<PAGE>
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[X] Preliminary proxy statement [ ] Confidential, for Use of the
[ ] Definitive proxy statement Commission Only (as permitted by
[ ] Definitive additional materials Rule 14a-6(e)(2))
[ ] Soliciting material pursuant to
Rule 14a-11(c) or Rule 14a-12
--------------------------
MICHAELS STORES, INC.
(Name of Registrant as specified in Its Charter)
--------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
--------------------------
Payment of filing fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
(2) Form, schedule or registration statement no.:
(3) Filing party:
(4) Date filed:
<PAGE>
MICHAELS STORES, INC.
8000 BENT BRANCH DRIVE
IRVING, TEXAS 75063
August 10, 1998
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of
Stockholders of Michaels Stores, Inc. to be held at the Omni Mandalay Hotel,
221 East Las Colinas Boulevard, Irving, Texas on Tuesday, September ,
1998, at 10:30 a.m. central time.
The attached Notice of Annual Meeting and Proxy Statement describe
fully the formal business to be transacted at the Annual Meeting. During the
Annual Meeting, stockholders will consider and vote upon the following:
(1) The election of three members to the Board of Directors;
(2) An amendment to the Restated Certificate of Incorporation to
increase the number of shares of common stock of Michaels
authorized for issuance; and
(3) A proposal by a stockholder to recommend that the Board of Directors
amend the Bylaws to require a majority of the members of the Board
of Directors to be "independent" as defined by that stockholder.
Michaels' Board of Directors believes that a favorable vote on
items 1 and 2 is in the best interest of Michaels and its stockholders and
unanimously recommends a vote "FOR" these items. The Board of Directors is
opposed to item 3 and recommends a vote "AGAINST" that item.
Certain directors and officers will be present at the Annual
Meeting and will be available to respond to any questions you may have. I
hope you will be able to attend.
We urge you to review carefully the accompanying material and to
return the enclosed proxy card promptly. Please sign, date and return the
enclosed proxy card without delay. If you attend the Annual Meeting, you may
vote in person even if you have previously mailed a Proxy.
Sincerely,
SAM WYLY
CHAIRMAN OF THE BOARD
<PAGE>
MICHAELS STORES, INC.
8000 BENT BRANCH DRIVE
IRVING, TEXAS 75063
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON SEPTEMBER , 1998
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders (the
"Annual Meeting") of Michaels Stores, Inc. (the "Company") will be held at
the Omni Mandalay Hotel, 221 East Las Colinas Boulevard, Irving, Texas on
Tuesday, September , 1998, at 10:30 a.m. central time for the following
purposes:
(1) To elect three members to the Company's Board of Directors (the
"Board") for terms expiring in 2001.
(2) To approve an amendment to the Restated Certificate of
Incorporation (the "Certificate Amendment") to increase the number
of shares of common stock of the Company authorized for issuance.
(3) To consider a proposal by a stockholder to recommend that the Board
amend the Bylaws to require a majority of the members of the Board
to be "independent" as defined by that stockholder (the "Stockholder
Proposal").
(4) To consider such other business as may properly come before the
Annual Meeting or any adjournments thereof.
Information concerning the matters to be acted upon at the Annual
Meeting is set forth in the accompanying Proxy Statement.
The close of business on August , 1998 has been fixed as the record
date for determining the stockholders entitled to notice of and to vote at
the Annual Meeting or any adjournments thereof. For a period of at least 10
days prior to the Annual Meeting, a complete list of stockholders entitled to
vote at the Annual Meeting will be open for examination by any stockholder
during ordinary business hours at the offices of the Company at 8000 Bent
Branch Drive, Irving, Texas 75063.
STOCKHOLDERS ARE URGED TO COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED
PROXY CARD IN THE ACCOMPANYING ENVELOPE, WHICH DOES NOT REQUIRE POSTAGE IF
MAILED IN THE UNITED STATES.
By Order of the Board of Directors
MARK V. BEASLEY
SECRETARY
Irving, Texas
August 10, 1998
<PAGE>
PROXY STATEMENT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
GENERAL QUESTIONS AND ANSWERS. . . . . . . . . . . . . . . . . . . . . . . . . . . .1
PROPOSALS UPON WHICH YOU ARE ASKED TO VOTE . . . . . . . . . . . . . . . . . . . . .4
Proposal No. 1 - Election of Directors. . . . . . . . . . . . . . . . . . . . .4
Proposal No. 2 - Certificate Amendment. . . . . . . . . . . . . . . . . . . . .6
Proposal No. 3 - Stockholder Proposal . . . . . . . . . . . . . . . . . . . . .7
BOARD MEETINGS AND COMMITTEES. . . . . . . . . . . . . . . . . . . . . . . . . . . .9
PRINCIPAL STOCKHOLDERS AND MANAGEMENT OWNERSHIP. . . . . . . . . . . . . . . . . . 10
MANAGEMENT COMPENSATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Summary Compensation Table. . . . . . . . . . . . . . . . . . . . . . . . . . 12
Option Grants During Fiscal Year. . . . . . . . . . . . . . . . . . . . . . . 14
Option Exercises During Fiscal Year 1997 and Fiscal Year End Option Values. . 15
Compensation of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Employment and Change of Control Agreements . . . . . . . . . . . . . . . . . 16
Compensation and Stock Option Committee Interlocks and Insider Participation. 16
REPORT OF THE COMPENSATION AND STOCK OPTION COMMITTEES . . . . . . . . . . . . . . 17
STOCK PERFORMANCE CHART. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
CERTAIN TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE. . . . . . . . . . . . . . 20
ANNUAL REPORT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
</TABLE>
<PAGE>
MICHAELS STORES, INC.
8000 BENT BRANCH DRIVE
IRVING, TEXAS 75063
PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON SEPTEMBER , 1998
------------------------
GENERAL QUESTIONS AND ANSWERS
Q: WHEN IS THE PROXY STATEMENT BEING MAILED?
A: This Proxy Statement is first being mailed on or about August 10, 1998 to
stockholders of the Company by the Board to solicit proxies (the "Proxies")
for use at the Annual Meeting of Stockholders.
Q: WHEN IS THE ANNUAL MEETING AND WHERE WILL IT BE HELD?
A: The Annual Meeting will be held on Tuesday, September , 1998 at 10:30
a.m. central time at the Omni Mandalay Hotel, 221 East Las Colinas
Boulevard, Irving, Texas.
Q: WHO MAY ATTEND THE ANNUAL MEETING?
A: All stockholders of the Company as of the Record Date may attend.
Q: ON WHAT AM I VOTING?
A: You will be voting on:
- The election of three members to the Board for terms expiring in 2001;
- The approval of the Certificate Amendment;
- The Stockholder Proposal; and
- Such other business as may properly come before the Annual Meeting or
any adjournments thereof.
Q: WHO IS ENTITLED TO VOTE?
A: Stockholders as of the close of business on August , 1998 (the "Record
Date") are entitled to vote at the Annual Meeting. Each share of Common
Stock is entitled to one vote.
Q: HOW DO I VOTE?
A: You may vote by either attending the Annual Meeting or signing and dating
each proxy card you receive and returning it in the enclosed prepaid
envelope. We encourage you to complete and
<PAGE>
send in your proxy card. If you then decide to attend the Annual
Meeting, you may revoke your Proxy by voting in person.
