<PAGE>
As filed with the Securities and Exchange Commission on February 17, 1994
---
Registration No. 33-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
-----------------
MICHAELS STORES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 75-1943604
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
5931 CAMPUS CIRCLE DRIVE
IRVING, TEXAS 75063
P.O. BOX 619566
DFW, TEXAS 75261-9566
(214) 580-8242
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
JACK E. BUSH
5931 CAMPUS CIRCLE DRIVE
IRVING, TEXAS 75063
(214) 580-8242
(Name, address, including zip code, and
telephone number, including area code,
of agent for service)
----------------
Copies to:
MARK V. BEASLEY, ESQ. CHARLES D. MAGUIRE, JR., ESQ.
MICHAELS STORES, INC. JACKSON & WALKER, L.L.P.
P.O. Box 619566 901 Main Street
Dallas, Texas 75261-9566 Suite 6000
Dallas, Texas 75202
----------------
Approximate date of commencement of proposed sale to the public: From time to
time 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 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. [X]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
====================================================================================================
Title of Each Class Amount Proposed Maximum Proposed Maximum
of Securities to to be Offering Price Aggregate Amount of
be Registered Registered Per Share (1) Offering Price (1) Registration Fee
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value 280,000 shares $34.625 $9,695,000 $3,344
$ .10 per share
====================================================================================================
<FN>
(1) Estimated solely for the purpose of calculating the registration fee.
Pursuant to Rule 457(c), the offering price and registration fee are
computed on the basis of the average of the high and low prices of the
Common Stock as reported by the National Association of Securities Dealers,
Inc., National Market System on February 14, 1994.
</TABLE>
----------------
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>
PROSPECTUS
280,000 Shares
MICHAELS STORES, INC.
Common Stock
This Prospectus relates to the offer and sale of an aggregate of 280,000
shares of common stock, par value $0.10 per share (the "Common Stock") of
Michaels Stores, Inc. (the "Company"), by certain stockholders of the Company
(the "Selling Stockholders"). The Selling Stockholders directly, through agents
designated from time to time, or through dealers or underwriters also to be
designated, may sell the Common Stock from time to time on terms to be
determined at the time of sale. To the extent required, the specific number of
shares of Common Stock to be sold, the names of the Selling Stockholders, the
purchase price, the public offering price, the names of any such agent, dealer
or underwriter, and any applicable commission or discount with respect to a
particular offer will be set forth in an accompanying Prospectus Supplement.
See "Plan of Distribution."
The Common Stock is quoted through the National Association of Securities
Dealers Automated Quotation ("NASDAQ") National Market System and may be sold
from time to time by the Selling Stockholders either directly in private
transactions, or through one or more brokers or dealers through NASDAQ at such
prices and upon such terms as may be obtainable.
Upon any sale of the Common Stock offered hereby, Selling Stockholders and
participating agents, brokers or dealers may be deemed to be underwriters as
that term is defined in the Securities Act of 1933, as amended (the "Securities
Act"), and commissions or discounts or any profit realized on the resale of such
securities purchased by them may be deemed to be underwriting commissions or
discounts under the Securities Act. The Company, however, understands that the
Selling Stockholders do not admit that they are underwriters within the meaning
of the Securities Act. The Company will not receive any of the proceeds from
the sales of the securities offered hereby.
No underwriter is being utilized in connection with this offering. The
Company will pay all expenses incurred in connection with this offering, which
are estimated to be approximately $43,000.
On February 14, 1994, the closing price of the Common Stock on NASDAQ
was $34-3/4.
----------------
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 ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
----------------
The date of this Prospectus is _____________________.
<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 can be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the Commission's Regional Offices
in Chicago, Illinois (Northwestern Atrium Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60604) and New York, New York (7 World Trade Center,
13th Floor, New York, New York 10007). Copies of such material can also be
obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates.
This Prospectus, which constitutes part of a Registration Statement filed
by the Company with the Commission under the Securities Act (the "Registration
Statement"), omits certain of the information contained in the Registration
Statement. Reference is made to the Registration Statement and to the exhibits
thereto for further information with respect to the Company and the Common Stock
offered hereby. Copies of such Registration Statement are available from the
Commission. Statements contained herein concerning the provisions of documents
filed herewith as exhibits are necessarily summaries of such documents, and each
such statement is qualified in its entirety by reference to the copy of the
applicable document filed with the Commission.
The Company's principal executive offices are located at 5931 Campus Circle
Drive, Irving, Texas, its mailing address is P.O. Box 619566, DFW, Texas 75261-
9566, and its telephone number at such address is (214) 580-8242.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, which have been filed with the Commission by the
Company, are incorporated herein by reference and made a part hereof: (i)
Annual Report on Form 10-K for the year ended January 31, 1993; (ii) definitive
proxy statement, dated April 29, 1993, relating to the Company's Annual Meeting
of Shareholders held on June 8, 1993; (iii) Quarterly Report on Form 10-Q for
the quarter ended May 2, 1993; (iv) Quarterly Report on Form 10-Q for the
quarter ended August 1, 1993; (v) Quarterly Report on Form 10-Q for the quarter
ended October 31, 1993 and (vi) Registration Statement on Form 8-A (No. 0-
11822) effective as of September 11, 1991.
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 offering of Common Stock to be made hereunder
shall be deemed to be incorporated by reference herein and to be a part hereof
from the date of filing thereof. Any statement contained in a document
incorporated or deemed to be 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 herein or in the Registration
Statement by reference (other than
2
<PAGE>
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
the Company's principal office: Michaels Stores, Inc., P.O. Box 619566, DFW,
Texas 75261-9566, Attention: Investor Relations, (214) 580-8242.
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of the Common Stock
offered hereby.
SELLING STOCKHOLDERS
This Prospectus covers the offer and resale from time to time by each
Selling Stockholder of the Common Stock owned by each such Selling Stockholder.
Set forth below are the names of each Selling Stockholder, the nature of any
position, office, or other material relationship that the Selling Stockholder
has had within the past three years with the Company or any of its predecessors
or affiliates, the number of shares of Common Stock owned as of February 14,
1994, by each Selling Stockholder, the number of shares of Common Stock that may
be offered and sold by such Selling Stockholder pursuant to this Prospectus and
the number of shares of Common Stock, the amount and (if one percent or more)
the percentage of Common Stock to be owned by each Selling Stockholder upon
completion of the offering if all such shares are sold. Any or all of the
shares of Common Stock listed below may be offered for sale by the Selling
Stockholders from time to time.
<TABLE>
<CAPTION>
Common Stock Beneficial
Beneficial Offered for Ownership of
Ownership of Selling Common Percent of
Common Stock Stockholders' Stock After Class after
Name Prior to Offering Account Offering Offering
- ---- ----------------- ------- -------- --------
<S> <C> <C> <C> <C>
Marc L. Abramowitz (1) 142,800 142,800 0 *
Matthew Abramowitz (2) 89,600 89,600 0 *
Edward K. Baker (3) 14,000 14,000 0 *
William T. Gilbert (4) 5,600 5,600 0 *
Michael F. Solomon 2,800 2,800 0 *
Marc L. Abramowitz
Irrevocable Trust
Number 5--Treasure
House Stores, Inc.
for His Children and
Their Descendants (5) 25,200 25,200 0 *
____________________________________
<FN>
*Indicates shares held are less than 1% of class.
</TABLE>
3
<PAGE>
<TABLE>
<C> <S>
(1) Former consultant and director of business planning and strategy for
Treasure House Stores, Inc., a Delaware corporation ("Treasure House"),
a recently acquired wholly owned subsidiary of the Company and former
holder of more than 10% of the then outstanding common stock of
Treasure House.
(2) Former director, vice president, assistant secretary and assistant
treasurer of Treasure House and former holder of more than 10% of the then
outstanding common stock of Treasure House.
(3) Former director, president and chief operating officer of Treasure House.
(4) Former director, chief financial officer, secretary and treasurer of
Treasure House.
(5) The Marc L. Abramowitz Irrevocable Trust Number 5 -- Treasure House
Stores, Inc. for His Children and Their Descendants (the "Trust") is a
trust formed under the laws of the District of Columbia; Michael F.
Solomon is the Trust's trustee, which is for the benefit of Marc L.
Abramowitz's children and their descendants.
</TABLE>
In February 1994, the Company acquired (the "Acquisition") all of the
outstanding stock of Treasure House. Pursuant to the Acquisition, each Selling
Stockholder, which prior to the Acquisition was a stockholder of Treasure House,
received the shares of Common Stock referred to in the table above. In
connection with the Acquisition, the Company has agreed to register for sale
under the Securities Act all shares of Common Stock acquired by the Selling
Stockholders pursuant to the Acquisition.
[Intentionally Left Blank]
4
<PAGE>
PLAN OF DISTRIBUTION
The Common Stock offered hereby may be sold from time to time to purchasers
directly by any of the Selling Stockholders. Alternatively, the Selling
Stockholders may from time to time offer the Common Stock through underwriters,
dealers or agents who may receive compensation in the form of underwriting
discounts, concessions or commissions from the Selling Stockholders and/or the
purchasers of the Common Stock for whom they may act as agent. The Selling
Stockholders and any underwriters, dealers or agents that participate in the
distribution of the Common Stock may be deemed to be underwriters, and any
profit on the sale of the Common Stock by them and any discounts, commissions or
concessions received by any such underwriters, dealers or agents might be deemed
to be underwriting discounts and commissions under the Securities Act. The
Company, however, understands that the Selling Stockholders do not admit that
they are underwriters within the meaning of the Securities Act.
At the time a particular offer of the Common Stock is made, to the extent
required, a Prospectus Supplement will be distributed, which will set forth the
number of shares of Common Stock being offered and the terms of the offering,
including the name or names of any underwriters, dealers or agents, any
discounts, commissions and other items constituting compensation from the
Selling Stockholders and any discounts, commissions or concessions allowed or
reallowed or paid to dealers.
The Common Stock may be sold from time to time in one or more transactions
at fixed offering prices, which may be changed, or at varying prices determined
at the time of sale or at negotiated prices. The Company will pay all of the
expenses incident to the offering and sale of the Common Stock to the public
other than commissions and discounts of underwriters, dealers or agents,
brokers' fees and the fees and expenses of any counsel to the Selling
Stockholders related thereto.
LEGAL MATTERS
Certain legal matters in connection with the validity of the securities
offered hereby have been passed upon for the Company by Jackson & Walker,
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.,
incorporated by reference in the Company's Annual Report (Form 10-K) for the
year ended January 31, 1993 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.
5
<PAGE>
- -------------------------------------- -------------------------------------
- -------------------------------------- -------------------------------------
No person has been authorized to give
any information or to make any
representation other than those
contained in this Prospectus, and if
given or made, such information or
representations must not be relied upon.
This Prospectus does not constitute an
offer to sell or a solicitation of an
offer to buy any securities other than
registered securities to which it
relates, or an offer to or a
solicitation of any person in any
jurisdiction where such offer or
solicitation would be unlawful. The
delivery of this Prospectus at any time
does not imply that the information
herein is correct as of any date
subsequent to its date.
MICHAELS STORES, INC.
PROSPECTUS
_________________
________________, 1994
TABLE OF CONTENTS
Page
Available Information. . . . . . . . 2
Incorporation of Certain
Documents by Reference . . . . . . 2
Use of Proceeds. . . . . . . . . . . 3
Selling Stockholders . . . . . . . . 3
Plan of Distribution . . . . . . . . 5
Legal Matters. . . . . . . . . . . . 5
Experts. . . . . . . . . . . . . . . 5
- -------------------------------------- -------------------------------------
- -------------------------------------- -------------------------------------
<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>
Registration Fees. . . . . . . . . . $ 3,344
Accounting Fees and Expenses . . . . 30,000
Legal Fees and Expenses. . . . . . . 5,000
Miscellaneous. . . . . . . . . . . . 4,656
-------
Total . . . . . . . . . . . . . . . $43,000
-------
</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 3.1 of this Registration Statement, which
provides for indemnification of directors and officers.
Reference is made to Article IX of the Registrant's Amended Bylaws, Exhibit
3.2 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.
II-1
<PAGE>
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.
Exhibit
Number Description of Exhibit
- -------- ----------------------
1 None.
2 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. (1)
3.1 Restated Certificate of Incorporation of Michaels Stores, Inc. (2)
3.2 Bylaws of Michaels Stores, Inc. as amended. (3)
4.1 Form of Common Stock Certificate. (4)
4.2 Common Stock and Warrant Agreement dated as of October 16, 1984
between Michaels Stores, Inc. and Peoples Restaurants, Inc.,
including form of Warrant. (5)
4.3 First Amendment to Common Stock and Warrant Agreement dated October
31, 1984 between The First Dallas Group, Ltd. and Michaels Stores,
Inc. (5)
4.4 Second Amendment to Common Stock and Warrant Agreement dated
November 28, 1984 between First Dallas Investments-Michaels I, Ltd.
and Michaels Stores, Inc. (5)
4.5 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. (3)
4.6 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. (2)
4.7 Michaels Stores, Inc. Key Employee Stock Compensation Program,
effective February 25, 1992. (2)
II-2
<PAGE>
5 Opinion of Jackson & Walker. (1)
8 None.
12 None.
15 None.
23.1 Consent of Ernst & Young. (1)
23.2 Consent of Jackson & Walker. (6)
24 Power of Attorney. (7)
26 None.
27 None.
28 None.
____________
(1) Filed herewith.
(2) Previously filed as an exhibit to the Registrant's Registration Statement
on Form S-8 (No. 33-54726) and incorporated herein by reference.
(3) Previously filed as an Exhibit to the Registrant's Registration Statement
on Form S-1 (No. 33-9456) and incorporated herein by reference.
(4) Previously filed as an exhibit to the Registrant's Registration Statement
on Form S-1 (No. 2-89370) and incorporated herein by reference.
(5) Previously filed as an exhibit to the Registrant's Report on Form 10-K for
the year ended January 31, 1993 and incorporated herein by reference.
(6) Included in the opinion of Jackson & Walker, L.L.P., filed herewith.
(7) Included in the signature pages hereto.
II-3
<PAGE>
ITEM 17. UNDERTAKINGS.
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;
PROVIDED, HOWEVER, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if
the information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the Registrant pursuant to
Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment 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.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(b) 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.
(c) 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
II-4
<PAGE>
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.
II-5
<PAGE>
POWER OF ATTORNEY
Each person whose signature appears below authorizes Mark V. Beasley and R.
Don Morris, or either of them, to execute in the name of each such person who is
then an officer or director of the Registrant and to file any amendments to this
Registration Statement necessary or advisable to enable the Registrant to comply
with the Securities Act of 1933, as amended, and any rules, regulations and
requirements of the Securities and Exchange Commission, in respect thereof, in
connection with the registration of the securities which are the subject of this
Registration Statement, which amendments may make such changes in the
Registration Statement as such attorney may deem appropriate.
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 17th day of February,
1994. --
MICHAELS STORES, INC.
/s/ Jack E. Bush
By:_____________________________________
Jack E. Bush
President, Chief Operating
Officer and Director
II-6
<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
/s/ Sam Wyly Board of Directors and February 17, 1994
- ------------------------- Chief Executive Officer --
Sam Wyly (Principal Executive Officer)
/s/ Charles J. Wyly, Jr. Vice Chairman of the
- ------------------------- Board of Directors February 17, 1994
Charles J. Wyly, Jr. --
/s/ Jack E. Bush President, Chief Operating
- ------------------------- Officer and Director February 17, 1994
Jack E. Bush --
/s/ William O. Hunt
- ------------------------- Director February 17, 1994
William O. Hunt --
- ------------------------- Director February ___, 1994
Richard E. Hanlon
II-7
<PAGE>
- ------------------------- Director February ___, 1994
F. Jay Taylor
/s/ Michael C. French
- ------------------------- Director February 17, 1994
Michael C. French --
Vice President-
- ------------------------- Mergers and Investments, February ___, 1994
Evan A. Wyly and Director
/s/ Donald R. Miller, Jr. Vice President-
- ------------------------- Market Development, February 17, 1994
Donald R. Miller, Jr. and Director --
Executive Vice President
/s/ R. Don Morris and Chief Financial Officer
- ------------------------- (Principal Financial and February 17, 1994
R. Don Morris Accounting Officer) --
II-8
<PAGE>
INDEX TO EXHIBITS
Sequentially
Exhibit Numbered
Number Description of Exhibit Page
- ------- ---------------------- ----
1 None.
2 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. (1)
3.1 Restated Certificate of Incorporation of Michaels
Stores, Inc. (2)
3.2 Bylaws of Michaels Stores, Inc. as amended. (3)
4.1 Form of Common Stock Certificate. (4)
4.2 Common Stock and Warrant Agreement dated as of October
16, 1984 between Michaels Stores, Inc. and Peoples
Restaurants, Inc., including form of Warrant. (5)
4.3 First Amendment to Common Stock and Warrant Agreement
dated October 31, 1984 between The First Dallas Group,
Ltd. and Michaels Stores, Inc. (5)
4.4 Second Amendment to Common Stock and Warrant Agreement
dated November 28, 1984 between First Dallas
Investments-Michaels I, Ltd. and Michaels Stores, Inc. (5)
4.5 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. (3)
4.6 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,
<PAGE>
The Sam Wyly and Rosemary Wyly Children's Trust No. 1 of
1965 fbo Kelly Wyly and Tallulah, Ltd. (2)
4.7 Michaels Stores, Inc. Key Employee Stock Compensation
Program, effective February 25, 1992. (2)
5 Opinion of Jackson & Walker. (1)
8 None.
12 None.
15 None.
23.1 Consent of Ernst & Young. (1)
23.2 Consent of Jackson & Walker. (6)
24 Power of Attorney. (7)
26 None.
27 None.
28 None.
________________
(1) Filed herewith.
