
on Form S-3 (No. 33-52311) and incorporated herein by reference.
(5) Previously filed as an exhibit to the Registrant's Registration Statement
on Form S-8 (No. 33-54726) and incorporated herein by reference.
(6) Previously filed as an exhibit to the Registrant's Annual Report on Form
10-K for the year ended January 31, 1994 and incorporated herein by
reference.
(7) Previously filed as an exhibit to the Registrant's Annual Report on Form
10-K for the year ended January 31, 1993 and incorporated herein by
reference.
(8) Previously filed as an exhibit to the Registrant's Registration Statement
on Form S-1 (No. 33-9456) and incorporated herein by reference.
</TABLE>
ITEM 17. UNDERTAKINGS.
(a) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of
the Registrant's annual report pursuant to Section 13(a) or Section 15(d) of
the Securities Exchange Act of 1934 that is incorporated by reference in the
Registration Statement shall be deemed to be a new Registration Statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(b) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions,
or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(c) The undersigned Registrant hereby undertakes that:
(1) For the purpose of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed as
a part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed
to be part of this registration statement as of the time it was declared
effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Irving, State of Texas on the 27th day of June, 1994.
MICHAELS STORES, INC.
By: /s/ JACK E. BUSH*
--------------------------------------
Jack E. Bush
PRESIDENT, CHIEF OPERATING OFFICER AND
DIRECTOR
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURES TITLE DATE
- ----------------------------------- ------------------------- ----------------
Chairman of the Board of
/s/ SAM WYLY* Directors and Chief
- ----------------------------------- Executive Officer June 27, 1994
Sam Wyly (Principal Executive
Officer)
/s/ CHARLES J. WYLY, JR.*
- ----------------------------------- Vice Chairman of the June 27, 1994
Charles J. Wyly, Jr. Board of Directors
/s/ JACK E. BUSH* President, Chief
- ----------------------------------- Operating Officer and June 27, 1994
Jack E. Bush Director
/s/ WILLIAM O. HUNT*
- ----------------------------------- Director June 27, 1994
William O. Hunt
- ----------------------------------- Director
Richard E. Hanlon
- ----------------------------------- Director
F. Jay Taylor
/s/ MICHAEL C. FRENCH*
- ----------------------------------- Director June 27, 1994
Michael C. French
/s/ EVAN C. WYLY*
- ----------------------------------- Director June 27, 1994
Evan C. Wyly
/s/ DONALD R. MILLER, JR.* Vice President -- Market
- ----------------------------------- Development, and June 27, 1994
Donald R. Miller, Jr. Director
Executive Vice President
/s/ R. DON MORRIS* and Chief Financial
- ----------------------------------- Officer (Principal June 27, 1994
R. Don Morris Financial and Accounting
Officer)
*By: /s/ MARK V.
BEASLEY
- -----------------------------------
Mark V. Beasley,
ATTORNEY-IN-FACT
II-5
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION OF EXHIBIT PAGE
- ----------- --------------------------------------------------------------------------------------------- ------------
<C> <S> <C>
1.1 -- Underwriting Agreement.(2)
1.2 -- Subscription Agreement.(2)
2.1 -- Agreement and Plan of Merger among Michaels Stores, Inc. LWA Acquisition Corporation and
Leewards Creative Crafts, Inc.(2)
2.2 -- First Amendment to Agreement and Plan of Merger dated as of June 2, 1994 among Michaels
Stores, Inc., LWA Acquisition Corporation and Leewards Creative Crafts, Inc.(3)
2.3 -- Stock Purchase Agreement, dated as of February 16, 1994, among Michaels Stores, Inc.,
Treasure House Stores, Inc. and the stockholders of Treasure House Stores, Inc.(4)
2.4 -- Amendment No. 1 to Stock Purchase Agreement.(4)
2.5 -- Agreement and Plan of Merger, dated as of March 3, 1994, among Michaels Stores, Inc. and
the other parties listed therein.(2)
2.6 -- Amendment No. 1 to Agreement and Plan of Merger, dated as of March 3, 1994, among Michaels
Stores, Inc. and the other parties listed therein.(2)
4.1 -- Restated Certificate of Incorporation of Michaels Stores, Inc.(5)
4.2 -- Bylaws of Michaels Stores, Inc. as amended and restated.(6)
4.3 -- Form of Common Stock Certificate.(6)
4.4 -- Common Stock and Warrant Agreement dated as of October 16, 1984 between Michaels Stores,
Inc. and Peoples Restaurants, Inc., including form of Warrant.(7)
4.5 -- First Amendment to Common Stock and Warrant Agreement dated October 31, 1984 between The
First Dallas Group, Ltd. and Michaels Stores, Inc.(7)
4.6 -- Second Amendment to Common Stock and Warrant Agreement dated November 28, 1984 between
First Dallas Investments -- Michaels I, Ltd. and Michaels Stores, Inc.(7)
4.7 -- Third Amendment to Common Stock and Warrant Agreement dated February 27, 1985 between
First Dallas Investments -- Michaels I, Ltd., The First Dallas Group, Ltd., Sam Wyly,
Charles J. Wyly, Jr. and Michaels Stores, Inc.(8)
4.8 -- Amendment to Common Stock and Warrant Agreement dated September 1, 1992 between Michaels
Stores, Inc., The Andrew David Sparrow Wyly Trust, Charles J. Wyly, Jr., The Martha
Caroline Wyly Trust, The Charles Joseph Wyly, III Trust, The Emily Ann Wyly Trust, The
Jennifer Lynn Wyly Trust, Donald R. Miller, Jr., Evan A. Wyly, The Laurie Louise Wyly
Trust, The Lisa Lynn Wyly Trust, The Sam Wyly and Rosemary Wyly Children's Trust No. 1 of
1965 fbo Kelly Wyly and Tallulah, Ltd.(5)
4.9 -- Indenture, dated as of January 22, 1993, between Michaels Stores, Inc. and NationsBank of
Texas, N.A., as Trustee, including the form of 4 3/4%/6 3/4% Step-up Convertible
Subordinated Note, included therein.(7)
5 -- Opinion of Jackson & Walker.(2)
8 -- None.
12 -- None.
15 -- None.
23.1 -- Consent of Ernst & Young.(1)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION OF EXHIBIT PAGE
- ----------- --------------------------------------------------------------------------------------------- ------------
<C> <S> <C>
23.2 -- Consent of Deloitte & Touche.(1)
23.3 -- Consent of Jackson & Walker (included in the opinion of Jackson & Walker, L.L.P. filed as
Exhibit 5 to this Registration Statement).
24 -- Power of Attorney.(2)
25 -- None.
26 -- None.
27 -- None.
28 -- None.
99 --Credit Agreement dated as of June 17, 1994 among Michaels Stores, Inc., NationsBank of
Texas, N.A. and the other lenders signatory thereto.(1)
<FN>
- ------------------------
(1) Filed herewith.
(2) Previously filed.
(3) Previously filed as an exhibit to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended May 1, 1994 and incorporated herein by
reference.
(4) Previously filed as an exhibit to the Registrant's Registration Statement
on Form S-3 (No. 33-52311) and incorporated herein by reference.
(5) Previously filed as an exhibit to the Registrant's Registration Statement
on Form S-8 (No. 33-54726) and incorporated herein by reference.
(6) Previously filed as an exhibit to the Registrant's Annual Report on Form
10-K for the year ended January 31, 1994 and incorporated herein by
reference.
(7) Previously filed as an exhibit to the Registrant's Annual Report on Form
10-K for the year ended January 31, 1993 and incorporated herein by
reference.
(8) Previously filed as an exhibit to the Registrant's Registration Statement
on Form S-1 (No. 33-9456) and incorporated herein by reference.
</TABLE>
<PAGE>
DESCRIPTION OF GRAPHIC:
Inside front cover
Map of the United States showing the locations of the Company's stores as of
June 17, 1994, stores added through acquisitions on the West coast and stores
expected to be added through the acquisition of Leewards (net of closings).
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Selected
Financial and Store Data" and "Experts" in the Pre-Effective Amendment No. 2 to
the Registration Statement on Form S-3 (No. 33-53639) and related Prospectus of
Michaels Stores, Inc. and to the incorporation by reference therein of our
reports dated February 28, 1994, with respect to the consolidated financial
statements and schedules of Michaels Stores, Inc. included or incorporated by
reference in its Annual Report (Form 10-K) for the year ended January 30, 1994
filed with the Securities and Exchange Commission.
ERNST & YOUNG
Dallas, Texas
June 27, 1994
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Pre-Effective Amendment No. 2 to Registration
Statement No. 33-53639 of Michaels Stores, Inc. on Form S-3 of our report dated
March 4, 1994 (May 11, 1994 as to Note 11) on the audit of the financial
statements of Leewards Creative Crafts, Inc. (the "Company") as of and for the
years ended January 30, 1994 and January 31, 1993, which expresses an
unqualified opinion and includes an explanatory paragraph relating to the
Agreement and Plan of Merger whereby the Company will become a subsidiary of
Michaels Stores, Inc., appearing in the Prospectus, which is part of such
Registration Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
DELOITTE & TOUCHE
Chicago, Illinois
June 27, 1994
<PAGE>
EXHIBIT 99
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
CREDIT AGREEMENT
$150,000,000
MICHAELS STORES, INC.
NATIONSBANK OF TEXAS, N.A., AS
ADMINISTRATIVE LENDER
JUNE 17, 1994
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
MICHAELS STORES, INC.
TABLE OF CONTENTS
Page
----
ARTICLE I
DEFINITION OF TERMS
Section 1.01 CERTAIN DEFINITIONS. . . . . . . . . . . . . . . . . . 1
Section 1.02 ACCOUNTING TERMS AND OTHER DETERMINATIONS. . . . . . . 18
ARTICLE II
REVOLVING LOAN
Section 2.01 COMMITMENT FOR REVOLVING LOAN. . . . . . . . . . . . . 18
Section 2.02 NOTES. . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 2.03 EXPIRATION OF COMMITMENT TO LEND UNDER THE LOAN. . . . 19
Section 2.04 REQUEST FOR ADVANCES . . . . . . . . . . . . . . . . . 19
Section 2.05 USE OF PROCEEDS OF THE ADVANCES. . . . . . . . . . . . 20
Section 2.06 BORROWING BASE AND BORROWING BASE REPORT . . . . . . . 20
Section 2.07 COMMITMENT FEE . . . . . . . . . . . . . . . . . . . . 20
Section 2.08 ADDITIONAL FEES. . . . . . . . . . . . . . . . . . . . 20
Section 2.09 REDUCTION/TERMINATION OF COMMITMENT. . . . . . . . . . 20
Section 2.10 REPAYMENT. . . . . . . . . . . . . . . . . . . . . . . 21
Section 2.11 INTEREST . . . . . . . . . . . . . . . . . . . . . . . 21
Section 2.12 POST-DEFAULT RATE. . . . . . . . . . . . . . . . . . . 21
Section 2.13 PAYMENTS ON NON-BUSINESS DAYS. . . . . . . . . . . . . 22
Section 2.14 OPTIONAL PREPAYMENTS . . . . . . . . . . . . . . . . . 22
Section 2.15 MANDATORY PREPAYMENT . . . . . . . . . . . . . . . . . 22
Section 2.16 MANNER AND PLACE OF PAYMENTS AND PREPAYMENTS . . . . . 23
Section 2.17 COMPUTATION OF INTEREST. . . . . . . . . . . . . . . . 23
Section 2.18 INTEREST RECAPTURE . . . . . . . . . . . . . . . . . . 23
Section 2.19 INDEMNITY PROVISIONS . . . . . . . . . . . . . . . . . 23
Section 2.20 LIMITATION ON EURODOLLAR RATE BORROWINGS . . . . . . . 24
Section 2.21 DETERMINATION OF INTEREST RATES. . . . . . . . . . . . 24
Section 2.22 CONTINUATION/CONVERSION. . . . . . . . . . . . . . . . 25
Section 2.23 EFFECT OF FAILURE TO GIVE NOTICE . . . . . . . . . . . 25
Section 2.24 CAPITAL ADEQUACY . . . . . . . . . . . . . . . . . . . 25
Section 2.25 SHARING OF PAYMENTS. . . . . . . . . . . . . . . . . . 26
Section 2.26 NON-RECEIPT OF FUNDS BY ADMINISTRATIVE LENDER. . . . . 26
Section 2.27 CALCULATION OF RATES . . . . . . . . . . . . . . . . . 27
Section 2.28 BOOKING ADVANCES . . . . . . . . . . . . . . . . . . . 27
Section 2.29 QUOTATION OF RATES . . . . . . . . . . . . . . . . . . 27
Section 2.30 REPLACEMENT BY COMPANY OF A LENDER . . . . . . . . . . 28
<PAGE>
ARTICLE III
LETTERS OF CREDIT
Section 3.01 LETTER OF CREDIT COMMITMENT. . . . . . . . . . . . . . 29
Section 3.02 APPLICATION FOR AND ISSUANCE OF COMMERCIAL LETTERS
OF CREDIT AND STAND-BY LETTERS OF CREDIT . . . . . . . 29
Section 3.03 COMMISSION; PAYMENT OF DRAFTS DRAWN UNDER
LETTERS OF CREDIT; INCORPORATION OF TERMS OF
THE APPLICATIONS . . . . . . . . . . . . . . . . . . . 30
Section 3.04 REIMBURSEMENT OBLIGATION OF LENDERS. . . . . . . . . . 31
Section 3.05 SHARING OF PAYMENTS. . . . . . . . . . . . . . . . . . 32
Section 3.06 DUTIES OF ADMINISTRATIVE LENDER. . . . . . . . . . . . 32
Section 3.07 LENDERS, GENERALLY . . . . . . . . . . . . . . . . . . 33
Section 3.08 GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . 33
ARTICLE IV
CONDITIONS PRECEDENT
Section 4.01 CONDITIONS TO THE CLOSING DATE . . . . . . . . . . . . 33
Section 4.02 CONDITIONS PRECEDENT TO EACH ADVANCE . . . . . . . . . 36
Section 4.03 CONDITIONS PRECEDENT TO EACH LETTER OF CREDIT. . . . . 36
ARTICLE V
REPRESENTATIONS AND WARRANTIES
Section 5.01 ORGANIZATION, AUTHORITY, AND QUALIFICATION . . . . . . 37
Section 5.02 FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . 38
Section 5.03 DEFAULT. . . . . . . . . . . . . . . . . . . . . . . . 38
Section 5.04 AUTHORIZATION AND COMPLIANCE WITH LAWS; MATERIAL
AGREEMENTS; ENFORCEABILITY . . . . . . . . . . . . . . 38
Section 5.05 LITIGATION AND JUDGMENTS . . . . . . . . . . . . . . . 39
Section 5.06 OWNERSHIP OF PROPERTIES; LIENS . . . . . . . . . . . . 39
Section 5.07 USE OF PROCEEDS; MARGIN SECURITIES . . . . . . . . . . 39
Section 5.08 TAXES. . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 5.09 NO APPROVALS REQUIRED. . . . . . . . . . . . . . . . . 40
Section 5.10 ERISA. . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 5.11 LANDLORD'S LIENS . . . . . . . . . . . . . . . . . . . 40
Section 5.12 SUBSIDIARIES . . . . . . . . . . . . . . . . . . . . . 40
Section 5.13 SUBORDINATED DEBT. . . . . . . . . . . . . . . . . . . 40
ii
<PAGE>
ARTICLE VI
AFFIRMATIVE COVENANTS
Section 6.01 REPORTING REQUIREMENTS . . . . . . . . . . . . . . . . 41
Section 6.02 PERFORMANCE OF OBLIGATIONS . . . . . . . . . . . . . . 43
Section 6.03 PRESERVATION OF EXISTENCE AND FRANCHISES AND
CONDUCT OF BUSINESS. . . . . . . . . . . . . . . . . . 43
Section 6.04 MAINTENANCE OF PROPERTIES. . . . . . . . . . . . . . . 43
Section 6.05 PAYMENT OF TAXES AND OTHER CHARGES . . . . . . . . . . 44
Section 6.06 INSURANCE. . . . . . . . . . . . . . . . . . . . . . . 44
Section 6.07 MAINTENANCE OF BOOKS AND RECORDS . . . . . . . . . . . 44
Section 6.08 INSPECTION OF PROPERTIES, BOOKS AND RECORDS. . . . . . 44
Section 6.09 COMPLIANCE WITH LAW. . . . . . . . . . . . . . . . . . 45
Section 6.10 EXPENSES AND LEGAL FEES. . . . . . . . . . . . . . . . 45
Section 6.11 COMPLIANCE WITH ERISA. . . . . . . . . . . . . . . . . 45
Section 6.12 FURTHER ASSURANCES . . . . . . . . . . . . . . . . . . 46
Section 6.13 SYNDICATION. . . . . . . . . . . . . . . . . . . . . . 46
Section 6.14 SUBORDINATED DEBT. . . . . . . . . . . . . . . . . . . 46
ARTICLE VII
NEGATIVE COVENANTS
Section 7.01 FINANCIAL COVENANTS. . . . . . . . . . . . . . . . . . 47
Section 7.02 ADDITIONAL DEBT. . . . . . . . . . . . . . . . . . . . 47
Section 7.03 PERMITTED LIENS. . . . . . . . . . . . . . . . . . . . 48
Section 7.04 CASH DIVIDENDS, REDEMPTION, AND RESTRICTED PAYMENTS. . 49
Section 7.05 MERGERS, SALES OF ASSETS AND DISSOLUTIONS. . . . . . . 49
Section 7.06 CHANGES IN BUSINESS. . . . . . . . . . . . . . . . . . 51
Section 7.07 SUBSIDIARIES . . . . . . . . . . . . . . . . . . . . . 51
Section 7.08 SUBORDINATED DEBT. . . . . . . . . . . . . . . . . . . 51
Section 7.09 INVESTMENTS AND ACQUISITIONS . . . . . . . . . . . . . 52
Section 7.10 BORROWING BASE . . . . . . . . . . . . . . . . . . . . 52
Section 7.11 AMENDMENT TO MATERIAL AGREEMENTS . . . . . . . . . . . 52
Section 7.12 SALE AND LEASEBACK . . . . . . . . . . . . . . . . . . 53
Section 7.13 TRANSACTIONS WITH AFFILIATES . . . . . . . . . . . . . 53
ARTICLE VIII
DEFAULT
Section 8.01 EVENTS OF DEFAULT. . . . . . . . . . . . . . . . . . . 53
Section 8.02 REMEDIES UPON DEFAULT. . . . . . . . . . . . . . . . . 57
Section 8.03 WAIVERS. . . . . . . . . . . . . . . . . . . . . . . . 58
iii
<PAGE>
Section 8.04 PERFORMANCE BY ADMINISTRATIVE LENDER . . . . . . . . . 58
Section 8.05 LENDERS NOT IN CONTROL . . . . . . . . . . . . . . . . 59
Section 8.06 CUMULATIVE RIGHTS. . . . . . . . . . . . . . . . . . . 59
Section 8.07 EXPENDITURES BY LENDERS. . . . . . . . . . . . . . . . 59
ARTICLE IX
AGREEMENT AMONG LENDERS
Section 9.01 AGREEMENT AMONG LENDERS. . . . . . . . . . . . . . . . 60
Section 9.02 LENDER CREDIT DECISION . . . . . . . . . . . . . . . . 62
Section 9.03 BENEFITS OF ARTICLE. . . . . . . . . . . . . . . . . . 62
ARTICLE X
MISCELLANEOUS
Section 10.01 NO ORAL MODIFICATIONS. . . . . . . . . . . . . . . . . 63
Section 10.02 BENEFIT; ASSIGNMENTS AND PARTICIPATIONS. . . . . . . . 63
Section 10.03 SURVIVAL OF REPRESENTATIONS AND WARRANTIES . . . . . . 65
Section 10.04 NOTICES. . . . . . . . . . . . . . . . . . . . . . . . 65
Section 10.05 APPLICABLE LAW . . . . . . . . . . . . . . . . . . . . 66
Section 10.06 SEVERABILITY . . . . . . . . . . . . . . . . . . . . . 66
Section 10.07 NON-APPLICATION OF CHAPTER 15 OF TEXAS CREDIT CODE . . 66
Section 10.08 EXCEPTIONS TO COVENANTS. . . . . . . . . . . . . . . . 67
Section 10.09 INDEMNITY. . . . . . . . . . . . . . . . . . . . . . . 67
Section 10.10 AMENDMENT. . . . . . . . . . . . . . . . . . . . . . . 68
Section 10.11 WAIVER OF TRIAL BY JURY. . . . . . . . . . . . . . . . 69
Section 10.12 COUNTERPARTS . . . . . . . . . . . . . . . . . . . . . 69
Section 10.13 ENTIRE AGREEMENT . . . . . . . . . . . . . . . . . . . 69
Section 10.14 SURVIVAL AND APPLICATION OF REPRESENTATIONS AND
WARRANTIES . . . . . . . . . . . . . . . . . . . . . . 69
Section 10.15 RATE PROVISION . . . . . . . . . . . . . . . . . . . . 70
iv
<PAGE>
SCHEDULES AND EXHIBITS
Schedule 1.01 Stock Option Plans
Schedule 4.01 Offices Where UCC-11 Searches Were Conducted
Schedule 5.01 Subsidiaries and Capital Structure
Schedule 5.05 Litigation
Schedule 5.06 Liens
Schedule 5.11 Disclosure of Landlord Actions
Schedule 7.02 Existing Debt
Exhibit A Note Form
Exhibit B Notice of Borrowing/Conversion
Exhibit C Borrowing Base Report
Exhibit D Guaranties
Exhibit E Loan Compliance Certificate
Exhibit F Assignment and Acceptance Agreement
v
<PAGE>
MICHAELS STORES, INC.
$150,000,000
CREDIT AGREEMENT
THIS CREDIT AGREEMENT (the "Agreement") is entered into effective as of
June 17, 1994 among MICHAELS STORES, INC., a Delaware corporation ("Company"),
NationsBank of Texas, N.A., as Administrative Lender (as defined below) and
Lenders (as defined below).
RECITALS
WHEREAS, Company has requested a revolving credit facility of up to
$150,000,000, such revolving credit facility to include a letter of credit
facility of up to $25,000,000; and
WHEREAS, Lenders are willing to provide such credit facility;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and subject to the terms of all
the Loan Papers (as hereinafter defined) Company, Lenders and Administrative
Lender agree as follows:
ARTICLE I
DEFINITION OF TERMS
Section 1.01 CERTAIN DEFINITIONS. As used in this Agreement, the
following terms shall have the respective meanings indicated below (such
meanings to be applicable equally to both the singular and plural forms of such
terms):
"ACCOUNTS PAYABLE" means trade payables owed by Company in connection with
the acquisition of inventory by Company.
"ACQUISITION" means any acquisition of all or substantially all the assets
of any Person, or all or a majority of the voting stock or Capital Stock of any
Person.
"ADMINISTRATIVE LENDER" means NationsBank of Texas, N.A. or such other
successor Administrative Lender determined in accordance with the provisions of
Section 9.01(b) hereof.
"ADVANCE" or "ADVANCES" means the disbursement or disbursements of a sum or
sums loaned by Lenders to Company pursuant to Article II of this Agreement.
<PAGE>
"AFFILIATE" means a Person that directly, or indirectly through one or more
intermediaries, Controls, or is Controlled By or is Under Common Control with
any other Person.
"APPLICABLE LAW" means (i) all provisions of constitutions, statutes,
rules, regulations and orders of governmental bodies or regulatory agencies
applicable to any such Person, and all orders and decrees of all courts and
arbitrators in proceedings or actions to which the Person in question is a
party, including, without limitation, Applicable Environmental Laws, and (ii) in
respect of contracts made or performed in the State of Texas, "Applicable Law"
also means the laws of the United States of America, including, without limiting
the foregoing, 12 USC SECTION SECTION 85 and 86(a), as amended to the date
hereof and as the same may be amended at any time and from time to time
hereafter, and any other statute of the United States of America now or at any
time hereafter prescribing the maximum rates of interest on loans and extensions
of credit, and the laws of the State of Texas, including, without limitation,
Articles 5069-1.04 and 5069-1.07(a), Title 79, Revised Civil Statutes of Texas,
1925, as amended ("Art. 1.04"), and any other statute of the State of Texas now
or at any time hereafter prescribing maximum rates of interest on loans and
extensions of credit, provided however, that pursuant to Article 5069-15.10(b),
Title 79, Revised Civil Statutes of Texas, 1925, as amended, Company agrees that
the provisions of Chapter 15, Title 79, Revised Civil Statutes of Texas, 1925,
as amended, shall not apply to the Loan hereunder.
"APPLICABLE MARGIN" means with respect to (a) Eurodollar Rate Borrowings,
1% per annum, (b) Stand-By Letters of Credit, 1% on the face amount of any such
Stand-By Letter of Credit and (c) Commercial Letters of Credit, 1/4 of 1% per
annum. Notwithstanding the foregoing, commencing June 1, 1995, every June 1 and
December 1 of each year during the term hereof, effective on such date, the
Applicable Margin shall be adjusted to reflect the Applicable Margin prescribed
by the chart below for the Fixed Charges Coverage Ratio as demonstrated by the
most recently delivered Compliance Certificate. The Applicable Margin for each
type of Advance and Letter of Credit shall mean the respective amount set forth
below opposite such relevant Fixed Charges Coverage Ratio in Columns A, B and C
below, until the first succeeding semi-annual anniversary that the Compliance
Certificate demonstrates a change in the Fixed Charges Coverage Ratio to an
amount so that another Applicable Margin shall be applied. In order to obtain
an adjustment to a lower Applicable Margin, Company must demonstrate to the
reasonable satisfaction of Administrative Lender the required applicable Fixed
Charges Coverage Ratio.
2
<PAGE>
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C
Per Annum Rate Per Annum Rate
Fixed Charges Eurodollar Rate Commercial Letters Stand-By Letters
Coverage Ratio Borrowings of Credit of Credit
- -------------- --------------- ------------------ ----------------
<S> <C> <C> <C>
Less than
1.75 to 1.00 1.50% 0.38% 1.50%
Greater than or equal
to 1.75 to 1.00 but
less than
3.00 to 1.00 1.00% 0.25% 1.00%
Greater than or equal to
3.00 to 1.00 0.75% 0.20% 0.75%
</TABLE>
"APPLICATION" means any Application and Agreement for Commercial Letters of
Credit, or Letter of Credit Master Agreement, dictating the terms and conditions
for computerized requests for Commercial Letters of Credit, in favor of
Administrative Lender, in Administrative Lender's standard form for commercial
letters of credit, and any stand-by letter of credit application delivered to
Administrative Lender for or in connection with any Stand-By Letter of Credit
pursuant to Article III hereof, in Administrative Lender's standard form for
stand-by letters of credit.
"ASSIGNMENT AND ACCEPTANCE AGREEMENT" means any agreement substantially in
the form of EXHIBIT F hereto, pursuant to which any Lender assigns any interest
in its rights and obligations hereunder (including the Obligation) in accordance
with the terms and provisions of Section 10.02 hereof.
"ASSUMED DEBT" means any Debt of any Person assumed by Company in
connection with any Acquisition permitted pursuant to the terms of
Section 7.02(v) hereof.
"AUDITOR" means Ernst & Young, or any other nationally recognized
accounting firm acceptable to Lenders.
"AUTHORIZED FINANCIAL OFFICER" means the president, chief financial
officer, vice president-finance and business planning, treasurer or assistant
treasurer of Company, or such other person from time to time designated in
writing by any of the foregoing.
