<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 21, 1994
REGISTRATION NO. 33-53639
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
PRE-EFFECTIVE AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
------------------------
MICHAELS STORES, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 75-1943604
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
</TABLE>
5931 CAMPUS CIRCLE DRIVE
IRVING, TEXAS 75063
P.O. BOX 619566
DFW, TEXAS 75261-9566
(214) 714-7000
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
R. DON MORRIS
5931 CAMPUS CIRCLE DRIVE
IRVING, TEXAS 75063
(214) 714-7000
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
------------------------
COPIES TO:
<TABLE>
<S> <C>
CHARLES D. MAGUIRE, JR. KENNETH L. STEWART
JACKSON & WALKER, L.L.P. FULBRIGHT & JAWORSKI L.L.P.
901 Main Street 2200 Ross Avenue
Suite 6000 Suite 2800
Dallas, Texas 75202 Dallas, Texas 75201
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
------------------------
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box: / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. / /
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
AMOUNT TO MAXIMUM AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF BE OFFERING PRICE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED (1)(2) PER UNIT (3) PRICE (3) FEE (4)
<S> <C> <C> <C> <C>
Common Stock, par value $0.10
per share.................... 3,795,000 $38.81 $147,283,950 $50,787.57
<FN>
(1) Includes 495,000 shares to cover the Underwriters' over-allotment option
and shares that are to be offered and sold outside the United States but
that may be resold from time to time in the United States either as part of
the distribution or within 40 days after the later of the effective date of
the Registration Statement or the date the shares are first bona fide
offered to the public.
(2) The portion of the shares covered by this Registration Statement that are
initially being offered for sale outside the United States and Canada are
not being registered under the U.S. Securities Act of 1933, except to the
extent such shares are reoffered or resold into the United States under
circumstances constituting part of the distribution or under circumstances
requiring delivery of a prospectus.
(3) In accordance with Rule 457(c), based upon the average of the high and low
sales price of the Registrant's Common Stock on the Nasdaq National Market
on June 17, 1994.
(4) A filing fee of $39,283.41 was paid in connection with the initial
registration of 2,875,000 shares of Common Stock on May 16, 1994 and
accordingly, a filing fee of $11,504.16 is being paid herewith.
</TABLE>
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY
DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION, DATED JUNE 21, 1994
3,300,000 Shares
[logo]
Common Stock
($.10 PAR VALUE)
--------------
OF THE 3,300,000 SHARES OF COMMON STOCK, $.10 PAR VALUE ("COMMON STOCK"), OF
MICHAELS STORES, INC. ("MICHAELS" OR THE "COMPANY") OFFERED HEREBY, 2,475,000
SHARES ARE BEING SOLD BY THE COMPANY AND 825,000 ARE BEING SOLD BY THE
SELLING STOCKHOLDERS NAMED HEREIN UNDER "SELLING STOCKHOLDERS." THE
COMPANY WILL NOT RECEIVE ANY PROCEEDS FROM THE SALE OF SHARES BY THE
SELLING STOCKHOLDERS. OF THE 3,300,000 SHARES OF COMMON STOCK BEING
OFFERED, 2,640,000 SHARES ARE INITIALLY BEING OFFERED IN THE UNITED
STATES AND CANADA (THE "U.S. SHARES") BY THE U.S. UNDERWRITERS
(THE "U.S. OFFERING") AND 660,000 SHARES ARE INITIALLY BEING
CONCURRENTLY OFFERED OUTSIDE THE UNITED STATES AND CANADA
(THE "INTERNATIONAL SHARES") BY THE MANAGERS (THE
"INTERNATIONAL OFFERING" AND, TOGETHER WITH THE U.S.
OFFERING, THE "COMMON STOCK OFFERING"). THE OFFERING
PRICE AND UNDERWRITING DISCOUNTS OF THE U.S.
OFFERING AND THE INTERNATIONAL OFFERING ARE
IDENTICAL. ON JUNE 16, 1994, THE REPORTED
LAST SALE PRICE OF THE COMMON STOCK ON
THE NASDAQ NATIONAL MARKET WAS $40 1/2
PER SHARE.
--------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR AD-
EQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS COMPANY(1) STOCKHOLDERS
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
PER SHARE................................ $ $ $ $
TOTAL(2)................................. $ $ $ $
<FN>
(1) BEFORE DEDUCTION OF EXPENSES PAYABLE BY THE COMPANY ESTIMATED AT
$ .
(2) THE COMPANY HAS GRANTED THE U.S. UNDERWRITERS AND THE MANAGERS AN OPTION,
EXERCISABLE BY CS FIRST BOSTON CORPORATION, FOR 30 DAYS FROM THE DATE OF
THIS PROSPECTUS TO PURCHASE A MAXIMUM OF 495,000 ADDITIONAL SHARES TO COVER
OVER-ALLOTMENTS OF SHARES. IF THE OPTION IS EXERCISED IN FULL, THE TOTAL
PRICE TO PUBLIC WILL BE $ , UNDERWRITING DISCOUNTS AND COMMISSIONS
WILL BE $ , AND PROCEEDS TO COMPANY WILL BE $ .
</TABLE>
--------------
THE U.S. SHARES ARE OFFERED BY THE SEVERAL U.S. UNDERWRITERS WHEN, AS AND IF
ISSUED BY THE COMPANY, DELIVERED TO AND ACCEPTED BY THE U.S. UNDERWRITERS AND
SUBJECT TO THEIR RIGHT TO REJECT ORDERS IN WHOLE OR IN PART. IT IS EXPECTED THAT
THE U.S. SHARES WILL BE READY FOR DELIVERY ON OR ABOUT , 1994.
CS First Boston
Robertson, Stephens & Company
Nomura Securities International, Inc.
THE DATE OF THIS PROSPECTUS IS JULY , 1994.
<PAGE>
[map]
IN CONNECTION WITH THIS OFFERING, CS FIRST BOSTON CORPORATION ON BEHALF OF
THE U.S. UNDERWRITERS AND THE MANAGERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS
WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT A LEVEL
ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS
MAY BE EFFECTED ON THE NASDAQ STOCK MARKET OR OTHERWISE. SUCH STABILIZING, IF
COMMENCED, MAY BE DISCONTINUED AT ANY TIME. IN CONNECTION WITH THIS OFFERING,
CERTAIN U.S. UNDERWRITERS AND MANAGERS (AND SELLING GROUP MEMBERS, IF ANY) AND
THEIR RESPECTIVE AFFILIATES MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN
THE COMMON STOCK ON THE NASDAQ STOCK MARKET IN ACCORDANCE WITH RULE 10B-6A UNDER
THE SECURITIES EXCHANGE ACT OF 1934. (SEE "UNDERWRITING.")
2
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company with the Commission may be
inspected and copied at the office of the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the following regional offices of
the Commission: Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661; and 7 World Trade Center, 13th Floor, New York, New
York 10048. Copies of such material can also be obtained from the Public
Reference Section of the Commission at Judiciary Plaza, Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates.
This Prospectus does not contain all of the information set forth in the
Registration Statement on Form S-3 and exhibits thereto (collectively, the
"Registration Statement") that the Company filed with the Commission in
connection with the sale of the securities offered hereby under the Securities
Act of 1933, as amended (the "Securities Act"), to which Registration Statement
reference is hereby made. Copies of such Registration Statement are available
from the Commission. The terms "Michaels" and the "Company" when used herein
shall mean Michaels Stores, Inc. and its subsidiaries.
The Company's principal executive offices are located at 5931 Campus Circle
Drive, Irving, Texas, and its mailing address is P.O. Box 619566, DFW, Texas
75261-9566 and the Company's telephone number is (214) 714-7000.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents have been filed with the Commission by the Company
and are incorporated herein by reference and made a part hereof as of their
respective dates: (i) Annual Report on Form 10-K for the year ended January 30,
1994; (ii) definitive Proxy Statement, dated April 25, 1994, relating to the
Company's Annual Meeting of Stockholders held on May 24, 1994; (iii) Current
Report on Form 8-K filed May 23, 1994; (iv) Quarterly Report on Form 10-Q for
the quarter ended May 1, 1994; and (v) Registration Statement on Form 8-A (No.
0-11822), effective as of September 11, 1991 and any amendments filed thereto.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 and
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination of the Common Stock Offering shall be deemed to be incorporated
by reference herein and to be a part hereof from the date of filing thereof. Any
statement contained herein or in a document incorporated or deemed incorporated
by reference herein shall be deemed to be modified or superseded for all
purposes of this Prospectus to the extent that a statement contained herein or
in any other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
The Company will provide, without charge, to each person to whom a copy of
this Prospectus is delivered, upon the written or oral request of such person, a
copy of any or all of the documents incorporated by reference in this Prospectus
(other than exhibits and schedules thereto, unless such exhibits or schedules
are specifically incorporated by reference into the information that this
Prospectus incorporates). Written or telephonic requests for copies should be
directed to Michaels' principal office: Michaels Stores, Inc., P.O. Box 619566,
DFW, Texas 75261-9566, Attention: Investor Relations (telephone: (214)
714-7100).
3
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS INTENDED TO HIGHLIGHT CERTAIN INFORMATION CONTAINED
ELSEWHERE IN THIS PROSPECTUS. THIS SUMMARY IS NOT INTENDED TO BE A COMPLETE
STATEMENT OF ALL MATERIAL INFORMATION IN THIS PROSPECTUS AND IS QUALIFIED IN ITS
ENTIRETY BY THE MORE DETAILED INFORMATION HEREIN AND IN THE DOCUMENTS
INCORPORATED BY REFERENCE. UNLESS OTHERWISE INDICATED, THE INFORMATION CONTAINED
IN THIS PROSPECTUS ASSUMES THAT THE U.S. UNDERWRITERS' AND THE MANAGERS'
OVER-ALLOTMENT OPTION IS NOT EXERCISED.
THE COMPANY
Michaels Stores, Inc. ("Michaels" or the "Company") is the nation's leading
retailer of arts, crafts and decorative items. Michaels stores offer a wide
selection of competitively priced items, including general crafts, wearable art,
silk and dried flowers, picture framing materials and services, art and hobby
supplies, and party, seasonal and holiday merchandise. The Company's stores
average approximately 15,500 square feet of selling space and offer an
assortment of over 30,000 stock keeping units ("SKUs"). Michaels' merchandising
strategy is to provide a broad selection of products in an appealing store
environment with superior customer service, including in-store "how-to"
demonstrations, project samples displayed throughout the store and instructional
classes for adults and children.
Michaels currently operates 268 stores in 35 states and Canada. As a result
of the recently announced acquisition (the "Leewards Acquisition") of Leewards
Creative Crafts, Inc. ("Leewards"), the Company intends to add approximately 80
Leewards store locations. In addition, Michaels anticipates closing
approximately 5 to 10 overlapping Michaels stores. On a pro forma basis for the
Leewards Acquisition, Michaels' sales for the fiscal year ended January 30, 1994
would have been approximately $811 million. In addition to the Leewards stores
and the 25 stores acquired earlier this year, Michaels currently anticipates
opening approximately 55 new store locations in 1994, of which 23 have been
opened. Assuming the consummation of the Leewards Acquisition, the Company
intends to add approximately 50 to 60 new stores during 1995.
Over the past five fiscal years, the Company's sales have grown from $290
million to $620 million. This sales growth resulted from increases in comparable
store sales in each year since 1989 and an increase in the Company's store
locations from 122 to 220 at the end of the most recent fiscal year. In
addition, operating income over the past five fiscal years has increased from
$15 million to $41 million.
RECENT ACQUISITIONS
On May 10, 1994, Michaels announced that it had signed a definitive merger
agreement for the acquisition of Leewards, an Illinois-based arts and crafts
retailer with approximately 100 stores located primarily in the midwestern and
northeastern United States. It is expected that the Leewards Acquisition will
close on or before July 8, 1994, prior to completion of the Common Stock
Offering. Assuming the Leewards Acquisition closes prior to completion of the
Common Stock Offering, and assuming a five day average closing price of the
Common Stock on The Nasdaq National Market of $40.50, the acquisition
consideration will consist of approximately $9.2 million in cash and 1,271,146
shares of Common Stock. It is currently estimated that 825,000 of these shares
will be sold by the Leewards stockholders to the public in this Common Stock
Offering. Upon consummation of the Leewards Acquisition, Michaels will also
repay an estimated $50 million of Leewards' indebtedness. The Leewards
Acquisition will establish Michaels' presence in a number of new markets,
including the northeastern United States, a market in which Michaels does not
currently have a significant presence, and significantly expand its presence in
several existing markets. Following the Leewards Acquisition, Michaels expects
to close approximately 20 Leewards stores and approximately 5 to 10 Michaels
stores due to overlapping locations. Substantially all of the conditions to the
consummation of the Leewards Acquisition have been satisfied, including approval
of Leewards' stockholders and termination of the waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976 ("Hart-Scott-Rodino"). See
"Recent Developments -- Recent Acquisitions," "Leewards Acquisition" and
"Selling Stockholders."
In February 1994, the Company acquired Treasure House Stores, Inc.
("Treasure House"), a chain of nine arts and crafts stores operating primarily
in the Seattle market, for 280,000 shares of Michaels Common Stock. In April
1994, the Company acquired the affiliated arts and crafts store chains of Oregon
Craft & Floral Supply Co. ("Oregon Craft & Floral"), with eight stores located
primarily in the Portland, Oregon area, and H&H Craft & Floral Supply Co. ("H&H
Craft & Floral"), with eight stores located in southern California, for a total
of 455,000 shares of Michaels Common Stock. The Treasure House stores have been
converted to the Michaels format and the Oregon Craft & Floral and H&H Craft &
Floral stores
4
<PAGE>
are being converted to the Michaels format with grand openings scheduled for
July through August of this year. The Company believes that these acquisitions
have significantly increased its presence in Oregon and Washington and further
strengthened its position in southern California. See "Recent Developments --
Recent Acquisitions."
INTEGRATION OF LEEWARDS
The Company has designed a ten-week transition plan to reconfigure the
Leewards stores to be more consistent with the merchandising strategy of
Michaels. In order to minimize disruption to the Company's business, this plan
will be implemented by the Leewards field organization under the supervision of
Michaels' management using detailed plans developed by Michaels. Key aspects of
this plan include:
- Revising and enhancing the product mix to correlate to Michaels'
merchandising strategy;
- Converting merchandise ordering and management information systems;
- Eliminating redundant overhead;
- Retraining employees to provide the level of customer service found in
Michaels stores and to improve operational efficiencies; and
- Closing approximately 20 Leewards and approximately 5 to 10 Michaels store
locations to eliminate overlapping stores.
The continuing 80 Leewards stores will be converted to the Michaels store
format beginning with a four-week phase to eliminate incompatible merchandise.
The second phase will involve the arrival of new merchandise and the
reformatting of the stores to the Michaels prototype. This will be accomplished
department by department, with the stores remaining open for business throughout
the process. The Company anticipates completing the plan prior to the busy
fall/Christmas selling season. See "Leewards Acquisition -- Integration of
Leewards."
THE COMMON STOCK OFFERING
<TABLE>
<CAPTION>
U.S. INTERNATIONAL
OFFERING OFFERING TOTAL
------------ ------------ -----------
<S> <C> <C> <C>
Shares of Common Stock Offered:
By the Company.................................. 1,980,000 495,000 2,475,000
By the Selling Stockholders..................... 660,000 165,000 825,000
------------ ------------ -----------
Total(1).................................... 2,640,000 660,000 3,300,000
------------ ------------ -----------
------------ ------------ -----------
</TABLE>
<TABLE>
<S> <C>
Common Stock to be Outstanding:
After the Leewards Acquisition(2)......... 18,763,954 shares
After the Leewards Acquisition and the
Common Stock Offering(2)................. 21,238,954 shares
Use of Proceeds............................. Payment of outstanding bank debt which is expected to
include approximately $63 million of indebtedness to be
incurred in connection with the Leewards Acquisition.
See "Use of Proceeds."
Nasdaq National Market Symbol............... MIKE
<FN>
- --------------------------
(1) Pursuant to an agreement between the U.S. Underwriters and the Managers,
some or all of the shares underwritten by the Managers may be sold by the
Managers to the U.S. Underwriters for resale in the United States and
Canada, and some or all of the shares underwritten by the U.S.
Underwriters may be sold by the U.S. Underwriters to the Managers for
resale outside the United States and Canada. See "Underwriting."
(2) Reflects shares outstanding as of June 16, 1994 and assumes that the
Leewards Acquisition is consummated and that the consideration payable to
Leewards' stockholders consists of the issuance of 1,271,146 shares of
Common Stock and cash of $9.2 million. Excludes shares held by
wholly-owned subsidiaries of the Company. If the Leewards Acquisition does
not close prior to the closing of the Common Stock Offering, the Leewards
stockholders may receive cash in lieu of up to 500,000 shares of the
Common Stock issuable in the acquisition. See "Recent Developments --
Recent Acquisitions" "Leewards Acquisition" and "Description of Capital
Stock."
</TABLE>
5
<PAGE>
SUMMARY FINANCIAL AND STORE DATA
(IN THOUSANDS, EXCEPT STORE DATA AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FISCAL YEAR (1) QUARTER ENDED
------------------------------------------------------------------- ---------------------------------
1993 MAY 1, 1994
-------------------- ----------------------
PRO MAY 2, PRO
1989 1990 1991 1992 ACTUAL FORMA(2) 1993 ACTUAL FORMA(2)
-------- -------- ----------- -------- -------- --------- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales.............. $289,754 $362,028 $410,899 $493,159 $619,688 $810,824 $112,961 $159,798 $206,305
Operating income....... 14,900 20,694 25,643 34,263 41,356 44,512 5,962 9,071 9,542
Weighted average shares
outstanding assuming
full dilution......... 10,645 10,229 12,411 16,853 19,809 21,080 17,131 17,856 19,127
Earnings per common
share assuming full
dilution.............. $0.00 $0.57 $0.87(3) $1.21 $1.52 $1.41 $0.22 $0.28 $0.25
STORE DATA:
Stores open at period
end................... 122 137 140 168 220 319(4) 180 259 358(4)
Average sales per
square foot (5)....... $193 $206 $213 $226 $218 $201 $45 $44 $41
Comparable store sales
increase (6).......... 6% 9% 9% 7% 3% 3% 2% 10% 7%
</TABLE>
<TABLE>
<CAPTION>
MAY 1, 1994
-----------------------------------------
PRO FORMA
ACTUAL PRO FORMA (7) AS ADJUSTED(8)
--------- -------------- --------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital..................................................... $ 169,726 $ 134,388 $ 229,414
Total assets........................................................ 463,119 616,408 616,408
Convertible subordinated notes...................................... 97,750 97,750 97,750
Shareholders' equity................................................ 206,596 258,077 353,103
<FN>
- ------------------------------
(1) The Company operates on a 52/53 week fiscal year ending on the Sunday
closest to January 31. For example, references to "fiscal 1993" mean the
fiscal year ended January 30, 1994. Fiscal 1990 included 53 weeks; all
other fiscal years set forth above included 52 weeks.
(2) On a pro forma basis to reflect the consummation of the Leewards
Acquisition. See "Pro Forma Combined Financial Information." Fiscal 1993
pro forma amounts do not reflect the acquisitions of Treasure House,
Oregon Craft & Floral or H&H Craft & Floral by the Company in February and
April 1994 as such acquisitions were not material in the aggregate.
(3) Before extraordinary item of $3.8 million, or $0.31 per common and common
equivalent share, relating to the redemption premium paid for the early
retirement of the Company's 12.75% Senior Subordinated Notes, which had an
effective interest rate of 15.8%, and the accelerated amortization of
related debt issuance costs.
(4) Includes Leewards stores and Michaels stores open at period end.
(5) Calculated for stores open the entire period and based on selling square
footage.
(6) The increase for fiscal 1990 was calculated on a comparable 52-week
period.
(7) Pro forma for the Leewards Acquisition. Assumes that the Leewards
Acquisition is consummated and that the consideration payable to Leewards'
stockholders consists of the issuance of 1,271,146 shares of Common Stock
and cash of $9.2 million.
(8) Pro forma for the Leewards Acquisition and as adjusted for the Common
Stock Offering. Assumes that the Leewards Acquisition is consummated and
that the consideration payable to Leewards' stockholders consists of the
issuance of 1,271,146 shares of Common Stock and cash of $9.2 million.
</TABLE>
6
<PAGE>
RECENT DEVELOPMENTS
RECENT ACQUISITIONS
On May 10, 1994, the Company announced that it had signed a definitive
merger agreement for the acquisition of Leewards, an Illinois-based arts and
crafts retailer with approximately 100 stores located primarily in the
midwestern and northeastern United States. It is expected that the Leewards
Acquisition will close on or before July 8, 1994, prior to completion of the
Common Stock Offering. Assuming the Leewards Acquisition closes prior to
completion of the Common Stock Offering, and assuming a five day average closing
price of the Common Stock price on The Nasdaq National Market of $40.50, the
acquisition consideration will consist of approximately $9.2 million in cash and
1,271,146 shares of Common Stock. It is currently estimated that 825,000 of
these shares will be sold by the Leewards stockholders to the public in this
Common Stock Offering. Upon consummation of the Leewards Acquisition, Michaels
will also repay the indebtedness under Leewards' bank credit facility and
subordinated notes, expected to total approximately $50 million at closing.
Substantially all of the conditions to the consummation of the Leewards
Acquisition have been satisfied, including approval of Leewards' stockholders
and termination of the waiting period under Hart-Scott-Rodino. Consummation of
the acquisition is nevertheless subject to certain customary conditions to
closing including there having occurred no material adverse changes in the
condition (financial or otherwise), operations, assets or liabilities of
Michaels or Leewards. The Leewards stockholders have agreed they will not engage
in a public distribution of the shares of Common Stock they acquire in
connection with the Leewards Acquisition for a period of 90 days from the date
of this Prospectus. In the event that the Leewards Acquisition closes after the
closing of the Common Stock Offering, the Leewards stockholders may receive cash
in lieu of a portion of the shares of Common Stock issuable in the acquisition.
See "Leewards Acquisition," "Pro Forma Combined Financial Information," "Selling
Stockholders" and "Underwriting."
In February 1994, the Company acquired Treasure House, a chain of nine arts
and crafts stores operating primarily in the Seattle market, for 280,000 shares
of Michaels Common Stock. In April 1994, the Company acquired the affiliated
arts and crafts store chains of Oregon Craft & Floral, with eight stores located
primarily in the Portland, Oregon area, and H&H Craft & Floral, with eight
stores located in southern California, for a total of 455,000 shares of Michaels
Common Stock. The Treasure House stores have been converted to the Michaels
format and the Oregon Craft & Floral and the H&H Craft and Floral stores are
being converted to the Michaels format with grand openings scheduled for July
through August of this year. The Company believes that these acquisitions have
significantly increased its presence in Oregon and Washington and further
strengthened the Company's position in southern California.
OPERATING RESULTS FOR FIRST QUARTER
Michaels reported record first quarter earnings for the quarter ended May 1,
1994 of $5.0 million, or $0.28 per share, compared to $3.8 million, or $0.22 per
share for the first quarter of fiscal 1993. The earnings increase can be
attributed to a 41% increase in net sales to $159.8 million, including a 10%
increase in comparable store sales, and a 52% increase in operating income to
$9.1 million. Operating income as a percentage of net sales increased to 5.7% in
the fiscal 1994 first quarter from 5.3% in the year earlier period. Earnings for
the 1994 first quarter included one-time transaction costs, severance costs and
duplicate pre-merger general and administrative costs associated with the
acquisition of Treasure House during the quarter, which was accounted for as a
pooling of interests and, accordingly, had its sales and earnings included in
the Company's results as of the beginning of the quarter. Without these one-time
costs totaling $0.02 per share, earnings per share would have been $0.30 for the
quarter, an increase of 36% over the year earlier period. The Oregon Craft &
Floral and H&H Craft and Floral acquisitions were purchase transactions that
closed near the end of the quarter and thus had no significant effect on the
Company's results for the quarter.
ANTICIPATED STORE CLOSINGS
Michaels expects to incur a pretax charge in the quarter in which the
Leewards Acquisition is consummated. The charge will relate to the cost of
closing approximately 5 to 10 existing Michaels
7
<PAGE>
store locations in connection with the integration of Leewards. In accordance
with generally accepted accounting principles, the cost of closing the Company's
existing store locations will be expensed while the cost of closing the acquired
Leewards store locations will be included as an adjustment to the purchase price
of the acquisition.
NEW CREDIT FACILITY
In June 1994, Michaels entered into a new three-year, unsecured $150 million
revolving credit facility to replace its existing $100 million revolving credit
facility.
THE COMPANY
OVERVIEW
Michaels is the nation's leading retailer of arts, crafts and decorative
items. Michaels stores offer a wide selection of competitively priced items,
including general crafts, wearable art, silk and dried flowers, picture framing
materials and services, art and hobby supplies, and party, seasonal and holiday
merchandise. Michaels' merchandising strategy is to provide a broad selection of
products in an appealing store environment with superior customer service,
including in-store "how-to" demonstrations, project samples displayed throughout
the store and instructional classes for adults and children. The Company's
primary customers are women aged 25 to 54 with above average median household
incomes, and the Company believes that repeat customers account for a
substantial portion of its sales. The average sale is approximately $13.75.
Michaels currently operates 268 stores in 35 states and Canada. As a result
of the Leewards Acquisition, the Company intends to add approximately 80
Leewards store locations. In addition, Michaels anticipates closing 5 to 10
overlapping Michaels stores. On a pro forma basis for the Leewards Acquisition,
Michaels' sales for fiscal 1993 would have been approximately $811 million. See
"Leewards Acquisition" and "Pro Forma Combined Financial Information."
NEW STORE EXPANSION
In addition to the Leewards stores and the 25 stores acquired earlier this
year, Michaels currently anticipates opening approximately 55 new stores in the
United States and Canada during fiscal 1994, of which 23 have been opened. At
present, the Company intends to add 50 to 60 new stores during fiscal 1995
assuming consummation of the Leewards Acquisition; otherwise, fiscal 1995 store
growth is expected to be between 80 and 100 new stores. Michaels' expansion
strategy is to give priority to adding stores in existing markets or clustering
stores in new markets in order to enhance economies of scale associated with
advertising, distribution, field supervision and other regional expenses.
Management believes that few of its existing markets are saturated, and that
many attractive new markets are available to the Company for expansion. The
anticipated development of Michaels stores in 1995 and the rate at which stores
are developed thereafter will depend upon a number of factors, including the
success of existing Michaels stores and the stores to be added pursuant to the
Leewards Acquisition, the availability of suitable store sites, the availability
of suitable acquisition candidates and the ability to hire and train qualified
managers. The Company intends to continue to review acquisition opportunities in
existing and new markets. The Company has no arrangements or understandings
pending with respect to any acquisitions other than Leewards.
In October 1993, the Company opened its first Michaels Craft and Floral
Warehouse store ("CFW") using a newly-developed "warehouse superstore" format.
It is anticipated that each store following the CFW format will occupy
approximately 30,000 to 40,000 square feet of selling space, carry a wider
selection of certain categories of merchandise than the typical store, and
generally offer merchandise at "everyday" discounted retail prices. To achieve a
lower cost structure than a typical Michaels store, the Company's CFW format is
premised on reduced occupancy expenses per square foot and less extensive
advertising programs. In addition, the CFW format utilizes new computer systems
that provide full point-of-sale scanning and automated receiving of merchandise,
and eliminates the retail price marking of individual products. The Company
plans to open four or five additional CFW stores during 1994, of which three
have been opened, and may accelerate the opening of such stores in the future if
the format continues to be favorably received by consumers.
8
<PAGE>
MERCHANDISING
Michaels' merchandising strategy is to provide a broad selection of products
in an appealing store environment with superior customer service. The commitment
to customer service is evidenced through in-store "how-to" demonstrations,
project samples displayed throughout each store, and instructional classes for
adults and children. The typical Michaels store offers an assortment of over
30,000 SKUs. In general, each store offers products from ten departments. Nine
of the departments offer essentially the same type of merchandise throughout the
year, although the products may vary from season to season. The merchandise
offered by these nine departments includes general craft materials, wearable
art, silk and dried flowers, picture framing materials and services, fine art
materials, hobby items, party items, needlecraft items and ribbon.
In addition to these nine departments, the Company regularly features
seasonal merchandise. Seasonal merchandise is ordered for several holidays,
including Valentine's Day, Easter, Mother's Day, Halloween and Thanksgiving, in
addition to the Christmas season. For example, seasonal merchandise for the
Christmas season includes trees, wreaths, candles, lights and ornaments.
Included in seasonal merchandise is promotional merchandise that is offered with
the intention of generating customer traffic.
The following table shows sales by the largest departments as a percentage
of total sales for fiscal 1992 and 1993:
<TABLE>
<CAPTION>
PERCENTAGE OF SALES
--------------------
DEPARTMENT 1992 1993
- ------------------------------------------------------------------------------------ --------- ---------
<S> <C> <C>
General craft materials and wearable art............................................ 22% 21%
Silk and dried flowers and plants................................................... 18 21
Picture framing..................................................................... 14 15
Seasonal and promotional items...................................................... 15 14
Fine art materials.................................................................. 11 11
Hobby, party, needlecraft and ribbon................................................ 20 18
--- ---
Total............................................................................. 100% 100%
--- ---
--- ---
</TABLE>
CUSTOMER SERVICE
Michaels believes that customer service is critically important to its
merchandising strategy. Many of the craft supplies sold in Michaels stores can
be assembled into unique end-products with an appropriate amount of guidance and
direction. Michaels has hundreds of displays in every store in an effort to
stimulate new project ideas, and supplies project sheets with detailed
instructions on how to assemble the products. In addition, many sales associates
are craft enthusiasts with the experience to help customers with ideas and
instructions. The Company also offers free demonstrations and inexpensive
classes in stores as a means of promoting new craft ideas. Michaels believes
that the in-store "how-to" demonstrations, instructional classes, knowledgeable
sales associates, and customer focus groups have allowed the Company to better
understand and serve its customers. In addition, the Company measures its
customer service in each store at least four times a year through a "mystery
shopper" program.
ADVERTISING
The Company believes that its advertising promotes craft and hobby project
ideas among its customers. Traditionally, the Company has focused on circular
and newspaper advertising. The Company has found full-color circular
advertising, primarily as an insert to newspapers but also through direct mail
or on display within its stores, to be the most effective medium of advertising.
Such circulars advertise numerous products in order to emphasize the wide
selection of products available at Michaels stores. The Company believes that
advertising efficiencies associated with the clustering of its stores in its
markets together with its ability to advertise through circulars and newspapers
approximately once a week in each of its markets provides the Company with an
advantage over its smaller competitors.
9
<PAGE>
The Company has generally limited television advertising to network
television in those major markets in which it had clusters of stores or in which
it was adding new stores. Beginning with the 1994 fall/Christmas season, the
Company expects to implement a marketing program coordinating national cable
television, including The Discovery Channel-TM-, Lifetime Television, and USA
Network-R-, and circular advertisements together with project booklets, in-store
demonstrations, and new point-of-sale techniques. More than one-half of the $4.5
million cost of this new marketing program will be underwritten by Michaels'
vendors. Michaels intends to allocate a portion of its network television budget
to this program.
STORE OPERATIONS
The Company's 268 stores (before the Leewards Acquisition) average
approximately 15,500 square feet of selling space, although newer stores average
approximately 17,000 square feet of selling space. Net sales for fiscal 1993
averaged approximately $3.2 million per store (for stores open the entire fiscal
year) and $218 per square foot of selling space. Store sites are selected based
upon meeting certain economic, demographic and traffic criteria and upon the
Company's strategy of clustering stores in markets where certain operating
efficiencies can be achieved. The Michaels stores currently in operation are
located primarily in strip shopping centers in areas with easy access and ample
parking.
Michaels has developed a standardized procedure which enables the Company to
efficiently open new stores and integrate them into its information and
distribution systems. The Company develops the floor plan and inventory layout,
and organizes the advertising and promotions in connection with the opening of
each new store. In addition, Michaels maintains an experienced store opening
staff to provide new store personnel with in-store training. Michaels generally
opens new stores during the period from February through October because new
store personnel require significant in-store training prior to the first
Christmas selling season for each such store.