(2) Previously filed as an exhibit to the Registrant's Registration Statement
on Form S-8 (No. 33-54726) and incorporated herein by reference.
(3) Previously filed as an Exhibit to the Registrant's Registration Statement
on Form S-1 (No. 33-9456) and incorporated herein by reference.
(4) Previously filed as an exhibit to the Registrant's Registration Statement
on Form S-1 (No. 2-89370) and incorporated herein by reference.
(5) Previously filed as an exhibit to the Registrant's Report on Form 10-K for
the year ended January 31, 1993 and incorporated herein by reference.
(6) Included in the opinion of Jackson & Walker, L.L.P., filed herewith.
(7) Included in the signature pages hereto.
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EXHIBIT 2
Stock Purchase Agreement
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STOCK PURCHASE AGREEMENT
ACQUISITION OF
TREASURE HOUSE STORES, INC.
BY
MICHAELS STORES, INC.
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TABLE OF CONTENTS
ARTICLE I. Definitions.................................................... 1
Section 1.01. Definitions........................................... 1
ARTICLE II. Purchase and Sale............................................. 4
Section 2.01. Purchase and Sale of Stock............................ 4
Section 2.02. Consideration......................................... 4
ARTICLE III. Representations and Warranties of the Company and the
Shareholders......................................................... 5
Section 3.01. The Stock............................................. 5
Section 3.02. Organization and Good Standing; Qualification......... 5
Section 3.03. Capitalization........................................ 5
Section 3.04. Corporate Records..................................... 5
Section 3.05. Authorization and Validity............................ 6
Section 3.06. Subsidiaries.......................................... 6
Section 3.07. No Violation.......................................... 6
Section 3.08. Consents.............................................. 6
Section 3.09. Financial Statements.................................. 7
Section 3.10. Liabilities and Obligations........................... 7
Section 3.11. Employee Matters...................................... 7
Section 3.12. Employee Benefit Plans................................ 9
Section 3.13. Absence of Certain Changes............................ 9
Section 3.14. Title; Leased Assets.................................. 11
Section 3.15. Commitments........................................... 12
Section 3.16. Adverse Agreements.................................... 14
Section 3.17. Insurance............................................. 14
Section 3.18. Patents, Trademarks, Service Marks and Copyrights..... 14
Section 3.19. Trade Secrets......................................... 15
Section 3.20. Taxes................................................. 15
Section 3.21. Compliance with Laws.................................. 17
Section 3.22. Finder's Fee.......................................... 17
Section 3.23. Litigation............................................ 17
Section 3.24. Accuracy of Information Furnished..................... 17
Section 3.25. Condition of Fixed Assets............................. 18
Section 3.26. Inventory............................................. 18
Section 3.27. Books of Account...................................... 18
Section 3.28. Corporate Name........................................ 18
Section 3.29. Distributions and Repurchases; Issuance of Capital Stock
to Management.................................................. 18
Section 3.30. Banking Relations..................................... 19
Section 3.31. Ownership Interests of Interested Persons............. 19
Section 3.32. Investments in Competitors............................ 19
Section 3.33. Environmental Matters................................. 19
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Section 3.34. Certain Payments....................................... 20
ARTICLE IV. Representations, Warranties and Covenants of the Shareholders.. 20
Section 4.01. Ownership of the Stock................................. 20
Section 4.02. Shareholders' Capacity................................. 20
Section 4.03. Investment Representations and Covenants............... 20
Section 4.04. Personal Holding Company; Control of Related Businesses 21
Section 4.05. Ownership of Michaels Common Stock..................... 21
Section 4.06. Transfers of Company Common Stock...................... 21
ARTICLE V. S Corporation Issues............................................ 22
Section 5.01. S Corporation.......................................... 22
Section 5.02. Amendment of Returns................................... 22
Section 5.03. Audits................................................. 22
Section 5.04. Action By Michaels or the Company...................... 23
ARTICLE VI. Representations and Warranties of Michaels..................... 23
Section 6.01. Organization and Good Standing......................... 23
Section 6.02. Authorization and Validity............................. 23
Section 6.03. No Violation........................................... 23
Section 6.04. Michaels Stock......................................... 24
Section 6.05. Michaels' Financial Statements......................... 24
Section 6.06. Corporate Approvals.................................... 24
Section 6.07. Full Disclosure........................................ 24
ARTICLE VII. The Company's and the Shareholders' Covenants................. 24
Section 7.01. Consummation of Agreement.............................. 24
Section 7.02. Business Operations.................................... 25
Section 7.03. Access................................................. 25
Section 7.04. Notification of Certain Matters........................ 25
Section 7.05. Approvals of Third Parties............................. 25
Section 7.06. Employee Matters....................................... 26
Section 7.07. Employee Benefit Plans................................. 26
Section 7.08. Contracts.............................................. 26
Section 7.09. Changes in Inventory................................... 26
Section 7.10. Capital Assets; Payments of Liabilities................ 26
Section 7.11. Mortgages, Liens and Guaranties........................ 27
Section 7.12. No Negotiation with Others............................. 27
Section 7.13. Distributions and Repurchases.......................... 27
Section 7.14. Information for Registration Statement................. 27
Section 7.15. Accounting Treatment................................... 27
Section 7.16. Term Loan.............................................. 27
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ARTICLE VIII. Michaels' Covenants......................................... 28
Section 8.01. Consummation of Agreement............................. 28
Section 8.02. Registration Statement................................ 28
ARTICLE IX. Michaels' Conditions Precedent................................ 29
Section 9.01. Representations and Warranties........................ 30
Section 9.02. Covenants and Conditions.............................. 30
Section 9.03. Legal Opinion......................................... 30
Section 9.04. Proceedings........................................... 30
Section 9.05. No Material Adverse Change............................ 30
Section 9.06. Government Approvals and Required Consents............ 30
Section 9.07. Closing Deliveries.................................... 30
Section 9.08. Accounting Treatment.................................. 30
Section 9.09. Landlord Consents..................................... 31
ARTICLE X. The Company's and the Shareholders' Conditions Precedent....... 31
Section 10.01. Representations and Warranties....................... 31
Section 10.02. Covenants and Conditions............................. 31
Section 10.03. Proceedings.......................................... 32
Section 10.04. Closing Deliveries................................... 32
Section 10.05. Legal Opinion........................................ 32
ARTICLE XI. Closing Deliveries............................................ 32
Section 11.01. Deliveries of the Company and the Shareholders....... 32
Section 11.02. Deliveries of Michaels............................... 34
ARTICLE XII. Post Closing Matters......................................... 35
Section 12.01. Further Instruments of Transfer...................... 35
Section 12.02. Registration; Re-Sale of Michaels Stock Consideration 35
Section 12.03. Right of Rescission.................................. 36
Section 12.04. Release of Guaranties................................ 36
ARTICLE XIII. Remedies.................................................... 36
Section 13.01. Indemnification by the Shareholders.................. 36
Section 13.02. Indemnification by Michaels.......................... 36
Section 13.03. Conditions of Indemnification........................ 37
Section 13.04. Waiver............................................... 38
Section 13.05. Remedies Not Exclusive............................... 38
Section 13.06. Offset............................................... 38
Section 13.07. Costs, Expenses and Legal Fees....................... 38
Section 13.08. Tax Effect of Indemnification........................ 39
Section 13.09. Indemnification Limitations.......................... 39
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ARTICLE XIV. Termination.................................................. 39
Section 14.01. Termination.......................................... 39
ARTICLE XV. Miscellaneous................................................. 40
Section 15.01. Amendment............................................ 40
Section 15.02. Assignment........................................... 40
Section 15.03. Parties In Interest; No Third Party Beneficiaries.... 40
Section 15.04. Entire Agreement..................................... 40
Section 15.05. Severability......................................... 40
Section 15.06. Survival of Representations, Warranties and Covenants 41
Section 15.07. Governing Law........................................ 41
Section 15.08. No Consequential or Punitive Damages................. 41
Section 15.09. Captions............................................. 41
Section 15.11. Reference to Agreement............................... 41
Section 15.12. Confidentiality; Publicity and Disclosures........... 41
Section 15.13. Notice............................................... 42
Section 15.14. Dispute Resolution................................... 43
Section 15.15. Service of Process................................... 44
Section 15.16. Counterparts......................................... 44
EXHIBITS
Exhibit A - List of Shareholders
Exhibit 3.02 - Qualification as Foreign Corporation
Exhibit 3.03 - Capitalization
Exhibit 3.07 - No Violation
Exhibit 3.08 - Consents
Exhibit 3.10 - Liabilities and Obligations
Exhibit 3.11(a) - Cash Compensation
Exhibit 3.11(b) - Compensation Plans
Exhibit 3.11(d) - Employee Policies and Procedures
Exhibit 3.11(f) - Labor Compliance
Exhibit 3.12(b) - Medical and Dental Care Claims
Exhibit 3.13 - Absence of Certain Changes
Exhibit 3.14(a) - Real Property
Exhibit 3.14(c) - Leases
Exhibit 3.14(d) - Right to Use Assets
Exhibit 3.15 - Commitments
Exhibit 3.17 - Insurance
Exhibit 3.18 - Patents, Trademarks, Service Marks and Copyrights
Exhibit 3.19 - Trade Secrets
Exhibit 3.21 - Compliance with Laws
Exhibit 3.23 - Litigation
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Exhibit 3.28 - Corporate Name
Exhibit 3.29 - Distributions and Repurchases
Exhibit 3.30 - Banking Relations
Exhibit 3.31 - Ownership Interests of Interested Persons
Exhibit 3.33 - Environmental Laws
Exhibit 4.03 - Legends for Stock Certificates
Exhibit 7.11 - Mortgages, Liens and Guaranties
Exhibit 9.03 - Opinion of Counsel
Exhibit 9.09 - Affiliates Letters
Exhibit 11.01(j) - Noncompetition and Confidentiality Agreement
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STOCK PURCHASE AGREEMENT
This Agreement (the "Agreement"), dated as of February 16, 1994, among
Treasure House Stores, Inc., a Delaware corporation (the "Company"), the
holders of all of the outstanding capital stock of the Company (collectively,
the "Shareholders"), and Michaels Stores, Inc., a Delaware corporation
("Michaels"),
W I T N E S S E T H :
WHEREAS, the Shareholders hold all of the issued and outstanding shares
of capital stock of the Company, as set forth on Exhibit A (the "Stock"), and
desire to sell, and Michaels desires to purchase, the Stock;
NOW, THEREFORE, in consideration of the mutual representations,
warranties and covenants herein contained, and on the terms and subject to the
conditions herein set forth, the parties hereto hereby agree as follows:
ARTICLE I.
DEFINITIONS
SECTION 1.01. DEFINITIONS. As used in this Agreement, the following
terms shall have the meanings set forth below:
(a) "Affiliate" shall have the meaning set forth in Section 9.09.
(b) "Agreement" shall have the meaning set forth in the preamble to
this Agreement.
(c) "best knowledge", "have no knowledge of", or "do not know of" and
similar phrases shall mean (i) in the case of a natural person, the particular
fact was known, or not known, as the context requires, to such person after
diligent investigation and inquiry by such person, and (ii) in the case of an
entity, the particular fact was known, or not known, as the context requires,
to any key employee of such entity after diligent investigation and inquiry by
the principal executive officers of such entity; provided, however, the
diligent investigation and inquiry duty will be deemed fulfilled if such
investigation and inquiry is conducted of store managers.
(d) "Cash Compensation" shall have the meaning set forth in Section
3.11(a).
(e) "CERCLA" shall have the meaning set forth in Section 3.33(a).
(f) "Closing" shall mean the closing of the transactions contemplated
by this Agreement, which shall occur at 10:00 a.m., local time, on the Closing
Date in the offices of Stoel Rives Boley Jones & Grey, One Union Square, 600
University Street, 36th Floor, Seattle,
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Washington 98101, or at such other time and place as shall be mutually agreed
in writing by the parties hereto.
(g) "Closing Date" shall mean February 23, 1994 or such other date as
may be mutually agreed in writing by the parties hereto; provided that the
date may not be later than February 28, 1994.
(h) "Code" shall mean the Internal Revenue Code of 1986.
(i) "Commitments" shall have the meaning set forth in Section 3.15(a).
(j) "Company" shall have the meaning set forth in the preamble to this
Agreement.
(k) "Compensation Plans" shall have the meaning set forth in Section
3.11(b).
(l) "Company Common Stock" shall have the meaning set forth in Section
3.03.
(m) "Consulting Agreement" shall mean that certain Consulting
Agreement by and between the Company and Marc L. Abramowitz.
(n) "Damages" shall have the meaning set forth in Section 8.02(c).
(o) "Delay Notice" shall have the meaning set forth in Section 12.02.
(p) "Delay Period" shall have the meaning set forth in Section 12.02.
(q) "Employee Benefit Plan" shall have the meaning set forth in
Section 3.12(a).
(r) "Employee Policies and Procedures" shall have the meaning set
forth in Section 3.11(d).
(s) "Employment Agreements" shall have the meaning set forth in
Section 3.11(c).
(t) "Environmental Laws" shall have the meaning set forth in Section
3.33(a).
(u) "ERISA" shall have the meaning set forth in Section 3.12(a).
(v) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
(w) "Financial Statements" shall have the meaning set forth in Section
3.09.
(x) "Fixed Assets" shall have the meaning set forth in Section 3.25.
(y) "indemnifying party" shall have the meaning set forth in Section
13.03.
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(z) "IRS" shall have the meaning set forth in Section 5.03.
(aa) "Loan Agreement" shall mean that certain Loan Agreement, dated as
of April 8, 1993, by and between the Company, as borrower, and West One Bank,
Washington, as lender.
(ab) "Merger" shall have the meaning set forth in Section 2.03.
(ac) "Michaels" shall have the meaning set forth in the preamble to
this Agreement.
(ad) "Michaels Common Stock" shall mean the common stock, par value
$.10 per share, of Michaels Stores, Inc.
(ae) "Michaels Stock Consideration" shall have the meaning set forth in
Section 2.02.
(af) "Newco" shall have the meaning set forth in Section 2.03.
(ag) "ordinary course of business" means the usual and customary way in
which the Company has conducted its business in the past.
(ah) "party to be indemnified" shall have the meaning set forth in
Section 13.03.
(ai) "Personal Property" shall have the meaning set forth in Section
3.14(b).
(aj) "Proprietary Rights" shall have the meaning set forth in Section
3.18(a).
(ak) "RCRA" shall have the meaning set forth in Section 3.33(a).
(al) "Registration Statement" shall have the meaning set forth in
Section 8.02.
(am) "Real Property" shall have the meaning set forth in Section
3.14(a).
(an) "Reports" shall have the meaning set forth in Section 4.03.
(ao) "Restated Investor Agreement" shall mean that certain Restated
Investor Agreement, dated January 1, 1993, as amended, by and among the
Company, the Shareholders and the Trust.
(ap) "Sale Period" shall have the meaning set forth in Section 12.02.
(aq) "SEC" shall mean the Securities and Exchange Commission.
(ar) "Securities Act" shall mean the Securities Act of 1933, as
amended.
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(as) "Shareholders" shall have the meaning set forth in the preamble to
this Agreement.
(at) "Short Tax Period" shall have the meaning set forth in Section
5.01.
(au) "Stock" shall have the meaning set forth in the recitals to this
Agreement.
(av) "Subsidiary" shall mean any corporation, partnership, joint
venture or other legal entity of which the Company owns, directly or
indirectly, 50% or more of the stock or other equity interests the holders of
which are generally entitled to vote for the election of the board of
directors or other governing body of such corporation or other legal entity;
and shall include within the meaning of the term each Subsidiary, as defined
above, of any Subsidiary of the Company.