"AVAILABLE ADVANCE AMOUNT" means, with respect to Company on any date of
determination, an amount equal to the lesser of (a) the Commitment minus the sum
of (i) the aggregate face amount of all outstanding Letters of Credit on such
date plus (ii) all outstanding Advances on such date and (b) the Borrowing Base
minus the sum of (i) the
3
<PAGE>
aggregate face amount of all outstanding Letters of Credit on such date plus
(ii) all outstanding Advances on such date.
"BASE RATE" means a fluctuating rate per annum as shall be in effect from
time to time equal to the lesser of (a) the Highest Lawful Rate and (b) the
higher of (i) the rate of interest as then in effect announced publicly by
NationsBank of Texas, N.A. in Dallas, Texas from time to time as its U.S. dollar
prime commercial lending rate (which rate may or may not be the lowest rate of
interest charged by NationsBank of Texas, N.A. from time to time) and (ii) the
sum of (A) the Federal Funds Rate, plus (B) 0.50%. The Base Rate shall be
adjusted automatically as of the opening of business on the effective date of
each change in the prime commercial lending rate or Federal Funds Rate, as
applicable, to account for such change.
"BORROWING" means a borrowing consisting of one or more Advances made to
Company at the same time by Lenders under Article II of this Agreement. A
Borrowing is a "BASE RATE BORROWING" if it bears interest at the Base Rate. A
Borrowing is a "EURODOLLAR RATE BORROWING" if it bears interest at the
Eurodollar Rate.
"BORROWING BASE" means, at the time of determination thereof, an amount
equal to 50% of the positive difference between (a) Eligible Inventory and (b)
Accounts Payable.
"BORROWING BASE REPORT" means a report, required to be delivered monthly by
Company to each Lender pursuant to Section 2.06 hereof, in the form attached
hereto as EXHIBIT C.
"BORROWING DATE" means a date upon which an Advance is made hereunder.
"BUSINESS DAY" means (a) with respect to any Base Rate Borrowing, a day on
which national banks in Dallas, Texas are open for the conduct of commercial
banking business, and (b) with respect to any Eurodollar Rate Borrowing, a day
on which business is conducted in the interbank Eurodollar market and on which
national banks in Dallas, Texas are open for the conduct of commercial banking
business.
"CAPITAL STOCK" means, as to any Person, the equity interests in such
Person, including, without limitation, the shares of each class of capital stock
of any Person that is a corporation and partnership interests (general and
limited) in any Person that is a partnership.
"CASH EQUIVALENTS" means (a) money market funds that invest only in debt
securities (including, without limitation, bankers' acceptances, bearer deposit
notes, loan participations, promissory notes and medium-term notes) which mature
within 400 days after the date of purchase and (i) for any such investment
issued by a financial institution, the issuer (A) maintains a long-term debt
rating of at least "BBB" (or its then equivalent) according to Standard & Poor's
Corporation or a Thompson Bankwatch rating of at least "C" and (B) has a
combined capital and surplus and undivided profits of not less than $1,000,000,
or any other financial institution if the amount on deposit is fully insured by
the Federal Deposit
4
<PAGE>
Insurance Corporation, and (ii) for any corporate issuer, such investment is
rated "P-1" (or its then equivalent) according to Moody's Investors Service,
Inc., "A-1" (or its then equivalent) according to Standard & Poor's Corporation,
"F-1" (or its then equivalent) according to Fitch's Investors Service, Inc. or
"D-1" (or its then equivalent) according to Duff & Phelps, or a better rating,
or, which, if unrated, are determined by the fund to be of comparable quality to
debt securities which have such ratings, and (b) investments (directly or
through a money market mutual fund) in (i) certificates of deposit, repurchase
agreements, and other interest bearing deposits or accounts with United States
commercial banks having a combined capital and surplus of at least $100,000,000,
whose debt obligations have one of the three highest ratings obtainable from
Standard & Poor's Corporation or Moody's Investors Service, Inc., which
certificates, repurchase agreements, deposits, and accounts mature within one
year from the date of investment, (ii) obligations issued or unconditionally
guaranteed by the United States government, or issued by any agency or
instrumentality thereof and backed by the full faith and credit of the United
States government, which obligations mature within one year from the date of
investment, (iii) direct obligations issued by any state or political
subdivision of the United States, which mature within one year from the date of
investment and have the highest rating obtainable from Standard & Poor's
Corporation or Moody's Investors Service, Inc. on the date of investment, and
(iv) commercial paper which has one of the highest ratings obtainable from
Standard & Poor's Corporation or Moody's Investors Service, Inc.
"CHANGE IN CONTROL" means (a)(i) the acquisition of all or substantially
all assets of Company by any Person or affiliated group of Persons, or (ii) the
acquisition by any person (as "person" is defined in section 13(d) of the
Securities Exchange Act of 1934, as amended), in a single transaction or series
of transactions, of the beneficial ownership of 50% or more of the outstanding
voting stock of Company (other than acquisitions by (A) any Persons or group of
Persons acting together, who hold beneficially or of record, in excess of 10% of
the outstanding voting stock of Company in the aggregate on the Closing Date, or
(B) any of Sam Wyly, Charles J. Wyly, Jr., any Person under the Control of Sam
Wyly or Charles J. Wyly, Jr. or any family member of Sam Wyly or Charles J.
Wyly, Jr.) or (b) any "Change in Control" as described and set forth in the
Subordinated Debt documentation.
"CLOSING DATE" means June 17, 1994.
"COMMERCIAL LETTERS OF CREDIT" means commercial letters of credit issued by
Administrative Lender on behalf of Lenders from time to time at the request of
and for the account of Company pursuant to Article III hereof, and all such
renewals and extensions thereof.
"COMMITMENT" means $150,000,000 as such amount may be terminated or reduced
in accordance with Section 2.09 hereof from time to time, which such amount
includes the Letter of Credit Commitment.
5
<PAGE>
"CONTROL" or "CONTROLLED BY" or "UNDER COMMON CONTROL" means possession,
directly or indirectly, of power to direct or cause the direction of management
or policies (whether through ownership of voting securities, by contract or
otherwise); provided, however, that in any event any Person which beneficially
owns, directly or indirectly, 10% or more (in number or votes) of the securities
having ordinary voting power for the election of directors of a corporation
shall be conclusively presumed to control such corporation.
"CURRENT ASSETS" means, as of the date of any determination thereof, such
assets of Company and its Subsidiaries as would be required by GAAP to be
included as current assets on the consolidated balance sheet of a corporation
conducting a business the same as or similar to that of Company.
"CURRENT LIABILITIES" means, as of the date of determination thereof, all
indebtedness which by its terms is payable on demand or matures not more than
one year from the date of determination thereof, fixed sinking fund payments or
other prepayments to be made with respect to any indebtedness within one year
after the date of determination thereof and all of the items which in accordance
with GAAP would be included as current liabilities on the consolidated balance
sheet of Company and its Subsidiaries.
"DEBT" means, with respect to Company and its Subsidiaries, (i) all
indebtedness, direct or indirect, whether or not represented by bonds,
debentures, notes or other securities, for the repayment of money borrowed, (ii)
all deferred indebtedness for the payment of the purchase price of property or
assets purchased, (iii) all indebtedness under any lease which, under GAAP, is
required to be capitalized for balance sheet purposes, (iv) all guaranties,
endorsements, assumptions or other contingent obligations, in respect of, or to
purchase or otherwise acquire, indebtedness of others, (v) all contingent
obligations (as defined in accordance with GAAP) of any type whatsoever
(excluding contingent obligations arising as a result of litigation listed on
SCHEDULE 5.05 or with respect to which Company's reasonable expectation is that
such litigation will result in a liability or other obligation of less than
$1,000,000 in the aggregate for Company or any such Subsidiary), and (vi) all
indebtedness secured by any mortgage, pledge, security interest or lien existing
on property owned by any of Company and its Subsidiaries, whether or not the
indebtedness secured thereby shall have been assumed by any of Company and its
Subsidiaries; provided that under no circumstances shall trade payables of
Company and its Subsidiaries incurred in the ordinary course of business be
included in this definition of "Debt".
"DEFAULT" means the occurrence of any event which, with the lapse of time
or notice or both, would become an Event of Default.
"DIVIDEND" means, as to any Person, (a) any declaration or payment of any
dividend (other than a dividend in stock or the right to acquire stock) on, or
the setting aside or the creation of a sinking fund with respect to, or the
making of any pro rata distribution, loan, advance or investment to or in any
holder (in its capacity as a shareholder) of, any Capital Stock of such Person,
or (b) any purchase, redemption, or other acquisition or retirement for
6
<PAGE>
value of any Capital Stock of such Person, or the setting aside of funds or the
creation of a sinking fund with respect thereto.
"DOLLAR(S)" and the sign "$", means lawful money of the United States of
America, unless otherwise explicitly specified.
"ELIGIBLE ASSIGNEE" means (a) a commercial bank organized under the laws of
the United States, or any state thereof, and having total assets in excess of
$1,000,000,000; (b) a savings and loan association or savings bank organized
under the laws of the United States, or any state thereof, having total assets
in excess of $500,000,000, and not in receivership or conservatorship; (c) a
commercial bank organized under the laws of any other country which is a member
of the Organization for Economic Cooperation and Development, or a political
subdivision of any such country, and having total assets in excess of
$1,000,000,000, provided that such bank is acting through a branch or agency
located in the country in which it is organized or another country which is
described in this clause; and (d) the central bank of any country which is a
member of the Organization for Economic Cooperation and Development.
"ELIGIBLE INVENTORY" means at any date the lesser of the actual cost or the
current fair market value of inventory of Company and its Subsidiaries
determined in accordance with GAAP, provided that such inventory shall
constitute Eligible Inventory only if on the date as of which the determination
is being made it (i) shall not be damaged or obsolete, (ii) shall not have
exceeded its normal shelf life, and (iii) shall not be subject to any Lien,
except Permitted Liens. Eligible Inventory will include the face amount of
Commercial Letters of Credit outstanding in support of the purchase of Eligible
Inventory, but shall not include any inventory of Company or any Subsidiary
which is subject to a security interest securing any indebtedness of Company or
such Subsidiary.
"ENVIRONMENTAL LAWS" means any and all present and future Federal, state,
local and foreign laws, rules or regulations, and any orders or decrees, in each
case as now or hereafter in effect, relating to the regulation or protection of
human health, safety and the environment or to emissions, discharges, releases
or threatened releases of pollutants, contaminants, chemicals or toxic or
hazardous substances or wastes (as defined in such laws, rules or regulations)
into the indoor or outdoor environment, including, without limitation, ambient
air, soil, surface water, ground water, wetlands, land or subsurface strata, or
otherwise relating to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling of pollutants, contaminants, chemicals
or toxic or hazardous substances or wastes (as defined in such laws, rules or
regulations).
"ERISA" means the Employee Retirement Income Security Act of 1974, together
with all amendments from time to time thereto, including any rules or
regulations promulgated thereunder.
7
<PAGE>
"EURODOLLAR RATE" means, at the time any determination thereof is to be
made by Administrative Lender and for any Interest Period during which the
Eurodollar Rate is applicable, the lesser of (a) the Highest Lawful Rate and (b)
the sum of (i) the Applicable Margin plus (ii) the interest rate per annum
(rounded upwards, if necessary to the nearest one-sixteenth of one percent)
which is the quotient of (A) the rate per annum at which dollar deposits in
immediately available funds are offered to Administrative Lender two Business
Days before the first day of such applicable Interest Period by prime banks in
the interbank Eurodollar market as at or about 11:00 A.M., Dallas, Texas time,
for delivery on the first day of such applicable Interest Period, for the number
of days comprised therein and in an amount equal to the aggregate amount bearing
such interest rate to be outstanding for such applicable Interest Period,
divided by (B) the remainder of 1.00 MINUS the Eurodollar Reserve Percentage
applicable to such amounts.
"EURODOLLAR RESERVE PERCENTAGE" means, with respect to each Interest Period
during which the Eurodollar Rate is applicable, that percentage (expressed as a
decimal) determined by Administrative Lender to be the actual reserve
requirement in effect on the first day of such Interest Period for
Administrative Lender, as prescribed by the Board of Governors of the Federal
Reserve System (or any successor), (including any basic, supplemental and
emergency reserves applicable to "eurocurrency liabilities") pursuant to
Regulation D or any other then applicable regulation of the Board of Governors
which prescribes reserve requirements applicable to "eurocurrency liabilities,"
as defined in Regulation D. The Eurodollar Reserve Percentage shall be a fixed
percentage calculated at, and effective from the first day of, such Interest
Period. Each determination by Administrative Lender of the Eurodollar Reserve
Percentage shall, in the absence of manifest error, be conclusive and binding.
"EVENT OF DEFAULT" means the occurrence of any such event set forth in
Article VIII hereof, which has not been waived by Lenders in writing in
accordance with the provisions of this Agreement.
"FEDERAL FUNDS RATE" means, for any period, a fluctuating interest rate per
annum equal for each day during such period to the weighted average of the rates
on overnight federal funds transactions with members of the Federal Reserve
System arranged by federal funds brokers, as published for such day (or, if such
day is not a Business Day, for the next preceding Business Day) by the Federal
Reserve Bank of Dallas, or, if such rate is not so published for any day which
is a Business Day, the average of the quotations for such date on such
transactions received by Administrative Lender from three federal funds brokers
of recognized standing selected by it.
"FEE LETTERS" means that certain fee letter described in Section 2.08 of
this Agreement, and any other fee letters executed by Company from time to time,
as any such letters may be amended, extended, modified, revised, replaced or
substituted from time to time.
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"FISCAL MONTH" means one of the twelve four- or five-week accounting
periods comprising a fiscal year of Company.
"FIXED CHARGES" means for Company and its Subsidiaries as of any
determination date for the preceding 12-month period, the sum of (a) interest
expense for such period plus (b) operating lease expense for such period all as
determined and consolidated in accordance with GAAP.
"FIXED CHARGES COVERAGE RATIO" means for Company and its Subsidiaries as of
any determination date for the preceding 12-month period, the ratio of (a) the
sum of (i) consolidated income of Company and its Subsidiaries before income
taxes for such period (excluding extraordinary cash gains or losses for such
period), plus (ii) interest expense for such period plus (iii) operating lease
expense for such period to (b) Fixed Charges.
"GAAP" means generally accepted accounting principles, applied on a
consistent basis, set forth in Opinions of the Accounting Principles Board of
the American Institute of Certified Public Accountants and/or in statements of
the Financial Accounting Standards Board and/or their successors which are
applicable in the circumstances as of the date in question; and the requisite
that such principles be applied on a consistent basis means that the accounting
principles observed in a current period are comparable in all material respects
to those applied in a preceding period.
"GUARANTIES" means each of the Guaranty Agreements in substantially the
form of EXHIBIT D attached hereto executed by each of the Guarantors, and
"GUARANTY" means any of the Guaranties, as each may be amended, modified,
renewed, extended or replaced from time to time.
"GUARANTORS" means each Subsidiary and each Person that may hereafter be
required to execute a Guaranty under the terms of this Agreement, and
"GUARANTOR" means any one of the Guarantors.
"HAZARDOUS MATERIAL" means, collectively, (a) any petroleum or petroleum
products, flammable explosives, radioactive materials, asbestos in any form that
is or could become friable, insulation, transformers or other equipment that in
each case contains dielectric fluid containing polychlorinated biphenyls
(PCB's), (b) any chemicals or other material or substances which are now or
hereafter become defined as or included in the definition of "hazardous
substances", "hazardous wastes", "restricted hazardous wastes", "toxic
substances", "toxic pollutants", "contaminants", "pollutants" or words of
similar import under any Environmental Law and (c) any other chemical or other
material or substance, exposure to which is now or hereafter prohibited, limited
or regulated under any Environmental Law.
"HIGHEST LAWFUL RATE" means at the particular time in question the maximum
rate of interest which, under Applicable Law, Lenders are then permitted to
charge on the
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Obligations. If the maximum rate of interest which, under Applicable Law,
Lenders are permitted to charge on the Obligations shall change after the date
hereof, the Highest Lawful Rate shall be automatically increased or decreased,
as the case may be, from time to time as of the effective time of each change in
the Highest Lawful Rate without notice to Company. For purposes of determining
the Highest Lawful Rate under the Applicable Law of the State of Texas, the
applicable rate ceiling shall be (i) the indicated rate ceiling described in and
computed in accordance with the provisions of Section (a)(1) of Art. 1.04 or
(ii) if the parties subsequently contract if allowed by Applicable Law after
notice, the quarterly ceiling or the annualized ceiling computed pursuant to
Section (d) of Art. 1.04; provided, however, that at any time the indicated rate
ceiling, the quarterly ceiling or the annualized ceiling shall be less than 18%
per annum or more than 24% per annum, the provisions of Sections (b)(1) and (2)
of said Art. 1.04 shall control for purposes of such determination, as
applicable.
"INDENTURE" has the meaning ascribed thereto in the definition of
Subordinated Debt herein.
"INTEREST PERIOD" means, (a) as to any portion of the Loan bearing interest
at the Base Rate, as described in subsection (i) below, (b) as to any portion of
the Loan bearing interest at the Eurodollar Rate, a period of one month, two
months, three months or six months, as Company may elect in the manner set forth
in Section 2.04 or Section 2.22 hereof, as the case may be, provided that:
(i) the Interest Period for Advances hereunder which are to bear
interest at the Base Rate shall commence on the date each such Advance is
made or converted to a Base Rate Borrowing and shall end on the earlier of
the Maturity Date or the first Payment Date after the Advance during the
term of this Agreement;
(ii) the initial Interest Period for Advances hereunder which are to
bear interest at the Eurodollar Rate shall commence on the date each such
Advance is made or converted to a Eurodollar Rate Borrowing, and each
Interest Period occurring thereafter for such Advance shall commence on the
day on which the next preceding Interest Period for such Advance expires;
and
(iii) no Interest Period shall extend beyond the Maturity Date.
"INVESTMENT" in any Person means any investment, whether by means of
securities purchase, loan, advance, extension of credit, capital contribution or
otherwise, in or to such Person or the subordination of any claim against such
Person to other indebtedness of such Person, excluding Acquisitions, provided
that, Company is permitted to subordinate any claim against any Person to other
indebtedness of such Person so long as (a) there exists no Default or Event of
Default before and immediately after such action and (b) such action is taken
only in connection with the settlement of litigation involving Company or any
Subsidiary.
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"LAW" means all statutes, laws, ordinances, regulations, orders, writs,
injunctions or decrees of the United States, any state or commonwealth, any
municipality, any foreign country, any territory or possession, or any Tribunal.
"LENDERS" means Administrative Lender and each other Lender signatory
hereto or from time to time a party hereto in accordance with the terms of
Section 10.02 hereof and pursuant to an Assignment and Acceptance Agreement
(such Lenders together with NationsBank of Texas, N.A. collectively referred to
herein as "Lenders" and individually, each a "Lender").
"LETTERS OF CREDIT" means the Stand-By Letters of Credit and Commercial
Letters of Credit, as each may be amended, modified, renewed or extended from
time to time.
"LETTER OF CREDIT COMMITMENT" means an amount equal to the lesser of (a)
$25,000,000 or (b) the difference between $150,000,000 minus the aggregate
outstanding Advances under the Loan or (c) the difference between the Commitment
minus the aggregate outstanding Advances under the Loan.
"LIEN" means any mortgage, deed of trust, pledge, security interest,
encumbrance, lien, option, easement, preference, priority, hypothecation,
assignment, tax lien, mechanic's lien, materialmen's lien or charge or
encumbrance of any kind (including any conditional sale or other title retention
agreement, any financing lease having substantially the same economic effect as
any of the foregoing, and the filing of, or agreement to give, any financing
statement under the Uniform Commercial Code of Texas or comparable law of any
jurisdiction).
"LITIGATION" means any action, suit or proceeding, at law or in equity,
and/or any claim or investigation, conducted or threatened by or before any
Tribunal, including, but not limited to, proceedings, claims, lawsuits, and/or
investigations under or pursuant to any occupational safety and health,
antitrust, unfair competition, securities, tax, or other laws, or under or
pursuant to any contract, agreement, or other instrument.
"LOAN COMPLIANCE CERTIFICATE" means any and each certificate in the form of
EXHIBIT E hereto from time to time delivered by Company to Administrative Lender
pursuant to the terms of this Agreement.
"LOAN PAPERS" means this Agreement and all documents executed in connection
with or pursuant to or contemplated by this Agreement, whether executed prior to
or contemporaneously herewith, or subsequent to the execution hereof, including,
without limitation, each of the Notes, the Guaranties, all Applications, all
Letters of Credit, all Assignment and Acceptance Agreements, all Fee Letters,
each certificate or report relating to the Borrowing Base, each Loan Compliance
Certificate and all other security agreements, pledges, documents, certificates,
agreements, mortgages, deeds of trust, other fee letters, waiver letters, other
instruments or documents granting a security interest and/or lien in any
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assets of any Person securing the Obligations, and other instruments
contemplated hereby, or executed or delivered by Company or its Subsidiaries
pursuant hereto or in connection herewith from time to time, as each may be
amended, modified, renewed, substituted or extended from time to time.
"LOAN" means the loan made or to be made by Lenders to Company pursuant to
Section 2.01 of this Agreement, the Letter of Credit facility pursuant to
Article III hereof, and any other extensions of credit made by Lenders to
Company pursuant to this Agreement and any amendment thereto or extension
thereof.
"M/A ENTITY" has the meaning ascribed thereto in Section 7.05 hereof.
"MAJORITY LENDERS" means any combination of Lenders having at least 66.67%
of the aggregate amount of Advances outstanding hereunder; provided, however,
that if no Advances are outstanding, such term means any combination of Lenders
having aggregate Specified Percentages equal to at least 66.67%.
"MATERIAL ADVERSE CHANGE" means any circumstance or event that (a) can
reasonably be expected to cause a Default or Event of Default, (b) otherwise can
reasonably be expected to (i) be material and adverse to the continued operation
of Company and its Subsidiaries taken as a whole, or (ii) be material and
adverse to the financial condition, business operations, prospects or properties
of Company and its Subsidiaries taken as a whole, (c) could reasonably be
expected to adversely affect the performance by Company of its obligations under
the Loan Papers, or (d) in any manner whatsoever does or can reasonably be
expected to materially and adversely affect the validity or enforceability of
any of the Loan Papers.
"MATURITY DATE" means June 16, 1997 or such earlier date as the Loan
becomes due and payable, regardless of how such maturity is brought about,
whether at stated maturity, by acceleration, scheduled reduction or otherwise.
"MAXIMUM AMOUNT" means, under Applicable Law, the maximum amount of
interest which Lenders are permitted to charge and collect from Company on the
Obligations.
"MULTI-EMPLOYER PLAN" means a multiemployer plan, as defined in Section
4001(a)(3) of ERISA, to which Company, any Subsidiary, or any ERISA Affiliate is
making or accruing an obligation to make contributions, or has within any of the
preceding six plan years made or accrued an obligation to make contributions,
such plan being maintained pursuant to one or more collective bargaining
agreements.
"NCMI" means NationsBanc Capital Markets, Inc.
"NET WORTH" means the consolidated net worth of Company and its
Subsidiaries, determined in accordance with GAAP.
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"NOTES" means each promissory note in substantially the form of EXHIBIT A
attached hereto, evidencing indebtedness of Company to each Lender under the
Loan, and any amendments, modifications, extensions, renewals or replacements
thereof.
"NOTICE OF BORROWING/CONVERSION" shall have the meaning given to such term
in Section 2.04 of this Agreement and shall be in substantially the form of
EXHIBIT B attached hereto.
"OBLIGATIONS" means all present and future obligations and indebtedness
(including, without limitation, the Reimbursement Obligations), and all
renewals, modifications and extensions thereof, or any part thereof, of Company
and all Subsidiaries to Lenders now existing or hereafter arising, pursuant to
or in connection with the Loan Papers, including all interest accruing thereon
and reasonable attorneys' fees and expenses of Administrative Lender incurred in
connection with this Agreement and the Loan Papers and reasonable attorneys'
fees and expenses of Lenders incurred in connection with the enforcement of Loan
Papers and collection of Debt hereunder, as provided in the Loan Papers,
regardless of whether such obligations and indebtedness are direct, indirect,
fixed, contingent, liquidated, unliquidated, joint, several, or joint and
several, including, but not limited to, the indebtedness and obligations
evidenced by this Agreement, the Notes, the Applications, the Letters of Credit,
and any and all other Loan Papers.
"PAYMENT DATE" means the first Business Day of each February, May, August
and November during the term of this Agreement, commencing with the first such
date to occur after the Closing Date and ending after payment in full of all
Advances and Obligations.
"PBGC" means the Pension Benefit Guaranty Corporation established under
ERISA.
"PERMITTED LIENS" means any one or more of the following:
(a) Liens for taxes or assessments either not yet delinquent or the
validity or amount of which is being contested in good faith by appropriate
proceedings diligently prosecuted and as to which adequate reserves shall
have been set aside in conformity with GAAP;
(b) Deposits or pledges to secure the payment of workers
compensation, unemployment insurance or other social security benefits or
obligations, or to secure the performance of bids, trade contracts, public
or statutory obligations, surety or appeal bonds and other obligations of a
like nature incurred in the ordinary course of business;
(c) Materialmen's, mechanics', workmen's, repairmen's, or other like
liens arising in the ordinary course of business or by operation of Law to
secure obligations not yet delinquent or which within ten days of any lien
filing by the lien claimant are being contested by Company or Subsidiary in
good faith and for which (a) adequate
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reserves shall have been set aside in conformity with GAAP or (b) as to
which adequate bonds shall have been obtained;
(d) (i) Existing Liens as disclosed on SCHEDULE 5.06, (ii) other
Liens in existence on the Closing Date that do not constitute blanket Liens
on any of Company's or its Subsidiaries' equipment, inventory, accounts or
other receivables, and (iii) Liens on real property in existence on the
Closing Date, or renewals and extensions of any thereof, so long as such
Liens are not expanded to cover any additional property or assets of
Company;
(e) Liens securing the deferred purchase price payment for assets,
which Liens are created at the time of, or substantially simultaneously
with, acquisition of such assets, provided that in any such case
(i) no such Lien shall extend to or cover any other property or
assets of Company or of any Subsidiary, as the case may be,
and
(ii) the aggregate principal amount of the indebtedness secured
by all such Liens in respect of any such property or assets
shall not exceed the greater of (A) the fair market value of
such property or assets at the time of such acquisition, or
(B) the good faith allocated purchase price of such assets;
and
(f) consensual landlord's Liens and landlord's Liens arising by
operation of law.
"PERSON" means an individual, partnership, joint venture, corporation,
trust, Tribunal, unincorporated organization, and government, or any department,
agency, or political subdivision thereof.
"PLAN" means any plan subject to Title VI of ERISA and maintained for
employees of Company or any Subsidiary, or of any member of a controlled group
of corporations, as the term "controlled group of corporations" is defined in
Section 1563 of the Internal Revenue Code of 1986, as amended, of which Company
or a Subsidiary is a part.
"PRO RATA" and "PRO RATA PART" as to each Lender means according to its
Specified Percentage of the aggregate amount of the Loan and Reimbursement
Obligations, PLUS its Specified Percentage of the stated amount of Letters of
Credit outstanding hereunder; provided, however, that if there are no Advances
or Letters of Credit outstanding hereunder, such terms means, as to each Lender,
according to its Specified Percentage of the aggregate Commitment hereunder.
"REIMBURSEMENT NOTICE" has the meaning ascribed thereto in Section 2.24
hereof.
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"REIMBURSEMENT OBLIGATION" means the obligation (whether or not choate) of
Company to reimburse Administrative Lender for the account of Lenders in their
Specified Percentages for draws under Letters of Credit.