All shares represented by valid Proxies, unless the stockholder otherwise
specifies, will be voted:
- "FOR" the election of each of the persons identified in "Election of
Directors" as nominees for election as directors of the Company for a
term expiring in 2001;
- "FOR" the Certificate Amendment;
- "AGAINST" the Stockholder Proposal; and
- At the discretion of the Proxy holders with regard to any other matter
that may properly come before the Annual Meeting.
Where a stockholder has properly specified how a Proxy is to be voted,
it will be voted accordingly. The Proxy may be revoked at any time by (i)
providing written notice of revocation to Harris Trust & Savings Bank, 77
Water Street, 4th Floor, New York, New York 10005 by September , 1998,
or (ii) attending the Annual Meeting and voting in person.
Q: WHAT DOES IT MEAN IF I RECEIVE MORE THAN ONE PROXY CARD?
A: If you receive more than one proxy card, it is because your shares are
in more than one account. You will need to sign and return all proxy cards
to insure that all your shares are voted.
Q: WHO WILL COUNT THE VOTE?
A: Representatives of Harris Trust & Savings Bank, the Company's transfer
agent, will tabulate the votes and act as inspectors of election.
Q: WHAT CONSTITUTES A QUORUM?
A: As of the Record Date, [ ] shares of the Company's Common
Stock were issued and outstanding. A majority of the issued and
outstanding shares, present or represented by Proxy, will constitute a
quorum for the transaction of business at the Annual Meeting. If you
submit a properly executed proxy card, then you will be considered part
of the quorum. Votes that are withheld and broker non-votes will be
counted towards a quorum but will not be counted in the votes for each
of the three proposals.
Q: WHAT IS THE REQUIRED VOTE FOR APPROVAL OF EACH PROPOSAL?
A: The required vote for approval of each proposal is as follows:
- In order to be elected a director, a nominee must receive a plurality
of the votes of the shares of the Common Stock having voting power
present or represented by Proxy at the Annual Meeting;
- In order for the Certificate Amendment to be approved, a majority of
the votes of the shares of Common Stock entitled to vote thereon must
be cast for approval of the Certificate Amendment; and
- In order for the Stockholder Proposal to be approved, a majority of the
votes of the shares of Common Stock entitled to vote thereon must be
cast for approval of the Stockholder Proposal.
2
<PAGE>
Q: ARE THERE OTHER MATTERS TO BE ACTED UPON AT THE ANNUAL MEETING?
A: We do not know of any other matters to be presented or acted upon at the
Annual Meeting. If any other matter is presented at the Annual Meeting on
which a vote may properly be taken, the shares represented by Proxies will
be voted in accordance with the judgment of the Proxy holders.
Q: HOW MUCH DID THIS PROXY SOLICITATION COST?
A: Corporate Investor Communications, Inc. was hired to assist in the
distribution of proxy materials and solicitation of votes at a cost of
$5,000, plus out-of-pocket expenses. We will reimburse brokerage firms and
other custodians, nominees and fiduciaries for their reasonable
out-of-pocket expenses for forwarding proxy and solicitation material to
the owners of Common Stock. Our officers and regular employees may also
solicit proxies, but they will not be specifically compensated for such
services.
Q: WHO ARE THE COMPANY'S INDEPENDENT AUDITORS?
A: The Board has selected Ernst & Young LLP as independent auditors to
examine the Company's accounts for the current fiscal year. Representatives
of Ernst & Young LLP will be present at the Annual Meeting. Such
representatives may make a statement if they desire to do so and will be
available to answer appropriate questions.
Q: WHEN ARE THE STOCKHOLDER PROPOSALS FOR THE 1999 ANNUAL MEETING DUE?
A: In order to be considered for inclusion in the proxy statement for the
1999 Annual Meeting of Stockholders, stockholder proposals must be
in writing and received by April , 1999 by Michaels Stores, Inc.,
P.O. Box 619566, DFW, Texas 75261-9566, Attn: Secretary. For a
stockholder proposal which is not submitted for inclusion in such proxy
statement to be considered at the 1999 Annual Meeting of Stockholders,
notice of such stockholder proposal must be submitted by June , 1998
to Michaels Stores, Inc., P. O. Box 619566, DFW, Texas 75261-9566,
Attention: Secretary.
3
<PAGE>
PROPOSALS UPON WHICH YOU ARE ASKED TO VOTE
PROPOSAL NO. 1 - ELECTION OF DIRECTORS
The Board is presently comprised of eight members. The Board is divided
into three classes, with each of two classes consisting of three directors
and one class consisting of two directors. Members of each class of
directors generally serve for a term of three years. Directors serve until
the Annual Meeting of Stockholders in the year in which their term expires or
until a successor is elected and qualified.
Each of the directors in the class whose term of office expires in 1998,
Charles J. Wyly, Jr., Richard E. Hanlon and Kelly Elliott, has been nominated
by the Board for reelection at the Annual Meeting as a director to serve for
a three-year term expiring at the Company's Annual Meeting of Stockholders in
2001 or until his or her successor is elected and qualified. In order to be
elected a director, a nominee must receive a plurality of the votes of the
shares of Common Stock having voting power present or represented by Proxy at
the Annual Meeting.
The nominees have indicated their willingness to serve as members of the
Board if elected; however, in case any nominee becomes unavailable for
election to the Board for any reason not presently known or contemplated, the
Proxy holders have discretionary authority to vote the Proxy for a substitute
nominee or nominees. Proxies cannot be voted for more than three nominees.
The following sets forth information as to the nominees for election at the
Annual Meeting and each of the directors whose term of office will continue
after the Annual Meeting, including their ages, present principal
occupations, other business experiences during the last five years,
membership on committees of the Board and directorships in other
publicly-held companies.
<TABLE>
<CAPTION>
YEAR
TERM
NAME AGE POSITION EXPIRES
-------- ----- ---------- --------
<S> <C> <C> <C>
Nominees for a three-year term
ending in 2001:
Charles J. Wyly, Jr. (1) 64 Vice Chairman of the Board of Directors 2001
Richard E. Hanlon (2) 50 Director 2001
Kelly Elliott 25 Director 2001
Continuing Directors:
Sam Wyly (1) 63 Chairman of the Board of Directors 2000
Michael C. French 55 Director 2000
Donald R. Miller, Jr. 43 Director and Vice President--Market Development 2000
F. Jay Taylor (2) 75 Director 1999
Evan A. Wyly 36 Director 1999
</TABLE>
- ------------------
(1) Member of the Executive Committee and the Compensation Committee.
(2) Member of the Audit Committee, the Key Employee Stock Compensation
Program Committee, the 1992 Non-Statutory Plan Committee, the 1994
Non-Statutory Plan Committee and the 1997 Stock Option Committee.
Mr. Charles J. Wyly, Jr. became a director of the Company in October
1984 and Vice Chairman in 1985. He co-founded Sterling Software, Inc. in
1981 and since such time has served as a director and since 1984 Vice
Chairman. Mr. Wyly served as an officer and director of University Computing
Company, a computer software and services company, from 1964 to 1975,
including President from 1969 to 1973. Mr. Wyly and his brother, Sam Wyly,
founded Earth Resources Company, an oil refining and silver mining company,
and Charles J. Wyly, Jr. served as Chairman of the Board from 1968 to 1980.
Mr. Wyly served as Vice Chairman of the Bonanza Steakhouse chain from 1967 to
1989 and has served as a director of Sterling Commerce, Inc. since December
1995. Charles J. Wyly, Jr. is the father-in-law of Donald R. Miller, Jr., a
director and Vice President--Market Development of the Company.