(aw) "Trust" shall mean the Irving Abramowitz 1981 Family Trust.
(ax) "12% Subordinated Debentures" shall mean those certain 12%
Subordinated Debentures Due December 31, 1997, in the aggregate principal
amount of $971,430, dated the various dates of issue and payable to certain
Shareholders.
ARTICLE II.
PURCHASE AND SALE
SECTION 2.01. PURCHASE AND SALE OF STOCK. Subject to and upon the
terms and conditions contained herein, at the Closing, the Shareholders shall
sell, transfer, assign, convey and deliver to Michaels, free and clear of all
adverse claims, security interests, liens, claims and encumbrances and
Michaels shall purchase, accept and acquire from the Shareholders, the Stock.
SECTION 2.02. CONSIDERATION. The total consideration for the Stock
shall be 280,000 shares of Michaels Common Stock (the "Michaels Stock
Consideration") which shall be issued and delivered to the Shareholders in the
amounts set forth in Exhibit A.
SECTION 2.03. ALTERNATIVE STRUCTURE. At the reasonable request of
the Shareholders, and so long as such request shall not result in an adverse
tax or financial impact upon Michaels, the transaction contemplated hereby
will be effected by means of a merger of a wholly owned subsidiary of Michaels
("Newco") with and into the Company and the separate corporate existence of
Newco shall cease (the "Merger") which Merger will be designed to qualify as a
tax free reorganization under Code Section 368(a)(2)(E). Upon such request,
the parties agree to execute such amendments to this Agreement and other
documents as may be deemed necessary by counsel to Michaels to carry out the
purpose and intent of this Section 2.03; provided, however, such amendments
shall not change or modify the substance of the transaction contemplated by
this Agreement.
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ARTICLE III.
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY AND THE SHAREHOLDERS
The Company and the Shareholders jointly and severally represent and
warrant that the following are true and correct as of the date hereof and will
be true and correct through the Closing Date as if made on that date:
SECTION 3.01. THE STOCK. The Stock constitutes all of the issued and
outstanding capital stock of the Company.
SECTION 3.02. ORGANIZATION AND GOOD STANDING; QUALIFICATION. The
Company is a corporation duly organized, validly existing and in good standing
under the laws of its state of incorporation, with all requisite corporate
power and authority to carry on the business in which it is engaged, to own
the properties it owns, to execute and deliver this Agreement and to
consummate the transactions contemplated hereby. The Company is duly
qualified and licensed to do business and is in good standing in all
jurisdictions where the nature of its business makes such qualification
necessary, which jurisdictions are listed in Exhibit 3.02, except where the
failure to be qualified or licensed would not have a material adverse effect
on the business operations or financial condition of the Company. The Company
does not have any assets, employees or offices in any state other than the
states listed in Exhibit 3.02.
SECTION 3.03. CAPITALIZATION. The authorized capital stock of the
Company consists solely of 50,000 shares of common stock, no par value per
share ("Company Common Stock"), of which 8,000 shares are issued and
outstanding, and 2,143 shares of such capital stock are held in the treasury
of the Company. All of the issued and outstanding shares of capital stock of
the Company are duly authorized, validly issued, fully paid and nonassessable.
Except as set forth in Exhibit 3.03 there have been no sales, assignments,
transfers or other dispositions of any interest in Company Common Stock.
Except as set forth in Exhibit 3.03, there exist no options, warrants,
subscriptions or other rights to purchase, or securities convertible into or
exchangeable for, the capital stock of the Company. Except as set forth in
Exhibit 3.03, neither the Shareholders nor the Company are parties to or bound
by, nor do they have any knowledge of, any agreement, instrument, arrangement,
contract, obligation, commitment or understanding of any character, whether
written or oral, express or implied, relating to the sale, assignment,
encumbrance, conveyance, transfer or delivery of any capital stock of the
Company. No shares of capital stock of the Company have been issued or
disposed of in violation of the preemptive rights of any of the Company's
shareholders. All accrued dividends on the capital stock of the Company,
whether or not declared, have been paid in full. The primary beneficiary
under the Trust does not own, directly or indirectly, beneficially or of
record, any shares of Company Common Stock.
SECTION 3.04. CORPORATE RECORDS. The copies of the Certificate of
Incorporation and all amendments thereto and the Bylaws of the Company that
have been delivered to Michaels
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are true, correct and complete copies thereof, as in effect on the date hereof.
The minute books of the Company, copies of which have been delivered to
Michaels, contain accurate minutes of all meetings of, and accurate consents to
all actions taken without meetings by, the Board of Directors (and any
committees thereof) and the shareholders of the Company since the formation of
the Company.
SECTION 3.05. AUTHORIZATION AND VALIDITY. The execution, delivery
and performance by the Company of this Agreement and the other agreements
contemplated hereby, and the consummation of the transactions contemplated
hereby and thereby, have been duly authorized by the Company and the
Shareholders. This Agreement and each other agreement contemplated hereby
have been or will be as of the Closing Date duly executed and delivered by the
Company and the Shareholders and constitute or will constitute legal, valid
and binding obligations of the Company and the Shareholders, enforceable
against the Company and the Shareholders in accordance with their respective
terms, except as may be limited by applicable bankruptcy, insolvency or
similar laws affecting creditors' rights generally or the availability of
equitable remedies. The sale of the Stock by the Shareholders to Michaels
will not impair the ability or authority of the Company to carry on its
business as now conducted in any respect.
SECTION 3.06. SUBSIDIARIES. The Company does not own, directly or
indirectly, any of the capital stock of any other corporation or any equity,
profit sharing, participation or other interest in any corporation,
partnership, joint venture or other entity.
SECTION 3.07. NO VIOLATION. Neither the execution, delivery or
performance of this Agreement or the other agreements contemplated hereby nor
the consummation of the transactions contemplated hereby or thereby will (i)
conflict with, or result in a violation or breach of the terms, conditions or
provisions of, or constitute a default under, the Certificate of Incorporation
or Bylaws of the Company or, except as set forth in Exhibit 3.07, any
agreement, indenture or other instrument under which the Company is bound or
to which the Stock or any of the assets of the Company are subject, or result
in the creation or imposition of any security interest, lien, charge or
encumbrance upon the Stock or any of the assets of the Company, or (ii)
violate or conflict with any judgment, decree, order, statute, rule or
regulation of any court or any public, governmental or regulatory agency or
body having jurisdiction over the Company, or the Stock or the assets of the
Company. To the best knowledge of the Company and its Shareholders, the
Company has complied with all laws, regulations and licensing requirements
except where the failure to comply would not have a material adverse effect on
the property, business or financial condition of the Company and has filed
with the proper authorities all necessary statements and reports except where
the failure to file would not have a material adverse effect on the property,
business or financial condition of the Company.
SECTION 3.08. CONSENTS. Except as set forth in Exhibit 3.08, to the
best knowledge of the Company and the Shareholders, no consent, authorization,
approval, permit or license of, or filing with, any governmental or public
body or authority, any lender or lessor or any other person or entity is
required to authorize, or is required in connection with, the execution,
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delivery and performance of this Agreement or the agreements contemplated
hereby on the part of the Company or the Shareholders.
SECTION 3.09. FINANCIAL STATEMENTS. The Company has furnished to
Michaels the audited balance sheet and related audited statements of
operations, shareholders' deficit and cash flows for the year ended December
27, 1992, including the notes thereto, as well as unaudited balance sheets and
related unaudited statements of operations, shareholders' deficit and cash
flows for the year ended December 26, 1993, including the notes thereto, and
the unaudited balance sheet and statement of operations (without notes) for
the four weeks ended January 23, 1994 (collectively, the "Financial
Statements"). The Financial Statements are true, correct and complete in all
material respects, are in accordance with the books and records of the
Company, fairly present the financial condition and results of operations of
the Company as of the dates and for the periods indicated and have been
prepared in conformity with generally accepted accounting principles applied
on a consistent basis with prior periods (except with respect to the absence
of notes).
SECTION 3.10. LIABILITIES AND OBLIGATIONS. Except as set forth in
Exhibit 3.10, (i) the Financial Statements reflect all liabilities of the
Company, accrued, contingent or otherwise, arising out of transactions
effected or events occurring on or prior to the date thereof and required to
be reflected on such financial statements in accordance with generally
accepted accounting principles applied on a consistent basis with prior
periods; (ii) all reserves shown in the Financial Statements are appropriate,
reasonable and sufficient to provide for losses thereby contemplated and
required to be reflected on such financial statements in accordance with
generally accepted accounting principles applied on a consistent basis with
prior periods; and (iii) except as set forth in the Financial Statements, the
Company is not liable upon or with respect to, or obligated in any other way
to provide funds in respect of or to guarantee or assume in any manner, any
debt, obligation or dividend of any other person, corporation, association,
partnership, joint venture, trust or other entity, and neither the Company nor
the Shareholders know of any basis for the assertion of any other material
claims or liabilities of any nature or in any material amount.
SECTION 3.11. EMPLOYEE MATTERS.
(a) CASH COMPENSATION. Exhibit 3.11(a) contains a complete and
accurate list of the names, titles and cash compensation, including without
limitation wages, salaries, bonuses (discretionary and formula) and other cash
compensation (the "Cash Compensation") of all employees of the Company who are
currently compensated at a rate in excess of $50,000 per year or who earned in
excess of such amount during the Company's 1993 fiscal year. In addition,
Exhibit 3.11(a) contains a complete and accurate description of (i) all
increases in Cash Compensation of such employees of the Company during the
current and 1993 fiscal years of the Company and (ii) any promised increases
in Cash Compensation of such employees of the Company that have not yet been
effected.
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(b) COMPENSATION PLANS. Except as set forth in Exhibit 3.11(b) there
exist no compensation plans, arrangements or practices (the "Compensation
Plans") sponsored by the Company or to which the Company contributes on behalf
of its employees, including without limitation plans, arrangements or
practices that provide for severance pay, deferred compensation, incentive,
bonus or performance awards, or stock ownership or stock options.
(c) EMPLOYMENT AGREEMENTS. There exist no employment agreements (the
"Employment Agreements") to which the Company is a party with respect to its
employees, including without limitation employee leasing agreements, employee
services agreements and noncompetition agreements.
(d) EMPLOYEE POLICIES AND PROCEDURES. Exhibit 3.11(d) contains a
complete and accurate list of all written employee manuals, policies,
procedures and work-related rules (the "Employee Policies and Procedures")
that apply to employees of the Company, all of which have been provided to
Michaels. Each of the Employee Policies and Procedures can be amended
prospectively or terminated at will by the Company.
(e) UNWRITTEN AMENDMENTS. To the best knowledge of the Company and
the Shareholders, no unwritten amendments have been made, whether by oral
communication, pattern of conduct or otherwise, with respect to any Employee
Policies and Procedures.
(f) LABOR COMPLIANCE. Except as set forth in Exhibit 3.11(f), to
the best knowledge of the Company and the Shareholders, the Company
(i) has been and is in compliance with all laws, rules,
regulations and ordinances respecting employment and employment
practices, terms and conditions of employment and wages and hours
(including those relating to workers' compensation benefits), except
where the failure to be in compliance would not have a material adverse
effect on the property, business or financial condition of the Company,
and
(ii) is not liable for any arrears of wages or penalties for
failure to comply with any of the foregoing in excess of an aggregate of
$10,000.
Except as set forth in Exhibit 3.11(f) to the best knowledge of the
Company and the Shareholders, the Company has not engaged in any unfair labor
practice or discriminated on the basis of race, color, religion, sex, national
origin, age, disability or handicap in its employment conditions or practices.
Except as set forth in Exhibit 3.11(f), to the best knowledge of the
Company and the Shareholders, there are no
(i) unfair labor practice charges or complaints or racial, color,
religious, sex, national origin, age, disability or handicap
discrimination charges or
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complaints pending or threatened against the
Company before any federal, state or local court, board, department,
commission or agency (nor does any basis therefor exist which, if
adversely determined, would have a material adverse effect on the
property, business or financial condition of the Company) or
(ii) existing or threatened labor strikes, disputes, grievances,
controversies or other labor troubles affecting the Company, (nor does
any basis therefor exist which, if adversely determined, would have a
material adverse effect on the property, business or financial condition
of the Company).
(g) UNIONS. The Company has never been a party to any agreement
with any union, labor organization or collective bargaining unit. No
employees of the Company are represented by any union, labor organization or
collective bargaining unit. To the best knowledge of the Company, the
employees of the Company have no intention to and have not threatened to
organize or join a union, labor organization or collective bargaining unit.
(h) ALIENS. To the best knowledge of the Company and the
Shareholders, all employees of the Company are citizens of, or are authorized
to be employed in, the United States.
SECTION 3.12. EMPLOYEE BENEFIT PLANS.
(a) IDENTIFICATION. There exist no employee pension benefit plans
(the "Employee Benefit Plans") (within the meaning of Section 3(2) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"))
sponsored by the Company or to which the Company contributes on behalf of its
employees. There have been no Employee Benefit Plans previously sponsored or
contributed to on behalf of its employees since the inception of the Company.
(b) MEDICAL AND DENTAL CARE CLAIMS. Exhibit 3.12(b) contains a
complete and accurate list of all claims made (without identifying specific
individuals) under any medical or dental care plan or commitment offered by
the Company to its employees involving hospitalization, medical or dental care
claims that have exceeded $10,000 per year for an individual since March 1,
1992.
(c) RETIREES. The Company has no obligation or commitment to
provide medical, dental or life insurance benefits to or on behalf of any of
its employees who may retire or any of its former employees who have retired
from employment with the Company other than pursuant to the continuation of
coverage provisions of Section 4980B of the Code and the applicable provisions
of ERISA.
SECTION 3.13. ABSENCE OF CERTAIN CHANGES. Except as set forth in
Exhibit 3.13 and to the best knowledge of the Company and the Shareholders,
since December 26, 1993, the Company has not
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(a) suffered any material adverse change, whether or not caused by
any deliberate act or omission of the Company or any Shareholder, in its
condition (financial or otherwise), operations, assets, liabilities, business
or prospects;
(b) contracted for the purchase of any capital assets having a cost
in excess of $10,000 or paid any capital expenditures in excess of $10,000;
(c) incurred any indebtedness for borrowed money or issued or sold
any debt securities other than advances under the Loan Agreement made in the
ordinary course of business;
(d) incurred or discharged any liabilities or obligations except in
the ordinary course of business;
(e) paid any amount on any indebtedness for borrowed money prior to
the due date, or forgiven or cancelled any material debts or claims;
(f) mortgaged, pledged or subjected to any security interest, lien,
lease or other charge or encumbrance any of its properties or assets;
(g) suffered any damage or destruction to or loss of any assets
(whether or not covered by insurance) that has materially and adversely
affected, or could materially and adversely affect, its business;
(h) acquired or disposed of any assets except in the ordinary course
of business;
(i) written up or written down the carrying value of any of its
assets;
(j) changed the costing system or depreciation methods of accounting
for its assets;
(k) waived any material rights or forgiven any material claims;
(l) lost or terminated any key employee, customer or supplier, the
loss or termination of which has materially and adversely affected, or could
materially and adversely affect, its business or assets;
(m) increased the compensation of any director, officer, key employee
or consultant;
(n) increased the compensation of any employee except in the ordinary
course of business;
(o) made any payments to or loaned any money to any person or entity
referred to in Section 3.31 except in the ordinary course of business
consistent with past practice;
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(p) formed or acquired or disposed of any interest in any
corporation, partnership, joint venture or other entity;
(q) redeemed, purchased or otherwise acquired, or sold, granted or
otherwise disposed of, directly or indirectly, any of its capital stock or
securities or any rights to acquire such capital stock or securities, or
agreed to change the terms and conditions of any such stock, securities or
rights;
(r) entered into any agreement with any person or group, or modified
or amended in any material respect the terms of any such existing agreement,
except in the ordinary course of business;
(s) entered into, adopted or amended any Employee Benefit Plan; or
(t) entered into any other commitment or transaction or experienced
any other event that is material to this Agreement or to any of the other
agreements and documents executed or to be executed pursuant to this Agreement
or to the transactions contemplated hereby or thereby, or that has materially
and adversely affected, or could materially and adversely affect, the
condition (financial or otherwise), operations, assets, liabilities, business
or prospects of the Company.
SECTION 3.14. TITLE; LEASED ASSETS.
(a) REAL PROPERTY. A description of all interests in real property
owned by the Company (collectively, the "Real Property") is set forth in
Exhibit 3.14(a). Except as set forth in Exhibit 3.14(a), the Company has
good, valid and marketable title to all the Real Property. The Real Property
and the leased real property referred to in Section 3.14(c) constitute the
only real property used in the conduct of the business of the Company.