"RELEASE" means any release, spill, emission, leaking, pumping, injection,
deposit, disposal, discharge, dispersal, leaching or migration into the indoor
or outdoor environment, including, without limitation, the movement of Hazardous
Materials through ambient air, soil, surface water, ground water, wetlands, land
or subsurface strata.
"REPORTABLE EVENT" means a reportable event as defined in Section 4043 of
ERISA and the regulations issued under such section, with respect to a Plan,
including any failure to meet the minimum funding standard of Section 412 of the
Code and of Section 302 of ERISA.
"RESTRICTED PAYMENT" means
(a) the declaration or payment of Dividends by, or distribution (in cash,
property, obligations or other securities, Capital Stock or any combination
thereof) on account of, or
(b) other payments or distributions (whether made by Company or any of its
Subsidiaries and whether by reduction of capital or otherwise) on account of, or
(c) the setting apart of money for a sinking or other analogous fund
(whether by Company or any of its Subsidiaries) for the purchase, redemption,
retirement or other acquisition of any shares of,
any class of Capital Stock of Company or any warrant, option or other right to
acquire such Capital Stock, but excluding Dividends or other distributions
payable solely in common stock or partnership interests of Company (having
identical rights as the then-outstanding partnership interests of Company) or
rights to acquire common stock or partnership interests of Company (having
identical rights as the then-outstanding partnership interests of Company).
"RIGHTS" means with respect to any Person, the rights, remedies (equitable
or legal), claims, causes of action, powers, and privileges granted to such
Person pursuant to any or all of this Agreement, the Notes, the other Loan
Papers or any other document, instrument or other agreement heretofore, now, or
hereafter executed in connection herewith, whether granted or arising pursuant
to the express provisions of any of the foregoing, or at law, or in equity, by
constitution, statute, case or otherwise.
"SPECIAL COUNSEL" means the law firm of Donohoe, Jameson & Carroll, P.C. or
any other counsel selected from time to time by Administrative Lender.
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"SPECIFIED PERCENTAGE" means with respect to each Lender, the percentage
set forth opposite such Lender's name on the signature pages below, or as
adjusted pursuant to Section 2.30(a) hereof or pursuant to, and as set forth
therein, each Assignment and Acceptance Agreement.
"STAND-BY LETTERS OF CREDIT" means those certain standby letters of credit
issued by Administrative Lender on behalf of Lenders for the account of Company
in accordance with Article III hereof, and all such letters of credit issued by
Administrative Lender on behalf of Lenders in renewal or extension thereof.
"STOCK OPTION PLANS" means those certain stock option plans, programs or
arrangements in effect on the Closing Date and described on SCHEDULE 1.01
hereto.
"SUBORDINATED DEBT" shall mean indebtedness of Company pursuant to those
certain 4 3/4% / 6 3/4% Step-up Convertible Subordinated Notes Due 2003, issued
as of January 22, 1993, under and pursuant to that certain Indenture, dated as
of January 22, 1993 among Company as Issuer and NationsBank of Texas, N.A. as
Trustee (the "Indenture"), as the same shall be amended, restated, modified,
extended, renewed or replaced.
"SUBSIDIARY" means any Person, and "SUBSIDIARIES" means all such Persons
that meet either of the following criteria: (a) more than 50% of the outstanding
voting securities of which shall at the time be owned or controlled, directly or
indirectly, by Company or by one or more Subsidiaries, or by Company and one or
more Subsidiaries, or any voluntary association, joint stock company, voting
trust or similar organization which is so owned or controlled or (b) (i) any of
the outstanding voting securities of which shall at the time be owned or
controlled, directly or indirectly, by Company or by one or more Subsidiaries,
or by Company and one or more Subsidiaries, or any voluntary association, joint
stock company, voting trust or similar organization which is so owned or
controlled and (ii) such Subsidiary has received any advance or loan from
Company or any Subsidiary and such loan or advance is outstanding on such date.
"TERMINATION EVENT" means (a) a reportable event described in Section 4043
of ERISA and the regulations issued thereunder (other than a Reportable Event
not subject to the provision for 30-day notice to the PBGC under such
regulations), or (b) the withdrawal of Company or any Subsidiary from a Plan
during a Plan year in which it was a "substantial employer" as defined in
Section 4001(a)(2) of ERISA or (c) the filing of a notice of intent to terminate
a Plan or the treatment of Plan amendment as termination under Section 4041 of
ERISA or (d) the institution of proceedings to terminate a Plan by the PBGC or
(e) any other event or condition which might constitute grounds under Section
4042 of ERISA for the termination of, or the appointment of a Trustee to
administer, any Plan.
"TOTAL LIABILITIES" means, as of the date of any determination thereof, the
aggregate (after eliminating intercompany items) of all liabilities of Company
and its Subsidiaries determined in accordance with GAAP (including capitalized
leases). Notwithstanding
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anything contained herein or in the other Loan Papers to the contrary, such term
shall include all guaranties and liabilities relating to letters of credit
(other than commercial letters of credit).
"TRIBUNAL" means any state, federal, foreign or other court, or
governmental department, board, bureau, agency, commission or instrumentality.
"TRUSTEE" has the meaning ascribed thereto in the Indenture.
Section 1.02 ACCOUNTING TERMS AND OTHER DETERMINATIONS. Unless otherwise
specified herein, all accounting terms used herein shall be interpreted, all
accounting determinations hereunder shall be made, and all financial statements
required to be delivered hereunder shall be prepared in accordance with GAAP.
References herein to one gender shall be deemed to include the other gender.
All other terms used herein shall have the meanings as otherwise stated herein.
ARTICLE II
REVOLVING LOAN
Section 2.01 COMMITMENT FOR REVOLVING LOAN. Subject to the terms and
conditions of this Agreement, and provided that there exists no Default or Event
of Default, Lenders agree to loan to Company in accordance with their Specified
Percentages, in several Advances from time to time during the term of this
Agreement until the Maturity Date, such amounts as Company may request up to an
amount equal to the Available Advance Amount. Subject to the foregoing
limitations, and the other terms and provisions of this Agreement, Company may
borrow, repay, and reborrow Advances under the Loan under this Section 2.01.
Each Eurodollar Rate Borrowing under the Loan shall be in the aggregate
principal amount of $1,000,000, or in integral multiples of $100,000 in excess
thereof. Each Base Rate Borrowing under the Loan shall be in the aggregate
principal amount of $500,000, or in integral multiples of $100,000 in excess
thereof.
Section 2.02 NOTES. The indebtedness arising by reason of Advances by
Lenders to Company pursuant to Section 2.01 hereof shall be evidenced by Notes,
duly authorized and executed by Company in substantially the form attached
hereto as EXHIBIT A, payable to the order of each Lender in the original
principal amount of each Lender's Specified Percentage of the Commitment. All
principal evidenced by the Notes shall be due and payable on the Maturity Date.
Section 2.03 EXPIRATION OF COMMITMENT TO LEND UNDER THE LOAN. Lenders
shall have no obligation to make additional Advances under Section 2.01 hereof
after 1:00 P.M., Dallas, Texas time on the Maturity Date; provided, however,
that Company's Obligations
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and the Rights of Lenders under the Loan Papers shall continue in full force and
effect until Company has paid and performed the Obligations in full.
Section 2.04 REQUEST FOR ADVANCES. Company shall give Administrative
Lender a telephonic or written notice ("Notice of Borrowing/Conversion") of any
proposed Borrowing under the Loan which, in the case of telephonic notice, shall
be promptly confirmed in writing and, in each case, shall be irrevocable. All
telephonic notices of borrowing shall be made to NationsBank of Texas, N.A.,
attn.: Molly Oxford, telephone (214) 508-3255, or (800) 547-2005, facsimile
(214) 508-2515, or such other person as Administrative Lender may from time to
time specify. Administrative Lender shall promptly notify Lenders upon receipt
of such notice, and each Lender shall, on the date of any such Borrowing,
deliver to Administrative Lender at its principal office, such Lender's
Specified Percentage of such Borrowing in immediately available funds in
accordance with Administrative Lender's instructions. Each Notice of
Borrowing/Conversion under the Loan shall be given to Administrative Lender by
an Authorized Financial Officer not later than 12:00 noon, Dallas, Texas time on
the date of any proposed Base Rate Borrowing requested by Company, and not later
than 12:00 noon, Dallas, Texas time at least three Business Days prior to any
proposed Eurodollar Rate Borrowing requested by Company. Each such Notice of
Borrowing/Conversion shall specify: (i) the rate (Base Rate or Eurodollar Rate)
which Company desires; (ii) the principal amount proposed to be covered; (iii)
the Borrowing Date (which shall be a Business Day); (iv) a proposed Interest
Period for any Advance bearing interest at an Eurodollar Rate; and (v) and
certify as to satisfaction of the condition precedent set forth in Section
4.02(e) hereof. After Administrative Lender has notified Lenders of such
Borrowing and upon satisfaction of the conditions precedent set forth in Article
IV hereof, Administrative Lender will make such funds available to Company on
the date of such Borrowing by, at Company's option, (i) wiring the funds to or
for the account of Company or (ii) depositing such funds in Company's account(s)
with Administrative Lender at Administrative Lender's banking house.
Section 2.05 USE OF PROCEEDS OF THE ADVANCES. The proceeds of the
Advances shall be used for working capital and other general corporate purposes
of Company.
Section 2.06 BORROWING BASE AND BORROWING BASE REPORT. Notwithstanding
anything to the contrary in this Agreement or in any of the other Loan Papers,
the sum of the (a) aggregate amount of all Advances outstanding at any time
under the Loan, plus (b) the aggregate face amount of all outstanding Letters of
Credit at any such time, shall not exceed the lesser of (i) the Commitment and
(ii) the Borrowing Base. The Borrowing Base shall be computed on the Closing
Date, and thereafter shall be recomputed as of the last day of each Fiscal Month
utilizing a Borrowing Base Report, with appropriate completions, which shall be
furnished to Administrative Lender and each Lender within 30 days after the end
of each Fiscal Month and certified as to correctness by an Authorized Financial
Officer; provided that the correctness of the Borrowing Base Report submitted
for the 12th Fiscal Month of each fiscal year shall be qualified to the extent
of adjustments reflected in the audited financial statements for such fiscal
year.
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Section 2.07 COMMITMENT FEE. Subject to Section 10.15 hereof, Company
agrees to pay to Administrative Lender for the account of Lenders in their Pro
Rata Part a commitment fee on the average daily amount of the Commitment minus
the sum of (a) the aggregate amount of all Advances outstanding, plus (b) the
aggregate face amount of all outstanding Letters of Credit, from the Closing
Date to and including the Maturity Date, at the rate of one-quarter of one
percent (1/4%) per annum payable in arrears, computed and payable quarterly on
each Payment Date and on the Maturity Date.
Section 2.08 ADDITIONAL FEES. Subject to Section 10.15 hereof, Company
shall pay fees for the arranging of this facility and the underwriting of this
facility in an amount agreed to in that certain Fee Letter of even date hereof,
between Company, NCMI and Administrative Lender.
Section 2.09 REDUCTION/TERMINATION OF COMMITMENT.
(a) PARTIAL REDUCTION. Company shall have the right, upon not less
than 20 Business Days' notice to Administrative Lender, which shall
promptly notify Lenders, to reduce the Commitment in part; provided,
however, that (i) each partial termination shall be in an aggregate amount
which is not less than $5,000,000 and, if in excess thereof, an integral
multiple of $1,000,000, (ii) no reduction in the Commitment shall cause any
Loan to be repaid prior to the last day of its Interest Period, and (iii)
in no event may the Commitment be reduced to an amount less than the sum of
the aggregate amount of outstanding Advances under the Loan hereunder plus
the aggregate face amount of all outstanding Letters of Credit as of such
date.
(b) TERMINATION. Company shall have the right, at any time, to
wholly terminate the Commitment of Lenders hereunder; provided that as of
the effective date of such termination, all principal and interest with
respect to the Loan shall have been paid in full and Company shall have
fully discharged all obligations to Lenders to the satisfaction of Lenders
with respect to the Letters of Credit. Company shall give Administrative
Lender written notice (which shall promptly notify Lenders) of its desire
to terminate Lenders' Commitment and obligations hereunder no later than 20
Business Days prior to the date termination is desired to be effective, and
the Maturity Date shall then occur.
(c) GENERAL. Each reduction in any Commitment pursuant to this
Section 2.09 shall reduce such Commitment of each Lender according to its
Specified Percentage immediately prior to such reduction. Once reduced or
terminated, the Commitment of Lenders may not be increased or reinstated.
Any notice provided by Company under this Section 2.09 shall be
irrevocable.
Section 2.10 REPAYMENT.
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(a) ALL ADVANCES AND OTHER OBLIGATIONS. All outstanding Advances
under the Loan, all Reimbursement Obligations and all other outstanding
Obligations shall be due and payable to Administrative Lender on behalf of
Lenders in full on the Maturity Date.
(b) BORROWINGS. Each Eurodollar Rate Borrowing shall be due and
payable on the last day of its Interest Period and on the Maturity Date.
Section 2.11 INTEREST. Interest, computed on the outstanding principal
balance from day to day outstanding under the Notes, shall be due and payable as
it accrues on the last day of each Interest Period and on the Maturity Date with
respect to any Borrowing under the Loan; provided that, with respect to any
Eurodollar Rate Borrowing, to the extent any Interest Period exceeds three
months, interest shall also be payable on each Payment Date occurring during
such Interest Period. The outstanding principal balance of the Notes shall bear
interest prior to the Maturity Date at a varying rate per annum equal to the
Base Rate, Eurodollar Rate as selected by Company.
Section 2.12 POST-DEFAULT RATE. Subject to Section 10.15 hereof, upon
the occurrence of an Event of Default and during the continuance thereof, after
notice to Company by Administrative Lender, all Advances outstanding under the
Loan shall bear interest at a rate per annum equal to the lesser of the Highest
Lawful Rate and the Base Rate plus 5%.
Section 2.13 PAYMENTS ON NON-BUSINESS DAYS. Whenever any payment to be
made hereunder or under any Note shall be stated to be due on a day which is not
a Business Day, the due date thereof shall be extended to the next succeeding
Business Day and, with respect to payments of principal, interest shall be
payable at the applicable rate during such extension; except that as to a
Eurodollar Rate Borrowing, if the next succeeding Business Day is in the next
calendar month, then the due date shall be the immediately preceding Business
Day.
Section 2.14 OPTIONAL PREPAYMENTS. Except as required by Section 2.15 or
Section 2.20(c) hereof, Company shall not make any prepayments on any portion of
any Eurodollar Rate Borrowing on a day which is not the last day of the
applicable Interest Period with respect thereto. Subject to the provisions of
the first sentence hereof, Company shall have the right, at its option, to
prepay the amounts outstanding under the Notes in part at any time and from time
to time, and in whole at any time, without premium or penalty. Each optional
prepayment shall be in an aggregate principal amount at least equal to the
lesser of (i) $100,000, or (ii) the remaining unpaid principal amount of the
Notes being prepaid. Upon the prepayment of the Notes in full, accrued interest
on the principal amount of such Notes shall become due and payable on such
prepayment date. Unless otherwise specified by Company at the time of
prepayment, each prepayment shall be applied first to payment of the principal
balance of the Notes, then to the payment of accrued interest owing on the
Notes, and thereafter to all other Obligations.
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Section 2.15 MANDATORY PREPAYMENT.
(a) MONTHLY. Company shall make mandatory prepayments under the Loan if,
as of the last day of any Fiscal Month, the sum of the (i) total principal
amount of all outstanding Advances, plus (ii) the aggregate face amount of all
outstanding Letters of Credit, exceeds the lesser of (A) the Commitment or (B)
the Borrowing Base. In such event, Company shall make a principal prepayment on
the Loan to Administrative Lender for the account of Lenders in the amount of
such excess within the earlier of (I) 5 Business Days after Company's actual
knowledge thereof, or (II) 30 days after the last day of any Fiscal Month.
(b) ANNUAL. During each 12-month period any Obligations are outstanding
hereunder, Company shall, for one consecutive 30 day period during the period
commencing December 1 and ending the following February 28 of each such 12-month
period, reduce the outstanding Advances under the Loan to an amount equal to or
less than the product of $200,000 times the number of store locations operating
business as of December 1 of such 12-month period.
Section 2.16 MANNER AND PLACE OF PAYMENTS AND PREPAYMENTS. All payments
and prepayments of principal and interest on the Notes shall be made to
Administrative Lender for the account of Lenders in their Pro Rata Parts, at its
office at 901 Main Street, Dallas, Texas 75202, in immediately available funds.
Section 2.17 COMPUTATION OF INTEREST. Subject to Section 10.15 hereof,
interest on (a) Base Rate Borrowings shall be calculated on the basis of a year
of 365 or 366 days, as the case may be, for the actual number of the days
elapsed, and (b) interest on Eurodollar Rate Borrowings, fees and other amounts
owed hereunder shall be calculated on the basis of a year of 360 days, for the
actual number of days elapsed. Any changes in the rate of interest on the Notes
resulting from changes in the Base Rate shall become effective as of the opening
of business on the day on which such change in the Base Rate shall occur.
Section 2.18 INTEREST RECAPTURE. If at any time the interest rate
applicable to any Advance under the Loan or any other extension of credit
pursuant to this Agreement shall exceed the Highest Lawful Rate, thereby causing
the interest on such Advance or other extension of credit to be limited to the
Highest Lawful Rate, then any subsequent reduction in such interest rate as
provided hereunder shall not reduce the rate of interest on the Loan below the
Highest Lawful Rate until the aggregate amount of interest accrued on the Loan
equals the aggregate amount of interest which would have accrued on the Loan if
the interest rate had not been limited to the Highest Lawful Rate.
Section 2.19 INDEMNITY PROVISIONS. Company agrees to indemnify Lenders
against, and pay to Administrative Lender on behalf of any such Lender on
demand, amounts equal to: (i) the cost of any present and future reserve or
special deposit requirements or any taxes (other than federal, state, or local
taxes on or measured by the overall income of Lender or the portion thereof
allocable to the applicable jurisdiction), domestic or foreign, which any
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Lender is required to keep or pay by reason of its funding any Eurodollar Rate
Borrowing (other than reserves which are already reflected in determining the
rate of interest in accordance with the terms hereof); (ii) any costs or
expenses incurred by any Lender as a result of Company's failure to borrow a
portion of an Advance to bear interest at a Eurodollar Rate once requested
and/or Company's payment or conversion for any reason (including without
limitation a payment under Section 2.15 hereof or a conversion under Section
2.20(c) hereof) of all or a portion of any Eurodollar Rate Borrowings prior to
the end of the Interest Period and/or Company's failure to make any payment
hereunder when due, including, without limitation, any loss arising from the
reemployment of funds at rates lower than the cost to such Lender of such funds.
A certificate of such Lender, setting forth in reasonable detail the basis for
the determination of such costs and expenses, shall constitute PRIMA FACIE
evidence of such costs and expenses, absent manifest error.
Section 2.20 LIMITATION ON EURODOLLAR RATE BORROWINGS. If, at any time
during the term of this Agreement Administrative Lender or any Lender reasonably
determines that:
(a) eurodollar deposits in the appropriate amount and for the
appropriate period are not being offered in the interbank eurodollar
market, Administrative Lender shall promptly give notice thereof to Company
(and such determination shall be conclusive on Company), and thereafter no
new Eurodollar Rate Borrowings shall be permitted until such time as
eurodollar deposits for the appropriate amount and for the appropriate
period are again offered in the interbank eurodollar market; or
(b) as a result of changes in the Law, or the adoption or making of
any interpretations, directives, or regulations (whether or not having the
force of law) by any court, governmental authority, or reserve bank charged
with the interpretation or administration thereof, the Eurodollar Rate will
not adequately and fairly reflect the cost to Lenders of making,
maintaining, or funding a proposed Eurodollar Rate Borrowing that Company
has requested be made or continued, then Administrative Lender shall
promptly give notice to Company of such determination, and any such
requested Advance shall bear interest at the Base Rate; or
(c) as a result of changes in the Law, or the adoption or making of
any interpretations, directives, or regulations (whether or not having the
force of law) by any court, governmental authority, or reserve bank charged
with the interpretation or administration thereof, it shall be or become
unlawful or impossible to make, maintain, or fund any Eurodollar Rate
Borrowing, Lenders' obligations to make or continue the affected Eurodollar
Rate Borrowing shall be automatically canceled, and the affected Eurodollar
Rate Borrowing or Borrowings shall be automatically converted to an Advance
bearing interest at the Base Rate, and Company shall pay Administrative
Lender any additional cost or expense which any Lender incurs as a result
of any such conversion prior to the last day of the then current Interest
Period for such Eurodollar Rate Borrowings, in accordance with Section 2.19
hereof.
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Section 2.21 DETERMINATION OF INTEREST RATES. Administrative Lender
shall determine each interest rate applicable to Eurodollar Rate Borrowings
hereunder, and its determination thereof shall be conclusive in the absence of
manifest error. Administrative Lender shall, at the request of Company, furnish
such information concerning the calculation of the interest rate on any
Eurodollar Rate Borrowing as Company may reasonably request.
Section 2.22 CONTINUATION/CONVERSION. Subject to the limitations and
provisions of this Agreement, Company shall have the option, at any time or from
time to time, of continuing or converting the applicable interest rate to all or
any portion of the outstanding Advances, by giving Administrative Lender a
Notice of Borrowing/Conversion of any proposed continuation or conversion of
such rate which, in the case of telephonic notice, shall be promptly confirmed
in writing and, in each case, shall be irrevocable. All telephonic notices of
continuation or conversion shall be made to NationsBank of Texas, N.A., attn.:
Molly Oxford, telephone (214) 508-3255, or (800) 547-2005, facsimile (214) 508-
2515, or such other person as Administrative Lender may from time to time
specify. Each Notice of Borrowing/Conversion shall be given by an Authorized
Financial Officer not later than 12:00 noon, Dallas, Texas time on the date of
any proposed continuation of or conversion to a Base Rate Borrowing, and not
later than 12:00 noon, Dallas, Texas time at least three Business Days prior to
any proposed continuation of or conversion to a Eurodollar Rate Borrowing. Each
Notice of Borrowing/Conversion shall specify: (i) the rate (Base Rate or
Eurodollar Rate) which Company desires; (ii) the principal amount proposed to be
covered; (iii) the effective date of such continuation or conversion (which
shall be a Business Day); and (iv) a proposed Interest Period for any Borrowing
bearing interest at an Eurodollar Rate. Any continuation or conversion of any
Advances to a Eurodollar Rate shall be in the aggregate amount of $1,000,000.
Any continuation or conversion of any Advances to a Eurodollar Rate Borrowing
shall be in the aggregate amount of $1,000,000 and in integral multiples of
$100,000 in excess thereof.
Section 2.23 EFFECT OF FAILURE TO GIVE NOTICE. If Company fails to give
Administrative Lender a Notice of Borrowing/Conversion prior to the expiration
of any then-relevant Interest Period with respect to any Eurodollar Rate
Borrowing or the information provided in any Notice of Borrowing/Conversion is
incomplete, Company shall be deemed to have elected to convert such Eurodollar
Rate Borrowing, in whole, to a Base Rate Borrowing at the end of the
then-relevant Interest Period.
Section 2.24 CAPITAL ADEQUACY. If any Lender shall have determined that
the adoption of any Applicable Law or guideline regarding the amount of capital
required to be maintained by any Lender, or any change in such Law or guideline,
or any change in the interpretation or administration thereof by any Tribunal,
central bank or comparable agency charged with the interpretation or
administration thereof, or compliance therewith by any such Lender (or any
lending office of such any Lender) with any directive regarding capital adequacy
(whether or not having the force of Law) of any such Tribunal, central bank or
comparable agency, has or would have the effect of reducing the rate of return
on such Lender's capital as a direct consequence of its obligations hereunder to
a level below that which such Lender
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could have achieved but for such adoption, change or compliance (taking into
consideration such Lender's policies with respect to capital adequacy), then,
such Lender shall immediately notify Company and Administrative Lender (such
notice referred to herein as the "Reimbursement Notice"), and, subject to
Section 2.30 hereof, Company shall pay to such Lender such additional amount or
amounts as will compensate such Lender for such reduction to the extent not
compensated for in the Base Rate or Eurodollar Rate, or in amounts paid by
Company pursuant to Sections 2.19 or 2.20 hereof. Amounts payable to any such
Lender under this Section and comparable provisions in agreements with other
borrowers of such Lender shall be allocated among such Lender's borrowers in
good faith and on an equitable basis (which may include a consideration of
relative credit risk). A certificate of such Lender in reasonable detail
setting forth the amount or amounts as shall be necessary to compensate such
Lender (or participating banks or other entities pursuant to Section 10.02
hereof) as specified in this Section 2.24 shall be delivered to Company and
shall be conclusive absent manifest error. Subject to Section 2.29 hereof,
Company shall pay such Lender the amount shown as due on any such certificate
upon demand by such Lender.
Section 2.25 SHARING OF PAYMENTS. Any Lender obtaining a payment
(whether voluntary or involuntary, due to the exercise of any right of set-off,
or otherwise) on account of Loan or Reimbursement Obligations in excess of its
Pro Rata Part shall purchase from each other Lender such participation in the
Loan and Reimbursement Obligations as shall be necessary to cause such
purchasing Lender to share the excess payment Pro Rata with each other Lender;
provided, however, that if all or any portion of such excess payment is
thereafter recovered from such purchasing Lender, the purchase shall be
rescinded and the purchase price restored to the extent of such recovery, but
without interest. Company agrees that any Lender so purchasing a participation
from another Lender pursuant to this Section 2.25, to the fullest extent
permitted by Law, may exercise all its Rights of payment (including the Right of
set-off) with respect to such participation as fully as if such Lender were the
direct creditor of Company in the amount of such participation. A Lender shall
not be required to share any such non-routine payment to the extent that it
exceeds the aggregate amount of all Loan and Reimbursement Obligations then
outstanding.
Section 2.26 NON-RECEIPT OF FUNDS BY ADMINISTRATIVE LENDER. Unless
Administrative Lender shall have been notified by a Lender prior to the date of
any proposed Advance to be made by such Lender or payment of its Specified
Percentage to Administrative Lender under any provision of this Agreement (which
notice shall be effective upon receipt), that such Lender does not intend to
make the proceeds of any such Advance or reimbursement required under any
provision of this Agreement available to Administrative Lender, Administrative
Lender may assume that such Lender has made such proceeds available to
Administrative Lender on such date and Administrative Lender may in reliance
upon such assumption (but shall not be required to) make available to Company a
corresponding amount. If such corresponding amount is not in fact made
available to Administrative Lender by such Lender, Administrative Lender shall
be entitled to recover such amount on demand from such Lender (or, if such
Lender fails to pay such amount forthwith upon such demand, from Company)
together with interest thereon in respect of each day during the
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period commencing on the date such amount was available to Company and ending on
(but excluding) the date Administrative Lender recovers such amount at a per
annum rate equal to the effective rate for overnight federal funds as reported
by the Federal Reserve Bank of Dallas for each applicable Business Day (or, if
such day is not a Business Day, for the next preceding Business Day).
Section 2.27 CALCULATION OF RATES. The provisions of this Agreement
relating to calculation of the Eurodollar Rate are included only for the purpose
of determining the rate of interest or other amounts to be paid hereunder that
are based upon such rate, it being understood that each Lender shall be entitled
to fund and maintain its funding of all or any part of a Eurodollar Rate
Borrowing as it sees fit. All such determinations hereunder, however, shall be
made as if each Lender had actually funded and maintained funding of each
Eurodollar Rate Borrowing through the purchase in the London Interbank Market of
one or more Eurodollar deposits in an amount equal to the principal amount of
such Advance and having a maturity corresponding to such Interest Period.
