EXHIBIT 2
THE SECURITIES REPRESENTED BY THIS OPTION HAVE NOT BEEN REGISTERED PURSUANT TO
THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAW. NEITHER THIS SECURITY
NOR ANY PORTION HEREOF OR INTEREST HEREIN MAY BE SOLD, ASSIGNED, TRANSFERRED,
PLEDGED OR OTHERWISE DISPOSED OF UNLESS THE SAME IS REGISTERED UNDER THAT ACT
AND ANY APPLICABLE STATE SECURITIES LAWS, OR UNLESS AN EXEMPTION FROM SUCH
REGISTRATION IS AVAILABLE AND SELLER SHALL HAVE RECEIVED, AT THE EXPENSES OF THE
HOLDER HEREOF, EVIDENCE OF SUCH EXEMPTION REASONABLY SATISFACTORY TO SELLER
(WHICH MAY INCLUDE, AMONG OTHER THINGS, AN OPINION OF COUNSEL SATISFACTORY TO
SELLER).
OPTION AGREEMENT
This OPTION AGREEMENT (this "Agreement") is made and entered as of December
23, 1996 between Michaels Stores, Inc., a Delaware corporation ("Seller") and
Elegance Limited, an Isle of Man corporation ("Purchaser").
RECITAL
Seller desires to grant and sell to Purchaser, and Purchaser desires to
purchase from Seller, the option to acquire 666,667 newly issued and outstanding
shares (the "Option Shares") of Common Stock, par value $.10 per share, of
Seller (the "Common Stock") on the terms and subject to the conditions set forth
in this Agreement.
Seller and Purchaser hereby agree as follows:
I. OPTION GRANT
1.1 OPTION. In exchange for $0.50 per Option Share (the "Option Xxxxx
Xxxxx"), Seller hereby irrevocably grants to Purchaser an option (the "Option")
to purchase the Option Shares at $10.50 per Option Share (the "Option Price").
The Option will terminate and will no longer be in effect after 5:00 p.m.
Central Time on February 28, 1997 (the "Option Expiration Time").
1.2 EXERCISE OF OPTION. The Option may be exercised, in whole or in part,
at any time, or from time to time, from this date to the Option Expiration Time
(the "Option Period"). If at any time, or from time to time, Purchaser wishes
to exercise the Option, in whole or in part, Purchaser will notify Seller in
writing (each an "Option Notice") of the number of Option Shares for which the
Option is being exercised.
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1.3 OPTION PRICE. If Purchaser exercises the Option pursuant to Section
1.2, Purchaser will pay to Seller at the Closing (as defined below) the
aggregate amount equal to the product of (a) the number of Option Shares that
are the subject of the related Option Notice multiplied by (b) the Option Price
less the Option Xxxxx Xxxxx (the "Purchase Price").
1.4 THE CLOSING.
(a) Subject to Section 1.5, the closing of the purchase and sale of
the Option Shares under this Agreement (the "Closing") will take place on the
date five business days after the Seller has delivered an Option Notice or such
other date as Seller and Purchaser may agree (the "Closing Date").
(b) At the Closing, (i) Purchaser will pay to Seller the Purchase
Price by wire transfer of immediately available funds to an account or accounts
designated by Seller and (ii) Seller will deliver to Purchaser a single
certificate representing the Option Shares registered in the name of "Elegance
Limited".
(c) At the Closing Seller will deliver to Purchaser, and Purchaser
will deliver to Seller, a certificate confirming that their respective
representations and warranties set forth in this Agreement are true and complete
in all material respects on the Closing Date as if made on that date.
1.5 CONDITION TO CLOSING.
(a) Notwithstanding anything to the contrary in this Agreement, the
obligation of Seller to consummate the sale and purchase of the Option Shares
contemplated hereby is subject to satisfaction of each of the following
conditions:
(i) The Board of Directors of Seller shall have approved the
sale of the Option Shares on or before the Closing Date.
(ii) The representations and warranties of Purchaser in this
Agreement shall be true and complete in all material respects on and as of
the Closing Date.
(b) Notwithstanding anything to the contrary in this Agreement, the
obligations of Purchaser to consummate the sale and purchase of the Option
Shares contemplated hereby are subject to the condition that the representations
and warranties made by Seller in this Agreement shall be true and complete in
all material respects on and as of the Closing Date.
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II. REPRESENTATIONS AND WARRANTIES OF SELLER
2.1 ORGANIZATION; POWER AND AUTHORITY. Seller is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. Seller has requisite corporate power and authority to execute and
deliver this Agreement and to consummate the transactions contemplated hereby.
The execution and delivery by Seller of this Agreement and the performance by it
of the transactions contemplated hereby to be performed by it have been duly
authorized by all necessary corporate action on the part of Seller. This
Agreement has been duly executed and delivered by Seller and constitutes a valid
and binding obligation of Seller.