(b) PERSONAL PROPERTY. Except as set forth in Exhibit 3.14(b), the
Company has good, valid and marketable title to all tangible and intangible
personal property owned by it (collectively, the "Personal Property"). The
Personal Property and the leased personal property referred to in Section
3.14(c) constitute the only personal property used in the conduct of the
business of the Company.
(c) LEASES. A list and brief description of all leases of real and
personal property material to the conduct of the business of the Company and
to which the Company is a party, either as lessor or lessee, are set forth in
Exhibit 3.14(c). All such leases are valid and enforceable against the
Company and, to the best knowledge of the Company and the Shareholders,
against other parties thereto in accordance with their respective terms except
as may be limited by applicable bankruptcy, insolvency or similar laws affecting
creditors' rights generally or the availability of equitable remedies.
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(d) RIGHT TO USE ASSETS. Except for those assets acquired since
December 26, 1993, which, other than inventory acquired in the ordinary course
of business and other assets which have a purchase price of $10,000 or less,
individually, not to exceed $50,000 in the aggregate, are listed in Exhibit
3.14(d), all tangible and intangible assets used in the conduct of the
business of the Company are reflected in the Financial Statements in a manner
that is in conformity with generally accepted accounting principles applied on
a consistent basis with prior periods. The Company owns, leases or otherwise
possesses a right to use all assets used in the conduct of the business of the
Company as presently conducted, which will not be impaired in any material
respect by the consummation of the transactions contemplated hereby.
SECTION 3.15. COMMITMENTS.
(a) COMMITMENTS; DEFAULTS. Except as set forth in Exhibit 3.15 or
otherwise disclosed herein or in another exhibit hereto, the Company has not
entered into, nor are the Stock, the assets or the business of the Company
bound by, whether or not in writing, any
(i) partnership or joint venture agreement;
(ii) deed of trust, mortgage or other security agreement;
(iii) guaranty or suretyship, indemnification or contribution
agreement or performance bond;
(iv) employment, consulting or compensation agreement or
arrangement, including the election or retention in office of any
director or officer;
(v) labor or collective bargaining agreement;
(vi) debt instrument, loan agreement or other obligation relating
to indebtedness for borrowed money or money lent or to be lent to
another;
(vii) deed or other document evidencing an interest in or
contract to purchase or sell real property;
(viii) agreement with dealers or sales or commission agents,
public relations or advertising agencies, accountants or attorneys;
(ix) lease of real or personal property, whether as lessor,
lessee, sublessor or sublessee;
(x) agreement between the Company and any affiliate of the
Company;
(xi) agreement relating to any material matter or transaction in
which an interest is held by a person or entity that is an affiliate of
the Company;
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(xii) any agreement for the acquisition of services, supplies,
equipment, fixtures or other property and involving more than $50,000 in
the aggregate or purchase orders for inventory exceeding $1,200,000 in
the aggregate;
(xiii) powers of attorney;
(xiv) contracts containing noncompetition covenants;
(xv) any other contract or arrangement that involves either an
unperformed commitment in excess of $25,000 or that terminates more than
30 days after the date hereof;
(xvi) agreement relating to any material matter or transaction in
which an interest is held by any person or entity referred to in Section
3.31;
(xvii) agreement providing for the purchase from a supplier of
all or substantially all of the requirements of the Company of a
particular product or service; or
(xviii) any other agreement or commitment not made in the
ordinary course of business or that is material to the business or
financial condition of the Company.
All of the foregoing are hereinafter collectively referred to as
the "Commitments." True, correct and complete copies of the written
Commitments, and true, correct and complete written descriptions of the oral
Commitments, have heretofore been delivered or made available to Michaels.
Except as described in Exhibit 3.15, there are, with respect to the Company, and
to the best knowledge of the Company and the Shareholders, with respect to third
parties, no existing defaults, events of default or events, occurrences, acts or
omissions that, with the giving of notice or lapse of time or both, would
constitute defaults by the Company, and no penalties have been incurred nor are
amendments pending, with respect to the Commitments, except as described in
Exhibit 3.15. The Commitments are in full force and effect and are valid and
enforceable obligations of the Company, and to the best knowledge of the Company
and the Shareholders, the other parties thereto in accordance with their
respective terms, and no defenses, off-sets or counterclaims have been asserted
or, to the best knowledge of the Company and the Shareholders, threatened, nor
has the Company waived any rights thereunder, except as described in Exhibit
3.15. The Company has not received notice of any default with respect to any
Commitment, which, if terminated, could have a material adverse effect on the
property, business or financial condition of the Company.
(b) NO CANCELLATION OR TERMINATION OF COMMITMENT. Except as
contemplated hereby, neither the Company nor any Shareholder has received
notice of any plan or intention of any other party to any Commitment to
exercise any right to cancel or terminate any Commitment or agreement, and
neither the Company nor any Shareholder knows of any fact that
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would justify the exercise of such a right, which, if terminated, could have a
material adverse effect on the property, business or financial condition of the
Company. Neither the Company nor any Shareholder currently contemplates, and,
to the best knowledge of the Company and the Shareholders, no other person or
entity has indicated that such person or entity currently contemplates any
amendment or change to any Commitment which amendment or change could have a
material adverse effect on the property, business or financial condition of the
Company. Except as listed in Exhibit 3.15, none of the suppliers of the
Company has refused, or communicated that it will or may refuse, to supply
goods or services, as the case may be, or has communicated that it will or may
substantially reduce, in any material respect, the amounts of goods or services
that it is willing to sell to the Company.
SECTION 3.16. ADVERSE AGREEMENTS. The Company is not a party to any
agreement or instrument or subject to any charter or other corporate
restriction or any judgment, order, writ, injunction, decree, rule or
regulation that adversely affects, or may in the future materially and
adversely affect, the condition (financial or otherwise), operations, assets,
liabilities, business or prospects of the Company.
SECTION 3.17. INSURANCE. A list and brief description of all
insurance policies of the Company are set forth in Exhibit 3.17. All of such
policies are valid and enforceable against the Company and, to the best
knowledge of the Company and the Shareholders, the insured. Such insurance
shall be outstanding and duly in force without interruption up to and
including the Closing Date. True, complete and correct copies of all such
policies have been provided to Michaels on or prior to the date hereof.
SECTION 3.18. PATENTS, TRADEMARKS, SERVICE MARKS AND COPYRIGHTS.
(a) OWNERSHIP. To the best knowledge of the Company and the
Shareholders, the Company owns all patents, trademarks, service marks and
copyrights, if any, necessary to conduct its business as presently conducted,
or possesses adequate licenses or other rights, if any, therefor, without
conflict with the rights of others. Set forth in Exhibit 3.18 is a true and
correct description of the following (the "Proprietary Rights"): all
trademarks, tradenames, service marks and other trade designations, including
common law rights, registrations and applications therefor, and all patents,
copyrights and applications currently owned, in whole or in part, by the
Company with respect to the business of the Company, and all licenses,
royalties, assignments and other similar agreements relating to the foregoing
to which the Company is a party (including expiration date if applicable).
(b) CONFLICTING RIGHTS OF THIRD PARTIES. To the best knowledge of
the Company and the Shareholders, the Company has the sole and exclusive right
to use the Proprietary Rights without infringing or violating the rights of
any third parties. Except as set forth in Exhibit 3.18, to the best knowledge
of the Company and the Shareholders, use of the Proprietary Rights does not
require the consent of any other person and the Proprietary Rights are freely
transferable. No claim has been asserted by any person to the ownership of or
right to use any Proprietary Right or challenging or questioning the validity
or effectiveness of any license or
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agreement constituting a part of any Proprietary Right, and neither the Company
nor any Shareholder knows of any valid basis for any such claim. Each of the
Proprietary Rights is valid and subsisting, has not been cancelled, abandoned or
otherwise terminated by the Company and, if applicable, has been duly issued or
filed.
(c) CLAIMS OF OTHER PERSONS. The Company and the Shareholders have
no knowledge of any claim that, or inquiry as to whether, any product,
activity or operation of the Company infringes upon or involves, or has
resulted in the infringement of, any proprietary right of any other person,
corporation or other entity; and no proceedings have been instituted, are
pending or are, to the best knowledge of the Company and the Shareholders,
threatened that challenge the rights of the Company with respect thereto. The
Company has not given and is not bound by any agreement of indemnification for
any Proprietary Right as to any property manufactured, used or sold by it.
SECTION 3.19. TRADE SECRETS. To the best knowledge of the Company
and the Shareholders, the Company has the right to use, free and clear of any
claims or rights of others except claims or rights specifically set forth in
Exhibit 3.19, all trade secrets and proprietary information required for the
marketing of all merchandise and services formerly or presently sold or
marketed by the Company. To the best knowledge of the Company and the
Shareholders, the Company is not using or in any way making use of any
confidential information or trade secrets of any third party, including
without limitation any past or present employee of the Company, except with
such third party's consent as indicated on Exhibit 3.19.
SECTION 3.20. TAXES.
(a) FILING OF TAX RETURNS. The Company has duly and timely filed
with the appropriate governmental agencies all income, excise, corporate,
franchise, property, sales, use, payroll, withholding and other tax returns
(including information returns) and reports required to be filed by the United
States or any state or any political subdivision thereof or any foreign
jurisdiction. All such tax returns or reports are complete and accurate and
properly reflect the taxes of the Company for the periods covered thereby.
(b) PAYMENT OF TAXES. The Company has paid or accrued all taxes,
penalties and interest that have become due with respect to any returns that
it has filed and any assessments of which it is aware. The Company is not
delinquent in the payment of any tax, assessment or governmental charge.
(c) NO PENDING DEFICIENCIES, DELINQUENCIES, ASSESSMENTS OR AUDITS.
No tax deficiency or delinquency has been asserted against the Company. There
is no unpaid assessment, proposal for additional taxes, deficiency or
delinquency in the payment of any of the taxes of the Company that could be
asserted by any taxing authority. There is no taxing authority audit of the
Company pending or, to the best knowledge of the Company and the Shareholders,
threatened, and the results of any completed audits are properly reflected in
the Financial Statements. The Company has not violated any federal, state,
local or foreign tax law
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except where such violation would not have a material adverse effect on the
property, business or financial condition of the Company.
(d) NO EXTENSION OF LIMITATION PERIOD. The Company has not granted
an extension to any taxing authority of the limitation period during which any
tax liability may be assessed or collected.
(e) ALL WITHHOLDING REQUIREMENTS SATISFIED. All monies required to
be withheld by the Company and paid to governmental agencies for all income,
social security, unemployment insurance, sales, excise, use, and other taxes
have been collected or withheld and paid to the respective governmental
agencies.
(f) STATE UNEMPLOYMENT TAXES. In respect of its most recently
completed reporting period, the Company has paid state unemployment taxes to
the State of Washington and the State of Oregon at the rate of 1.72 percent
and 3.30 percent, respectively, of the wages paid by the Company during such
period that are subject to such tax. The Company and the Shareholders do not
know of any increase or proposed increase in the rate of such state
unemployment taxes for any period in the future.
(g) TAX LIABILITY IN FINANCIAL STATEMENTS. The liabilities
(including deferred taxes) shown in the Financial Statements for taxes,
interest and penalties are and will be adequate accruals and have been and
will be accrued in a manner consistent with the practices utilized for
accruing tax liabilities in the tax year ended December 26, 1993 and take into
account net operating losses, investment credits and other carryovers for
periods ended prior to the Closing Date.
(h) FOREIGN PERSON. Neither the Company nor any Shareholder is a
foreign person, as such term is referred to in Section 1445(b)(2) of the Code.
(i) SAFE HARBOR LEASE. None of the assets of the Company constitute
property that Michaels, or any affiliate of Michaels, will be required to
treat as being owned by another person pursuant to the "Safe Harbor Lease"
provisions of Section 168(f)(8) of the Code prior to repeal by the Tax Equity
and Fiscal Responsibility Act of 1982.
(j) TAX EXEMPT ENTITY. None of the assets of the Company are or
will be subject to a lease to a "tax exempt entity" as such term is defined in
Section 168(h)(2) of the Code.
(k) COLLAPSIBLE CORPORATION. The Company has not at any time
consented, and the Shareholders will not permit the Company to elect, to have
the provisions of Section 341(f)(2) of the Code apply to it.
(l) ASSETS EXCLUDE STOCK. The assets of the Company do not include
(i) stock of a corporation having voting power equal to 80% or more of the
total voting power of the stock
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of such corporation or (ii) stock of a corporation having a value equal to 80%
or more of the total value of the stock of such corporation.
(m) S CORPORATION STATUS. The Company and the Shareholders have
taken all action necessary in order to effect an election to be taxed pursuant
to subchapter S of the Code, and, other than the transactions contemplated by
this Agreement, the Company and the Shareholders have not taken any action, or
failed to take any action, which could result in the termination of the S
Corporation status.
SECTION 3.21. COMPLIANCE WITH LAWS. To the best knowledge of the
Company and the Shareholders, the Company has complied with all laws,
regulations and licensing requirements and has filed with the proper
authorities all necessary statements and reports, except where the failure to
comply or file would not have a material adverse effect on the property,
business or financial condition of the Company. To the best knowledge of the
Company and the Shareholders, there are no existing violations by the Company
or the Shareholders of any federal, state or local law or regulation that
could affect, in any material respect, the property, business or financial
condition of the Company. To the best knowledge of the Company and the
Shareholders, the Company possesses all necessary licenses, franchises,
permits and governmental authorizations to conduct its business as now
conducted, all of which are listed in Exhibit 3.21.
SECTION 3.22. FINDER'S FEE. Neither the Company nor any Shareholder
has incurred any obligation for any finder's, broker's or agent's fee in
connection with the transactions contemplated hereby.
SECTION 3.23. LITIGATION. Except as described in Exhibit 3.23, there
are no legal actions or administrative proceedings or investigations
instituted, or to the best knowledge of the Company or the Shareholders
threatened, against or affecting, or that could affect, the Company, any of
the Stock, or the business of the Company. Neither the Company nor the
Shareholders are (i) subject to any continuing court or administrative order,
writ, injunction or decree applicable specifically to the Company or to its
business, assets, operations or employees or (ii) in default with respect to
any such order, writ, injunction or decree. Neither the Company nor the
Shareholders know of any basis for any such action, proceeding or
investigation which, if adversely determined, could result in a material
adverse effect on the property, business or financial condition of the
Company.
SECTION 3.24. ACCURACY OF INFORMATION FURNISHED. To the best
knowledge of the Company and the Shareholders, all information furnished to
Michaels by the Company or any Shareholder hereby or in connection with the
transactions contemplated hereby is true, correct and complete in all material
respects, and such information states all facts required to be stated therein
or necessary to make the statements therein, in light of the circumstances
under which such statements are made, true, correct and complete in all
material respects.
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SECTION 3.25. CONDITION OF FIXED ASSETS. All of the furniture,
fixtures, structures and equipment (the "Fixed Assets") owned by the Company
or used by the Company in its business are in good condition and repair for
their intended use in the ordinary course of business, except for such minor
defects that do not interfere with the overall operations of the Company and
conform in all material respects with all applicable ordinances, regulations
and other laws and there are no latent defects therein known to the Company or
the Shareholders.
SECTION 3.26. INVENTORY. To the best knowledge of the Company and
the Shareholders and except as reflected in the Financial Statements, all of
the inventory owned or used by the Company is in good, current, standard and
merchantable condition and is not obsolete or defective in any material
respect. Inventories are valued on the books and records of the Company at
the lower of cost (determined by the retail method of accounting) or market.
Purchase commitments for merchandise are not in excess of normal requirements
and, taken as a whole, are not at prices in excess of market prices in any
material respect. The Company has presently, and at the Closing Date will
have, the types and quantities of inventories appropriate, taken as a whole,
to conduct its business consistently with past practices.
SECTION 3.27. BOOKS OF ACCOUNT. The books of account of the Company
have been kept accurately in the ordinary course of business, the transactions
entered therein represent bona fide transactions and the revenues, expenses,
assets and liabilities of the Company have been properly recorded in such
books.
SECTION 3.28. CORPORATE NAME. There are no actions, suits or
proceedings pending, or to the best knowledge of the Company or the
Shareholders threatened, against or affecting the Company that could result in
any impairment of the right of the Company to use the corporate name "Treasure
House Stores". Except as set forth in Exhibit 3.28 to the knowledge of the
Company and the Shareholders, the use of the corporate name "Treasure House
Stores" does not infringe the rights of any third party nor is it confusingly
similar with the corporate name of any third party. Except as set forth in
Exhibit 3.28 and after the Closing Date, no person or business entity other
than the Company will be authorized, directly or indirectly, to use the
corporate name "Treasure House Stores" or any name confusingly similar thereto
in any location in which the Company presently operates.