Costs for opening stores at particular locations depend upon the type of
building and general cost levels in the area. In fiscal 1993, the average net
cost to the Company of opening a new store was approximately $535,000 per store,
which included leasehold improvements, furniture, fixtures and equipment, and
pre-opening expenses. The Company used more existing real estate, versus
build-to-suit locations, in fiscal 1993 resulting in an average cost of opening
a new store that was $160,000 higher than historical levels due to the increased
level of leasehold improvements. This increase was offset, in part, by lower
rent rates. The initial inventory investment associated with each new store in
fiscal 1993 was approximately $320,000 to $740,000 depending on the time of year
in which the store was opened. The initial inventory investment in new stores is
offset, in part, by extended vendor terms and allowances. The cost for new store
openings, excluding initial inventory investments, in fiscal 1993 was
approximately $29 million and the cost for new store openings in fiscal 1994 is
estimated to be approximately $30 million.
PURCHASING AND DISTRIBUTION
The Company's purchasing strategy is to negotiate directly with its vendors
in order to take advantage of volume purchasing discounts and improve control
over product mix and inventory. For certain substantial product lines, the
Company negotiates directly with a number of major manufacturers to shorten the
distribution chain. Although this requires an increased inventory investment in
the warehouse, it results in substantial savings and allows the Company to
develop products specifically formulated to Michaels' design and quality
standards. Approximately 90% of the merchandise is acquired from vendors on the
Company's "approved list." Of this merchandise, approximately one-half is
received by the stores from the Company's distribution centers and one-half is
received directly from vendors. In addition, each store has the flexibility to
purchase approximately 10% of its merchandise directly from local vendors, which
allows the store managers to tailor the products offered in their stores to
local tastes and trends. All store purchases are monitored by district and
regional managers.
The Company currently operates three distribution centers which supply the
stores with certain merchandise, including substantially all seasonal and
promotional items. The Company's distribution
10
<PAGE>
centers are located in Irving, Texas, Buena Park, California, and Lexington,
Kentucky. The Company also operates a bulk warehouse in Phoenix, Arizona, which
allows the Company to store bulk purchases of seasonal and promotional
merchandise prior to distribution. Michaels stores receive deliveries from the
distribution centers generally once a week.
Substantially all of the products sold in Michaels stores are manufactured
in the United States, the Far East and Mexico. Goods manufactured in the Far
East generally require long lead times and are ordered four to six months in
advance of delivery. Such products are either imported directly by the Company
or acquired from distributors based in the United States. In all cases,
purchases are denominated in U.S. dollars (or Canadian dollars for purchases of
certain items delivered directly to stores in Canada).
INVENTORY CONTROL/MANAGEMENT INFORMATION SYSTEMS
Michaels' management information systems include automated point-of-sale,
merchandising, distribution and financial applications. All orders from the
stores to the Company's distribution centers are processed electronically to
ensure timely delivery of distribution center sourced inventory. The Company's
point-of-sale system captures sales information by department. Due to the large
number of inexpensive items in the stores, the non-fashion nature of the
merchandise, and the long lead times involved for ordering seasonal goods (up to
nine months), the Company does not currently capture item-level sales
information, inventory or margin electronically in all stores. Sales trend
tracking combines item level point-of-sale scanning data from the CFW stores
with point-of-sale department-level sales from all other stores, weekly test
counts of certain SKUs in 40 selected stores, and regular communication from
store managers through the district and regional managers. Inventory and margins
are monitored on a perpetual basis in the distribution centers and in the stores
via physical inventories at least quarterly in groups of 30 to 40 stores and a
year-end complete physical count in most stores. The Company believes that these
procedures and automated systems, together with its other control processes,
allow Michaels to effectively manage and monitor its inventory levels and margin
performance.
COMPETITION
Michaels is the largest nationwide retailer dedicated to serving the arts
and crafts marketplace. The specialty arts, crafts and decorative item retail
business is highly competitive. Michaels competes primarily with regional and
local merchants that tend to specialize in particular aspects of arts and
crafts, other nationwide retailers of craft items and related merchandise, and
mass merchandisers that typically dedicate a portion of their selling space to a
limited selection of arts, crafts, picture framing and seasonal products. The
Company believes that its stores compete based on price, quality and variety of
merchandise assortment, and customer service, such as instructional
demonstrations. Michaels believes the combination of its broad selection of
products, emphasis on customer service, loyal customer base, and capacity to
advertise frequently in all of its markets provides the Company with a
competitive advantage.
LEEWARDS ACQUISITION
PROPOSED ACQUISITION
On May 10, 1994 the Company announced that it had signed a definitive merger
agreement for the acquisition of Leewards, an Illinois-based arts and crafts
retailer with approximately 100 stores located primarily in the midwestern and
northeastern United States. The Leewards stores, which average approximately
14,000 square feet of selling space, are similar in both size and type of
location to the average Michaels store. The Company believes that the Leewards
Acquisition provides it with an opportunity to accelerate its nationwide
expansion strategy in the fragmented arts and crafts retailing industry. The
Leewards Acquisition will establish Michaels' presence in a number of new
markets, particularly in the northeastern United States, including Pennsylvania,
Massachusetts, and New Jersey, and significantly expand its presence in several
existing markets, including northern California, Illinois, Florida, Michigan,
Missouri, Minnesota and New York. Following the Leewards Acquisition, Michaels
expects to close approximately 20 Leewards stores and approximately 5 to 10
Michaels stores due to overlapping locations.
11
<PAGE>
In connection with the Leewards Acquisition, Michaels has designed a plan
that is intended to increase the sales and profitability of the Leewards stores.
The plan includes reconfiguring the layout and staffing of the acquired stores
and increasing the average inventory level at the Leewards stores to be more
consistent with Michaels' fundamental merchandising strategy of providing a
broad selection of products through separate in-store departments with a
commitment to superior customer service. The Company believes that the Leewards
stores will also benefit from the addition of art supplies and party goods
departments, the strengthening of its custom floral and custom framing services,
extensive in-store promotional activities and the implementation of Michaels'
targeted advertising strategies. In addition, Michaels expects the Leewards
stores to benefit from Michaels' centralized purchasing and nationwide
distribution network. Michaels also believes that it will realize cost savings
through the elimination of duplicate corporate overhead in connection with the
acquisition, and that it will benefit from increased purchasing power with its
suppliers.
For the fiscal year ended January 1994, the average sales of the Leewards
stores open for the full fiscal year were $2.1 million compared to the average
sales for Michaels stores open for the full year during the same period of $3.2
million. The average profitability per Leewards store has also historically
trailed the average profitability of Michaels stores. However, Michaels believes
that the Leewards Acquisition provides the Company with many attractive retail
store locations, and that Michaels' plan to convert the Leewards stores to the
Michaels format and to implement Michaels' merchandising strategies will result
in increased sales and profitability in the acquired stores. No assurance can be
given that sales volumes or profitability at the former Leewards locations can
be improved, and, if such sales volumes and profitability are not increased, the
Leewards Acquisition may have a negative effect on Michaels' future earnings.
The merger agreement provides for an aggregate merger consideration not to
exceed 1,550,000 shares of Michaels Common Stock. The aggregate consideration is
(i) subject to certain downward adjustments and (ii) payable, in part, in cash
in lieu of shares with respect to certain shares of preferred stock and the net
value of outstanding options to purchase Leewards common stock. It is expected
that the Leewards Acquisition will close on or before July 8, 1994, prior to
completion of the Common Stock Offering. Assuming the Leewards Acquisition
closes prior to completion of the Common Stock Offering, and assuming a five day
average closing price of the Common Stock on The Nasdaq National Market of
$40.50, the acquisition consideration will consist of approximately $9.2 million
in cash and 1,271,146 shares of Common Stock. It is currently estimated that
825,000 of these shares will be sold by the Leewards' stockholders to the public
in this Common Stock Offering. Upon consummation of the Leewards Acquisition,
Michaels will also repay the indebtedness under Leewards' bank credit facility
and subordinated notes, expected to total approximately $50 million at closing.
Substantially all of the conditions to the consummation of the Leewards
Acquisition have been satisfied, including approval of Leewards' stockholders
and termination of the waiting period under Hart-Scott-Rodino. Consummation of
the acquisition is nonetheless subject to certain customary conditions to
closing including there having occurred no material adverse changes in the
condition (financial or otherwise), operations, assets or liabilities of
Michaels or Leewards. See "Pro Forma Combined Financial Information."
In the event that the Leewards Acquisition closes after the closing of the
Common Stock Offering, the Leewards stockholders would not include any Common
Stock in this Common Stock Offering. In such case, the Leewards stockholders may
receive cash in lieu of a portion of the shares of Common Stock issuable in the
Leewards Acquisition. The merger agreement provides that if the net proceeds per
share in the Common Stock Offering equal or exceed $39.00, the total number of
shares issued in connection with the Leewards Acquisition will be reduced by 25%
of the number of shares offered by the Company in the Common Stock Offering
(excluding the over-allotment option), but not to exceed 500,000 shares of
Michaels Common Stock (the "Reduced Share Amount"). In lieu thereof, cash equal
to the net proceeds per share received in the Common Stock Offering times the
Reduced Share Amount will be paid to the Leewards stockholders. If the Leewards
Acquisition does not close prior to closing of the Common Stock Offering, the
Company may increase the number of shares of Common Stock offered by it in the
Common Stock Offering by up to an additional 500,000 shares in order to
12
<PAGE>
provide additional proceeds to fund this cash payment if required. If the
Company determines not to increase the number of shares of Common Stock issued
by it in the Common Stock Offering, any such required cash payment to the
Leewards stockholders will be funded by proceeds of the offering not being
utilized for other purposes and, if required, from other sources of capital
available to the Company.
INTEGRATION OF LEEWARDS
The Company has designed a ten-week transition plan to reconfigure the
Leewards stores to be more consistent with the merchandising strategy of
Michaels. In order to minimize disruption to the Company's business, this plan
will be implemented by the Leewards field organization under the supervision of
Michaels' management using detailed plans developed by Michaels. Key aspects of
this plan include:
- Revising and enhancing the product mix to correlate to Michaels'
merchandising strategy;
- Converting merchandise ordering and management information systems;
- Eliminating redundant overhead;
- Retraining employees to provide the level of customer service found in
Michaels stores and to improve operational efficiencies; and
- Closing approximately 20 Leewards and approximately 5 to 10 Michaels store
locations to eliminate overlapping stores.
The continuing 80 Leewards stores will be converted to the Michaels store
format beginning with a four-week phase to eliminate incompatible merchandise.
The second phase will involve the arrival of new merchandise and the
reformatting of the stores to the Michaels prototype. This will be accomplished
department by department, with the stores remaining open for business throughout
the process. The reformatting of the Leewards stores will include the addition
of art supplies and party goods departments, the strengthening of the custom
floral and custom framing services and the expansion of other departmental
assortments to correlate with Michaels' standard store format. Michaels'
merchandise ordering systems will be installed during this time and other
in-store systems will be converted to Michaels' systems. Upon completion of the
store conversion plan, Leewards' distribution facilities will be closed as
Michaels' existing distribution facilities have adequate capacity to service the
remaining Leewards stores. The Company believes that the cost to implement the
integration of the Leewards stores, including the cost of the physical
conversion of the stores, retraining employees, converting merchandise ordering
and management information systems, and providing new inventory will be
approximately $33 million to $35 million. In addition, the Company expects that
it will incur costs of approximately $13 million to $24 million in connection
with lease termination and store closing costs, severance payments, and closing
of Leewards' corporate office and distribution center. The Company anticipates
completing the plan prior to the busy fall/Christmas selling season.
During the last year, the Company increased its upper level management
capabilities by adding a Vice President -- Store Operations, Vice President --
Store Development and Corporate Operations, Vice President -- Information
Systems and Vice President -- Real Estate. In addition, the Company expects to
retain a number of the field managers from the Leewards organization to
supplement the Company's existing field management. During the conversion
process, the Leewards field organization will be strengthened by an increase in
district and regional management to provide close supervision. The Company
believes that these additions to its management structure, together with the
additional Michaels field management that has been trained to implement the
Company's 1994 growth plan, will provide Michaels with sufficient management
capabilities to absorb the 80 Leewards stores in addition to the approximately
55 new stores to be opened and 25 stores already acquired by Michaels during
1994. The Company believes this process will permit the conversion of the
Leewards stores without disruption of the existing Michaels field management or
operations during the busy
13
<PAGE>
fall/Christmas selling season. After the conversion and integration of the
Leewards stores is complete, the entire Michaels field organization will be
reorganized with permanent assignments based on the combined entities.
Although the Company has not previously completed an acquisition of similar
size to the Leewards Acquisition, the Company believes that its substantial
experience in opening new stores and recent experience in incorporating acquired
stores into the Michaels format and systems will facilitate the integration of
the Leewards stores into the Company's existing structure.
USE OF PROCEEDS
The net proceeds to the Company from the Common Stock Offering are estimated
to be approximately $95 million ($114.1 million assuming the over-allotment
option is exercised in full), assuming a public offering price of $40.50 per
share and after deducting the estimated underwriting discounts and commissions
and offering expenses. Assuming the Leewards Acquisition closes prior to the
Common Stock Offering, the Company intends to use all of the net proceeds to
reduce bank debt. The Company's outstanding revolving bank debt at May 1, 1994
was approximately $56 million with a current interest rate of 5.6%. The bank
debt is expected to increase by approximately $63 million prior to the closing
of the Common Stock Offering as a result of borrowings to fund cash required in
connection with the Leewards Acquisition. The Company's new bank debt agreement
expires in June 1997. See "Recent Developments -- New Credit Facility" and
"Leewards Acquisition."
If the Leewards Acquisition does not close prior to the completion of the
Common Stock Offering, the Company intends to use approximately $50 million for
the payment of Leewards' outstanding indebtedness and $13 million for the cash
portion of the merger consideration and other transaction costs to be paid in
connection with the consummation of the transaction. See "Recent Developments --
Recent Acquisitions" and "Leewards Acquisition." Leewards' outstanding
indebtedness at the time of closing of the acquisition is expected to consist of
(i) an estimated $32 million under Leewards' existing credit facility due August
19, 1994 with a current interest rate of 8.5% and (ii) approximately $18 million
(including a prepayment penalty) under Leewards' outstanding 13.5% Senior
Subordinated Notes due 2000. The remaining net proceeds will be used by the
Company to reduce its bank debt. In addition, if the Leewards Acquisition does
not close prior to the completion of the Common Stock Offering, the Company may
increase the number of shares of Common Stock sold by the Company in this Common
Stock Offering by up to 500,000 shares, to a total of up to 2,975,000 shares. If
an additional 500,000 shares are sold, the additional net proceeds to the
Company would be $19.3 million after deducting the related estimated
underwriting discounts and commissions and offering expenses. If the net
proceeds per share from the Common Stock Offering equal or exceed $39.00,
substantially all of the net proceeds from the sale of the additional shares
will be used to fund a cash payment to the Leewards stockholders in lieu of the
Reduced Share Amount. See "Leewards Acquisition." If the additional shares are
sold and the net proceeds per share from the Common Stock Offering are less than
$39.00, the net proceeds from the sale of the additional shares will be used to
fund planned new store expansion, working capital requirements and future
acquisition opportunities and for other general corporate purposes. If the
Leewards Acquisition is not consummated, all proceeds from the Common Stock
Offering will be used to reduce existing bank debt, fund planned new store
expansion, working capital requirements and future acquisition opportunities and
for other general corporate purposes.
Pending the use of such proceeds for the above purposes, the net proceeds
initially will be invested in short-term interest bearing securities or mutual
funds which invest in such securities. The Company's practice in the past has
been to place its cash balances in a broad range of investment and non-
investment grade securities including equity securities and financial
instruments of various maturities. If attractive opportunities present
themselves, the Company may continue this investment practice in the future. The
Company will not receive any of the proceeds from the sale of shares of Common
Stock by the Selling Stockholders.
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<PAGE>
CAPITALIZATION
The following table sets forth (i) the capitalization of the Company as of
May 1, 1994, (ii) the capitalization on a pro forma basis for the Leewards
Acquisition, and (iii) the capitalization on a pro forma basis for the Leewards
Acquisition and as adjusted for the issuance of the shares of Common Stock being
offered hereby, assuming consideration payable to Leewards' stockholders of
1,271,146 shares of Common Stock and $9.2 million in cash. See "Leewards
Acquisition" and "Use of Proceeds."
<TABLE>
<CAPTION>
MAY 1, 1994
-------------------------------------------
PRO FORMA
AS ADJUSTED
ACTUAL PRO FORMA (1) (1)(2)
-------- --------------- ---------------
(IN THOUSANDS)
<S> <C> <C> <C>
Short-term bank debt (3).............................................................. $ 56,000 $100,254 $ 5,228
-------- --------------- ---------------
-------- --------------- ---------------
Convertible subordinated notes........................................................ $ 97,750 $ 97,750 $ 97,750
Shareholders' equity:
Common stock, $0.10 par value, 50,000,000 shares authorized, 17,462,331 shares
issued and outstanding, 18,733,477 shares issued and outstanding pro forma and
21,208,477 shares issued and outstanding pro forma as adjusted..................... 1,746 1,873 2,121
Additional paid-in capital.......................................................... 126,126 177,480 272,258
Retained earnings................................................................... 78,724 78,724 78,724
-------- --------------- ---------------
Total shareholders' equity.......................................................... 206,596 258,077 353,103
-------- --------------- ---------------
Total capitalization.................................................................. $304,346 $355,827 $450,853
-------- --------------- ---------------
-------- --------------- ---------------
<FN>
- ------------------------
(1) On a pro forma basis to reflect the consummation of the Leewards
Acquisition and the repayment of approximately $36 million of Leewards'
indebtedness as of May 1, 1994.
(2) On a pro forma basis to reflect the receipt by the Company of
approximately $95 million in net proceeds from the Common Stock offered
hereby at an assumed offering price of $40.50 after deducting the
estimated underwriting discounts and commissions and offering expenses.
(3) Subsequent to May 1, 1994, the Company sold a portion of its marketable
and other securities and used the proceeds to retire short-term bank debt.
As of June 16, 1994, short-term bank debt was approximately $47.5 million.
</TABLE>
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<PAGE>
PRICE RANGE OF COMMON STOCK AND DIVIDENDS
The Common Stock of Michaels is quoted through The Nasdaq National Market
under the symbol "MIKE." The following table sets forth, for the periods
indicated, the high and low sales prices per share of the Common Stock, as
reported by The Nasdaq National Market through June 16, 1994.
<TABLE>
<CAPTION>
HIGH LOW
------- -------
<S> <C> <C>
FISCAL YEAR ENDED JANUARY 31, 1993:
First Quarter.................................................................. $26 $19
Second Quarter................................................................. 23 1/2 16 1/2
Third Quarter.................................................................. 29 3/4 20 1/2
Fourth Quarter................................................................. 34 3/4 24 5/8
FISCAL YEAR ENDED JANUARY 30, 1994:
First Quarter.................................................................. $34 $26 1/4
Second Quarter................................................................. 33 25 1/4
Third Quarter.................................................................. 39 26 3/8
Fourth Quarter................................................................. 36 1/2 31 7/8
FISCAL YEAR ENDED JANUARY 29, 1995:
First Quarter.................................................................. $44 3/4 $31
Second Quarter (through June 16, 1994)......................................... 46 1/2 35 3/4
</TABLE>
On June 16, 1994, the reported last sale price of the Common Stock as
reported by The Nasdaq National Market was $40 1/2 per share.
Michaels has never paid dividends on its Common Stock. The Company's current
policy is to retain earnings for use in the Company's business and the financing
of its growth. However, such policy is subject to the discretion of the Board of
Directors. The Company's credit facility contains certain restrictions on the
Company's ability to pay dividends.
16
<PAGE>
SELECTED FINANCIAL AND STORE DATA
The selected financial data presented below are derived from the financial
statements of the Company for the five fiscal years ended January 30, 1994 which
were audited by Ernst & Young, independent auditors, and from unaudited
financial statements for the quarters ended May 2, 1993 and May 1, 1994,
respectively. The data should be read in conjunction with the financial
statements and the related notes incorporated by reference in this Prospectus.
The Company believes that all adjustments, consisting only of normal recurring
accruals, necessary for a fair presentation thereof have been made to the
unaudited financial data. The results for the quarter ended May 1, 1994 are not
necessarily indicative of the results of the full year. Certain amounts in prior
years have been reclassified to conform with the presentation for the current
year. The following unaudited pro forma statement of income data have been
prepared as if the Leewards Acquisition occurred at the beginning of fiscal
1993. The following unaudited pro forma combined balance sheet data have been
prepared as if the Leewards Acquisition occurred on May 1, 1994. The unaudited
pro forma financial data do not purport to represent the financial position or
results of operations which would have occurred had such transaction been
consummated on the dates indicated or the Company's financial position or
results of operations for any future date or period. These unaudited pro forma
financial data should be read in conjunction with the historical financial
statements of the Company and Leewards.
<TABLE>
<CAPTION>
FISCAL YEAR (1) QUARTER ENDED
---------------------------------------------------------- ----------------------------
1993 MAY 1, 1994
------------------ ------------------
PRO MAY 2, PRO
1989 1990 1991 1992 ACTUAL FORMA(2) 1993 ACTUAL FORMA(2)
-------- -------- -------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT STORE DATA AND PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales.......................... $289,754 $362,028 $410,899 $493,159 $619,688 $810,824 $112,961 $159,798 $206,305
Cost of sales and occupancy
expense........................... 195,864 246,656 274,375 323,577 403,869 532,604 73,279 103,511 136,099
Selling, general and administrative
expense........................... 78,990 94,678 110,881 135,319 174,463 233,708 33,720 47,216 60,664
-------- -------- -------- -------- -------- -------- -------- -------- --------
Operating income................... 14,900 20,694 25,643 34,263 41,356 44,512 5,962 9,071 9,542
Interest expense................... 9,896 9,739 6,971 263 6,378 8,042 1,522 2,026 2,535
Other (income) and expense, net.... 4,444 1,213 913 538 (7,666) (7,031) (1,735) (1,031) (986)
-------- -------- -------- -------- -------- -------- -------- -------- --------
Income before income taxes and
extraordinary item................ 560 9,742 17,759 33,462 42,644 43,501 6,175 8,076 7,993
Provision for income taxes......... 547 3,887 7,020 13,084 16,357 17,415 2,377 3,109 3,235
-------- -------- -------- -------- -------- -------- -------- -------- --------
Income before extraordinary item... 13 5,855 10,739 20,378 26,287 26,086 3,798 4,967 4,758
Extraordinary item(3).............. -- -- 3,843 -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- -------- -------- --------
Net income......................... $ 13 $ 5,855 $ 6,896 $ 20,378 $ 26,287 $ 26,086 $ 3,798 $ 4,967 $ 4,758
-------- -------- -------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- -------- -------- --------
Earnings per common share assuming
full dilution..................... $ 0.00 $ 0.57 $ 0.87(4) $ 1.21 $ 1.52 $ 1.41 $ 0.22 $ 0.28 $ 0.25
Weighted average shares outstanding
assuming full dilution............ 10,645 10,229 12,411 16,853 19,809 21,080 17,131 17,856 19,127
STORE DATA:
Stores open at period end.......... 122 137 140 168 220 319(5) 180 259 358(5)
Average sales per square foot(6)... $ 193 $ 206 $ 213 $ 226 $ 218 $ 201 $ 45 $ 44 $ 41
Comparable store sales
increase(7)....................... 6% 9% 9% 7% 3% 3% 2% 10% 7%
BALANCE SHEET DATA (AT END OF
PERIOD):
Working capital.................... $ 58,680 $ 44,080 $ 74,786 $104,462 $181,816 $ -- $103,134 $169,726 $134,388
Total assets....................... 150,817 144,238 180,913 322,099 397,830 -- 321,868 463,119 616,408
Total long-term debt............... 73,168 52,983 -- 97,750 97,750 -- 97,750 97,750 97,750
Shareholders' equity............... 40,377 46,615 126,299 155,277 185,415 -- 159,075 206,596 258,077
<FN>
- ------------------------------
(1) The Company operates on a 52/53 week fiscal year ending on the Sunday
closest to January 31. For example, references to "fiscal 1993" mean the
fiscal year ended January 30, 1994. Fiscal 1990 included 53 weeks; all
other fiscal years set forth above included 52 weeks.
(2) On a pro forma basis to reflect the consummation of the Leewards
Acquisition. See "Pro Forma Combined Financial Information." Fiscal 1993
pro forma amounts do not reflect the acquisitions of Treasure House, Oregon
Craft & Floral or H&H Craft & Floral by the Company in February and April
1994 as such acquisitions were not material in the aggregate.
(3) Extraordinary item relates to the redemption premium paid for the early
retirement of the Company's 12.75% Senior Subordinated Notes, which had an
effective interest rate of 15.8%, and the accelerated amortization of
related debt issuance costs.
(4) Before extraordinary item of $3.8 million, or $0.31 per common and common
equivalent share, relating to the redemption premium paid for the early
retirement of the Company's 12.75% Senior Subordinated Notes, which had an
effective interest rate of 15.8%, and the accelerated amortization of
related debt issuance costs.
(5) Includes Michaels and Leewards stores open at period end.
(6) Calculated for stores open the entire period and based on selling square
footage.
(7) The increase for fiscal 1990 was calculated on a comparable 52-week period.
</TABLE>
17
<PAGE>
PRO FORMA COMBINED FINANCIAL INFORMATION
The accompanying unaudited pro forma combined statements of income of the
Company for the year ended January 30, 1994 and the quarter ended May 1, 1994
have been prepared as if the Leewards Acquisition, which will be accounted for
by the purchase method of accounting, occurred on February 1, 1993, the
beginning of fiscal year 1993. The accompanying unaudited pro forma combined
balance sheet of the Company as of May 1, 1994 has been prepared as if the
Leewards Acquisition occurred on that date.
The historical financial information of the Company and Leewards has been
derived from the respective historical financial statements incorporated by
reference or included herein. Certain amounts in the statements of operations of
Leewards for fiscal year 1993 and the quarter ended May 1, 1994 included in the
pro forma combined statements of income have been reclassified to conform to the
method of presentation used by Michaels. The pro forma adjustments are
preliminary and are based upon available information and assumptions that
management of the Company believes are reasonable. The unaudited pro forma
combined financial statements do not purport to represent the financial position
or results of operations which would have occurred had such transactions been
consummated on the dates indicated or the Company's financial position or
results of operations for any future date or period. These unaudited pro forma
financial statements should be read in conjunction with the historical financial
statements of the Company and Leewards.
The pro forma combined financial statements do not include the financial
statements of 1) Treasure House, which was acquired by the Company in February
1994 and will be accounted for using the pooling-of-interests method of
accounting, or 2) Oregon Craft & Floral and H&H Craft & Floral, which were
acquired as of May 1, 1994 and will be accounted for using the purchase method
of accounting, since the acquisitions are not considered material, individually
or in the aggregate, to the operating results or financial position of the
Company. Sales of Treasure House were approximately $15.6 million and $3.8
million for the year ended January 30, 1994 and the quarter ended May 1, 1994,
respectively. Combined sales of Oregon Craft & Floral and H&H Craft & Floral for
the same periods were approximately $41.8 million and $7.4 million,
respectively.
18
<PAGE>
PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED JANUARY 30, 1994
(UNAUDITED)
<TABLE>
<CAPTION>
PRO
PRO FORMA FORMA
MICHAELS LEEWARDS ADJUSTMENTS TOTAL
-------- -------- ------------ --------
<S> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Net sales....................................................................... $619,688 $191,136 $ --(A) $810,824
Cost of sales and occupancy expense............................................. 403,869 130,638 (1,903)(B) 532,604
Selling, general and administrative expense..................................... 174,463 57,000 443(C) 233,708
1,802(D)
-------- -------- ------------ --------
Operating income................................................................ 41,356 3,498 (342) 44,512
Interest expense................................................................ 6,378 3,439 (1,775)(E) 8,042
Other (income) and expense, net................................................. (7,666) 635 (7,031)
-------- -------- ------------ --------
Income before income taxes...................................................... 42,644 (576) 1,433 43,501
Provision for income taxes...................................................... 16,357 (236) 1,294(F) 17,415
-------- -------- ------------ --------
Net income...................................................................... $ 26,287 $ (340) $ 139 $ 26,086
-------- -------- ------------ --------
-------- -------- ------------ --------
Earnings per common and common equivalent share................................. $ 1.53 $ 1.41
Earnings per common share -- assuming full dilution............................. $ 1.52 $ 1.41
Weighted average common and common equivalent shares............................ 17,231 1,271 18,502
Weighted average shares assuming full dilution.................................. 19,809 1,271 21,080
</TABLE>
See accompanying Notes to Pro Forma Combined Financial Statements.
19
<PAGE>
PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE QUARTER ENDED MAY 1, 1994
(UNAUDITED)
<TABLE>
<CAPTION>
PRO
PRO FORMA FORMA
MICHAELS LEEWARDS ADJUSTMENTS TOTAL
-------- -------- ------------ --------
<S> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Net sales....................................................................... $159,798 $ 46,507 $ --(A) $206,305
Cost of sales and occupancy expense............................................. 103,511 33,207 (619)(B) 136,099
Selling, general and administrative expense..................................... 47,216 14,332 (1,334)(C) 60,664
450(D)
-------- -------- ------------ --------
Operating income................................................................ 9,071 (1,032) 1,503 9,542
Interest expense................................................................ 2,026 994 (485)(E) 2,535
Other (income) and expense, net................................................. (1,031) 45 (986)
-------- -------- ------------ --------
Income before income taxes...................................................... 8,076 (2,071) 1,988 7,993
Provision for income taxes...................................................... 3,109 (849) 975(F) 3,235
-------- -------- ------------ --------
Net income...................................................................... $ 4,967 $ (1,222) $ 1,013 $ 4,758
-------- -------- ------------ --------
-------- -------- ------------ --------
Earnings per common and common equivalent share................................. $ 0.28 $ 0.25
Earnings per common share -- assuming full dilution............................. $ 0.28 $ 0.25
Weighted average common and common equivalent shares............................ 17,785 1,271 19,056
Weighted average shares assuming full dilution.................................. 17,856 1,271 19,127
</TABLE>
See accompanying Notes to Pro Forma Combined Financial Statements.
20
<PAGE>
PRO FORMA COMBINED BALANCE SHEET INFORMATION
MAY 1, 1994
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
PRO
PRO FORMA FORMA
MICHAELS LEEWARDS ADJUSTMENTS TOTAL
-------- -------- ------------ --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Current assets:
Cash and equivalents.............................................................. $ 2,867 $ 3,217 $ -- $ 6,084
Marketable and other securities................................................... 67,734 -- -- 67,734
Merchandise inventories........................................................... 230,406 48,833 (6,770)(H) 272,469
Deferred income taxes............................................................. -- 523 (523)(H) 16,616
16,616(H)
Prepaid expenses and other........................................................ 21,971 5,785 (1,211)(H) 26,545
-------- -------- ------------ --------
Total current assets............................................................ 322,978 58,358 8,112 389,448
-------- -------- ------------ --------
Property and equipment, net......................................................... 87,840 18,454 (3,757)(H) 102,537
Costs in excess of net assets of acquired operations, net........................... 43,954 -- 72,071(H) 116,025
Other assets........................................................................ 8,347 6,387 (6,336)(H) 8,398
-------- -------- ------------ --------
$463,119 $ 83,199 $ 70,090 $616,408
-------- -------- ------------ --------
-------- -------- ------------ --------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................................................. $ 47,741 $ 9,551 $ -- $ 57,292
Short-term bank debt.............................................................. 56,000 18,118 9,175(G) 100,254
16,961(I)
Subordinated debentures........................................................... -- 16,961 (16,961)(I) --
Income taxes payable.............................................................. 4,252 -- 773(H) 5,025
Accrued liabilities and other..................................................... 45,259 14,572 3,976(G) 92,489
28,682(H)
-------- -------- ------------ --------
Total current liabilities....................................................... 153,252 59,202 42,606 255,060
-------- -------- ------------ --------
Convertible subordinated notes...................................................... 97,750 -- -- 97,750
Deferred income taxes and other..................................................... 5,521 2,852 (2,852)(H) 5,521
-------- -------- ------------ --------
Total long-term liabilities..................................................... 103,271 2,852 (2,852) 103,271
-------- -------- ------------ --------
Redeemable preferred stock.......................................................... -- 29,845 (29,845)(H) --
Shareholders' equity:
Common stock...................................................................... 1,746 2 (2)(H) 1,873
127(G)
Additional paid-in capital........................................................ 126,126 733 (733)(H) 177,480
51,354(G)
Retained earnings................................................................. 78,724 (9,435) 9,435(H) 78,724
-------- -------- ------------ --------
Total shareholders' equity...................................................... 206,596 (8,700) 60,181 258,077
-------- -------- ------------ --------
$463,119 $ 83,199 $ 70,090 $616,408
-------- -------- ------------ --------
-------- -------- ------------ --------
</TABLE>
See accompanying Notes to Pro Forma Combined Financial Statements.