Section 2.28 BOOKING ADVANCES. Any Lender may make, carry or transfer
Advances at, to or for the account of any of its branch offices or the office of
any affiliate.
Section 2.29 QUOTATION OF RATES. It is hereby acknowledged that the
Authorized Financial Officer on behalf of Company may call Administrative Lender
on or before the date on which notice of an elective interest rate is to be
delivered by the Authorized Financial Officer on behalf of Company in order to
receive an indication of the Eurodollar Rate then in effect, but that such
projection shall not be binding upon Administrative Lender or Lenders nor affect
the rate of interest which thereafter is actually in effect when the election is
made.
Section 2.30 REPLACEMENT BY COMPANY OF A LENDER.
(a) CAPITAL ADEQUACY. If any Lender has requested compensation in
accordance with the terms of Section 2.24 hereof and (i) such request is not the
result of any uniform changes in the statutes or regulations for capital
adequacy, (ii) there exists no Default or Event of Default hereunder, and
(iii) Company and such Lender are unable to reach a written agreement regarding
such request within 30 days following written notice by such Lender to Company
and Administrative Lender of such request, then after the expiration of 30 days
following the delivery of the Reimbursement Notice, Company may (A) replace such
Lender in whole with another Eligible Assignee reasonably acceptable to
Administrative Lender pursuant to an Assignment and Acceptance Agreement, or (B)
reduce the Commitment in the full amount of such Lender's Specified Percentage
of the Commitment and repay such Lender in full. So long as Company
accomplishes the replacement or repayment of such Lender within 60 days
following the delivery of the Reimbursement Notice, Company shall not owe any
such Lender any amounts under Section 2.24 hereof. If Company does not
accomplish either replacement or repayment of such Lender within such 60 days,
Company shall owe such Lender in accordance with the terms of any written
agreement reached
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between such Lender and Company, and, if no such agreement has been reached,
Company shall owe such Lender in accordance with the terms and provisions of
Section 2.24 hereof. If the Commitment is reduced by Company pursuant to this
Section 2.30(a), Company and Lenders agree that the Specified Percentages of
each Lender will be automatically ratably adjusted to reflect such reduction of
the Commitment. Each Lender agrees to the automatic readjustment of each
remaining Lender's contingent liabilities under Section 3.04 hereof according to
the new (adjusted) Specified Percentages.
(b) ACQUIRED LENDER. If any Lender is acquired by or merges with any
other Person (including any other Lender) and (i) such Lender is not the
surviving Person, and (ii) there exists no Default or Event of Default
hereunder, Company may replace such Lender in whole with another Eligible
Assignee acceptable to Administrative Lender pursuant to an Assignment and
Acceptance Agreement within thirty days following the date of consummation of
any such Acquisition.
(c) CERTAIN CIRCUMSTANCES. If (a) there exists no Default or Event of
Default on any such date and no Default or Event of Default shall be caused by
the action permitted below and (b) any Lender refuses to consent to any
amendment, waiver or consent to any provision hereof or in any Loan Paper in
accordance with the terms of Section 10.10 hereof (other than an amendment to
increase the Commitment of such Lender), but to which each other Lender has
previously agreed, then, Company may, with the prior written consent of
Administrative Lender, within 90 days after the date of such consent, amendment
or waiver, replace such Lender in whole with another Eligible Assignee, pursuant
to an Assignment and Acceptance Agreement and otherwise in accordance with the
terms of Section 10.02 hereof.
ARTICLE III
LETTERS OF CREDIT
Section 3.01 LETTER OF CREDIT COMMITMENT. Subject to the terms and
conditions of this Agreement and each Application, each Lender agrees that
Administrative Lender shall, and Administrative Lender agrees on behalf of
Lenders in their Pro Rata Part to, issue Commercial Letters of Credit and
Stand-By Letters of Credit as requested by Company, provided that at no time
shall the aggregate face amount of all Letters of Credit exceed the Letter of
Credit Commitment. No Letter of Credit shall have an expiration date later than
the Maturity Date.
Section 3.02 APPLICATION FOR AND ISSUANCE OF COMMERCIAL LETTERS OF CREDIT
AND STAND-BY LETTERS OF CREDIT.
(a) COMMERCIAL LETTERS OF CREDIT. Commercial Letters of Credit
issued under this Article III (i) shall be in forms acceptable to
Administrative Lender, (ii) shall be issued upon at least one Business
Day's notice on such date as Company may
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designate, (iii) shall not be issued in an aggregate face amount exceeding
the difference between Letter of Credit Commitment minus the aggregate face
amount of all outstanding Stand-By Letters of Credit, (iv) shall be dated
the date of issuance and (v) shall expire on such date as may be requested
by Company, but in no event later than the earlier of (a) 365 days after
their respective issuance dates or (b) the Maturity Date. Company's
request for the issuance of each Commercial Letter of Credit hereunder
shall be via a duly executed and completed Application. Notwithstanding
anything herein or in any other Loan Papers to the contrary, in no event
shall Company be entitled to request the issuance of a Commercial Letter of
Credit if the issuance of such Letter of Credit would cause the sum of (i)
the aggregate face amount of all Letters of Credit, plus (ii) the aggregate
amount of all Advances outstanding, to exceed the lesser of (A) the
Commitment and (B) the Borrowing Base.
(b) STAND-BY LETTERS OF CREDIT. Each Stand-By Letter of Credit
issued under this Article III (i) shall be in a form acceptable to
Administrative Lender, (ii) shall be issued upon at least one Business
Day's notice on such date as Company may designate, (iii) shall not be
issued in an aggregate face amount of all Stand-By Letters of Credit
outstanding at any one time exceeding the difference between Letter of
Credit Commitment minus the aggregate face amount of all outstanding
Commercial Letters of Credit, (iv) shall be dated the date of issuance and
(v) shall expire on such date as may be requested by Company, but in no
event later than the Maturity Date. Company's request for each issuance of
a Stand-By Letter of Credit hereunder shall be via a duly executed and
completed Application. Notwithstanding anything herein or in any other
Loan Papers to the contrary, in no event shall Company be entitled to
request the issuance of a Stand-By Letter of Credit if the issuance of such
Letter of Credit would cause the sum of (i) the aggregate face amount of
all Letters of Credit, plus (ii) the aggregate amount of all Advances
outstanding, to exceed the lesser of (A) the Commitment and (B) the
Borrowing Base.
Section 3.03 COMMISSION; PAYMENT OF DRAFTS DRAWN UNDER LETTERS OF CREDIT;
INCORPORATION OF TERMS OF THE APPLICATIONS.
(a) Subject to Section 10.15 hereof, for the issuance of each Commercial
Letter of Credit, Company shall pay:
(i) to Administrative Lender for the account of Lenders in their Pro
Rata Part, the Applicable Margin on the face amount of each Commercial
Letter of Credit, payable by Company as it accrues upon receipt of an
invoice from Administrative Lender; and
(ii) to Administrative Lender for its own account an issuance fee
equal to $100 for each Commercial Letter of Credit, such issuance fee to be
payable by Company upon receipt of an invoice from Administrative Lender.
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(b) Subject to Section 10.15 hereof, for the issuance of each Stand-By
Letter of Credit, Company shall pay:
(i) to Administrative Lender for the account of Lenders in their Pro
Rata Part, the product of the Applicable Margin for any Stand-By Letter of
Credit on such date of issuance, multiplied by the face amount of such
Stand-By Letter of Credit, such credit fee to be payable by Company upon
receipt by Company of an invoice from Administrative Lender; and
(ii) to Administrative Lender for its own account an issuance fee
equal to one-tenth of one percent (1/10 of 1%) per annum of the face amount
of each Stand-By Letter of Credit, such issuance fee to be payable by
Company upon receipt by Company of an invoice from Administrative Lender.
All the terms and provisions of any and all Applications under this Article III
are incorporated herein by reference; provided, however, that in the event of a
conflict between the provisions of this Agreement and any Application, the
provisions of this Agreement shall control. Company shall pay to Administrative
Lender for the account of Lenders in their Pro Rata Part on demand an amount
equal to the face amount of each draft drawn or purporting to be drawn under a
Letter of Credit in accordance with the terms of the Application unless all
conditions precedent under Article IV have been satisfied and there exists no
Default or Event of Default, at which such time Company may request an Advance
under the Loan. If for any reason Company may not or does not request an
Advance under the Loan, Administrative Lender may debit Company's account(s)
with Administrative Lender (up to the credit balance thereof) in order to pay
each such draft, but Administrative Lender shall not be required to effect any
such debit. If Company's account(s) have insufficient funds with which to pay
such draft and if payment thereof is not otherwise made or provided for on the
maturity date of the draft, the face amount of the maturing draft shall
automatically be deemed to be an Advance under the Loan so long as there exists
no Default or Event of Default, the conditions precedent under Article IV have
been met and satisfied, and the total principal amount of all outstanding
Advances (after treating the face amount of the draft as an Advance) would not
exceed the lesser of (a) the Commitment minus the sum of the aggregate
outstanding face amount of all Letters of Credit plus the aggregate outstanding
amount of Advances under the Loan or (b) the Borrowing Base minus the sum of the
aggregate outstanding face amount of all Letters of Credit plus the aggregate
outstanding amount of Advances under the Loan. Such Advance shall be evidenced
by a Notice of Borrowing/Conversion to be received by Administrative Lender not
more than two Business Days following the date the draft matured. The failure
of Company to transmit such Notice of Borrowing/Conversion shall not affect
Company's obligation to repay such amount, and such amount shall be deemed to be
a Base Rate Borrowing.
Section 3.04 REIMBURSEMENT OBLIGATION OF Lenders. Each Lender (including
NationsBank of Texas, N.A. in its capacity as a Lender) agrees that it shall be
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unconditionally and irrevocably liable, without regard to the occurrence of any
Default or Event of Default, to reimburse Administrative Lender on demand for
such Lender's Specified Percentage of the amount of each draft paid by
Administrative Lender in respect of any Letter of Credit, to the extent that
such amount is not reimbursed to Administrative Lender by Company. If
Administrative Lender is required at any time (whether before or after the
expiration date of any Letter of Credit) to return to Company or to a trustee,
receiver, liquidator, custodian or other similar official any portion of the
payments made by or on behalf of Company to Administrative Lender in
reimbursement of payments made by Administrative Lender under any Letter of
Credit and interest thereon, each Lender shall, upon demand by Administrative
Lender, forthwith pay over to Administrative Lender such Lender's Specified
Percentage of such amount. All amounts payable by any Lender under this
Section 3.04 shall include interest thereon from the day the applicable draw is
made (or the date such Lender was to have made such reimbursement payment, as
appropriate), to but not including the date such amount is paid by such Lender
to Administrative Lender, at a per annum rate equal to the effective rate for
overnight federal funds as reported by the Federal Reserve Bank for each
applicable Business Day (or, if such day is not a Business Day, for the next
preceding Business Day). The obligations of Lenders under this Section 3.04
shall continue after the Maturity Date and survive any termination of this
Agreement.
Section 3.05 SHARING OF PAYMENTS. Each payment made by a Lender pursuant
to Section 3.04 shall be treated as the purchase by such Lender of a
participating interest in the Reimbursement Obligation in an amount equal to
such payment. Each Lender shall share in any interest which accrues and is paid
by Company according to such Lender's Specified Percentage. All amounts
recovered by Administrative Lender or any Lender hereunder or under any other
Loan Papers and which are applied to the Reimbursement Obligation shall be
distributed to Lenders according to their Specified Percentages.
Section 3.06 DUTIES OF ADMINISTRATIVE LENDER. Administrative Lender
agrees with each Lender that it will exercise and give the same care and
attention to each Letter of Credit as it gives to its other letters of credit
and Administrative Lender's sole liability to each Lender shall be to distribute
promptly to each Lender, as and when received by Administrative Lender, each
Lender's Specified Percentage of any payments made to Administrative Lender by
Company under this Article III. Each Lender and Company agrees that, in paying
any draft, Administrative Lender shall not have any responsibility to obtain
any document (other than the drafts, certificates and other documents required
by the Letter of Credit and/or this Agreement) or to ascertain or inquire as to
the validity or accuracy of any such document or the authority of the person
delivering any such document. None of Administrative Lender and its
representatives, directors, officers, employees, attorneys or agents shall be
liable to any Lender or Company for (i) any action taken or omitted in
connection herewith at the request or with the approval of any Lender in its
capacity as Administrative Lender, (ii) any action taken or omitted in the
absence of gross negligence and the absence of wilful misconduct, (iii) any
recitals, statements, representations or warranties contained in any document
distributed to any Lender, (iv) the
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creditworthiness of Company or (v) the execution, effectiveness, genuineness,
validity or enforceability of any Loan Papers or any other document contemplated
hereby or thereby. Administrative Lender and its officers, directors,
employees, attorneys and agents shall be entitled to rely and shall be fully
protected in relying on any writing, resolution, notice, consent, certificate,
affidavit, letter, cablegram, telegram, telex or teletype message, statement,
order, or other document or conversation believed by it or them to be genuine
and correct and to have been signed or made by the proper person and, with
respect to legal matters, upon opinions of counsel selected by Administrative
Lender.
Section 3.07 LENDERS, GENERALLY. No Lender shall be liable for the
performance or nonperformance of the obligations of any other Lender under this
Article III.
Section 3.08 GENERAL PROVISIONS.
(a) MAXIMUM AMOUNT AND TERM. At no time shall the aggregate
outstanding face amount of all Letters of Credit exceed the lesser of (i)
$25,000,000, (ii) the Commitment minus the aggregate outstanding Advances
under the Loan and (iii) the Borrowing Base minus the aggregate outstanding
Advances under the Loan. No Letter of Credit shall have an expiration date
later than the Maturity Date.
(b) COMPUTATION OF APPLICABLE MARGIN FOR LETTERS OF CREDIT. Subject
to Section 10.15 hereof, the Applicable Margin on Commercial Letters of
Credit issued hereunder shall be calculated on the basis of a year of 365
or 366 days, as the case may be, for the actual number of days such
Commercial Letters of Credit remain outstanding.
ARTICLE IV
CONDITIONS PRECEDENT
Section 4.01 CONDITIONS TO THE CLOSING DATE AND THE INITIAL ADVANCE. The
obligation of each Lender to enter into this Agreement, to make each and every
Advance and issue Letters of Credit hereunder is subject to the accuracy, as of
the date hereof, of the representations and warranties herein contained, to the
performance by Company of its obligations to be performed hereunder on or before
the date of each Advance, issuance or creation, and to the satisfaction of the
following further conditions:
(a) REPRESENTATIONS AND WARRANTIES; NO DEFAULT OR EVENT OF DEFAULT.
The representations and warranties contained in Article V hereof shall be
true in all material respects on and as of the date of each Advance and
each issuance of a Letter of Credit hereunder as if such representations
and warranties had been made on and as of such dates; and on each such date
no Default or Event of Default shall have occurred and be continuing.
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(b) COMPANY'S RESOLUTIONS AND PROCEEDINGS. On the Closing Date,
Company shall have delivered to Administrative Lender, in form and
substance satisfactory to Administrative Lender and each Lender:
(i) resolutions of the Executive Committee of the Board of
Directors of Company, certified by its secretary or assistant
secretary, which resolutions shall authorize the execution, delivery
and performance by Company of this Agreement, the Notes, and the other
Loan Papers to which Company is a party;
(ii) a certificate of incumbency certified by the secretary or
assistant secretary of Company with specimen signatures of the
president or vice president and secretary or other officers of Company
who will sign this Agreement, the Notes, and the other Loan Papers;
(iii) certificate of incorporation of Company certified as of
a recent date by the Secretary of State of the State of Delaware;
(iv) bylaws of Company certified by the secretary or assistant
secretary of Company;
(v) recent certificate of the appropriate government officials
of the State of Delaware as to the existence and good standing of
Company;
(vi) recent certificates of the appropriate government officials
of each state in which Company conducts business evidencing the
authority of Company to do business in such state; and
(vii) copies of all Stock Option Plans.
(c) NOTES AND LOAN PAPERS. Company shall have executed and delivered
to each Lender its Note in the amount of each such Lender's Specified
Percentage of the Commitment, a Loan Compliance Certificate, a Borrowing
Base Report and all other Loan Papers required to be delivered on the
Closing Date.
(d) OPINION OF COMPANY'S COUNSEL. On the Closing Date, Company shall
have delivered to Administrative Lender a favorable opinion of counsel to
Company satisfactory to Administrative Lender and Lenders, dated the
Closing Date, in form and substance acceptable to Administrative Lender and
Special Counsel.
(e) GUARANTIES. Each Subsidiary shall have executed and delivered to
Administrative Lender a Guaranty in form and substance satisfactory to
Special Counsel.
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(f) SUBSIDIARY'S RESOLUTIONS AND PROCEEDINGS. Each Subsidiary shall
have delivered to Administrative Lender, in form and substance satisfactory
to Administrative Lender and Lenders:
(i) resolutions of the Board of Directors of such Subsidiary
certified by its secretary or assistant secretary, which resolutions
shall authorize the execution, delivery and performance by such
Subsidiary of the Guaranty and any other Loan Papers to which such
Subsidiary is a party;
(ii) a certificate of incumbency certified by the secretary or
assistant secretary of such Subsidiary with specimen signatures of the
president or vice president and secretary or other officers of such
Subsidiary who will sign the other Loan Papers to which such
Subsidiary is a party;
(iii) certificate or articles of incorporation of such
Subsidiary certified as of a recent date by the Secretary of State of
the state of such Subsidiary's incorporation;
(iv) bylaws of such Subsidiary certified by the secretary or
assistant secretary of such Subsidiary; and
(v) recent certificates of the appropriate government
officials of the state of incorporation of such Subsidiary and any
other state in which such Subsidiary conducts business as to the
existence and good standing of such Subsidiary in such state.
(g) INSURANCE. Company and each Subsidiary shall have delivered to
Administrative Lender certificates of insurance or other evidence reasonably
satisfactory to Administrative Lender reflecting compliance with Section 6.06 of
this Agreement, including, without limitation, detailed descriptions of all
self-insurance programs or proposed self-insurance programs in existence on the
Closing Date.
(h) LIEN SEARCH REPORT. On the Closing Date, Company shall have delivered
to Administrative Lender the results of Uniform Commercial Code searches showing
all financing statements and other documents or instruments on file against
Company in the office of the Secretary of State for the States listed on
SCHEDULE 4.01 hereto, and such Lien search reports shall show no Liens against
any properties of Company except Permitted Liens.
(i) LEGAL DETAILS. All proceedings to be taken in connection with the
transactions contemplated by this Agreement and all documents incident thereto
shall be reasonably satisfactory in form and substance to Administrative Lender,
each Lender, Special Counsel and each Lender's counsel, and Administrative
Lender and each Lender shall have received copies of all documents which they
may reasonably request in connection with such
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transactions and all corporate proceedings with respect thereto in form and
substance satisfactory to Administrative Lender, each Lender and Special
Counsel.
Section 4.02 CONDITIONS PRECEDENT TO EACH ADVANCE. The obligation of
each Lender to make each Advance shall be subject to the further conditions
precedent that on the date of such Advance the following statements shall be
true (and the delivery of each notice of borrowing under Section 2.04 hereof, or
notice of continuation or conversion under Section 2.22 hereof, or the
acceptance by Company of the proceeds of any Advance shall constitute a
representation that on the disbursement date they are true):
(a) The representations and warranties contained in Article V hereof
are true and correct on such date, as though made on and as of such date,
(b) No event has occurred and is continuing, or would result from
such Advance (including the intended application of the proceeds of such
Advance), that does or could reasonably be expected to constitute a Default
or Event of Default,
(c) No Material Adverse Change, as determined by Lenders shall have
occurred and be continuing since January 30, 1994,
(d) Upon giving effect to such Advance, the aggregate amount of the
sum of (i) all outstanding Advances under the Loan plus (ii) the aggregate
face amount of all outstanding Letters of Credit will not exceed the lesser
of (A) the Commitment or (B) the Borrowing Base as of such date, and
(e) Each Lender shall have received, in form and substance acceptable
to it, such other approvals, documents, certificates, opinions and
information as it may have reasonably deemed necessary or appropriate and
requested in writing.
Section 4.03 CONDITIONS PRECEDENT TO EACH LETTER OF CREDIT. The
obligation of Administrative Lender to issue each Letter of Credit shall be
subject to the further conditions precedent that on the date of such Letter of
Credit issuance the following statements shall be true (and the delivery of each
notice of borrowing under Section 2.04 hereof, or notice of continuation or
conversion under Section 2.22 hereof, or the acceptance by Company of the
proceeds of any Advance shall constitute a representation that on the
disbursement date they are true):
(a) The representations and warranties contained in Article V hereof
are true and correct on such date, as though made on and as of such date,
(b) No event has occurred and is continuing, or would result from the
issuance of such Letter of Credit, that does or could constitute a Default
or Event of Default,
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(c) No Material Adverse Change, as determined by Lenders, shall have
occurred and be continuing since January 30, 1994,
(d) A duly completed, executed and delivered Application (executed by
Company) with respect to such Letter of Credit shall have been received by
Administrative Lender,
(e) Upon giving effect to such Letter of Credit, the aggregate amount
of the sum of (i) the aggregate face amount of all outstanding Letters of
Credit, plus (ii) all outstanding Advances under the Loan will not exceed
the lesser of (A) the Commitment or (B) the Borrowing Base as of such date,
and
(f) Administrative Lender shall have received, in form and substance
acceptable to it, such other approvals, documents, certificates, opinions
and information as it may have reasonably deemed necessary or appropriate
and requested in writing.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
Company represents and warrants to each Lender as follows:
Section 5.01 ORGANIZATION, AUTHORITY, AND QUALIFICATION. (a) Company is
a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware, (b) Company has the corporate power and authority
to execute, deliver and perform this Agreement, the Notes, and the other Loan
Papers to which it is a party, and to borrow hereunder, (c) each of Company and
its Subsidiaries is in all respects duly qualified and licensed under all
applicable laws or regulations to own its properties as now owned and to carry
on its business as now conducted, except where the failure to so qualify could
not reasonably be expected to cause a Material Adverse Change, (d) each of
Company and its Subsidiaries is duly qualified as a foreign corporation to do
business and is in good standing in every jurisdiction where the character of
its properties or nature of its activities make such qualification necessary,
except where the failure to so qualify could not reasonably be expected to cause
a Material Adverse Change, (e) Company presently has no Subsidiaries except
those listed on SCHEDULE 5.01 attached hereto, which schedule correctly reflects
the jurisdiction of organization, the percent ownership position of Company in
each such Subsidiary, the classes of Company's and each Subsidiary's Capital
Stock, and the numbers of shares or partnership interests authorized and
outstanding of Company and each Subsidiary, (f) each Subsidiary is a corporation
duly organized, validly existing and in good standing under the laws of the
state of its incorporation, and (g) each Subsidiary has the corporate power and
authority to execute, deliver and perform its respective Guaranty and any other
Loan Papers to which it is a party.
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Section 5.02 FINANCIAL STATEMENTS. Company has delivered to Lender
audited consolidated financial statements as at and for the fiscal year ended
January 30, 1994. Such financial statements fairly reflect the financial
condition of Company and its Subsidiaries as at such dates and fairly reflect
the results of the operations of Company and its Subsidiaries for the periods
then ended, all in conformity with GAAP. There has been no Material Adverse
Change since January 30, 1994.
Section 5.03 DEFAULT. Neither Company nor any Subsidiary is in default
in any material respect under the provisions of any document or instrument
evidencing any material obligation, indebtedness, or liability of Company or
such Subsidiary, or of any agreement relating thereto, or under any order, writ,
injunction, or decree of any court, and is not in default in any material
respect under or in violation of any order, regulation, or demand of any
Tribunal, which default or violation would have consequences which could cause a
Material Adverse Change.
Section 5.04 AUTHORIZATION AND COMPLIANCE WITH LAWS; MATERIAL AGREEMENTS;
ENFORCEABILITY. (a) The execution, delivery and performance of this Agreement,
the borrowing hereunder and the execution, delivery and performance of the Notes
and the other Loan Papers by Company have been duly authorized by all requisite
corporate action on the part of Company and will not violate the certificate of
incorporation or bylaws of Company and will not violate any material provision
of law or order of any Tribunal. The execution, delivery and performance of
this Agreement, the borrowing hereunder and the execution, delivery and
performance of the Notes and the other Loan Papers by Company will not conflict
with, result in a breach of the provisions of, constitute a default under (or
result in the imposition of any Lien, or encumbrance upon the assets of Company
or any Subsidiary pursuant to the provisions of, except Permitted Liens) any
indenture, mortgage, deed of trust, franchise, permit, license, note, or other
agreement or instrument to which Company or any Subsidiary is a party, except to
the extent any conflict, breach, or default could not reasonably be expected to
cause a Material Adverse Change; and (b) the execution, delivery and performance
of its respective Guaranty and any other Loan Papers to which it is a party have
been duly authorized by all requisite corporate action on the part of each
Subsidiary, will not violate the certificate of incorporation or articles of
incorporation, as the case may be, of such Subsidiary or bylaws of such
Subsidiary, and will not violate any material provision of law or order of any
Tribunal. The execution, delivery and performance of its respective Guaranty
and any other Loan Papers to which it is a party will not conflict with, result
in a breach of the provisions of, constitute a default under (or result in the
imposition of any Lien, or encumbrance upon the assets of such Subsidiary
pursuant to, except Permitted Liens) the provisions of any material indenture,
mortgage, deed of trust, franchise, permit, license, note, or other agreement or
instrument to which any Subsidiary is a party. This Agreement, the Notes and
each other Loan Paper is the legal, valid and binding obligation of Company and
each Subsidiary executing and delivering the same, each enforceable in
accordance with its respective terms.
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Section 5.05 LITIGATION AND JUDGMENTS. There is no Litigation by or
before any Tribunal pending, or, to the knowledge of Company, threatened against
or affecting Company or any Subsidiary or involving the validity or
enforceability of any of the Loan Papers, which, if adversely determined, could
reasonably be expected to cause a Material Adverse Change, or materially
adversely affect the ability of Company to perform its obligations as
contemplated by this Agreement, other than litigation disclosed on SCHEDULE 5.05
hereto. There are no outstanding judgments against Company or any Subsidiary in
excess of $1,000,000.
Section 5.06 OWNERSHIP OF PROPERTIES; LIENS. Company and each Subsidiary
has good and indefeasible title or valid leasehold interests in all its material
properties and assets, real and personal, and none of such property or assets or
leasehold interests is subject to any security interests or Liens of any kind,
except Liens described on SCHEDULE 5.06 hereof and Permitted Liens.
Section 5.07 USE OF PROCEEDS; MARGIN SECURITIES. The proceeds of the
Loan will be used for the purposes set forth in Section 2.05 of this Agreement
and for no other purposes. Neither Company nor any Subsidiary is engaged
principally, or as one of its important activities, in the business of extending
credit for the purpose of purchasing or carrying margin stock (within the
meaning of Regulations G, U, or X of the Board of Governors of the Federal
Reserve System), and no part of the proceeds of any extension of credit under
this Agreement will be used to purchase or carry any such margin stock or to
extend credit to others for the purpose of purchasing or carrying any such
margin stock. Neither Company nor any Person acting on its behalf has taken or
will take any action which might cause this Agreement or the Notes to violate
any of said Regulations G, U, or X, or any other regulation of the Board of
Governors of the Federal Reserve System or to violate the Securities Exchange
Act of 1934, in each case as now in effect or as the same may hereafter be in
effect.
