exv10w20



 





EXHIBIT 10.20




SECOND AMENDMENT AND CONSENT

TO

REVOLVING CREDIT AGREEMENT




     Second Amendment and Consent to Revolving Credit Agreement effective as of
December 31, 2003 (this “Second Amendment and Consent”), by and among MICHAELS
STORES, INC., a Delaware corporation (the “Borrower”), FLEET NATIONAL BANK and
the other lending institutions listed on Schedule 1 to the Credit Agreement (as
hereinafter defined) (collectively, the “Banks”) and FLEET NATIONAL BANK in its
capacity as administrative agent for the Banks (the “Agent”). Terms not
otherwise defined herein which are defined in the Revolving Credit Agreement
dated as of May 1, 2001 (as amended and in effect from time to time, the
“Credit Agreement”) by and among the Borrower, the Banks and the Agent, shall
have the respective meanings herein assigned to such terms in the Credit
Agreement.



     WHEREAS, the Borrower has requested that the Banks and the Agent modify
certain provisions of the Credit Agreement;



     WHEREAS, the Borrower has further requested that the Banks and the Agent
consent, on terms and conditions set forth herein, to the dissolution of
certain of its subsidiaries, the creation of new subsidiaries and the transfer
of certain of its assets; and



     WHEREAS, the Banks and the Agent have agreed to honor such requests upon
the terms and subject to the conditions contained herein;



     NOW, THEREFORE, in consideration of the premises and the mutual agreements
contained herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree
as follows:




		
	Section 1. 	Consent to Termination of Certain Subsidiaries and Creation of New
Subsidiaries.






	 	(a)	 	   The Borrower has advised the Agent that it is contemplating
entering into the following transactions (collectively, the
“Restructuring”) as of December 31, 2003 (unless otherwise noted),
pursuant to the terms of the documents listed on Schedule 1A hereto
(collectively, the “Restructuring Agreements”):





	 	(i)	 	   The Borrower has formed Michaels Stores
Procurement Company, Inc. (“Michaels Procurement”), as a
Delaware corporation and will contribute assets that are used
or useful in the Borrower’s purchasing, distribution, framing
and payment operations, the Borrower’s rights under certain contracts
and real estate leases and cash in the amount of $250,000
in exchange for 100 percent of Michaels Procurement’s
equity interests and




 









 






	 	 	 	Michaels Procurement’s assumption of
all of the debt, liabilities and obligations arising out
of, or accruing under, such contributed assets following
the effective time of such contribution and assumption and
all liabilities and obligations of the Borrower with
respect to any employees of the Borrower that are hired by
Michaels Procurement other than unpaid salaries and wages
owed by the Borrower to the transferred employees as of the
effective time of such contribution and assumption and all
related taxes and withholdings not paid by the employees in
connection with such unpaid salaries and wages;





	 	(ii)	 	   Michaels MSLP will enter into an intellectual
property transfer agreement (the “Transfer Agreement”) with
Michaels Procurement whereby Michaels MSLP will sell certain
intellectual property and related rights and agreements to
Michaels Procurement in exchange for a 15-year unsecured
installment note in the original principal amount of
$1,090,000,000 from Michaels Procurement (the “Michaels
Procurement Note”);





     Michaels MSLP will merge and/or liquidate into the
Borrower, with the Borrower surviving such merger;




	 	(iv)	 	   The Borrower has formed Michaels Finance
Company, Inc. (“Michaels Finance”) as a Delaware corporation
and will contribute all of the Borrower’s rights, title and
interest in and under the Michaels Procurement Note and the
Transfer Agreement to Michaels Finance and cash in the amount
of $1,000 in exchange for 100 percent of Michaels Finance’s
equity interests;





	 	(v)	 	   The Management Agreement will be terminated as
a result of the merger and/or liquidation of Michaels MSLP
into the Borrower;





     The Borrower and Michaels Procurement will enter into
a Cash Management Agreement (as defined herein);




     The Borrower and Michaels Procurement will enter into
a Sales and Distribution Agreement (as defined herein); and




     Effective as of 12:01 a.m. Eastern Time on January 1,
2004, Michaels GP and Michaels LP will merge and/or
liquidate into the Borrower, with the Borrower surviving
such merger.