SECTION 3.29. DISTRIBUTIONS AND REPURCHASES; ISSUANCE OF CAPITAL STOCK
TO MANAGEMENT. Except as set forth in Exhibit 3.29, no distribution, payment
or dividend of any kind has been declared or paid by the Company on any of its
capital stock at any time. No repurchase of any of the capital stock of the
Company has been approved or effected, except as reflected in the Financial
Statements, or is pending or contemplated. The repurchases of capital stock
of the Company from certain former employees conducted in November and
December 1992 and January 1993 were conducted pursuant to the terms of the
Restated Investor Agreement (or any predecessor agreement). This issuance of
capital stock to Edward K. Baker was based upon and consistent with the
Company's historical pattern of management stock ownership.
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SECTION 3.30. BANKING RELATIONS. Set forth in Exhibit 3.30 is a
complete and accurate list of all arrangements that the Company has with any
bank or other financial institution, indicating with respect to each
relationship the type of arrangement maintained (such as checking account,
borrowing arrangements, safe deposit box, etc.) and the person or persons
authorized in respect thereof.
SECTION 3.31. OWNERSHIP INTERESTS OF INTERESTED PERSONS. Except as
set forth in Exhibit 3.31, no officer, supervisory employee, director or
shareholder of the Company, or their respective spouses or children, owns
directly or indirectly, on an individual or joint basis, any material interest
in, or serves as an officer or director of, any customer or supplier of the
Company, or any organization that has a material contract or arrangement with
the Company.
SECTION 3.32. INVESTMENTS IN COMPETITORS. No Shareholder owns
directly or indirectly any interests or has any investment in excess of 1% of
the outstanding capital stock of any corporation, business or other person
that is a competitor of the Company.
SECTION 3.33. ENVIRONMENTAL MATTERS.
(a) ENVIRONMENTAL LAWS. Except as set forth in Exhibit 3.33 to the
best knowledge of the Company and its Shareholders, the Company is not currently
in violation of, or subject to any existing, pending or threatened investigation
or inquiry by any governmental authority or to any remedial obligations under,
any laws or regulations pertaining to health or the environment (hereinafter
sometimes collectively called "Environmental Laws"), including without
limitation (i) the Comprehensive Environmental Response, Compensation and
Liability Act of 1980 (42 U.S.C. sections 9601 ET SEQ.), as amended from time to
time ("CERCLA") (including without limitation as amended pursuant to the
Superfund Amendments and Reauthorization Act of 1986), and regulations
promulgated under CERCLA, (ii) the Resource Conservation and Recovery Act of
1976 (42 U.S.C. sections 6901 ET SEQ.), as amended from time to time ("RCRA"),
and regulations promulgated thereunder, (iii) statutes, rules or regulations,
whether federal, state or local, relating to asbestos or polychlorinated
biphenyls, and (iv) the provisions contained in any similar state statutes or
regulations relating to environmental matters applicable to the Company, and
this representation and warranty would continue to be true and correct following
disclosure to the applicable governmental authorities of all relevant facts,
conditions and circumstances, if any, pertaining to the assets and operations of
the Company.
(b) USE OF ASSETS. To the best knowledge of the Company and the
Shareholders, the assets of the Company have never been used in a manner that
would be in violation in any material respect of any of the Environmental
Laws, including without limitation CERCLA, RCRA and any similar state statutes
or regulations relating to environmental matters applicable to the Company.
(c) PERMITS. The Company has not obtained and, to the best
knowledge of the Company and the Shareholders, is not required to obtain any
permits, licenses or similar
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authorizations to construct, occupy, operate or use any buildings, improvements,
fixtures and equipment owned or leased by the Company by reason of any
Environmental Laws.
(d) SUPERFUND LIST. To the best knowledge of the Company and the
Shareholders, none of the assets owned or leased by the Company are on any
federal or state "Superfund" list or subject to any environmentally related
liens.
SECTION 3.34. CERTAIN PAYMENTS. To the best knowledge of the Company
and the Shareholders, neither the Company nor the Shareholders nor any
director, officer or employee of the Company has paid or caused to be paid,
directly or indirectly, in connection with the business of the Company:
(a) to any government or agency thereof or any agent of any supplier
or customer any bribe, kick-back or other similar payment; or
(b) any contribution to any political party or candidate (other than
from personal funds of directors, officers or employees not reimbursed by
their respective employers or as otherwise permitted by applicable law).
ARTICLE IV.
REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE SHAREHOLDERS
Each Shareholder additionally severally represents and warrants that the
following are true and correct as of the date hereof and will be true and
correct through the Closing Date as if made on that date and agrees as
follows:
SECTION 4.01. OWNERSHIP OF THE STOCK. Each Shareholder owns,
beneficially and of record, good and marketable title to the Stock shown
opposite his name on Exhibit A, free and clear of all security interests,
liens, adverse claims, encumbrances, equities, proxies, options or
shareholders' agreements. At the Closing, each Shareholder will convey to
Michaels good and marketable title to all of the capital Stock shown opposite
his name on Exhibit A, free and clear of any security interests, liens,
adverse claims, encumbrances, equities, proxies, options, shareholders'
agreements or restrictions.
SECTION 4.02. SHAREHOLDERS' CAPACITY. Each Shareholder has the legal
capacity to enter into and perform this Agreement.
SECTION 4.03. INVESTMENT REPRESENTATIONS AND COVENANTS. The Michaels
Stock Consideration to be acquired by the Shareholders is being acquired by
each of them for his or its own account for investment and not with a view to,
or for resale in connection with, any distribution and no other person has or
will have any right to acquire any beneficial interest therein. Each
Shareholder fully understands and agrees that he or it must bear the economic
risk
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of the acquisition of the Michaels Stock Consideration for an indefinite period
of time because the Michaels Stock Consideration has not been registered under
the Securities Act or under the securities laws of any state or other
jurisdiction and, therefore, cannot be resold, pledged, assigned or otherwise
disposed of unless the Michaels Stock Consideration is subsequently registered
for sale under the Securities Act and the applicable securities laws of such
states or unless an exemption from registration is available. Each of the
Shareholders has received a copy of the Michaels Annual Report on Form 10-K for
the fiscal year ended January 31, 1993, and all other documents filed subsequent
to January 31, 1993 under Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act
(including without limitation, its Form 10-Q for the quarters ended May 2,
August 1 and October 31, 1993 and its Proxy Statement dated April 29, 1993),
each in the form (excluding exhibits) filed with the SEC (collectively, the
"Reports"). Each of the Shareholders agrees that (i) a restrictive legend in the
form attached hereto as Exhibit 4.03 will be placed on each certificate
representing the Michaels Stock Consideration and a notation shall be made in
the appropriate records of Michaels indicating that such shares are subject to
restrictions on transfer, and (ii) each of the Shareholders has received and
reviewed this Agreement and the Reports and other documents referred to herein
and has been given the opportunity to obtain any additional information or
documents and to ask questions and receive answers about such documents. Each
of the Shareholders has carefully reviewed and fully understands the nature and
risks of, and other considerations relating to, the issuance of the Michaels
Stock Consideration. Each of the Shareholders has received only the Reports and
the documents attached as exhibits hereto, and the other documents that Michaels
may have provided at the specific request of any of the Shareholders, and has
received no other literature from Michaels. Except as set forth in this
Agreement and the exhibits hereto, no representations or warranties have been
made to the Shareholders by Michaels or by any person acting on behalf of
Michaels with respect to the business or financial condition of Michaels.
SECTION 4.04. PERSONAL HOLDING COMPANY; CONTROL OF RELATED
BUSINESSES. No Shareholder owns the Stock opposite his name on Exhibit A,
directly or indirectly, beneficially or of record, through a personal holding
company. No Shareholder controls another business that is in the same or
similar line of business as the Company or that has or is engaged in
transactions with the Company except transactions in the ordinary course of
business, and, since January 1, 1993, involving transactions of less than
$10,000 in the aggregate.
SECTION 4.05. OWNERSHIP OF MICHAELS COMMON STOCK. No Shareholder,
directly or indirectly, beneficially or of record, owns or has any ownership
interest in Michaels Common Stock (other than indirectly, through registered
mutual funds over which the Shareholder has no control or influence and which
ownership interest constitutes less than 1/2 of 1% of the total funds under
management).
SECTION 4.06. TRANSFERS OF COMPANY COMMON STOCK. All transfers of
the Company Common Stock have been made for valid business reasons and not in
anticipation or contemplation of the consummation of the transactions
contemplated by this Agreement.
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ARTICLE V.
S CORPORATION ISSUES
SECTION 5.01. S CORPORATION. The Company is now an S corporation
under the Code and has been an S corporation continuously since inception.
The closing of the transactions contemplated hereby will terminate the S
status of the Company effective with the Closing and require the filing of a
tax return for the period beginning December 27, 1993, and ending the day
before the Closing Date (the "Short Tax Period"). The Company shall close its
books as of the end of the Short Tax Period pursuant to Section 1362(e)(6)(D)
of the Code and compute taxable income or taxable loss for the Short Tax
Period on the basis of the permanent books and records (including workpapers)
of the Company. The Company shall prepare the necessary tax return
information, in accordance with its customary accounting procedures, for the
Short Tax Period, at the Shareholders' expense (subject, however, to the
provisions of Section 13.07), in accordance with the Subchapter S requirements
of the Code and provide such information to the Shareholders. The
Shareholders shall pay the federal and state income tax (if necessary) for the
Short Tax Period.
SECTION 5.02. AMENDMENT OF RETURNS. If the Shareholders become aware
that the returns of the Company for any period when the Company was an S
corporation may be amended to provide a tax refund to the Shareholders, the
Company, at the expense of the Shareholders, shall prepare and file such
amendments to the return as may be necessary, provided, however, that the
Company shall not be required to file any such amendment that would, as
determined by Michaels in its sole and absolute discretion, have an adverse
tax effect on the Company for periods prior to or subsequent to the Closing.
The Company has no obligation with respect to pursuing such refund other than
to prepare and file amendments to such returns pursuant to this Section 5.02.
SECTION 5.03. AUDITS. In the event of any audit by the Internal Revenue
Service (the "IRS") or other taxing authority of the tax liability of the
Company or the Shareholders for the periods during which the Company was an S
corporation, the Company shall notify the Shareholders immediately of such audit
or threatened audit. The Company at the expense of the Shareholders shall
respond to the audit and shall keep the Shareholders informed of any issues
raised by the taxing authority involved. The Shareholders shall have the sole
right to settle or contest any deficiency proposed by the IRS or such other
authority; provided, however, that the Shareholders shall not settle any
deficiency without the consent to the Company if such settlement would have an
adverse tax effect on the Company for periods subsequent to the Closing. The
Company shall provide each Shareholder with access to its books and records, and
cooperate with the Shareholders, to enable them to contest any such deficiency.
In the event that the settlement or other determination of any dispute results
(i) in a tax benefit to the Company for a taxable period other than the period
when the Company was an S corporation by reducing the tax liability of the
Company or a corporation in its affiliated group and (ii) a tax detriment to the
Shareholders, the amount of such reduction in tax liability shall be deducted
from any
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liability of the Shareholders under Section 13.01 hereof arising out of claims
for the breach by the Shareholders of the representations set forth in Section
3.20 hereof. Any refunds of income taxes paid for the periods when the Company
was an S corporation shall belong to the Shareholders; provided, however, that
if a Shareholder obtains a refund of income taxes attributable to the Short Tax
Period, such Shareholder shall pay to the Company (or the Company may withhold
from any refund) an amount equal to the excess of (i) the amount distributed to
such Shareholder by the Company prior to Closing, if any, over (ii) the amount
such Shareholder would have received from the Company prior to Closing, if any,
if the tax benefit giving rise to such refund had been taken into account.
SECTION 5.04. ACTION BY MICHAELS OR THE COMPANY. Subsequent to the
Closing, neither Michaels nor the Company shall take any action or make any
election that may result in any increase in the tax liability of the
Shareholders for the periods when the Company was an S corporation, unless
Michaels or the Company assumes the obligation to pay the resulting increase
in tax liability.
ARTICLE VI.
REPRESENTATIONS AND WARRANTIES OF MICHAELS
Michaels represents and warrants that the following are true and correct
as of the date hereof and will be true and correct through the Closing Date as
if made on that date:
SECTION 6.01. ORGANIZATION AND GOOD STANDING. Michaels is a
corporation duly organized, validly existing and in good standing under the
laws of the state of its incorporation, with all requisite corporate power and
authority to carry on the business in which it is engaged, to own the
properties it owns, to execute and deliver this Agreement and to consummate
the transactions contemplated hereby.
SECTION 6.02. AUTHORIZATION AND VALIDITY. The execution, delivery and
performance by Michaels of this Agreement, and the other agreements contemplated
hereby, and the consummation of the transactions contemplated hereby and
thereby, have been duly authorized by Michaels. This Agreement and each other
agreement contemplated hereby have been or will be as of the Closing Date duly
executed and delivered by Michaels and constitute or will constitute legal,
valid and binding obligations of Michaels, enforceable against Michaels in
accordance with their respective terms, except as may be limited by applicable
bankruptcy, insolvency or similar laws affecting creditors' rights generally or
the availability of equitable remedies.
SECTION 6.03. NO VIOLATION. Neither the execution, delivery or
performance of this Agreement or the other agreements contemplated hereby nor
the consummation of the transactions contemplated hereby or thereby will (i)
conflict with, or result in a violation or breach of the terms, conditions and
provisions of, or constitute a default under, the Certificate of Incorporation
or Bylaws of Michaels or any agreement, indenture or other instrument under
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which Michaels is bound or (ii) violate or conflict with any judgment, decree,
order, statute, rule or regulation of any court or any public, governmental or
regulatory agency or body having jurisdiction over Michaels or the properties
or assets of Michaels.
SECTION 6.04. MICHAELS STOCK. The issuance and delivery by Michaels
of the Michaels Stock Consideration is or will be as of the Closing Date duly
and validly authorized by all necessary corporate action on the part of the
Michaels. The shares of Michaels Common Stock to be issued as the Michaels
Stock Consideration, when issued in accordance with the terms of this
Agreement, will be validly issued, fully paid and nonassessable and will be
free and clear of any security interest, liens, adverse claims, or
encumbrances.
SECTION 6.05. MICHAELS' FINANCIAL STATEMENTS. The consolidated
financial statements of Michaels contained in the Reports have been prepared
in accordance with generally accepted accounting principles, applied on a
consistent basis throughout the periods covered thereby (except as otherwise
indicated therein), and fairly present the consolidated financial position of
Michaels, as of the dates thereof, and the results of its consolidated
operations for the periods covered thereby.
SECTION 6.06. CORPORATE APPROVALS. The Board of Directors of
Michaels has approved and authorized the execution and delivery of this
Agreement and the transactions contemplated hereby, and no other corporate or
shareholder action is required by Michaels with respect thereto.
SECTION 6.07. FULL DISCLOSURE. The Reports were true and correct in all
material respects as of the respective dates such reports were filed with the
SEC. Michaels meets the eligibility requirements for the use of registration
statements on Form S-3 for transactions involving secondary offerings. To the
best of Michaels' knowledge, no representation or warranty by it herein, or any
statement or certificate furnished or to be furnished by officers of Michaels to
the Shareholders pursuant hereto or in connection with the transactions
contemplated hereby, contains any untrue statement of material fact or omits to
state a fact necessary to make the statements contained herein or therein not
misleading in any material respect.
ARTICLE VII.
THE COMPANY'S AND THE SHAREHOLDERS' COVENANTS
The Company and the Shareholders jointly and severally agree that
between the date hereof and the Closing:
SECTION 7.01. CONSUMMATION OF AGREEMENT. The Company and the
Shareholders shall use their best efforts to cause the consummation of the
transactions contemplated hereby in accordance with their terms and
conditions.
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SECTION 7.02. BUSINESS OPERATIONS. The Company shall operate its
business in the ordinary course and will not introduce any new method of
management or operation. The Company and the Shareholders shall use their
best efforts to preserve the business of the Company intact, to retain the
present customers and suppliers so that they will be available to Michaels
after the Closing. The Company and the Shareholders shall not take any action
that could adversely affect in any material respect the condition (financial
or otherwise), operations, assets, liabilities, business or prospects of the
Company without the prior written consent of Michaels or take or fail to take
any action that would cause or permit the representations made in Article III
or Article IV to be inaccurate at the time of Closing or preclude the Company
and the Shareholders from making such representations and warranties at the
Closing.