21
<PAGE>
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
Adjustments to the pro forma combined statement of income to reflect the
consummation of the Leewards Acquisition as of February 1, 1993 are as follows:
(A) Revenues and related operating expenses of 20 overlapping Leewards
stores to be closed subsequent to the consummation of the Leewards
Acquisition have not been eliminated from the pro forma combined statements
of income since revenues are expected to increase in nearby Michaels stores.
The revenues of the 20 Leewards stores to be closed totaled $30.5 million
for the year ended January 30, 1994 and $7.0 million for the quarter ended
May 1, 1994.
(B) To eliminate nonrecurring costs, primarily rental and related
occupancy costs, associated with the Leewards distribution center, net of
incremental costs to be incurred at the Company's distribution center. Upon
consummation of the Leewards Acquisition and completion of the conversion of
the Leewards stores, the Leewards distribution center is to be closed.
(C) To adjust selling, general and administrative expense to (i) account
for pre-opening costs incurred by Leewards consistent with the Company's
accounting policy whereby pre-opening costs are expensed in the fiscal year
in which the store opens by increasing (decreasing) expense by $2.0 million
and $(840,000) for the year ended January 30, 1994 and the quarter ended May
1, 1994, respectively, and (ii) eliminate nonrecurring costs, primarily
salaries and related benefits, associated with reductions of Leewards
corporate personnel and other costs of approximately $1.6 million and
$494,000 for the year ended January 30, 1994 and the quarter ended May 1,
1994, respectively.
(D) To amortize costs in excess of net assets acquired over a 40-year
period on a straight-line basis. The Company will assess the recoverability
of costs in excess of net assets acquired annually based on existing facts
and circumstances. The Company will generally consider projected earnings
before interest, taxes, depreciation and amortization, on an undiscounted
basis, as the on-going measure of recoverability.
(E) To reduce the interest expense on the Leewards indebtedness
consisting of approximately $17 million of subordinated debentures and
short-term borrowings (average outstanding borrowings approximated $11.5
million for the year ended January 30, 1994 and $16.8 million for the
quarter ended May 1, 1994) from their stated rates of 13.5% and 7.75%,
respectively, to 4.9%, which rate approximates the Company's incremental
borrowing rate for both of the periods presented. In connection with the
Leewards Acquisition, the Leewards subordinated debentures and short-term
borrowings are required to be repaid.
(F) To reflect the tax effects applicable to the above entries,
exclusive of the amortization of costs in excess of net assets acquired, at
a 40% effective tax rate.
Adjustments to the pro forma balance sheet to reflect the consummation
of the Leewards Acquisition as of May 1, 1994 are as follows:
(G) To record the costs of the Leewards Acquisition. Cash payments and
shares issued are based on an assumed five day average closing stock price
of $40.50.
<TABLE>
<C> <S> <C> <C>
1. Cash consideration to be paid (funded with
short-term bank debt) $ 9,175
2. Shares to be issued in connection with the
Leewards Acquisition (1,271,146 shares) 51,481
3. Liabilities incurred by Leewards in
connection with the Leewards Acquisition
by Michaels $ 2,726
4. Transaction costs 1,250 3,976
--------- ---------
Total acquisition costs $ 64,632
---------
---------
</TABLE>
22
<PAGE>
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(H) To adjust the carrying values of the net assets acquired to
estimated fair value as of May 1, 1994 and to accrue various liabilities
assumed in connection with the Leewards Acquisition.
<TABLE>
<C> <S> <C> <C>
1. Write-down inventories to liquidate
incompatible merchandise of Leewards $ 6,770
2. Write-off deferred pre-opening costs to
conform Leewards' accounting policy to
that of Michaels 1,211
3. Write-off tradenames and other deferred
costs of Leewards 6,336
4. Accrue costs of closing Leewards' corporate
office and distribution center (including
lease termination costs, severance pay and
other costs) and costs associated with the
anticipated closing of certain Leewards'
stores (accrued closing costs relate only
to Leewards' stores) $ 24,182
5. Accrue costs associated with the changeover
of stores from the Leewards format to the
Michaels format 4,500 28,682
---------
6. Write-off of the carrying values of
leasehold improvements related to
facilities to be closed and other
adjustments to state other property and
equipment at estimated fair value 3,757
7. Record deferred tax assets related to the
above adjustments (16,616)
8. Eliminate net deferred tax liabilities of
Leewards as of the Leewards Acquisition
date (2,329)
9. Record income tax liabilities assumed by
Michaels in connection with the Leewards
Acquisition related primarily to the
termination of the LIFO method of
inventory valuation for tax reporting
purposes, net of the tax benefits related
to certain transaction costs 773
10. Eliminate redeemable preferred stock and
common stockholders' deficit of Leewards
as of the Leewards Acquisition date (21,145)
---------
Excess of fair value of liabilities over
net
assets acquired 7,439
Total acquisition costs 64,632
---------
Costs in excess of the net assets acquired $ 72,071
---------
---------
</TABLE>
(I) To reflect additional borrowings on Michaels' credit facility to
fund the required repayment of the Leewards subordinated notes in connection
with the Leewards Acquisition.
23
<PAGE>
SELLING STOCKHOLDERS
The following table sets forth certain information regarding the Selling
Stockholders' beneficial ownership of the Company's Common Stock assuming that
an aggregate of 1,184,720 shares of Common Stock will be issued to the Leewards
stockholders (net of shares to be held in escrow) in the Leewards Acquisition,
and as adjusted to reflect the sale by the Company and the Selling Stockholders
of the Common Stock offered pursuant to the Common Stock Offering:
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
PRIOR TO
THE COMMON STOCK OFFERING SHARES BENEFICIALLY OWNED AFTER
THE COMMON STOCK OFFERING
-------------------------- NUMBER OF SHARES --------------------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENT(1) BEING OFFERED NUMBER PERCENT(1)
- -------------------------------------- ----------- ------------- ----------------- ----------------- -------------
<S> <C> <C> <C> <C> <C>
Alan Altschuler....................... 4,352 * 3,031 1,321 * %
Stephen J. Berman..................... 4,352 * 3,031 1,321 *
David E. Bolen........................ 27,834 * 19,383 8,451 *
The Teachers' Retirement System of the
State of Illinois.................... 277,423 1.5% 193,188 84,235 *
Frontenac Venture V Limited
Partnership.......................... 191,104 1.0 133,079 58,025 *
GIPEN & Co............................ 39,454 * 27,475 11,979 *
Alan L. Magdovitz..................... 4,352 * 3,031 1,321 *
MONY Life Insurance Company of
America.............................. 13,129 * 9,143 3,986 *
The Mutual Life Insurance Company of
New York............................. 166,638 1.0 116,041 50,597 *
John A. Popple........................ 37,634 * 26,207 11,427 *
Prudential-Bache Capital Partners I,
L.P.................................. 66,092 * 46,024 20,068 *
Prudential-Bache Capital Partners II,
L.P.................................. 83,636 * 58,241 25,395 *
The Prudential Insurance Company of
America.............................. 264,368 1.4 184,095 80,273 *
John E. Welsh, III.................... 4,352 * 3,031 1,321 *
-- --
----------- -------- --------
Total............................... 1,184,720 6.3% 825,000 359,720 1.9%
-- --
-- --
----------- -------- --------
----------- -------- --------
<FN>
- ------------------------
* less than 1%
(1) Percentage based on the Company's Common Stock outstanding.
</TABLE>
Each of the Selling Stockholders will acquire the shares listed in the table
above pursuant to the Leewards Acquisition in exchange for shares of capital
stock of Leewards owned by it. Pursuant to the merger agreement with Leewards,
Michaels agreed that in the event Michaels engaged in an underwritten public
offering of Common Stock after the merger the Leewards stockholders would be
offered the opportunity to include in the underwritten public offering the
shares of Common Stock received by them in the merger. Thus, assuming the
Leewards Acquisition closes prior to the closing of the Common Stock Offering,
the Leewards stockholders will have the right to include in the Common Stock
Offering all of the shares received by them in the Leewards Acquisition, subject
to the right of the managing underwriters to require the Leewards stockholders
to reduce the number of shares sold by the Leewards stockholders if the managing
underwriters determine that inclusion of the full amount of shares requested
would materially and adversely affect the offering. However, in no event may the
managing underwriters require the Leewards stockholders to reduce the number of
shares included in the Common Stock Offering to an amount less than 25% of the
number of shares being sold in the offering (excluding shares in the
underwriters' over-allotment option). The Leewards stockholders are not
obligated to include any shares in the Common Stock Offering. For purposes of
the table above, the Company has assumed the Leewards stockholders will sell
825,000 shares in the Common Stock Offering, which is equal to 25% of the total
number of shares intended to be sold in the
24
<PAGE>
Common Stock Offering (excluding shares in the over-allotment option). The
actual number of shares to be sold by the Leewards stockholders may change
depending upon existing circumstances at or near the date of pricing of the
Common Stock Offering. Assuming the Leewards Acquisition is consummated prior to
the closing of the Common Stock Offering, this right to include shares will
expire upon consummation of the Common Stock Offering. Following the closing of
the Leewards Acquisition, the Company will be obligated to cause a "shelf"
registration to be filed on behalf of Leewards' stockholders and to cause the
registration statement to remain effective for a period of three years following
the closing of the acquisition. All of Leewards' stockholders who will receive
shares of Common Stock in the acquisition have agreed not to offer, sell, pledge
or otherwise dispose of, directly or indirectly, any shares of Common Stock
received in connection with the acquisition without the prior written consent of
CS First Boston Corporation for a period of 90 days after the date of this
Prospectus, except that such stockholders may dispose of such shares in a
transaction not involving a public distribution if the transferee executes a
similar agreement. See "Underwriting."
DESCRIPTION OF CAPITAL STOCK
Michaels is authorized to issue 50,000,000 shares of Common Stock, par value
$0.10 per share, and 2,000,000 shares of Preferred Stock, par value $0.10 per
share. As of June 16, 1994, 17,492,808 shares of Common Stock were outstanding
(excluding shares held by wholly-owned subsidiaries of the Company) and no
shares were held in treasury, and no shares of Preferred Stock were outstanding.
The outstanding shares of Common Stock are, and the shares offered hereby will
be, when issued, fully paid and nonassessable.
COMMON STOCK
Holders of the Common Stock are entitled to one vote per share on all
matters submitted to a vote of shareholders. Shares of Common Stock do not have
cumulative voting rights, which means that the holders of a majority of the
shares voting for the election of the Board of Directors can elect all members
of the Board of Directors. Upon any liquidation, dissolution or winding up of
the Company, holders of Common Stock are entitled to receive pro rata all of the
assets of the Company available for distribution to shareholders, subject to any
prior rights of holders of any outstanding Preferred Stock. Shareholders do not
have any preemptive rights to subscribe for or purchase any stock, obligations,
warrants or other securities of the Company.
Holders of record of shares of Common Stock are entitled to receive
dividends when and if declared by the Board of Directors out of funds of the
Company legally available therefor. Michaels has never paid dividends on its
Common Stock. The Company's present policy is to retain earnings for the
foreseeable future for use in the Company's business and the financing of its
growth. However, such policy is subject to the discretion of the Board of
Directors.
PREFERRED STOCK
The Board of Directors of the Company is authorized to issue Preferred Stock
in one or more series and to fix the voting rights, liquidation preferences,
dividend rates, conversion rights, redemption rights and terms, including
sinking fund provisions, and certain other rights and preferences. The issuance
of Preferred Stock, while providing flexibility in connection with possible
acquisitions and other corporate purposes, could, among other things, adversely
affect the voting power of the holders of the Common Stock and, under certain
circumstances, make it more difficult for a third party to gain control of the
Company.
TRANSFER AGENT
The transfer agent for the Common Stock is Society National Bank.
25
<PAGE>
CERTAIN SPECIAL FEDERAL TAX CONSIDERATIONS
FOR NON-UNITED STATES HOLDERS
The following is a general discussion of certain special United States
federal income and estate tax considerations relevant to non-United States
holders of the Common Stock, but does not purport to be a complete analysis of
all the potential tax considerations relating thereto.
As used herein, "non-United States holder" means a corporation, individual
or partnership that is, as to the United States, a foreign corporation, a
nonresident alien individual or a foreign partnership, and any estate or trust
if such estate or trust is not subject to United States taxation on income from
sources without the United States that is not effectively connected with the
conduct of a trade or business within the United States.
This discussion is based upon the Code, Treasury Regulations, IRS rulings
and judicial decisions now in effect, all of which are subject to change
(possibly with retroactive effect) or different interpretations. This discussion
does not purport to deal with all aspects of federal income and estate taxation
that may be relevant to a particular non-United States holder's decision to
purchase the Common Stock.
ALL PROSPECTIVE NON-UNITED STATES HOLDERS OF THE COMMON STOCK ARE ADVISED TO
CONSULT THEIR OWN TAX ADVISORS REGARDING THE UNITED STATES FEDERAL, STATE, LOCAL
AND FOREIGN TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE
COMMON STOCK.
DIVIDENDS
Dividends paid to a non-United States holder of the Common Stock will be
subject to withholding of United States federal income tax at a 30% rate or such
lower rate as may be specified by an applicable income tax treaty. Currently,
dividends paid to an address in a foreign country are presumed to be paid to a
resident of such country in determining the applicability of a treaty for such
purposes. However, proposed Treasury Regulations which have not been finally
adopted would require non-United States holders to satisfy certain certification
and other requirements to obtain the benefit of any applicable income tax treaty
providing for a lower rate of withholding tax on dividends.
Except as may be otherwise provided in an applicable income tax treaty, a
non-United States holder will be taxed at ordinary federal income tax rates (on
a net income basis) on dividends that are effectively connected with the conduct
of a trade or business of such non-United States holder within the United States
and might not be subject to the withholding tax described above. If such
non-United States holder is a foreign corporation, it may also be subject to a
United States branch profits tax at a 30% rate or such lower rate as may be
specified by any applicable income tax treaty. Non-United States holders must
comply with certain certification and disclosure requirements to claim treaty
benefits or an exemption from withholding tax under the foregoing rules.
DISPOSITION OF COMMON STOCK
Non-United States holders generally will not be subject to United States
federal income tax in respect of gain recognized on a disposition of the Common
Stock unless (i) the gain is effectively connected with a trade or business
conducted by the non-United States holder within the United States (in which
case the branch profits tax described under "Dividends" above may also apply if
the holder is a foreign corporation), (ii) in the case of a non-United States
holder who is a nonresident alien individual and holds the Common Stock as a
capital asset, such holder is present in the United States for 183 or more days
in the taxable year of the disposition and either the income from the
disposition is attributable to an office or other fixed place of business
maintained by the holder in the United States or the holder has a "tax home" in
the United States (within the meaning of the Code), or (iii) the Company is or
has been a "United States real property holding corporation" and certain other
requirements are met. The Company does not believe it has been or is currently,
and does not anticipate becoming, a United States real property holding
corporation.
26
<PAGE>
FEDERAL ESTATE TAXES
Common Stock that is owned or treated as being owned by a non-United States
holder who is a natural person (as determined for United States federal estate
tax purposes) at the time of death will be included in such holder's gross
estate for United States federal estate tax purposes, unless an applicable
estate tax treaty provides otherwise. Common Stock that has been transferred by
such a non-United States holder in a "generation-skipping transfer" may be
subject to a generation-skipping transfer tax in addition to estate tax.
INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING
United States information reporting requirements and 31% backup withholding
tax generally will not apply to dividends paid on the Common Stock if the
dividends are subject to either the 30% withholding tax or such lower rate as
may be specified by an applicable income tax treaty, or are exempt from such
withholding tax under the rules discussed above relating to dividends that are
effectively connected with the conduct of a trade or business of such holder
within the United States, or are paid to a non-United States holder at an
address outside the United States provided that the holder certifies to its
non-United States status on the appropriate form and the payer has no actual
knowledge that the holder is a United States person. As a general matter,
information reporting and backup withholding will also not apply to a payment of
the proceeds of a sale effected outside the United States of Common Stock by a
foreign office of a foreign broker. However, information reporting requirements
(but under current proposed Treasury regulations not backup withholding) will
apply to a payment of the proceeds of a sale effected outside the United States
of Common Stock by a foreign office of a broker that (i) is a United States
person, (ii) is a foreign person that derives 50% or more of its gross income
for certain periods from the conduct of a trade or business in the United
States, or (iii) is a "controlled foreign corporation" (generally, a foreign
corporation controlled by United States shareholders) with respect to the United
States, unless the broker has documentary evidence in its records that the
holder is a non-United States holder and certain conditions are met, or the
holder otherwise establishes an exemption. Payment by a United States office of
a broker of the proceeds of a sale of Common Stock is subject to both backup
withholding and information reporting unless the holder certifies to the payor
in the manner required as to its non-United States status under penalties of
perjury or otherwise establishes an exemption.
A non-United States holder may obtain a refund of any excess amounts
withheld under the backup withholding rules by filing an appropriate claim for
refund with the IRS.
27
<PAGE>
UNDERWRITING
Under the terms and subject to the conditions contained in an Underwriting
Agreement dated , 1994 (the "U.S. Underwriting Agreement"), the
underwriters named below (the "U.S. Underwriters"), for whom CS First Boston
Corporation, Robertson, Stephens & Company, L.P. and Nomura Securities
International, Inc. are acting as representatives (the "Representatives"), have
severally but not jointly agreed to purchase from the Company and the Selling
Stockholders the following respective numbers of U.S. Shares:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER U.S. SHARES
- ------------------------------------------------------------------------------------------- -----------
<S> <C>
CS First Boston Corporation................................................................
Robertson, Stephens & Company, L.P.........................................................
Nomura Securities International, Inc.......................................................
-----------
Total.................................................................................. 2,640,000
-----------
-----------
</TABLE>
The U.S. Underwriting Agreement provides that the obligations of the U.S.
Underwriters are subject to certain conditions precedent and that the U.S.
Underwriters will be obligated to purchase all the U.S. Shares offered hereby if
any are purchased. The U.S. Underwriting Agreement provides that, in the event
of a default by a U.S. Underwriter, in certain circumstances, the purchase
commitments of non-defaulting U.S. Underwriters may be increased or the U.S.
Underwriting Agreement may be terminated.
The Company and the Selling Stockholders have entered into a Subscription
Agreement (the "Subscription Agreement") with the Managers of the International
Offering (the "Managers") providing for the concurrent offer and sale of the
International Shares outside the United States and Canada. The closing of the
U.S. Offering is a condition to the closing of the International Offering and
vice versa.
The Company has granted to the U.S. Underwriters and the Managers an option,
exercisable by CS First Boston Corporation, expiring at the close of business on
the 30th day after the date of the initial public offering of the Common Stock
offered hereby, to purchase up to 495,000 additional shares at the public
offering price, less the underwriting discounts and commissions, all as set
forth on the cover page of this Prospectus. The U.S. Underwriters and the
Managers may exercise such option only to cover over-allotments in the sale of
the shares of Common Stock offered hereby. To the extent that this option to
purchase is exercised, each U.S. Underwriter and each Manager will become
obligated, subject to certain conditions, to purchase approximately the same
percentage of additional shares being sold to the U.S. Underwriters and the
Managers as the number of U.S. Shares set forth next to such U.S. Underwriter's
name in the preceding table bears to the total number of U.S. Shares
28
<PAGE>
in such table and as the number set forth next to such Manager's name in the
corresponding table in the prospectus relating to the International Offering
bears to the total number of International Shares in such table.
The Company and the Selling Stockholders have been advised by the
Representatives that the U.S. Underwriters propose to offer the U.S. Shares in
the United States and Canada to the public initially at the public offering
price set forth on the cover page of this Prospectus and, through the
Representatives, to certain dealers at such price less a concession of $____ per
share, that the Underwriters and such dealers may allow a discount of $____ per
share on sales to certain other dealers, and that after the initial public
offering, the public offering price and concession and discount to dealers may
be changed by the Representatives.
In connection with the Common Stock Offering, CS First Boston Corporation
and certain of the U.S. Underwriters, Managers and selling group members (if
any) and their respective affiliates may engage in passive market making
transactions in the Common Stock on The Nasdaq Stock Market in accordance with
Rule 10b-6A under the Exchange Act during a period before commencement of offers
or sales of the Common Stock offered hereby. The passive market making
transactions must comply with applicable volume and price limits and be
identified as such.
The public offering price, the aggregate underwriting discounts and
commissions per share and per share concession and discount to dealers for the
U.S. Offering and the concurrent International Offering will be identical.
Pursuant to an Agreement between the U.S. Underwriters and the Managers (the
"Agreement Between") relating to the Common Stock Offering, changes in the
public offering price, concession and discount to dealers will be made only upon
the mutual agreement of CS First Boston Corporation, as representative of the
U.S. Underwriters, and CS First Boston Limited ("CSFBL"), on behalf of the
Managers.
Pursuant to the Agreement Between, each of the U.S. Underwriters has agreed
that, as part of the distribution of the U.S. Shares and subject to certain
exceptions, (a) it is not purchasing any shares of Common Stock for the account
of anyone other than a U.S. or Canadian Person (as defined below) and (b) it has
not offered or sold, and will not offer to sell, directly or indirectly, any
shares of Common Stock or distribute any prospectus relating to the Common Stock
to any person outside the United States or Canada or to anyone other than a U.S.
or Canadian Person nor to any dealer who does not so agree. Each of the Managers
has agreed or will agree that, as part of the distribution of the International
Shares and subject to certain exceptions, (i) it is not purchasing any shares of
Common Stock for the account of any U.S. or Canadian Person and (ii) it has not
offered or sold, and will not offer or sell, directly or indirectly, any shares
of Common Stock or distribute any prospectus relating to the Common Stock in the
United States or Canada or to any U.S. or Canadian Person nor to any dealer who
does not so agree. The foregoing limitations do not apply to stabilization
transactions or to transactions between the U.S. Underwriters and the Managers
pursuant to the Agreement Between. As used herein, "United States" means the
United States of America (including the States and the District of Columbia),
its territories, possessions and other areas subject to its jurisdiction,
"Canada" means Canada, its provinces, territories, possessions and other areas
subject to its jurisdiction, and "U.S. or Canadian Person" means a citizen or
resident of the United States or Canada, or a corporation, partnership or other
entity created or organized in or under the laws of the United States or Canada
(other than a foreign branch of such an entity) or an estate or trust the income
of which is subject to United States or Canadian federal income taxation,
regardless of its source of income, and includes any United States or Canadian
branch of a non-U.S. or non-Canadian Person.
Pursuant to the Agreement Between, sales may be made between the U.S.
Underwriters and the Managers of such number of shares of Common Stock as may be
mutually agreed upon. The price of any shares so sold will be the initial public
offering price, less such amount as may be mutually agreed upon by CS First
Boston Corporation, as representative of the U.S. Underwriters, and CSFBL, on
behalf of the Managers, but not exceeding the selling concession applicable to
such shares. To the extent there are sales between the U.S. Underwriters and the
Managers pursuant to the Agreement
29
<PAGE>
Between, the number of shares of Common Stock initially available for sale by
the U.S. Underwriters or by the Managers may be more or less than the amount
appearing on the cover page of this Prospectus. There are no limits on the
number of shares of Common Stock that may be sold between the U.S. Underwriters
and the Managers. Neither the U.S. Underwriters nor the Managers are obligated
to purchase from the other any unsold shares of Common Stock.
This Prospectus may also be used in connection with resales of International
Shares in the United States by dealers.
The Company and certain of its directors, executive officers and
shareholders have agreed not to offer, sell, contract to sell, pledge or
otherwise dispose of, directly or indirectly, or file with the Securities and
Exchange Commission a registration statement under the Securities Act relating
to, any additional shares of its Common Stock or securities convertible or
exchangeable into or exercisable for any shares of its Common Stock without the
prior written consent of CS First Boston Corporation for a period of 90 days
after the date of this Prospectus other than (a) issuances and sales by the
Company of Common Stock in accordance with the terms of certain of the Company's
benefit plans, (b) issuances of Common Stock by the Company upon the conversion
of securities or the exercise of warrants outstanding at the date of this
Prospectus and (c) the filing of a registration statement to permit the resale
of shares of Common Stock by the Leewards stockholders. See "Selling
Stockholders." The stockholders of Leewards have agreed not to offer, sell,
contract to sell, pledge or otherwise dispose of, directly or indirectly, any
shares of Common Stock received in connection with the acquisition without the
prior written consent of CS First Boston Corporation for a period of 90 days
after the date of this Prospectus except that such stockholders may dispose of
such shares in a transaction not involving a public distribution if the
transferee executes a similar agreement.
The Company and the Selling Stockholders have agreed to indemnify the U.S.
Underwriters and the Managers against certain liabilities, including civil
liabilities under the Securities Act, or to contribute to payments that the U.S.
Underwriters and the Managers may be required to make in respect thereof.
Certain of the U.S. Underwriters and Managers and their affiliates have from
time to time performed, and continue to perform, various investment banking and
commercial banking services for the Company, for which customary compensation
has been received.
NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of the Common Stock in Canada is being made only on a
private placement basis exempt from the requirement that the Company prepare and
file a prospectus with the securities regulatory authorities in each province
where trades of Common Stock are effected. Accordingly, any resale of the Common
Stock in Canada must be made in accordance with applicable securities laws which
will vary depending on the relevant jurisdiction, and which may require resales
to be made in accordance with available statutory exemptions or pursuant to a
discretionary exemption granted by the applicable Canadian securities regulatory
authority. Purchasers are advised to seek legal advice prior to any resale of
the Common Stock.
REPRESENTATIONS OF PURCHASERS
Each purchaser of Common Stock in Canada who receives a purchase
confirmation will be deemed to represent to the Company, the Selling
Stockholders and the dealer from whom such purchase confirmation is received
that (i) such purchaser is entitled under applicable provincial securities laws
to purchase such Common Stock without the benefit of a prospectus qualified
under such securities laws, (ii) where required by law, that such purchaser is
purchasing as principal and not as agent, and (iii) such purchaser has reviewed
the text under "Resale Restrictions."
RIGHTS OF ACTION AND ENFORCEMENT
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
section 32 of the Regulation under the SECURITIES ACT
30
<PAGE>
(Ontario). As a result, Ontario purchasers must rely on other remedies that may
be available, including common law rights of action for damages or rescission or
rights of action under the civil liability provisions of the U.S. Federal
securities laws.
All of the issuer's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be possible
for Ontario purchasers to effect service of process within Canada upon the
issuer or such persons. All or a substantial portion of the assets of the issuer
and such persons may be located outside of Canada and, as a result, it may not
be possible to satisfy a judgment against the issuer or such persons in Canada
or to enforce a judgment obtained in Canadian courts against such issuer or
persons outside of Canada.
NOTICE TO BRITISH COLUMBIA RESIDENTS
A purchaser of Common Stock to whom the SECURITIES ACT (British Columbia)
applies is advised that such purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any
Common Stock acquired by such purchaser pursuant to this offering. Such report
must be in the form attached to British Columbia Securities Commission Blanket
Order BOR #88/5, a copy of which may be obtained from the Company. Only one such
report must be filed in respect of Common Stock acquired on the same date and
under the same prospectus exemption.
LEGAL MATTERS
The validity of the Common Stock offered hereby and the issuance thereof
have been passed upon for the Company by Jackson & Walker, L.L.P., Dallas, Texas
and for the Underwriters by Fulbright & Jaworski L.L.P., Dallas, Texas. Michael
C. French, a partner in Jackson & Walker, L.L.P., is a director of the Company.
EXPERTS
The consolidated financial statements of Michaels Stores, Inc. appearing or
incorporated by reference in the Company's Annual Report on Form 10-K for the
year ended January 30, 1994, have been audited by Ernst & Young, independent
auditors, as set forth in their report thereon incorporated by reference therein
and incorporated herein by reference. Such consolidated financial statements are
incorporated herein by reference in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
The financial statements of Leewards Creative Crafts, Inc. at January 30,
1994 and January 31, 1993, and for each of the years ended January 30, 1994, and
January 31, 1993 appearing elsewhere herein have been audited by Deloitte &
Touche, independent auditors, as set forth in their report thereon appearing
elsewhere herein, which report expresses an unqualified opinion and includes an
explanatory paragraph relating to the Agreement and Plan of Merger whereby
Leewards Creative Crafts, Inc. will become a subsidiary of Michaels Stores,
Inc., and are included in reliance upon such report given upon the authority of
such firm as experts in accounting and auditing.
31
<PAGE>
LEEWARDS CREATIVE CRAFTS, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
INDEPENDENT AUDITORS' REPORT............................................................................... F-2
FINANCIAL STATEMENTS FOR THE YEARS ENDED JANUARY 31, 1993, JANUARY 30, 1994 AND (UNAUDITED) FOR THE THREE
MONTHS ENDED MAY 2, 1993 AND MAY 1, 1994
Balance Sheets........................................................................................... F-4
Statements of Operations................................................................................. F-6
Statements of Redeemable Preferred Stock and Common Stockholders' Equity................................. F-7
Statements of Cash Flows................................................................................. F-8
Notes to Financial Statements............................................................................ F-9
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Leewards Creative Crafts, Inc.
Elgin, Illinois
We have audited the accompanying balance sheets of Leewards Creative Crafts,
Inc. as of January 31, 1993 and January 30, 1994 and the related statements of
operations, of redeemable preferred stock and common stockholders' equity, and
of cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Leewards Creative Crafts, Inc. as of January
31, 1993 and January 30, 1994 and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
As discussed in Note 11, the Company has entered into an Agreement and Plan
of Merger (the "Agreement") whereby it will become a wholly owned subsidiary of
Michaels Stores, Inc. ("Michaels"). The Agreement also provides that
simultaneously with the merger closing, Michaels shall cause the Company to
repay its long-term debt.
DELOITTE & TOUCHE
Chicago, Illinois
March 4, 1994
(May 11, 1994 as to Note 11)
F-2
<PAGE>
(This page has been left blank intentionally.)
F-3
<PAGE>
LEEWARDS CREATIVE CRAFTS, INC.
BALANCE SHEETS
(IN 000'S EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
JANUARY 31, JANUARY 30, MAY 1,
1993 1994 1994
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents.................................... $ 2,619 $ 2,946 $ 3,217
Accounts receivable, net of allowance for doubtful accounts
of $3, $2 and $2, respectively.............................. 654 1,372 1,008
Merchandise inventories...................................... 37,530 53,090 48,833
Prepaid expenses and other current assets.................... 2,745 3,898 4,777
Deferred income taxes........................................ 495 343 523
----------- ----------- -----------
Total current assets..................................... 44,043 61,649 58,358
PROPERTY AND EQUIPMENT:
Land......................................................... 733 732 732
Buildings and improvements................................... 972 987 1,009
Leasehold improvements....................................... 5,169 6,918 6,975
Machinery and equipment...................................... 13,860 20,822 20,731
Construction in progress..................................... 20 84 397
----------- ----------- -----------
20,754 29,543 29,844
Less accumulated depreciation and amortization............... 8,631 10,598 11,390
----------- ----------- -----------
Property and equipment -- net............................ 12,123 18,945 18,454
OTHER ASSETS:
Trade name, less accumulated amortization of $719, $871 and
$908, respectively.......................................... 5,340 5,188 5,151
Other intangibles, less accumulated amortization of $11,113,
$11,557 and $11,629, respectively........................... 1,040 596 524
Deferred financing costs, less accumulated amortization of
$2,299, $2,687 and $2,740, respectively..................... 892 656 603
Notes receivable............................................. -- 70 --
Miscellaneous assets......................................... 7 7 109
----------- ----------- -----------
Total other assets....................................... 7,279 6,517 6,387
----------- ----------- -----------
TOTAL.......................................................... $ 63,445 $ 87,111 $ 83,199
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
See notes to financial statements.
F-4
<PAGE>
LEEWARDS CREATIVE CRAFTS, INC.