	 	(b)	 	   The provisions of Section 9.3 and 9.6.2 of the Credit
Agreement may prohibit the Borrower from consummating the
Restructuring;




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	 	(c)	 	   Notwithstanding the provisions of the Credit Agreement,
subject to satisfaction of the conditions set forth in Section 8,
the Agent and the Banks hereby consent to the Restructuring on the
conditions that:





	 	(i)	 	   The terms and conditions of the
Restructuring shall be substantially those set forth
in the Restructuring Agreements, with such changes
reasonably acceptable to the Agent;
	 
	 	(ii)	 	   The terms and conditions of the
Cash Management Agreement and the Sales and
Distribution Agreement shall be reasonably acceptable
to the Agent;
	 
	 	(iii)	 	   On the closing date of the
Restructuring, after giving effect to this Second
Amendment and Consent, no Default or Event of Default
shall have occurred and be continuing and, after
giving effect to this Second Amendment and Consent,
consummation of the Restructuring, the Cash Management
Agreement and the Sales and Distribution Agreement
will not otherwise create a Default or an Event of
Default.





		
	Section 2. 	Amendment to §1.1 of the Credit Agreement. Section 1.1 of the Credit Agreement is hereby amended as follows:






     The definition of “Canadian License Agreement” is hereby
amended by deleting such definition in its entirety and restating
it as follows:




“Canadian License Agreement. Collectively, the Second Amended and
Restated License Agreement, effective as of December 31, 2003,
between Michaels Procurement and MC, the Amended and Restated
MSI/MOC Services Agreement, effective as of December 31, 2003,
between the Borrower and MC, and the Amended and Restated MSPC/MOC
Services Agreement, effective as of December 31, 2003, between
Michaels Procurement and MC, in each case as amended from time to
time with the consent of the Agent, which consent shall not be
unreasonably withheld.”




     The definition of Management Agreement is hereby deleted in its entirety.




     The definition of Royalty Payments is hereby deleted in its
entirety.




     Section 1.1 is further amended by inserting the following
definitions in the appropriate alphabetical order:



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“Cash Management Agreement. The Cash Management Agreement dated
as of December 31, 2003, by and between the Borrower and Michaels
Procurement substantially in the form delivered to the Agent in
connection with the Second Amendment and Consent to this Credit
Agreement (the “Second Amendment and Consent”), as the same may be
amended, modified, supplemented or assigned from time to time with
the prior consent of the Agent, which consent shall not be
unreasonably withheld.




Michaels Finance. Michaels Finance Company, Inc., a Delaware
corporation and a wholly-owned Subsidiary of the Borrower.




Michaels Procurement. Michaels Stores Procurement Company, Inc.,
a Delaware corporation and a wholly-owned Subsidiary of the
Borrower.




Restructuring Agreements. The documents listed on Schedule 1A
hereto, substantially in the form delivered to the Agent in
connection with the Second Amendment and Consent, and all
amendments, modifications and supplements thereto.




Sales and Distribution Agreement. The Sales and Distribution
Agreement dated as of December 31, 2003, by and between the
Borrower and Michaels Procurement substantially in the form
delivered to the Agent in connection with the Second Amendment and
Consent, as the same may be amended, modified, supplemented or
assigned from time to time.”




		
	Section 3. 	Amendments to §8 of the Credit Agreement. Section 8 of the Credit
Agreement is hereby amended as follows:






	 	(a)	 	   Section 8.4 of the Credit Agreement is hereby amended by
deleting the “.” at the end of Section 8.4(f) and replacing it with
the words “; and”, and by inserting the following subclause (g)
immediately after subclause (f) in such section:





“(g) as soon as practicable, but in any event no later than
fifteen (15) days following the end of each fiscal month of the
Borrower in which Loans are outstanding, a report setting forth
the inventory beneficially owned by Michaels Procurement at the
end of the immediately preceding fiscal month.”




     Section 8.5.4 of the Credit Agreement is hereby amended by
deleting such subsection in its entirety and restating it as
follows:




“8.5.4. Notice of Termination of Cash Management Agreement and
Sales and Distribution Agreement. The Borrower shall immediately
give notice to the Agent upon termination of either of the Cash Management
Agreement or the Sales and Distribution Agreement.”



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     Section 8.13 of the Credit Agreement is hereby amended by
deleting such subsection in its entirety and restating it as
follows:




“8.13. Michaels Procurement and Michaels Finance. Each of
Michaels Procurement and Michaels Finance will distribute all cash
in excess of $500,000 to the Borrower no less frequently than
quarterly, and such distributions shall be made within a
reasonable time after the end of each fiscal quarter (but not to
exceed (i) 90 days after the end of the fiscal quarter ending on
the last day of the Fiscal Year and (ii) 45 days after the end of
any other fiscal quarter).”




		
	Section 4. Amendments to §9 of the Credit Agreement. 	Section 9 of the Credit Agreement is hereby amended as follows:






	 	(a)	 	   Section 9.1(f) of the Credit Agreement is hereby amended by
inserting immediately after the word “Borrower” the following: “and
Michaels Procurement”.