4
<PAGE>
Mr. Hanlon became a director of the Company in April 1990. Since
February 1995, Mr. Hanlon has been Vice President--Investor Relations of
America Online, Inc., the leading provider of Internet online services. From
March 1993 until February 1995, Mr. Hanlon was President of Hanlon & Co., a
consulting firm.
Ms. Elliott is an artist and crafter and has served as a director of the
Company since December 1997. In 1995, she founded Wyly Works, Inc., a
specialty designer and producer of unique paintings, hand-painted ceramics
and greeting cards. She has been a professional artist since 1991.
Mr. Sam Wyly has served as Chairman of the Board of the Company since
1984. Mr. Wyly co-founded Sterling Software, Inc. in 1981 and since that
time has served as Chairman of the Board and a director. In 1963, Mr. Wyly
founded University Computing Company, a computer software and services
company, and served as President or Chairman from 1963 until 1979.
University Computing created a computer utility network, one of the earliest
and most successful marriages of computing and telecommunications.
University Computing was one of the original participants in the software
products industry in the late 1960's when the then market-dominant IBM
unbundled computer hardware and software. In 1968, Mr. Wyly founded Datran,
Inc. which was envisioned as the nation's first all-digital switched
"telephone company for computers" and contributed to the break up of AT&T's
telephone monopoly and the resulting benefits of increased competition in the
telecommunications industry. These Wyly-founded companies are among the
forerunners of today's electronic commerce industry. Mr. Wyly co-founded
Earth Resources Company, an oil refining and silver mining company, and
served as its Executive Committee Chairman from 1968 to 1980. Mr. Wyly and
his brother, Charles J. Wyly, Jr., bought the 20-restaurant Bonanza
Steakhouse chain in 1967. It grew to approximately 600 restaurants by 1989,
during which time Mr. Wyly served as Chairman. Mr. Wyly currently serves as a
director of Sterling Commerce, Inc. and as a partner of Maverick Capital,
Ltd., an investment fund management company. Sam Wyly is the father of Evan
A. Wyly and Kelly Elliott, directors of the Company.
Mr. French has served as a director of the Company since September 1992.
He is Chairman of The Scottish Annuity Company, an annuity and life
insurance company, and has been a partner of Maverick Capital Ltd., an
investment fund management limited partnership, since 1992 and a director of
Sterling Software, Inc. since July 1992. Mr. French is currently a
consultant to the international law firm of Jones, Day, Reavis & Pogue. Mr.
French was a partner with the law firm of Jackson & Walker, L.L.P. from 1976
through 1995.
Mr. Miller is a charter employee of the Company and has served as Vice
President--Market Development since November 1990 and as a director since
September 1992. From September 1984 to November 1990 he was Director of Real
Estate. Prior to joining the Company, Mr. Miller served in various real
estate positions with Bonanza and Peoples Restaurants. Mr. Miller has served
as a director of Sterling Software, Inc. since September 1993.
Dr. Taylor became a director of the Company in June 1989. Dr. Taylor
was President of Louisiana Tech University from 1962 until 1987, and has
served as President-Emeritus of Louisiana Tech since 1987. Dr. Taylor also
currently serves as a director of Illinois Central Railroad Corporation and
Pizza Inn, Inc. and performs mediation and arbitration services as a member
of The American Arbitration Association and The Federal Mediation and
Conciliation Service.
Mr. Evan A. Wyly has served as a director of the Company since September
1992. He has been a Managing Partner of Maverick Capital, Ltd., an
investment fund management company, since 1991. In 1988, Mr. Wyly founded
Premier Partners Incorporated, a private investment firm, and served as its
President prior to joining Maverick Capital, Ltd. Mr. Wyly serves as a
director and officer of Sterling Software, Inc. and as a director of Sterling
Commerce, Inc.
5
<PAGE>
PROPOSAL NO. 2 - CERTIFICATE AMENDMENT
The Restated Certificate of Incorporation of the Company limits the
number of shares of Common Stock available for issuance to 50 million shares.
The number of shares currently issued and outstanding or reserved for
issuance is near that limit. As of July 15, 1998, only 2,640,069 shares were
not issued or reserved for issuance. Therefore, the Board recommends an
amendment to the Restated Certificate of Incorporation to increase the number
of authorized shares of Common Stock to 150 million. No change is being
proposed to the par value of the Common Stock or the number of authorized
shares of Preferred Stock.
If this amendment is approved by the stockholders, the first paragraph
of Article Four of the Restated Certificate of Incorporation of the Company
would be amended and restated to read as follows:
The aggregate number of shares of all classes of stock which the
Corporation shall have the authority to issue is 152,000,000,
consisting of 150,000,000 shares of common stock (the "Common Stock")
having a par value of $.10 per share, and 2,000,000 shares of
preferred stock (the "Preferred Stock"), having a par value of $.10
per share.
The Board believes that an increase in the number of shares of Common
Stock authorized for issuance is necessary because the number of shares
currently issued and outstanding by the Company is near the limit established
by the Restated Certificate of Incorporation. Although the Company has no
present plan, arrangement or understanding to issue additional shares of
Common Stock, other than shares previously reserved for issuance, the Board
believes that the availability of an increased number of shares of Common
Stock will provide the Company the needed flexibility to conduct its business
and plan for future events such as sales for cash, acquisitions, stock
splits, stock dividends or similar occurrences.
The rights of additional authorized shares would be identical to the
shares currently authorized. Although the additional shares would not have
any effect on your rights as a stockholder, issuance of additional Common
Stock for other than a stock split or dividend could have a dilutive effect
on the amount of earnings per share. This proposal is not in response to any
known effort to accumulate Michaels Stores Inc. Common Stock or to gain
control of the Company.
The increase in the number of authorized shares of Common Stock could
also have an anti-takeover effect, although that is not the Company's
intention. The additional authorized but unissued shares could be issued
without stockholder approval, in transactions that might dilute the
percentage ownership of current stockholders, thereby increasing the cost or
difficulty of obtaining control of the Company.
The approval of this proposal requires the affirmative vote of a
majority of the Common Stock of the Company entitled to vote thereon. The
Board has recommended that the stockholders of the Company approve the
Certificate Amendment and recommends a vote "FOR" this proposal.
6
<PAGE>
PROPOSAL NO. 3 - STOCKHOLDER PROPOSAL
The following proposal was submitted by the California Public Employees'
Retirement System (CalPERS), a stockholder of the Company. CalPERS has
informed the Company that its address is P.O. Box 942708, Sacramento,
California 94229-2708 and that it is the owner of approximately 350,000
shares of the Company's Common Stock.
"RESOLVED, that the stockholders of Michaels Stores, Inc. (the Company)
recommend that the Board of Directors take the necessary steps to amend the
Company's Bylaws to require that, at the earliest practical date, a majority
of the Board be comprised of Independent Directors. For purposes of this
proposal, the stockholders further recommend that the term "Independent
Director" means a director who:
(i) has not been employed by the Company in an executive capacity
within the last five years;
(ii) is not, and is not affiliated with a company that is, an advisor
or consultant to the Company, or a significant customer or supplier
of the Company;
(iii) has no personal services contract(s) with the Company or the
Company's senior management;
(iv) is not affiliated with a not-for-profit entity that receives
significant contributions from the Company;
(v) within the last five years, has not had any business relationship
with the Company that the Company has been required to disclose
under the Securities and Exchange Commission disclosure regulations;
(vi) is not employed by a public company at which an executive officer
of the Company serves as a director;
(vii) has not had a relationship described in (i) through (vi) above
with any affiliate of the Company; and
(viii) is not a member of the immediate family of any person described
in (i) through (vii) above.