2.2 CAPITALIZATION. The authorized capital stock of Seller consists of
(i) 50,000,000 shares of Common Stock, of which as of December 10, 1996,
23,560,592 shares were issued and outstanding, fully paid and nonassessable and
no shares were held in the treasury, and (ii) 2,000,000 shares of preferred
stock, $.10 par value per share, of which as of December 10, 1996, no shares
were outstanding. Upon the issuance of the Option Shares to Purchaser and the
payment to Seller of the Purchase Price, the Option Shares will be validly
issued and outstanding, fully paid and nonassessable, and Purchaser will acquire
good and valid title to the Option Shares, free and clear of any charges, liens
or other encumbrances ("Encumbrances") of any kind. Neither the granting of the
Option or issuing any of the Option Shares will violate any preemptive rights,
rights of first refusal or other acquisition rights.
2.3 CONSENT AND APPROVALS; NO VIOLATION. Neither the execution and
delivery of this Agreement by Seller nor the consummation by Seller of the
transactions contemplated hereby will (a) conflict with or result in any breach
or violation of, or constitute a default under, any note, pledge, trust,
commitment, agreement or other instrument or obligation to which Seller is a
party or by which Seller or any of its properties may be bound, (b) require any
consent, approval, authorization or permit of, or filing with or notification
to, any court, governmental authority or other regulatory or administrative
agency or commission, domestic or foreign ("Governmental Entity"), or (c)
violate any statute or any order, decree, injunction, rule or regulation of any
Governmental Entity applicable to Seller.
2.4 SEC REPORTS; FINANCIAL STATEMENTS.
(a) Seller has delivered to Purchaser (i) its Annual Report on Form
10-K for the fiscal year ended January 28, 1996 and (ii) its Quarterly Reports
on Form 10-Q for each of the fiscal quarters ended April 28, 1996, July 28, 1996
and October 27, 1996, respectively, each in the form (including exhibits) filed
with the Securities and Exchange Commission ("SEC") (collectively, the "SEC
Reports"). Each SEC Report has been prepared and filed in accordance with all
applicable rules and regulations of the SEC and at the time of its filing was in
compliance with such rules and regulations in all material respects. As of
their respective dates, the SEC Reports did not contain any untrue statement of
a material fact or omit to state a material fact required to be stated
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therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(b) Each of the audited consolidated financial statements and
unaudited consolidated interim financial statements of Seller (and the related
notes and schedules) included in the SEC Reports present fairly, in all material
respects, the consolidated financial position of Seller and its consolidated
subsidiaries as of the respective dates thereof and the results of operations
and cash flows for the respective periods set forth therein, in accordance with
generally accepted accounting principles consistently applied during the period
involved, except as otherwise noted therein and subject, in the case of the
unaudited interim consolidated financial statements, to the omission of certain
notes not ordinarily accompanying such unaudited interim consolidated financial
statements and to normal year-end adjustments and any other adjustments
described therein.
(c) Except as set forth in the SEC Reports, any other reports filed
with the SEC pursuant to the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), that relate to Seller, and any public announcements made by
Seller, since October 27, 1996 there has been no material adverse change in the
assets, earnings, financial position, business or prospects of Seller and its
subsidiaries, considered as a whole.
2.5 NO BROKER; FINDER; ETC. None of Seller or its directors, officers or
employees has employed any investment banker, consultant, broker or finder or
incurred any liability for any brokerage fees, commissions or finders fees in
connection with the transactions contemplated under this Agreement.
III. REPRESENTATIONS AND WARRANTIES OF PURCHASER
3.1 PURCHASE FOR INVESTMENT. Purchaser acknowledges that the Option and
the Option Shares have not been registered under the Securities Act of 1933, as
amended ("Securities Act"), or under any state or foreign securities laws.
Purchaser is not an underwriter as such term is defined under the Securities
Act, and is purchasing the Option Shares solely for investment with no present
intention to distribute any of the Option Shares to any person or entity
("Person"). Purchaser will not sell or otherwise dispose of any of the Option
Shares, except in accordance with the registration requirements or exemption
provisions under the Securities Act and the rules and regulations promulgated
thereunder, and any other applicable securities laws. Purchaser further
understands that the certificate representing the Option Shares will bear the
following legend and agrees that it will hold the Option Shares subject thereto:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED PURSUANT TO THE SECURITIES ACT OF 1933 OR ANY
STATE SECURITIES LAW. NEITHER THIS SECURITY NOR ANY PORTION
HEREOF OR
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INTEREST HEREIN MAY BE SOLD, ASSIGNED, TRANSFERRED,
PLEDGED OR OTHERWISE DISPOSED OF UNLESS THE SAME
IS REGISTERED UNDER THAT ACT AND ANY APPLICABLE STATE
SECURITIES LAW, OR UNLESS AN EXEMPTION FROM SUCH
REGISTRATION IS AVAILABLE AND MICHAELS STORES, INC. SHALL
HAVE RECEIVED, AT THE EXPENSE OF THE HOLDER HEREOF, EVIDENCE
OF SUCH EXEMPTION REASONABLY SATISFACTORY TO MICHAELS
STORES, INC. (WHICH MAY INCLUDE, AMONG OTHER THINGS, AN
OPINION OF COUNSEL SATISFACTORY TO MICHAELS STORES, INC.).