Section 5.08 TAXES. Company and each Subsidiary has filed all Federal
and state tax returns or reports required of them, including but not limited to
income, franchise, employment, and sales taxes, and have paid all tax liability
to the extent the same has become due and before it may have become delinquent
in accordance with such returns, and except for routine sales and use tax
audits, Company knows of no pending investigations of Company or any Subsidiary
by any taxing authority, or of any material pending but unassessed tax
liability.
Section 5.09 NO APPROVALS REQUIRED. No registration with or approval of
any Tribunal is necessary for the execution or validity of this Agreement, the
Notes and the other Loan Papers.
Section 5.10 ERISA. Company and each Subsidiary have complied with all
applicable minimum funding requirements and all other applicable and material
requirements of ERISA, and there are no existing conditions which would give
rise to any
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liability thereunder. No Reportable Event (as defined in Section 4043 of ERISA)
has occurred in connection with any such plan which might constitute grounds
for the termination thereof by the PBGC or for the appointment by the
appropriate United States District Court of a trustee to administer such plan.
Section 5.11 LANDLORD'S LIENS. On the Closing Date, no landlord is
exercising any of its rights with respect to any statutory or contractual
landlord's liens covering the assets of Company or any Subsidiary at any
warehouse facility of Company or any of its Subsidiaries, except as set forth on
SCHEDULE 5.11 hereof. At all times after the Closing Date, no landlord is
exercising any of its rights with respect to any statutory or contractual
landlord's liens covering the assets of Company or any Subsidiary at any
warehouse facility of Company or any of its Subsidiaries, except where such
exercise could not reasonably be expected to cause a Material Adverse Change.
Section 5.12 SUBSIDIARIES. Company has no Subsidiaries, except as
described on SCHEDULE 5.01 hereto.
Section 5.13 SUBORDINATED DEBT. The Obligations are designated as, and
constitute "Senior Indebtedness" as defined in the Indenture, and as such, the
Obligations are senior and superior in right of payment to the Subordinated Debt
to the extent described in the Indenture.
ARTICLE VI
AFFIRMATIVE COVENANTS
Company covenants and agrees that, as long as Company may borrow hereunder
and until payment in full of the Obligations:
Section 6.01 REPORTING REQUIREMENTS. Promptly as set forth below,
Company will deliver to Administrative Lender and each Lender:
(a) As soon as available, and in any event within 90 days after the
end of each fiscal year, Company will furnish to each Lender a copy of the
annual consolidated audit report of Company and its Subsidiaries for such
fiscal year containing balance sheets, statements of income, statements of
stockholders' equity, and statements of cash flow, and prepared in
accordance with GAAP, certified by the Auditor to Lenders to present fairly
the financial condition and results of the operations of Company and its
Subsidiaries at the date and for the periods indicated therein, such audit
report to be accompanied by a Loan Compliance Certificate (herein so
called) in substantially the form attached hereto as EXHIBIT E, with
appropriate completions, signed by an Authorized Financial Officer.
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(b) As soon as available, and in any event within 45 days after the
end of each of the first three fiscal quarters in each fiscal year, Company
will furnish to each Lender a copy of an unaudited consolidated financial
report of Company and its Subsidiaries as at the end of such fiscal quarter
and for both the quarterly period then ended and the then-elapsed portion
of the fiscal year, containing balance sheets and statements of income, and
prepared in accordance with GAAP (except for the absence of footnotes and
subject to changes resulting from audit and normal year-end adjustments),
certified by an Authorized Financial Officer to present fairly the
financial condition and results of the operations of Company and its
Subsidiaries at the date and for the periods indicated therein, each such
financial report to be accompanied by a Loan Compliance Certificate, with
appropriate completions, signed by an Authorized Financial Officer.
(c) Promptly upon the request of any Lender from time to time, copies
of all material reports or letters submitted to Company or any of its
Subsidiaries by the Auditor or any other accountants in connection with any
annual, interim or special audit, including without limitation the comment
letter submitted to management in connection with any such audit;
(d) (i) Together with each set of financial statements delivered
pursuant to subsection (a) and (b) above, a duly executed and completed
Loan Compliance Certificate for such period, and (ii) in accordance with
the terms of Section 2.06 hereof, a monthly Borrowing Base Report;
(e) Immediately upon knowledge by an Authorized Financial Officer of
Company of (i) the occurrence of any Default or Event of Default, or (ii)
any material change in any material fact or circumstance represented or
warranted in any Loan Papers, or (iii) the occurrence of any event or the
existence of any circumstance which could reasonably be expected to cause a
Material Adverse Change, or (iv) any default or any breach of any material
provision or term under any material agreement, including without
limitation, any such notice relating to any documentation related to the
Subordinated Debt, a notice from an Authorized Financial Officer, setting
forth the details of such occurrence and the action being taken or proposed
to be taken with respect thereto;
(f) Immediately after knowledge thereof by an Authorized Financial
Officer of Company, notice of any Litigation pending or threatened against
Company or any Subsidiary which, if determined adversely, could reasonably
be expected to constitute a Material Adverse Change, together with a
statement of an Authorized Financial Officer, describing the allegations of
such Litigation, and the action being taken or proposed to be taken with
respect thereto;
(g) Immediately following notice or knowledge thereof by an
Authorized Financial Officer of Company, notice of any actual or threatened
loss or termination
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of or refusal to grant or renew any material authorization or license,
together with a statement of an Authorized Financial Officer, describing
the circumstances surrounding the same, and the action being taken or
proposed to be taken with respect thereto;
(h) Promptly after filing or receipt thereof by an Authorized
Financial Officer of Company, copies of all reports and notices that
Company or any of its Subsidiaries (i) files or receives in respect of any
Plan with or from the Internal Revenue Service, the PBGC or the United
States Department of Labor, or (ii) furnishes to or receives from any
holders of any Debt, if in the case of clauses (i) and (ii), any
information or dispute referred to therein could reasonably be expected to
result in a Default or an Event of Default or cause a Material Adverse
Change;
(i) As soon as possible and in any event within 10 days after Company
knows that any Reportable Event has occurred with respect to any Plan of
Company or any Subsidiary, a statement of an Authorized Financial Officer,
describing such Reportable Event and the action being taken or proposed to
be taken with respect thereto;
(j) As soon as possible, and in any event within 10 days after
receipt by Company, a copy of (a) any notice or claim to the effect that
Company or any Subsidiary is or may be liable to any Person as a result of
the Release by Company, any of its Subsidiaries, or any other Person of any
hazardous substance or hazardous waste into the environment, and (b) any
notice alleging any violation of any Environmental Law by Company or any
Subsidiary, which could, in either case, reasonably be expected to cause a
Material Adverse Change; and
(k) Promptly upon request, such other information concerning the
condition or operations of any of Company, its Subsidiaries, the
Guarantors, and any of their Affiliates, financial or otherwise, as
Administrative Lender or any Lender may from time to time reasonably
request.
Section 6.02 PERFORMANCE OF OBLIGATIONS. Company will duly and
punctually cause to be paid and performed each of the Obligations, including,
without limitation, its obligations under this Agreement and each of the other
Loan Papers, as the same may be amended or modified from time to time.
Section 6.03 PRESERVATION OF EXISTENCE AND FRANCHISES AND CONDUCT OF
BUSINESS. Subject to the actions permitted by Section 7.05 hereof, Company
will, and will cause each Subsidiary to, do or cause to be done all things
necessary to preserve and keep in full force and effect its corporate existence,
rights, leases, patents, and all other licenses or rights necessary to comply
with all laws, regulations, rules, statutes, or other provisions applicable to
Company or such Subsidiary in the operation of its business, and Company will,
and will cause each Subsidiary to, continue to conduct and operate its business
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substantially as conducted and operated during the preceding calendar year
including without limitation the right to enforce all rights and remedies it may
have against franchisees, tenants and subtenants as specified in any franchise
agreement, lease or sublease.
Section 6.04 MAINTENANCE OF PROPERTIES. Company will, and will cause
each Subsidiary to, cause all of the material properties used or useful in the
conduct of the business of Company or such Subsidiary to be maintained and kept
in satisfactory condition, repair and working order, and supplied with all
necessary equipment, and cause to be made all necessary repairs, renewals,
replacements, betterments and improvements thereof, all as Company may
reasonably deem to be necessary so that the business carried on in connection
therewith may be properly and advantageously conducted at all times.
Section 6.05 PAYMENT OF TAXES AND OTHER CHARGES. Company will, and will
cause each Subsidiary to, promptly pay and discharge, or cause to be paid and
discharged, all lawful taxes, assessments, and governmental charges or services
imposed upon Company or such Subsidiary or upon the property, real, personal or
mixed, belonging to Company or such Subsidiary or upon any part thereof, before
the payment thereof shall be in default, as well as all lawful claims for labor,
materials and supplies which, if unpaid, might become a lien or charge upon such
property, or upon any part thereof; provided, however, that Company or such
Subsidiary shall not be required to pay and discharge, or cause to be paid and
discharged, any such tax, assessment, charge, levy or claim, (i) so long as the
validity or amount thereof shall be contested in good faith by appropriate
proceedings diligently pursued, if appropriate reserves have been provided
therefor, or (ii) as to which adequate bonds have been obtained; and further
provided that, with respect to liens or charges securing an amount less than
$500,000, Company shall have thirty days grace to accomplish such discharge.
Section 6.06 INSURANCE. Company will, and will cause each Subsidiary to,
keep adequately insured either (a) by financially sound and reputable insurers
such assets, business, and property of Company and each Subsidiary as are
customarily insured by owners of similar property against loss or damage of the
kinds customarily insured against by owners of similar property, or (b) pursuant
to a plan of self-insurance established in accordance with sound and appropriate
practices and in accordance with Applicable Law. Company will promptly notify
Administrative Lender of any proposed cancellation or substantial modification
of any material insurance policies, and/or the implementation of any plan of
self-insurance.
Section 6.07 MAINTENANCE OF BOOKS AND RECORDS. Company will, and will
cause each Subsidiary to, maintain proper books of record and account in which
entries in accordance with GAAP will be made of all dealings and transactions in
relation to its business and activities.
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Section 6.08 INSPECTION OF PROPERTIES, BOOKS AND RECORDS. Company will,
and will cause each Subsidiary to, permit any Lender and/or its representatives
to visit and inspect any of the properties of Company or such Subsidiary, to
examine all books, records, reports, accounts and other papers, including but
not limited to financial and accounting records and other contracts and records
of Company or such Subsidiary, to make copies and extracts therefrom, and to
discuss the affairs, finances and accounts of Company or such Subsidiary with
the officers, employees, directors and auditors of Company or such Subsidiary,
all at such reasonable times and with reasonable notice under the circumstances,
as any Lender may reasonably request. Company will, and will cause each
Subsidiary to, permit an inspection of the inventory of Company and its
Subsidiaries, at the request of Majority Lenders, but no more often than once
each fiscal year of Company.
Section 6.09 COMPLIANCE WITH LAW. Company will, and will cause each
Subsidiary to, comply with all Law applicable to its or their business, the
failure to comply with which could reasonably be expected to cause a Material
Adverse Change.
Section 6.10 EXPENSES AND LEGAL FEES. Company agrees to pay (a) all
reasonable out-of-pocket expenses of Administrative Lender, Special Counsel and
other counsel to Administrative Lender in connection with the negotiation,
preparation and interpretation of this Agreement and the Loan Papers, including
schedules, exhibits and amendments hereto and thereto, the making of the Loan
and Advances hereunder, the issuance of any Letters of Credit as issuing Lender
hereunder, the review of any documents, the negotiation and preparation of any
amendments, consents and waivers to this Agreement or any Loan Papers from time
to time requested or required, the release of any security for the Obligation,
the review and interpretation of any of the Loan Papers deemed advisable by
Administrative Lender from time to time, the negotiation, preparation and
interpretation of this Agreement and the Loan Papers (and any new Loan Papers)
in connection with a "work-out", the collection of the Obligation or enforcement
of any Loan Papers, and the reasonable fees and expenses of Special Counsel to
Administrative Lender and other counsel to Administrative Lender from time to
time in connection with any of the foregoing, including the consideration of
legal questions relevant thereto, and (b) all such out-of-pocket expenses, and
fees and expenses of counsel, incurred by each Lender in connection with the
collection of the Obligation or enforcement of any Loan Papers. The obligation
of Company under this Section 6.10 shall continue after the Maturity Date, and
survive any termination of this Agreement.
Section 6.11 COMPLIANCE WITH ERISA. Company will, and will cause each
Subsidiary to, comply with all applicable minimum funding requirements and all
other applicable and material requirements of ERISA so as not to give rise to
any liability thereunder. Promptly after the filing thereof Company shall
furnish to each Lender with regard to each employee benefit plan maintained by
it or any of its Subsidiaries a copy of each annual report required to be filed
pursuant to Section 103 of ERISA in connection with each such plan for each plan
year. Company will notify Administrative Lender immediately of any fact,
including, but not limited to, any Reportable Event arising in
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connection with any such plan which might constitute grounds for the termination
thereof by the PBGC or for the appointment by the appropriate United States
District Court of a trustee to administer such plan, and will furnish to any
Lender promptly upon its request therefor such additional information concerning
any such plan as may be reasonably requested.
Section 6.12 FURTHER ASSURANCES. Company will on request of any Lender
promptly correct any defect, error or omission which may be discovered in the
contents of any of the Loan Papers or in the execution or acknowledgment
thereof, and will execute, acknowledge and deliver such further instruments and
do such further acts as may be necessary or as may be reasonably requested by
any Lender to carry out more effectively the purposes of this Agreement and the
Loan Papers. Company will, promptly upon the request of Administrative Lender
on behalf of any Lender, furnish to Administrative Lender copies of all such
instruments, documents, and other information as Administrative Lender may
reasonably request from time to time.
Section 6.13 SYNDICATION. Company agrees to use its reasonable efforts
to assist Administrative Lender in its syndication efforts of this facility. In
such regard, Company agrees to make its senior management available at
reasonable times to meet with prospective lenders and to provide Administrative
Lender and any potential assignees or participants with all reasonable
information deemed necessary to complete the syndication. Company further
agrees to attend meetings and make presentations regarding the business and
prospects of Company with prospective assignees. Administrative Lender and
Lenders agree to cause any such prospective lender or participant to agree to
treat any such information delivered to them pursuant to this Section 6.13
(which is otherwise not publicly available) with the same degree of
confidentiality as it treats such information relating to its borrowers.
Section 6.14 SUBORDINATED DEBT. Company agrees to notify the Trustee of
the existence of the Obligations and Company's designation of the Obligations
and the Loan as Senior Indebtedness (as defined in the Indenture), and agrees
further to provide the Trustee from time to time during the term of this
Agreement with all information regarding Lenders, this facility and the
Obligations as is reasonably required or appropriate under the terms of the
Indenture. Company agrees to promptly deliver to Administrative Lender copies
of all material letters and notices, and other material information received
under or pursuant to the Indenture or the Subordinated Debt.
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ARTICLE VII
NEGATIVE COVENANTS
Company covenants and agrees that as long as Company may borrow hereunder
and until payment in full of all the Obligations:
Section 7.01 FINANCIAL COVENANTS. Company will comply with the following
financial covenants and demonstrate such compliance as of the end of each fiscal
quarter of Company pursuant to a Loan Compliance Certificate delivered to
Lenders in accordance with the terms of Section 6.01(d)(i) hereof:
(a) RATIO OF TOTAL LIABILITIES TO NET WORTH. Company will not permit
the ratio of Total Liabilities to Net Worth at any time during Company's
(i) second and third fiscal quarters each year during the term of this
Agreement to be greater than 2.25 to 1.00, and (ii) first and fourth fiscal
quarters each year during the term of this Agreement to be greater than
1.25 to 1.00.
(b) FIXED CHARGES COVERAGE RATIO. Company will not permit the Fixed
Charges Coverage Ratio at any time to be less than 1.30 to 1.00.
(c) CURRENT RATIO. Company will not permit the ratio of (a) Current
Assets to (b) the sum of (i) Current Liabilities plus (ii) amounts
outstanding under this Agreement as Advances, at any time to be less than
1.50 to 1.00.
Section 7.02 ADDITIONAL DEBT. Company will not, and will not permit any
Subsidiary to, incur or otherwise become liable in respect of or permit to exist
any Debt except (a) existing Debt shown on SCHEDULE 7.02, including the
Subordinated Debt, and (b) accounts payable and accrued liabilities incurred in
the ordinary course of business. So long as there exists no Default or Event of
Default in existence on any such date and the incurrence of such Debt does not
cause any Default or Event of Default, Michaels of Canada, Inc. may incur
unsecured Debt in an aggregate amount not to exceed an amount equal to the
Canadian Dollar equivalent of five million Dollars outstanding at any one time,
and additionally Company and its Subsidiaries may incur or permit to exist (i)
Debt secured by Permitted Liens; (ii) capitalized lease obligations existing as
of the date hereof plus up to an aggregate of $10,000,000 in new capitalized
leases over the term of this Agreement for Company and its Subsidiaries; (iii)
Debt in the form of stand-by letters of credit from an issuing bank other than a
Lender in an amount not in excess of $5,000,000 in the aggregate for Company and
its Subsidiaries; (iv) Debt in the form of guaranties of indebtedness of any
Subsidiary (except indebtedness of any Subsidiary which is secured as permitted
in Section 7.03(b) below, provided that, if Company's obligations under such
guaranty are subordinated to the Obligations upon terms and conditions
acceptable to Majority Lenders, Company may guaranty indebtedness of any such
Subsidiary) not in excess of $10,000,000 at any one
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time outstanding; and (v) unsecured Debt (or secured Debt to the extent Liens
are permitted under Section 7.03 below) owed by any Person (other than an
Affiliate of Company) acquired by Company or any Subsidiary in a transaction
permitted under Section 7.09(b) below, so long as (A) such Debt was not incurred
by such Person in anticipation of such Acquisition, (B) the aggregate amount of
such Debt outstanding at any time shall never exceed the lesser of (I) an amount
equal to 15% of the consolidated equity base of Company and its Subsidiaries and
(II) $75,000,000, and (C) if such Debt is revolving in nature, Company shall,
within a reasonable period of time, use any Available Advance Amount to reduce
such Debt. Any such Debt permitted to exist under Section 7.02(v) hereof may not
be increased. Company shall make a prepayment on Debt permitted under Section
7.02(v) above, on any date and to the extent that (a) the aggregate of such Debt
exceeds the maximum permitted levels under Section 7.02(v) above immediately,
and (b) to the extent that any such Debt is revolving in nature, if and to the
extent there becomes any Available Advance Amount, within a reasonable period of
time thereafter.
Section 7.03 PERMITTED LIENS. Company will not, and will not permit any
Subsidiary to, create, assume, or permit to exist any Lien of any kind against
any of the property of any character of Company or such Subsidiary, including
without limitation all fixed assets and leasehold improvements, whether owned as
of the date of this Agreement or hereafter acquired, except:
(a) Company and its Subsidiaries may create, assume or permit to
exist:
(i) Permitted Liens,
(ii) Liens on real property acquired directly or indirectly
by Company in accordance with the terms and provisions of Section
7.09(b) hereof securing Debt permitted to exist in accordance with the
provisions of Section 7.02(v) hereof that were previously existing, so
long as (A) such Liens are not securing Debt of Company in excess of
the fair market value of the real property and (B) such Liens are not
incurred in anticipation of such Acquisition, and
(iii) Liens (other than blanket Liens on Company's or its
Subsidiaries' equipment, inventory, accounts or other receivables,
provided that a blanket Lien on an individual Subsidiary's assets is
permitted) securing Debt of Company and its Subsidiaries in the
aggregate not in excess of $15,000,000 at any one time outstanding;
and
(b) any Subsidiary acquired by Company in accordance with the terms
of Section 7.09(b) hereof, may permit to exist Liens securing any
indebtedness of such Subsidiary existing in accordance with the terms of
Section 7.02(v) hereof, provided that (i) such Liens were not incurred in
anticipation of such Acquisition and (ii) no such Lien shall extend to or
cover any other property or assets of Company or of any other Subsidiary.
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Section 7.04 CASH DIVIDENDS, REDEMPTION, AND RESTRICTED PAYMENTS.
Company will not, and will not permit any Subsidiary to, declare or pay, or set
aside funds to declare or pay, any Dividend with respect to any Capital Stock of
Company, or make any Restricted Payment, provided that (a) any Subsidiary may
declare and/or pay any Dividend to Company, (b) so long as there exists no
Default or Event of Default at any time of such payment and immediately
thereafter, Company may (i) declare or pay any Dividend so long as Dividends
paid in the aggregate during any 12-month period are not in excess of 50% of the
sum of (A) Company's net income for the most recently completed 12-month period
plus (B) Company's non-recurring charges for the most recently completed 12-
month period and (ii) make any Restricted Payment pursuant to the terms of
Company's Stock Option Plans.
Section 7.05 MERGERS, SALES OF ASSETS AND DISSOLUTIONS. Company will
not, and will not permit any Subsidiary to, (a) dissolve or liquidate; or (b)
become a party to any merger or consolidation; provided that
(i) any Subsidiary may merge or consolidate with or into Company
or any other Subsidiary, or
(ii) any Subsidiary may merge or consolidate with or into another
Person, provided that such merger or consolidation is part of an
Acquisition by Company permitted by Section 7.09 hereof or part of a
disposition by Company permitted by Section 7.05(c) below, or
(iii) Company may merge or consolidate with another Person,
provided that
(A) Company is the surviving entity, and
(B) there shall have occurred no Default or Event of Default
prior to such action and, after giving effect to such transaction, no
Default or Event of Default shall have occurred, and a majority of the
Board of Directors of Company for a period of six months after the
effective date of such merger or consolidation consists of individuals
who were directors of Company three months prior to such effective
date; or
(iv) Company may merge or consolidate with another Person (the
Person formed by such consolidation or into which Company is merged, being
the "M/A Entity"), provided that
(A) the M/A Entity shall be a corporation organized and existing
under the laws of the United States of America or any State thereof or
the District of Columbia, and shall execute and deliver to the
Administrative Lender, concurrently with the consummation of any such
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transaction, an agreement, in form and substance satisfactory to the
Administrative Lender, containing an assumption by the M/A Entity of
the due and punctual performance and observance of each obligation,
covenant and condition of Company under the Notes, this Agreement and
the Loan Papers, and
(B) there shall have occurred no Default or Event of Default
prior to such action and, after giving effect to such transaction, no
Default or Event of Default shall have occurred, and a majority of the
Board of Directors of the M/A Entity for a period of six months after
the effective date of such merger or consolidation consists of
individuals who were directors of Company three months prior to such
effective date; and
(C) Company shall have delivered to the Administrative Lender a
certificate signed by the President of Company, and an opinion of
Messrs. Jackson & Walker, L.L.P., or other counsel satisfactory to the
Administrative Lender, each stating that such consolidation or merger,
and such assumption agreement comply with this Section, and that all
conditions precedent provided in this Section 7.05(iv) for relating to
such transaction have been complied with; PROVIDED, HOWEVER, that any
such opinion of counsel need not opine as to the matters set forth in
Section 7.05(iv)(B) above; and
(D) the holders of Company's voting securities immediately
before the merger or consolidation hold in excess of 50% of the voting
securities of the M/A Entity; and
(E) within 10 Business Days after the consummation of such
transaction, Administrative Lender shall have received, in the form
existing as executed by Company on the Closing Date, new Notes, a new
Credit Agreement and all other Loan Papers requested by the
Administrative Lender to be delivered, all duly completed and executed
by the M/A Entity; or
(c) sell, transfer, convey or lease all or any part of the property or assets of
Company or any Subsidiary other than in the ordinary course of business, except,
if at the time of such sale, transfer, conveyance or lease, there exists no
Default or Event of Default before and after giving effect to such sale,
transfer, conveyance or lease, (i) any Subsidiary may sell, transfer, convey or
lease all or any part of the property or assets of such Subsidiary, and (ii)
Company may sell, transfer, convey or lease any part of its property or assets
(but not all or substantially all of its property or assets).
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Section 7.06 CHANGES IN BUSINESS. Company will not, and will not permit
any Subsidiary to, substantially change the nature of the business in which each
is presently engaged.
Section 7.07 SUBSIDIARIES. Company will not (directly or indirectly)
create or acquire, in any manner whatsoever, any new Subsidiaries; provided,
however, that Company or any Subsidiary may create Subsidiaries, so long as
(i) there exists no Default or Event of Default at the time of each creation or
after giving effect thereto; (ii) each new United States Subsidiary shall
execute a Guaranty of the Obligations hereunder; (iii) Company and each new
United States Subsidiary shall execute and deliver such other certificates,
agreements and documents as Administrative Lender or any Lender may reasonably
require; and (iv) no United States Subsidiary shall issue any new stock, of any
classification, without Lenders' prior written consent, except issuance to
Company or any Subsidiary.
Section 7.08 SUBORDINATED DEBT. Company will not make any payment of
principal, interest, premium, fee or otherwise with respect to Subordinated Debt
except in strict accordance with the terms of the Indenture and other
Subordinated Debt documentation. Company will not prepay or defease, or set
aside funds for the prepayment or defeasance of, and will not permit any
Subsidiary to prepay or defease, or set aside funds for the prepayment or
defeasance of all or any portion of the Subordinated Debt, provided however, so
long as there exists no Default or Event of Default immediately before and after
such prepayment, Company may prepay Subordinated Debt in a maximum amount equal
to 5% of the aggregate face amount of such Subordinated Debt, but only if such
prepayment is made pursuant to a call for redemption of such Subordinated Debt
which Company believes will result in the holders of Subordinated Debt
converting such indebtedness to Company's common stock. Company will not make an
election under Article 15 of the Indenture to defease all or any portion of the
Subordinated Debt.
Section 7.09 INVESTMENTS AND ACQUISITIONS. Company will not, nor will it
permit any Subsidiary to,
(a) make any Investment except investments in trade receivables
incurred by Company in the ordinary course of business, endorsements of
negotiable instruments for collection in the ordinary course of Company's
business; provided that, so long as there exists no Default or Event of
Default at the time of such Investment and none is caused thereby, Company
may (i) invest in Cash Equivalents, (ii) invest up to $50,000,000 in
publicly traded debt and equity securities listed on national exchanges,
provided that (A) any such Investment shall not cause any representation or
warranty under Section 5.07 hereof to be untrue and (B) Company shall not
violate any Applicable Law, (iii) invest up to $25,000,000 in Investments,
(iv) invest in any Canadian or United States Subsidiary that has executed a
Guaranty in the form of EXHIBIT D hereto, and (v) invest in any
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foreign organized Subsidiary that has executed a Guaranty in the form of
EXHIBIT D hereto in an amount not to exceed in the aggregate at any time
$15,000,000, provided, however, such limitation shall not apply to (I)
Investments in Canadian Subsidiaries or (II) Investments in foreign
organized Subsidiaries otherwise approved by the prior written consent of
Majority Lenders; or
(b) make any Acquisition, provided that, so long as there exists no
Default or Event of Default on such date before and after giving effect to
such transactions and Company complies with the terms and conditions of
Section 7.07 hereof if applicable, Company may make an Acquisition of (i)
any Person or Persons engaged in businesses similar to, related to, or
constituting a natural extension of, the business of Company, (ii) any
Person or Persons in which Company's aggregate cash consideration does not
exceed $20,000,000 over the term of this Agreement (provided that such
limitation shall not apply to transactions permitted by (b)(i) above and
(b)(iii) below) and/or (iii) any Person or Persons if the consideration for
such Acquisition is common stock of Company.