The shareholders further recommend that this provision, after adoption
by the Board, may only be amended by the affirmative vote of the holders of
the outstanding common stock of the Company.
SUPPORTING STATEMENT [OF CALPERS]
How important is the Board of Directors? As a trust fund with over
358,000 shares of the Company's stock, held for the benefit of our 1 million
fund participants, the California Public Employees' Retirement System
(CalPERS) believes that the Board is of paramount importance. Through this
proposal, we seek to promote strong, objective leadership on the Board.
The benefits of independent directors are generally well accepted. A
November 1992 survey of 600 directors of Fortune 1,000 corporations,
conducted by Directorship and endorsed by the Business Roundtable, found that
93 percent believed that a majority of the Board should be composed of
outside, independent directors. A majority also believed that the nominating
committee should consist entirely of outside, independent directors. We
agree.
7
<PAGE>
The Company's Board is currently comprised of seven directors. Only two
meet the criteria specified in the proposal, whereas the remainder have some
affiliation with the Company. We are concerned that these inter-locking
positions raise the potential for conflicts of interest. We believe that the
best way to ensure that THIS Company's shareholders are always considered
FIRST is to instill independence - independence from the other affiliated
companies.
Help us send a message to this Board. Please VOTE FOR THIS PROPOSAL."
STATEMENT OF THE COMPANY RECOMMENDING
A VOTE AGAINST THIS STOCKHOLDER PROPOSAL
CalPERS' proposal reflects its view that corporations are somehow better
governed by boards of directors a majority of which have no other
relationship with the corporation. The Company understands this view is
currently popular with a certain segment of the activist institutional
investor movement. This Company disagrees with that view.
The composition of the Company's Board reflects the Company's views that
the Board should have continuity of governance as well as an independent
director component and that its governing body should include persons with
industry expertise, commitment to the Company and to the interests of the
stockholders through significant equity ownership and a history with the
Company, and the demonstrated experience and ability to direct the Company's
business.
The majority of the present Board consists of individuals with extensive
knowledge of the Company's business, the expertise necessary to guide the
nation's largest arts, crafts and decorative retailer and a long track record
of responsible and committed leadership to the Company. Under their
guidance, the Company has grown to be the only nationwide retailer in arts,
crafts and decorative items. While this growth, including the rapid
expansion of the Company through new store openings and acquisitions,
affected the Company's short-term financial results, the Company is focused
on long term value to the stockholders. The Board's familiarity with the
Company and industry, and its understanding of the long term business
strategy of the Company, has led to actions which will enhance long term
stockholder value. Among the actions taken by the Board was a decision to
hire a new Chief Executive Officer and to implement changes in order to
improve operating efficiencies. As a result of the Board's actions, the
Company has improved its financial position, and the value of the Company's
stock increased by 169% from the beginning of fiscal year 1997 to July 21,
1998, resulting in a total market capitalization of over $1 billion as of
July 21, 1998.
The Board is aware of its legal obligations to the Company's
stockholders and abides by general corporate governance principles in
managing the Company. The Company believes that Delaware corporate law is
adequate for protection of the stockholders against assertions of conflicts
of interest on the Board, without constraining the ability of the
stockholders to elect directors by restrictive Bylaw provisions. The Board
has two members who are independent directors and who serve as the committee
members for the Audit Committee and the stock option committees. In addition,
unlike most of the companies included in the survey referred to in CalPERS'
supporting statement, the Company's Chief Executive Officer is, as a matter
of Board policy, not a director of the Company.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
THAT STOCKHOLDERS VOTE "AGAINST" THIS PROPOSAL
VOTE REQUIRED
The approval of the CalPERS proposal requires the affirmative vote of a
majority of the Common Stock of the Company entitled to vote thereon.
8
<PAGE>
BOARD MEETINGS AND COMMITTEES
During fiscal year 1997, our Board held 4 meetings and acted by
unanimous written consent of the members 3 times. In addition to meetings of
the full board, directors attended meetings of individual Board committee
meetings. All directors attended at least 75% of all Board and applicable
committee meetings.
Our Board has seven standing committees. The Company does not have a
standing nominating committee.
- The EXECUTIVE COMMITTEE has limited powers to act on behalf of the
Board and to direct and manage the business and affairs of the Company
whenever the Board is not in session. Committee members are Sam Wyly
(Chairman) and Charles J. Wyly, Jr. During fiscal year 1997, they acted
by unanimous written consent of the members 2 times.
- The AUDIT COMMITTEE reviews the professional services and
independence of the Company's independent auditors, and the Company's
accounts, procedures and internal controls. The Audit Committee
recommends to the Board for appointment the firm selected to be
independent public accountants for the Company and monitors the
performance of such firm; reviews and approves the scope of the annual
audit; reviews and evaluates with the independent public accountants
the Company's annual audit and annual consolidated financial statements;
reviews with management the status of internal accounting controls;
evaluates problem areas having a potential financial impact on the
Company that may be brought to its attention by management, the
independent accountants or the Board; and evaluates all public financial
reporting documents of the Company. Committee members are F. Jay Taylor
(Chairman) and Richard E. Hanlon, both of which are independent
directors. During fiscal year 1997, they met 4 times.
- The COMPENSATION COMMITTEE reviews and approves salaries and bonuses
for officers and key employees of the Company. Committee members are
Charles J. Wyly, Jr. (Chairman) and Sam Wyly. During fiscal year 1997,
they acted by unanimous written consent of the members 1 time.
- The KEY EMPLOYEE STOCK COMPENSATION PROGRAM COMMITTEE administers the
Company's Key Employee Stock Compensation Program. No further stock
options, restricted stock awards or stock appreciation rights are
issuable under this plan. Committee members are F. Jay Taylor
(Chairman) and Richard E. Hanlon. During fiscal year 1997, they did
not meet.
- The 1992 NON-STATUTORY PLAN COMMITTEE administers the 1992
Non-Statutory Stock Option Plan. No further options are issuable under
this plan. Committee members are F. Jay Taylor (Chairman) and Richard
E. Hanlon. During fiscal year 1997, they acted by unanimous written
consent of the members 11 times.
- The 1994 NON-STATUTORY PLAN COMMITTEE administers the 1994
Non-Statutory Stock Option Plan. No further options are issuable under
this plan. Committee members are F. Jay Taylor (Chairman) and Richard
E. Hanlon. During fiscal year 1997, they did not meet.
- The 1997 STOCK OPTION COMMITTEE administers the 1997 Stock Option
Plan and has limited powers to grant options, determine the number of
shares to be converted by each option and determined when the options
will be exercisable. Committee members are F. Jay Taylor (Chairman)
and Richard Hanlon. Alternate committee members are Sam Wyly and
Charles J. Wyly, Jr. During fiscal year 1997, they acted by unanimous
written consent of the members 8 times.