BALANCE SHEETS
(IN 000'S EXCEPT SHARE DATA)
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
JANUARY 31, JANUARY 30, MAY 1,
1993 1994 1994
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT LIABILITIES:
Accounts payable............................................. $ 9,147 $ 15,157 $ 9,551
Accrued expenses............................................. 11,193 12,851 13,673
Taxes other than income taxes................................ 798 712 899
Current maturities of long-term debt......................... 7,348 17,602 20,195
Long-term debt classified as current (Note 4)................ -- 14,884 14,884
Income taxes payable......................................... 1,098 -- --
----------- ----------- -----------
Total current liabilities................................ 29,584 61,206 59,202
LONG-TERM DEBT................................................. 16,961 -- --
DEFERRED INCOME TAXES.......................................... 3,926 3,538 2,852
----------- ----------- -----------
Total liabilities........................................ 50,471 64,744 62,054
COMMITMENTS AND CONTINGENCIES (Note 10)
REDEEMABLE PREFERRED STOCK:
Class A Cumulative Exchangeable Senior Preferred Stock, $0.01
par value; shares authorized: 1993 -- 2,135; 1994 -- 4,000;
shares outstanding: 1993 -- 2,135; 1994 -- 2,349............ 9 10 68
Class B Cumulative Exchangeable Senior Preferred Stock, $0.01
par value; shares authorized: 1993 -- 2,514; 1994 -- 4,700;
shares outstanding: 1993 -- 2,514; 1994 -- 2,765............ 10 11 80
Exchangeable Preferred Stock, $0.01 par value; shares
authorized: 1993 -- 393,472; 1994 -- 800,000; shares
outstanding: 1993 -- 393,472; 1994 -- 427,322 and 470,054,
respectively................................................ 255 325 4
Class C Senior Convertible Preferred Stock, $0.01 par value;
562,500 shares authorized: 549,629 shares outstanding....... 5 5 5
Class D Senior Convertible Preferred Stock, $0.01 par value;
shares authorized: 1994 -- 194,050; shares outstanding,
194,035..................................................... -- 2 2
Class E Senior Convertible Preferred Stock, $0.01 par value;
shares authorized and outstanding: 1994 -- 129,712.......... -- 1 1
Undesignated Preferred Stock, $0.01 par value; shares
authorized and outstanding: 1993 -- 2,039,379; 1994 --
1,605,038; 0 shares issued..................................
Additional paid-in capital................................... 18,579 29,229 29,685
----------- ----------- -----------
Total redeemable preferred stock......................... 18,858 29,583 29,845
COMMON STOCKHOLDERS' DEFICIENCY:
Common stock, $0.01 par value; shares authorized: 1993 --
2,800,000; 1994 -- 4,000,000; shares outstanding: 78,281.... 1 1 1
Class B Common Stock, $0.01 par value; shares authorized:
1993 -- 200,000; 1994 -- 300,000; shares outstanding:
73,275...................................................... 1 1 1
Class C Common Stock, $0.01 par value; shares authorized:
1994 -- 600,000; 0 shares issued............................
Additional paid-in capital................................... 746 733 733
Deficit...................................................... (6,632) (7,951) (9,435)
----------- ----------- -----------
Common stockholders' deficiency.......................... (5,884) (7,216) (8,700)
----------- ----------- -----------
TOTAL.......................................................... $ 63,445 $ 87,111 $ 83,199
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
See notes to financial statements.
F-5
<PAGE>
LEEWARDS CREATIVE CRAFTS, INC.
STATEMENTS OF OPERATIONS
(IN 000'S)
<TABLE>
<CAPTION>
YEAR ENDED QUARTER ENDED
------------------------ --------------------
JANUARY 31, JANUARY 30, MAY 2, MAY 1,
1993 1994 1993 1994
----------- ----------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
NET SALES....................................................... $ 169,014 $ 190,261 $ 39,064 $ 46,246
COST OF SALES................................................... 86,431 99,093 19,615 24,252
----------- ----------- --------- ---------
82,583 91,168 19,449 21,994
OPERATING EXPENSES:
Selling and delivery.......................................... 63,845 76,219 16,288 19,483
General and administrative.................................... 5,754 6,900 1,511 1,801
Amortization of deferred pre-opening expenses................. 1,092 1,387 105 840
Depreciation and amortization................................. 3,431 3,549 834 954
----------- ----------- --------- ---------
74,122 88,055 18,738 23,078
----------- ----------- --------- ---------
OPERATING EARNINGS (LOSS)....................................... 8,461 3,113 711 (1,084)
OTHER INCOME (EXPENSE):
Restructuring expenses (Notes 1, 4 and 6)..................... (1,632) (24) -- (12)
Gain (loss) on asset disposal................................. 503 (226) -- 19
Other......................................................... 22 -- -- --
Interest expense:
Related parties............................................. (2,137) (2,285) (572) (572)
Other....................................................... (1,759) (1,154) (218) (422)
----------- ----------- --------- ---------
INCOME (LOSS) BEFORE INCOME TAXES............................... 3,458 (576) (79) (2,071)
INCOME TAXES
Currently payable............................................. 1,159 93 -- --
Deferred income taxes (benefit)............................... 394 (329) (32) (849)
----------- ----------- --------- ---------
1,553 (236) (32) (849)
----------- ----------- --------- ---------
NET INCOME (LOSS)............................................... $ 1,905 $ (340) $ (47) $ (1,222)
----------- ----------- --------- ---------
----------- ----------- --------- ---------
</TABLE>
See notes to financial statements.
F-6
<PAGE>
LEEWARDS CREATIVE CRAFTS, INC.
STATEMENTS OF REDEEMABLE PREFERRED STOCK AND COMMON STOCKHOLDERS' EQUITY
(IN 000'S)
<TABLE>
<CAPTION>
REDEEMABLE PREFERRED STOCK
-------------------------------------------------------------------------------------------------
EXCHANGEABLE ADDITIONAL
EXCHANGEABLE EXCHANGEABLE PREFERRED CONVERTIBLE CONVERTIBLE CONVERTIBLE PAID-IN
CLASS A CLASS B STOCK CLASS C CLASS D CLASS E CAPITAL
------------ ------------ ------------ ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, FEBRUARY 2, 1992..... $ 439 $ 759 $ 371 $-- -$- -$- $ 5,890
Amortization of issuance
fees....................... -- -- -- -- -- -- 56
Class A, Class B and
exchangeable preferred
dividends accrued.......... 330 390 447 -- -- -- --
Sale of Class C preferred
stock...................... -- -- -- $ 30 -- -- 10,146
Sale of common stock........ -- -- -- -- -- -- --
Repurchase and cancellation
of outstanding shares...... -- -- -- -- -- -- --
Paid-in-kind dividend....... (760) (1,139) (563) -- -- -- 2,462
Reverse split-common stock
and Class C preferred...... -- -- -- (25) -- -- 25
Repurchase options.......... -- -- -- -- -- -- --
Net income.................. -- -- -- -- -- -- --
------ ------------ ------ ----------- ----- ----- ----------
BALANCE, JANUARY 31, 1993..... 9 10 255 5 -- -- 18,579
Amortization of issuance
fees....................... -- -- -- -- -- -- 104
Class A, Class B and
Exchangeable preferred
dividends accrued.......... 215 252 408 -- -- -- --
Sale of Class D preferred
stock...................... -- -- -- -- 2 -- 5,840
Sale of Class E preferred
stock...................... -- -- -- -- -- 1 3,903
Paid-in-kind dividend, May
1, 1993.................... -- -- (338) -- -- -- 338
Repurchase options.......... -- -- -- -- -- -- --
Paid-in-kind dividend,
January 15, 1994........... (214) (251) -- -- -- -- 465
Net loss.................... -- -- -- -- -- -- --
------ ------------ ------ ----------- ----- ----- ----------
BALANCE, JANUARY 30, 1994
(UNAUDITED): 10 11 325 5 2 1 29,229
Net loss.................... -- -- -- -- -- -- --
Amortization of issuance
fees....................... -- -- -- -- -- -- 29
Class A, Class B and
Exchangeable preferred
dividends accrued.......... 58 69 106 -- -- -- --
Paid-in-kind dividend, May
1, 1994.................... -- -- (427) -- -- -- 427
------ ------------ ------ ----------- ----- ----- ----------
BALANCE, MAY 1, 1994.......... $ 68 $ 80 $ 4 $ 5 $ 2 $ 1 $29,685
------ ------------ ------ ----------- ----- ----- ----------
------ ------------ ------ ----------- ----- ----- ----------
<CAPTION>
COMMON STOCKHOLDERS' EQUITY
--------------------------------------
CLASS ADDITIONAL
COMMON B PAID-IN
STOCK COMMON CAPITAL DEFICIT
------ ------ ---------- -------
<S> <C> <C> <C> <C>
BALANCE, FEBRUARY 2, 1992..... $5 $5 $1,190 $(7,314)
Amortization of issuance
fees....................... -- -- -- (56)
Class A, Class B and
exchangeable preferred
dividends accrued.......... -- -- -- (1,167)
Sale of Class C preferred
stock...................... -- -- -- --
Sale of common stock........ -- -- 100 --
Repurchase and cancellation
of outstanding shares...... (1) -- (527) --
Paid-in-kind dividend....... -- -- -- --
Reverse split-common stock
and Class C preferred...... (3) (4) 7 --
Repurchase options.......... -- -- (24) --
Net income.................. -- -- -- 1,905
-- --
---------- -------
BALANCE, JANUARY 31, 1993..... 1 1 746 (6,632)
Amortization of issuance
fees....................... -- -- -- (104)
Class A, Class B and
Exchangeable preferred
dividends accrued.......... -- -- -- (875)
Sale of Class D preferred
stock...................... -- -- -- --
Sale of Class E preferred
stock...................... -- -- -- --
Paid-in-kind dividend, May
1, 1993.................... -- -- -- --
Repurchase options.......... -- -- (13) --
Paid-in-kind dividend,
January 15, 1994........... -- -- -- --
Net loss.................... -- -- -- (340)
-- --
---------- -------
BALANCE, JANUARY 30, 1994
(UNAUDITED): 1 1 733 (7,951)
Net loss.................... -- -- -- (1,222)
Amortization of issuance
fees....................... -- -- -- (29)
Class A, Class B and
Exchangeable preferred
dividends accrued.......... -- -- -- (233)
Paid-in-kind dividend, May
1, 1994.................... -- -- -- --
-- --
---------- -------
BALANCE, MAY 1, 1994.......... $1 $1 $ 733 $(9,435)
-- --
-- --
---------- -------
---------- -------
</TABLE>
See notes to financial statements.
F-7
<PAGE>
LEEWARDS CREATIVE CRAFTS, INC.
STATEMENTS OF CASH FLOWS
(IN 000'S)
<TABLE>
<CAPTION>
YEAR ENDED QUARTER ENDED
------------------------- --------------------
JANUARY 31, JANUARY 30, MAY 2,
1993 1994 1993 MAY 1, 1994
----------- ----------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)........................................................ $ 1,905 $ (340) $ (47) $ (1,222)
Adjustments to reconcile net income (loss) to net cash flows from
operating activities:
Depreciation and amortization.......................................... 3,290 3,549 834 954
Deferred income taxes.................................................. 503 (236) (64) (1,209)
Loss (gain) on disposal of fixed assets................................ (503) 226 -- (19)
Changes in:
Accounts receivable.................................................. 521 (718) (202) 707
Merchandise inventories.............................................. 6,969 (15,560) (272) 4,257
Prepaid expenses and other current assets............................ 1,303 (1,153) 47 (879)
Accounts payable..................................................... (11,952) 6,010 306 (5,606)
Accrued expenses and other liabilities............................... (448) 4 (2,475) (447)
Taxes other than income.............................................. (46) (86) 100 187
Notes receivable..................................................... 88 (70) -- --
Miscellaneous assets................................................. (1) -- (154) (32)
----------- ----------- ------- -----------
Net cash flows from operating activities........................... 1,629 (8,374) (1,927) (3,309)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment....................................... (1,141) (9,670) (872) (282)
Proceeds from sale of property........................................... 1,503 57 -- --
----------- ----------- ------- -----------
Net cash flows from investing activities........................... 362 (9,613) (872) (282)
CASH FLOWS FROM FINANCING ACTIVITIES:
Financing fees paid for restructuring revolving and term credit
agreements.............................................................. (433) (152) (8) --
Proceeds from issuance of stock.......................................... 10,276 9,746 -- --
Repurchase of stock...................................................... (551) (13) -- --
Issuance of subordinated debt accrual notes.............................. 2,077 -- -- --
Net borrowings (repayments) under revolving credit agreement............. (13,934) 8,177 2,375 2,593
Increase in checks outstanding........................................... 474 556 3 1,269
----------- ----------- ------- -----------
Net cash flows from financing activities........................... (2,091) 18,314 2,370 3,862
----------- ----------- ------- -----------
NET INCREASE (DECREASE) IN CASH............................................ (100) 327 (429) 271
CASH AND CASH EQUIVALENTS -- Beginning of year............................. 2,719 2,619 2,619 2,946
----------- ----------- ------- -----------
CASH AND CASH EQUIVALENTS -- End of year................................... $ 2,619 $ 2,946 $ 2,190 $ 3,217
----------- ----------- ------- -----------
----------- ----------- ------- -----------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest:
Related parties........................................................ $ -- $ 2,290 $ -- $ --
----------- ----------- ------- -----------
----------- ----------- ------- -----------
Other.................................................................. $ 1,804 $ 1,130 $ 270 $ 496
----------- ----------- ------- -----------
----------- ----------- ------- -----------
Cash paid during the year for income taxes............................... $ 188 $ 1,103 $ 25 $ 19
----------- ----------- ------- -----------
----------- ----------- ------- -----------
</TABLE>
See notes to financial statements.
F-8
<PAGE>
LEEWARDS CREATIVE CRAFTS, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF ACCOUNTING POLICIES:
QUARTERLY FINANCIAL STATEMENTS BASIS OF PRESENTATION -- The accompanying
financial statements and related footnote disclosures of Leewards Creative
Crafts, Inc. (the "Company") as of May 1, 1994 and for the three months then
ended and for the three months ended May 2, 1993 are unaudited. In the opinion
of management, these statements have been prepared on the same basis as the
audited financial statements and include all adjustments, which are of a normal
and recurring nature necessary for the fair presentation of financial position,
results of operations and cash flows. The results of operations for the three
months ended May 1, 1994 and May 2, 1993 are not necessarily indicative of the
results which may be expected for the entire year.
OPERATIONS AND RESTRUCTURING
The Company engages in the retail sale of craft and home decor products. The
Company maintained the following number of Company-operated and franchised
stores at:
<TABLE>
<CAPTION>
COMPANY-
OPERATED FRANCHISES TOTAL
--------------- --------------- -----
<S> <C> <C> <C>
January 31, 1993......................................................... 85 2 87
January 30, 1994......................................................... 99 3 102
</TABLE>
During the year ended January 31, 1993, the Company effected a restructuring
of its debt (Note 4), capital structure (Note 6) and ongoing operations. Costs
associated with these efforts, other than those directly associated with the
debt and capital restructurings, are included in restructuring expenses. Such
expenses include store closing, severance and other costs incurred in connection
with these efforts.
FISCAL YEAR-END -- The Company's fiscal year-end is the Sunday closest to
January 31.
CASH AND CASH EQUIVALENTS -- Cash and cash equivalents include cash; amounts
due from major credit card companies, which are collected within 1 to 2 days
after date of sale; and highly liquid investments which, at time of purchase,
have maturities of three months or less.
MERCHANDISE INVENTORIES -- Merchandise inventories are stated at the lower
of last-in, first-out (LIFO) cost or market. During the year ended January 31,
1993, LIFO inventories were reduced from levels at the beginning of the year,
which reduction of LIFO inventory quantities had no material effect on 1993
operating earnings. Inventories at January 31, 1993, January 30, 1994, May 2,
1993 and May 1, 1994 were valued at market which was lower than LIFO cost.
PRE-OPENING COSTS -- Pre-opening costs incurred for the opening of retail
locations are deferred and amortized over 12 months, commencing in the month
after the location opens. Unamortized deferred pre-opening costs included in
prepaid expenses were $97,000 and $2,208,000 at January 31, 1993 and January 30,
1994, respectively.
PROPERTY AND EQUIPMENT -- Property and equipment are stated at cost.
Depreciation and amortization are provided on the straight-line method over the
estimated useful lives of the respective assets, which are as follows:
<TABLE>
<S> <C>
Buildings and improvements.................. 25-30 years
Leasehold improvements...................... Shorter of lease term or 10 years
Machinery and equipment..................... 3-10 years
</TABLE>
INTANGIBLE ASSETS -- Intangible assets, primarily the trade name, and
favorable lease agreements, are reported net of accumulated amortization. The
assets are being amortized on a straight-line basis over their useful lives
which range from 3 to 40 years.
INCOME TAXES -- The Company adopted SFAS No. 109, "Accounting for Income
Taxes," in the year ended January 31, 1993 and, accordingly, computes deferred
taxes using the liability method.
F-9
<PAGE>
LEEWARDS CREATIVE CRAFTS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF ACCOUNTING POLICIES: (CONTINUED)
Deferred tax assets and liabilities are recorded based on differences between
the financial statements and income tax basis of assets and liabilities and the
tax rate in effect when these differences are expected to reverse.
2. ACCRUED EXPENSES
Accrued expenses include the following (in 000's):
<TABLE>
<CAPTION>
JANUARY 31, JANUARY 30,
1993 1994
--------------- ---------------
<S> <C> <C>
Outstanding checks................................................... $ 4,339 $ 4,895
Accrued payroll...................................................... 2,970 2,396
Other................................................................ 3,884 5,560
--------------- ---------------
Total................................................................ $ 11,193 $ 12,851
--------------- ---------------
--------------- ---------------
</TABLE>
3. INCOME TAXES
The provision (benefit) for income taxes consists of the following (in
000's):
<TABLE>
<CAPTION>
JANUARY 31, JANUARY 30,
1993 1994
--------------- ---------------
<S> <C> <C>
Current:
Federal............................................................ $ 829
State.............................................................. 330 $ 93
------- ------
1,159 93
------- ------
Deferred:
Federal............................................................ 310 (273)
State.............................................................. 84 (56)
------- ------
394 (329)
------- ------
Total provision (benefit) for income taxes........................... $ 1,553 $ (236)
------- ------
------- ------
</TABLE>
Provision for deferred taxes results from temporary differences in the
recognition of revenue and expense for financial statement and tax purposes.
Temporary differences arise principally from the following (in 000's):
<TABLE>
<CAPTION>
JANUARY 31, JANUARY 30,
1993 1994
--------------- ---------------
<S> <C> <C>
Amortization of intangibles.......................................... $ (285) $ (203)
Deferred store pre-opening costs..................................... (321) 708
Accrued liabilities.................................................. 137 (294)
Inventory capitalization............................................. 205 (416)
Inventory reserves................................................... 118 127
Depreciation......................................................... 183 343
State taxes and effect of changes in state tax rates................. 109 70
Alternative minimum tax.............................................. 171 (47)
Net operating loss................................................... (667)
Other................................................................ 77 50
------ ------
Total................................................................ $ (394) $ (329)
------ ------
------ ------
</TABLE>
F-10
<PAGE>
LEEWARDS CREATIVE CRAFTS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. INCOME TAXES (CONTINUED)
The difference between the statutory federal income tax rate and the
effective tax rate is as follows:
<TABLE>
<CAPTION>
JANUARY 31, JANUARY 30,
1993 1994
------------- -------------
<S> <C> <C>
Statutory federal income tax rate.......................................... 34.0% (34.0)%
State taxes, net of federal benefit........................................ 6.1 (6.9)
Deferred tax adjustment.................................................... 4.8 --
----- -----
Effective income tax rate.................................................. 44.9% (40.9)%
----- -----
----- -----
</TABLE>
At January 31, 1993 and January 30, 1994, the components of the deferred
income tax liability and asset were as follows (in 000's):
<TABLE>
<CAPTION>
JANUARY 31, JANUARY 30,
1993 1994
----------- -----------
<S> <C> <C>
Deferred tax liability:
Intangibles.............................................................. $ 2,558 $ 2,368
Property and equipment................................................... 1,487 1,894
Other, net............................................................... (119) (54)
Net operating loss carryforward.......................................... -- (670)
----------- -----------
Total.................................................................. $ 3,926 $ 3,538
----------- -----------
----------- -----------
Deferred tax asset:
Inventory................................................................ $ 337
Accrued expenses......................................................... $ 487 860
Prepaid expenses......................................................... (184) (1,129)
AMT credit carryforward.................................................. 91 218
Other -- net............................................................. 101 57
----------- -----------
Total.................................................................. $ 495 $ 343
----------- -----------
----------- -----------
</TABLE>
At January 30, 1994, the Company has $218,000 of AMT credits available for
carryforward to future years and an NOL carryforward of $1,635,000 which expires
in 2009.
4. LONG-TERM DEBT
Long-term debt consists of (in 000's):
<TABLE>
<CAPTION>
JANUARY 31, JANUARY 30,
1993 1994
----------- -----------
<S> <C> <C>
Revolving and term loan(a)................................................. $ 7,348 $ 15,525
Subordinated debentures(b),(c)............................................. 16,961 16,961
----------- -----------
Total long-term debt (See Note 11)......................................... 24,309 32,486
Less current maturities.................................................... (7,348) (32,486)
----------- -----------
Total.................................................................... $ 16,961 $ --
----------- -----------
----------- -----------
</TABLE>
(a) In August 1988, the Company entered into a secured revolving credit and
term loan agreement (the "agreement") which enabled the Company to borrow up to
a maximum of $25,000,000. On June 13, 1990, the Company restructured the
agreement to provide for additional borrowings up to $32,000,000 through August
19, 1993. On April 2, 1993 the borrowing limit was reduced to $29,920,000.
F-11
<PAGE>
LEEWARDS CREATIVE CRAFTS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. LONG-TERM DEBT (CONTINUED)
Borrowings outstanding under the agreement are (in 000's):
<TABLE>
<CAPTION>
JANUARY 31, JANUARY 30,
1993 1994
----------- -----------
<S> <C> <C>
Revolving loans............................................................ $ 4,235 $ 14,067
Term loan.................................................................. 3,113 1,458
----------- -----------
Total.................................................................... $ 7,348 $ 15,525
----------- -----------
----------- -----------
</TABLE>
The borrowings under the agreement are collateralized by the assets of the
Company. Interest is payable monthly based on the rate of interest publicly
announced by Citibank in New York, New York as Citibank's "base rate" ("Base
Rate"). In the year ended January 30, 1994, the interest rate was Base Rate plus
2% for the period from February 1, 1993 to April 2, 1993 and Base Rate plus
1.75% for the period from April 3, 1993 to January 30, 1994. During the prior
year ended January 31, 1993, the interest rate was Base Rate plus 5% for the
period from February 3, 1992 to June 22, 1992 and Base Rate plus 2% for the
period from June 23, 1992 to January 31, 1993. In the year ended January 30,
1994, the interest rate fluctuated between 7.75% and 8.0% and was 7.75% at
year-end; in the prior year, the rate fluctuated between 8.0% and 11.5% and was
8.0% at year-end.
Under the revolving credit loan, as restructured, the full availability of
this credit line is contingent on the cost of collateralized inventory, less
certain adjustments. Commitment fees on the revolving loan are one-half of one
percent of the average daily unused portion of the total facility, payable
monthly.
The term loan, as restructured, requires quarterly principal payments of
$413,750 and the balance on August 19, 1994.
The Company is in the preliminary stages of negotiating a new and expanded
credit facility.
In consideration for expanding the credit facility, the Company paid a
one-time fee of $200,000 and issued warrants to Citicorp to purchase 3,250
shares of Class B Common Stock, par value $0.01 per share, subject to adjustment
under certain antidilution provisions. The warrants are exercisable from the
date of issuance at $141.65 per share and expire the later of June 13, 1995 or
upon full payment of the credit facility.
The agreement has covenants providing for mandatory prepayment provisions
and requiring the Company to meet specified financial ratios and income tests.
Such tests include, but are not limited to, net worth and earnings before
interest, depreciation and taxes. The covenants impose limitations on, among
other things, the amount of capital expenditures for each year, creating or
incurring liens, and selling assets or granting guarantees, and prohibit
declaring or paying dividends on common stock unless specifically permitted
under the terms of the agreement. The Company has received waivers for all
events of noncompliance with such covenants during the fiscal year ended January
31, 1993. The Company was not in compliance with all covenants at January 30,
1994 and at May 1, 1994. Accordingly, at those dates, all amounts outstanding
under the agreement were due on demand (See Note 11).
(b) In August 1988, the Company sold $14,884,000 of subordinated debentures
to a related party. Interest is payable semi-annually at 13.5%. Annual principal
payments of $3,742,000 begin May 15, 1997 and the remaining balance is due May
15, 2000. Included in interest expense are $2,285,000 and $2,137,000 for the
years ended January 30, 1994 and January 31, 1993, respectively, for the
indebtedness.
The debentures contain covenants, including limitations on indebtedness,
liens, and the incurrence of other subordinated indebtedness, and restrict
payments such as dividends on common stock. The Company has received waivers for
all events of noncompliance with such covenants during the
F-12
<PAGE>
LEEWARDS CREATIVE CRAFTS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. LONG-TERM DEBT (CONTINUED)
fiscal year ended January 31, 1993. At January 30, 1994, and at May 1, 1994,
because of cross default provisions with respect to the agreement referred to in
(a) above, all amounts outstanding at those dates under the subordinated
debentures also were due on demand and have been classified as currently payable
(See Note 11).
(c) RESTRUCTURING -- On June 22, 1992, the subordinated debentures were
restructured and amended to provide, among other things, for the interest
payments due on May 15 and November 15, 1992 to be made in the form of
additional promissory notes ("accrual notes") in the principal amount of the
interest payable at each date. The accrual notes bear interest at 13.5% per
annum, payable semi-annually, and $1,038,000 was due on March 15, 1994 with the
balance due on November 15, 1994. All amounts due under these debentures remain
unpaid at May 1, 1994.
In addition, an acquirer of the Class C Senior Convertible Stock (Note 6)
acquired $5,000,000 of the subordinated debentures.
Scheduled principal maturities of long-term debt classified as current for
fiscal years subsequent to January 30, 1994 are as follows (in 000's):
<TABLE>
<CAPTION>
YEARS ENDED
- ---------------------------------------------------------------------------------------------
<S> <C>
February 1, 1998............................................................................. $ 3,742
January 31, 1999............................................................................. 3,742
Thereafter................................................................................... 7,400
---------
Total........................................................................................ $ 14,884
---------
---------
</TABLE>
Unamortized deferred financing costs of $892,000 and $656,000 at January 31,
1993 and January 30, 1994, respectively, consist of professional and commitment
fees incurred in connection with the Company's revolving and term loan facility
and subordinated debentures. Such costs are being amortized on a straight-line
basis over the terms of the related debt.
5. PENSION PLAN
The Company has a defined benefit pension plan for its hourly workers with
benefits based on a fixed dollar rate per year of service. The plan assets are
invested primarily in short-term bonds and in equity securities. The Company's
funding policy is to contribute annually the minimum amount required by the
applicable Internal Revenue Code regulation. In April 1992, as part of a series
of cost reductions, the Company froze the hourly pension plan. As a result,
there will be no new entrants to the plan and no additional benefits accruing to
current participants beyond those earned as of the date the plan was frozen.
F-13
<PAGE>
LEEWARDS CREATIVE CRAFTS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. PENSION PLAN (CONTINUED)
The following presents the funded status of the plan (in 000's):
<TABLE>
<CAPTION>
JANUARY 31, JANUARY 30,
1993 1994
----------- -----------
<S> <C> <C>
Actuarial present value of benefit obligation:
Estimated accumulated benefit obligation, including vested benefits......... $ 1,866 $ 2,076
----------- -----------
----------- -----------
Estimated accumulated vested obligation....................................... $ 1,709 $ 1,857
----------- -----------
----------- -----------
Projected benefit obligation.................................................. $ (1,866) $ (2,076)
Plan assets at market value................................................... 2,012 2,084
----------- -----------
Plan assets in excess of projected benefit obligation......................... 146 8
Unrecognized prior service cost............................................... 16 13
Unrecognized net gain......................................................... (234) (75)
----------- -----------
Accrued pension cost.......................................................... $ (72) $ (54)
----------- -----------
----------- -----------
</TABLE>
Pension expense includes the following components (in 000's):
<TABLE>
<CAPTION>
JANUARY 31, JANUARY 30,
1993 1994
------------ ------------
<S> <C> <C>
Interest cost on projected benefit obligation................................ $ 142 $ 143
Actual return on assets..................................................... (102) (151)
Net amortization and deferral............................................... (59) (9)
------ ------
Net periodic pension income................................................. $ (19) $ (17)
------ ------
------ ------
Actuarial assumptions:
Discount rate............................................................... 8.0% 7.25%
Asset rate of return........................................................ 8.0% 8.0%
</TABLE>
The Company has a trusteed profit-sharing plan, providing employees a
deferred compensation (401(k)) provision and Company matching provision. Under
the plan, eligible employees are permitted to contribute up to 15% of gross
compensation into the plan, and the Company will match each employee
contribution up to 4% of gross compensation at a rate established by the Board
of Directors.
The Company and its employees made the following contributions to the plan
during the years ended (in 000's):
<TABLE>
<CAPTION>
JANUARY 31, JANUARY 30,
1993 1994
------------- -------------
<S> <C> <C>
Employee contributions........................................................ $ 672 $ 752
Company matching contributions................................................ 117 141
----- -----
Total profit-sharing contributions............................................ $ 789 $ 893
----- -----
----- -----
</TABLE>
6. REDEEMABLE PREFERRED AND COMMON STOCK
a. EXCHANGEABLE PREFERRED STOCK -- Each share of Exchangeable Preferred
Stock is exchangeable for subordinated debentures due May 2, 2003 at the option
of the Company, but, if not exchanged, must be redeemed at that date or upon
sale of the Company, if earlier. The exchange rate and redemption price is
$10.00 per share.
b. CLASS A AND CLASS B CUMULATIVE EXCHANGEABLE SENIOR PREFERRED STOCK -- On
June 13, 1990, the Company authorized and issued 1,375 shares each of Class A
and Class B 30% Cumulative Exchangeable Senior Preferred Stock, $0.01 par value
per share, for $1,000 per share. Each share of
F-14
<PAGE>
LEEWARDS CREATIVE CRAFTS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. REDEEMABLE PREFERRED AND COMMON STOCK (CONTINUED)
Class A and Class B preferred stock is, at the option of the Company,
exchangeable for subordinated debentures due May 2, 2003, but if not exchanged,
must be redeemed on that date or upon sale of the Company, if earlier. The
exchange rate and redemption price is $1,000 per share.
On June 22, 1992, the terms of the preferred stock were amended to reduce
the annual dividend rate on the Class A and Class B Cumulative Exchangeable
Senior Preferred Stock to 10% annually ($100 per share) from 30% annually ($300
per share), payable on January 15, and to reduce the dividend rate on the
Exchangeable Preferred Stock to 10% annually ($1.00 per share) from 14% annually
($1.40 per share), payable on May 1. All dividends in arrears as of June 22,
1992 on the preferred shares were paid in kind in lieu of cash payments. For so
long as the Class C, Class D, and Class E Preferred Stock is outstanding, future
dividends on the Class A and Class B Cumulative Exchangeable Senior Preferred
Stock and Exchangeable Preferred Stock must be paid in kind.
Accrued and undeclared dividends at January 30, 1994 and January 31, 1993
were as follows (in 000's):
<TABLE>
<CAPTION>
1993 1994
--------- ---------
<S> <C> <C>
Class A Cumulative Exchangeable Senior Preferred Stock.................................. $ 9 $ 10
Class B Cumulative Exchangeable Senior Preferred Stock.................................. 10 11
Exchangeable Preferred Stock............................................................ 251 321
</TABLE>
Such accrued and undeclared dividends have been added to the carrying values
of the stock to which they accrue.
Issuance fees totalling approximately $287,000 related to the Redeemable
Preferred Stock were deducted from the related paid-in capital at the time of
issuance of these shares. Such fees are being amortized over the period ending
May 2, 2003.
c. CLASS C SENIOR CONVERTIBLE PREFERRED STOCK -- On June 22, 1992, the
Company issued 549,629 shares of Class C Senior Convertible Preferred Stock
("Class C Preferred Stock"), par value $0.01 per share, for $10,561,700. The
Class C Preferred Stock is convertible into common stock at the option of the
holder on a one-for-one basis. If unconverted, the Class C Preferred Stock must
be redeemed on June 15, 1999 or upon sale of the Company, if earlier. The
initial redemption price is $19.22 per share, increasing 10.0% per annum.