Section 7.10 BORROWING BASE. Company will not permit the sum of the
aggregate Advances outstanding under the Loan hereunder to exceed the Borrowing
Base for a period of five consecutive Business Days after its knowledge thereof.
Section 7.11 AMENDMENT TO MATERIAL AGREEMENTS. Company shall not amend
or change (or take any action or fail to take any action the result of which is
an effective amendment or change) or accept any waiver or consent with respect
to, the Indenture, the securities issued pursuant to the Indenture, or any other
document or instrument in connection with either of them or the Subordinated
Debt that would result in (a) an increase in the outstanding principal amount of
the Subordinated Debt, (b) a change in any principal, interest, fees, or other
amounts payable under the Subordinated Debt or the Indenture (including without
limitation a waiver or action that results in the waiver of any payment default
under the Subordinated Debt or the Indenture), (c) a change in any date fixed
for any payment of principal, interest, fees, or other amounts payable under the
Subordinated Debt or the Indenture (including, without limitation, as a result
of any redemption, defeasance or otherwise), (d) a change in any percentage of
holders of the Subordinated Debt under the Indenture and the securities issued
pursuant thereto required under the terms of such documents to take (or refrain
from taking) any action, (e) a change in any financial covenant, (f) a change in
any remedy or right of the holders of the Subordinated Debt, (g) a change in the
definition of "Change in Control" in the Indenture and the securities issued
thereunder, (h) a change in any covenant, term or provision which would result
in such term or provision being more restrictive than the terms of this
Agreement and the Loan Papers, (i) a change that grants or permits the granting
of any security interest or Lien on any asset or property of Company or any
Subsidiary to secure the Subordinated Debt, or (j) a change in any term or
provision of the Indenture, the securities issued pursuant thereto or other
document or instrument in
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connection with the Subordinated Debt that could have, in any material respect,
an adverse effect on the interests of Lenders.
Section 7.12 SALE AND LEASEBACK. None of Company or any Subsidiary shall
enter into any arrangement whereby any of Company or any Subsidiary shall sell
or transfer all or any part of its assets then owned by it the fair market value
of which is in excess of ten percent of the book value of Company's and its
Subsidiaries' consolidated assets, to any Person other than to Company or
another wholly-owned Subsidiary, and thereafter rent or lease such material
assets sold or transferred.
Section 7.13 TRANSACTIONS WITH AFFILIATES. Notwithstanding any other
provision of this Agreement, neither Company nor any Subsidiary shall carry on
any transaction with an Affiliate (other than Company or any other Subsidiary,
or transactions with officers and directors of Company or any Subsidiary in
their capacity as such or in their capacity as a consultant, including, without
limitation, salary, bonuses, stock options, fees and other forms of
compensation) except (a) to the extent that all such transactions do not exceed
an amount equal to $1,000,000 per annum or (b) to the extent that any such
transaction is on terms no less favorable to Company or such Subsidiary than
otherwise obtainable in the marketplace generally.
ARTICLE VIII
DEFAULT
Section 8.01 EVENTS OF DEFAULT. Each of the following shall be deemed an
"Event of Default," the occurrence of which shall, at the option of Lenders,
(i) terminate Lenders' obligation to make Advances or issue Letters of Credit
and/or (ii) if any Obligations are then outstanding, cause all Obligations to
become immediately due and payable on demand:
(a) PAYMENTS. Failure to pay (i) any installment of interest on any
of the Notes or any fees after the expiration of five days after the due
date thereof, or (ii) any installment of principal on any of the Notes or
any other portion of the Obligations (including payments of maturing drafts
in accordance with Article III hereof and any fees), or any renewals
thereof, as the same shall become due and payable, as therein or herein
expressed, whether at maturity, by declaration as authorized in the Notes
or by this Agreement, or otherwise;
(b) NEGATIVE COVENANTS. Company or any Subsidiary shall refuse or
fail to observe or perform any of the negative covenants contained in
Article VII of this Agreement or shall fail to comply with Section 6.01(e)
hereof;
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(c) OTHER COVENANTS. Company or any Subsidiary shall refuse or fail
to observe or perform, or breach, any of the covenants, warranties,
representations, conditions and agreements contained in this Agreement, the
Notes and the Loan Papers (except those described in Section 8.01(b) above)
and such failure continues unremedied for a period of ten Business Days
after the earlier of (i) the giving of notice to Company by any Lender of
such failure, or (ii) Company's actual knowledge of such failure or breach;
(d) MISREPRESENTATION. Any representation or warranty made by
Company in any of the Loan Papers is untrue in any material respect, or any
schedule, statement, report, notice or writing (other than financial
projections prepared in good faith) furnished by Company to any Lender is
untrue in any material respect on the date as of which the facts set forth
are stated or certified, or information is omitted from such schedules,
statements, reports, notices, or writings and the omission of such
information would cause the representations and warranties contained
therein to be misleading in any material respect;
(e) DEBTOR RELIEF. Company or any Subsidiary shall have had an order
for relief entered against it under the Bankruptcy Reform Act of 1978 (the
"Code"), or a trustee or receiver shall be appointed for Company or any
Subsidiary or of all or a substantial part of its property in any
involuntary proceeding under the Code or otherwise, or any court shall have
taken jurisdiction of all or a substantial part of the property of Company
or any Subsidiary in any involuntary proceeding for the reorganization,
dissolution, liquidation or winding up of Company or any Subsidiary, and
such trustee or receiver shall not be discharged or such jurisdiction
relinquished or vacated or stayed on appeal within 30 days; or an
involuntary petition for relief under the Code which is filed against
Company or any Subsidiary is not challenged by Company or such Subsidiary
or has not been dismissed within 30 days from the date of its filing; or
Company or any Subsidiary shall execute an assignment for the benefit of
creditors or voluntarily seek the benefit of, or become a party to any
proceeding under, any liquidation, conservatorship, bankruptcy, moratorium,
rearrangement, insolvency, reorganization or similar debtor relief law; or
Company or any Subsidiary shall become insolvent or shall admit in writing
its inability to pay its debts generally as they become due, or shall
generally not be paying its debts as such debts become due, or shall
consent to the appointment of a receiver or trustee or liquidator of all of
its property or a substantial part thereof, or shall have failed within 30
days to pay or bond or otherwise discharge any attachment of a material
item of property which is unstayed on appeal;
(f) LOAN PAPERS. An event of default or breach of any term or
condition shall occur and be continuing under any of the Loan Papers, and
any applicable period allowed to cure such event of default or breach shall
have expired;
(g) OTHER DEBT.
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(i) Company or Subsidiary shall fail to make any payment in
excess of $5,000,000 in respect of any obligation when due (whether by
scheduled maturity, mandatory prepayment, acceleration, demand or
otherwise), and such failure shall continue after the applicable grace
period, if any, specified in the agreement or instrument relating to
such obligation; or Company or Subsidiary shall fail to make any
payment in respect of any Debt in excess of $5,000,000 when due
(whether by scheduled maturity, mandatory prepayment, acceleration,
demand or otherwise), which failure has caused or could cause an
acceleration of said Debt, and such failure shall continue after the
applicable grace period, if any, specified in the agreement or
instrument relating to such Debt; or any other default shall occur
under any agreement or instrument relating to any Debt in excess of
$5,000,000, which default has caused or could cause or permit an
acceleration of such Debt and which default shall continue after the
applicable grace period, if any, specified in the agreement or
instrument relating to such Debt; provided, however, that any failure
to make a payment on or any other breach of or default under an
obligation other than for borrowed money by Company or Subsidiary
described in the foregoing portion of this subsection (g) shall not be
an Event of Default if and so long as (a) Company's or Subsidiary's
failure to make such payment, or its action or inaction giving rise to
such breach or other default, is based upon Company's or Subsidiary's
good faith, reasonable opinion that the creditor has failed to perform
its obligations pursuant to the contract or arrangement with Company
or Subsidiary and such payment is not justly due, (b) Company or
Subsidiary has provided adequate reserves therefore in accordance with
GAAP and (c) Company or Subsidiary is diligently contesting its
obligation to make such payment, or if, in lieu of (b) and (c),
Company or Subsidiary has adequately bonded such obligation; or
(ii) Company shall breach any covenant or condition under any
instrument or agreement governing Debt, and such breach shall cause
Debt in excess of $5,000,000 to be required to be prepaid;
(h) JUDGMENTS. Company shall have rendered against it a final
judgment in an aggregate amount in excess of $1,000,000, and such judgment
has been outstanding for more than 60 days from the date of its entry and
has not been bonded or discharged in full or stayed;
(i) SUBORDINATED DEBT. There shall exist any "Event of Default" as
defined in the Indenture;
(j) ENFORCEABILITY OF LOAN PAPERS. Any provision of the Loan Papers
shall at any time for any reason (other than any act or inaction on the
part of
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Administrative Lender or any Lender or any representative thereof with
respect to a matter solely within the control of Administrative Lender or
any Lender or any representative thereof) cease to be valid and binding
upon Company or any Guarantor, or shall be declared to be null and void, or
the validity or enforceability thereof shall be contested by Company or any
Guarantor, or a proceeding shall be commenced by or in any Tribunal having
jurisdiction over Company or any Guarantor seeking to establish the
invalidity or unenforceability thereof, and such proceeding shall remain
undismissed or unstayed for a period of 60 days, or Company or any
Guarantor shall deny that it has any or further liability or obligation
thereunder;
(k) ERISA.
(i) Any Termination Event with respect to a Plan shall have
occurred, and, 30 days after notice thereof shall have been given to
Company by any Lender, (a) such Termination Event (if correctable)
shall not have been corrected and (b) the then-present value of such
Plan's vested benefits exceeds the then-current value of assets
accumulated in such Plan by more than the amount of $500,000 (or in
the case of a Termination Event involving the withdrawal of a
"substantial employer" as defined in Section 4001(a)(2) of ERISA), the
withdrawing employer's proportionate share of such excess shall exceed
such amount; or
(ii) Company or any Subsidiary as employer under a Multi-Employer
Plan shall have made a complete or partial withdrawal from such
Multi-Employer Plan and the Plan's sponsor of such Multi-Employer Plan
shall have notified such withdrawing employer that such employer has
incurred a withdrawal penalty in an annual amount exceeding $100,000;
or
(l) CHANGE IN CONTROL. There shall occur any Change in Control of
Company.
Section 8.02 REMEDIES UPON DEFAULT. Upon the occurrence and during the
continuance of an Event of Default, Administrative Lender may, at its election
or shall, at the direction of all Lenders, do any one or more of the following
(and, with respect to (d) below, any Lender may):
(a) Declare the entire unpaid balance of the Obligations, or any part
thereof, immediately due and payable without prior notice of any kind
whatsoever including, without limitation, notice of intent to accelerate,
demand, presentment, notice of dishonor or protest, whereupon it shall be
due and payable and Administrative Lender shall notify Company of such
declaration;
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(b) Terminate the Commitment and their obligation to make any
Advances thereunder in their entirety or as to any portion thereof, and
terminate their obligations to issue Letters of Credit hereunder to the
extent Administrative Lender or Lenders may deem appropriate;
(c) Reduce any claim to judgment;
(d) Exercise the rights of offset and/or banker's lien against the
interest of Company in and to every account and other property of Company
which are in the possession of any Lender to the extent of the full amount
of the Obligations (after each offset such Lender shall promptly notify
Administrative Lender and Company thereof; provided that the failure of
Administrative Lender or any Lender to furnish such notification shall in
no way impair, invalidate or prejudice Administrative Lender's or any
Lender's offset and application so made);
(e) Foreclose any and all liens in favor of Lenders and/or otherwise
realize upon any and all of the rights Lenders may have in and to any
assets of Company, or any part thereof;
(f) Demand immediate payment in cash of an amount equal to the sum of
(or any portion thereof) the aggregate outstanding amounts of all Letters
of Credit to retain as collateral against payment of such amounts by
Company; and/or retain, as collateral for the payment of all Obligations
with respect to the Letters of Credit, any amounts received upon
foreclosure, or in lieu of foreclosure, through offset, as proceeds of any
collateral or otherwise; and
(g) Exercise any and all other Rights afforded by any Applicable
Laws, or by the Loan Papers, at Law, in equity or otherwise, including, but
not limited to, the rights to bring Litigation before any Tribunal, either
for specific performance of any covenant or condition contained in the Loan
Papers or in aid of the exercise of any Right granted to Lenders in the
Loan Papers, all as Lenders shall deem appropriate in their sole
discretion.
Provided, however, that upon the occurrence of an Event of Default
described in Section 8.01(e) hereof, the obligation of Lenders to make Advances
or issue Letters of Credit hereunder shall automatically terminate, and the
Obligations, without any action by Administrative Lender or any Lender, shall
become immediately due and payable without diligence, notice, demand,
presentment, notice of dishonor, protest or notice of intent to accelerate, or
notice of any other kind, all of which are hereby expressly waived, and all
outstanding Borrowings shall, at the option of Administrative Lender or at the
direction of Lenders, be automatically converted to Base Rate Borrowings. Upon
the occurrence of any Event of Default, Lenders may exercise all Rights
available to them at law or in equity, under the Loan Papers and otherwise and
all such Rights shall be cumulative.
Section 8.03 WAIVERS. The acceptance by any Lender at any time and from
time to time of part payment on the Obligations shall not be deemed to be a
waiver of any Event of Default then existing. No waiver by any Lender of any
Event of Default shall be deemed to be a waiver of any other then-existing or
subsequent Event of Default. No delay or omission by any Lender in exercising
any Rights under the Loan Papers shall impair such Rights or be construed as a
waiver thereof of any acquiescence with respect thereto, nor shall any single or
partial exercise or any such Rights preclude other or further exercise thereof,
or the exercise of any other Rights or remedies under the Loan Papers or
otherwise.
Section 8.04 PERFORMANCE BY ADMINISTRATIVE LENDER. Should any covenant,
duty or agreement of Company fail to be performed in all material respects in
accordance with the
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terms of the Loan Papers, Administrative Lender may, at its option, perform, or
attempt to perform, such covenant, duty or agreement on behalf of Company. In
such event, Company agrees, at the request of Administrative Lender, to pay
promptly any amount expended by Administrative Lender in such performance or
attempted performance to Administrative Lender at Administrative Lender's
principal office, together with interest thereon at the Highest Lawful Rate from
the date of such expenditure by Administrative Lender until paid.
Notwithstanding the foregoing, it is expressly understood that neither
Administrative Lender nor any Lender assumes, or shall ever have, except by
express written consent of Administrative Lender or such Lender, any liability
or responsibility for the performance of any duties of Company hereunder.
Section 8.05 LENDERS NOT IN CONTROL. None of the covenants or other
provisions contained in this Agreement shall, or shall be deemed to, give
Lenders the Rights or power to exercise control over the affairs and/or
management of Company, the power of Lenders being limited to the Right to
exercise the remedies provided in the other subparagraphs and subsections of
this Article VIII; provided, however, that if any Lender becomes the owner of
any stock, or other equity interest in, any Person whether through foreclosure
or otherwise, such Lender shall be entitled (subject to requirements of Law) to
exercise such legal Rights as it may have by being an owner of such stock, or
other equity interest in, such Person.
Section 8.06 CUMULATIVE RIGHTS. All Rights available to Administrative
Lender and Lenders under the Loan Papers shall be cumulative of and in addition
to all other Rights granted to Administrative Lender and Lenders at Law or in
equity, whether or not the Obligations shall be due and payable and whether or
not Administrative Lender or any Lender shall have instituted any suit for
collection or other action in connection with the Loan Papers.
Section 8.07 EXPENDITURES BY LENDERS. Any sums spent by Administrative
Lender or any Lender pursuant to the exercise of any Right provided hereof shall
become part of the Obligations and shall bear interest at the Highest Lawful
Rate from the date spent until the date repaid by Company.
ARTICLE IX
AGREEMENT AMONG LENDERS
Section 9.01 AGREEMENT AMONG LENDERS. Lenders agree among themselves
that:
(a) ADMINISTRATIVE LENDER. Each Lender hereby appoints NationsBank
of Texas, N.A. as its nominee in its name and on its behalf, to receive all
documents, monies and other items to be furnished hereunder; to act as
nominee for and on behalf of all Lenders under the Loan Papers; to take
such action as may be requested by any
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Lender, provided that, unless and until Administrative Lender shall have
received such requests, Administrative Lender may take such action, or
refrain from taking such action, as it may deem advisable and in the best
interests of Lenders; to arrange the means whereby the proceeds of Advances
of Lenders are to be made available to Company; to distribute promptly to
each Lender, at such Lender's principal office, information, requests,
documents and items received from Company and others, and its Pro Rata Part
of each payment with respect to any Loan, Reimbursement Obligation, fee or
other amount; and to deliver to Company and others requests, demands,
approvals and consents received from Lenders.
(b) REPLACEMENT OF ADMINISTRATIVE LENDER. Should NationsBank of
Texas, N.A. or any successor Administrative Lender ever cease to be a
Lender hereunder, or should NationsBank of Texas, N.A. or any successor
Administrative Lender ever resign as Administrative Lender, or should
NationsBank of Texas, N.A. or any successor Administrative Lender ever be
removed by unanimous action of all Lenders (other than Lender then acting
as Administrative Lender), then Lender appointed by the other Lenders shall
forthwith become Administrative Lender, and Company and Lenders shall
execute such documents as any Lender may reasonably request to reflect such
change. Any resignation or removal of NationsBank of Texas, N.A. or any
successor Administrative Lender shall become effective upon the appointment
by Lenders of a successor Administrative Lender; provided, however, that if
Lenders fail for any reason to appoint a successor within 60 days after
such removal or resignation, NationsBank of Texas, N.A. or any successor
Administrative Lender (as the case may be) shall thereafter have no
obligation to act as Administrative Lender hereunder.
(c) EXPENSES. Each Lender shall pay its Pro Rata Part of any
expenses incurred by Administrative Lender in connection with any of the
Loan Papers if Administrative Lender does not receive reimbursement
therefor from other sources within 60 days after the date incurred. Any
amount so paid by Lenders to Administrative Lender shall be returned by
Administrative Lender Pro Rata to each paying Lender to the extent later
paid by Company to Administrative Lender.
(d) DELEGATION OF DUTIES. Administrative Lender may execute any of
its duties hereunder by or through officers, directors, employees,
attorneys or agents, and shall be entitled to (and shall be protected in
relying upon) advice of counsel concerning all matters pertaining to its
duties hereunder.
(e) RELIANCE BY ADMINISTRATIVE LENDER. Administrative Lender and its
officers, directors, employees, attorneys and agents shall be entitled to
rely and shall be fully protected in relying on any writing, resolution,
notice, consent, certificate, affidavit, letter, cablegram, telegram, telex
or teletype message, statement, order, or other document or conversation
believed by it or them to be genuine and correct and to have been signed or
made by the proper person and, with respect to legal matters,
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upon opinions of counsel selected by Administrative Lender. Administrative
Lender may deem and treat the payee of any Note as the owner thereof for
all purposes hereof.
(f) LIMITATION OF ADMINISTRATIVE LENDER'S LIABILITY. Neither
Administrative Lender nor any of its officers, directors, employees,
attorneys or agents shall be liable for any action taken or omitted to be
taken by it or them hereunder in good faith and believed by it or them to
be within the discretion or power conferred by the Loan Papers or be
responsible for the consequences of any error of judgment. Except as
aforesaid, Administrative Lender shall be under no duty to enforce any
Rights with respect to the Loan, Advances, Reimbursement Obligations, other
Obligations or any collateral therefor. Administrative Lender shall not be
compelled to do any act hereunder or to take any action towards the
execution or enforcement of the powers hereby created or to prosecute or
defend any suit in respect hereof, unless indemnified to its satisfaction
against loss, cost, liability and expense. Administrative Lender makes no
warranty or representation to Lenders and shall not be responsible in any
manner to any Lender for the effectiveness, enforceability, genuineness,
validity or due execution of any of the Loan Papers or Letters of Credit or
for any representation, warranty, document, certificate, report or
statement made herein or furnished in connection with any Loan Papers, or
be under any obligation to any Lender to ascertain or to inquire as to the
performance or observation of any of the terms, covenants or conditions of
any Loan Papers on the part of Company. Each Lender jointly and severally
agrees to indemnify and hold harmless Administrative Lender, to the extent
of such Lender's Pro Rata Part, from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses and/or disbursements of any kind or nature whatsoever which may be
imposed on, asserted against, or incurred by Administrative Lender in any
way with respect to or arising out of (i) any Loan Papers or any action
taken or omitted by Administrative Lender under the Loan Papers, except and
only to the extent the same result from gross negligence or wilful
misconduct by Administrative Lender, and (ii) in its capacity as issuing
bank of a Letter of Credit, any failure by any Lender to comply with
Article III or IV hereof.
(g) LIABILITY AMONG LENDERS. No Lender shall incur any liability to
any other Lender except for acts or omissions in bad faith, and except as
provided in the last sentence of subparagraph (f) of this Section 9.01.
(h) RIGHTS AS LENDER. With respect to its Commitment, Advances made
by it, Notes issued to it and Letters of Credit issued by it,
Administrative Lender shall have and enjoy the same Rights as a Lender and
may exercise the same as though it were not Administrative Lender, and the
term "Lender" or "Lenders" shall, unless the context otherwise indicates,
include Administrative Lender in its individual capacity. Administrative
Lender may accept deposits from, act as trustee under indentures of, and
generally engage in any kind of business with, Company and any Person who
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may do business with or own securities of Company all as if Administrative
Lender were not Administrative Lender hereunder and without any duty to
account therefor to Lenders.
Section 9.02 LENDER CREDIT DECISION. Each Lender acknowledges that it
has, independently and without reliance upon Administrative Lender or any other
Lender and based upon the financial statements referred to in Section 5.02
hereof and such other documents and information as it has deemed appropriate,
made its own credit analysis and decision to enter into this Agreement. Each
Lender also acknowledges that it will, independently and without reliance upon
Administrative Lender or any other Lender and based upon such documents and
information as it shall deem appropriate at the time, continue to make its own
credit decisions in taking or not taking action under this Agreement.
Section 9.03 BENEFITS OF ARTICLE. None of the provisions of this Article
IX shall inure to the benefit of Company or any Person other than Lenders;
consequently, neither Company nor any other Person shall be entitled to rely
upon, or to raise as a defense, in any manner whatsoever, the failure of any
Lender to comply with such provisions.
ARTICLE X
MISCELLANEOUS
Section 10.01 NO ORAL MODIFICATIONS. Neither this Agreement nor any
provisions hereof may be changed, waived, discharged, or terminated orally, but
only by an instrument in writing signed by the party against whom enforcement of
the change, waiver, discharge or termination is sought.
Section 10.02 BENEFIT; ASSIGNMENTS AND PARTICIPATIONS.
(a) Company may not transfer or assign its rights and obligations
hereunder, and, subject to such restriction, the provisions hereof shall
extend to and be binding upon Company's respective successors and assigns.
All covenants and agreements made by or on behalf of any of the parties
hereto shall bind and inure to the benefit of, and be enforceable by, the
respective successors and assigns of the parties hereto, whether so
expressed or not, and, in particular, shall inure to the benefit of, and be
enforceable by, the holder or holders of all or any portion of the Notes.
(b) Administrative Lender may assign any portion of its rights to any
Person with the prior written consent of Company, such consent not to be
unreasonably withheld; provided that, after the occurrence of a Default or
Event of Default which is continuing, Administrative Lender shall not be
required to obtain the
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consent of Company. Each Lender may assign its Rights and obligations as a
Lender under the Loan Papers to any Affiliate of such Lender, and, with the
prior written consent of Administrative Lender and pursuant to an
Assignment and Acceptance Agreement, to one or more Eligible Assignees, so
long as (i) each assignment shall be of a constant, and not a varying
percentage of all Rights and obligations thereunder, (ii) no such
assignment shall be in an amount less than $15,000,000 unless it is the
remaining amount of such Lender's total committed amount, (iii) no Lender
shall assign any amount which would result in such Lender holding an amount
less than $10,000,000 immediately after any such assignment, (iv) Company
has given its prior written consent, provided that, after the occurrence of
an Event of Default and during the continuance thereof, no Lender shall be
required to obtain the prior written consent of Company.
(c) The assigning Lender (the "Assignor") shall give at least ten
Business Days notice to Administrative Lender and Company of such proposed
assignment, together with the date such assignment shall become effective,
the new Specified Percentage of the Assignor and the new assignee, and the
name, address and funding office of the assignee. On the effective date of
any assignment, the Assignor shall deliver to Administrative Lender and
Company a copy of the Assignment and Acceptance Agreement and all related
documents, together with, for Administrative Lender, the processing fee
described in subsection (e) below. Within five Business Days after notice
of any such assignment, Company shall execute and deliver to the Assignor,
in exchange for the Notes issued to the Assignor new Notes to the order of
the Assignor and its assignee in amounts equal to their respective
Specified Percentages, dated as of the effective date of the assignment.
It is specifically acknowledged and agreed that on and after the effective
date of each assignment, the assignee shall be a party hereto, included in
the definition of "Lender" and shall have the Rights and obligations of a
Lender under the Loan Papers.
(d) Each Lender may sell participations to one or more banks or other
entities in all or any of its Rights and obligations under the Loan Papers;
provided, however, that (i) such Lender's obligations under the Loan Papers
shall remain unchanged, (ii) such Lender shall remain solely responsible to
the other parties hereto for the performance of such obligations,
(iii) such Lender shall remain the holder of its Note for all purposes of
the Loan Papers, (iv) under the terms of any such participation, such
Lender's right to consent or agree to any amendment or waiver of any
provision of this Agreement or any other Loan Paper, or to consent to any
departure by any party therefrom, shall not be subject to or require any
consent or agreement of the participant, except in connection with matters
described in subsections (a) through (d) of Section 10.10 hereof to the
extent it is affected thereby, and (v) Company, Administrative Lender, and
other Lenders shall continue to deal solely and directly with such Lender
in connection with its Rights and obligations under the Loan Papers.
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(e) Administrative Lender may maintain at its address set forth
herein a copy of each assignment agreement received by it from each
Assignor and a register (the "Register") for the recordation of the names
and addresses of Lenders and the commitments of, and principal amount of
Advances owing to, each Lender from time to time. The entries in the
Register shall be conclusive absent demonstrable error, and Company,
Administrative Lender and Lenders may treat each Person whose name is
recorded in the Register as the owner of the Loan recorded therein for all
purposes of this Agreement. Upon Administrative Lender's receipt of an
executed Assignment and Acceptance Agreement, together with a payment to
Administrative Lender of a registration and processing fee of $2500,
Administrative Lender shall (i) promptly accept such assignment and (ii) on
the effective date thereof, record the information contained therein in the
Register.
(f) Any Lender may, in connection with any assignment or
participation, or proposed assignment or participation, disclose to the
assignee or participant, or proposed assignee or participant, any
information relating to Company or any of its Subsidiaries furnished to
such Lender by or on behalf of Company or its Subsidiaries.
(g) Notwithstanding any other provision set forth in this Agreement,
any Lender may at any time create a security interest in all or any portion
of its rights under this Agreement (including, without limitation, the
Advances owing to it and the Note or Notes held by it) in favor of any
Federal Reserve Bank in accordance with Regulation A of the Board of
Governors of the Federal Reserve System.
Section 10.03 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All
representations and warranties contained herein or in any other instrument
contemplated hereby shall survive the execution and delivery of this Agreement,
the Notes and all other Loan Papers, and no investigation by any Lender nor any
closing shall affect the representations and warranties or the right of
Administrative Lender and each Lender to rely on and enforce them.