9
<PAGE>
PRINCIPAL STOCKHOLDERS AND MANAGEMENT OWNERSHIP
The following table sets forth information as of June 30, 1998 regarding
the beneficial ownership of Common Stock by each person known by the Company
to own 5% or more of the outstanding shares of Common Stock, each director of
the Company, certain Named Executives (as defined below), and the directors
and executive officers of the Company as a group. The persons named in the
table have sole voting and investment power with respect to all shares of
Common Stock owned by them, unless otherwise noted.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
NAME OF BENEFICIAL OWNER OR BENEFICIAL PERCENT
NUMBER OF PERSONS IN GROUP OWNERSHIP(1) OF CLASS
- ----------------------------- -------------- ---------
<S> <C> <C>
Sam Wyly . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,061,905 (2) 6.7
Charles J. Wyly, Jr. . . . . . . . . . . . . . . . . . . . . . 1,066,444 (3) 3.5
Kelly Elliott . . . . . . . . . . . . . . . . . . . . . . . . . 213,861 (4) *
Michael C. French . . . . . . . . . . . . . . . . . . . . . . . 56,200 (5) *
Richard E. Hanlon . . . . . . . . . . . . . . . . . . . . . . . 32,600 (6) *
Donald R. Miller, Jr. . . . . . . . . . . . . . . . . . . . . . 215,765 (7) *
F. Jay Taylor . . . . . . . . . . . . . . . . . . . . . . . . . 51,400 (8) *
Evan A. Wyly . . . . . . . . . . . . . . . . . . . . . . . . . 175,875 (9) *
R. Michael Rouleau . . . . . . . . . . . . . . . . . . . . . . 335,406 (10) 1.1
Douglas B. Sullivan . . . . . . . . . . . . . . . . . . . . . . 155,029 (11) *
Lawrence H. Fine . . . . . . . . . . . . . . . . . . . . . . . 33,524 (12) *
Duane E. Hiemenz . . . . . . . . . . . . . . . . . . . . . . . 63,953 (13) *
AMVESCAP PLC . . . . . . . . . . . . . . . . . . . . . . . . . 2,245,000 (14) 7.8
11 Devonshire Square
London EC2M4YR
England
First Pacific Advisors, Inc. . . . . . . . . . . . . . . . . . 2,178,216 (15) 7.5
11400 West Olympic Boulevard, Suite 1200
Los Angeles, California 90064
FMR Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,650,045 (16) 5.7
82 Devonshire Street
Boston, Massachusetts 02109
ICM Asset Management, Inc. . . . . . . . . . . . . . . . . . . 1,607,458 (17) 5.6
601 W. Main Avenue, Suite 917
Spokane, Washington 99201
Putnam Investments, Inc. . . . . . . . . . . . . . . . . . . . 3,564,101 (18) 11.9
One Post Office Square
Boston, Massachusetts 02109
The Wyly Group . . . . . . . . . . . . . . . . . . . . . . . . 3,128,349 (19) 10.0
300 Crescent Court, Suite 1000
Dallas, Texas 75201
All current directors and executive officers
as a group (17 persons) . . . . . . . . . . . . . . . . . . . 4,522,119 (20) 13.8
</TABLE>
- ---------------------------
* Less than 1%
(1) The number of shares shown includes outstanding shares of Common Stock
owned as of June 30, 1998 by the person indicated and shares underlying
options owned by such person on June
10
<PAGE>
30, 1998 that were exercisable within 60 days of that date. Persons
holding shares of Common Stock pursuant to the Michaels Stores, Inc.
Employees 401(k) Plan (the "401(k) Plan") have sole voting power and
investment power with respect to such shares.
(2) Includes 1,200,000 shares subject to presently exercisable options,
75,000 of such options held of record by the Cheryl R. Wyly Marital Trust;
589,536 shares held of record by Tallulah, Ltd. (a limited partnership of
which Mr. Wyly is a general partner); 256,533 shares held of record by
family trusts of which Mr. Wyly is trustee (63,861 of which are also
beneficially owned by Kelly Elliott); and 15,836 shares held of record by
certain of Mr. Wyly's adult children for which he holds power of attorney
to vote such shares.
(3) Includes 600,000 shares subject to presently exercisable options; 80,000
shares held of record by Brush Creek, Ltd., a limited partnership of which
Mr. Wyly is a general partner; and 386,444 shares held of record by family
trusts of which Mr. Wyly is Trustee.
(4) Includes 150,000 shares subject to presently exercisable options and
63,861 shares held of record by the Kelly W. Elliott Trust of which Mr.
Sam Wyly is Trustee (which are also beneficially owned by Sam Wyly).
(5) Includes 55,000 shares subject to presently exercisable options and
1,200 shares held by a retirement account directed by Mr. French.
(6) Includes 30,000 shares subject to presently exercisable options.
(7) Includes 200,000 shares subject to presently exercisable options; 187
shares held by Mr. Miller's spouse; and 11,578 shares owned pursuant
to the 401(k) Plan.
(8) Includes 30,000 shares subject to presently exercisable options.
(9) Includes 150,000 shares subject to presently exercisable options.
(10) Includes 316,666 shares subject to presently exercisable options and
2,367 shares owned pursuant to the 401(k) Plan.
(11) Includes 110,500 shares subject to presently exercisable options and
7,654 shares owned pursuant to the 401(k) Plan.
(12) Includes 33,333 shares subject to presently exercisable options.
(13) Includes 62,220 shares subject to presently exercisable options.
(14) Based on a Schedule 13G/A filed with the Securities and Exchange
Commission dated February 9, 1998, AMVESCAP PLC, a parent holding company,
shares the power to dispose or to direct the disposition of, and to vote
or direct the vote of, 2,245,000 shares of Common Stock.
(15) Based on a Schedule 13G filed with the Securities and Exchange
Commission dated January 30, 1998, First Pacific Advisors, Inc., a
registered investment advisor, shares the power to dispose or to direct the
disposition of 2,178,216 shares of Common Stock and shares the power to
vote or to direct the vote of 813,300 of those shares of Common Stock.
(16) Based on a Schedule 13G filed with the Securities and Exchange
Commission dated February 14, 1998, FMR Corp., a registered investment
advisor, has the sole power to dispose or to direct the disposition of
1,650,045 shares of Common Stock and to vote or direct the vote of
474,600 of those shares of Common Stock.
11
<PAGE>
(17) Based on a Schedule 13G/A filed with the Securities and Exchange
Commission dated February 10, 1998, ICM Asset Management, Inc., a
registered investment adviser, has the sole power to dispose or direct the
disposition of 1,607,458 shares of Common Stock and shares the power to
vote or direct the vote of 1,126,458 of those shares of Common Stock.
(18) Based on a Schedule 13G filed with the Securities and Exchange
Commission dated June 3, 1998, each of Putnam Investments, Inc., a
registered investment advisor and parent company of Putnam Investment
Management, Inc. & Putnam Advisory Company, Inc., share dispositive power
with respect to 3,564,101 shares of Common Stock, but none of the companies
possesses the power to vote such shares of Common Stock.
(19) The Wyly Group consists of Sam Wyly and Charles J. Wyly, Jr. Based on a
Schedule 13D/A filed with the Securities and Exchange Commission dated
January 21, 1998, Sam Wyly shared voting and dispositive power with respect
to 15,836 shares of Common Stock, and has sole dispositive power with
respect to 2,046,069 shares of Common Stock and sole voting power with
respect to 846,069 shares of Common Stock, and Charles J. Wyly, Jr. has
sole dispositive power with respect to 1,066,444 shares of Common Stock and
sole voting power with respect to 466,444 shares of Common Stock.
(20) Includes 123,331 shares subject to presently exercisable options and 405
shares held pursuant to the 401(k) Plan by 5 executive officers not named
in the table.