Issuance fees totalling approximately $386,000 related to the Class C Senior
Convertible Preferred Stock were deducted from the related paid-in capital at
the time of issuance of these shares. Such fees are being amortized over the
period ending June 15, 1999.
d. CLASS D AND CLASS E SENIOR CONVERTIBLE PREFERRED STOCK -- On May 28,
1993, the Company issued 194,035 and 129,712 shares of Class D and Class E
Senior Convertible Stock, respectively ("Class D and Class E Preferred Stock"),
par value $0.01 per share, for $6,000,000 and $4,010,000, respectively. The
Class D and Class E Preferred Stock is convertible into common stock at the
option of the holder on a one-for-one basis. If unconverted, the Class D and
Class E Preferred Stock must be redeemed on June 15, 1999 or upon sale of the
Company, if earlier. The initial redemption price is $30.92 per share,
increasing 10.0% per annum.
Issuance fees totalling approximately $158,000 and $106,000, respectively,
related to the Class D and Class E Preferred Stock, were deducted from the
related paid-in capital at the time of issuance of these shares. Such fees are
being amortized over the period ending June 15, 1999.
The Class C, Class D and Class E Preferred Stock rank pari passu and are
senior to the Exchangeable Preferred Stock and Class A and Class B Cumulative
Exchangeable Senior Preferred Stock.
F-15
<PAGE>
LEEWARDS CREATIVE CRAFTS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. REDEEMABLE PREFERRED AND COMMON STOCK (CONTINUED)
e. COMMON STOCK -- Common stockholders have voting rights. Class B Common
Stock is non-voting and convertible into common stock at the option of the
stockholder at a conversion rate of 4.88884 shares of common stock for each
share of Class B Common Stock. Class C Common Stock is nonvoting and convertible
into common stock at the option of the stockholder at a conversion rate of 1
share of common stock for each share of Class C Common Stock.
7. STOCK SPLIT
On September 18, 1992, the Company amended and restated its charter which,
among other things, reduced the number of preferred shares authorized for
issuance to 3,000,000 and reduced the number of common shares authorized for
issuance to 3,000,000. In addition, a reverse stock split of the Company's
common stock, Class B Common Stock, and Class C Senior Convertible Preferred
Stock was accomplished, whereby one share was issued to replace each 5.333332
shares outstanding at the date of the split. All share and per share data, for
the year ended January 31, 1993, has been restated to reflect this split.
8. STOCK OPTIONS (ALL DATA REFLECTS THE STOCK SPLIT DESCRIBED IN NOTE 7)
In January 1989, the Company adopted a compensatory stock option plan (the
"1989 Plan"). Under the 1989 Plan, the Company granted restricted stock options
to purchase 41,759 shares of common stock at an exercise price of $2.00 or
$19.22 per share to key executives and employees. The right to exercise a stock
option was contingent upon the Company's achieving a cumulative earnings level
within four years of the date of the Plan or upon length of service. Options are
exercisable within ten years of the date of the grant. In addition, in June and
December 1992, the Company granted certain key executives 71,875 restricted
stock options at an exercise price of $19.22. The right to exercise these
options is contingent upon the Company's achieving a cumulative earnings target
through January 29, 1995. Options are exercisable within ten years of date of
the grant. In August 1993, the Company adopted an additional compensatory stock
option plan (the "1993 Plan"). Under the 1993 Plan, the Company granted
restricted options to purchase 58,500 shares of common stock at an exercise
price of $19.22 or $30.92 per share to key executives, directors and employees.
The right to exercise these options is contingent upon the Company's achieving a
cumulative earnings target through January 29, 1995. Options are exercisable
within ten years of the date of grant.
The following summarizes activity in the plans for the years ended:
<TABLE>
<CAPTION>
JANUARY 31, JANUARY 30,
1993 1994
--------------- ---------------
<S> <C> <C>
Shares authorized.................................................... 113,634 172,134
--------------- ---------------
Outstanding shares granted, beginning of year........................ 50,000 111,258
Shares granted....................................................... 79,475 39,300
Shares canceled...................................................... (18,217) (7,204)
--------------- ---------------
Outstanding shares granted, end of year.............................. 111,258 143,354
--------------- ---------------
Shares available for grant........................................... 2,376 28,780
--------------- ---------------
--------------- ---------------
</TABLE>
Options for approximately 43,237 and 45,770 shares of common stock are
vested at January 31, 1993 and January 30, 1994, respectively.
9. LEASES
The Company leases certain store premises and computer equipment. Certain
leases contain renewal options. The store leases generally provide that the
Company shall pay for property taxes, insurance and common area maintenance.
F-16
<PAGE>
LEEWARDS CREATIVE CRAFTS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
9. LEASES (CONTINUED)
Future minimum rentals required under noncancelable operating leases which
have an original term of more than one year are as follows at January 30, 1994
(in 000's):
<TABLE>
<CAPTION>
YEAR ENDED
- ---------------------------------------------------------------------------------
<S> <C>
January 29, 1995................................................................. $ 18,146
January 28, 1996................................................................. 17,252
February 2, 1997................................................................. 15,822
February 1, 1998................................................................. 14,131
January 31, 1999................................................................. 11,701
Thereafter....................................................................... 40,542
-----------
Total............................................................................ $ 117,594
-----------
-----------
</TABLE>
Rental expense for operating leases was $13,547,000 and $15,882,000 for the
years ended January 31, 1993 and January 30, 1994, respectively.
Certain store leases have percentage rent lease provisions. Percentage rent
paid totalled $182,000 and $258,000 for the years ended January 31, 1993 and
January 30, 1994, respectively.
10. COMMITMENTS AND CONTINGENCIES
The Company is a defendant in a number of claims encountered in the normal
course of business. Management believes, based on advice of counsel, that the
ultimate outcome of all these matters will have no material adverse effect on
the Company.
The Company had arranged for letters of credit totalling $153,000 and
$343,000 as of January 31, 1993 and January 30, 1994, respectively, to secure
inventory purchases.
11. SUBSEQUENT EVENT
On May 10, 1994, the Company entered into an Agreement and Plan of Merger
(the "Agreement") whereby it will merge with a subsidiary of Michaels Stores,
Inc. ("Michaels") and thereby become a wholly owned subsidiary of Michaels. The
merger is expected to close in July, 1994. The Agreement also provides that
simultaneously with the closing, Michaels shall cause the Company to repay its
long-term debt.
F-17
<PAGE>
- -------------------------------------------
- -------------------------------------------
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THE PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY, ANY SELLING STOCKHOLDER OR ANY
UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY
JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER IN SUCH
JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE SUCH DATE.
--------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-------
<S> <C>
Available Information................................................. 3
Incorporation of Certain Documents by Reference....................... 3
Prospectus Summary.................................................... 4
Recent Developments................................................... 7
The Company........................................................... 8
Leewards Acquisition.................................................. 11
Use of Proceeds....................................................... 14
Capitalization........................................................ 15
Price Range of Common Stock and Dividends............................. 16
Selected Financial and Store Data..................................... 17
Pro Forma Combined Financial Information.............................. 18
Selling Stockholders.................................................. 24
Description of Capital Stock.......................................... 25
Certain Special Federal Tax Considerations For Non-United States
Holders.............................................................. 26
Underwriting.......................................................... 28
Notice to Canadian Residents.......................................... 30
Legal Matters......................................................... 31
Experts............................................................... 31
Index to Financial Statements......................................... F-1
</TABLE>
MICHAELS LOGO
The Arts & Crafts Store
3,300,000 Shares
Common Stock
($.10 par value)
PROSPECTUS
CS First Boston
Robertson, Stephens & Company
Nomura Securities International, Inc.
- ------------------------------------
- ------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses to be incurred in connection with the issuance and
distribution of the Common Stock covered by this Registration Statement, all of
which will be paid by Michaels Stores, Inc. (the "Registrant"), are as follows:
<TABLE>
<S> <C>
Printing, Shipping and Engraving Expenses................................ $ *
Accounting Fees and Expenses............................................. *
Legal Fees and Expenses of Qualification under State Securities Laws..... *
Legal Fees and Expenses.................................................. *
Transfer Agent and Registrar Fees and Expenses........................... *
SEC Registration Fee..................................................... $ 50,788
NASD filing fee.......................................................... 15,463
Miscellaneous............................................................ *
---------
Total.................................................................. $ 700,000
---------
---------
<FN>
- ------------------------
* To be filed by amendment.
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law empowers a corporation
to indemnify its directors and officers or former directors or officers and to
purchase insurance with respect to liability arising out of their capacity or
status as directors and officers. Such law provides further that the
indemnification permitted thereunder shall not be deemed exclusive of any other
rights to which the directors and officers may be entitled under the
corporation's certificate of incorporation, bylaws, any agreement or otherwise.
Reference is made to Article Nine of the Registrant's Restated Certificate
of Incorporation, as amended, Exhibit 4.1 of this Registration Statement, which
provides for indemnification of directors and officers.
Reference is made to Article IX of the Registrant's Bylaws, Exhibit 4.2 to
this Registration Statement, which provides for indemnification of directors and
officers.
In addition, the Registrant has entered into Indemnity Agreements with
certain of its directors and executive officers.
The Registrant has procured insurance that purports (i) to insure it against
certain costs of indemnification that may be incurred by it pursuant to the
provisions referred to above or otherwise and (ii) to insure the directors and
officers of the Registrant against certain liabilities incurred by them in the
discharge of their functions as directors and officers except for liabilities
arising from their own malfeasance.
ITEM 16. EXHIBITS.
The following is a list of all exhibits filed as a part of this Registration
Statement on Form S-3, including those incorporated herein by reference.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ----------- ----------------------------------------------------------------------------------------------------------
<C> <S>
1.1 -- Underwriting Agreement.(1)
1.2 --Subscription Agreement.(1)
2.1 -- Agreement and Plan of Merger among Michaels Stores, Inc. LWA Acquisition Corporation and Leewards
Creative Crafts, Inc.(2)
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ----------- ----------------------------------------------------------------------------------------------------------
<C> <S>
2.2 --First Amendment to Agreement and Plan of Merger dated as of June 2, 1994 among Michaels Stores, Inc.,
LWA Acquisition Corporation and Leewards Creative Crafts, Inc.(3)
2.3 -- Stock Purchase Agreement, dated as of February 16, 1994, among Michaels Stores, Inc., Treasure House
Stores, Inc. and the stockholders of Treasure House Stores, Inc.(4)
2.4 -- Amendment No. 1 to Stock Purchase Agreement.(4)
2.5 -- Agreement and Plan of Merger, dated as of March 3, 1994, among Michaels Stores, Inc. and the other
parties listed therein.(2)
2.6 -- Amendment No. 1 to Agreement and Plan of Merger, dated as of March 3, 1994, among Michaels Stores, Inc.
and the other parties listed therein.(2)
4.1 -- Restated Certificate of Incorporation of Michaels Stores, Inc.(5)
4.2 -- Bylaws of Michaels Stores, Inc. as amended and restated.(6)
4.3 -- Form of Common Stock Certificate.(6)
4.4 -- Common Stock and Warrant Agreement dated as of October 16, 1984 between Michaels Stores, Inc. and
Peoples Restaurants, Inc., including form of Warrant.(7)
4.5 -- First Amendment to Common Stock and Warrant Agreement dated October 31, 1984 between The First Dallas
Group, Ltd. and Michaels Stores, Inc.(7)
4.6 -- Second Amendment to Common Stock and Warrant Agreement dated November 28, 1984 between First Dallas
Investments -- Michaels I, Ltd. and Michaels Stores, Inc.(7)
4.7 -- Third Amendment to Common Stock and Warrant Agreement dated February 27, 1985 between First Dallas
Investments -- Michaels I, Ltd., The First Dallas Group, Ltd., Sam Wyly, Charles J. Wyly, Jr. and
Michaels Stores, Inc.(8)
4.8 -- Amendment to Common Stock and Warrant Agreement dated September 1, 1992 between Michaels Stores, Inc.,
The Andrew David Sparrow Wyly Trust, Charles J. Wyly, Jr., The Martha Caroline Wyly Trust, The Charles
Joseph Wyly, III Trust, The Emily Ann Wyly Trust, The Jennifer Lynn Wyly Trust, Donald R. Miller, Jr.,
Evan A. Wyly, The Laurie Louise Wyly Trust, The Lisa Lynn Wyly Trust, The Sam Wyly and Rosemary Wyly
Children's Trust No. 1 of 1965 fbo Kelly Wyly and Tallulah, Ltd.(5)
4.9 -- Indenture, dated as of January 22, 1993, between Michaels Stores, Inc. and NationsBank of Texas, N.A.,
as Trustee, including the form of 4 3/4%/6 3/4% Step-up Convertible Subordinated Note, included
therein.(7)
5 -- Opinion of Jackson & Walker.(1)
8 -- None.
12 -- None.
15 -- None.
23.1 -- Consent of Ernst & Young.(1)
23.2 -- Consent of Deloitte & Touche.(1)
23.3 -- Consent of Jackson & Walker (included in the opinion of Jackson & Walker, L.L.P. filed as Exhibit 5 to
this Registration Statement).
24 -- Power of Attorney.(2)
25 -- None.
26 -- None.
27 -- None.
28 -- None.
<FN>
- ------------------------
(1) Filed herewith.
</TABLE>
II-2
<PAGE>
<TABLE>
<S> <C>
(2) Previously filed.
(3) Previously filed as an exhibit to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended May 1, 1994 and incorporated herein by
reference.
(4) Previously filed as an exhibit to the Registrant's Registration Statement
on Form S-3 (No. 33-52311) and incorporated herein by reference.
(5) Previously filed as an exhibit to the Registrant's Registration Statement
on Form S-8 (No. 33-54726) and incorporated herein by reference.
(6) Previously filed as an exhibit to the Registrant's Annual Report on Form
10-K for the year ended January 31, 1994 and incorporated herein by
reference.
(7) Previously filed as an exhibit to the Registrant's Annual Report on Form
10-K for the year ended January 31, 1993 and incorporated herein by
reference.
(8) Previously filed as an exhibit to the Registrant's Registration Statement
on Form S-1 (No. 33-9456) and incorporated herein by reference.
</TABLE>
ITEM 17. UNDERTAKINGS.
(a) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of
the Registrant's annual report pursuant to Section 13(a) or Section 15(d) of
the Securities Exchange Act of 1934 that is incorporated by reference in the
Registration Statement shall be deemed to be a new Registration Statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(b) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions,
or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(c) The undersigned Registrant hereby undertakes that:
(1) For the purpose of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed as
a part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed
to be part of this registration statement as of the time it was declared
effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Irving, State of Texas on the 20th day of June, 1994.
MICHAELS STORES, INC.
By: /s/ JACK E. BUSH*
--------------------------------------
Jack E. Bush
PRESIDENT, CHIEF OPERATING OFFICER AND
DIRECTOR
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURES TITLE DATE
- ----------------------------------- ------------------------- ----------------
Chairman of the Board of
/s/ SAM WYLY* Directors and Chief
- ----------------------------------- Executive Officer June 20, 1994
Sam Wyly (Principal Executive
Officer)
/s/ CHARLES J. WYLY, JR.*
- ----------------------------------- Vice Chairman of the June 20, 1994
Charles J. Wyly, Jr. Board of Directors
/s/ JACK E. BUSH* President, Chief
- ----------------------------------- Operating Officer and June 20, 1994
Jack E. Bush Director
/s/ WILLIAM O. HUNT*
- ----------------------------------- Director June 20, 1994
William O. Hunt
- ----------------------------------- Director
Richard E. Hanlon
- ----------------------------------- Director
F. Jay Taylor
/s/ MICHAEL C. FRENCH*
- ----------------------------------- Director June 20, 1994
Michael C. French
/s/ EVAN C. WYLY*
- ----------------------------------- Director June 20, 1994
Evan C. Wyly
/s/ DONALD R. MILLER, JR.* Vice President -- Market
- ----------------------------------- Development, and June 20, 1994
Donald R. Miller, Jr. Director
Executive Vice President
/s/ R. DON MORRIS* and Chief Financial
- ----------------------------------- Officer (Principal June 20, 1994
R. Don Morris Financial and Accounting
Officer)
*By: /s/MARK V. BEASLEY
- -----------------------------------
Mark V. Beasley,
ATTORNEY-IN-FACT
II-5
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION OF EXHIBIT PAGE
- ----------- --------------------------------------------------------------------------------------------- ------------
<C> <S> <C>
1.1 -- Underwriting Agreement.(1)
1.2 --Subscription Agreement.(1)
2.1 -- Agreement and Plan of Merger among Michaels Stores, Inc. LWA Acquisition Corporation and
Leewards Creative Crafts, Inc.(2)
2.2 --First Amendment to Agreement and Plan of Merger dated as of June 2, 1994 among Michaels
Stores, Inc., LWA Acquisition Corporation and Leewards Creative Crafts, Inc.(3)
2.3 -- Stock Purchase Agreement, dated as of February 16, 1994, among Michaels Stores, Inc.,
Treasure House Stores, Inc. and the stockholders of Treasure House Stores, Inc.(4)
2.4 -- Amendment No. 1 to Stock Purchase Agreement.(4)
2.5 -- Agreement and Plan of Merger, dated as of March 3, 1994, among Michaels Stores, Inc. and
the other parties listed therein.(2)
2.6 -- Amendment No. 1 to Agreement and Plan of Merger, dated as of March 3, 1994, among Michaels
Stores, Inc. and the other parties listed therein.(2)
4.1 -- Restated Certificate of Incorporation of Michaels Stores, Inc.(5)
4.2 -- Bylaws of Michaels Stores, Inc. as amended and restated.(6)
4.3 -- Form of Common Stock Certificate.(6)
4.4 -- Common Stock and Warrant Agreement dated as of October 16, 1984 between Michaels Stores,
Inc. and Peoples Restaurants, Inc., including form of Warrant.(7)
4.5 -- First Amendment to Common Stock and Warrant Agreement dated October 31, 1984 between The
First Dallas Group, Ltd. and Michaels Stores, Inc.(7)
4.6 -- Second Amendment to Common Stock and Warrant Agreement dated November 28, 1984 between
First Dallas Investments -- Michaels I, Ltd. and Michaels Stores, Inc.(7)
4.7 -- Third Amendment to Common Stock and Warrant Agreement dated February 27, 1985 between
First Dallas Investments -- Michaels I, Ltd., The First Dallas Group, Ltd., Sam Wyly,
Charles J. Wyly, Jr. and Michaels Stores, Inc.(8)
4.8 -- Amendment to Common Stock and Warrant Agreement dated September 1, 1992 between Michaels
Stores, Inc., The Andrew David Sparrow Wyly Trust, Charles J. Wyly, Jr., The Martha
Caroline Wyly Trust, The Charles Joseph Wyly, III Trust, The Emily Ann Wyly Trust, The
Jennifer Lynn Wyly Trust, Donald R. Miller, Jr., Evan A. Wyly, The Laurie Louise Wyly
Trust, The Lisa Lynn Wyly Trust, The Sam Wyly and Rosemary Wyly Children's Trust No. 1 of
1965 fbo Kelly Wyly and Tallulah, Ltd.(5)
4.9 -- Indenture, dated as of January 22, 1993, between Michaels Stores, Inc. and NationsBank of
Texas, N.A., as Trustee, including the form of 4 3/4%/6 3/4% Step-up Convertible
Subordinated Note, included therein.(7)
5 -- Opinion of Jackson & Walker.(1)
8 -- None.
12 -- None.
15 -- None.
23.1 -- Consent of Ernst & Young.(1)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION OF EXHIBIT PAGE
- ----------- --------------------------------------------------------------------------------------------- ------------
<C> <S> <C>
23.2 -- Consent of Deloitte & Touche.(1)
23.3 -- Consent of Jackson & Walker (included in the opinion of Jackson & Walker, L.L.P. filed as
Exhibit 5 to this Registration Statement).
24 -- Power of Attorney.(2)
25 -- None.
26 -- None.
27 -- None.
28 -- None.
<FN>
- ------------------------
(1) Filed herewith.
(2) Previously filed.
(3) Previously filed as an exhibit to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended May 1, 1994 and incorporated herein by
reference.
(4) Previously filed as an exhibit to the Registrant's Registration Statement
on Form S-3 (No. 33-52311) and incorporated herein by reference.
(5) Previously filed as an exhibit to the Registrant's Registration Statement
on Form S-8 (No. 33-54726) and incorporated herein by reference.
(6) Previously filed as an exhibit to the Registrant's Annual Report on Form
10-K for the year ended January 31, 1994 and incorporated herein by
reference.
(7) Previously filed as an exhibit to the Registrant's Annual Report on Form
10-K for the year ended January 31, 1993 and incorporated herein by
reference.
(8) Previously filed as an exhibit to the Registrant's Registration Statement
on Form S-1 (No. 33-9456) and incorporated herein by reference.
</TABLE>
<PAGE>
DESCRIPTION OF GRAPHIC:
Inside front cover
Map of the United States showing the locations of the Company's stores as of
June 17, 1994, stores added through acquisitions on the West coast and stores
expected to be added through the acquisition of Leewards (net of closings).
<PAGE>
Exhibit 1.1
DRAFT 6/18/94
______________ Shares
MICHAELS STORES, INC.
Common Stock
UNDERWRITING AGREEMENT
_______________, 1994
CS FIRST BOSTON CORPORATION
ROBERTSON, STEPHENS & COMPANY, L.P.
NOMURA SECURITIES INTERNATIONAL, INC.
As Representatives of the Several Underwriters,
c/o CS First Boston Corporation,
Park Avenue Plaza,
New York, N. Y. 10055
Dear Sirs:
1. INTRODUCTORY. Michaels Stores, Inc., a Delaware corporation
("Company"), proposes to issue and sell to the several Underwriters named in
Schedule A hereto (the "Underwriters") _______________ shares of its Common
Stock, $0.10 par value ("Common Stock"), and the stockholders listed in Schedule
A hereto (the "Selling Stockholders") propose severally to sell to the several
Underwriters an aggregate of _______________ shares of Common Stock of the
Company (such shares of Common Stock to be sold by the Company and the Selling
Stockholders are herein collectively called the "U.S. Firm Shares"). The
Company also proposes to issue and sell to the Underwriters and the Managers (as
defined below), at the option of CS First Boston Corporation as Representative
of the Underwriters, an aggregate of not more than _______________ additional
shares of its Common Stock (the "Optional Shares") as set forth below. The U.S.
Firm Shares and the Optional Shares that may be sold to the Underwriters (the
"U.S. Optional Shares") are herein collectively called the "U.S. Shares."
It is understood that the Company and the Selling Stockholders are
concurrently entering into a Subscription Agreement, dated the date hereof (the
"Subscription Agreement"), with CS First Boston Limited ("CSFBL") and the other
managers named therein (the "Managers"), relating to the concurrent offering and
sale of __________ shares of Common Stock ("International Firm Shares", which
together with the Optional Shares that may be sold to the Managers by the
Company (the "International Optional Shares") are herein collectively called the
"International Shares") outside the
-1-
<PAGE>
United States and Canada (the "International Offering"). The U.S. Firm Shares
and the International Firm Shares are herein collectively called the "Firm
Shares." The U.S. Shares and the International Shares are herein collectively
called the "Offered Shares." To provide for the coordination of their
activities, the Underwriters and the Managers have entered into an Agreement
Between the U.S. Underwriters and the Managers which permits them, among other
things, to sell the Offered Shares to each other for purposes of resale.
The Company hereby agrees with the several Underwriters as follows:
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SELLING
STOCKHOLDERS. (a) The Company represents and warrants to, and agrees with, the
several Underwriters that:
(i) A registration statement (No. 33-53639) relating to the
Offered Shares, including a form of prospectus relating to the U.S.
Shares, has been filed with the Securities and Exchange Commission
("Commission") and either (A) has been declared effective under the
Securities Act of 1933 ("Act") and is not proposed to be amended or (B) is
proposed to be amended by amendment or post-effective amendment. If the
Company does not propose to amend such registration statement and if any
post-effective amendment to such registration statement has been filed
with the Commission prior to the execution and delivery of this Agreement,
the most recent such amendment has been declared effective by the
Commission. For purposes of this Agreement, "Effective Time" means (A) if
the Company has advised you that it does not propose to amend such
registration statement, the date and time as of which such registration
statement, or the most recent post-effective amendment thereto (if any)
filed prior to the execution and delivery of this Agreement, was declared
effective by the Commission, or (B) if the Company has advised you that it
proposes to file an amendment or post-effective amendment to such
registration statement, the date and time as of which such registration
statement, as amended by such amendment or post-effective amendment, as
the case may be, is declared effective by the Commission. "Effective
Date" means the date of the Effective Time. Such registration statement,
as amended at the Effective Time, including all material incorporated by
reference therein and including all information (if any) deemed to be a
part of such registration statement as of the Effective Time pursuant to
Rule 430A(b) under the Act, is hereinafter referred to as the
"Registration Statement", and the form of prospectus relating to the U.S.
Shares, as first filed with the Commission pursuant to and in accordance
with Rule 424(b) ("Rule 424(b)") under the Act or (if no such filing is
required) as included in the Registration Statement, including all
material incorporated by reference in such prospectus, is hereinafter
referred to as the "U.S. Prospectus", and the form of prospectus relating
to the International Shares, which is identical to the U.S. Prospectus
except for the outside front cover page, the inside front cover page, the
text under the captions "Underwriting" and "Subscription and Sale" in the
U.S. Prospectus and the form of prospectus relating to the International
Shares, respectively, and the outside back cover page (copies of such
pages having been heretofore delivered by the Company to CFSB on behalf of
the Managers),
-2-
<PAGE>
including all material incorporated by reference in such prospectus, is
hereinafter referred to as the "International Prospectus." The U.S.
Prospectus and the International Prospectus are hereinafter collectively
referred to as the "Prospectuses."
(ii) If the Effective Time is prior to the execution and delivery
of this Agreement: (A) on the Effective Date, the Registration Statement
conformed in all material respects to the requirements of the Act and the
rules and regulations of the Commission ("Rules and Regulations") and did
not include any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading, and (B) on the date of this Agreement,
the Registration Statement conforms, and at the time of filing of the U.S.
Prospectus pursuant to Rule 424(b), the Registration Statement and the
Prospectuses will conform, in all material respects to the requirements of
the Act and the Rules and Regulations, and neither of such documents
includes, or will include, any untrue statement of a material fact or
omits, or will omit, to state any material fact required to be stated
therein or necessary to make the statements therein not misleading. If
the Effective Time is subsequent to the execution and delivery of this
Agreement: on the Effective Date, the Registration Statement and the
Prospectuses will conform in all material respects to the requirements of
the Act and the Rules and Regulations, and neither of such documents will
include any untrue statement of a material fact or will omit to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading. The two preceding sentences do not
apply to statements in or omissions from the Registration Statement or
Prospectuses based upon written information furnished to the Company by
any Underwriter through you or by any Manager through CSFBL specifically
for use therein.
(iii) There are no contracts, agreements or understandings between
the Company and any person granting such person the right to require the
Company to file a registration statement under the Act with respect to any
securities of the Company owned or to be owned by such person or to
require the Company to include such securities in the securities
registered pursuant to the Registration Statement or in any securities
being registered pursuant to any other registration statement filed by the
Company under the Act, except for certain registration rights set forth in
Article VII of that certain Common Stock and Warrant Agreement dated as of
October 16, 1984, by and between Michaels Stores, Inc. and Peoples
Restaurants, Inc. (the "Registration Rights"), all of which Registration
Rights, pursuant to the terms of that certain Third Amendment to the
Common Stock and Warrant Agreement dated September 1, 1992 (the "Third
Amendment") are now held by the Prior Assignees (as defined in the Third
Amendment), Tallulah, Ltd., the Christiana Trust and the Andrew Trust (as
more fully described in the Third Amendment) and all of which Registration
Rights have been waived with respect to the transactions contemplated by
this Agreement.
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(iv) Except as disclosed in the Prospectuses, there are no
contracts, agreements or understandings between the Company and any person
that would give rise to a valid claim against the Company or any
Underwriter for a brokerage commission, finders fee or other like payment
in connection with the U.S. Offering, the International Offering or the
acquisition of Leewards Creative Crafts, Inc. ("Leewards") by the Company
pursuant to an Agreement and Plan of Merger (as amended to date, the
"Merger Agreement") among the Company, its wholly-owned subsidiary LWA
Acquisition Corporation, and Leewards dated May 10, 1994 (the "Leewards
Acquisition").
(v) The Merger Agreement (including the First Amendment to
Agreement and Plan of Merger dated June 2, 1994, which is the only
amendment thereto to date) is a valid and binding agreement enforceable
against the parties thereto in accordance with its terms, and the Leewards
Acquisition has been consummated in accordance with the terms of the
Merger Agreement.
(b) Each Selling Stockholder severally represents and warrants to, and
agrees with, the several Underwriters that:
(i) Such Selling Stockholder has and on the Closing Date
hereinafter mentioned will have valid and unencumbered title to the shares
of Common Stock to be sold by such Selling Stockholder and full right,
power and authority to enter into this Agreement and to sell, assign,
transfer and deliver the shares of the Common Stock to be sold by such
Selling Stockholder hereunder; and upon the delivery of and payment for
the U.S. Firm Shares hereunder the several Underwriters will acquire valid
and unencumbered title to the shares of the Common Stock to be sold by
such Selling Stockholder.
(ii) If the Effective Time is prior to the execution and delivery
of this Agreement: (A) on the Effective Date, the Registration Statement
conformed in all respects to the requirements of the Act and the Rules and
Regulations and did not include any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary
to make the statements therein not misleading, and (B) on the date of this
Agreement, the Registration Statement conforms, and at the time of filing
of the Prospectus pursuant to Rule 424(b), the Registration Statement and
the Prospectus will conform, in all respects to the requirements of the
Act and the Rules and Regulations, and neither of such documents includes,
or will include, any untrue statement of a material fact or omits, or will
omit, to state any material fact required to be stated therein or
necessary to make the statements therein not misleading. If the Effective
Time is subsequent to the execution and delivery of this Agreement: on the
Effective Date, the Registration Statement and the Prospectus will conform
in all respects to the requirements of the Act and the Rules and
Regulations, and neither of such documents will include any untrue
statement of a material fact or will omit to state any material fact
required to be stated therein or necessary to make the statements therein
not misleading. The two preceding sentences apply to each Selling
Stockholder only to the extent that any statements in or omissions from
the Registration Statement or Prospectuses are
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<PAGE>
based on written information furnished to the Company by such Selling
Stockholder specifically for use therein.
(iii) Except as disclosed in the Prospectus, there are no contracts,
agreements or understandings between such Selling Stockholders and any
person that would give rise to a valid claim against the Company or any
Underwriter for a brokerage commission, finders fee or other like payment
in connection with the U.S. Offering, the International Offering or the
Leewards Acquisition.
(iv) The Merger Agreement (including the First Amendment to
Agreement and Plan of Merger dated June 2, 1994, which is the only
amendment thereto to date) is a valid and binding agreement enforceable
against the Selling Stockholders in accordance with its terms, and the
Leewards Acquisition has been consummated in accordance with the terms of
the Merger Agreement.
3. PURCHASE, SALE AND DELIVERY OF U.S. SHARES. On the basis of the
representations, warranties and agreements herein contained, but subject to the
terms and conditions herein set forth, the Company and each Selling Stockholder
agrees, severally and not jointly, to sell to each Underwriter, and each
Underwriter agrees, severally and not jointly, to purchase from the Company and
each Selling Stockholder, at a purchase price of $__________ per share, the
respective numbers of U.S. Firm Shares (rounded up or down, as determined by you
in your discretion, in order to avoid fractions) obtained by multiplying the
number of U.S. Firm Shares to be sold by the Company or the number of U.S. Firm
Shares set forth opposite the name of such Selling Stockholder in Schedule A
hereto, as the case may be, by a fraction the numerator of which is the number
of U.S. Firm Shares set forth opposite the name of such Underwriter in Schedule
B hereto and the denominator of which is the total number of U.S. Firm Shares.