3.2 SUITABILITY AND SOPHISTICATION. Purchaser represents and warrants
that it (a) is an "accredited investor" as defined in Rule 501(a) promulgated
under the Securities Act, (b) has such knowledge and experience in financial and
business matters that it is capable of independently evaluating the risks and
merits of purchasing the Option and the Option Shares, (c) has been provided
with the opportunity to make a reasonable investigation of Seller, including the
opportunity to make any inquiries and to request additional information
necessary to its investment decision, and Seller has satisfactorily responded to
any inquiries and furnished to Purchaser all requested information, (d) has
independently evaluated the risks and merits of purchasing the Option and the
Option Shares and has independently determined that the Option Shares are a
suitable investment for it, and (e) has sufficient financial resources to bear
the loss of its entire investment in the Option and the Option Shares.
3.3 CONSENT AND APPROVALS; NO VIOLATION. Neither the execution and
delivery of this Agreement by Purchaser nor the consummation by Purchaser of the
transactions contemplated hereby will (a) conflict with or result in any breach
or violation of, or constitute a default under, any note, pledge, trust,
commitment, agreement or other instrument or obligation to which Purchaser is a
party or by which Purchaser or any of its properties may be bound, (b) require
any consent, approval, authorization or permit of, or filing with or
notification to, any Governmental Entity, or (c) violate any statute or any
order, decree, injunction, rule or regulation of any Governmental Entity
applicable to Purchaser.
3.4 NO AGREEMENTS. Purchaser acknowledges that there are no agreements,
arrangements, commitments or understandings relating to any of the Option Shares
except pursuant to this Agreement.
3.5 NO BROKER; FINDER; ETC. None of Purchaser or its directors, officers,
agents or employees has employed any investment banker, consultant, broker or
finder or incurred any liability for any brokerage fees, commissions or finders
fees in connection with the transactions contemplated under this Agreement.
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IV. REGISTRATION RIGHTS
4.1 REGISTRATION. Upon receipt of a written request (the "Registration
Notice") by Purchaser at any time after one year from the date of the initial
Closing, Seller shall cause to be filed as soon as practicable a registration
statement (a "Shelf Registration Statement") under the Securities Act on Form
S-3 or any other appropriate form under the Securities Act for an offering to be
made on a delayed or continuous basis pursuant to Rule 415 thereunder or any
similar rule that may be adopted by the SEC and permitting sales in ordinary
course brokerage or dealer transactions not involving an underwritten public
offering (and shall register or qualify the shares to be sold in such offering
under such other securities or "blue sky" laws as required pursuant to this
Section 4.1) covering no less than the aggregate number of Option Shares then
held by Purchaser (those Option Shares together with any shares of Common Stock
or other securities that may subsequently be issued with respect to the Option
Shares as result of a stock split or dividend, reclassification, or combination
of shares or any sale, transfer, assignment or other transaction by Seller or
Purchaser involving the Option Shares and any securities into which the Option
Shares may thereafter be changed as a result of merger, consolidation, or
recapitalization or otherwise are referred to as the "Registrable Shares") so
that the Registrable Shares will be included in an effective registration
statement under the Securities Act. Seller shall use its reasonable efforts to
cause the Shelf Registration Statement to be declared effective by the SEC on or
before 90 days following Seller's receipt of the Registration Notice. Seller
shall use its reasonable efforts to keep the Shelf Registration Statement
continuously effective (and to register or qualify the shares to be sold in such
offering under such other securities or "blue sky" laws as required pursuant to
this Section 4.1) for so long as Purchaser holds any Registrable Shares or until
Seller has caused to be delivered to Purchaser an opinion of counsel, which
counsel shall be reasonably acceptable to Purchaser, stating that the
Registrable Shares may be sold by Purchaser pursuant to Rule 144 without regard
to any volume limitations and that Seller has satisfied the informational
requirements of Rule 144. Seller shall file any necessary listing applications
or amendments to existing applications to cause the Registrable Shares to be
listed on the primary exchange or quotation system on which its shares of Common
Stock are then listed, if any. Seller will use reasonable efforts to register
or qualify the Registrable Shares under such other securities or "blue sky" laws
of such jurisdictions as Purchaser may reasonably request and do any and all
other acts and things that may be reasonably necessary or advisable to register
or qualify for sale in such jurisdictions the Registrable Shares owned by
Purchaser; PROVIDED THAT Seller shall not be required to (i) qualify generally
to do business in any jurisdiction where it is not then so qualified,
(ii) subject itself to taxation in any such jurisdiction, (iii) consent to
general service of process in any such jurisdiction, or (iv) provide any
undertaking required by such other securities or "blue sky" laws or make any
change in its charter or bylaws that the Board of Directors of Seller determines
in good faith to be contrary to the best interest of Seller and its
stockholders. Notwithstanding the foregoing, if Seller shall furnish to
Purchaser a certificate signed by the chief executive officer of Seller stating
that in the good faith judgment of the Board of Directors of Seller it would be
significantly disadvantageous to Seller and its
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stockholders for the Shelf Registration Statement to be amended or
supplemented, Seller may defer such amending or supplementing of such Shelf
Registration Statement for not more than 45 days and in such event Purchaser
shall be required to discontinue disposition of any Registrable Shares
covered by such Shelf Registration Statement during such period.