MANAGEMENT COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth certain information regarding
compensation paid or accrued by the Company to the Company's Chief Executive
Officer and each of the Company's four other most highly compensated
executive officers, employed by the Company at the end of fiscal year 1997,
based on salary and bonus earned during fiscal year 1997 and the Vice
Chairman of the Board (the "Named Executives").
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
-----------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
------------------------ ----------------------- --------
RESTRICTED SECURITIES
OTHER ANNUAL STOCK UNDERLYING LTIP ALL OTHER
NAME AND PRINCIPAL FISCAL COMPENSATION AWARDS OPTIONS/ PAYOUTS COMPENSATION
POSITION YEAR SALARY($) BONUS($) ($) ($) SARS(#) (1) ($) ($)
- ---------------------- ------ --------- -------- ------------- ----- --------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
R. Michael Rouleau, 1997 500,000 300,000 34,367 (2) -- 400,000 -- 2,154 (3)
President and Chief 1996 394,236 -- 27,779 (2) -- 500,000 -- 203,885 (4)
Executive Officer
Sam Wyly, 1997 450,000 -- -- -- 1,200,000 -- --
Chairman of the 1996 450,000 -- 75,385 (5) -- 633,333 -- --
Board of Directors 1995 450,000 -- 63,690 (5) -- 300,000 (6) --
Charles J. Wyly, Jr., 1997 225,000 -- -- -- 600,000 -- --
Vice Chairman of the 1996 225,000 -- -- -- 367,417 -- --
Board of Directors 1995 225,000 -- -- -- 450,000 (7) -- --
Douglas B. Sullivan 1997 300,000 150,000 47,001 (8) -- -- -- 2,465 (9)
Executive Vice President- 1996 301,809 -- 24,788 (8) -- 253,250 (10) -- 6,268 (9)
Development 1995 284,686 -- 39,105 (8) -- 245,000 (11) -- 5,269 (9)
Lawrence Fine 1997 221,539 126,563 -- -- 25,000 -- 94,771 (12)
Executive Vice President- 1996 34,615 30,000 -- -- 75,000 -- --
General Merchandise
Manager
Duane Hiemenz, 1997 221,154 100,000 6,000 (13) -- 53,333 -- 17,515 (14)
Executive Vice President- 1996 119,231 90,000 3,500 (13) -- 80,000 -- 103,561 (15)
Store Operations
</TABLE>
- ----------------------
12
<PAGE>
(1) Options to acquire shares of Common Stock.
(2) Includes life insurance premiums paid by the Company in the amount of
$20,181 and $21,605 in fiscal years 1997 and 1996, respectively.
(3) Annual contribution by the Company for Mr. Rouleau's account pursuant to
the Company's 401(k) Plan.
(4) Includes $200,000 in relocation expenses paid by the Company and annual
contributions by the Company for Mr. Rouleau's account pursuant to the
Company's 401(k) Plan in the amount of $3,885.
(5) Includes life insurance premiums paid by the Company in the amount of
$60,291 and $51,678 in fiscal years 1996 and 1995, respectively.
(6) 300,000 previously granted stock options which were repriced in fiscal
year 1995.
(7) 450,000 previously granted stock options which were repriced in fiscal
year 1995.
(8) Includes life insurance premiums paid by the Company in the amount of
$21,437, $19,430, and $18,798 in fiscal years 1997, 1996 and 1995,
respectively.
(9) Includes the annual contribution by the Company for Mr. Sullivan's
account pursuant to the Company's 401(k) Plan in the amount of $2,077,
$5,538, and $4,620 in fiscal years 1997, 1996 and 1995, respectively, and
split-dollar life insurance providing $388, $730, and $649 of current net
benefit projected on an actuarial basis in fiscal years 1997, 1996 and
1995, respectively.
(10) 253,250 previously granted stock options which were repriced in fiscal
year 1996.
(11) Includes 165,000 previously granted stock options which were repriced in
fiscal year 1995.
(12) Includes $91,396 in relocation expense paid by the Company and annual
contributions by the Company for Mr. Fine's account pursuant to the
Company's 401(k) plan in the amount of $3,375.
(13) Annual automobile allowance paid by the Company.
(14) Includes $12,246 in relocation expenses paid by the Company and annual
contributions by the Company for Mr. Hiemenz's account pursuant to the
Company's 401(k) Plan in the amount of $5,269.
(15) Relocation expenses paid by the Company.
13
<PAGE>
OPTION GRANTS DURING FISCAL YEAR 1997
The following table provides information concerning options granted to
the Named Executives during fiscal year 1997.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
STOCK PRICE
APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM (1)
- --------------------------------------------------------------------------------------------- ---------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/SARS
UNDERLYING GRANTED TO EXERCISE OR
OPTIONS/SARS EMPLOYEES IN BASE PRICE EXPIRATION
NAME GRANTED (#) (2) FISCAL YEAR ($/SH) (3) DATE 5% ($) 10% ($)
- ----------------------------- --------------- ------------- ------------ ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
R. Michael Rouleau . . . . . 400,000 (4) 9.2 21.375 07/24/00 1,347,694 2,830,050
Sam Wyly . . . . . . . . . . 1,200,000 27.5 21.375 07/24/00 4,043,081 8,490,150
Charles J. Wyly, Jr. . . . . 600,000 13.7 21.375 07/24/00 2,021,541 4,245,075
Douglas B. Sullivan. . . . . -- -- -- -- -- --
Lawrence Fine. . . . . . . . 25,000 (4) 0.6 21.375 07/24/00 84,231 176,878
Duane Hiemenz. . . . . . . . 53,333 (4) 1.2 21.375 07/24/00 179,691 377,338
</TABLE>
- ------------------
(1) The potential realizable value portion of the foregoing table
illustrates value that might be realized upon exercise of the options
immediately prior to the expiration of their term, assuming the specified
compounded rates of appreciation on the Company's Common Stock over the
term of the options. These numbers do not take into account provisions of
certain options providing for termination of the options following
termination of employment, nontransferability or vesting over periods. The
use of the assumed 5% and 10% returns is established by the Securities and
Exchange Commission and is not intended by the Company to forecast possible
future appreciation of the price of the Common Stock.
(2) Options to acquire shares of Common Stock.
(3) The option exercise price may be paid in shares of Common Stock owned by
the Named Executives, in cash, or in any other form of valid consideration
or a combination of any of the foregoing, in some cases as determined by
the Board, the Key Employee Stock Compensation Program Committee, the 1992
Non-Statutory Plan Committee, the 1994 Non-Statutory Plan Committee, and
the 1997 Stock Option Plan Committee, as applicable, in its discretion.
The exercise price of each option was equal to the fair market value of
the Common Stock on the date of grant.
(4) Stock options are currently exercisable with respect to 2/3 of the
shares covered thereby and become exercisable with respect to 1/3 of
the shares covered thereby on July 25, 1999.