SECTION 7.03. ACCESS. The Company and the Shareholders shall permit
Michaels and its authorized representatives, at reasonable times, full access
to, and make available for inspection, all of the assets and business of the
Company, including its employees, customers and suppliers, and permit Michaels
and its authorized representatives to inspect and make copies of all
documents, records and information with respect to the affairs of the Company
as Michaels and its representatives may reasonably request, all for the sole
purpose of permitting Michaels to become familiar with the business and assets
and liabilities of the Company. Michaels shall use its best efforts to
conduct its due diligence review in a manner intended to create minimal
disruptions to the Company and its business and shall coordinate with the
Company in Michaels' approaches to the Company's existing employees, customers
and suppliers.
SECTION 7.04. NOTIFICATION OF CERTAIN MATTERS. The Company and the
Shareholders shall promptly inform Michaels in writing of (a) any notice of,
or other communication relating to, a default or event that, with notice or
lapse of time or both, would become a default, received by the Company,
subsequent to the date of this Agreement and prior to the Closing Date, under
any Commitment material to its financial condition, properties, business or
results of operations and to which it is subject; and (b) any material adverse
change in the condition (financial or otherwise), operations, assets,
liabilities, business or prospects of the Company. Disclosure to Michaels of
any such notice or material adverse change in writing prior to the
consummation of the transactions contemplated by this Agreement shall be
deemed a waiver by Michaels of the breach of the applicable representation or
warranty of the Company and the Shareholders contained in this Agreement, only
if Michaels acknowledges, in writing, receipt of such disclosure and Michaels
proceeds to consummate the transactions contemplated by this Agreement.
SECTION 7.05. APPROVALS OF THIRD PARTIES. The Company and the
Shareholders shall use their best efforts to secure, as soon as practicable
after the date hereof, all necessary approvals and consents of third parties
to the consummation of the transactions contemplated hereby, including,
without limitation, all necessary approvals and consents required under any
Real Property leases.
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SECTION 7.06. EMPLOYEE MATTERS. The Company shall not, without the
prior written approval of Michaels, except as required by law:
(a) increase the Cash Compensation of any director, officer, key
employee or consultant of the Company or, with respect to any other employee,
except in the ordinary course of business;
(b) adopt, amend or terminate any Compensation Plan;
(c) adopt, amend or terminate any Employment Agreement;
(d) adopt, amend or terminate any Employee Policies and Procedures;
(e) institute, settle or dismiss any employment litigation;
(f) enter into, modify, amend or terminate any agreement with any
union, labor organization or collective bargaining unit; or
(g) take or fail to take any action with respect to any past or
present employee of the Company that could adversely affect the business of
the Company.
SECTION 7.07. EMPLOYEE BENEFIT PLANS. The Company shall not, without
the prior written approval of Michaels, except as required by law adopt, amend
or terminate any Employee Benefit Plan.
SECTION 7.08. CONTRACTS. Except with Michaels' prior written
consent, the Company shall not waive any right or cancel any contract, debt or
claim nor assume or enter into any contract, lease, license, obligation,
indebtedness, commitment, purchase or sale except in the ordinary course of
business. Notwithstanding the foregoing, however, the Company and the
Shareholders shall cause the Consulting Agreement and the Restated Investor
Agreement to be terminated at or prior to the Closing.
SECTION 7.09. CHANGES IN INVENTORY. The Company shall not alter the
physical contents or character of its inventory or the mixture of products in
its inventory so as to change in any material respect the nature of its
business as currently conducted.
SECTION 7.10. CAPITAL ASSETS; PAYMENTS OF LIABILITIES. The Company
shall not, without the prior written approval of Michaels (i) acquire or
dispose of any capital asset having an initial cost of $25,000 or more, except
with respect to those matters set forth in Exhibit 7.11 or (ii) discharge or
satisfy any lien or encumbrance or pay or perform any obligation or liability
other than (a) liabilities and obligations reflected in the Financial
Statements or (b) current liabilities and obligations incurred in the ordinary
course of business since December 26, 1993 and, in either case (a) or (b)
above, only as required by the express terms of the agreement or other
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instrument pursuant to which the liability or obligation was incurred or as
required by this Agreement.
SECTION 7.11. MORTGAGES, LIENS AND GUARANTIES. Except as set forth in
Exhibit 7.11, the Company shall not, without the prior written approval of
Michaels, enter into or assume any mortgage, pledge, conditional sale or other
title retention agreement, permit any security interest, lien, encumbrance or
claim of any kind to attach to any of its assets, whether now owned or hereafter
acquired, or guarantee or otherwise become contingently liable for any
obligation of another, except obligations arising by reason of endorsement for
collection and other similar transactions in the ordinary course of business, or
make any capital contribution or investment in any corporation, business or
other person.
SECTION 7.12. NO NEGOTIATION WITH OTHERS. Until this Agreement is
terminated, neither the Company nor any Shareholder shall solicit or
participate in negotiations with (and the Company and the Shareholders shall
use their best efforts to prevent any affiliate, shareholder, director,
officer, employee or other representative or agent of the Company from
negotiating with, soliciting or participating in negotiations with) any third
party with respect to (i) the sale of the business of the Company, (ii) any
merger, business combination, acquisition, or purchase involving the Company,
or (iii) any transaction inconsistent with those contemplated hereby.
SECTION 7.13. DISTRIBUTIONS AND REPURCHASES. No distribution,
payment or dividend of any kind will be declared or paid by the Company, nor
will any repurchase of any of the Stock be approved or effected.
SECTION 7.14. INFORMATION FOR REGISTRATION STATEMENT. In connection
with the preparation and filing of the Registration Statement (as hereinafter
defined), each Shareholder shall furnish to Michaels in writing such
information as shall reasonably be requested by Michaels for use in such
Registration Statement or prospectus or prospectus supplement contained
therein.
SECTION 7.15. ACCOUNTING TREATMENT. Neither the Company nor the
Shareholders shall take any action, or fail to take any action, which, in the
reasonable judgment of the independent auditors of Michaels, shall disqualify
the transactions contemplated by this Agreement for "pooling of interests"
accounting treatment (in accordance with generally accepted accounting
principles).
SECTION 7.16. TERM LOAN. The Company shall cause the term loan
portion of its credit facility evidenced by the Loan Agreement to be
terminated.
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ARTICLE VIII.
MICHAELS' COVENANTS
Michaels agrees, and the Shareholders, for purposes of Section 8.02,
agree that between the date hereof and the Closing:
SECTION 8.01. CONSUMMATION OF AGREEMENT. Michaels shall use its best
efforts to cause the consummation of the transactions contemplated hereby in
accordance with their terms and conditions. Michaels shall not take or fail to
take any action that would cause or permit the representations made in Article
VI to be inaccurate at the time of Closing or to preclude Michaels from making
such representations and warranties at the Closing; provided, however, Michaels,
in connection with its long-term business strategy, evaluates and pursues
acquisitions and financings, and, although Michaels has no binding agreements
with respect to any future acquisitions or financings, Michaels' subsequent
agreements, if any, with respect to future acquisitions or financings shall not
be deemed a breach of this covenant.
SECTION 8.02. REGISTRATION STATEMENT. Simultaneously with the
execution of this Agreement, Michaels shall use reasonable efforts to file a
Registration Statement on Form S-3 (the "Registration Statement") with the SEC
and to register, as promptly as is practicable, the sale by the Shareholders
of the Michaels Stock Consideration from time to time in the open market.
Michaels shall maintain the effectiveness of such Registration Statement until
the later of two years from the Closing Date or until all such shares may be
sold pursuant to the terms of Rule 144 promulgated under the Securities Act
and not be subject to the volume resale limitations contained in Rule 144(e).
The Shareholders may sell the Michaels Stock Consideration subject to the
restrictions set forth in Section 12.02 and the restrictions contained in the
Affiliates Letters attached as Exhibit 9.09. In accomplishing the foregoing
registration, the following procedures shall be utilized:
(a) SHAREHOLDER INFORMATION. The Shareholders shall furnish to
Michaels in writing appropriate information required for inclusion in the
Registration Statement, including a description of the proposed plans of
distribution, and any other matters in connection therewith as Michaels may
reasonably request in writing.
(b) EXPENSES. All expenses incurred by Michaels in complying
herewith, including without limitation all registration and filing fees,
printing expenses, and fees and disbursements of counsel and accountants for
Michaels, are herein called "registration expenses" and all underwriting
discounts, taxes and selling commissions applicable to the sales and all fees
and disbursements of separate counsel for any Shareholder are herein called
"selling expenses." Except as otherwise specifically provided herein, in any
registration pursuant to this Section 8.02, Michaels shall pay all of the
registration expenses incurred in connection therewith and each Shareholder
shall bear his own selling expenses.
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(c) MICHAELS INDEMNIFICATION. Michaels hereby agrees to indemnify and
hold harmless each Shareholder, each underwriter (within the meaning of the
Securities Act) who may purchase from or sell for any Shareholder any of the
Michaels Stock Consideration, each broker and any other person acting on behalf
of such Shareholder, from and against any and all losses, claims, obligations,
demands, assessments, penalties, costs, damages, liabilities and expenses
(including attorneys' fees and other expenses for investigation and defense with
respect to the foregoing) (collectively "Damages"), joint or several, to which
any of the foregoing persons may be or become subject insofar as such Damages
arise out of or are based on any untrue statement or alleged untrue statement of
a material fact contained in the Registration Statement or any prospectus
forming a part thereof, or any amendment or supplement thereto, or arise out of
or are based upon any omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading, except insofar as such Damages are caused by any such untrue
statement or omission based upon information furnished in writing to Michaels by
any such Shareholder, underwriter, broker or person expressly for use therein.
The foregoing indemnification will also be for the benefit of each person, if
any, who controls such Shareholder, underwriter, broker or person within the
meaning of the Securities Act.
(d) SHAREHOLDER INDEMNIFICATION. Each Shareholder, jointly and
severally, hereby agrees to indemnify Michaels, its directors, each officer
signing the Registration Statement and each person, if any, who controls
Michaels within the meaning of the Securities Act, from and against any and
all Damages to which any of the foregoing persons may become subject insofar
as such Damages arise out of or are based upon any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement or
in the prospectus forming a part thereof, or any amendment or supplement
thereto, or arise out of or are based upon any omission or alleged omission to
state therein a material fact required to be stated therein not misleading,
but only insofar as such Damages are caused by any untrue statement or alleged
untrue statement or omission or alleged omission based upon written
information furnished to Michaels by any such Shareholder, underwriter, broker
or person expressly for use therein.
(e) BLUE SKY REGISTRATION. If the Shareholders reasonably request,
Michaels shall use reasonable efforts to register or qualify the Michaels
Stock Consideration being sold under this Section 8.02, under applicable state
securities statutes, provided that for such purpose Michaels shall not be
required to qualify as a dealer in securities, qualify to do business in any
jurisdiction or is not at the time so qualified or to execute a general
consent to service of process in any jurisdiction (other than for actions
arising out of the offer or sale of the Michaels Stock Consideration).
ARTICLE IX.
MICHAELS' CONDITIONS PRECEDENT
Except as may be waived in writing by Michaels, the obligations of
Michaels hereunder are subject to the fulfillment at or prior to the Closing
Date of each of the following conditions:
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SECTION 9.01. REPRESENTATIONS AND WARRANTIES. The representations
and warranties of the Company and the Shareholders contained herein shall have
been true and correct in all respects when initially made and shall be true
and correct in all respects as of the Closing Date; and Michaels shall have
received a certificate of the Company's President and Chief Financial Officer,
and of the Shareholders, dated as of the Closing Date, to the foregoing
effect.
SECTION 9.02. COVENANTS AND CONDITIONS. The Company and the
Shareholders shall have performed and complied with all covenants and
conditions required by this Agreement to be performed and complied with by the
Company and the Shareholders prior to the Closing Date; and Michaels shall
have received a certificate of the Company's President and Chief Financial
Officer, and of the Shareholders, dated as of the Closing Date, to the
foregoing effect.
SECTION 9.03. LEGAL OPINION. Counsel to the Company and the
Shareholders shall have delivered to Michaels its opinion, dated as of the
Closing Date, in form and substance satisfactory to counsel for Michaels, to
the effect set forth in Exhibit 9.03.
SECTION 9.04. PROCEEDINGS. No action, proceeding or order by or in
any court or governmental body or agency shall have been threatened, orally or
in writing, asserted, instituted or entered to restrain or prohibit the
carrying out of the transactions contemplated hereby.
SECTION 9.05. NO MATERIAL ADVERSE CHANGE. No material adverse change
in the condition (financial or otherwise), operations, assets, liabilities,
business or prospects of the Company shall have occurred since the date of the
most recent audited balance sheet included in the Financial Statements,
whether or not such change shall have been caused by the deliberate act or
omission of the Company or any Shareholder.
SECTION 9.06. GOVERNMENT APPROVALS AND REQUIRED CONSENTS. Michaels shall
have obtained all necessary government and other third-party approvals, consents
and waivers that, in the view of Michaels' counsel, are necessary or desirable
to be obtained prior to the Closing.
SECTION 9.07. CLOSING DELIVERIES. Michaels shall have received all
documents, duly executed in form satisfactory to Michaels and its counsel,
referred to in Section 11.01.
SECTION 9.08. ACCOUNTING TREATMENT. Michaels shall have received
from each Shareholder listed on Exhibit A an Affiliates Letter in the form
attached hereto as Exhibit 9.08. Exhibit A is a list of the Shareholders that
the Company has determined to be affiliates (as that term is used in
Accounting Series Releases 130 and 135, as amended, of the Securities and
Exchange Commission) (each an "Affiliate") of the Company that are to receive
Michaels Common Stock under this Agreement. Michaels shall be entitled to
add to Exhibit A the name of any Shareholder that Michaels reasonably
identifies as an Affiliate of the Company; provided, however, that no such
additional names shall be added if Michaels shall have received from the
Company an opinion of counsel reasonably satisfactory to Michaels to the
effect that such person is not an Affiliate. Michaels shall be entitled to
place legends as specified in such Affiliates Letters on the certificate
evidencing any Michaels Common Stock to be received by such affiliate
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pursuant to the terms of this Agreement, and to issue appropriate stop transfer
instructions to the transfer agent for Michaels Common Stock, consistent with
the terms of such Affiliate Letters.
SECTION 9.09. LANDLORD CONSENTS. The Company shall deliver to
Michaels on or before the date of Closing the following documents in form and
substance reasonably satisfactory to Michaels:
(a) consent from the landlord under the Bellevue, Washington lease
with respect to (i) transfer of control of the Company to Michaels, (ii)
future assignment of the lease from the Company to Michaels, (iii) change of
the tradename under which the leased premises can be operated to the tradename
under which Michaels operates the majority of its stores in the region, and
(iv) confirm the ability of the Company and/or Michaels to exercise existing
options to extend the term of the lease; and
(b) waiver from the landlord under the Lacey, Washington lease of
landlord's right to terminate the lease in the event of a change in control of
the Company, and consent by such landlord to (i) future assignment of the
lease to Michaels and (ii) change of the tradename under which the leased
premises can be operated to the tradename under which Michaels operates the
majority of its stores in the region.
ARTICLE X.
THE COMPANY'S AND THE SHAREHOLDERS' CONDITIONS PRECEDENT
Except as may be waived in writing by the Company and the Shareholders,
the obligations of the Company and the Shareholders hereunder are subject to
fulfillment at or prior to the Closing Date of each of the following
conditions:
SECTION 10.01. REPRESENTATIONS AND WARRANTIES. The representations
and warranties of Michaels contained herein shall be true and correct when
initially made and shall be true and correct in all respects as of the Closing
Date; and Michaels shall have delivered to the Company and the Shareholders a
certificate of Michaels' President, dated as of the Closing Date, to the
foregoing effect.
SECTION 10.02. COVENANTS AND CONDITIONS. Michaels shall have
performed and complied in all respects with all covenants and conditions
required by this Agreement to be performed and complied with by it prior to
the Closing Date; and Michaels shall have delivered to the Company and the
Shareholders a certificate of Michaels' President, dated as of the Closing
Date, to the foregoing effect.
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SECTION 10.03. PROCEEDINGS. No action, proceeding or order by or in
any court or governmental body or agency shall have been threatened in
writing, asserted, instituted or entered to restrain or prohibit the carrying
out of the transactions contemplated hereby.
SECTION 10.04. CLOSING DELIVERIES. The Company or the Shareholders,
as the case may be, shall have received all documents referred to in Section
11.02.
SECTION 10.05. LEGAL OPINION. Counsel to Michaels shall have
delivered to the Shareholders its opinion, dated as of the Closing Date, in
form and substance satisfactory to counsel to the Company and the
Shareholders, to the effect set forth in Exhibit 10.05.
ARTICLE XI.