4.2 DISTRIBUTION OF REGISTRABLE SHARES. If Purchaser intends to
distribute the Registrable Shares covered by the Shelf Registration Statement by
means of an underwriting, Purchaser shall so advise Seller. In that event, the
underwriting shall be managed by an underwriter or underwriters selected by
Purchaser that are reasonably acceptable to Seller (which approval shall not
unreasonably be withheld). Purchaser shall have the right to negotiate with the
underwriters and to determine all terms of the underwriting, including the gross
price and net price at which the Registrable Shares are to be sold. Seller
shall enter into an underwriting agreement in customary form with the
underwriter or underwriters selected as above provided and any representations
and warranties of Seller thereunder to and for the benefit of the underwriters
shall also be made to and for the benefit of Purchaser. Seller will furnish to
Purchaser and the underwriters (i) an opinion of counsel for Seller, addressed
to Purchaser and the underwriters, dated the date of the closing under the
underwriting agreement, and (ii) a "comfort letter" signed by the independent
public accountants who have certified Seller's financial statements included in
the Shelf Registration Statement, addressed to Purchaser and the underwriters;
PROVIDED HOWEVER, that (i) the opinion and "comfort letter" shall cover
substantially the same matters with respect to the Shelf Registration Statement
(and the prospectus included therein) as are customarily covered in opinions of
issuer's counsel and in accountants' letters delivered to underwriters in
underwritten public secondary offerings and such other matters as Purchaser may
reasonably request, and (ii) the "comfort letter" shall also cover events
subsequent to the date of such financial statements.
4.3 FURNISH INFORMATION. In connection with the Shelf Registration
Statement, Purchaser will (a) cooperate with Seller to effect such registration
and to maintain the effectiveness thereof, (b) promptly and accurately furnish
any information reasonably requested by Seller concerning Purchaser and the
proposed distribution by Purchaser, and (c) promptly comply with all applicable
requirements of the Securities Act, the Exchange Act and any other applicable
federal or state laws, including, but not limited to, furnishing Seller such
information regarding Purchaser, the Registrable Shares held by it and the
intended method of disposition of such securities as reasonably required in
connection with the action to be taken by Seller pursuant to this Agreement.
4.4 EXPENSES OF REGISTRATION. Seller will bear all expenses incurred in
effecting any registration pursuant to this Agreement, including without
limitation, all registration, qualification and filing fees, printing expenses,
escrow fees, fees and disbursements of counsel for Seller, blue sky fees and
expenses, expenses of any regular or special audit incident to or required by
any such registration, but will not include any expenses payable by Purchaser
under this Section 4.4. Purchaser will pay in connection with any registration
of its Registrable Shares any underwriting discounts, selling commissions,
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fees or disbursements of Purchaser's counsel or of any advisor to Purchaser
not retained by Seller, or fees and expenses incident to preparation of
information by Purchaser, and expenses incurred in connection with the
qualification of the Registrable Shares in a jurisdiction that requires those
expenses to be paid by a selling shareholder.
4.5 REGISTRATION PROCEDURE.
(a) Seller will keep Purchaser advised in writing of the initiation
and the completion of each registration, qualification and compliance
effected by Seller under this Agreement.
(b) At its expense, Seller will:
(i) prepare and file with the SEC such amendments and supplements
to the Shelf Registration Statement and the prospectus used in connection
therewith as may be necessary to keep the Shelf Registration Statement
effective for the period described in Section 4.1(a) and to comply with the
provisions of the Securities Act with respect to the sale or other
disposition of the Registrable Shares whenever the Purchaser shall desire
to sell or otherwise dispose of the Registrable Shares within that period;
(ii) furnish to Purchaser and any underwriters such numbers of
copies of the Shelf Registration Statement, amendments and supplements
thereto, the prospectus included in the Shelf Registration Statement
including any preliminary prospectus, and any amendments or supplements
thereto, and such other documents, as Purchaser and any underwriters may
reasonably request in order to facilitate the sale or other disposition of
the Registrable Shares;
(iii) use its reasonable efforts to comply with all applicable
rules and regulations of the SEC, and make available to its security
holders, as soon as reasonably practicable, an earnings statement covering
the period of at least twelve months, beginning with the first fiscal
quarter beginning after the effective date of the registration statement,
which earnings statement shall satisfy the provisions of Section 11(a) of
the Securities Act; and
(iv) notify Purchaser at any time when a prospectus relating to
the Registrable Shares is required to be delivered under the Securities
Act, of the happening of any event of which Seller has knowledge as a
result of which the prospectus included in the Shelf Registration
Statement, as then in effect, contains an untrue statement of a material
fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in the light of the
circumstances then existing.
4.6 POSTPONEMENT OF REGISTRATION. If after any registration statement
including Registrable Shares has become effective there exists in the opinion of
Seller's management material non-public information about Seller which has not
been released
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and which, in the reasonable opinion of Seller's management, would not be
advisable to release, then upon receipt of notice from Seller, Purchaser will
not offer or sell or permit to be offered or sold any of the Registrable
Shares for such time as Seller believes such condition is continuing. If the
offering is not completed because of Seller's exercise of its rights
hereunder, Seller will reimburse Purchaser for all of its expenses incurred
in connection with the terminated offering.