Certificates in negotiable form for the shares of the Common Stock to be
sold by the Selling Stockholders hereunder have been placed in custody, for
delivery under this Agreement, pursuant to agreements entitled Custody Agreement
and Power of Attorney (the "Custody Agreement and Power of Attorney") made with
________________________ and _________________________, as custodians
("Custodians"). Each Selling Stockholder agrees that the shares represented by
the certificates held in custody for the Selling Stockholders under such Custody
Agreement and Power of Attorney are subject to the interests of the Underwriters
hereunder, that the arrangements made by the Selling Stockholders for such
custody are to that extent irrevocable, and that the obligations of the Selling
Stockholders hereunder shall not be terminated by operation of law, whether by
the death of any individual Selling Stockholder or the occurrence of any other
event, or in the case of a trust, by the death of any trustee or trustees or the
termination of such trust. If any individual Selling Stockholder or any such
trustee or trustees should die, or if any other such event should occur, or if
any of such trusts should terminate, before the delivery of the Common Stock
hereunder, certificates for such shares of Common Stock shall be delivered by
the Custodians in accordance with the terms and conditions of this Agreement as
if such death or other event or termination had not occurred, regardless of
whether or not the Custodians shall have received notice of such death or other
event or termination.
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<PAGE>
The Company and the Custodians will deliver the U.S. Firm Shares to you
for the accounts of the Underwriters, at the office of CS First Boston
Corporation, Park Avenue Plaza, New York, New York 10055, (or, if requested by
the Underwriters, through the Depository Trust Corporation system) against
payment of the purchase price therefor by certified or official bank check or
checks in New York Clearing House (next day) funds drawn to the order of
Michaels Stores, Inc., in the case of ___________ U.S. Firm Shares and
_________________________ in the case of _______________ U.S. Firm Shares, at
the office of Jackson & Walker L.L.P., Dallas, Texas, at 10:00 A.M., New York
time, on _______________, _______________, 1994, or at such other date and time
not later than seven full business days thereafter as you and the Company
determine, such time and date being herein referred to as the "First Closing
Date." The certificates for the U.S. Firm Shares so to be delivered will be in
definitive form, in such denominations and registered in such names as you
request and will be made available for checking and packaging at the office of
CS First Boston Corporation, Park Avenue Plaza, New York, New York 10055 at
least 24 hours prior to the First Closing Date.
In addition, upon written notice from CS First Boston Corporation from
time to time given to the Company not more than 30 days subsequent to the date
of the initial public offering of the U.S. Firm Shares, the Underwriters and the
Managers may purchase all or less than all of the Optional Shares, which in the
case of the Underwriters shall be at the purchase price per share to be paid for
the U.S. Firm Shares. Unless otherwise agreed between you and CSFBL, the
Optional Shares to be so purchased by the Underwriters shall be in the same
proportion as the U.S. Firm Shares bear to the Firm Shares. The Company agrees
to sell to the Underwriters the number of such U.S. Optional Shares specified in
such notice and the Underwriters agree, severally and not jointly, to purchase
such U.S. Optional Shares. Such U.S. Optional Shares shall be purchased for the
account of each Underwriter in the same proportion as the number of U.S. Firm
Shares set forth opposite such Underwriter's name in Schedule A hereto bears to
the total number of U.S. Firm Shares (subject to adjustment by you to eliminate
fractions) and may be purchased by the Underwriters only for the purpose of
covering over-allotments made in connection with the sale of the U.S. Firm
Shares. No Optional Shares shall be sold or delivered unless the U.S. Firm
Shares and the International Firm Shares previously have been, or simultaneously
are, sold and delivered. The right to purchase the Optional Shares or any
portion thereof may be surrendered and terminated at any time upon notice by you
on behalf of the Underwriters and the Managers to the Company.
The time for the delivery of and payment for the U.S. Optional Shares,
being herein referred to as the "Option Closing Date" (which may be the First
Closing Date) (the First Closing Date and the Option Closing Date, if any, being
sometimes referred to as a "Closing Date"), shall be determined by you but shall
be not later than seven (7) business days after written notice of election to
purchase Optional Shares is given. The Company will deliver the U.S. Optional
Shares to you for the accounts of the several Underwriters, at the office of CS
First Boston Corporation, Park Avenue Plaza, New York, New York 10055, against
payment of the purchase price therefor by certified or official bank check or
checks in New York Clearing House (next day) funds drawn to the order of
Michaels Stores, Inc., at the office of Jackson & Walker L.L.P., Dallas,
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<PAGE>
Texas. The certificates for the U.S. Optional Shares will be in definitive
form, in such denominations and registered in such names as you request upon
reasonable notice prior to the Option Closing Date and will be made available
for checking and packaging at the office of CS First Boston Corporation, Park
Avenue Plaza, New York, New York 10055 at a reasonable time in advance of the
Option Closing Date.
4. OFFERING BY UNDERWRITERS. It is understood that the several
Underwriters propose to offer the U.S. Shares for sale to the public as set
forth in the U.S. Prospectus.
5. CERTAIN AGREEMENTS OF THE COMPANY AND THE SELLING STOCKHOLDERS.
The Company and the Selling Stockholders agrees with the several Underwriters
that:
(a) If the Effective Time is prior to the execution and delivery
of this Agreement, the Company will file the U.S. Prospectus with the
Commission pursuant to and in accordance with subparagraph (1) (or, if
applicable and if consented to by you, subparagraph, (4)) of Rule 424(b)
not later than the earlier of (A) the second business day following the
execution and delivery of this Agreement or (B) the fifth business day
after the Effective Date. The Company will advise you promptly of any
such filing pursuant to Rule 424(b).
(b) The Company will advise you promptly of any proposal to amend
or supplement the registration statement as filed or the related
prospectus or the Registration Statement or the Prospectuses and will not
effect such amendment or supplementation without your consent, which
consent shall not be unreasonably withheld; and the Company will also
advise you promptly of the effectiveness of the Registration Statement (if
the Effective Time is subsequent to the execution and delivery of this
Agreement) and of any amendment or supplementation of the Registration
Statement or the Prospectuses and of the institution by the Commission of
any stop order proceedings in respect of the Registration Statement and
will use its best efforts to prevent the issuance of any such stop order
and to obtain as soon as possible its lifting, if issued.
(c) If, at any time when a prospectus relating to the Offered
Shares is required to be delivered under the Act, any event occurs as a
result of which the Prospectuses as then amended or supplemented would
include an untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading, or if it is
necessary at any time to amend either or both of the Prospectuses to
comply with the Act, the Company, subject to paragraph (b) above, promptly
will prepare and file with the Commission an amendment or supplement which
will correct such statement or omission or an amendment which will effect
such compliance. Neither your consent to, nor the Underwriters' delivery
of, any such amendment or supplement shall constitute a waiver of any of
the conditions set forth in Section 6.
(d) As soon as practicable, but not later than the Availability
Date (as defined below), the Company will make generally available to its
security holders
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<PAGE>
an earnings statement covering a period of at least 12 months beginning
after the Effective Date which will satisfy the provisions of Section
11(a) of the Act. For the purpose of the preceding sentence,
"Availability Date" means the 45th day after the end of the fourth fiscal
quarter following the fiscal quarter that includes the Effective Date,
except that, if such fourth fiscal quarter is the last quarter of the
Company's fiscal year, "Availability Date" means the 90th day after the
end of such fourth fiscal quarter.
(e) The Company will furnish to you copies of the Registration
Statement (five of which will be signed and will include all exhibits),
each related preliminary prospectus, the U.S. Prospectus and all
amendments and supplements to such documents, in each case as soon as
available and in such quantities as you reasonably request.
(f) The Company will arrange for the qualification of the Offered
Shares for sale under the laws of such jurisdictions in the United States
as you designate and will continue such qualifications in effect so long
as required for the distribution.
(g) During the period of five years hereafter, the Company will
furnish to you and, upon request, to each of the other Underwriters, as
soon as practicable after the end of each fiscal year, a copy of its
annual report to stockholders for such year; and the Company will furnish
to you (i) as soon as available, a copy of each report or definitive proxy
statement of the Company filed with the Commission under the Securities
Exchange Act of 1934 or mailed to stockholders, and (ii) from time to
time, such other publicly available information concerning the Company as
you may reasonably request.
(h) The Company will pay all expenses incident to the performance
of its obligations under this Agreement and will reimburse the
Underwriters for any expenses (including fees and disbursements of
counsel) incurred by them in connection with qualifications of the Offered
Shares for sale under the laws of such jurisdictions in the United States
as you designate and the printing of memoranda relating thereto, for the
filing fee of the National Association of Securities Dealers, Inc.
relating to the Offered Shares and for expenses incurred in distributing
preliminary prospectuses and the U.S. Prospectus (including any amendments
and supplements thereto) to the Underwriters.
Each Selling Stockholder agrees to deliver to you on or prior to the
Closing Date a properly completed and executed United States Treasury Department
Form W-9 (or other applicable form or statement specified by Treasury Department
regulations in lieu thereof).
6. CONDITIONS OF THE OBLIGATIONS OF THE UNDERWRITERS. The
obligations of the several Underwriters to purchase and pay for the U.S. Firm
Shares on the First Closing Date and the U.S. Optional Shares on the Option
Closing Date will be subject to the accuracy of the representations and
warranties on the part of the Company herein, to the accuracy of the statements
of Company officers made pursuant to the provisions
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<PAGE>
hereof, to the performance by the Company of its obligations hereunder and to
the following additional conditions precedent:
(a) You shall have received a letter, dated the date of delivery
thereof (which, if the Effective Time is prior to the execution and
delivery of this Agreement, shall be on or prior to the date of this
Agreement or, if the Effective Time is subsequent to the execution and
delivery of this Agreement, shall be prior to the filing of the amendment
or post-effective amendment to the registration statement to be filed
shortly prior to the Effective Time), of Ernst & Young confirming that
they are independent public accountants within the meaning of the Act and
the applicable published Rules and Regulations thereunder and stating in
effect that:
(i) in their opinion the financial statements and schedules
examined by them and included or incorporated by reference in the
Registration Statement comply in form in all material respects with
the applicable accounting requirements of the Act and the related
published Rules and Regulations;
(ii) they have made a review of the unaudited financial
statements of the Company and its consolidated subsidiaries included
in the Registration Statement in accordance with standards
established by the American Institute of Certified Public
Accountants, as indicated in their reports attached to such letter;
(iii) on the basis of the review referred to in clause (ii)
above, a reading of the latest available interim financial
statements of the Company and its consolidated subsidiaries,
inquiries of officials of the Company who have responsibility for
financial and accounting matters and other specified procedures,
nothing came to their attention that caused them to believe that:
(A) the unaudited financial statements of the Company
and its consolidated subsidiaries included in the Registration
Statement do not comply in form in all material respects with
applicable accounting requirements of the Act and the related
published Rules and Regulations;
(B) at the date of the latest available balance sheet
of the Company and its consolidated subsidiaries read by such
accountants, or at a subsequent specified date not more than five
days prior to the date of this Agreement, there was any change in
the capital stock or any increase in short-term indebtedness or
long-term debt of the Company and its consolidated subsidiaries, or,
at the date of the latest available balance sheet read by such
accountants, there was any decrease in consolidated net current
assets or net assets of the Company and its consolidated
subsidiaries, as compared with amounts shown on the latest balance
sheet of the Company and its consolidated subsidiaries included in
the Prospectuses; or
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<PAGE>
(C) for the period from the closing date of the latest
income statement of the Company and its consolidated subsidiaries
included in the Prospectuses to the closing date of the latest
available income statement of the Company and its consolidated
subsidiaries read by such accountants there were any decreases, as
compared with the corresponding period of the previous year and with
the period of corresponding length ended the date of the latest
income statement of the Company and its consolidated subsidiaries
included in the Prospectuses, in consolidated net sales or net
operating income of the Company and its consolidated subsidiaries or
in the total or per share amount of consolidated net income of the
Company and its consolidated subsidiaries;
except in all cases set forth in clauses (B) and (C) above for
changes, increases or decreases which the Prospectuses disclose have
occurred or may occur or which are described in such letter; and
(iv) they have compared specified dollar amounts (or
percentages derived from such dollar amounts) and other financial
information contained in the Registration Statement (in each case to
the extent that such dollar amounts, percentages and other financial
information are derived from the general accounting records of the
Company and its consolidated subsidiaries subject to the internal
controls of the Company's and its consolidated subsidiaries'
accounting system or are derived directly from such records by
analysis or computation) with the results obtained from inquiries, a
reading of such general accounting records and other procedures
specified in such letter and have found such dollar amounts,
percentages and other financial information to be in agreement with
such results, except as otherwise specified in such letter.
For purposes of this subsection, if the Effective Time is subsequent to
the execution and delivery of this Agreement, "Registration Statement"
shall mean the registration statement as proposed to be amended by the
amendment or post-effective amendment to be filed shortly prior to the
Effective Time, and "Prospectuses" shall mean the prospectus included in
the Registration Statement and the related draft of the International
Prospectus. All financial statements and schedules included in material
incorporated by reference into the U.S. Prospectus shall be deemed
included in the Registration Statement for purposes of this subsection.
(b) You shall have received a letter, dated the date of delivery
thereof (which, if the Effective Time is prior to the execution and
delivery of this Agreement, shall be on or prior to the date of this
Agreement or, if the Effective Time is subsequent to the execution and
delivery of this Agreement, shall be prior to the filing of the amendment
or post-effective amendment to the registration statement to be filed
shortly prior to the Effective Time), of Deloitte & Touche confirming that
they are independent public accountants within the meaning of the Act and
the applicable published Rules and Regulations thereunder and stating in
effect that:
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(i) in their opinion the financial statements and schedules
examined by them and included in the Registration Statement comply
in form in all material respects with the applicable accounting
requirements of the Act and the related published Rules and
Regulations;
(ii) they have made a review of the unaudited financial
statements of Leewards Creative Crafts, Inc. ("Leewards") and its
consolidated subsidiaries included in the Registration Statement in
accordance with standards established by the American Institute of
Certified Public Accountants, as indicated in their reports attached
to such letter;
(iii) on the basis of the review referred to in clause (ii)
above, a reading of the latest available interim financial
statements of Leewards and its consolidated subsidiaries, inquiries
of officials of Leewards who have responsibility for financial and
accounting matters and other specified procedures, nothing came to
their attention that caused them to believe that:
(A) the unaudited financial statements of Leewards and
its consolidated subsidiaries included in the Registration Statement
do not comply in form in all material respects with applicable
accounting requirements of the Act and the related published Rules
and Regulations;
(B) at the date of the latest available balance sheet
of Leewards and its consolidated subsidiaries read by such
accountants, or at a subsequent specified date not more than five
days prior to the date of this Agreement, there was any change in
the capital stock or any increase in short-term indebtedness or
long-term debt of Leewards and its subsidiaries consolidated, or, at
the date of the latest available balance sheet read by such
accountants, there was any decrease in consolidated net current
assets or net assets of Leewards and its consolidated subsidiaries,
as compared with amounts shown on the latest balance sheet of
Leewards and its consolidated subsidiaries included in the
Prospectuses; or
(C) for the period from the closing date of the latest
income statement of Leewards and its consolidated subsidiaries
included in the Prospectuses to the closing date of the latest
available income statement of Leewards and its consolidated
subsidiaries read by such accountants there were any decreases, as
compared with the corresponding period of the previous year and with
the period of corresponding length ended the date of the latest
income statement of Leewards and its consolidated subsidiaries
included in the Prospectuses, in consolidated net sales or net
operating income of Leewards and its consolidated subsidiaries or in
the total or per share amount of consolidated net income of Leewards
and its consolidated subsidiaries;
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<PAGE>
except in all cases set forth in clauses (B) and (C) above for
changes, increases or decreases which the Prospectuses disclose have
occurred or may occur or which are described in such letter; and
(iv) they have compared specified dollar amounts (or
percentages derived from such dollar amounts) and other financial
information contained in the Registration Statement (in each case to
the extent that such dollar amounts, percentages and other financial
information are derived from the general accounting records of
Leewards and its consolidated subsidiaries subject to the internal
controls of Leewards' and its consolidated subsidiaries' accounting
system or are derived directly from such records by analysis or
computation) with the results obtained from inquiries, a reading of
such general accounting records and other procedures specified in
such letter and have found such dollar amounts, percentages and
other financial information to be in agreement with such results,
except as otherwise specified in such letter.
For purposes of this subsection, if the Effective Time is subsequent to
the execution and delivery of this Agreement, "Registration Statement"
shall mean the registration statement as proposed to be amended by the
amendment or post-effective amendment to be filed shortly prior to the
Effective Time, and "Prospectuses" shall mean the prospectus included in
the Registration Statement and the related draft of the International
Prospectus. All financial statements and schedules included in material
incorporated by reference into the U.S. Prospectus shall be deemed
included in the Registration Statement for purposes of this subsection.
(c) If the Effective Time is not prior to the execution and
delivery of this Agreement, the Effective Time shall have occurred not
later than 10:00 P.M., New York time, on the date of this Agreement or
such later date as shall have been consented to by you. If the Effective
Time is prior to the execution and delivery of this Agreement, the U.S.
Prospectus shall have been filed with the Commission in accordance with
the Rules and Regulations and Section 5(a) of this Agreement. Prior to
the Closing Date, no stop order suspending the effectiveness of the
Registration Statement shall have been issued and no proceedings for that
purpose shall have been instituted or, to the knowledge of the Company,
any Selling Stockholder, or you, shall be contemplated by the Commission.
(d) Subsequent to the execution and delivery of this Agreement,
there shall not have occurred (i) any change, or any development involving
a prospective change, in or affecting particularly the business or
properties of the Company or its subsidiaries which, in the judgment of a
majority in interest of the Underwriters including you, materially impairs
the investment quality of the Offered Shares; (ii) any downgrading in the
rating of any debt securities of the Company by any "nationally recognized
statistical rating organization" (as defined for purposes of Rule 436(g)
under the Act), or any public announcement that any such organization has
under surveillance or review is rating of any debt
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securities of the Company (other than an announcement with positive
implications of a possible upgrading, and no implication of a possible
downgrading, of such rating); (iii) any suspension or limitation of
trading in securities generally on the New York Stock Exchange, or any
setting of minimum prices for trading on such exchange, or any suspension
of trading of any securities of the Company on any exchange or in the
Nasdaq Stock Market or the over-the-counter market; (iv) any banking
moratorium declared by Federal or New York authorities; or (v) any
outbreak or escalation of major hostilities in which the United States is
involved, any declaration of war by Congress or any other substantial
national or international calamity or emergency, if, in the judgment of a
majority in interest of the Underwriters including you, the effect of any
such outbreak, escalation, declaration, calamity or emergency makes it
impractical or inadvisable to proceed with completion of the sale of and
payment for the U.S. Shares.
(e) You shall have received an opinion, dated such Closing Date,
of Jackson & Walker, L.L.P., counsel for the Company, to the effect that:
(i) The Company and each subsidiary of the Company has been
duly incorporated and is an existing corporation in good standing
under the laws of the State of Delaware, with corporate power and
authority to own its properties and conduct its business as
described in the Prospectuses; and the Company and each subsidiary
of the Company is duly qualified to do business as a foreign
corporation in good standing in all other jurisdictions in which it
owns or leases substantial properties or in which the conduct of its
business requires such qualifications, except where the failure to
be so qualified would not have a material adverse effect on the
condition (financial or otherwise), earnings, operations or business
of the Company;
(ii) The Offered Shares delivered on such Closing Date and
all other outstanding shares of the Common Stock of the Company have
been duly authorized and validly issued and conform to the
description thereof contained in the Prospectuses; when purchased
and issued pursuant to the terms of this Agreement the Offered
Shares delivered on such Closing Date will be, and all other
outstanding shares of the Common Stock of the Company are, fully
paid and nonassessable; and the stockholders of the Company have no
preemptive rights with respect to the Offered Shares pursuant to any
applicable statute, rule or regulation or to the Certificate of
Incorporation or bylaws of the Company, and to such counsel's
knowledge no preemptive rights with respect to the Offered Shares
exist, whether pursuant to the items listed above, pursuant to
contract or otherwise;
(iii) There are no contracts, agreements or understandings
known to such counsel between the Company and any person granting
such person the right to require the Company to file a registration
statement under the Act with respect to any securities of the
Company owned or to
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<PAGE>
be owned by such person or to require the Company to include such
securities in the securities registered pursuant to the Registration
Statement or in any securities being registered pursuant to any
other registration statement filed by the Company under the Act,
except for certain registration rights set forth in Article VII of
that certain Common Stock and Warrant Agreement dated as of October
16, 1984, by and between Michaels Stores, Inc. and Peoples
Restaurants, Inc. (the "Registration Rights"), all of which
Registration Rights, pursuant to the terms of that certain Third
Amendment to the Common Stock and Warrant Agreement dated September
1, 1992 (the "Third Amendment") are now held by the Prior Assignees
(as defined in the Third Amendment), Tallulah, Ltd., the Christiana
Trust and the Andrew Trust (as more fully described in the Third
Amendment) and all of which Registration Rights have been waived
with respect to the transactions contemplated by this Agreement;
(iv) No consent, approval, authorization or order of, or
filing with, any governmental agency or body or any court is
required to be obtained or made by the Company for the consummation
of the transactions contemplated by this Agreement or the
Subscription Agreement in connection with the issuance or sale of
the Offered Shares, except such as have been obtained and made under
the Act and such as may be required under state securities laws;
(v) The execution, delivery and performance of this
Agreement and the Subscription Agreement and the consummation of the
transactions contemplated herein and therein will not result in a
breach or violation of any of the terms and provisions of, or
constitute a default under, (A) any statute, any rule, regulation or
order (excluding orders that specifically name and are directed to
the Company and are unknown to such counsel and excluding the
specific matters under the Act, the Rules, the Regulations and Rule
10(b)5 under the Securities Exchange Act of 1934 that are covered by
paragraph (vi) below, the only opinions being expressed with respect
to such matters being set forth in paragraph (vi) below) of any
governmental agency or body or any court having jurisdiction over
the Company or any subsidiary of the Company or any of their
properties, or the charter or bylaws of the Company or any
subsidiary of the Company or (B) to the knowledge of such counsel,
any agreement or instrument to which the Company or any subsidiary
of the Company is a party or by which the Company or any subsidiary
of the Company is bound or to which any of the properties of the
Company or any subsidiary of the Company are subject, and the
Company has full power and authority to authorize, issue and sell
the Offered Shares as contemplated by this Agreement and the
Subscription Agreement;
(vi) The Registration Statement was declared effective under
the Act as of the date and time specified in such opinion, the U.S.
Prospectus either was filed with the Commission pursuant to the
subparagraph of
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<PAGE>
Rule 424(b) specified in such opinion on the date specified therein
or was included in the Registration Statement (as the case may be),
and, to the best of the knowledge of such counsel, no stop order
suspending the effectiveness of the Registration Statement or any
part thereof has been issued and no proceedings for that purpose
have been instituted or are pending or contemplated under the Act,
and the Registration Statement and the Prospectuses, and each
amendment or supplement thereto, as of their respective effective or
issue dates, complied as to form in all material respects with the
requirements of the Act and the Rules and Regulations; such counsel
have no reason to believe that either the Registration Statement or
the Prospectuses, or any such amendment or supplement, as of such
respective dates, contained any untrue statement of a material fact
or omitted to state any material fact required to be stated therein
or necessary to make the statements therein not misleading; the
descriptions in the Registration Statement and Prospectuses of
statutes, legal and governmental proceedings and contracts and other
documents are accurate and fairly present the information required
to be shown; and such counsel do not know of any legal or
governmental proceedings required to be described in the
Registration Statement or Prospectuses which are not described as
required or of any contracts or documents of a character required to
be described in the Registration Statement or Prospectuses or to be
filed as exhibits to the Registration Statement which are not
described and filed as required; it being understood that such
counsel need express no opinion as to the financial statements or
other financial data contained, by incorporation by reference or
otherwise, in the Registration Statement or the Prospectuses;
(vii) This Agreement and the Subscription Agreement have been
duly authorized, executed and delivered by the Company; and
(viii)The Merger Agreement is a valid and binding agreement
enforceable against the parties thereto in accordance with its terms
(subject to applicable bankruptcy, insolvency, moratorium and
similar laws of general applicability affecting the rights of
creditors and to principles of equity), and the Leewards Acquisition
has been consummated in accordance with the terms of the Merger
Agreement.
(f) You shall have received an opinion, dated the Closing Date of
________________________, counsel for the Selling Stockholders, to the
effect that:
(i) Each Selling Stockholder has valid and unencumbered
title to the Common Stock sold by such Selling Stockholder pursuant
to this Agreement and has full right, power and authority to sell,
assign, transfer and deliver such Common Stock hereunder; and the
several Underwriters have acquired valid and unencumbered title to
the Common Stock purchased by them from the Selling Stockholders
hereunder;
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<PAGE>
(ii) No consent, approval, authorization or order of, or
filing with, any governmental agency or body or any court is
required to be obtained or made by any Selling Stockholder for the
consummation of the transactions contemplated by this Agreement or
the Custody Agreement and Power of Attorney in connection with the
sale of the Common Stock sold by the Selling Stockholders hereunder,
except such as have been obtained and made under the Act and such as
may be required under state securities laws;
(iii) The execution, delivery and performance of this
Agreement and the Custody Agreement and Power of Attorney and the
consummation of the transactions herein and therein contemplated
will not result in a breach or violation of any of the terms and
provisions of, or constitute a default under, any statute, any rule,
regulation or order of any governmental agency or body or any court
having jurisdiction over any Selling Stockholder or any of their
properties or any agreement or instrument to which any Selling
Stockholder is a party or by which any Selling Stockholder is bound
or to which any of the properties of any Selling Stockholder is
subject, or the charter or bylaws of any Selling Stockholder which
is a corporation;
(iv) This Agreement and the Subscription Agreement have been
duly authorized, executed and delivered by each Selling Stockholder;
(v) The Custody Agreement and Power of Attorney has been
duly authorized, executed and delivered by each Selling Stockholder
and is a valid and binding agreement, enforceable against each
Selling Stockholder in accordance with its terms, subject to
applicable bankruptcy, insolvency, moratorium and similar laws of
general applicability affecting the rights of creditors and to
principles of equity; and
(vi) The Merger Agreement is a valid and binding agreement
enforceable against Leewards and the Selling Stockholders in
accordance with its terms (subject to applicable bankruptcy,
insolvency, moratorium and similar laws of general applicability
affecting the rights of creditors and to principles of equity), and
the Leewards Acquisition has been consummated in accordance with the
terms of the Merger Agreement.
(g) You shall have received from Fulbright & Jaworski, counsel for
the Underwriters, such opinion or opinions, dated such Closing Date, with
respect to the incorporation of the Company, the validity of the Offered
Shares, the Registration Statement, the Prospectuses and other related
matters as you may require, and the Company and the Selling Stockholders
shall have furnished to such counsel such documents as they request for
the purpose of enabling them to pass upon such matters.
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(h) You shall have received a certificate, dated such Closing
Date, of the President or any Vice-President and a principal financial or
accounting officer of the Company in which such officers, to the best of
their knowledge after reasonable investigation, shall state that the
representations and warranties of the Company in this Agreement are true
and correct in all material respects, that the Company has, in all
material respects, complied with all agreements and satisfied all
conditions on its part to be performed or satisfied hereunder at or prior
to such Closing Date, that no stop order suspending the effectiveness of
the Registration Statement has been issued and no proceedings for that
purpose have been instituted or are contemplated by the Commission and
that, subsequent to the dates of the most recent financial statements in
the Prospectuses, there has been no material adverse change in the
financial position or results of operation of the Company and its
subsidiaries except as set forth in or contemplated by the Prospectuses or
as described in such certificate.
(i) You shall have received letters, dated such Closing Date, of
Ernst & Young and Deloitte & Touche which meet the requirements of
subsections (a) and (b), respectively, of this Section, except that the
specified dates referred to in such subsections will be a date not more
than five days prior to such Closing Date for the purposes of this
subsection.
(j) On such Closing Date, the Managers shall have purchased the
International Firm Shares or the International Optional Shares, as the
case may be, pursuant to the Subscription Agreement.
The Company and the Selling Stockholders will furnish you with such conformed
copies of such opinions, certificates, letters and documents as you reasonably
request.
7. INDEMNIFICATION AND CONTRIBUTION. (a) The Company will indemnify
and hold harmless each Underwriter against any losses, claims, damages or
liabilities, joint or several, to which such Underwriter may become subject,
under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
the Registration Statement, the Prospectuses, or any amendment or supplement
thereto, or any related preliminary prospectus, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
and will reimburse each Underwriter for any legal or other expenses reasonably
incurred by such Underwriter in connection with investigating or defending any
such loss, claim, damage, liability or action as such expenses are incurred;
provided, however, that the Company will not be liable in any such case to the
extent that any such loss, claim, damage or liability arises out of or is based
upon an untrue statement or alleged untrue statement in or omission or alleged
omission from any of such documents in reliance upon and in conformity with
written information furnished to the Company by any Underwriter through you
specifically for use therein.
(b) The Selling Stockholders, jointly and severally, will indemnify and
hold harmless each Underwriter against any losses, claims, damages or
liabilities, joint or
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<PAGE>
several, to which such Underwriter may become subject, under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the Registration Statement,
the Prospectus, or any amendment or supplement thereto, or any related
preliminary prospectus, or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in reliance on and conformity
with written information furnished to the Company by such Selling Stockholder
for use therein, and will reimburse each Underwriter for any legal or other
expenses reasonably incurred by such Underwriter in connection with
investigating or defending any such loss, claim, damage, liability or action as
such expenses are incurred.
(c) Each Underwriter will, severally and not jointly, indemnify and hold
harmless the Company and each Selling Stockholder against any losses, claims,
damages or liabilities to which the Company or such Selling Stockholder may
become subject, under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of any material fact
contained in the Registration Statement, the U.S. Prospectus, or any amendment
or supplement thereto, or any related preliminary prospectus, or arise out of or
are based upon the omission or the alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading, in each case to the extent, but only to the extent, that such
untrue statement or alleged untrue statement or omission or alleged omission was
made in reliance upon and in conformity with written information furnished to
the Company by such Underwriter through you specifically for use therein, and
will reimburse any legal or other expenses reasonably incurred by the Company
or such Selling Stockholder in connection with investigating or defending any
such loss, claim, damage, liability or action as such expenses are incurred.
(d) Promptly after receipt by an indemnified party under this Section of
notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under
subsection (a) or (b) above, notify the indemnifying party of the commencement
thereof; but the omission so to notify the indemnifying party will not relieve
it from any liability which it may have to any indemnified party otherwise than
under subsection (a) or (b) above. In case any such action is brought against
any indemnified party and it notifies the indemnifying party of the commencement
thereof, the indemnifying party will be entitled to participate therein and, to
the extent that it may wish, jointly with any other indemnifying party similarly
notified, to assume the defense thereof, with counsel satisfactory to such
indemnified party (who shall not, except with the consent of the indemnified
party, be counsel to the indemnifying party), and after notice from the
indemnifying party to such indemnified party of its election so to assume the
defense thereof, the indemnifying party will not be liable to such indemnified
party under this Section for any legal or other expenses subsequently incurred
by such indemnified party in connection with the defense thereof other than
reasonable costs of investigation. No
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<PAGE>
indemnifying party shall, without the prior written consent of the indemnified
party, effect any settlement of any pending or threatened action in respect of
which any indemnified party is or could have been a party and indemnity has or
could have been sought hereunder by such indemnified party, unless such
settlement includes an unconditional release of such indemnified party from all
liability on claims that are the subject matter of such proceeding.
(e) If the indemnification provided for in this Section is unavailable
or insufficient to hold harmless an indemnified party under subsection (a), (b)
or (c) above, then each indemnifying party shall contribute to the amount paid
or payable by such indemnified party as a result of the losses, claims, damages
or liabilities referred to in subsection (a), (b) or (c) above (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company and the Selling Stockholders on the one hand and the Underwriters on the
other from the offering of the U.S. Shares or (ii) if the allocation provided by
clause (i) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of the Company and the Selling Stockholders on
the one hand and the Underwriters on the other in connection with the statements
or omissions which resulted in such losses, claims, damages or liabilities as
well as any other relevant equitable considerations. The relative benefits
received by the Company and the Selling Stockholders on the one hand and the
Underwriters on the other shall be deemed to be in the same proportion as the
total net proceeds from the offering of the U.S. Shares (before deducting
expenses) received by the Company and the Selling Stockholders bear to the total
underwriting discounts and commissions received by the Underwriters. The
relative fault shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by the
Company, the Selling Stockholders or the Underwriters and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such untrue statement or omission. The amount paid by an indemnified party as a
result of the losses, claims, damages or liabilities referred to in the first
sentence of this subsection (d) shall be deemed to include any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any action or claim which is the subject of this
subsection (d). Notwithstanding the provisions of this subsection (d), no
Underwriter shall be required to contribute any amount in excess of the amount
by which the total price at which the U.S. Shares underwritten by it and
distributed to the public were offered to the public exceeds the amount of any
damages which such Underwriter has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Underwriters' obligations in
this subsection (d) to contribute are several in proportion to their respective
underwriting obligations and not joint.