	 	(b)	 	   Section 9.1(k) of the Credit Agreement is hereby amended by
deleting such subsection in its entirety and restating it as
follows:





“(k) (i) Michaels Procurement may incur Indebtedness owing to and
held by the Borrower and its Subsidiaries and the Borrower and its
Subsidiaries may incur or permit to exist Indebtedness to Michaels
Procurement, provided that the outstanding net principal amount of
such Indebtedness shall not exceed $250,000,000.00 at anytime; and
(ii) Michaels Procurement may incur Indebtedness owing to and held
by Michaels Finance, provided that the outstanding principal
amount of such Indebtedness shall not exceed $1,090,000,000.00 at
any time;”




	 	(c)	 	   Section 9.1 of the Credit Agreement is hereby further amended
by deleting clause (l) in its entirety and replacing it with the
following:





	 	 	 	“(l) the Borrower and its Subsidiaries may incur or permit to
exist Indebtedness with respect to accounts payable and accrued
liabilities in the ordinary course of business, each of the
Subsidiaries may incur or permit to exist Indebtedness with
respect to accounts payable to the Borrower related to the
Borrower’s transfer of inventory to such Subsidiary and related to
obligations incurred and payments required under operating leases
paid by the Borrower on behalf of such Subsidiary, each in the
ordinary course of business, and the Borrower and each of is
Subsidiaries may incur or permit to exist Indebtedness with
respect to accounts payable to Michaels Procurement related to
Michaels Procurement’s transfer of inventory to the Borrower or any such Subsidiary in the ordinary
course of business.”




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	 	(d)	 	   Section 9.1 of the Credit Agreement is hereby further amended
by deleting clause (t) in its entirety and replacing it with the
following:





	 	 	 	“(t)   the Borrower may incur or permit to exist Indebtedness with
respect to amounts payable to Michaels Procurement and Michaels
Procurement may incur or permit to exist Indebtedness with respect
to amounts payable to the Borrower, all pursuant to the Cash
Management Agreement and the Sales and Distribution Agreement; and





	 	 	 	(u)   in addition to the Indebtedness permitted in subsections
(a)-(t) of this § 9.1, the Borrower and its Subsidiaries
(excluding Michaels Procurement and Michaels Finance) may incur or
permit to exist additional Indebtedness not to exceed at any one
time ten percent (10%) of the Consolidated Tangible Net Worth of
the Borrower and its Subsidiaries.”





	 	(e)	 	   Section 9.3(i) of the Credit Agreement is hereby amended by
deleting such subsection in its entirety and restating it as
follows:





	 	 	 	“(i)   (x) Investments in Michaels Procurement and Michaels Finance;
(y) capital contributions of cash and assets pursuant to the
Restructuring Agreements made in connection with the closing of
the Restructuring; and (z) ongoing contributions to Michaels
Procurement of any intellectual property rights from time to time
acquired or developed by the Borrower;”





	 	(f)	 	   Section 9.3(l) is hereby amended by deleting the name
“Michaels MSLP” and replacing it with the following: “Michaels
Procurement.”





	 	 	 	   Section 9.4(d) of the Credit Agreement is hereby amended by
deleting the name “Michaels MSLP” and replacing it with the
following: “Michaels Procurement and Michaels Finance”.





	 	 	 	   Section 9.6.2 of the Credit Agreement is hereby amended by
deleting the name “Michaels MSLP” and replacing it with the
following: “Michaels Procurement.”





	 	(i)	 	   Section 9.10 of the
Credit Agreement is hereby amended by deleting
therefrom the words “for Royalty Payments or
loans to the Borrower from the recipient of such
Royalty Payments” and replacing them with the
following: “for intercompany loans and
investments and transfers of intellectual
property rights permitted elsewhere in this
Credit Agreement”.




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	 	(j)	 	   Section 9.15 of the
Credit Agreement is hereby amended by deleting
such subsection in its entirety and restating it
as follows:





	 	 	 	“9.15 Inventory. The Borrower will not permit any domestic
Subsidiary of the Borrower who is not a Guarantor, other than
Michaels Procurement, to own any inventory. During any period
when Loans are outstanding, the Borrower will not permit Michaels
Procurement to beneficially own inventory the aggregate book value
of which exceeds $225,000,000.00.”





		
	Section 5. 	Amendment to § 10 of the Credit Agreement. Section 10 of the
Credit Agreement is hereby amended by deleting the ratio “1.90
to 1.00” from Section 10.2 and replacing it with the following
ratio: “2.15 to 1.00”.