CLOSING DELIVERIES
SECTION 11.01. DELIVERIES OF THE COMPANY AND THE SHAREHOLDERS. At
the Closing, the Company and the Shareholders shall deliver to Michaels the
following, all of which shall be in form and content satisfactory to Michaels
and its counsel:
(a) certificates representing all of the Stock, duly endorsed and in
proper form for transfer to Michaels by delivery under applicable law, or
accompanied by duly executed instruments of transfer in blank;
(b) a copy of resolutions of the Board of Directors of the Company
and any corporate Shareholder authorizing the execution, delivery and
performance of this Agreement and all related documents and agreements, each
certified by the Secretary of that corporation as being true and correct
copies of the originals thereof subject to no modifications or amendments;
(c) a certificate of the President and Chief Financial Officer of the
Company, and of the Shareholders, dated the Closing Date, as to the truth and
correctness of the representations and warranties of the Company and the
Shareholders contained herein on and as of the Closing Date;
(d) a certificate of the President and Chief Financial Officer of the
Company, and of the Shareholders, dated the Closing Date, (i) as to the
performance of and compliance by the Company and the Shareholders with all
covenants contained herein on and as of the Closing Date and (ii) certifying
that all conditions precedent of the Company and the Shareholders to the
Closing have been satisfied;
(e) a certificate of the Secretary of the Company certifying as to the
incumbency of the directors and officers of the Company and as to the
signatures of such directors and officers who have executed documents
delivered at the Closing on behalf of the Company;
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(f) a certificate, dated within 20 days of the Closing Date, of the
Secretary of State of Delaware establishing that the Company is in existence,
has paid all franchise taxes and otherwise is in good standing to transact
business in its state of incorporation;
(g) certificates, dated within 20 days of the Closing Date, of the
Secretaries of State of the states in which the Company is qualified to do
business, to the effect that the Company is qualified to do business and is in
good standing as a foreign corporation in each of such states;
(h) an opinion of Stoel Rives Boley Jones & Grey, counsel to the
Company and the Shareholders, dated as of the Closing Date, in substantially
the form of Exhibit 9.03;
(i) all authorizations, consents, approvals, permits and licenses
referenced in Exhibit 3.08, including, without limitation, all consents
required under Real Property leases, including the consents and waivers
referenced in Section 9.09;
(j) an executed Noncompetition and Confidentiality Agreement between
each of the Shareholders and Michaels in the form attached as Exhibit
11.01(j); and
(k) the resignations of the directors and officers of the Company as
requested by Michaels;
(l) a nonforeign affidavit, as such affidavit is referred to in
Section 1445(b)(2) of the Code, of each of the Shareholders signed under
penalty of perjury and dated as of the Closing Date, to the effect that such
Shareholder is a United States Citizen (and thus not a foreign person) and
providing such Shareholder's United States taxpayer identification number;
(m) executed documents in form satisfactory to counsel to Michaels
pursuant to which each Shareholder and Officer and the Trust releases,
relinquishes, waives and discharges any and all claims, demands, causes of
action, suits, judgments or Damages of any kind whatsoever, whether known or
unknown, that such Shareholder, Officer or the Trust may have against the
Company as of the Closing Date, for any reason whatsoever, including without
limitation claims by such Shareholder, Officer or the Trust against the
Company with respect to dividends, repayment of loans, violation of preemptive
rights, or payment of salaries or other compensation or in any way arising out
of or in connection with his employment with the Company, the cessation of
such employment, his status as an officer, director or shareholder of the
Company or otherwise; the Shareholder will agree not to file any claim, suit,
civil action, complaint, arbitration or administrative action in any city,
state or federal court or agency or arbitration tribunal with respect to any
such claim, demands, cause of action, suits, judgments, controversies or
damage, and the foregoing release (1) shall not preclude the Shareholder from
obtaining any unemployment benefits or similar benefits to which such
Shareholder may be entitled by law, (2) shall not apply to any compensation in
the ordinary course, including vacation pay, sick pay and other benefits,
which is owing to the Shareholder for services performed through the date
hereof, or to any compensation for services performed after the date hereof
and (3) shall not apply to obligations arising out of this Agreement.
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(n) evidence of termination of the agreements referenced in Section
7.08;
(o) Affiliates Letters in the form attached as Exhibit 9.08 executed
by each Shareholder;
(p) evidence that the 12% Subordinated Debentures (and all accrued
interest thereon) have been contributed, by the holders thereof, to the
capital of the Company and that such debentures no longer reflect obligations
of the Company and are no longer outstanding; and
(q) such other instrument or instruments of transfer as shall be
necessary or appropriate, as Michaels or its counsel shall reasonably request,
to vest in Michaels good and marketable title to the Stock and to carry out
and effect the purpose and intent of this Agreement.
SECTION 11.02. DELIVERIES OF MICHAELS. At the Closing, Michaels
shall deliver the following to the Company or the appropriate party:
(a) the Michaels Stock Consideration;
(b) a copy of the resolutions of the Board of Directors of Michaels
authorizing the execution, delivery and performance of this Agreement and all
related documents and agreements, each certified by Michaels' Secretary as
being true and correct copies of the originals thereof subject to no
modifications or amendments;
(c) a certificate of the President of Michaels, dated the Closing
Date, as to the truth and correctness of the representations and warranties of
Michaels contained herein on and as of the Closing Date;
(d) a certificate of the President of Michaels, dated the Closing
Date, (i) as to the performance of and compliance by Michaels with all
covenants contained herein on and as of the Closing Date and (ii) certifying
that all conditions precedent of Michaels to the Closing have been satisfied;
(e) a certificate of the Secretary of Michaels certifying as to the
incumbency and signatures of the officers of Michaels who have executed
documents delivered at the Closing on behalf of Michaels;
(f) a certificate, dated within 20 days of the Closing Date, of the
Secretary of State of Michaels' state of incorporation, establishing that
Michaels is in existence, has paid all state taxes and otherwise is in good
standing to transact business in such state;
(g) executed documents in form reasonably satisfactory to counsel to
the Shareholders pursuant to which the Company releases, relinquishes, waives
and discharges each of the Shareholders from causes of action, suits,
judgments or Damages the Company has or may have,
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whether known or unknown, in any way arising out of or in connection with each
Shareholder's employment with the Company, his cessation of such employment, his
status as an officer, director or shareholder of the Company, or otherwise, and
the Company agrees not to file any claim, suit, civil action, complaint or
arbitration or administrative action in any city, state or federal court or
agency or arbitration tribunal with respect to any such claim, demand, cause of
action, suit, judgment, controversy or damage, provided the foregoing release
specifically excludes and preserves to the Company all claims, demands, cause of
action and suits that the Company has or may have based upon (1) any actions or
omissions on the Shareholder's part that constitute fraud, violation of law,
intentional misconduct or (2) advances, personal charges on the Company credit
cards and similar receivables reflected on the Company's books and records; and
(h) an opinion of Jackson & Walker, L.L.P., counsel to Michaels, dated
as of the Closing Date, substantially in the form of Exhibit 10.05.
ARTICLE XII.
POST CLOSING MATTERS
SECTION 12.01. FURTHER INSTRUMENTS OF TRANSFER. Following the
Closing, at the request of Michaels, the Shareholders shall deliver any
further instruments of transfer and take all reasonable action as may be
necessary or appropriate to (i) vest in Michaels good and marketable title to
the Stock and (ii) carry out more effectively the provisions of this Agreement
and to establish and protect the rights created in favor of the parties
hereunder or thereunder.
SECTION 12.02. REGISTRATION; RE-SALE OF MICHAELS STOCK CONSIDERATION. As
set forth in Section 8.02, Michaels shall use reasonable efforts to file the
Registration Statement with the SEC registering the sale of the Michaels Stock
Consideration by the Shareholders from time to time in the open market. In
connection with the disposition of the Michaels Stock Consideration under the
Registration Statement, in order for the Shareholders to dispose of Michaels
Stock Consideration with a prospectus that is a part of the Registration
Statement, the Shareholders must give the Company written notice of their
intention to sell any of the Michaels Stock Consideration at least two (2) but
not more than twenty (20) business days prior to the date of the proposed
sale(s), which notice shall include the number of shares proposed to be
disposed, whether the shares are to be sold in an underwritten offering and the
time period during the forty-five (45) business days following the date of such
notice during which the shares may be disposed (the "Sale Period"), and the
Shareholders agree that, during each Sale Period, they shall not deliver any
prospectus that is a part of the Registration Statement in connection with any
disposition of Registrable Securities during any period of time when, but only
so long as, the Company, after receipt of the notice set forth above, notifies
the Shareholders (a "Delay Notice") that the Company is in possession of
material non-public information that, in the exercise of its reasonable judgment
based on the advice of its counsel, would be required to be disclosed in the
Registration Statement (or any amendment, or post-effective amendment thereto)
in order to comply with SEC requirements, which material information may relate,
including,
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without limitation, to a financing project or a pending acquisition, merger or
other material corporate reorganization to which the Company is or is expected
to be a party; provided that the Company shall advise the Shareholders in
writing as soon as any such delay is no longer applicable; provided further that
the Shareholders shall only be prevented from disposing Michaels Stock
Consideration with a prospectus under the Registration Statement for up to 90
consecutive days (a "Delay Period") following the receipt of a Delay Notice and
any two Delay Periods must be at least 30 days apart during which time the
Shareholders shall be permitted to dispose of Registrable Securities with a
prospectus under the Registration Statement.
SECTION 12.03. RIGHT OF RESCISSION. If any Shareholder takes any
action, or fails to take any action, which action or failure to act results in
a breach of terms of the Affiliate Letter, and Michaels shall have been
advised by its independent auditors that, as a result of such breach, there
exists a reasonable likelihood that the transactions contemplated by this
Agreement shall not qualify for the "pooling of interests" accounting
treatment (in accordance with generally accepted accounting principles), then
Michaels shall have the right, upon five (5) days written notice, to rescind
the transactions contemplated by this Agreement and the parties agree to take,
and the Shareholders agree to be responsible for all of Michaels' and the
Company's expenses (up to a maximum of $1,000,000) related to, any and all
action necessary in order to return the parties to their respective positions
prior to the consummation of the transactions contemplated by this Agreement.
SECTION 12.04. RELEASE OF GUARANTIES. Following the Closing the
Company agrees (i) not to borrow any funds under the term loan portion of its
credit facility evidenced by the Loan Agreement, and (ii) to use reasonable
efforts to cause West One Bank, Washington to execute releases with respect to
the commercial guaranties executed by Marc L. Abramowitz, Matthew Abramowitz,
Edward K. Baker and William T. Gilbert.
ARTICLE XIII.
REMEDIES
SECTION 13.01. INDEMNIFICATION BY THE SHAREHOLDERS. Subject to the
terms and conditions of this Article, the Shareholders jointly and severally
agree to indemnify, defend and hold Michaels and its directors, officers,
employees, agents, attorneys and affiliates harmless from and against all
Damages, asserted against or incurred by such indemnitees by reason of or
resulting from a breach of any representation, warranty or covenant of the
Company or the Shareholders contained herein, in any exhibit, schedule,
certificate or financial statement delivered hereunder, or in any agreement
executed in connection with the transactions contemplated hereby.
SECTION 13.02. INDEMNIFICATION BY MICHAELS. Subject to the terms and
conditions of this Article, Michaels hereby agrees to indemnify, defend and
hold the Company and the Shareholders and its or their respective directors,
officers, agents, attorneys and affiliates harmless from and against all
Damages asserted against or incurred by any of such indemnitees
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by reason of or resulting from a breach of any representation, warranty or
covenant of Michaels contained herein or in any exhibit, schedule or certificate
delivered hereunder, or in any agreement executed in connection with the
transactions contemplated hereby.
SECTION 13.03. CONDITIONS OF INDEMNIFICATION. The respective
obligations and liabilities of the Company and the Shareholders and Michaels
(the "indemnifying party") to the other (the "party to be indemnified") under
Sections 13.01 and 13.02 with respect to claims resulting from the assertion
of liability by third parties shall be subject to the following terms and
conditions:
(a) Within 20 days (or such earlier time as might be required to avoid
prejudicing the indemnifying party's position) after receipt of notice of
commencement of any action evidenced by service of process or other legal
pleading, the party to be indemnified shall give the indemnifying party written
notice thereof together with a copy of such claim, process or other legal
pleading, and the indemnifying party shall have the right to undertake the
defense thereof by representatives of its own choosing and at its own expense;
provided that the party to be indemnified may participate in the defense with
counsel of its own choice, the fees and expenses of which counsel shall be paid
by the party to be indemnified unless (i) the indemnifying party has agreed to
pay such fees and expenses, (ii) the indemnifying party has failed to assume the
defense of such action or (iii) the named parties to any such action (including
any impleaded parties) include both the indemnifying party and the party to be
indemnified and the party to be indemnified has been advised by counsel that
there may be one or more legal defenses available to it that are different from
or additional to those available to the indemnifying party (in which case, if
the party to be indemnified informs the indemnifying party in writing that it
elects to employ separate counsel at the expense of the indemnifying party, the
indemnifying party shall not have the right to assume the defense of such action
on behalf of the party to be indemnified, it being understood, however, that the
indemnifying party shall not, in connection with any one such action or separate
but substantially similar or related actions in the same jurisdiction arising
out of the same general allegations or circumstances, be liable for the
reasonable fees and expenses of more than one separate firm of attorneys at any
time for the party to be indemnified, which firm shall be designated in writing
by the party to be indemnified).
(b) In the event that the indemnifying party, by the 30th day after
receipt of notice of any such claim (or, if earlier, by the 10th day preceding
the day on which an answer or other pleading must be served in order to
prevent judgment by default in favor of the person asserting such claim), does
not elect to defend against such claim, the party to be indemnified will (upon
further notice to the indemnifying party) have the right to undertake the
defense, compromise or settlement of such claim on behalf of and for the
account and risk of the indemnifying party and at the indemnifying party's
expense, subject to the right of the indemnifying party to assume the defense
of such claims at any time prior to settlement, compromise or final
determination thereof.
(c) Notwithstanding the foregoing, the indemnifying party shall not
settle any claim without the consent of the party to be indemnified unless
such settlement involves only the payment of money and the claimant provides
to the party to be indemnified a release from all
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liability in respect of such claim. If the settlement of the claim involves
more than the payment of money, the indemnifying party shall not settle the
claim without the prior consent of the party to be indemnified.
(d) The party to be indemnified and the indemnifying party will each
cooperate with all reasonable requests of the other.
SECTION 13.04. WAIVER. No waiver by any party of any default or
breach by another party of any representation, warranty, covenant or condition
contained in this Agreement, any exhibit or any document, instrument or
certificate contemplated hereby shall be deemed to be a waiver of any
subsequent default or breach by such party of the same or any other
representation, warranty, covenant or condition. No act, delay, omission or
course of dealing on the part of any party in exercising any right, power
or remedy under this Agreement or at law or in equity shall operate as a
waiver thereof or otherwise prejudice any of such party's rights, powers and
remedies. All remedies, whether at law or in equity, shall be cumulative and
the election of any one or more shall not constitute a waiver of the right to
pursue other available remedies.
SECTION 13.05. REMEDIES NOT EXCLUSIVE. The remedies provided in this
Article shall not be exclusive of any other rights or remedies available to
one party against the other, either at law or in equity.
SECTION 13.06. OFFSET. Any and all amounts owing or to be paid by
Michaels to the Shareholders, hereunder or otherwise, shall be subject to
offset and reduction PRO TANTO by any amounts that may be owing at any
time by the Shareholders to Michaels in respect of any failure or breach of
any representation, warranty or covenant of the Company or the Shareholders
under or in connection with this Agreement or any other agreement with
Michaels or any transaction contemplated hereby or thereby, as reasonably
determined by Michaels. If Michaels determines that such offset is
appropriate, notice shall be given to the Shareholders of such determination
at least 20 days prior to the due date of the payment to be reduced. If the
conditions upon which the reduction is based are cured by the Shareholders
prior to such due date, as determined by Michaels, the amount of such payment
shall not be so reduced.
SECTION 13.07. COSTS, EXPENSES AND LEGAL FEES. Subject to the
provisions of Section 3.13, whether or not the transactions contemplated
hereby are consummated, each party hereto shall bear its own costs and
expenses (including attorneys' fees and expenses), except that each party
hereto that is shown to have breached this Agreement or any other agreement
contemplated hereby agrees to pay the costs and expenses (including reasonable
attorneys' fees and expenses) incurred by any other party in successfully (i)
enforcing any of the terms of this Agreement against such breaching party or
(ii) proving that another party breached any of the terms of this Agreement;
notwithstanding the foregoing, all costs and expenses otherwise to be paid by
the Company due to actions prior to the Closing shall instead be paid by, and
be the joint and several obligation of, the Shareholders. Further, the
Company shall not incur or pay
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expenses, or reimburse the Shareholders for expenses, related to the
transactions contemplated by this Agreement, which in the aggregate exceed
$45,000.