4.7 INDEMNIFICATION BY SELLER.
(a) Seller will indemnify Purchaser, its directors, officers,
employees, and agents, and any person controlling the Purchaser (within the
meaning of the Securities Act) and each underwriter, if any, of the
Registrable Shares and each person controlling that underwriter (within the
meaning of the Securities Act), against all claims, losses, expenses,
damages, liabilities and actions ("Claims") in respect of Claims (including
any Claim incurred in settlement of any litigation, commenced or threatened)
arising out of or based on (i) any untrue statement or alleged untrue
statement of a material fact in any prospectus or any related registration
statement, or any amendment or supplement thereto, or any notification or the
like incident to any such registration, or any amendment or supplement
thereto, or any qualification or compliance, or (ii) any omission or alleged
omission to state in any such prospectus or related registration statement
incident to such registration, qualification or compliance, a material fact
required to be stated in it or necessary to make that statement in it not
misleading in light of the circumstance in which the statement was made, or
(iii) any violation by Seller of any rule or regulation promulgated under the
Securities Act applicable to Seller and relating to action or inaction
required of Seller in connection with any such registration, qualification or
compliance; provided, however, that the indemnity agreement contained in this
Section 4.7(a) will not apply (A) to amounts paid in settlement of any Claim
if such settlement is effected without the consent of Seller (which consent
will not be unreasonably withheld) and (B) with respect to any untrue
statement or omission or alleged untrue statement or omission made in any
preliminary prospectus or the prospectus or the prospectus as amended or
supplemented, but eliminated or remedied in the prospectus or the prospectus
as amended or supplemented, and will not inure to the benefit of Purchaser,
its directors, officers, employees, agents, or any underwriter (or to the
benefit of any person who controls Purchaser or such underwriter within the
meaning of the Securities Act) from whom the person asserting the Claim
purchased any of the Registrable Shares, if a copy of the prospectus (as then
amended or supplemented and provided to Purchaser) was not sent or given to
such person through no fault of Seller at or prior to the time such action is
required by the Securities Act, nor will Seller be liable in any such case
for any Claim to the extent that it arises out of or is based upon (1) any
untrue statement or alleged untrue statement of a material fact contained in
any registration statement, including any preliminary prospectus or final
prospectus contained therein or any amendments or supplements thereto, (2)
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, or (3) any violation or alleged violation by Seller of the
Securities Act, the Exchange Act, any state securities law or any rule or
regulation promulgated under the Securities Act, the Exchange Act or any
state
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securities law (collectively a "Violation") which occurs in reliance upon and
in conformity with written information furnished for use in connection with
such registration by or on behalf of Purchaser (with respect to a Claim by
Purchaser under this Section 4.7(a)) or such underwriter or controlling
person (with respect to a Claim by such underwriter or controlling person
under this Section 4.7(a)).
(b) Seller will reimburse Purchaser, its directors, officers,
employees, agents, and controlling person and each such underwriter or
controlling person for any legal or any other expenses reasonably incurred in
connection with investigating or defending any Claim; provided, however, that
the reimbursement provisions contained in this Section 4.7(b) will not apply
(i) to amounts paid in settlement of any Claim if such settlement is effected
without the consent of Seller (which consent will not be unreasonably
withheld) and (ii) with respect to any untrue statement or omission or
alleged untrue statement or omission made in any preliminary prospectus or
the prospectus or the prospectus as amended or supplemented, but eliminated
or remedied in the prospectus or the prospectus as amended or supplemented,
and will not inure to the benefit of Purchaser, its directors, officers,
employees, agents, and controlling person or any underwriter (or to the
benefit of any person who controls such underwriter within the meaning of the
Securities Act) from whom the person asserting any Claim purchased any of the
Registrable Shares, if a copy of the prospectus (as then amended or
supplemented and provided to Purchaser) was not sent or given to such person
through no fault of Seller at or prior to the time such action is required by
the Securities Act, nor will Seller be liable in any such case for any Claim
to the extent that it arises out of or is based upon a Violation which occurs
in reliance upon and in conformity with written information furnished for use
in connection with such registration by or on behalf of Purchaser (with
respect to a claim for reimbursement by Purchaser, its directors, officers,
employees, agents, and controlling person under this Section 4.7(b)) or such
underwriter or controlling person (with respect to a claim for reimbursement
by such underwriter or controlling person under this Section 4.7(b)).
4.8 INDEMNIFICATION BY PURCHASER.
(a) Purchaser hereby indemnifies Seller, its directors, officers,
employees, agents, and any person controlling Seller (within the meaning of
the Securities Act) each underwriter, if any, of Seller's securities covered
by such registration statement, each person who controls that underwriter
(within the meaning of the Securities Act) against all Claims (including any
Claim incurred in settlement of any litigation commenced or settled) arising
out of or based on (i) any untrue statement or alleged untrue statement of a
material fact in any prospectus or any related registration statement,
notification or the like, incident to such registration, qualification or
compliance, or (ii) any omission or alleged omission to state in any such
prospectus or any related registration statement, qualification or
compliance, a material fact required to be stated in it or necessary to make
the statement(s) in it not misleading in light of the circumstance in which
the statement was made, or (iii) any violation by Purchaser of any rule or
regulation promulgated under the Securities Act applicable to Purchaser and
relating to action or inaction required of Purchaser in connection with any
such
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registration, qualification or compliance; provided, however, that the
indemnity agreement contained in this Section 4.8(a) will apply to any Claim
only to the extent that it arises out of or is based upon a Violation which
occurs solely in reliance upon and in conformity with written information
furnished expressly for use in connection with such registration by or on
behalf of Purchaser, and provided further that Purchaser will have no
liability hereunder if (A) any such written information contained an untrue
statement or omission or alleged untrue statement or omission that was
subsequently corrected in writing by Purchaser and furnished to Seller or the
underwriter in sufficient time for incorporation into the final prospectus,
or (B) Seller pays any amounts in settlement of any such Claim if such
settlement is effected without the consent of Purchaser (which consent will
not be unreasonably withheld).