(f) The obligations of the Company and the Selling Stockholders under
this Section shall be in addition to any liability which the Company and the
Selling Stockholders may otherwise have and shall extend, upon the same terms
and
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<PAGE>
conditions, to each person, if any, who controls any Underwriter within the
meaning of the Act; and the obligations of the Underwriters under this Section
shall be in addition to any liability which the respective Underwriters may
otherwise have and shall extend, upon the same terms and conditions, to each
director of the Company, to each officer of the Company who has signed the
Registration Statement and to each person, if any, who controls the Company
within the meaning of the Act.
8. DEFAULT OF UNDERWRITERS. If any Underwriter or Underwriters
default in their obligations to purchase U.S. Shares hereunder on either the
First Closing Date or the Option Closing Date and the aggregate number of shares
of U.S. Shares that such defaulting Underwriter or Underwriters agreed but
failed to purchase does not exceed 10% of the total number of shares of U.S.
Shares that the Underwriters are obligated to purchase on such Closing Date, you
may make arrangements satisfactory to the Company and the Selling Stockholders
for the purchase of such U.S. Shares by other persons, including any of the
Underwriters, but if no such arrangements are made by such Closing Date the
non-defaulting Underwriters shall be obligated severally, in proportion to their
respective commitments hereunder, to purchase the U.S. Shares that such
defaulting Underwriters agreed but failed to purchase on such Closing Date. If
any Underwriter or Underwriters so default and the aggregate number of shares of
U.S. Shares with respect to which such default or defaults occur exceeds 10% of
the total number of shares of U.S. Shares that the Underwriters are obligated to
purchase on such Closing Date and arrangements satisfactory to you, the Company
and the Selling Stockholders for the purchase of such U.S. Shares by other
persons are not made within 36 hours after such default, this Agreement will
terminate without liability on the part of any non-defaulting Underwriter, the
Company or the Selling Stockholders, except as provided in Section 9 (provided
that if such default occurs with respect to U.S. Optional Shares after the First
Closing Date, this Agreement will not terminate as to the U.S. Firm Shares). As
used in this Agreement, the term "Underwriter" includes any person substituted
for an Underwriter under this Section. Nothing herein will relieve a defaulting
Underwriter from liability for its default.
9. SURVIVAL OF CERTAIN REPRESENTATIONS AND OBLIGATIONS. The
respective indemnities, agreements, representations, warranties and other
statements of the Company or its officers, the Selling Stockholders and the
several Underwriters set forth in or made pursuant to this Agreement will remain
in full force and effect, regardless of any investigation, or statement as to
the results thereof, made by or on behalf of any Underwriter, any Selling
Stockholder or the Company or any of their respective representatives, officers
or directors or any controlling person, and will survive delivery of and payment
for the U.S. Shares. If this Agreement is terminated pursuant to Section 8 or
if for any reason the purchase of the U.S. Shares by the Underwriters is not
consummated, the Company and the Selling Stockholders shall remain responsible
for the expenses to be paid or reimbursed by it pursuant to Section 5 and the
respective obligations of the Company and the Underwriters pursuant to Section 7
shall remain in effect, and if any shares of U.S. Shares have been purchased
hereunder the representations and warranties in Section 2 and all obligations
under Section 5 shall also remain in effect. If the purchase of the U.S. Shares
by the Underwriters is not consummated for any reason other than solely because
of the termination of this Agreement pursuant to Section 8 or the occurrence of
any event specified in clause (iii),
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(iv) or (v) of Section 6(d), the Company will reimburse the Underwriters for all
out-of-pocket expenses (including fees and disbursements of counsel) reasonably
incurred by them in connection with the offering of the U.S. Shares.
10. NOTICES. All communications hereunder will be in writing and, if
sent to the Underwriters, will be mailed, delivered or telegraphed and confirmed
to you at, c/o CS First Boston Corporation, Park Avenue Plaza, New York, New
York 10055, Attention: Investment Banking Department-New Issue Processing
Group, or, if sent to the Company, will be mailed, delivered or telegraphed and
confirmed to it at 5931 Campus Circle Drive, Las Colinas Business Park, Irving,
Texas 75063, Attention: Jack E. Bush, with a courtesy copy to Michael C. French,
Jackson & Walker, L.L.P., 901 Main Street, Suite 6000, Dallas, Texas 75202, or,
if sent to the Selling Stockholders or any of them, will be mailed, delivered or
telegraphed and confirmed to ________________ at _______________________________
__________________; provided, however, that any notice to an Underwriter
pursuant to Section 7 will be mailed, delivered or telegraphed and confirmed to
such Underwriter.
11. SUCCESSORS. This Agreement will inure to the benefit of and be
binding upon the parties hereto and their respective personal representatives
and successors and the officers and directors and controlling persons referred
to in Section 7, and no other person will have any right or obligation
hereunder.
12. REPRESENTATION OF UNDERWRITERS AND SELLING STOCKHOLDERS. You will
act for the several Underwriters in connection with the transactions
contemplated by this Agreement, and any action under this Agreement taken by you
jointly or by CS First Boston Corporation will be binding upon all the
Underwriters. In accordance with the Custody Agreement and Power of Attorney,
_________________________ will act for the Selling Stockholders in connection
with the transactions contemplated by this Agreement, and any action under or in
respect of this Agreement taken by _________________________ will be binding
upon all Selling Stockholders.
13. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all such
counterparts shall together constitute one and the same Agreement.
14. APPLICABLE LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of New York.
If the foregoing is in accordance with your understanding of our
agreement, kindly sign and return to us one of the counterparts hereof,
whereupon it will become
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a binding agreement between the Company, the Selling Stockholders and the
several Underwriters in accordance with its terms.
Very truly yours,
MICHAELS STORES, INC.
By:
------------------------------------
Title:
----------------------------------
SELLING STOCKHOLDERS:
By _________________________ as
attorney-in-fact for each of the Selling
Stockholders listed below pursuant to
authority granted in the Custody Agreement
and Power of Attorney.
Alan Altschuler
Stephen J. Berman
David E. Bolen
EMP & Co.
Frontenac Venture V Limited Partnership
GIPEN & Co.
Alan L. Magdovitz
MONY Life Insurance Company of America
The Mutual Life Insurance Company
of New York
John A. Popple
Prudential-Bache Capital Partners I, L.P.
Prudential-Bache Capital Partners II, L.P.
Prudential Insurance Company of America
John E. Welsh, III
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The foregoing Underwriting Agreement is
hereby confirmed and accepted as of the
date first above written.
CS FIRST BOSTON CORPORATION
ROBERTSON, STEPHENS & COMPANY, L.P.
NOMURA SECURITIES INTERNATIONAL, INC.
Acting on behalf of themselves and as the
Representatives of the several
Underwriters.
By: CS FIRST BOSTON CORPORATION
By:
-------------------------------------
Title:
-----------------------------------
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SCHEDULE A
Total
Number of
Selling Stockholders Shares to be Sold
-------------------- -----------------
Alan Altschuler ............................................._________________
Stephen J. Berman ..........................................._________________
David E. Bolen..............................................._________________
EMP & Co. ..................................................._________________
Frontenac Venture V Limited Partnership ....................._________________
GIPEN & Co. ................................................._________________
Alan L. Magdovitz ..........................................._________________
MONY Life Insurance Company of America ......................_________________
The Mutual Life Insurance Company of New York ..............._________________
John A. Popple .............................................._________________
Prudential-Bach Capital Partners I, L.P. ...................._________________
Prudential-Bach Capital Partners II, L.P. ..................._________________
Prudential Insurance Company of America ....................._________________
John E. Welsh, III .........................................._________________
Total..................................................
-----------------
-----------------
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SCHEDULE B
Total
Number of
U.S. Firm Shares
Underwriter to be Purchased
----------- ----------------
CS First Boston Corporation ................................._________________
Robertson, Stephens & Company, L.P. ........................._________________
Nomura Securities International, Inc. ......................._________________
Total..................................................
----------------
----------------
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Exhibit 1.2
DRAFT 6/18/94
______________ Shares
MICHAELS STORES, INC.
Common Stock
SUBSCRIPTION AGREEMENT
London, England
_________, 1994
CS FIRST BOSTON LIMITED
ROBERTSON, STEPHENS & COMPANY, L.P.
NOMURA INTERNATIONAL PLC
c/o CS First Boston Limited ("CSFBL"),
One Cabot Square
London England E14 4QJ
Dear Sirs:
1. INTRODUCTORY. Michaels Stores, Inc., a Delaware corporation
("Company"), proposes to issue and sell to the several Managers named in
Schedule A hereto (the "Managers") _______________ shares of its Common Stock,
$0.10 par value ("Common Stock"), and the stockholders listed in Schedule A
hereto (the "Selling Stockholders") propose severally to sell to the several
Managers an aggregate of _______________ shares of Common Stock of the Company
(such shares of Common Stock to be sold by the Company and the Selling
Stockholders are herein collectively called the "International Firm Shares").
The Company also proposes to issue and sell to the U.S. Underwriters (as defined
below) and the Managers, at the option of CS First Boston Corporation as
Representative of the U.S. Underwriters, an aggregate of not more than
_______________ additional shares of its Common Stock (the "Optional Shares") as
set forth below. The International Firm Shares and the Optional Shares that may
be sold to the Managers (the "International Optional Shares") are herein
collectively called the "International Shares."
It is understood that the Company and the Selling Stockholders are
concurrently entering into an Underwriting Agreement, dated the date hereof (the
"Underwriting Agreement"), with certain United States underwriters listed in
Schedule A thereto (the "U.S. Underwriters"), for whom CS First Boston
Corporation, Robertson, Stephens & Company, L.P., and Nomura Securities
International, Inc. are acting as representatives (the "U.S. Representatives"),
relating to the concurrent offering and sale of __________ shares of Common
Stock ("U.S. Firm Shares", which together with the Optional Shares
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that may be sold to the U.S. Underwriters by the Company (the "U.S. Optional
Shares") are herein collectively called the "U.S. Shares") in the United States
and Canada (the "U.S. Offering"). The U.S. Firm Shares and the International
Firm Shares are herein collectively called the "Firm Shares." The U.S. Shares
and the International Shares are herein collectively called the "Offered
Shares." To provide for the coordination of their activities, the U.S.
Underwriters and the Managers have entered into an Agreement Between the U.S.
Underwriters and the Managers which permits them, among other things, to sell
the Offered Shares to each other for purposes of resale.
The Company hereby agrees with the several Managers as follows:
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SELLING
STOCKHOLDERS. (a) The Company represents and warrants to, and agrees with, the
several Managers that:
(i) A registration statement (No. 33-53639) relating to the
Offered Shares, including a form of prospectus relating to the U.S.
Shares, has been filed with the Securities and Exchange Commission
("Commission") and either (A) has been declared effective under the
Securities Act of 1933 ("Act") and is not proposed to be amended or (B) is
proposed to be amended by amendment or post-effective amendment. If the
Company does not propose to amend such registration statement and if any
post-effective amendment to such registration statement has been filed
with the Commission prior to the execution and delivery of this Agreement,
the most recent such amendment has been declared effective by the
Commission. For purposes of this Agreement, "Effective Time" means (A) if
the Company has advised CSFBL that it does not propose to amend such
registration statement, the date and time as of which such registration
statement, or the most recent post-effective amendment thereto (if any)
filed prior to the execution and delivery of this Agreement, was declared
effective by the Commission, or (B) if the Company has advised CSFBL that
it proposes to file an amendment or post-effective amendment to such
registration statement, the date and time as of which such registration
statement, as amended by such amendment or post-effective amendment, as
the case may be, is declared effective by the Commission. "Effective
Date" means the date of the Effective Time. Such registration statement,
as amended at the Effective Time, including all material incorporated by
reference therein and including all information (if any) deemed to be a
part of such registration statement as of the Effective Time pursuant to
Rule 430A(b) under the Act, is hereinafter referred to as the
"Registration Statement", and the form of prospectus relating to the U.S.
Shares, as first filed with the Commission pursuant to and in accordance
with Rule 424(b) ("Rule 424(b)") under the Act or (if no such filing is
required) as included in the Registration Statement, including all
material incorporated by reference in such prospectus, is hereinafter
referred to as the "U.S. Prospectus", and the form of prospectus relating
to the International Shares, which is identical to the U.S. Prospectus
except for the outside front cover page, the inside front cover page, the
text under the captions "Underwriting" and "Subscription and Sale" in the
U.S. Prospectus and the form of prospectus relating to the International
Shares, respectively, and the outside back cover page (copies of such
pages having been
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<PAGE>
heretofore delivered by the Company to CSFBL on behalf of the Managers),
including all material incorporated by reference in such prospectus, is
hereinafter referred to as the "International Prospectus." The U.S.
Prospectus and the International Prospectus are hereinafter collectively
referred to as the "Prospectuses."
(ii) If the Effective Time is prior to the execution and delivery
of this Agreement: (A) on the Effective Date, the Registration Statement
conformed in all material respects to the requirements of the Act and the
rules and regulations of the Commission ("Rules and Regulations") and did
not include any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading, and (B) on the date of this Agreement,
the Registration Statement conforms, and at the time of filing of the U.S.
Prospectus pursuant to Rule 424(b), the Registration Statement and the
Prospectuses will conform, in all material respects to the requirements of
the Act and the Rules and Regulations, and neither of such documents
includes, or will include, any untrue statement of a material fact or
omits, or will omit, to state any material fact required to be stated
therein or necessary to make the statements therein not misleading. If
the Effective Time is subsequent to the execution and delivery of this
Agreement: on the Effective Date, the Registration Statement and the
Prospectuses will conform in all material respects to the requirements of
the Act and the Rules and Regulations, and neither of such documents will
include any untrue statement of a material fact or will omit to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading. The two preceding sentences do not
apply to statements in or omissions from the Registration Statement or
Prospectuses based upon written information furnished to the Company by
any U.S. Underwriter through the U.S. Representatives or by any Manager
through CSFBL specifically for use therein.
(iii) There are no contracts, agreements or understandings between
the Company and any person granting such person the right to require the
Company to file a registration statement under the Act with respect to any
securities of the Company owned or to be owned by such person or to
require the Company to include such securities in the securities
registered pursuant to the Registration Statement or in any securities
being registered pursuant to any other registration statement filed by the
Company under the Act, except for certain registration rights set forth in
Article VII of that certain Common Stock and Warrant Agreement dated as of
October 16, 1984, by and between Michaels Stores, Inc. and Peoples
Restaurants, Inc. (the "Registration Rights"), all of which Registration
Rights, pursuant to the terms of that certain Third Amendment to the
Common Stock and Warrant Agreement dated September 1, 1992 (the "Third
Amendment") are now held by the Prior Assignees (as defined in the Third
Amendment), Tallulah, Ltd., the Christiana Trust and the Andrew Trust (as
more fully described in the Third Amendment) and all of which Registration
Rights have been waived with respect to the transactions contemplated by
this Agreement.
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(iv) Except as disclosed in the Prospectuses, there are no
contracts, agreements or understandings between the Company and any person
that would give rise to a valid claim against the Company or any Manager
for a brokerage commission, finders fee or other like payment in
connection with the International Offering, the U.S. Offering or the
acquisition of Leewards Creative Crafts, Inc. ("Leewards") by the Company
pursuant to an Agreement and Plan of Merger (as amended to date, the
"Merger Agreement") among the Company, its wholly-owned subsidiary LWA
Acquisition Corporation, and Leewards dated May 10, 1994 (the "Leewards
Acquisition").
(v) The Merger Agreement (including the First Amendment to
Agreement and Plan of Merger dated June 2, 1994, which is the only
amendment thereto to date) is a valid and binding agreement enforceable
against the parties thereto in accordance with its terms, and the Leewards
Acquisition has been consummated in accordance with the terms of the
Merger Agreement.
(b) Each Selling Stockholder severally represents and warrants to, and
agrees with, the several Managers that:
(i) Such Selling Stockholder has and on the Closing Date
hereinafter mentioned will have valid and unencumbered title to the shares
of the Common Stock to be sold by such Selling Stockholder and full right,
power and authority to enter into this Agreement and to sell, assign,
transfer and deliver the shares of the Common Stock to be sold by such
Selling Stockholder hereunder; and upon the delivery of and payment for
the International Firm Shares hereunder the several Managers will acquire
valid and unencumbered title to the shares of the Common Stock to be sold
by such Selling Stockholder.
(ii) If the Effective Time is prior to the execution and delivery
of this Agreement: (A) on the Effective Date, the Registration Statement
conformed in all respects to the requirements of the Act and the Rules and
Regulations and did not include any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary
to make the statements therein not misleading, and (B) on the date of this
Agreement, the Registration Statement conforms, and at the time of filing
of the Prospectus pursuant to Rule 424(b), the Registration Statement and
the Prospectus will conform, in all respects to the requirements of the
Act and the Rules and Regulations, and neither of such documents includes,
or will include, any untrue statement of a material fact or omits, or will
omit, to state any material fact required to be stated therein or
necessary to make the statements therein not misleading. If the Effective
Time is subsequent to the execution and delivery of this Agreement: on the
Effective Date, the Registration Statement and the Prospectus will conform
in all respects to the requirements of the Act and the Rules and
Regulations, and neither of such documents will include any untrue
statement of a material fact or will omit to state any material fact
required to be stated therein or necessary to make the statements therein
not misleading. The two preceding sentences apply to each Selling
Stockholder only to the extent that any statements in or omissions from
the Registration Statement or Prospectuses are
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<PAGE>
based on written information furnished to the Company by such Selling
Stockholder specifically for use therein.
(iii) Except as disclosed in the Prospectus, there are no contracts,
agreements or understandings between such Selling Stockholders and any
person that would give rise to a valid claim against the Company or any
Manager for a brokerage commission, finders fee or other like payment in
connection with the International Offering, the U.S. Offering or the
Leewards Acquisition.
(iv) The Merger Agreement (including the First Amendment to
Agreement and Plan of Merger dated June 2, 1994, which is the only
amendment thereto to date) is a valid and binding agreement enforceable
against the Selling Stockholders in accordance with its terms, and the
Leewards Acquisition has been consummated in accordance with the terms of
the Merger Agreement.
3. PURCHASE, SALE AND DELIVERY OF INTERNATIONAL SHARES. On the basis
of the representations, warranties and agreements herein contained, but subject
to the terms and conditions herein set forth, the Company and each Selling
Shareholder agrees, severally and not jointly, to sell to each Manager, and each
Manager agrees, severally and not jointly, to purchase from the Company and each
Selling Shareholder, at a purchase price of U.S. $__________ per share
(representing the offering price of U.S. $__________ per share less a selling
concession of U.S. $__________ per share), the respective numbers of
International Firm Shares (rounded up or down, as determined by you in your
discretion, in order to avoid fractions) obtained by multiplying the number of
International Firm Shares to be sold by the Company or the number of
International Firm Shares set forth opposite the name of such Selling
Stockholder in Schedule A hereto, as the case may be, by a fraction the
numerator of which is the number of International Firm Shares set forth opposite
the name of such Manager in Schedule B hereto and the denominator of which is
the total number of International Firm Shares.
Certificates in negotiable form for the shares of the Common Stock to be
sold by the Selling Stockholders hereunder have been placed in custody, for
delivery under this Agreement, pursuant to agreements entitled Custody Agreement
and Power of Attorney (the "Custody Agreement and the Power of Attorney") made
with ________________________ and _________________________, as custodians
("Custodians"). Each Selling Stockholder agrees that the shares represented by
the certificates held in custody for the Selling Stockholders under such Custody
Agreement and Power of Attorney are subject to the interests of the Managers
hereunder, that the arrangements made by the Selling Stockholders for such
custody are to that extent irrevocable, and that the obligations of the Selling
Stockholders hereunder shall not be terminated by operation of law, whether by
the death of any individual Selling Stockholder or the occurrence of any other
event, or in the case of a trust, by the death of any trustee or trustees or the
termination of such trust. If any individual Selling Stockholder or any such
trustee or trustees should die, or if any other such event should occur, or if
any of such trusts should terminate, before the delivery of the Common Stock
hereunder, certificates for such shares of Common Stock shall be delivered by
the Custodians in accordance with the terms and conditions of this
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<PAGE>
Agreement as if such death or other event or termination had not occurred,
regardless of whether or not the Custodians shall have received notice of such
death or other event or termination.
The Company and the Custodians will deliver the International Firm Shares
to CSFBL for the accounts of the Managers, at the office of CS First Boston
Corporation, Park Avenue Plaza, New York, New York 10055, (or, if requested by
CSFBL, through the Depository Trust Corporation system) against payment of the
purchase price therefor by certified or official bank check or checks in New
York Clearing House (next day) funds drawn to the order of Michaels Stores,
Inc., in the case of ________ International Firm Shares and
_________________________ in the case of ________ International Firm Shares, at
the office of Jackson & Walker L.L.P., Dallas, Texas, at 10:00 A.M., New York
time, on _______________, _______________, 1994, or at such other date and time
not later than seven full business days thereafter as CSFBL and the Company
determine, such time and date being herein referred to as the "First Closing
Date." The certificates for the International Firm Shares so to be delivered
will be in definitive form, in such denominations and registered in such names
as CSFBL requests and will be made available for checking and packaging at the
office of CS First Boston Corporation, Park Avenue Plaza, New York, New York
10055 at least 24 hours prior to the First Closing Date.
In addition, upon written notice from CS First Boston Corporation from
time to time given to the Company not more than 30 days subsequent to the date
of the initial public offering of the U.S. Firm Shares, the U.S. Underwriters
and the Managers may purchase all or less than all of the Optional Shares, which
in the case of the Managers shall be at the purchase price per share to be paid
for the International Firm Shares. Unless otherwise agreed between the U.S.
Representatives and CSFBL, the Optional Shares to be so purchased by the
Managers shall be in the same proportion as the International Firm Shares bear
to the Firm Shares. The Company agrees to sell to the Managers the number of
such International Optional Shares specified in such notice and the Managers
agree, severally and not jointly, to purchase such International Optional
Shares. Such International Optional Shares shall be purchased for the account
of each Manager in the same proportion as the number of International Firm
Shares set forth opposite such Manager's name in Schedule A hereto bears to the
total number of International Firm Shares (subject to adjustment by CSFBL to
eliminate fractions) and may be purchased by the Managers only for the purpose
of covering over-allotments made in connection with the sale of the
International Firm Shares. No Optional Shares shall be sold or delivered unless
the U.S. Firm Shares and the International Firm Shares previously have been, or
simultaneously are, sold and delivered. The right to purchase the Optional
Shares or any portion thereof may be surrendered and terminated at any time upon
notice by CS First Boston Corporation on behalf of the U.S. Underwriters and the
Managers to the Company.
The time for the delivery of and payment for the International Optional
Shares, being herein referred to as the "Option Closing Date" (which may be the
First Closing Date) (the First Closing Date and the Option Closing Date, if any,
being sometimes referred to as a "Closing Date"), shall be determined by the
U.S. Representatives but shall be not later than seven (7) business days after
written notice of election to
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<PAGE>
purchase U.S. Optional Shares is given. The Company will deliver the
International Optional Shares to CSFBL for the accounts of the several Managers,
at the office of CS First Boston Corporation, Park Avenue Plaza, New York, New
York 10055, against payment of the purchase price therefor by certified or
official bank check or checks in New York Clearing House (next day) funds drawn
to the order of Michaels Stores, Inc., at the office of Jackson & Walker L.L.P.,
Dallas, Texas. The certificates for the International Optional Shares will be
in definitive form, in such denominations and registered in such names as CSFBL
requests upon reasonable notice prior to the Option Closing Date and will be
made available for checking and packaging at the office of CS First Boston
Corporation, Park Avenue Plaza, New York, New York 10055 at a reasonable time in
advance of the Option Closing Date.
The Company will pay to the Managers as aggregate compensation for their
commitments hereunder and for their services in connection with the purchase of
the International Shares and the management of the offering thereof, if the sale
and delivery of the International Shares to the Managers provided herein is
consummated, an amount equal to U.S. $_______________ per International Share,
which may be divided among the Managers in such proportions as they may
determine. Such payment will be made on the First Closing Date in the case of
the International Firm Shares and on the Option Closing Date in the case of the
International Optional Shares sold to the Managers, in each case by way of
deduction by the Managers of said amount from the purchase price for the
International Shares referred to above.
4. OFFERING BY MANAGERS. It is understood that the several Managers
propose to offer the International Shares for sale to the public as set forth in
the International Prospectus.
In connection with the distribution of the International Shares, the
Managers, through a stabilizing manager, may over-allot or effect transactions
on any exchange, in any over-the-counter market or otherwise, which stabilize or
maintain the market prices of the International Shares at levels other than
those which might otherwise prevail, but in such event and in relation thereto,
the Managers will act for themselves and not as agents of the Company, and any
loss resulting from over-allotment and stabilization will be borne, and any
profit arising therefrom will be beneficially retained, by the Managers. Such
stabilizing, if commenced, may be discontinued at any time.
5. CERTAIN AGREEMENTS OF THE COMPANY AND THE SELLING STOCKHOLDERS.
The Company agrees with the several Managers that:
(a) If the Effective Time is prior to the execution and delivery
of this Agreement, the Company will file the U.S. Prospectus with the
Commission pursuant to and in accordance with subparagraph (1) (or, if
applicable and if consented to by the U.S. Representatives, subparagraph,
(4)) of Rule 424(b) not later than the earlier of (A) the second business
day following the execution and delivery of this Agreement or (B) the
fifth business day after the Effective Date. The Company will advise
CSFBL promptly of any such filing pursuant to Rule 424(b).
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<PAGE>
(b) The Company will advise CSFBL promptly of any proposal to
amend or supplement the registration statement as filed or the related
prospectus or the Registration Statement or the Prospectuses and will not
effect such amendment or supplementation without CSFBL's consent, which
consent shall not be unreasonably withheld; and the Company will also
advise CSFBL promptly of the effectiveness of the Registration Statement
(if the Effective Time is subsequent to the execution and delivery of this
Agreement) and of any amendment or supplementation of the Registration
Statement or the Prospectuses and of the institution by the Commission of
any stop order proceedings in respect of the Registration Statement and
will use its best efforts to prevent the issuance of any such stop order
and to obtain as soon as possible its lifting, if issued.
(c) If, at any time when a prospectus relating to the Offered
Shares is required to be delivered under the Act, any event occurs as a
result of which the Prospectuses as then amended or supplemented would
include an untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading, or if it is
necessary at any time to amend either or both of the Prospectuses to
comply with the Act, the Company, subject to paragraph (b) above, promptly
will prepare and file with the Commission an amendment or supplement which
will correct such statement or omission or an amendment which will effect
such compliance. Neither CSFBL's consent to, nor the Managers' delivery
of, any such amendment or supplement shall constitute a waiver of any of
the conditions set forth in Section 6.
(d) As soon as practicable, but not later than the Availability
Date (as defined below), the Company will make generally available to its
security holders an earnings statement covering a period of at least 12
months beginning after the Effective Date which will satisfy the
provisions of Section 11(a) of the Act. For the purpose of the preceding
sentence, "Availability Date" means the 45th day after the end of the
fourth fiscal quarter following the fiscal quarter that includes the
Effective Date, except that, if such fourth fiscal quarter is the last
quarter of the Company's fiscal year, "Availability Date" means the 90th
day after the end of such fourth fiscal quarter.
(e) The Company will furnish to CSFBL copies of the Registration
Statement (five of which will be signed and will include all exhibits),
each preliminary prospectus relating to the International Shares, the
International Prospectus and all amendments and supplements to such
documents, in each case as soon as available and in such quantities as
CSFBL reasonably requests.
(f) During the period of five years hereafter, the Company will
furnish to CSFBL and, upon request, to each of the other Managers, as soon
as practicable after the end of each fiscal year, a copy of its annual
report to stockholders for such year; and the Company will furnish to
CSFBL (i) as soon as available, a copy of each report or definitive proxy
statement of the Company filed with the Commission under the Securities
Exchange Act of 1934 or mailed
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<PAGE>
to stockholders, and (ii) from time to time, such other publicly available
information concerning the Company as CSFBL may reasonably request.
(g) The Company will pay all expenses incident to the performance
of its obligations under this Agreement and will reimburse the Managers
for any expenses (including fees and disbursements of counsel) incurred by
them in connection with the filing with the National Association of
Securities Dealers, Inc. relating to the Offered Shares and for expenses
incurred in distributing preliminary prospectuses relating to the
International Shares and the International Prospectus (including any
amendments and supplements thereto) to the Managers.
(h) The Company will indemnify and hold harmless the Managers
against any documentary, stamp or similar issue tax, including any
interest and penalties, on the creation, issue and sale of the Offered
Shares and on the execution and delivery of this Agreement. All payments
to be made by the Company hereunder shall be made without withholding or
deduction for or on account of any present or future taxes, duties or
governmental charges whatsoever unless the Company is compelled by law to
deduct or withhold such taxes, duties or charges. In that event, the
Company shall pay such additional amounts as may be necessary in order
that the net amounts received after such withholding or deduction shall
equal the amounts that would have been received if no withholding or
deduction had been made.
(i) No action has been or, prior to the completion of the
distribution of the Offered Shares, will be taken by the Company in any
jurisdiction outside the United States and Canada that would permit a
public offering of the Offered Shares, or possession or distribution of
the International Prospectus, or any amendment or supplement thereto, or
any related preliminary prospectus issued in connection with the offering
of the Offered Shares or any other offering material, in any country or
jurisdiction where action for that purpose is required.
Each Selling Stockholder agrees to deliver to CSFBL on or prior to the
Closing Date a properly completed and executed United States Treasury Department
Form W-9 (or other applicable form or statement specified by Treasury Department
regulations in lieu thereof).
6. CONDITIONS OF THE OBLIGATIONS OF THE MANAGERS. The obligations of
the several Managers to purchase and pay for the International Firm Shares on
the First Closing Date and the International Optional Shares on the Option
Closing Date will be subject to the accuracy of the representations and
warranties on the part of the Company herein, to the accuracy of the statements
of Company officers made pursuant to the provisions hereof, to the performance
by the Company of its obligations hereunder and to the following additional
conditions precedent:
(a) CSFBL shall have received a letter, dated the date of delivery
thereof (which, if the Effective Time is prior to the execution and
delivery of this Agreement, shall be on or prior to the date of this
Agreement or, if the Effective
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<PAGE>
Time is subsequent to the execution and delivery of this Agreement, shall
be prior to the filing of the amendment or post-effective amendment to the
registration statement to be filed shortly prior to the Effective Time),
of Ernst & Young confirming that they are independent public accountants
within the meaning of the Act and the applicable published Rules and
Regulations thereunder and stating in effect that:
(i) in their opinion the financial statements and schedules
examined by them and included or incorporated by reference in the
Registration Statement comply in form in all material respects with
the applicable accounting requirements of the Act and the related
published Rules and Regulations;
(ii) they have made a review of the unaudited financial
statements of the Company and its consolidated subsidiaries included
in the Registration Statement in accordance with standards
established by the American Institute of Certified Public
Accountants, as indicated in their reports attached to such letter;
(iii) on the basis of the review referred to in clause (ii)
above, a reading of the latest available interim financial
statements of the Company and its consolidated subsidiaries,
inquiries of officials of the Company who have responsibility for
financial and accounting matters and other specified procedures,
nothing came to their attention that caused them to believe that:
(A) the unaudited financial statements of the Company
and its consolidated subsidiaries included in the Registration
Statement do not comply in form in all material respects with
applicable accounting requirements of the Act and the related
published Rules and Regulations;
(B) at the date of the latest available balance sheet
of the Company and its consolidated subsidiaries read by such
accountants, or at a subsequent specified date not more than five
days prior to the date of this Agreement, there was any change in
the capital stock or any increase in short-term indebtedness or
long-term debt of the Company and its consolidated subsidiaries, or,
at the date of the latest available balance sheet read by such
accountants, there was any decrease in consolidated net current
assets or net assets of the Company and its consolidated
subsidiaries, as compared with amounts shown on the latest balance
sheet of the Company and its consolidated subsidiaries included in
the Prospectuses; or
(C) for the period from the closing date of the latest
income statement of the Company and its consolidated subsidiaries
included in the Prospectuses to the closing date of the latest
available income statement of the Company and its consolidated
subsidiaries read by such accountants there were any decreases, as
compared with the
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corresponding period of the previous year and with the period of
corresponding length ended the date of the latest income statement
of the Company and its consolidated subsidiaries included in the
Prospectuses, in consolidated net sales or net operating income of
the Company and its consolidated subsidiaries or in the total or per
share amount of consolidated net income of the Company and its
consolidated subsidiaries;
except in all cases set forth in clauses (B) and (C) above for
changes, increases or decreases which the Prospectuses disclose have
occurred or may occur or which are described in such letter; and
(iv) they have compared specified dollar amounts (or
percentages derived from such dollar amounts) and other financial
information contained in the Registration Statement (in each case to
the extent that such dollar amounts, percentages and other financial
information are derived from the general accounting records of the
Company and its consolidated subsidiaries subject to the internal
controls of the Company's and its consolidated subsidiaries'
accounting system or are derived directly from such records by
analysis or computation) with the results obtained from inquiries, a
reading of such general accounting records and other procedures
specified in such letter and have found such dollar amounts,
percentages and other financial information to be in agreement with
such results, except as otherwise specified in such letter.