SECTION 13.08. TAX EFFECT OF INDEMNIFICATION. Notwithstanding any
term or provision of this Agreement to the contrary, any indemnity payments
owed by one party to another party to this Agreement shall be reduced by any
tax benefits to the party claiming indemnity hereunder and increased by any
tax detriments to the party claiming indemnity hereunder.
SECTION 13.09. INDEMNIFICATION LIMITATIONS. Notwithstanding the
provisions of Section 13.01, (i) the Shareholders shall not be required to
indemnify Michaels for Damages in excess of the lesser of (a) the value on the
Closing Date of the Michaels Common Stock received by such Shareholder at the
Closing or (b) the sum of the value of the Michaels Common Stock so received
(and still held by such Shareholder) at the time such indemnification claim is
brought and the dollar amount received by such Shareholder from the sale of
the Michaels Common Stock prior to the time such indemnification claim is
brought, if any, so received by such Shareholder; (ii) the Shareholders shall
not be required to indemnify Michaels pursuant to the terms of this Article
XIII unless the aggregate amount of Damages claimed by Michaels shall exceed
$100,000 in which case the Shareholders shall indemnify Michaels only for
Damages in excess of $100,000; and (iii) the Shareholders shall not be
required to indemnify Michaels for any matter unless the claim for
indemnification is brought within the time period specified in Section 15.06.
ARTICLE XIV.
TERMINATION
SECTION 14.01. TERMINATION. This Agreement may be terminated:
(a) At any time prior to the Closing Date by mutual agreement of all
parties;
(b) At any time prior to the Closing Date by Michaels if any
representation or warranty of the Company or the Shareholders contained in
this Agreement or in any certificate or other document executed and delivered
by the Company or the Shareholders pursuant to this Agreement is or becomes
untrue or breached in any material respect or if the Company or any
Shareholder fails to comply in any material respect with any covenant
contained herein, and any such misrepresentation, noncompliance or breach is
not cured, waived or eliminated within 10 days;
(c) At any time prior to the Closing Date by the Company if any
representation or warranty of Michaels contained in this Agreement or in any
certificate or other document executed and delivered by Michaels pursuant to
this Agreement is or becomes untrue or breached in any material respect or if
Michaels fails to comply in any material respect with any covenant contained
herein, and any such misrepresentation, noncompliance or breach is not cured,
waived or eliminated within 10 days;
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(d) On or after the Closing Date by Michaels if the conditions stated
in Article IX have not been satisfied by the Closing Date; or
(e) On or after the Closing Date by the Company if the conditions
stated in Article X have not been satisfied by the Closing Date.
In the event this Agreement is terminated pursuant to subparagraph (b), (c),
(d) (other than because of the failure of the Company to obtain a consent
referenced in Section 9.09) or (e) above, Michaels, the Company and the
Shareholders shall each be entitled to pursue, exercise and enforce any and
all remedies, rights, powers and privileges available at law or in equity. In
the event of a termination of this Agreement under the provisions of this
Article, a party not then in material breach of this Agreement shall stand
fully released and discharged of any and all obligations under this Agreement.
ARTICLE XV.
MISCELLANEOUS
SECTION 15.01. AMENDMENT. This Agreement may be amended, modified or
supplemented only by an instrument in writing executed by all the parties
hereto.
SECTION 15.02. ASSIGNMENT. Neither this Agreement nor any right
created hereby or in any agreement entered into in connection with the
transactions contemplated hereby shall be assignable by any party hereto,
except by Michaels to an affiliate of Michaels.
SECTION 15.03. PARTIES IN INTEREST; NO THIRD PARTY BENEFICIARIES.
Except as otherwise provided herein, the terms and conditions of this
Agreement shall inure to the benefit of and be binding upon the respective
heirs, legal representatives, successors and assigns of the parties hereto.
Neither this Agreement nor any other agreement contemplated hereby shall be
deemed to confer upon any person not a party hereto or thereto any rights or
remedies hereunder or thereunder.
SECTION 15.04. ENTIRE AGREEMENT. This Agreement and the agreements
contemplated hereby constitute the entire agreement of the parties regarding
the subject matter hereof, and supersede all prior agreements and
understandings, both written and oral, among the parties, or any of them, with
respect to the subject matter hereof.
SECTION 15.05. SEVERABILITY. If any provision of this Agreement is held
to be illegal, invalid or unenforceable under present or future laws effective
during the term hereof, such provision shall be fully severable and this
Agreement shall be construed and enforced as if such illegal, invalid or
unenforceable provision never comprised a part hereof; and the remaining
provisions hereof shall remain in full force and effect and shall not be
affected by the illegal, invalid or unenforceable provision or by its severance
herefrom. Furthermore, in lieu of such illegal, invalid or unenforceable
provision, there shall be added automatically as part of this
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Agreement a provision as similar in its terms to such illegal, invalid or
unenforceable provision as may be possible and be legal, valid and enforceable.
SECTION 15.06. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS.
The representations, warranties and covenants contained herein shall survive
the Closing and all statements contained in any certificate, exhibit or other
instrument delivered by or on behalf of the Company, the Shareholders or
Michaels pursuant to this Agreement shall be deemed to have been
representations and warranties by the Company and the Shareholders or
Michaels, as the case may be, and, notwithstanding any provision in this
Agreement to the contrary, shall survive the Closing for a period ending on
the date of first issuance of Michaels audited financial statements for the
fiscal year ending on or about January 29, 1995.
SECTION 15.07. GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS (BUT NOT THE RULES GOVERNING
CONFLICTS OF LAWS) OF THE STATE OF DELAWARE.
SECTION 15.08. NO CONSEQUENTIAL OR PUNITIVE DAMAGES. NOTWITHSTANDING
ANY OTHER PROVISION OF THIS AGREEMENT, NO PARTY SHALL BE LIABLE TO ANY OTHER
PARTY FOR ANY LOSS OF PROFITS, INCIDENTAL OR CONSEQUENTIAL DAMAGES OR FOR
PUNITIVE DAMAGES.
SECTION 15.09. CAPTIONS. The captions in this Agreement are for
convenience of reference only and shall not limit or otherwise affect any of
the terms or provisions hereof.
SECTION 15.10. GENDER AND NUMBER. When the context requires, the
gender of all words used herein shall include the masculine, feminine and
neuter and the number of all words shall include the singular and plural.
SECTION 15.11. REFERENCE TO AGREEMENT. Use of the words "herein",
"hereof", "hereto" and the like in this Agreement shall be construed as
references to this Agreement as a whole and not to any particular Article,
Section or provision of this Agreement, unless otherwise noted.
SECTION 15.12. CONFIDENTIALITY; PUBLICITY AND DISCLOSURES. Each
party shall (and the Company shall direct its directors, officers, employees
and representatives to) keep this Agreement, the status of the transactions
contemplated by this Agreement, and this Agreement's terms confidential, and
shall make no press release (other than an initial press release to be made by
Michaels announcing this transaction, the contents of which shall be made
available to the Company prior to issuance) or public disclosure, either
written or oral, regarding the transactions contemplated by this Agreement
without the prior knowledge and written consent of the other parties hereto;
provided that the foregoing shall not prohibit any disclosure (i) by press
release, filing or otherwise that Michaels has determined in its good faith
judgment to be
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required by federal securities laws or the rules of the National Association of
Securities Dealers, (ii) to attorneys, accountants, investment bankers or other
agents of the parties assisting the parties in connection with the transactions
contemplated by this Agreement, (iii) by Michaels in connection with obtaining
financing for the transactions contemplated by this Agreement and conducting an
examination of the operations and assets of the Company, (iv) as may be deemed
necessary by Michaels in connection with other potential acquisition
transactions, or (v) as otherwise required by law. In the event that the
transactions contemplated hereby are not consummated for any reason whatsoever,
the parties hereto agree not to disclose or use any confidential information
they may have concerning the affairs of the other parties, except for
information that is required by law to be disclosed. Confidential information
includes, but is not limited to, the following: financial records, surveys,
reports, plans, proposals, financial information, information relating to
personnel, contracts, stock ownership, liabilities and litigation; provided that
should the transactions contemplated hereby not be consummated, nothing
contained in this Section shall be construed to prohibit the parties hereto from
operating businesses in competition with each other.
SECTION 15.13. NOTICE. Any notice or communication hereunder or in
any agreement entered into in connection with the transactions contemplated
hereby must be in writing and given by depositing the same in the United
States mail, addressed to the party to be notified, postage prepaid and
registered or certified with return receipt requested, or by delivering the
same in person or by facsimile transmission. Such notice shall be deemed
received on the date on which it is hand-delivered or received by facsimile
transmission or on the third business day following the date on which it is so
mailed. For purposes of notice, the addresses of the parties shall be as
follows:
If to Michaels: Michaels Stores, Inc.
5931 Campus Circle Drive
Irving, Texas 75063
Attn: R. Don Morris
with a copy to: Jackson & Walker, L.L.P.
901 Main Street, Suite 6000
Dallas, Texas 75202
Attn: Charles D. Maguire, Jr.
If to the Company:Marc L. Abramowitz
Treasure House Stores, Inc.
5959 Corson Avenue South
Seattle, Washington 98108
If to the To the addresses set forth
Shareholders: under the signatures below
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with a copy to: Stoel Rives Boley Jones & Grey
One Union Square
600 University Street, 36th Floor
Seattle, Washington 98101
Attn: Alan Merkle
Any party may change its address for notice by written notice given to the
other parties in accordance with this Section.
SECTION 15.14. DISPUTE RESOLUTION. Any dispute with respect to any
provision of this Agreement or any of the transactions contemplated hereby or
in any agreement contemplated hereby, including as to any determination by any
party hereunder, shall be resolved as follows:
(a) SETTLEMENT EFFORTS. Michaels and the Shareholders shall first
attempt in good faith to settle the dispute by discussion and negotiations.
(b) MEDIATION. If within 30 days settlement of the issues has not been
reached, then the parties shall refer the matter to mediation by a person or
entity mutually agreeable to all parties. If the parties do not agree as to a
mediator within 10 days, then the parties shall use the mediation services of
the Judicial Arbitration and Mediation Services. If the dispute is in the
nature of a claim brought by Michaels against the Shareholders, the mediation
shall be held in Seattle, Washington; if the dispute is in the nature of a claim
brought by the Shareholders, or any of them, against Michaels, the mediation
shall be held in Dallas, Texas; and if the nature of the dispute is not clear,
the mediation shall be held in Dallas, Texas.
(c) ARBITRATION. If a settlement of the issues has not been reached
within 60 days after the dispute has been referred to mediation, then the
dispute shall be submitted to binding arbitration, as follows:
(i) The Shareholders shall select one arbitrator, Michaels shall
select one arbitrator and together the Shareholders, on one hand, and
Michaels, on the other hand, shall select a third arbitrator (if they
cannot select a third arbitrator within five business days, then the two
arbitrators individually chosen by the Shareholders and Michaels shall
promptly select the third arbitrator);
(ii) The arbitration shall then be resolved in accordance with
the Commercial Arbitration Rules of the American Arbitration
Association;
(iii) Judgment may be rendered upon the award rendered by the
arbitrators in any court having jurisdiction thereof;
(iv) Should an injunction be sought, the amount of any bond
required shall not exceed $1,000,000; and
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(v) If the dispute is in the nature of a claim brought by
Michaels against the Shareholders, the arbitration shall be held in
Seattle, Washington; if the dispute is in the nature of a claim brought
by the Shareholders, or any of them, against Michaels, the arbitration
shall be held in Dallas, Texas; and if the nature of the dispute is not
clear, the arbitration shall be held in Dallas, Texas.
(c) EXPENSES. Unless otherwise agreed, the parties shall share
equally the expenses of settlement and mediation. If the dispute is submitted
to arbitration, the prevailing party shall be entitled to receive its
reasonable fees and expenses of its attorneys and experts in any such
arbitration, and the non-prevailing party shall pay (or reimburse the
prevailing party's portion of) the fees of the arbitrators, all as the
arbitrator shall decide.
SECTION 15.15. SERVICE OF PROCESS. Service of any and all process that
may be served on any party hereto in any suit, action or proceeding arising out
of this Agreement may be made in the manner and to the address set forth in
Section 15.13 and service thus made shall be taken and held to be valid personal
service upon such party by any party hereto on whose behalf such service is
made.
SECTION 15.16. COUNTERPARTS. This Agreement may be executed in
multiple counterparts, each of which shall be deemed an original, and all of
which together shall constitute one and the same instrument.
EXECUTED as of the date first above written.
- 44 -
<PAGE>
MICHAELS
MICHAELS STORES, INC.
By:________________________
Its:_______________________
THE COMPANY
TREASURE HOUSE STORES, INC.
By:________________________
Its:_______________________
- 45 -
<PAGE>
SHAREHOLDERS:
____________________________________
Marc L. Abramowitz
Address:____________________________
____________________________________
____________________________________
Matthew Abramowitz
Address:____________________________
____________________________________
____________________________________
Edward K. Baker
Address:____________________________
____________________________________
____________________________________
William T. Gilbert
Address:____________________________
____________________________________
____________________________________
Michael F. Solomon
Address:____________________________
____________________________________
- 46 -
<PAGE>
MARC L. ABRAMOWITZ IRREVOCABLE
TRUST NUMBER 5 - TREASURE HOUSE
STORES, INC. FOR HIS CHILDREN
AND THEIR DESCENDANTS
By:_________________________________
Trustee
Address:____________________________
____________________________________
- 47 -
<PAGE>
EXHIBITS OMITTED
<PAGE>
EXHIBIT 5
Opinion of Jackson & Walker, L.L.P.
<PAGE>
Letterhead
(214) 953-6000
February 16, 1994
Michaels Stores, Inc.
5931 Campus Circle Drive
Las Colinas Business Park
Irving, Texas 75063
Re: Registration Statement on Form S-3 of Michaels Stores,
Inc.
Ladies and Gentlemen:
We are acting as counsel for Michaels Stores, Inc., a
Delaware corporation (the "Company"), in connection with the
registration under the Securities Act of 1933, as amended (the
"Act"), of the offer and sale of up to 280,000 shares of common
stock, par value $.10 per share, of the Company (the "Shares") by
certain "Selling Stockholders" (as defined in the above-captioned
registration statement). The Company's Registration Statement on
Form S-3 covering the sale of the Shares (the "Registration
Statement") will be filed under the Act with the Securities and
Exchange Commission (the "Commission") on February 17, 1994.
In reaching the conclusions expressed in this opinion, we
have examined and relied on such documents, corporate records and
other instruments, including certificates of public officials and
certificates of officers of the Company, and made such further
investigation and inquiry as we have deemed necessary to the
opinions expressed herein. We have assumed that all signatures
on all documents submitted to us are genuine, that all documents
submitted to us as originals are accurate and complete, and that
all documents submitted to us as copies are true, correct and
complete copies of the originals thereof.
Based solely upon the foregoing and subject to the comments
and exceptions herein stated, we are of the opinion that when
they are issued pursuant to the terms of the Stock Purchase
Agreement dated as of February 16, 1994, among Treasure House
Stores, Inc., a Delaware corporation ("Treasure House"), the
holders of all of the outstanding capital stock of Treasure House
and the Company (a copy of which is being filed as an exhibit to
the Registration Statement), the Shares will be legally issued,
fully paid and nonassessable.
<PAGE>
We express no opinion as to the laws of any jurisdiction
other than the State of Texas and, solely with respect to matters
of corporate law, the State of Delaware. You should be aware
that we are not admitted to practice law in the State of
Delaware. Accordingly, any opinion herein as to the laws of the
State of Delaware is based solely upon the latest generally
available compilation of the statutes and case law of such state.
We hereby consent to the filing of this opinion with the
Commission as an exhibit to the Registration Statement and to the
reference to our firm therein under the caption "Legal Matters".
In giving this consent, we do not hereby admit that we come
within the category of persons whose consent is required under
Section 7 of the Act or the rules and regulations of the
Commission promulgated thereunder.
Very truly yours,
/s/ Jackson & Walker, L.L.P.
_________________________
<PAGE>
EXHIBIT 23.1
Consent of Ernst & Young
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-3) and related Prospectus of Michaels Stores,
Inc. for the registration of 280,000 shares of its common stock and to the
incorporation by reference therein of our report dated February 26, 1993, with
respect to the financial statements and our report dated April 29,1993 with
respect to the financial statement schedules of Michaels Stores, Inc. included
or incorporated by reference in its Annual Report (Form 10-K) for the year
ended January 31,1993 filed with the Securities and Exchange Commission.
/s/ Ernst & Young
ERNST & YOUNG
Dallas, Texas
February 16, 1994