Section 10.04 NOTICES. Except as otherwise expressly provided herein, any
and all notices or demands which must or may be given hereunder or under any
other instrument contemplated hereby shall be given by delivery in person or by
registered or certified mail, return receipt requested, postage prepaid, as
follows:
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To Administrative Lender:
NationsBank of Texas, N.A.
Corporate Banking Group
901 Main Street
67th Floor
Dallas, Texas 75202
Attention: Joseph G. Taylor
Senior Vice President
With a copy to:
Donohoe Jameson & Carroll, P.C.
3400 Renaissance Tower
1201 Elm Street
Dallas, Texas 75270
Attention: Melissa Ruman Stewart
To Company:
Michaels Stores, Inc.
5931 Campus Circle Drive
Las Colinas Business Park
Irving, Texas 75063
Attention: Kristen L. Magnuson
Vice President - Finance and Business Planning
With a copy to:
Michaels Stores, Inc.
5931 Campus Circle Drive
Las Colinas Business Park
Irving, Texas 75063
Attention: Mark Beasley, Esq.
All such communications, notices, or presentations and demands provided for
herein shall be deemed to have been delivered when actually delivered in person
to the respective parties, or if mailed, then three days after the date of
mailing, provided that such mailing is by registered or certified mail, return
receipt requested, with postage prepaid. Either party
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may change its address hereunder upon 30 days' notice to the other party in
compliance with this Section 10.04.
SECTION 10.05 APPLICABLE LAW. THIS AGREEMENT, EACH NOTE AND THE OTHER
LOAN PAPERS TO WHICH EACH LENDER IS A PARTY SHALL BE DEEMED TO HAVE BEEN MADE
AND TO BE PERFORMABLE IN DALLAS, DALLAS COUNTY, TEXAS, AND SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS AND THE
APPLICABLE LAWS OF THE UNITED STATES OF AMERICA; PROVIDED THAT, IF ANY LAW
APPLICABLE TO ANY LENDER PERMITS SUCH LENDER TO CHARGE A HIGHER MAXIMUM RATE OF
INTEREST THAN THAT PERMITTED BY THE LAWS OF THE STATE OF TEXAS, THAT RIGHT OF
SUCH LENDER TO CHARGE, TAKE OR RECEIVE INTEREST WITH RESPECT TO ADVANCES AND
OTHER OBLIGATIONS DUE AND OWING UNDER THIS AGREEMENT SHALL BE GOVERNED BY SUCH
LAWS APPLICABLE TO SUCH LENDER.
Section 10.06 SEVERABILITY. Any Section, clause, Subsection, sentence,
paragraph, or provision of this Agreement held by a court of competent
jurisdiction to be invalid, illegal, or ineffective shall not impair, invalidate
or nullify the remainder of this Agreement, but the effect thereof shall be
confined to the Section, clause, Subsection, sentence, paragraph or provision so
held to be invalid, illegal or ineffective.
Section 10.07 NON-APPLICATION OF CHAPTER 15 OF TEXAS CREDIT CODE. The
provisions of Chapter 15 of the Texas Credit Code (Texas Revised Civil Statutes,
Article 5069-15) are specifically declared by the parties hereto not to be
applicable to this Agreement or any of the Loan Papers or to the transactions
contemplated hereby.
Section 10.08 EXCEPTIONS TO COVENANTS. Company shall not be deemed to be
permitted to take any action or fail to take any action that is permitted as an
exception to any of the covenants herein or which is within the permissible
limits of any of the covenants herein if such action or omission would result in
the breach of any other covenant herein.
SECTION 10.09 INDEMNITY. COMPANY AGREES TO AND DOES INDEMNIFY AND HOLD
HARMLESS EACH LENDER AND ITS OFFICERS, DIRECTORS, AGENTS, EMPLOYEES, ATTORNEYS
AND SHAREHOLDERS (THE "INDEMNIFIED PARTIES") AGAINST ANY AND ALL LIABILITIES,
OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, SUITS, CLAIMS
(WHETHER MADE OR THREATENED), COSTS, EXPENSES AND DISBURSEMENTS OF ANY KIND OR
NATURE WHATSOEVER, INCLUDING WITHOUT LIMITATION THE REASONABLE OUT-OF-POCKET
FEES AND EXPENSES OF COUNSEL WHICH MAY BE IMPOSED ON OR INCURRED BY ANY LENDER
OR ANY OF THEIR RESPECTIVE OFFICERS, DIRECTORS, AGENTS, EMPLOYEES, ATTORNEYS OR
SHAREHOLDERS IN ANY WAY RELATING TO, OR ARISING OUT OF, ANY OF THE LOAN PAPERS
OR ANY OTHER ACT, OMISSION, EVENT OR OTHER TRANSACTION CONTEMPLATED THEREBY OR
THEREIN, TO THE EXTENT THAT ANY OF THE SAME RESULTS,
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DIRECTLY OR INDIRECTLY, FROM ANY CLAIMS (WHETHER SUCH CLAIMS ARE MADE OR
THREATENED AND INCLUDING WITHOUT LIMITATION, CLAIMS RESULTING FROM THE
NEGLIGENCE OF SUCH INDEMNIFIED PARTY) OR ACTIONS, SUITS OR PROCEEDINGS (WHETHER
MADE OR THREATENED AND INCLUDING, WITHOUT LIMITATION, ACTIONS, SUITS OR
PROCEEDINGS RESULTING FROM THE NEGLIGENCE OF SUCH INDEMNIFIED PARTY) BY OR ON
BEHALF OF ANY PERSON OTHER THAN A CLAIM BY ANY LENDER (INCLUDING ADMINISTRATIVE
LENDER) OR ANY OF THEIR RESPECTIVE OFFICERS, DIRECTORS, AGENTS, EMPLOYEES,
ATTORNEYS OR SHAREHOLDERS, AGAINST ANY SUCH INDEMNIFIED PARTY. WITHOUT LIMITING
THE GENERALITY OF THE FOREGOING, SUCH INDEMNITY SHALL EXTEND TO ANY AND ALL
COSTS AND EXPENSES WHATSOEVER INCURRED BY ANY LENDER AND ITS OFFICERS,
DIRECTORS, AGENTS, EMPLOYEES, ATTORNEYS OR SHAREHOLDERS, INCLUDING WITHOUT
LIMITATION THE REASONABLE OUT-OF-POCKET FEES AND EXPENSES OF COUNSEL IN
CONNECTION WITH INVESTIGATING, PREPARING FOR OR DEFENDING AGAINST OR PROVIDING
EVIDENCE, PRODUCING DOCUMENTS OR TAKING ANY ACTION WITH RESPECT TO ANY SUCH
ACTION, CLAIM (WHETHER MADE OR THREATENED), SUIT, LIABILITY, DAMAGE OR LOSS,
WHETHER OR NOT RESULTING IN ANY LIABILITY ON THE MERITS. EACH LENDER MAY SELECT
ITS OWN LEGAL COUNSEL IN CONNECTION WITH ANY MATTERS INDEMNIFIED AGAINST
HEREUNDER. THE OBLIGATION OF COMPANY UNDER THIS SECTION SHALL SURVIVE
EXECUTION, DELIVERY, CONSUMMATION AND ANY TERMINATION OF THIS AGREEMENT.
COMPANY'S OBLIGATIONS UNDER THIS SECTION ARE AND SHALL REMAIN ABSOLUTE AND
UNCONDITIONAL, ENFORCEABLE AGAINST COMPANY WHETHER OR NOT ANY ADVANCE IS EVER
MADE, ANY LETTER OF CREDIT IS EVER ISSUED, OR ANY OTHER OBLIGATION EVER ARISES
OR ANY CONDITIONS OF LENDING ARE EVER MET AND, EXCEPT AS PROVIDED IN THE LAST
SENTENCE OF THIS SECTION, WITHOUT REGARD TO ACT, OMISSION, BREACH, KNOWLEDGE,
INVESTIGATION OR EVENT BY, ATTRIBUTABLE TO, OR IN ANY MANNER INVOLVING ANY
LENDER OR ANY OF THEIR RESPECTIVE OFFICERS, DIRECTORS, AGENTS, EMPLOYEES,
ATTORNEYS OR SHAREHOLDERS. PAYMENT BY COMPANY IN RESPECT OF A CLAIM MADE BY ANY
LENDER OR ANY OF THEIR RESPECTIVE OFFICERS, DIRECTORS, AGENTS, EMPLOYEES,
ATTORNEYS OR SHAREHOLDERS PURSUANT TO THIS SECTION SHALL BE MADE WITHIN 30 DAYS
AFTER DEMAND THEREFOR. IF AND TO THE EXTENT THAT THE FOREGOING UNDERTAKING MAY
BE UNENFORCEABLE FOR ANY REASON, COMPANY HEREBY AGREES TO MAKE THE MAXIMUM
CONTRIBUTION TO THE PAYMENT AND SATISFACTION OF EACH OF THE FOREGOING AMOUNTS
THAT IS PERMISSIBLE UNDER APPLICABLE LAW. NOTWITHSTANDING ANYTHING IN THIS
SECTION TO THE CONTRARY, COMPANY'S INDEMNITY OBLIGATION SHALL NOT EXTEND TO
LIABILITY, DAMAGE, COST OR LOSS RESULTING FROM THE GROSS NEGLIGENCE OR WILLFUL
MISCONDUCT OF ADMINISTRATIVE LENDER OR ANY LENDER OR ANY OF THEIR RESPECTIVE
OFFICERS, DIRECTORS, AGENTS, EMPLOYEES, ATTORNEYS, OR SHAREHOLDERS, OR FROM A
MATERIAL BREACH BY ADMINISTRATIVE LENDER OR ANY LENDER OF ITS OBLIGATIONS
PURSUANT TO THIS AGREEMENT OR THE OTHER LOAN PAPERS, OR FROM THE FAILURE OF
ADMINISTRATIVE LENDER OR ANY LENDER TO COMPLY WITH ANY LAW APPLICABLE TO THEM OR
THE LOAN PAPERS. THE INDEMNIFIED PARTIES WILL UNDERTAKE TO GIVE COMPANY
REASONABLE NOTICE OF THE ASSERTION OF ANY CLAIM AGAINST THEM WITHIN COMPANY'S
INDEMNITY OBLIGATION UNDER THIS SECTION, BUT THE FAILURE OF ANY INDEMNIFIED
PARTY TO GIVE NOTICE TO COMPANY HEREUNDER SHALL NOT IMPAIR SUCH INDEMNIFIED
PARTY'S RIGHT TO INDEMNITY PURSUANT TO THIS SECTION UNLESS COMPANY IS MATERIALLY
PREJUDICED BY SUCH FAILURE.
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Section 10.10 AMENDMENT. No amendment or waiver of any provision of this
Agreement or any other Loan Papers, nor consent to any departure by Company or
any of its Subsidiaries therefrom (including, without limitation, any provision
of this Agreement specifically requiring the consent of Lenders), shall be
effective unless the same shall be in writing and signed by the Majority Lenders
(unless, in any such case, the text thereof specifically requires "each Lender"
or "all Lenders"), and then any such waiver or consent shall be effective only
in the specific instance and for the specific purpose for which given; provided,
however, that no amendment, waiver or consent shall, unless in writing and
signed by each of Lenders affected thereby, (a) increase the Commitment or the
Letter of Credit Commitment, (b) reduce any principal, interest, fees or other
amounts payable to such Lenders hereunder, or waive or result in the waiver of
any Event of Default under Section 8.01(a) hereof, (c) postpone any date fixed
for any payment of principal, interest, fees or other amounts payable to such
Lenders hereunder, (d) release any collateral (if any) or Guaranties securing
the Obligations hereunder except as specifically provided for in the Loan Papers
on the Closing Date, (e) change the meaning of Specified Percentage or the
number of Lenders required to take any action hereunder, or (f) amend this
Section. No amendment, waiver or consent shall affect the Rights or duties of
Administrative Lender under any Loan Papers, unless it is in writing and signed
by Administrative Lender in addition to the requisite number of Lenders. This
Agreement embodies the entire agreement among the parties hereto, supersedes all
prior agreements and understandings, if any, relating to the subject matter
hereof, and may be amended only as provided above. Company acknowledges and
agrees that all Loan Papers evidence the Obligation.
SECTION 10.11 WAIVER OF TRIAL BY JURY. ADMINISTRATIVE LENDER, LENDERS,
COMPANY AND SUBSIDIARIES HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE
ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED
HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS AGREEMENT OR ANY
OTHER LOAN PAPERS, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS
(WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ADMINISTRATIVE LENDER, LENDERS,
COMPANY OR ANY SUBSIDIARY. THIS PROVISION IS A MATERIAL INDUCEMENT FOR
ADMINISTRATIVE LENDER AND LENDERS ENTERING INTO THIS AGREEMENT.
Section 10.12 COUNTERPARTS. This Agreement and the other Loan Papers may
be executed in any number of counterparts, all of which taken together shall
constitute one and the same instrument, but in making proof of this Agreement,
it shall not be necessary to produce or account for more than one such
counterpart.
SECTION 10.13 ENTIRE AGREEMENT. THIS WRITTEN AGREEMENT AND THE OTHER
WRITTEN DOCUMENTS DESCRIBED HEREIN OR CONTEMPLATED HEREBY REPRESENT THE FINAL
AGREEMENT AMONG THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
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CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES HERETO. THERE ARE
NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES.
Section 10.14 SURVIVAL AND APPLICATION OF REPRESENTATIONS AND WARRANTIES.
All representations and warranties made under this Agreement and the other Loan
Papers shall be deemed to be made as of the Closing Date and as provided in
Section 4.02 and Section 4.03 hereof, and each shall be true and correct when
made, except to the extent (a) previously fulfilled in accordance with the terms
hereof, (b) subsequently inapplicable, or (c) waived in writing by
Administrative Lender and Majority Lenders with respect to any particular
factual circumstance. In addition, all such representations and warranties
relating to Company's Subsidiaries shall be deemed to be made with respect to
any newly formed or acquired Subsidiary as of its formation or acquisition, and
shall be true and correct on such date. All representations and warranties made
under this Agreement shall survive, and not be waived by, the execution of the
Loan Papers by Administrative Lender and Lenders, any investigation or inquiry
by Administrative Lender or any Lender, or any disbursement of an Advance
hereunder.
Section 10.15 RATE PROVISION. It is not the intention of any party to any
Loan Papers to make an agreement violative of the Laws of any applicable
jurisdiction relating to usury. Regardless of any provision in any of the Loan
Papers, no Lender shall ever be entitled to receive, collect or apply, on the
Obligation, any amount deemed to constitute interest in excess of the Maximum
Amount. If any Lender ever receives, collects or applies any such excess, such
amount which would be excessive interest shall be deemed a partial repayment of
principal and treated hereunder as such; and if principal is paid in full, any
remaining excess shall be paid to Company. In determining whether or not the
interest paid or payable, under any specific contingency, exceeds the Maximum
Amount, Company and Lenders shall, to the maximum extent permitted under
Applicable Laws, (a) characterize any nonprincipal payment as an expense, fee or
premium rather than as interest, (b) exclude voluntary prepayments and the
effect thereof, and (c) amortize, prorate, allocate and spread in equal parts,
the total amount of interest throughout the entire contemplated term of the
Obligation so that the interest rate is uniform throughout the entire term of
the Obligation; provided, however, that if the Obligation is paid and performed
in full prior to the end of the full contemplated term thereof, and if the
interest received for the actual period of existence thereof exceeds the Maximum
Amount, Lenders shall refund to Company the amount of such excess or credit the
amount of such excess against the total principal amount owing, and, in such
event, no Lender shall be subject to any penalties provided by any Laws for
contracting for, charging or receiving interest in excess of the Maximum Amount.
This Section shall control every other provision of all agreements among the
parties to this Agreement pertaining to the transactions contemplated by or
contained in the Loan Papers.
64
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
effective as of the date first above written.
MICHAELS STORES, INC.
By: /s/ Kristen L. Magnuson
-------------------------------
Kristen L. Magnuson
Vice President - Finance and
Business Planning
SPECIFIED PERCENTAGE: NATIONSBANK OF TEXAS N.A., as
Administrative Lender, and
individually as a Lender
100.00% By: /s/ Joseph G. Taylor
-------------------------------
Joseph G. Taylor
Senior Vice President
C:\DMS\STEMEL.DIR\0005456.09
65
<PAGE>
EXHIBIT A
THE OBLIGATIONS OF MICHAELS STORES, INC. EVIDENCED BY THIS NOTE ARE SENIOR AND
SUPERIOR IN RIGHT OF PAYMENT TO THE OBLIGATIONS OF MICHAELS STORES, INC. UNDER
THOSE CERTAIN 4-3/4%/6-3/4% STEP-UP CONVERTIBLE SUBORDINATED NOTES DUE 2003, AS
THEY MAY BE AMENDED, RESTATED, EXTENDED, REPLACED OR SUBSTITUTED FROM TIME TO
TIME.
REVOLVING LOAN NOTE
$____________________ Dallas, Texas ________________, _____
FOR VALUE RECEIVED, MICHAELS STORES, INC., a Delaware corporation
("Borrower"), promises to pay to the order of ___________________________
("Lender"), at the banking house of NATIONSBANK OF TEXAS, N.A., as
Administrative Lender ("Administrative Lender") in Dallas, Texas, the principal
sum of ______________________________ DOLLARS AND NO CENTS ($____________), or
such lesser sums as may be advanced and due and payable from time to time
hereunder, in lawful money of the United States of America, together with
interest prior to default or maturity on the unpaid principal balance from time
to time outstanding at a rate per annum equal to the rate selected by Borrower
in accordance with the terms and provisions of the Credit Agreement (as
hereinafter defined); provided, however, that in no event shall interest accrue
hereunder at a rate in excess of the Highest Lawful Rate. Subject to the
provisions hereof limiting interest to the Maximum Amount, interest on (a)
Eurodollar Rate Borrowings shall be calculated at a daily rate equal to 1/360th
of the rate selected by the Borrower in accordance with the terms of the Credit
Agreement, and (b) Base Rate Borrowings shall be calculated at a daily rate
equal to 1/365th or 1/366th, as the case may be, of the rate selected by the
Borrower in accordance with the terms of the Credit Agreement. Each Advance made
by Lender to Borrower pursuant to the Credit Agreement may be recorded by Lender
and, with respect to any transfer hereof, endorsed on the grid attached hereto
which is part of this Note. Any failure by Lender to endorse the grid attached
hereto shall not impair the obligation of Borrower to pay any amount due and
owing hereunder.
All capitalized terms used herein, but not specifically defined, shall have
the same meanings as set forth in the Credit Agreement.
Principal and all accrued interest hereunder shall be due and payable upon
the terms and on the dates provided for in the Credit Agreement. Subject to the
terms of the Credit Agreement, Borrower may borrow, repay and reborrow
hereunder.
Any amounts remaining unpaid after the maturity of this Note (whether
maturity shall occur by default, lapse of time or otherwise) shall bear interest
as provided in the Credit Agreement.
<PAGE>
If at any time the rate selected by the Borrower shall exceed the Highest
Lawful Rate, thereby causing the interest hereon to be limited to the Maximum
Amount, then notwithstanding any subsequent reduction in such rate below the
Highest Lawful Rate, interest shall accrue hereunder at the Highest Lawful Rate
until such time as the total amount of interest accrued hereon equals the amount
of interest which would have accrued hereon (including the amount of such
interest which would have so accrued hereon prior to the time of repayment of
any of the principal hereof) if the rate selected by the Borrower had been in
effect at all times.
This Note is issued pursuant to and evidences the Loan under that certain
Credit Agreement among Borrower, NationsBank of Texas, N.A. for itself and as
Administrative Lender thereunder, and certain other Lenders ("Lenders") party
thereto, dated as of June 17, 1994, as the same may be amended from time to time
("Credit Agreement"), to which reference is made for a statement of the rights
and obligations of Administrative Lender and Lenders, and the duties and
obligations of Borrower in relation thereto.
If an Event of Default under the Credit Agreement shall occur, the unpaid
principal of and accrued interest on this Note may be declared due and payable
in the manner and with the effect provided in the Credit Agreement.
The Borrower, signers, guarantors, sureties and indorsers of this Note
severally waive demand, presentment, notice of dishonor, notice of intent to
demand payment hereof, notice of intent to accelerate payment hereof, notice of
acceleration, diligence in collecting, grace, notice and protest, the bringing
of any suit against any party and any notice of or defense on account of any
extensions, renewals, partial payments of or changes in any manner in this Note
or in any of its Terms, provisions, and covenants, or any releases or
substitutions of any security, or any delay, indulgence or other act of the
holder hereof, whether before or after maturity; provided, however, that
Borrower does not waive any notice or grace periods to which it may be entitled
under the express provisions of the Credit Agreement. If this Note is placed in
the hands of an attorney for collection after an Event of Default, or if all or
any part of the indebtedness represented by this Note is proved, established or
collected in any court or in any bankruptcy, receivership, debtor relief,
probate or other court proceedings, Borrower and all indorsers, guarantors and
sureties of this Note jointly and severally agree to pay reasonable attorneys'
fees (including the reasonable allocated cost of staff counsel) and all
collection costs to the holder hereof in addition to the principal, interest and
any other sums payable hereunder.
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<PAGE>
This Note may not be terminated orally, but only by a discharge in writing
signed by the holder of this Note at the time such discharge is sought.
It is not the intention of the parties hereto to make an agreement
violative of the laws of any applicable jurisdiction relating to the maximum
lawful rate of interest a lender may charge. Regardless of any provision in this
Note, the Credit Agreement or any other document or instrument securing or
evidencing the indebtedness represented hereby, no holder hereof shall ever be
entitled to receive, collect or apply, as interest hereon, any amount in excess
of the Maximum Amount. If any holder hereof ever receives, collects or applies,
as interest, any such excess, such amount which would be excessive interest
shall be deemed a partial repayment of principal and treated hereunder as such;
and if principal is paid in full, any remaining excess shall be paid to
Borrower. In determining whether or not the interest paid or payable under any
specific contingency exceeds the Maximum Amount, Borrower and the holder hereof
shall, to the extent permitted under Applicable Law, (i) characterize any
nonprincipal payment as an expense, fee or premium rather than as interest, (ii)
exclude voluntary prepayments and the effect thereof and (iii) to the extent
permitted by Applicable Law, amortize, prorate, allocate and spread the total
amount of interest throughout the entire term hereof until payment in full of
the principal hereof so that the interest hereon for such period shall not
exceed the Maximum Amount; provided that if this Note is paid in full prior to
the contemplated maturity, and if the interest received for the actual period of
existence thereof exceeds the Maximum Amount, the holder hereof shall refund to
Borrower the amount of such excess or credit the amount of such excess against
the total principal amount owing, and, in any event, the holder hereof shall not
be subject to any penalties provided by any laws for contracting for, charging
or receiving interest in excess of the Maximum Amount. This paragraph shall
control every other provision of this Note, the Credit Agreement or any other
agreements, instruments or documents between the holder hereof and Borrower
pertaining to the indebtedness evidenced hereby.
This Note shall be construed and enforced in accordance with the laws of
the State of Texas and the laws of the United States applicable to transactions
in Texas.
MICHAELS STORES, INC.
By:
------------------------------------
Its:
-----------------------------------
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<PAGE>
ADVANCES, MATURITIES, AND PAYMENTS OF PRINCIPAL
- --------------------------------------------------------------------------------
Amount of Unpaid
Type of Amount of Maturity Principal Paid Principal Notation
Date Advance Advance of Advance or Prepaid Balance Made By
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<PAGE>
EXHIBIT B
NOTICE OF BORROWING/CONVERSION
NationsBank of Texas, N.A.,
as Administrative Lender
Corporate Banking
Post Office Box 83100
Dallas, Texas 75283-1000
Attention: Mr. Joseph G. Taylor
Senior Vice President
Gentlemen:
The undersigned is an Authorized Financial Officer of Michaels Stores, Inc.
("Borrower"), and, as such, is authorized to make and deliver this Notice of
Borrowing/Conversion pursuant to Section 2.04 or 2.22 of that certain Credit
Agreement dated as of June 17, 1994, among Borrower, NationsBank of Texas, N.A.
for itself and as Administrative Lender, and certain other Lenders party thereto
as the same may hereafter be amended from time to time (the "Agreement"). All
terms defined in the Agreement shall have the same meanings herein.
In connection with the foregoing and pursuant to the terms and provisions
of the Agreement, the undersigned hereby certifies that:
(i) Borrower hereby [gives you] [confirms that it has orally given
you*] irrevocable notice that Borrower requests an Advance under
the Commitment in accordance with Sections 2.01, 2.04 or 2.22 of
the Agreement.
(ii) The representations and warranties contained in Article V of the
Agreement are true at and as of the date hereof as though made as
of the date hereof.
(iii) No Default or Event of Default has occurred and is continuing.
(vi) The amount of the Advance made or to be made pursuant to this
request, when added to the principal amount of all outstanding
advances, will not exceed the Available Advance Amount.
- ---------------
* Strike bracketed language as appropriate.
<PAGE>
(v) Any Eurodollar Rate Borrowing shall be in the principal amount of
$1,000,000, and in integral multiples of $100,000 in excess
thereof.
(vi) All conditions precedent under Section 4.02(d) have been complied
with.
(viii) All information supplied below is true and accurate as of the
date hereof.
Amount of Borrowing $_________________
Selected rate of Borrowing
(select one of the following:)
___________________________ Base Rate
___________________________ Eurodollar Rate
Borrowing Date $_________________
Interest Period*
* Not applicable to Base Rate Borrowing
WITNESS the execution hereof this ____ day of ______________, 19___.
MICHAELS STORES, INC.
By: ______________________________
Its: ______________________________
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<PAGE>
EXHIBIT C
BORROWING BASE REPORT
This Borrowing Base Report ("Report") for the Fiscal Month ending ________,
199__, and as of such date, is executed and delivered by MICHAELS STORES, INC.
("Borrower") to NATIONSBANK OF TEXAS, N.A. ("Administrative Lender"), pursuant
to that certain Credit Agreement dated as of June 17, 1994, among Borrower,
NationsBank of Texas, N.A. for itself and as Administrative Lender, and certain
other Lenders party thereto ("Lenders") as the same may hereafter be amended
from time to time ("Credit Agreement"). All terms used herein have the meanings
ascribed to them in the Credit Agreement.
In order to induce Administrative Lender and Lenders now and from time to
time during the term of the Credit Agreement to make Advanced to Borrower under
the Commitment, and to issue Letters of Credit, Borrower warrants and represents
to Administrative Lender and Lenders that this Report and all information
attached hereto or contained herein is true and correct and that the total
Eligible Inventory referred to below represents the Eligible Inventory which
qualifies for the purposes of determining the Borrowing Base under the Credit
Agreement.
LINE OF CREDIT COMMITMENT
INVENTORY:
1. Eligible Inventory $_________________
2. Accounts Payable $_________________
3. Borrowing Base Determination $_________________
50% of line 1 - line 2 $_________________
AVAILABLE CREDIT DETERMINATION:
4. Lesser of $150,000,000 or
the Borrowing Base (line 3) $_________________
5. Outstanding Letters of Credit $_________________
6. Net Borrowing Base
(line 4 minus line 5) $_________________
7. Outstanding Advances $_________________
8. Available Credit Amount
(line 6 minus line 7) $_________________
Borrower further represents and warrants to Administrative
<PAGE>
Lender and Lenders that the representations and warranties contained in
Article V of the Credit Agreement are true at and as of the date of this Report
as if made as of the date hereof, and that no Default or Event of Default has
occurred and is continuing.
MICHAELS STORES, INC.