(b) Purchaser will reimburse Seller and its directors, officers,
employees, agents and controlling person (within the meaning of the
Securities Act) each underwriter, and each person controlling that
underwriter (within the meaning of the Securities Act) for any legal or any
other expenses reasonably incurred in connection with investigating or
defending any such Claim; provided, however, that the reimbursement
provisions contained in this Section 4.8(b) will apply to any such Claim only
to the extent that it arises out of or is based upon a Violation which occurs
in reliance upon and in conformity with written information furnished
expressly for use in connection with such registration by or on behalf of
Purchaser.
4.9 NOTICE. Promptly after receipt by an indemnified party under
Section 4.7 or 4.8 of notice of the commencement of any action (including,
but not limited to, any action by a Governmental Entity), such indemnified
party will, if a Claim in respect thereof is to be made against any
indemnifying party under Sections 4.7 or 4.8, deliver to the indemnifying
party a written notice of the commencement thereof and the indemnifying party
will have the right to participate in, and, to the extent the indemnifying
party so desires, jointly with any other indemnifying party similarly
noticed, to assume the defense thereof with counsel mutually satisfactory to
the parties and the indemnified party will bear the fees and expenses of any
additional counsel thereafter retained by it; provided, however, that
indemnified parties will have the right to retain counsel to represent all
indemnified parties, with the fees and expenses to be paid by the
indemnifying party, if representation of such indemnified parties by the
counsel retained by the indemnifying party would be inappropriate due to
actual or potential material differing interests between such indemnified
parties and any other party represented by such counsel in such proceeding.
The failure to deliver written notice to the indemnifying party within a
reasonable time of the commencement of any such action, if prejudicial to its
ability to defend such action, will relieve such indemnifying party of any
liability to the indemnified party under Section 4.7 or 4.8, but the omission
so to deliver written notice to the indemnifying party will not relieve it of
any liability that it may have to any indemnified party otherwise than under
Section 4.7 or 4.8.
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4.10 CONTRIBUTION.
(a) If for any reason the indemnification provided for in Section
4.7 or 4.8 is unavailable to an indemnified party or insufficient to hold it
harmless as contemplated by such sections, then the indemnifying party will
contribute to the amount paid or payable by the indemnified party as a result
of any Claim in such proportion as is appropriate to reflect not only the
relative benefits received by the indemnified party and the indemnifying
party, but also the relative fault of the indemnified party and the
indemnifying party, as well as any other relevant equitable considerations;
provided, however, that, in any such case, (i) Purchaser will not be required
to contribute any amount in excess of the sales price of all Registrable
Shares sold by Purchaser pursuant to such registration statement, and (ii) no
party guilty of a fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) will be entitled to contribution from any other
party who was not guilty of such fraudulent misrepresentation.
(b) Promptly after receipt by a party of notice of the commencement
of any action, suit or proceeding in connection with a public offering of
Common Stock, such party will, if a claim for contribution in respect thereof
is able to be made against another party, notify the contributing party of
the commencement thereof. The omission to notify the contributing party will
not relieve it from any liability which it may have to any other party other
than for contribution under the Securities Act. In case any such action,
suit or proceeding is brought against any party, and such party notifies a
contributing party of the commencement thereof, the contributing party will
be entitled to participate therein with the notifying party and any other
contributing party similarly notified.
4.11 "MARKET STAND-OFF" AGREEMENT. Purchaser will not, to the extent
requested by Seller or the underwriter(s) managing any underwritten offering
of Seller's securities, sell, make any short sale of, loan, grant any option
for the purchase of or otherwise transfer or dispose of any Option Shares
(other than those included in the underwritten offering) without the prior
written consent of Seller or such underwriters for such period of time as
Seller or the underwriters may specify commencing up to 7 days before the
anticipated effective date of an underwritten registration of Seller's
securities and extending up to 120 days after that effective date. In order
to enforce the foregoing, Seller may impose stop-transfer instructions with
respect to the Option Shares.