14
<PAGE>
OPTION EXERCISES DURING FISCAL YEAR 1997 AND FISCAL YEAR END OPTION VALUES
The following table provides information related to options exercised by
the Named Executives during fiscal year 1997 and the number and value of
options held at fiscal year end. The Company does not have any outstanding
stock appreciation rights.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS/SARS
OPTIONS/SARS AT FY-END (#) AT FY-END ($)(1)
--------------------------- ----------------------------
SHARES ACQUIRED VALUE
NAME ON EXERCISE (#) REALIZED ($)(2) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------------- ---------------- --------------- ----------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
R. Michael Rouleau 300,000 2,662,500 133,333 466,667 1,249,997 6,150,003
Sam Wyly 633,333 4,433,331 1,200,000 -- 11,250,000 --
Charles J. Wyly, Jr. 367,417 2,571,919 600,000 -- 5,625,000 --
Douglas B. Sullivan 92,750 1,452,797 160,500 -- 2,929,125 --
Lawrence Fine 33,333 327,602 25,000 41,667 510,938 667,191
Duane Hiemenz 53,333 399,997 17,777 62,223 166,659 783,344
</TABLE>
- ----------------------
(1) The closing price for the Company's Common stock as reported through The
Nasdaq Stock Market on January 31, 1998, the last trading day of the fiscal
year 1997, was $30.75. Value is calculated on the basis of the difference
between the option exercise price and $30.75 multiplied by the number of
shares of Common Stock underlying the option.
(2) Value realized is calculated based on the difference between the option
exercise price and the closing market price of the Common Stock on the date
of exercise multiplied by the number of shares to which the exercise
relates.
COMPENSATION OF DIRECTORS
Directors who are salaried employees of the Company are not compensated
for their Board activities. The Company pays Sam Wyly $37,500 per month for
serving as Chairman of the Board. On July 25, 1997, the Company granted to
Sam Wyly a three-year option to purchase 1,200,000 shares of Common Stock at
an exercise price of $21.375, all of which was exercisable immediately. The
Company pays Charles J. Wyly, Jr. $18,750 per month for serving as Vice
Chairman of the Board. On July 25, 1997, the Company granted to Charles J.
Wyly, Jr. a three-year option to purchase 600,000 shares of Common Stock at
an exercise price of $21.375, all of which was exercisable immediately.
Dr. Taylor and Mr. Hanlon each receive an annual fee of $24,000 as
members of the Board, a fee of $1,000 for attendance at each regular or
special Board meeting, and a fee of $1,000 for attendance at each meeting of
the Audit Committee. On July 25, 1997, the Company granted each of Dr.
Taylor and Mr. Hanlon a three-year option to purchase 30,000 shares of Common
Stock at an exercise price of $21.375, all of which was exercisable
immediately.
Pursuant to a consulting arrangement with the Company, during fiscal
year 1997, Mr. French received from the Company a non-refundable retainer of
$15,000 per month for his advice and assistance. On July 25, 1997, the
Company granted to Mr. French a three-year option to purchase 75,000 shares
of Common Stock at an exercise price of $21.375, all of which was exercisable
immediately. Jones, Day, Reavis & Pogue, a law firm for which Mr. French is
a consultant, provides legal services to the Company, but does not charge the
Company for any time spent by Mr. French on any Company matters.
15
<PAGE>
EMPLOYMENT AND CHANGE OF CONTROL AGREEMENTS
The Company has entered into agreements with Sam Wyly and Charles J.
Wyly, Jr., directors and executive officers of the Company, which agreements
provide for the employment of such persons by the Company upon a change of
control of the Company (a "Change of Control") for a salary not less than
each such individual's respective annual salary immediately preceding the
Change of Control and allows each such individual to participate in bonuses
with other key management personnel. Each of these agreements (i) is for a
term of three years with provisions for annual automatic one-year extensions
and, upon a Change of Control, an additional extension of 36 months and (ii)
requires the Company to pay to each such individual, if his employment is
terminated within three years of a Change of Control, a sum equal to three
times such individual's salary and bonus during the twelve-month period
immediately preceding termination.
The Company has entered into a six-year employment agreement with R.
Michael Rouleau, the President and Chief Executive Officer of the Company,
effective April 29, 1997, under which Mr. Rouleau is entitled to receive an
annual base salary of $500,000 and standard executive officer benefits and to
participate in a bonus plan in any year in which a bonus plan is established.
During fiscal year 1997, Mr. Rouleau received a bonus of $300,000 pursuant to
a bonus plan upon the attainment by the Company of certain performance goals.
Upon a Change of Control of the Company or if the Company terminates Mr.
Rouleau's employment (other than for cause) prior to the expiration of the
six-year term, Mr. Rouleau is entitled to continue to receive his base salary
and other benefits until April 30, 2003. If Mr. Rouleau's employment is
terminated for any reason, at any time, all unvested options then held by him
will immediately become fully exercisable and Mr. Rouleau will be entitled to
the value of any unvested interest he may have in the Company's 401(k) plan.
The Company has entered into an agreement with Douglas B. Sullivan, an
executive officer of the Company, which provides for his employment by the
Company upon a Change of Control for a salary not less than his annual salary
immediately preceding the Change of Control and allows him to participate in
bonuses with other key management personnel of the Company. This agreement
(i) is for a term of three years with provisions for annual automatic
one-year extensions and, upon a Change of Control, an additional extension of
twelve months and (ii) requires the Company to pay to Mr. Sullivan, if his
employment is terminated within one year of a Change of Control, a sum equal
to his salary and bonus during the twelve-month period immediately preceding
termination.
COMPENSATION AND STOCK OPTION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal year 1997, the members of the Compensation Committee, Sam
Wyly and Charles J. Wyly, were primarily responsible for determining
executive compensation. The Board as a whole and the members of the various
option committees made decisions related to stock option grants to executive
officers and directors.
Sam Wyly and Charles J. Wyly, Jr. are members of the Executive Committee
and the Compensation Committee of the Company. Sam Wyly and Charles J. Wyly,
Jr. are also executive officers and members of the Executive Committees,
Stock Option Committees and Boards of Directors of Sterling Software, Inc.
and Sterling Commerce, Inc. Accordingly, Sam Wyly and Charles J. Wyly, Jr.
have participated in decisions related to compensation of executive officers
of each of the Company, Sterling Software, Inc., and Sterling Commerce, Inc.
16
<PAGE>
REPORT OF THE COMPENSATION AND STOCK OPTION COMMITTEES
WHAT IS OUR COMPENSATION PHILOSOPHY?
The objectives of the Company's executive compensation program are to:
- attract and retain highly qualified and productive people;
- motivate employees to high levels of performance;
- differentiate individual pay based on performance;
- ensure external competitiveness and internal equity; and
- align Company, employee and stockholder interests.
The Company does not believe in "bargain rate" executive compensation.
Instead, the Company believes that outstanding executives should be
compensated generously, both in cash compensation in amounts sufficient to
preempt other opportunities for such executives and in stock option awards
which align such executives' interests with the interests of the stockholders
and incentivize focus on long term stockholder value enhancement.
HOW IS COMPENSATION DETERMINED?
In determining base pay, the Compensation Committee considers an
individual's experience and prior performance, as well as the Company's
operating performance and the attainment of planned financial and strategic
initiatives. The experience, performance and attainment of initiatives were
evaluated by the Compensation Committee on a subjective basis and no
particular weight was given to any particular factor.
In determining executive bonuses, the Compensation Committee provides
financial incentives to those members of management who can make an important
contribution to the Company's success, by tying the bonuses to the Company's
profits before taxes. Based upon the Company's profit before taxes goal,
each participating executive is entitled to a bonus equal to a certain
percentage of that executive's salary.
In determining compensation through stock options, the stock option
committees, as well as the Board as a whole, evaluated certain factors such
as the recipient's level of cash compensation, years of service with the
Company, position with the Company, the number of unexercised options held by
the recipient, the Company's performance, and other factors. These factors
were applied on a subjective basis with no particular weighting given to any
specific factor.
HOW ARE OUR INCENTIVE COMPENSATION PROGRAMS USED TO FOCUS MANAGEMENT ON
INCREASING STOCKHOLDER VALUE?