		
	Section 6. 	Amendment to §13 of the Credit Agreement. Section 13 of the
Credit Agreement is hereby amended by inserting the following
subclause (o) immediately after subclause (n) in Section 13.1:






	 	 	 	“there shall be a termination of either the Cash Management
Agreement or the Sales and Distribution Agreement without a
replacement agreement therefor in form and substance satisfactory
to the Agent.”





		
	Section 7. 	Amendment to the Credit Agreement. The Credit Agreement is
hereby amended by adding Schedule 1A hereto to the Credit
Agreement as Schedule 1A thereto.






		
	Section 8. 	Amendment Fee. The Borrower hereby agrees to pay to each Bank
that executes this Second Amendment and Consent a fee in the
amount of $5,000 (the “Amendment Fee”).






		
	Section 9. 	Conditions to Effectiveness. This Second Amendment and Consent
shall not become effective until the Agent receives the
following:






	 	(a)	 	a counterpart of this Second Amendment and Consent, executed
by the Borrower, any Guarantors and the Majority Banks;





	 	(b)	 	payment to the Agent of the Amendment Fee for the account of
each consenting Bank; and





	 	(c)	 	evidence satisfactory to the Agent that all corporate or
other similar action has been taken by the Borrower and any
Guarantors to authorize the transactions contemplated hereby.




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	Section 10. 	Representations and Warranties; No Default; Authorization. The
Borrower hereby represents and warrants to the Banks and the Agent as
follows:






	 	(a)	 	   After giving effect to this Second Amendment and Consent,
each of the representations and warranties made by the Borrower in
the Credit Agreement was true in all material respects as of the
date as of which it was made and is true in all material respects as
and at the date of this Second Amendment and Consent (except to the
extent of changes resulting from transactions contemplated or
permitted by the Credit Agreement and the other Loan Documents and
changes occurring in the ordinary course of business that in the
aggregate are not materially adverse, and to the extent that such
representations and warranties relate expressly to an earlier date),
and no Default or Event of Default has occurred and is continuing as
of the date of this Second Amendment and Consent; and





	 	(b)	 	   This Second Amendment and Consent has been duly authorized,
executed and delivered by the Borrower and is in full force and
effect, and the agreements and obligations of the Borrower contained
herein and in the Credit Agreement, respectively constitute the
legal, valid and binding obligations of the Borrower, enforceable
against the Borrower in accordance with their respective terms,
except as enforceability is limited by bankruptcy, insolvency,
reorganization, moratorium or other laws relating to or affecting
generally the enforcement of creditors’ rights and except to the
extent that availability of the remedy of specific performance or
injunctive relief is subject to the discretion of the court before
which any proceeding therefor may be brought.





		
	Section 11. 	Ratification, etc. Except as expressly amended hereby, the
Credit Agreement and all documents, instruments and agreements
related thereto are hereby ratified and confirmed in all
respects. All references in the Credit Agreement or any
related agreement or instrument to the Credit Agreement shall
hereafter refer to the Credit Agreement as amended hereby.






		
	Section 12. 	No Implied Waiver. Except as expressly provided herein,
nothing contained herein shall constitute a waiver of, impair
or otherwise affect any Obligations, or any right of any of
the Banks or the Agent consequent thereon.






		
	Section 13. 	Counterparts. This Second Amendment and Consent may be
executed in one or more counterparts, each of which shall be
deemed an original but which together shall constitute one and
the same instrument.






		
	Section 14. 	Governing Law. THIS SECOND AMENDMENT AND CONSENT SHALL FOR
ALL PURPOSES BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF NEW YORK (WITHOUT REFERENCE TO
CONFLICTS OF LAW).





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[SIGNATURE PAGE TO FOLLOW]




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     IN WITNESS WHEREOF, the undersigned have duly executed this Second
Amendment and Consent as a sealed instrument as of the date first above
written.

	 	 	 	 	 
	 	MICHAELS STORES, INC.

 	 
	 	By:  	/s/ D. R. Keepes
 	 
	 	 	Name:  	David Keepes 	 
	 	 	Title:  	Treasurer 	 
	 


	 	 	 	 	 
	 	FLEET NATIONAL BANK, individually and

as Agent

 	 
	 	By:  	/s/ Judith C. E. Kelly
 	 
	 	 	Name:  	Judith C. E. Kelly 	 
	 	 	Title:  	Managing Director 	 
	 


	 	 	 	 	 
	 	WELLS FARGO BANK, N.A.