V. ADDITIONAL COVENANTS
5.1 RESTRICTIONS ON TRANSFER.
(a) RESTRICTION. For a period of 3 years from the date of the
initial Closing, Purchaser covenants and agrees that it will not and it will
cause each of its "Affiliates" (as hereinafter defined) to not directly or
indirectly sell, tender, transfer, pledge, hypothecate or otherwise dispose of,
or offer or agree to do any of the foregoing
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("Transfer"), any interest in the Option Shares which may be owned
"beneficially" (as that term is defined in Rule 13d-3 under the Exchange Act)
or of record by it and such Affiliates, except:
(i) a Transfer to any person or entity who or which agrees to
be bound by all the provisions of this Article V;
(ii) a Transfer to any person or entity who or which has made a
tender offer for Seller's Common Stock, but only if the Board of Directors
of Seller has recommended acceptance of such tender offer to the
stockholders of Seller;
(iii) a Transfer to Seller or any of its Subsidiaries;
(iv) a Transfer to an Affiliate of Purchaser which is (or agrees
to become) a party hereto;
(v) a Transfer which is a bona fide pledge of, or grant of a
security interest in, the Option Shares to an institutional, commercial, or
other bona fide lender (including without limitation any securities
brokerage) for money borrowed;
(vi) a Transfer in connection with any registration statement of
Seller that is declared effective during the term of this Article V and
includes the Option Shares as a result of exercise of the registration
rights granted pursuant to this Agreement; provided, however, that any such
disposition by Purchaser or an underwriter pursuant to this Section 5.1(vi)
will be made in a manner which (if pursuant to an underwritten offering, in
the written opinion of the underwriter) is intended to effect a broad
distribution with no Transfers of the Option Shares to any one "person" or
"group" (as such terms are defined in and under Section 13(d) of the
Exchange Act) if after such Transfers such person or group would
beneficially hold in excess of 5 percent of Seller's Common Stock; or
(vii) a Transfer permitted pursuant to Rule 144 under the
Securities Act; provided, that Purchaser will use its best efforts to
effect as wide a distribution of the Option Shares as is reasonably
practicable.
(b) DEFINITION OF AFFILIATE. For all purposes of this Agreement, when
used with reference to Purchaser, the word "Affiliate" means any person directly
or indirectly controlling, controlled by, or under direct or indirect control
with, Purchaser or such other person, as the case may be. For the purposes of
this definition, "control" when used with respect to any specified person means
the power to direct the management and policies of such person, directly or
indirectly, whether through the ownership of voting securities, by contract or
otherwise, and the terms "controlling" and "controlled" have meanings
correlative of the foregoing. For the purposes of this definition, "person"
includes, without limitation, any individual, corporation, partnership, joint
venture, trust,
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and any employee pension, profit sharing and other benefit plan and trust.
As to any individual person, the term "person" means such individual's
spouse, children, brothers and sisters.
5.2 NO TRANSFER. Purchaser covenants and agrees that for a period of 3
years from the date of the initial Closing, without Seller's prior written
consent, it will not and it will cause each of its Affiliates to not Transfer or
otherwise dispose of or encumber any of the Option Shares or any beneficial
interest therein except as permitted pursuant to this Article V.
5.3 LEGENDS AND STOP TRANSFER ORDERS.
(a) LEGEND. During the term of the restrictions and covenants of
this Article V each of the certificates representing the Option Shares will be
registered in the name of Purchaser (except as hereinafter permitted), will be
subject to stop transfer instructions, and will include substantially the
following legend in addition to any other legends required by the terms of this
Agreement:
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
CERTAIN LIMITATIONS ON TRANSFER SET FORTH IN A STOCK OPTION
AGREEMENT, DATED DECEMBER 23, 1996, BETWEEN MICHAELS STORES,
INC. AND ELEGANCE LIMITED, WHICH MAY BE APPLICABLE TO
CERTAIN TRANSFEREES. A COPY OF SUCH AGREEMENT IS ON FILE
WITH THE SECRETARY OF MICHAELS STORES, INC.
(b) REMOVAL OF LEGEND. Such stop transfer instructions and legend
will be applicable to any disposition of the Option Shares other than pursuant
to a public offering of the Option Shares permitted pursuant to Section 5.1(vi).
5.4 TERM AND TERMINATION.
(a) TERM. The term of these restrictions and covenants in this
Article V will commence on the date hereof and will continue for a period of 3
years after the initial Closing.
(b) TERMINATION. Notwithstanding the foregoing, the restrictions and
covenants in this Article V will terminate immediately if individuals who at the
date hereof constituted the Board of Directors of Seller and any new director
whose election by the Board or nomination for election by Seller's stockholders
was approved by a vote of at least two-thirds of the directors then still in
office, who either were directors at such date or whose election or nomination
for election was previously so approved, have ceased for any reason to
constitute a majority thereof.
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5.5 CERTAIN ACTIONS. Purchaser agrees that for a period of 3 years after
the initial Closing, except within the terms of a specific request from Seller,
it will not propose or publicly announce or otherwise disclose an intent to
propose, or enter into or agree to enter into, singly or with any other person
or directly or indirectly, (a) any form of business combination, acquisition, or
other transaction relating to Seller or any majority-owned affiliate thereof,
(b) any form of restructuring, recapitalization or similar transaction with
respect to Seller or any such affiliate, or (c) any demand, request or proposal
to amend, waiver or terminate any provision of this Agreement, and except as
aforesaid during such period, Purchaser will not (i) acquire, or offer, propose
or agree to acquire by purchase or otherwise, any securities of Seller entitled
to be voted generally in the election of directors of Seller or any direct or
indirect options or other rights to acquire any such securities ("Voting
Securities"), (ii) make, or in any way participate in, any solicitation of
proxies with respect to any Voting Securities (including by the execution of
action by written consent), become a participant in any election contest with
respect to Seller, seek to influence any Person with respect to any Voting
Securities or demand a copy of Seller's list of its stockholders or other books
and records, (iii) participate in or encourage the formation of any partnership,
syndicate or other group which owns or seeks or offers to acquire beneficial
ownership of any Voting Securities or which seeks to affect control of Seller or
for the purpose of circumventing any provision of this Agreement, or (iv)
otherwise act, alone or in concert with others (including by providing financing
for another Person), to seek or to offer to control of influence, in any manner,
the management, Board of Directors or policies of Seller.