For purposes of this subsection, if the Effective Time is subsequent to
the execution and delivery of this Agreement, "Registration Statement"
shall mean the registration statement as proposed to be amended by the
amendment or post-effective amendment to be filed shortly prior to the
Effective Time, and "Prospectuses" shall mean the prospectus included in
the Registration Statement and the related draft of the International
Prospectus. All financial statements and schedules included in material
incorporated by reference into the U.S. Prospectus shall be deemed
included in the Registration Statement for purposes of this subsection.
(b) CSFBL shall have received a letter, dated the date of delivery
thereof (which, if the Effective Time is prior to the execution and
delivery of this Agreement, shall be on or prior to the date of this
Agreement or, if the Effective Time is subsequent to the execution and
delivery of this Agreement, shall be prior to the filing of the amendment
or post-effective amendment to the registration statement to be filed
shortly prior to the Effective Time), of Deloitte & Touche confirming that
they are independent public accountants within the meaning of the Act and
the applicable published Rules and Regulations thereunder and stating in
effect that:
(i) in their opinion the financial statements and schedules
examined by them and included in the Registration Statement comply
in form in all material respects with the applicable accounting
requirements of the Act and the related published Rules and
Regulations;
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<PAGE>
(ii) they have made a review of the unaudited financial
statements of Leewards Creative Crafts, Inc. ("Leewards") and its
consolidated subsidiaries included in the Registration Statement in
accordance with standards established by the American Institute of
Certified Public Accountants, as indicated in their reports attached
to such letter;
(iii) on the basis of the review referred to in clause (ii)
above, a reading of the latest available interim financial
statements of Leewards and its consolidated subsidiaries, inquiries
of officials of Leewards who have responsibility for financial and
accounting matters and other specified procedures, nothing came to
their attention that caused them to believe that:
(A) the unaudited financial statements of Leewards and
its consolidated subsidiaries included in the Registration Statement
do not comply in form in all material respects with applicable
accounting requirements of the Act and the related published Rules
and Regulations;
(B) at the date of the latest available balance sheet
of Leewards and its consolidated subsidiaries read by such
accountants, or at a subsequent specified date not more than five
days prior to the date of this Agreement, there was any change in
the capital stock or any increase in short-term indebtedness or
long-term debt of Leewards and its subsidiaries consolidated, or, at
the date of the latest available balance sheet read by such
accountants, there was any decrease in consolidated net current
assets or net assets of Leewards and its consolidated subsidiaries,
as compared with amounts shown on the latest balance sheet of
Leewards and its consolidated subsidiaries included in the
Prospectuses; or
(C) for the period from the closing date of the latest
income statement of Leewards and its consolidated subsidiaries
included in the Prospectuses to the closing date of the latest
available income statement of Leewards and its consolidated
subsidiaries read by such accountants there were any decreases, as
compared with the corresponding period of the previous year and with
the period of corresponding length ended the date of the latest
income statement of Leewards and its consolidated subsidiaries
included in the Prospectuses, in consolidated net sales or net
operating income of Leewards and its consolidated subsidiaries or in
the total or per share amount of consolidated net income of Leewards
and its consolidated subsidiaries;
except in all cases set forth in clauses (B) and (C) above for
changes, increases or decreases which the Prospectuses disclose have
occurred or may occur or which are described in such letter; and
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<PAGE>
(iv) they have compared specified dollar amounts (or
percentages derived from such dollar amounts) and other financial
information contained in the Registration Statement (in each case to
the extent that such dollar amounts, percentages and other financial
information are derived from the general accounting records of
Leewards and its consolidated subsidiaries subject to the internal
controls of Leewards' and its consolidated subsidiaries' accounting
system or are derived directly from such records by analysis or
computation) with the results obtained from inquiries, a reading of
such general accounting records and other procedures specified in
such letter and have found such dollar amounts, percentages and
other financial information to be in agreement with such results,
except as otherwise specified in such letter.
For purposes of this subsection, if the Effective Time is subsequent to
the execution and delivery of this Agreement, "Registration Statement"
shall mean the registration statement as proposed to be amended by the
amendment or post-effective amendment to be filed shortly prior to the
Effective Time, and "Prospectuses" shall mean the prospectus included in
the Registration Statement and the related draft of the International
Prospectus. All financial statements and schedules included in material
incorporated by reference into the U.S. Prospectus shall be deemed
included in the Registration Statement for purposes of this subsection.
(c) If the Effective Time is not prior to the execution and
delivery of this Agreement, the Effective Time shall have occurred not
later than 10:00 P.M., New York time, on the date of this Agreement or
such later date as shall have been consented to by CSFBL. If the
Effective Time is prior to the execution and delivery of this Agreement,
the U.S. Prospectus shall have been filed with the Commission in
accordance with the Rules and Regulations and Section 5(a) of this
Agreement. Prior to the Closing Date, no stop order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceedings for that purpose shall have been instituted or, to the
knowledge of the Company, any Selling Stockholder or CSFBL, shall be
contemplated by the Commission.
(d) Subsequent to the execution and delivery of this Agreement,
there shall not have occurred (i) a change in United States or
international financial, political or economic conditions or currency
exchange rates or exchange controls as would, in the judgment of CSFBL, be
likely to prejudice materially the success of the proposed issue, sale or
distribution of the International Shares, whether in the primary market or
in respect of dealings in the secondary market; (ii) any change, or any
development involving a prospective change, in or affecting particularly
the business or properties of the Company or its subsidiaries which, in
the judgment of CSFBL, materially impairs the investment quality of the
Offered Shares; (iii) any downgrading in the rating of any debt securities
of the Company by any "nationally recognized statistical rating
organization" (as defined for purposes of Rule 436(g) under the Act), or
any public announcement that any such organization has under surveillance
or review is rating of any debt
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<PAGE>
securities of the Company (other than an announcement with positive
implications of a possible upgrading, and no implication of a possible
downgrading, of such rating); (iv) any suspension or limitation of trading
in securities generally on the New York Stock Exchange, or any setting of
minimum prices for trading on such exchange, or any suspension of trading
of any securities of the Company on any exchange or in the Nasdaq Stock
Market or the over-the-counter market; (v) any banking moratorium declared
by Federal or New York authorities; or (vi) any outbreak or escalation of
major hostilities in which the United States is involved, any declaration
of war by Congress or any other substantial national or international
calamity or emergency, if, in the judgment of CSFBL, the effect of any
such outbreak, escalation, declaration, calamity or emergency makes it
impractical or inadvisable to proceed with completion of the sale of and
payment for the International Shares.
(e) CSFBL shall have received an opinion, dated such Closing Date,
of Jackson & Walker, L.L.P., counsel for the Company, to the effect that:
(i) The Company and each subsidiary of the Company has been
duly incorporated and is an existing corporation in good standing
under the laws of the State of Delaware, with corporate power and
authority to own its properties and conduct its business as
described in the Prospectuses; and the Company and each subsidiary
of the Company is duly qualified to do business as a foreign
corporation in good standing in all other jurisdictions in which it
owns or leases substantial properties or in which the conduct of its
business requires such qualifications, except where the failure to
be so qualified would not have a material adverse effect on the
condition (financial or otherwise), earnings, operations or business
of the Company;
(ii) The Offered Shares delivered on such Closing Date and
all other outstanding shares of the Common Stock of the Company have
been duly authorized and validly issued and conform to the
description thereof contained in the Prospectuses; when purchased
and issued pursuant to the terms of this Agreement the Offered
Shares delivered on such Closing Date will be, and all other
outstanding shares of the Common Stock of the Company are, fully
paid and nonassessable; and the stockholders of the Company have no
preemptive rights with respect to the Offered Shares pursuant to any
applicable statute, rule or regulation or to the Certificate of
Incorporation or bylaws of the Company, and to such counsel's
knowledge no preemptive rights with respect to the Offered Shares
exist, whether pursuant to the items listed above, pursuant to
contract or otherwise;
(iii) There are no contracts, agreements or understandings
known to such counsel between the Company and any person granting
such person the right to require the Company to file a registration
statement under the Act with respect to any securities of the
Company owned or to be owned by such person or to require the
Company to include such
-14-
<PAGE>
securities in the securities registered pursuant to the Registration
Statement or in any securities being registered pursuant to any
other registration statement filed by the Company under the Act,
except for certain registration rights set forth in Article VII of
that certain Common Stock and Warrant Agreement dated as of October
16, 1984, by and between Michaels Stores, Inc. and Peoples
Restaurants, Inc. (the "Registration Rights"), all of which
Registration Rights, pursuant to the terms of that certain Third
Amendment to the Common Stock and Warrant Agreement dated September
1, 1992 (the "Third Amendment") are now held by the Prior Assignees
(as defined in the Third Amendment), Tallulah, Ltd., the Christiana
Trust and the Andrew Trust (as more fully described in the Third
Amendment) and all of which Registration Rights have been waived
with respect to the transactions contemplated by this Agreement;
(iv) No consent, approval, authorization or order of, or
filing with, any governmental agency or body or any court is
required to be obtained or made by the Company for the consummation
of the transactions contemplated by this Agreement or the
Subscription Agreement in connection with the issuance or sale of
the Offered Shares, except such as have been obtained and made under
the Act and such as may be required under state securities laws;
(v) The execution, delivery and performance of this
Agreement and the Subscription Agreement and the consummation of the
transactions contemplated herein and therein will not result in a
breach or violation of any of the terms and provisions of, or
constitute a default under, (A) any statute, any rule, regulation or
order (excluding orders that specifically name and are directed to
the Company and are unknown to such counsel and excluding the
specific matters under the Act, the Rules, the Regulations and Rule
10(b)5 under the Securities Exchange Act of 1934 that are covered by
paragraph (vi) below, the only opinions being expressed with respect
to such matters being set forth in paragraph (vi) below) of any
governmental agency or body or any court having jurisdiction over
the Company or any subsidiary of the Company or any of their
properties, or the charter or bylaws of the Company or any
subsidiary of the Company or (B) to the knowledge of such counsel,
any agreement or instrument to which the Company or any subsidiary
of the Company is a party or by which the Company or any subsidiary
of the Company is bound or to which any of the properties of the
Company or any subsidiary of the Company are subject, and the
Company has full power and authority to authorize, issue and sell
the Offered Shares as contemplated by this Agreement and the
Subscription Agreement;
(vi) The Registration Statement was declared effective under
the Act as of the date and time specified in such opinion, the U.S.
Prospectus either was filed with the Commission pursuant to the
subparagraph of Rule 424(b) specified in such opinion on the date
specified therein or was
-15-
<PAGE>
included in the Registration Statement (as the case may be), and, to
the best of the knowledge of such counsel, no stop order suspending
the effectiveness of the Registration Statement or any part thereof
has been issued and no proceedings for that purpose have been
instituted or are pending or contemplated under the Act, and the
Registration Statement and the Prospectuses, and each amendment or
supplement thereto, as of their respective effective or issue dates,
complied as to form in all material respects with the requirements
of the Act and the Rules and Regulations; such counsel have no
reason to believe that either the Registration Statement or the
Prospectuses, or any such amendment or supplement, as of such
respective dates, contained any untrue statement of a material fact
or omitted to state any material fact required to be stated therein
or necessary to make the statements therein not misleading; the
descriptions in the Registration Statement and Prospectuses of
statutes, legal and governmental proceedings and contracts and other
documents are accurate and fairly present the information required
to be shown; and such counsel do not know of any legal or
governmental proceedings required to be described in the
Registration Statement or Prospectuses which are not described as
required or of any contracts or documents of a character required to
be described in the Registration Statement or Prospectuses or to be
filed as exhibits to the Registration Statement which are not
described and filed as required; it being understood that such
counsel need express no opinion as to the financial statements or
other financial data contained, by incorporation by reference or
otherwise, in the Registration Statement or the Prospectuses;
(vii) This Agreement and the Subscription Agreement have been
duly authorized, executed and delivered by the Company; and
(viii)The Merger Agreement is a valid and binding agreement
enforceable against the parties thereto in accordance with its terms
(subject to applicable bankruptcy, insolvency, moratorium and
similar laws of general applicability affecting the rights of
creditors and to principles of equity), and the Leewards Acquisition
has been consummated in accordance with the terms of the Merger
Agreement.
(f) You shall have received an opinion, dated the Closing Date of
________________________, counsel for the Selling Stockholders, to the
effect that:
(i) Each Selling Stockholder has valid and unencumbered
title to the Common Stock sold by such Selling Stockholder pursuant
to this Agreement and has full right, power and authority to sell,
assign, transfer and deliver such Common Stock hereunder; and the
several Managers have acquired valid and unencumbered title to the
Common Stock purchased by them from the Selling Stockholders
hereunder;
-16-
<PAGE>
(ii) No consent, approval, authorization or order of, or
filing with, any governmental agency or body or any court is
required to be obtained or made by any Selling Stockholder for the
consummation of the transactions contemplated by this Agreement or
the Custody Agreement and Power of Attorney in connection with the
sale of the Common Stock sold by the Selling Stockholders hereunder,
except such as have been obtained and made under the Act and such as
may be required under state securities laws;
(iii) The execution, delivery and performance of this
Agreement and the Custody Agreement and Power of Attorney and the
consummation of the transactions herein and therein contemplated
will not result in a breach or violation of any of the terms and
provisions of, or constitute a default under, any statute, any rule,
regulation or order of any governmental agency or body or any court
having jurisdiction over any Selling Stockholder or any of their
properties or any agreement or instrument to which any Selling
Stockholder is a party or by which any Selling Stockholder is bound
or to which any of the properties of any Selling Stockholder is
subject, or the charter or bylaws of any Selling Stockholder which
is a corporation;
(iv) This Agreement and the Underwriting Agreement have been
duly authorized, executed and delivered by each Selling Stockholder;
(v) The Custody Agreement and Power of Attorney has been
duly authorized, executed and delivered by each Selling Stockholder
and is a valid and binding agreement, enforceable against each
Selling Stockholder in accordance with its terms, subject to
applicable bankruptcy, insolvency, moratorium and similar laws of
general applicability affecting the rights of creditors and to
principles of equity; and
(vi) The Merger Agreement is a valid and binding agreement
enforceable against Leewards and the Selling Stockholders in
accordance with its terms (subject to applicable bankruptcy,
insolvency, moratorium and similar laws of general applicability
affecting the rights of creditors and to principles of equity), and
the Leewards Acquisition has been consummated in accordance with the
terms of the Merger Agreement.
(g) CSFBL shall have received from Fulbright & Jaworski, United
States counsel for the Managers, such opinion or opinions, dated such
Closing Date, with respect to the incorporation of the Company, the
validity of the Offered Shares, the Registration Statement, the
Prospectuses and other related matters as CSFBL may require, and the
Company and the Selling Stockholders shall have furnished to such counsel
such documents as they request for the purpose of enabling them to pass
upon such matters.
-17-
<PAGE>
(h) CSFBL shall have received a certificate, dated such Closing
Date, of the President or any Vice-President and a principal financial or
accounting officer of the Company in which such officers, to the best of
their knowledge after reasonable investigation, shall state that the
representations and warranties of the Company in this Agreement are true
and correct in all material respects, that the Company has, in all
material respects, complied with all agreements and satisfied all
conditions on its part to be performed or satisfied hereunder at or prior
to such Closing Date, that no stop order suspending the effectiveness of
the Registration Statement has been issued and no proceedings for that
purpose have been instituted or are contemplated by the Commission and
that, subsequent to the dates of the most recent financial statements in
the Prospectuses, there has been no material adverse change in the
financial position or results of operation of the Company and its
subsidiaries except as set forth in or contemplated by the Prospectuses or
as described in such certificate.
(i) CSFBL shall have received letters, dated such Closing Date, of
Ernst & Young and Deloitte & Touche which meet the requirements of
subsections (a) and (b), respectively, of this Section, except that the
specified dates referred to in such subsections will be a date not more
than five days prior to such Closing Date for the purposes of this
subsection.
(j) On such Closing Date, the U.S. Underwriters shall have
purchased the U.S. Firm Shares or the U.S. Optional Shares, as the case
may be, pursuant to the Underwriting Agreement.
The Company and the Selling Stockholders will furnish CSFBL with such conformed
copies of such opinions, certificates, letters and documents as CSFBL reasonably
requests.
7. INDEMNIFICATION AND CONTRIBUTION. (a) The Company will indemnify
and hold harmless each Manager against any losses, claims, damages or
liabilities, joint or several, to which such Manager may become subject, under
the Act or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact contained in the Registration
Statement, the Prospectuses, or any amendment or supplement thereto, or any
related preliminary prospectus, or arise out of or are based upon the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, and will
reimburse each Manager for any legal or other expenses reasonably incurred by
such Manager in connection with investigating or defending any such loss, claim,
damage, liability or action as such expenses are incurred; provided, however,
that the Company will not be liable in any such case to the extent that any such
loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement in or omission or alleged omission from
any of such documents in reliance upon and in conformity with written
information furnished to the Company by any Manager through CSFBL specifically
for use therein.
-18-
<PAGE>
(b) The Selling Stockholders, jointly and severally, will indemnify and
hold harmless each Manager against any losses, claims, damages or liabilities,
joint or several, to which such Manager may become subject, under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the Registration Statement,
the Prospectus, or any amendment or supplement thereto, or any related
preliminary prospectus, or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in reliance on and conformity
with written information furnished to the Company by such Selling Stockholder
for use therein, and will reimburse each Manager for any legal or other expenses
reasonably incurred by such Manager in connection with investigating or
defending any such loss, claim, damage, liability or action as such expenses are
incurred.
(c) Each Manager will, severally and not jointly, indemnify and hold
harmless the Company and each Selling Stockholder against any losses, claims,
damages or liabilities to which the Company or such Selling Stockholder may
become subject, under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of any material fact
contained in the Registration Statement, the International Prospectus, or any
amendment or supplement thereto, or any related preliminary prospectus, or arise
out of or are based upon the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, in each case to the extent, but only to the extent, that
such untrue statement or alleged untrue statement or omission or alleged
omission was made in reliance upon and in conformity with written information
furnished to the Company by such Manager through CSFBL specifically for use
therein, and will reimburse any legal or other expenses reasonably incurred by
the Company or such Selling Stockholder in connection with investigating or
defending any such loss, claim, damage, liability or action as such expenses are
incurred.
(d) Promptly after receipt by an indemnified party under this Section of
notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under
subsection (a) or (b) above, notify the indemnifying party of the commencement
thereof; but the omission so to notify the indemnifying party will not relieve
it from any liability which it may have to any indemnified party otherwise than
under subsection (a) or (b) above. In case any such action is brought against
any indemnified party and it notifies the indemnifying party of the commencement
thereof, the indemnifying party will be entitled to participate therein and, to
the extent that it may wish, jointly with any other indemnifying party similarly
notified, to assume the defense thereof, with counsel satisfactory to such
indemnified party (who shall not, except with the consent of the indemnified
party, be counsel to the indemnifying party), and after notice from the
indemnifying party to such indemnified party of its election so to assume the
defense thereof, the indemnifying party will not be liable to such indemnified
party under this Section for any legal or other expenses subsequently incurred
by such indemnified party
-19-
<PAGE>
in connection with the defense thereof other than reasonable costs of
investigation. No indemnifying party shall, without the prior written consent
of the indemnified party, effect any settlement of any pending or threatened
action in respect of which any indemnified party is or could have been a party
and indemnity has or could have been sought hereunder by such indemnified party,
unless such settlement includes an unconditional release of such indemnified
party from all liability on claims that are the subject matter of such
proceeding.
(e) If the indemnification provided for in this Section is unavailable
or insufficient to hold harmless an indemnified party under subsection (a), (b)
or (c) above, then each indemnifying party shall contribute to the amount paid
or payable by such indemnified party as a result of the losses, claims, damages
or liabilities referred to in subsection (a), (b) or (c) above (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company and the Selling Stockholders on the one hand and the Managers on the
other from the offering of the International Shares or (ii) if the allocation
provided by clause (i) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to in clause (i) above but also the relative fault of the Company and the
Selling Stockholders on the one hand and the Managers on the other in connection
with the statements or omissions which resulted in such losses, claims, damages
or liabilities as well as any other relevant equitable considerations. The
relative benefits received by the Company and the Selling Stockholders on the
one hand and the Managers on the other shall be deemed to be in the same
proportion as the total net proceeds from the offering of the International
Shares (before deducting expenses) received by the Company and the Selling
Stockholders bear to the total underwriting discounts and commissions received
by the Managers. The relative fault shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission or alleged omission to state a material fact relates to
information supplied by the Company and the Selling Stockholders or the Managers
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such untrue statement or omission. The amount
paid by an indemnified party as a result of the losses, claims, damages or
liabilities referred to in the first sentence of this subsection (d) shall be
deemed to include any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any action or
claim which is the subject of this subsection (d). Notwithstanding the
provisions of this subsection (d), no Manager shall be required to contribute
any amount in excess of the amount by which the total price at which the
International Shares underwritten by it and distributed to the public were
offered to the public exceeds the amount of any damages which such Manager has
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The Managers' obligations in this subsection (d) to
contribute are several in proportion to their respective underwriting
obligations and not joint.
(f) The obligations of the Company and the Selling Stockholders under
this Section shall be in addition to any liability which the Company and the
Selling
-20-
<PAGE>
Stockholders may otherwise have and shall extend, upon the same terms and
conditions, to each person, if any, who controls any Manager within the meaning
of the Act; and the obligations of the Managers under this Section shall be in
addition to any liability which the respective Managers may otherwise have and
shall extend, upon the same terms and conditions, to each director of the
Company, to each officer of the Company who has signed the Registration
Statement and to each person, if any, who controls the Company within the
meaning of the Act.
8. DEFAULT OF MANAGERS. If any Manager or Managers default in their
obligations to purchase International Shares hereunder on either the First
Closing Date or the Option Closing Date and the aggregate number of shares of
International Shares that such defaulting Manager or Managers agreed but failed
to purchase does not exceed 10% of the total number of shares of International
Shares that the Managers are obligated to purchase on such Closing Date, CSFBL
may make arrangements satisfactory to the Company and the Selling Stockholders
for the purchase of such International Shares by other persons, including any of
the Managers, but if no such arrangements are made by such Closing Date the
non-defaulting Managers shall be obligated severally, in proportion to their
respective commitments hereunder, to purchase the International Shares that such
defaulting Managers agreed but failed to purchase on such Closing Date. If any
Manager or Managers so default and the aggregate number of shares of
International Shares with respect to which such default or defaults occur
exceeds 10% of the total number of shares of International Shares that the
Managers are obligated to purchase on such Closing Date and arrangements
satisfactory to CSFBL, the Company and the Selling Stockholders for the purchase
of such International Shares by other persons are not made within 36 hours after
such default, this Agreement will terminate without liability on the part of any
non-defaulting Manager, the Company or the Selling Stockholders, except as
provided in Section 9 (provided that if such default occurs with respect to
International Optional Shares after the First Closing Date, this Agreement will
not terminate as to the International Firm Shares). As used in this Agreement,
the term "Manager" includes any person substituted for an Manager under this
Section. Nothing herein will relieve a defaulting Manager from liability for
its default.
9. SURVIVAL OF CERTAIN REPRESENTATIONS AND OBLIGATIONS. The
respective indemnities, agreements, representations, warranties and other
statements of the Company or its officers, the Selling Stockholders and the
several Managers set forth in or made pursuant to this Agreement will remain in
full force and effect, regardless of any investigation, or statement as to the
results thereof, made by or on behalf of any Manager, any Selling Stockholder or
the Company or any of their respective representatives, officers or directors or
any controlling person, and will survive delivery of and payment for the
International Shares. If this Agreement is terminated pursuant to Section 8 or
if for any reason the purchase of the International Shares by the Managers is
not consummated, the Company and the Selling Stockholders shall remain
responsible for the expenses to be paid or reimbursed by it pursuant to Section
5 and the respective obligations of the Company and the Managers pursuant to
Section 7 shall remain in effect, and if any shares of International Shares have
been purchased hereunder the representations and warranties in Section 2 and all
obligations under Section 5 shall also remain in effect. If the purchase of the
International Shares by the
-21-
<PAGE>
Managers is not consummated for any reason other than solely because of the
termination of this Agreement pursuant to Section 8 or the occurrence of any
event specified in clause (iv), (v) or (vi) of Section 6(d), the Company will
reimburse the Managers for all out-of-pocket expenses (including fees and
disbursements of counsel) reasonably incurred by them in connection with the
offering of the International Shares.
10. NOTICES. All communications hereunder will be in writing and, if
sent to the Managers, will be mailed, delivered or telegraphed and confirmed to
CSFBL at, c/o CS First Boston Limited, One Cabot Square, London England E14 4QJ,
Attention: Corporate Secretary, or, if sent to the Company, will be mailed,
delivered or telegraphed and confirmed to it at 5931 Campus Circle Drive, Las
Colinas Business Park, Irving, Texas 75063, Attention: Jack E. Bush, with a
courtesy copy to Michael C. French, Jackson & Walker, L.L.P., 901 Main Street,
Suite 6000, Dallas, Texas 75202, or, if sent to the Selling Stockholders or any
of them, will be mailed, delivered or telegraphed and confirmed to
________________ at _________________________________________________; provided,
however, that any notice to a Manager pursuant to Section 7 will be mailed,
delivered or telegraphed and confirmed to such Manager.
11. SUCCESSORS. This Agreement will inure to the benefit of and be
binding upon the parties hereto and their respective personal representatives
and successors and the officers and directors and controlling persons referred
to in Section 7, and no other person will have any right or obligation
hereunder.
12. REPRESENTATION OF MANAGERS AND SELLING STOCKHOLDERS. CSFBL will
act for the several Managers in connection with the transactions contemplated by
this Agreement, and any action under this Agreement taken by CSFBL will be
binding upon all the Managers. In accordance with the Custody Agreement and
Power of Attorney, _________________________ will act for the Selling
Stockholders in connection with the transactions contemplated by this Agreement,
and any action under or in respect of this Agreement taken by
_________________________ will be binding upon all Selling Stockholders.
13. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all such
counterparts shall together constitute one and the same Agreement.
14. APPLICABLE LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of New York.
If the foregoing is in accordance with CSFBL's understanding of our
agreement, kindly sign and return to us one of the counterparts hereof,
whereupon it will become
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<PAGE>
a binding agreement between the Company, the Selling Stockholders and the
several Managers in accordance with its terms.
Very truly yours,
MICHAELS STORES, INC.
By:
------------------------------------
Title:
----------------------------------
SELLING STOCKHOLDERS:
By _________________________ as
attorney-in-fact for each of the Selling
Stockholders listed below pursuant to
authority granted in the Custody Agreement
and Power of Attorney.
------------------------------------------
Alan Altschuler
Stephen J. Berman
David E. Bolen
EMP & Co.
Frontenac Venture V Limited Partnership
GIPEN & Co.
Alan L. Magdovitz
MONY Life Insurance Company of America
The Mutual Life Insurance Company
of New York
John A. Popple
Prudential-Bache Capital Partners I, L.P.
Prudential-Bache Capital Partners II, L.P.
Prudential Insurance Company of America
John E. Welsh, III
-23-
<PAGE>
The foregoing Underwriting Agreement is hereby confirmed and accepted as of the
date first above written.
CS FIRST BOSTON LIMITED
ROBERTSON, STEPHENS & COMPANY, L.P.
NOMURA INTERNATIONAL PLC
By:
-------------------------------
Title:
-----------------------------
- -----------------------------------
- -----------------------------------
- -----------------------------------
Each by its duly authorized attorney-in-fact
By:
---------------------------------
-24-
<PAGE>
SCHEDULE A
Total
Number of
Selling Stockholders Shares to be Sold
-------------------- -----------------
Alan Altschuler ............................................._________________
Stephen J. Berman ..........................................._________________
David E. Bolen..............................................._________________
EMP & Co. ..................................................._________________
Frontenac Venture V Limited Partnership ....................._________________
GIPEN & Co. ................................................._________________
Alan L. Magdovitz ..........................................._________________
MONY Life Insurance Company of America ......................_________________
The Mutual Life Insurance Company of New York ..............._________________
John A. Popple .............................................._________________
Prudential-Bach Capital Partners I, L.P. ...................._________________
Prudential-Bach Capital Partners II, L.P. ..................._________________
Prudential Insurance Company of America ....................._________________
John E. Welsh, III .........................................._________________
Total.................................................
-----------------
-----------------
-25-
<PAGE>
SCHEDULE B
Total
Number of
International Firm Shares
Manager to be Purchased
------- --------------
CS First Boston Limited ....................................._________________
Robertson, Stephens & Company, L.P. ........................._________________
Nomura International plc ...................................._________________
Total.................................................
------------------
------------------
- 26 -
<PAGE>
[Jackson & Walker, L.L.P. Letterhead]
June 21, 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.
Registration No. 33-53639
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 3,795,000 shares of common
stock, par value $.10 per share, of the Company (the "Shares").
A Registration Statement on Form S-3, Registration No. 33-53639,
covering the offer and sale of the Shares was filed with the
Securities and Exchange Commission (the "Commission") on May 16,
1994 and Pre-Effective Amendment No. 1 thereto is proposed to be
filed on or about the date hereof (as amended, the "Registration
Statement"). The Shares are to be sold by the underwriters for
resale to the public as described in the Registration Statement
and pursuant to the underwriting agreement (as amended, the
"Underwriting Agreement") filed as an exhibit to the Registration
Statement.
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 for the
expression of the opinions expressed herein. In making the
foregoing examinations, 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 the
Shares have been duly and validly authorized by the
<PAGE>
Michaels Stores, Inc.
June 21, 1994
Page 2
Company, and when paid for, issued and delivered as described in
and in accordance with the Registration Statement and the Underwriting
Agreement, the Shares will be legally issued, fully paid and
nonassessable.
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 INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Selected
Financial and Store Data" and "Experts" in the Registration Statement on Form
S-3 (No. 33-53639) and related Prospectus of Michaels Stores, Inc. and to the
incorporation by reference therein of our reports dated February 28, 1994, with
respect to the consolidated financial statements and schedules of Michaels
Stores, Inc. included or incorporated by reference in its Annual Report (Form
10-K) for the year ended January 30, 1994 filed with the Securities and Exchange
Commission.
ERNST & YOUNG
Dallas, Texas
June 20, 1994
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Pre-Effective Amendment No. 1 to Registration
Statement No. 33-53639 of Michaels Stores, Inc. on Form S-3 of our report dated
March 4, 1994 (May 11, 1994 as to Note 11) on the audit of the financial
statements of Leewards Creative Crafts, Inc. (the "Company") as of and for the
years ended January 30, 1994 and January 31, 1993, which expresses an
unqualified opinion and includes an explanatory paragraph relating to the
Agreement and Plan of Merger whereby the Company will become a subsidiary of
Michaels Stores, Inc., appearing in the Prospectus, which is part of such
Registration Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
DELOITTE & TOUCHE
Chicago, Illinois
June 21, 1994