 	 
	 	By:  	/s/ Linda G. Davis
 	 
	 	 	Name:  	Linda G. Davis 	 
	 	 	Title:  	Vice President 	 
	 


	 	 	 	 	 
	 	GUARANTY BANK

 	 
	 	By:  	/s/ Robert S. Hays
 	 
	 	 	Name:  	Robert S. Hays 	 
	 	 	Title:  	Senior Vice President 	 
	 


	 	 	 	 	 
	 	NATIONAL CITY BANK

 	 
	 	By:  	/s/ Michael J. Durbin
 	 
	 	 	Name:  	Michael J. Durbin 	 
	 	 	Title:  	Senior Vice President 	 
	 





 









 




	 	 	 	 	 
	 	US BANK NATIONAL ASSOCIATION (successor

by merger to FIRSTAR, N.A.)

 	 
	 	By:  	/s/ Amanda Schmitt
 	 
	 	 	Name:  	Amanda Schmitt 	 
	 	 	Title:  	Assistant Vice President 	 
	 


	 	 	 	 	 
	 	WACHOVIA BANK, NATIONAL ASSOCIATION

(formerly known as First Union National

Bank)

 	 
	 	By:  	/s/ William F. Fox
 	 
	 	 	Name:  	William F. Fox 	 
	 	 	Title:  	Vice President 	 
	 


	 	 	 	 	 
	 	COMPASS BANK, an Alabama state bank

 	 
	 	By:  	/s/ R. Bruce Frey
 	 
	 	 	Name:  	R. Bruce Frey 	 
	 	 	Title:  	Vice President 	 
	 


	 	 	 	 	 
	 	THE BANK OF NEW YORK

 	 
	 	By:  	/s/ Lucille C. Madden
 	 
	 	 	Name:  	Lucille C. Madden 	 
	 	 	Title:  	Vice President 	 
	 




 









 





RATIFICATION OF GUARANTY




     The undersigned Guarantor hereby acknowledges and consents to the
foregoing Second Amendment and Consent as of December 31, 2003, and agrees that
the applicable Guarantee from such Guarantor dated as of May 1, 2001 in favor
of the Agent for the benefit of the Agent and the Banks and all other Loan
Documents to which the Guarantor is a party remain in full force and effect,
and the Guarantor confirms and ratifies all of its obligations thereunder.

	 	 	 	 	 
	 	AARON BROTHERS, INC.

 	 
	 	By:  	/s/ D. R. Keepes
 	 
	 	 	Name:  	David R. Keepes 	 
	 	 	Title:  	Treasurer 	 
	 


	 	 	 	 	 
	 	 Address:

c/o Michaels Stores, Inc.

8000 Bent Brach Drive

Irving, TX 75063

 	 
	 	 	 
	 	 	 
	 	 	 
	 





 









 





Schedule 1A




Restructuring Agreements





	1.	 	Contribution Agreement, by and between Michaels Procurement and the
Borrower, dated as of December 31, 2003.
	 
	2.	 	Contribution Agreement, by and between Michaels Finance and the Borrower,
dated as of December 31, 2003.
	 
	3.	 	Agreement and Plan of Merger, between the Borrower and Michaels MSLP,
dated as of December 31, 2003.
	 
	4.	 	Texas Certificate of Merger of Michaels MSLP with the Borrower, dated
December 31, 2003.
	 
	5.	 	Delaware Certificate of Merger of Michaels MSLP with the Borrower, dated
December 31, 2003.
	 
	6.	 	Certificate of Ownership and Merger of Michaels GP and Michaels LP with
the Borrower, dated January 1, 2004.
	 
	7.	 	Intellectual Property Transfer Agreement between Michaels MSLP and
Michaels Procurement, dated as of December 31, 2003.
	 
	8.	 	Promissory Note issued by Michaels Procurement to Michaels MSLP, dated
December 31, 2003.
	 
	9.	 	Cash Management Agreement between the Borrower and Michaels Procurement,
dated as of December 31, 2003.
	 
	10.	 	Sales and Distribution Agreement between the Borrower and Michaels
Procurement, dated as of December 31, 2003.
	 
	11.	 	Second Amended and Restated License Agreement between Michaels
Procurement and MC, dated as of December 31, 2003.
	 
	12.	 	Amended and Restated MSI/MOC Services Agreement between the Borrower and
MC, dated as of December 31, 2003.
	 
	13.	 	Amended and Restated MSPC/MOC Services Agreement between Michaels
Procurement and MC, dated as of December 31, 2003.
	 
	14.	 	Amended and Restated License Agreement between Michaels Procurement and
the Borrower, dated as of December 31, 2003.