We maintain the Company's stock option plans for its executive officers,
as well as directors, key employees, advisors and consultants. We believe
that the grant of options aligns executive and stockholder long-term
interests by creating a strong and direct link between executive compensation
and stockholder return. The grant of options also allows executives to
develop and maintain a significant long-term ownership position in the
Company's Common Stock.
17
<PAGE>
HOW HAVE WE RESPONDED TO THE IRS LIMITS ON DEDUCTIBILITY OF COMPENSATION?
It is our intent, to the extent feasible, that executive compensation
will not be subject to the annual $1,000,000 limitation on the tax deduction
the Company may claim for compensation of certain executives. Options
granted under the 1994 Non-Statutory Plan and the 1997 Stock Option Plan are
intended to meet the performance based compensation exception to IRS
deduction limitation.
HOW IS THE CEO COMPENSATED?
As the Company's Chief Executive Officer, Mr. Rouleau received a base
salary of $500,000 during fiscal year 1997. Mr. Rouleau's incentive
compensation for fiscal year 1997, in the form of a bonus of up to 60% of his
base salary was based upon the attainment by the Company of specified amounts
of profit before taxes. Under these objectives, Mr. Rouleau received
$300,000 in a cash bonus. Mr. Rouleau also received stock options for
400,000 shares of stock.
HOW ARE THE OTHER EXECUTIVE OFFICERS' COMPENSATED?
The Company's other executive officers usually receive a base salary,
annual cash bonuses, long-term incentive compensation in the form of stock
options and various benefits. As described above, the Compensation Committee
annually reviews the compensation for the Company's executive officers and,
based upon the executive's performance, the Company's attainment of certain
financial and strategic objectives and other factors, determines the
compensation for each executive. The Option Committees also evaluate the
executive officers' performance in determining whether to grant any stock
options or other equity based incentives to the executive.
This report is submitted by the members during fiscal year 1997 of the
Compensation and Option Committees:
<TABLE>
<CAPTION>
KEY EMPLOYEE
STOCK COMPENSATION 1997 STOCK
PROGRAM 1992 NON-STATUTORY 1994 NON-STATUTORY OPTION COMPENSATION
COMMITTEE PLAN COMMITTEE PLAN COMMITTEE COMMITTEE COMMITTEE
------------- -------------- -------------- ----------- ------------
<S> <C> <C> <C> <C>
F. Jay Taylor F. Jay Taylor F. Jay Taylor F. Jay Taylor Sam Wyly
Richard E. Hanlon Richard E. Hanlon Richard E. Hanlon Richard E. Hanlon Charles J. Wyly, Jr.
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STOCK PERFORMANCE CHART
The following chart compares the yearly changes in the total
stockholder return on the Company's Common Stock against two other measures
of performance. The comparison is on a cumulative basis for the Company's
last five fiscal years. The two other performance measures are the Dow Jones
Equity Market Index and the Dow Jones Retail--Other Specialty Index. In each
case, we assumed an initial investment of $100 on February 1, 1993. Dates on
the following chart represent the last day of the indicated fiscal year. The
Company paid no dividends during such five-year period.
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01/29/93 01/28/94 01/27/95 01/31/96 01/31/97 01/30/98
<S> <C> <C> <C> <C> <C> <C>
Michaels Stores, Inc. 100.00 98.52 103.70 37.78 38.89 91.11
Dow Jones Equity Market Index 100.00 111.91 112.58 152.62 197.55 251.20
Dow Jones Retailers -- Other Specialty 100.00 93.64 96.83 86.88 103.35 152.29
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19
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CERTAIN TRANSACTIONS
Since the beginning of fiscal year 1997, the Company has not entered
into any transaction or series of transactions that require disclosure by
Regulation S-K Item 404 -- Certain Relationships and Related Transactions, nor
is any such transaction or series of transactions currently proposed.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's officers and directors and persons who own more than
10% of a registered class of the Company's equity securities to file initial
reports of ownership and reports of changes in ownership with the Securities
and Exchange Commission (the "SEC"). Such persons are required by SEC
regulation to furnish the Company with copies of all Section 16(a) forms they
file. Based solely on its review of the copies of such forms received by it
with respect to fiscal year 1997, or written representations from certain
reporting persons, the Company believes that its officers and directors and
persons who own more than 10% of a registered class of the Company's equity
securities have complied with all applicable filing requirements.
ANNUAL REPORT
The Annual Report to Stockholders of the Company, including financial
statements for the fiscal year ended January 31, 1998 was previously
forwarded to stockholders. If you would like a copy of the Annual Report,
please contact Michaels Stores, Inc., P.O. Box 619566, DFW, Texas
75261-9566, Attn: Investor Relations. The Annual Report is not to be deemed
part of this Proxy Statement.
By Order of the Board of Directors
MARK V. BEASLEY
SECRETARY
Irving, Texas
August 10, 1998
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PROXY PROXY
MICHAELS STORES, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE 1998 ANNUAL MEETING OF STOCKHOLDERS -- SEPTEMBER , 1998
The undersigned hereby appoints Bryan M. Decordova and Mark V. Beasley,
each with power to act without the other and with full power of substitution, as
Proxies to vote, as designated below, all stock of Michaels Stores, Inc. owned
by the undersigned at the 1998 Annual Meeting of Stockholders to be held at the
Omni Mandalay Hotel, 221 East Las Colinas Boulevard, Irving, Texas on Tuesday,
September , 1998, at 10:30 a.m. central time, or any adjournment thereof,
upon such business as may properly come before the meeting or any adjournment
thereof.
UNLESS OTHERWISE MARKED, THIS PROXY WILL BE VOTED FOR THE ELECTION OF EACH
OF THE NOMINEES NAMED, FOR PROPOSAL NO. 2, AGAINST PROPOSAL NO. 3, AND IN THE
DISCRETION OF THE PROXY HOLDERS ON ANY OTHER MATTER THAT MAY PROPERLY COME
BEFORE THE MEETING OR ANY ADJOURNMENT THEREOF.
PLEASE VOTE, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
(Continued and to be signed and dated on reverse side)
<PAGE>
MICHAELS STORES, INC.
PLEASE MARK VOTE IN THE OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY.
THE BOARD OF DIRECTORS RECOMMENDS VOTING FOR PROPOSALS 1 AND 2 AND AGAINST
PROPOSAL 3
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<S> <C>
1. Election of Directors of the For Withheld For All
three nominees listed below: All All Except
Charles J. Wyly, Jr. / / / / / / _________________
Richard E. Hanlon Nominee Exception
Kelly Elliott
2. Amendment to the Restated For Against Abstain
Certificate of Incorporation / / / / / /
to increase the number of shares
of Common Stock authorized for
issuance.
3. Stockholder Proposal to For Against Abstain
recommend that the Board of / / / / / /
Directors amend the Bylaws to
require the majority of the
members of the Board of
Directors to be "independent."
4. In their discretion on any other matter that may properly come before the
meeting or any adjournment thereof.
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_________________________ __________ , 1998
Signature Date
_________________________ __________ , 1998
Signature Date
Please sign exactly as your name appears hereon and mail promptly this proxy
in the enclosed envelope. Joint owners should each sign. When signing as
attorney, administrator, executor, guardian or trustee, please give your full
title as such. If executed by a corporation, the proxy should be signed by a
duly authorized officer. If executed by a partnership, please sign in the
partnership name by an authorized person.