5.6 SPECIFIC PERFORMANCE. Purchaser acknowledges that Seller would be
irreparably damaged and would not have an adequate remedy at law for money
damages in the event that any of the covenants of Seller in this Article V were
not performed in accordance with its terms or otherwise were materially
breached. Purchaser therefore agrees that Seller will be entitled to an
injunction or injunctions to prevent breaches of such performance and to
specific enforcement of such covenants in addition to any other remedy to which
it may be entitled, at law or in equity.
VI. MISCELLANEOUS
6.1 CONFIDENTIALITY. The terms of this Agreement will remain
confidential; provided, however, Seller may make such disclosure in any
public filing or announcement as may be necessary to comply with applicable
law.
6.2 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS. Except as
provided in this Agreement, each of the representations, warranties and
covenants in this Agreement will survive the consummation of the transactions
contemplated in this Agreement. Article IV and V will have no force or effect
until Purchaser has delivered an Option Exercise Note to Seller under Section
1.2 and acquired any or all of the Option Shares.
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6.3 ENTIRE AGREEMENT. This Agreement contains the entire agreement
between Purchaser and Seller with respect to the transactions contemplated
hereby and supersedes all prior agreements among the parties with respect to
such matters.
6.4 RIGHTS OF THE PARTIES. Nothing expressed or implied in this Agreement
is intended or will be construed to confer upon or give any person or entity
other than the parties hereto and their permitted assigns any rights or remedies
under or by reason of this Agreement or any transaction contemplated hereby.
6.5 FURTHER ASSURANCES. From time to time, as and when requested by
either party hereto, the other party will execute and deliver, or cause to be
executed and delivered, all such documents and instruments as may be reasonably
necessary to consummate the transactions contemplated hereby.
6.6 APPLICABLE LAW. This Agreement will be governed by and construed in
accordance with the laws of the State of Texas applicable to contracts made and
to be performed in that State, without giving effect to the principles of
conflicts of law thereof.
6.7 INTERPRETATION. For purposes of this Agreement, a "subsidiary" of a
corporation means any corporation more than 50% of the outstanding voting
securities of which are directly or indirectly owned by such other corporation.
The descriptive headings contained herein are for convenience and reference only
and will not effect in any way the meaning or interpretation of this Agreement.
6.8 NOTICES. All notices and other communications hereunder must be in
writing and must be given (and will be deemed to have been duly given upon
receipt) by delivery in person, by cable, telegram, telex, facsimile
transmission or other standard form of telecommunications, or by registered or
certified mail, postage prepaid, return receipt requested, addressed as follows:
If to Seller:
Michaels Stores, Inc.
0000 Xxxx Xxxxxx Xxxxx
Xxxxxx, Xxxxx 00000
Attn: General Counsel
Fax No.: 000-000-0000
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If to Purchaser:
Elegance Limited
c/o Trident Trust Company (IOM) Limited
000 Xxxxxx Xxxxxx
P. O. Box 175
Douglas, Isle of Man
British Isles IM99ITT
Attention: Xxxxx Xxxxxx
Fax No.: 000-00-0000-000-000
or to such other address as any party may have furnished to the other parties in
writing in accordance herewith.
6.9 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which will be deemed to be an original but all of which
together will constitute but one agreement.
6.10 SUCCESSORS AND ASSIGNS. This Agreement will be binding upon and inure
to the benefit of the parties hereto and their respective successors and
permitted assigns, but will not be assignable by any party without the prior
written consent of the other party; provided that any such assignment will not
relieve the assigning party from any of its obligations hereunder.
6.11 EXPENSES. Subject to Section 4.7 and 4.8 hereof, all costs and
expenses incurred in connection with this Agreement and the transactions
contemplated hereby will be paid by the party incurring such expense.
6.12 SEVERABILITY. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any rule of law or public
policy, all other terms and provisions of this Agreement will nevertheless
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated hereby is not affected in any manner adverse to
any party hereto. Upon any such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereto will
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in an acceptable manner to the end
that the transactions contemplated by this Agreement are consummated to the
extent possible.
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IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement.
SELLER:
MICHAELS STORES, INC.
By: /s/ XXXXXXX X. XXXXXXXX
----------------------------------
Name: Xxxxxxx X. Xxxxxxxx
--------------------------------
Title: VP-Finance & Planning
-------------------------------
PURCHASER:
ELEGANCE LIMITED
By: /s/ XXXXXXX XXXXX
----------------------------------
Name: Xxxxxxx Xxxxx
--------------------------------
Title: Director
-------------------------------
/s/ XXXXX HERMANUS XXXXXX
--------------------------------------
Xxxxx Hermanus Xxxxxx
--------------------------------------
Company Secretary
--------------------------------------
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