By: ______________________________
Its: ______________________________
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<PAGE>
EXHIBIT D
GUARANTY AGREEMENT
WHEREAS, the execution of this Guaranty Agreement is a condition to
MICHAELS STORES, INC., a Delaware corporation ("Borrower"), borrowing pursuant
to that certain Credit Agreement dated June 17, 1994, among Borrower,
NationsBank of Texas, N.A. for itself and as Administrative Lender, and certain
other Lenders party thereto as the same may hereafter be amended from time to
time (the "Credit Agreement");
NOW, THEREFORE, for valuable consideration, the receipt and adequacy of
which are hereby acknowledged, the undersigned __________________, a __________
corporation and [wholly owned] subsidiary of Borrower, the address of which is
________________________ (the "Guarantor"), hereby irrevocably and
unconditionally guarantees to Lender the prompt payment of the Guaranteed
Indebtedness (hereinafter defined), and the due performance of all terms and
conditions of the Credit Agreement and other Loan Papers (as defined in the
Credit Agreement, and all other capitalized terms not otherwise defined herein
shall have the meanings specified in the Credit Agreement), this Guaranty
Agreement being upon the following terms:
1. Notwithstanding anything herein or in any other Loan Papers to the
contrary, the maximum liability of Guarantor shall in no event exceed the
Maximum Guaranteed Amount. The term "Guaranteed Indebtedness" as used herein
means all of the "Obligations", as defined in the Credit Agreement and the Loan
papers. "Maximum Guaranteed Amount" as used herein shall mean the greater (a)
the amount of any Guaranteed Indebtedness used to make a Valuable Transfer to
Guarantor, and (b) the greater of 95% of Guarantor's Adjusted Net Worth (i) at
the date hereof (if appropriate under applicable Law), (ii) at the time the
Guaranteed Indebtedness was incurred, and (iii) on the date of enforcement
hereof. "Adjusted Net Worth" as used herein shall mean as of the date of
determination, (a) the value of the assets of Guarantor as of such date, minus
(b) all liabilities of Guarantor, contingent or otherwise, as of such date
(excluding Guarantor's liability hereunder), as such concepts are determined in
accordance with applicable Laws governing determinations of the insolvency of
debtors. "Valuable Transfer" as used herein shall mean (a) all loans, advances
or capital contributions made to Guarantor with proceeds of any Guaranteed
Indebtedness, (b) all debt securities or other obligations of Guarantor acquired
from Guarantor or retired by Guarantor with proceeds of any Guaranteed
Indebtedness, (c) the fair market value of all property acquired with proceeds
of any Guaranteed Indebtedness, and transferred, absolutely and not as
collateral, to Guarantor, and (d) all equity securities of Guarantor acquired
from Guarantor with proceeds of any Guaranteed Indebtedness.
2. This instrument shall be an absolute, continuing, irrevocable, and
unconditional guaranty of payment and performance and not a guaranty of
collection, and Guarantor shall
<PAGE>
remain liable on its obligations hereunder until the payment in full of the
Guaranteed Indebtedness.
3. If Guarantor becomes liable for any indebtedness owing by Borrower to
any of Lenders by endorsement or otherwise, other than under this Guaranty
Agreement, such liability shall not be in any manner impaired or affected
hereby, and the Rights of Lenders hereunder shall be cumulative of any and all
other Rights that Lenders may ever have against Guarantor. The exercise by
Administrative Lender or Lenders of any Right or remedy hereunder or under any
other instrument, at Law or in equity, shall not preclude the concurrent or
subsequent exercise of any other Right or remedy.
4. Upon the occurrence of an Event of Default, Guarantor shall, on demand
and without further notice of dishonor, and without any notice having been given
to Guarantor previous to such demand of the acceptance by Lenders of this
Guaranty Agreement, pay the Guaranteed Indebtedness to Administrative Lender or
Lenders as provided in the Credit Agreement and it shall not be necessary for
Administrative Lender or Lenders, in order to enforce such payment by Guarantor,
first to institute suit or exhaust their remedies against Borrower or others
liable on such Guaranteed Indebtedness, or to enforce any rights against any
security which shall ever have been given to secure such Guaranteed
indebtedness. In the event such payment is made by Guarantor, then Guarantor
shall be subrogated to the rights then held by Administrative Lender and Lenders
with respect to the Guaranteed Indebtedness to the extent to which the
Guaranteed Indebtedness was discharged by Guarantor and, in addition, upon
payment by Guarantor of any sums to Lenders hereunder, all rights of Guarantor
against Borrower arising as a result therefrom by way of right of subrogation or
otherwise shall in all respects be subordinate and junior in right of payment to
the prior indefeasible payment in full of the Guaranteed Indebtedness.
5. Guarantor hereby agrees that its obligations under the terms of this
Guaranty Agreement shall not be released, diminished, impaired, reduced, or
affected by the occurrence of any reason or event, including without limitation,
one or more of the following events: (a) the taking or acceptance of any other
security of any or all of the Guaranteed Indebtedness or the release, surrender,
exchange or subordination of any security now or hereinafter securing all or any
portion of the Guaranteed Indebtedness; (b) any partial release of the liability
of Guarantor hereunder, or the release of any other guarantor of all or any
portion of the Guaranteed Indebtedness; (c) the change in corporate existence,
ownership, or structure of, lack of corporate power of, or the insolvency or
bankruptcy of, Borrower, Guarantor, or any party at any time liable for the
payment of any or all of the Guaranteed Indebtedness, whether now existing or
hereafter occurring; (d) any renewal, extension, modification, settlement,
waiver, amendment, and/or rearrangement of the payment of any or all of the
Guaranteed Indebtedness with or without notice to or consent of Guarantor, or a
ny adjustment, indulgence, forbearance, or compromise that may be granted or
given by Administrative Lender or Lenders to Borrower or Guarantor; (e) any
renewal, extension, modification, waiver, or amendment of the Credit Agreement
or any of the Loan Papers; (f) any neglect, delay, omission, failure,or refusal
of Administrative Lender or Lenders to take or prosecute any action for the
collection of any of
-2-
<PAGE>
the Guaranteed Indebtedness or to foreclose or take or prosecute any action in
connection with any instrument or agreement evidencing or securing all or any
part of the Guaranteed Indebtedness; (g) the invalidity or unenforceability of
all or any part of the Guaranteed Indebtedness; (h) any payment by Borrower to
Administrative Lender or Lenders is held to constitute a preference under the
bankruptcy laws or if for any reason Administrative Lender or Lenders are
required to refund such payment or pay the amount thereof to someone else; (i)
the settlement or compromise of any of the Guaranteed Indebtedness; (j) the
existence of any claim, defense, set-off or other rights which Borrower or any
Guarantor may have at any time against Borrower, any of the Lenders, any other
Guarantor or any other person, whether in connection with this Guaranty
Agreement, the Loan Papers, the transactions contemplated thereby or any other
transaction; (k) the failure of Administrative Lender or Lenders to perfect, or
the release, exchange, substitution, or invalidity of, any security interest or
Lien securing all or any portion of the Guaranteed Indebtedness; (l) the failure
of Administrative Lender or Lenders to sell any Collateral securing all or any
portion of the Guaranteed Indebtedness in a commercially reasonable manner or as
otherwise required by Law; or (m) any other circumstance or happening
whatsoever, whether or not similar to the foregoing.
6. Guarantor hereby represents and warrants that all representations and
warranties set forth in Article V of the Credit Agreement with respect to it are
true and correct as of the date hereof, and are incorporated herein by
reference. In addition, Guarantor represents and warrants to Administrative
Lender and Lenders as follows:
(a) Except of previously disclosed to Administrative Lender or Lenders in
writing, Guarantor is a corporation duly organized, validly existing and in good
standing under the Laws of the State of its incorporation, and is qualified to
do business in all jurisdictions in which the nature of the business conducted
by it makes such qualification necessary and where failure to so qualify would
have a material adverse effect on its business, financial condition, or
operations.
(b) Guarantor has the corporate power and authority to execute, deliver
and perform its obligations under this Guaranty Agreement, and this Guaranty
Agreement constitutes the legal, valid and binding obligation of Guarantor,
enforceable against Guarantor in accordance with its respective terms, except as
limited by bankruptcy, insolvency, or other laws of general application relating
to the enforcement of creditors rights and subject to the qualification that
general equitable principles may limit the availability of equitable remedies,
including without limitation, the remedy of specific performance.
(c) The execution, delivery, and performance by Guarantor of this Guaranty
Agreement have been duly authorized by all requisite action on the part of
Guarantor and will not violate the articles of incorporation or bylaws of
Guarantor or any Law or any order of any Tribunal and will not conflict with,
result in a breach of, or constitute a default under, or result in the
imposition of any Lien upon any assets of Guarantor pursuant to the provisions
of any indenture, mortgage, deed of trust, security agreement, franchise,
permit, license, or other instrument or agreement to which Guarantor or its
properties is bound.
-3-
<PAGE>
(d) No authorization, approval, or consent of, and no filing or
registration with, any court, governmental authority or third party is necessary
for the execution, delivery or performance by Guarantor of this Guaranty
Agreement or the validity or enforceability hereof.
(e) The value of the consideration received and to be received by
Guarantor as a result of Advances or other extensions of credit under the Credit
Agreement and Guarantor's execution and delivery of this Guaranty Agreement is
reasonably worth at least as much as the liability and obligation of Guarantor
hereunder, and such liability and obligation and the Credit Agreement my
reasonably be expected to benefit Guarantor directly or indirectly.
7. Guarantor covenants and agrees that, as long as the Guaranteed
Indebtedness or any part thereof is outstanding or Administrative Lender or
Lenders have any commitment under the Credit Agreement:
(a) Guarantor will comply with the covenants applicable to any Subsidiary
contained in Articles VI and VII of the Credit Agreement.
(b) Guarantor will furnish to Administrative Lender as soon as available
one copy of each financial statement, report, notice or proxy statement sent by
Guarantor to its stockholders generally and one copy of each regular, periodic
or special report, registration statement, or prospectus filed by Guarantor with
any securities exchange or the Securities or Exchange Commission or any
successor agency, and any order issued by any court, governmental authority or
arbitrator in any material proceeding to which Guarantor is a party.
(c) Guarantor will furnish promptly to Administrative Lender written
notice of the occurrence of any default under this Guaranty Agreement or an
Event of Default of which Guarantor has knowledge.
(d) Guarantor will furnish promptly to Administrative Lender such
additional information concerning Guarantor as Administrative Lender or any
Lender may reasonably request.
(e) Guarantor will obtain at any time and from time to time all
authorization, licenses, consents or approvals as shall now or hereafter be
necessary or desirable under all applicable Law or regulations or otherwise in
connection with the execution, delivery and performance of this Guaranty
Agreement and will promptly furnish copies thereof of Administrative Lender.
8. Upon the occurrence of an Event of Default under the Credit Agreement,
Administrative Lender and Lenders shall have the right to set off and apply
against the Guaranty Agreement or the Guaranteed Indebtedness or both, without
notice to Guarantor, any and all deposits (general or special, time or demand,
provisional or final) or other sums at any time credited by or owing from any
Lenders to Guarantor irrespective of whether or not Administrative Lender or
Lenders shall have made any demands under this Guaranty Agreement.
-4-
<PAGE>
The rights and remedies of Administrative Lender and Lenders hereunder are in
addition to other rights and remedies (including, without limitation, other
rights of setoff) which Administrative Lender and Lenders may have. After each
setoff and application, Administrative Lender or the appropriate Lender shall
promptly give notice to guarantor of such event; provided that the failure of
Administrative Lender or the appropriate Lender to furnish such notification
shall in no way impair, invalidate or prejudice Administrative Lender's or
Lenders' setoff and application so made.
9. No amendment or waiver of any provision of this Guaranty Agreement or
consent to any departure by Guarantor therefrom shall in any event be effective
unless the same shall be in writing and signed by Administrative Lender. No
failure on the part of Administrative Lender or Lenders to exercise, and no
delay in exercising, any Right hereunder shall operate as a waiver thereof; no
shall any single or partial exercise of any Right hereunder preclude any other
or further exercise thereof or the exercise of any other right. The remedies
herein provided are cumulative and not exclusive of any remedies provided by
Law.
10. Any acknowledgment or new promise, whether by payment or principal or
interest or otherwise and whether by Borrower or others (including Guarantor),
with respect to any of the Guaranteed Indebtedness shall, if the statute of
limitations in favor of the Guarantor against Lenders shall have commenced to
run, toll the running of such statute of limitations and, if the period of such
statute of limitations shall have expired, prevent the operation of such statute
of limitations.
11. Any indebtedness of Borrower now or hereafter held by Guarantor is
hereby subordinated to the Obligations, and if Administrative Lender so requests
shall be collected, enforced and received by Guarantor as trustee for Lenders
and be paid over to Administrative lender on account of the Obligations, but
without reducing or affecting in any manner the liability of Guarantor under the
other provisions of the is Guaranty Agreement; provided, however, that unless
and until an Event of Default has occurred and is continuing, Guarantor may
continue to receive and collect amounts pursuant to such subordinated
indebtedness. Upon request by Administrative Lender on behalf of Lenders, any
instruments now or hereafter evidencing such indebtedness of Borrower to
Guarantor shall be marked with a legend that the same are subject to this
Guaranty Agreement and, if Administrative Lender so requests, shall be delivered
to Administrative Lender. Guarantor will from time to time execute financing
statements and continuation statements and such other documents and take other
action as Administrative Lender deems necessary or appropriate to perfect,
preserve and enforce Lenders' Rights hereunder.
12. Guarantor waives, to the fullest extent permitted by Law, all
presentments, demands for performance, protests, notices of protest, notices of
dishonor and notices of acceptance of this Guaranty Agreement and of the
existence, creation or incurring of new or additional indebtedness, diligence in
bringing suits against any person liable on any Guaranteed Indebtedness, and all
other notices of any kind whatsoever (including without limitation notice of
acceleration and notice of intent to accelerate). Guarantor agrees that the
Guaranteed
-5-
<PAGE>
Indebtedness and Loan Papers may be extended or renewed, and Loans repaid and
reborrowed in whole or in part, without notice to or assent by Guarantor, and
that it will remain bound upon this Guaranty Agreement notwithstanding any
extension, renewal or other alteration of any Guaranteed Indebtedness and Loan
Papers, or any repayment and reborrowing of Loans;
13. If Guarantor shall make any payment hereunder (whether voluntary,
involuntary, due to set-off or otherwise), it shall have a right of contribution
against any other Guarantor to the extent that such payment caused the
Guaranteed Indebtedness to exceed the Maximum Guaranteed Amount.
14. No obligation of Guarantor shall be altered, limited or affected by
any proceeding against Borrower, any other Guarantor or any other person
pursuant to any bankruptcy, insolvency, reorganization or similar Laws relating
to the relief of debtors. This Guaranty Agreement shall continue to be
effective, or shall be reinstated, as the case may be, if at any time payment,
or any part thereof, of any Guaranteed Indebtedness is rescinded or must
otherwise be restored or returned by the Administrative Lender or Lenders in
connection with any proceeding involving Borrower, any Guarantor or any other
Person under any bankruptcy, insolvency, reorganization or similar Laws relating
to the relief of debtors.
15. As a separate undertaking from similar provisions contained in the
Loan Papers, Guarantor agrees to pay reasonable attorneys' fees and all other
costs and expenses which may be incurred by Administrative Lender of Lenders in
the enforcement or collection of this Guaranty Agreement.
16. Unless otherwise provided herein, all notices, requests, consents and
demands shall be given to Guarantor c/o _______________________, Attention:
President, in compliance with the terms of the Credit Agreement.
17. This Guaranty Agreement is for the benefit of Lender and their
successor and assigns, and in the event of an assignment of the Guaranteed
Indebtedness, or any part thereof, the Rights and benefits hereunder, to the
extent applicable to the indebtedness so assigned, may be transferred with such
indebtedness. This Guaranty Agreement is binding not only on Guarantor, but on
Guarantor's successors and assigns.
18. Guarantor acknowledges that it expects to receive significant
financial benefits, either directly or indirectly, from the proceeds of the
Loans made by Lenders to Borrower pursuant to the Credit Agreement, and further
acknowledges that Lenders are relying upon this Guaranty Agreement and the
undertakings of Guarantor hereunder in making Advances and other extensions of
credit to Borrower under the Credit Agreement and that the execution and
delivery of this Guaranty Agreement is a material inducement to Lenders to
continue the Commitment pursuant to the Credit Agreement.
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<PAGE>
19. Each payment on the Guaranteed Indebtedness shall be deemed to have
been made by Borrower unless express written notice is given to the
Administrative Lender at the time of such payment that such payment is made by
Guarantor.
20. This Guaranty Agreement is executed and delivered as an incident to a
lending transaction negotiated, consummated, and performable in Dallas County,
Texas, and shall be construed according to the laws of the State of Texas.
21. The Credit Agreement, and all of the terms thereof, are incorporated
herein by reference, the same as if stated verbatim herein, and Guarantor agrees
that Administrative Lender and Lenders may exercise any and all rights granted
to them under the Credit Agreement and other Loan Papers without affecting the
validity or enforceability of this Guaranty Agreement.
22. This Guaranty Agreement is for the ratable benefit of Lenders, each of
which shall share any proceeds hereof pursuant to the terms of the Credit
Agreement.
23. WITHOUT EXCLUDING ANY OTHER JURISDICTION, THE GUARANTOR AGREES THAT
THE FEDERAL COURTS OF TEXAS LOCATED IN DALLAS, TEXAS SHALL HAVE JURISDICTION
OVER PROCEEDINGS IN CONNECTION WITH THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS.
WITHOUT EXCLUDING ANY OTHER JURISDICTION, THE GUARANTOR AGREES THAT THE FEDERAL
COURTS OF TEXAS LOCATED IN DALLAS, TEXAS SHALL HAVE JURISDICTION OVER
PROCEEDINGS IN CONNECTION WITH THIS AGREEMENT AND THE OTHER LOAN PAPERS.
EXECUTED as of the ______ day of _______________, 19___.
GUARANTOR:
___________________________________
By: ______________________________
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<PAGE>
EXHIBIT E
LOAN COMPLIANCE CERTIFICATE
This Loan Compliance Certificate ("Certificate") is executed and delivered
by MICHAELS STORES, INC. ("Borrower") for the fiscal quarter ending __________,
19__, and is being given as of such date to NATIONSBANK OF TEXAS, N.A.
("Administrative Lender") pursuant to and in accordance with the terms and
provisions of that certain Credit Agreement dated June 17, 1994, among Borrower,
NationsBank of Texas, N.A. for itself and as Administrative Lender, and certain
other Lenders party thereto ("Lenders") as the same may hereafter be amended
from time to time ("Agreement"). All terms used herein shall have the
respective meaning ascribed to them in the Agreement.
1. There has been no Default or Event of Default pursuant to the terms of
the Agreement of the other Loan Papers that has occurred during the preceding
fiscal quarter, or is continuing at the date hereof, nor has any event occurred
which upon notice or lapse of time or both would constitute such an Event of
Default.
2. The financial statements required by Section 6.01 of the Agreement, as
the case my be, which are attached hereto as Schedule 1, present fairly the
financial condition and results of operations of Borrower and its Subsidiaries
at the date thereof and for the periods indicated therein.
3. Borrower has complied with the covenants contained in Sections 7.01 as
detailed below:
A. RATIO OF TOTAL LIABILITIES TO
NET WORTH (Section 7.01(a))
1. Net Worth as determined in
accordance with GAAP $_________________
2. Total Liabilities
including guaranties, reimbursement
obligations and incremental indebtedness $_________________
Ratio of Total Liabilities
to Net Worth
(Ratio of #2 to #1) ________ to 1.0
REQUIRED RATIO OF TOTAL LIABILITIES
TO NET WORTH:
2.25 to 1.00 at any time during each of the second and third
fiscal quarters of each fiscal year; and
<PAGE>
1.25 to 1.00 at any time during each of the first and fourth
fiscal quarters of each fiscal year.
B. FIXED CHARGES COVERAGE
RATIO (Section 7.01(b))
1. Consolidated Income before
income taxes and excluding
extraordinary gains & losses $_________________
2. Operating Lease Expense $_________________
3. Interest Expense $_________________
4. Total of Lines 1, 2 and 3 $_________________
5. Operating Lease Expense $_________________
6. Plus Interest Expense $_________________
7. Fixed Charges $_________________
(Total of Lines 5 and 6)
8. Fixed Charges Ratio
(Ratio of Line 4 to Line 7) $_________________
REQUIRED FIXED CHARGES COVERAGE RATIO:
1.30 to 1.0 at any time
C. CURRENT RATIO (Section 7.01(c))
1. Current Assets $_________________
2. Current Liabilities plus
amounts outstanding under
this Agreement $_________________
3. Current Ratio
(ratio of line 1 to line 2) ________ to 1.0
REQUIRED CURRENT RATIO:
1.50 to 1.0 at any time
4. If Borrower has any Subsidiaries as of the date hereof, there are
attached hereto as Schedule 3 the quarterly financial statements of each such
Subsidiary.
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<PAGE>
The information contained herein is true and correct as of the date hereof.
MICHAELS STORES, INC.
By: ______________________________
Title: ______________________
Date: __________________
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<PAGE>
EXHIBIT F
ASSIGNMENT AND ACCEPTANCE
Dated ________________
Reference is made to the Credit Agreement dated at of June 17, 1994, among
Michaels Stores, Inc. ("Company"), NationsBank of Texas, N.A. for itself and as
Administrative Lender ("Administrative Lender"), and certain other Lenders party
thereto ("Lenders") as the same may hereafter be amended from time to time
("Credit Agreement"). Terms defined in the Credit Agreement are used herein
with the same meaning.
____________________________ ("Assignor") and _____________________________
("Assignee") agree as follows:
1. Assignor hereby sells and assigns to Assignee without recourse or
warranty, and Assignee hereby purchases and assumes from Assignor, a ____%
interest in and to all of Assignor's rights and obligations under the Credit
Agreement as of the Effective Date (as defined below), with respect to such
percentage interest in Assignor's portion of the Commitment as in effect on the
Effective Date, the principal amount of Advances owing to Assignor on the
Effective Date, and the Notes held by Assignor, and the Letters of Credit issued
pursuant to the Credit Agreement, subject to the terms and conditions of this
Agreement and Acceptance.
2. Assignor (a) represents and warrants that as of the date hereof (i)
the aggregate amount of its portion of the Commitment (without giving effect to
assignments thereof which have not yet become effective) is $_______________ as
of the date hereof, (ii) the outstanding principal amount of the Advances owing
to it (without giving effect to assignments thereof which have not yet become
effective) is $_______________ and $_______________, and (iii) it is the legal
and beneficial owner of the interest being assigned by it hereunder; (b) makes
no representation or warranty and assumes no responsibility with respect to (i)
any statements, warranties, or representations made in or in connection with the
Credit Agreement or the execution, legality, validity, enforceability,
genuineness, sufficiency, or value of the Credit Agreement, the Loan Papers, or
any other instrument or document furnished pursuant thereto or (ii) the
financial condition of the Company or the performance or observance by the
Company of any of its obligations under the Credit Agreement, the Loan Papers,
or any other instrument or document furnished pursuant thereto; and (c) attaches
that Notes referred to in Paragraph 1 above to exchange such Notes for new Notes
as follows: ___________________________________________.
<PAGE>
3. Assignee (a) confirms that it has received a copy of the Credit
Agreement and the other Loan Papers (except Fee Letters specifically relating to
the Administrative Lender or any other Lender), together with copies of the
financial statements referred to in the Credit Agreement and such other
documents and information as it has deemed appropriate to make its own credit
analysis and decision to enter into this Assignment and Acceptance; (b) agrees
that it will, independently and without reliance upon the Administrative Lender,
Assignor, or any other Lender, and based on such documents and information as it
shall deem appropriate at the time, continue to make its own credit decisions in
taking or not taking action under the Credit Agreement and the other Loan
Papers; (c) appoints and authorizes the Administrative Lender to take such
action as agent on its behalf and to exercise such powers under the Credit
Agreement, the other Loan Papers,and this Assignment and Acceptance as are
delegated to the Administrative Lender by the terms thereof and hereof, together
with such powers as are reasonably incidental thereto and hereto; (d) agrees
that it will perform in accordance with its terms all of the obligations which
by the terms of the Credit Agreement, the other Loan Papers, and this Assignment
and Acceptance are required to be performed by it as a Lender; (e) specifies the
addressees set forth in Schedule I attached hereto as its address for the
receipt of notices; and (f) if it is not a United States Person, attaches the
forms prescribed by the Internal Revenue Service certifying as to Assignee's
status for purposes of determining exception from United States withholding
taxes with respect to all payments to be made to Assignee under the Credit
Agreement, the other Loan Papers, and this Assignment and Acceptance or such
other documents as are necessary to indicate that all such payments are subject
to such taxes at a rate reduced by an applicable tax treaty.
4. The effective date for this Assignment and Acceptance shall be
_____________ (the "Effective Date").
5. Upon remittance of the $2,500 processing fee to the Administrative
Lender and from and after the Effective Date, (a) Assignee shall be a party to
the Credit Agreement and, to the extent provided in this Assignment and
Acceptance, have the rights and obligations of a Lender thereunder and (b)
Assignor shall, to the extent provided in this Agreement and Acceptance,
relinquish it rights and be released from its obligations under the Credit
Agreement.
6. From and after the Effective Date, whenever the Administrative Lender
shall receive a payment, or whenever the Administrative Lender shall make an
application of funds, in respect of any aggregate outstanding principal amount
of the Advances or in respect of any aggregate amount of interest accrued on the
Advances, or in respect of the commitment fee (other than a payment or an
application of funds in respect of any amount due and owing and payable directly
to any Lender or the Administrative
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<PAGE>
Lender under the Credit Agreement), the Administrative Lender shall, subject to
the terms of the Credit Agreement, pay to each of the Lenders an amount equal to
(i) such Lender's Specified Percentage of the Commitment of such aggregate
amount of principal, (ii) such Lender's Specified Percentage of the Commitment
of such aggregate amount of interest, and (iii) such Lender's Specified
Percentage of aggregate amount of commitment fees.
7. In the event that, after the Administrative Lender has paid to any
Lender it share of any such payment received by the Administrative Lender or any
such application made by the Administrative Lender, such payment or application
is rescinded or must otherwise be returned or must be paid over by the
Administrative Lender for any reason, such Lender shall, upon notice by the
Administrative Lender, forthwith pay back to the Administrative Lender such
Lender's share of the amount so rescinded or so returned or paid over.
8. THIS ASSIGNMENT AND ACCEPTANCE SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS AND THE UNITED STATES OF AMERICA.
WITHOUT EXCLUDING ANY OTHER JURISDICTION, ASSIGNEE AGREES THAT THE COURTS OF
TEXAS WILL HAVE JURISDICTION OVER PROCEEDINGS IN CONNECTION HEREWITH.
9. Assignee's Specified Percentage shall be _______%.
10. This Assignment and Acceptance may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all such
separate counterparts shall together constitute but one and the same instrument.
[ASSIGNOR]
By: ______________________________
______________________________
______________________________
[ASSIGNEE]
By: ______________________________
Its: ______________________________
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<PAGE>
Accepted this ____ day of _____________
NATIONSBANK OF TEXAS, N.A.
as Administrative Lender
By: ______________________________
Its: ______________________________
MICHAEL'S STORES, INC.
By: ______________________________
Its: ______________________________
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<PAGE>
Schedule I
ASSIGNEE'S ADDRESS
1. ADDRESS FOR THE ADVANCES AND RECEIPT OF NOTICES
2. INITIAL LIBOR LENDING OFFICE
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