exv10w4



 





EXHIBIT 10.4



EXECUTION COPY



THIRD AMENDMENT

TO

REVOLVING CREDIT AGREEMENT




     Third Amendment to Revolving Credit Agreement, dated as of October 6, 2004
(this “Third Amendment”), by and among MICHAELS STORES, INC., a Delaware
corporation (the “Borrower”) and 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; 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:



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



     (a) The definition of “Revolving Credit Loan Maturity Date” is hereby
amended by deleting such definition in its entirety and restating it as
follows:



     “Revolving Credit Loan Maturity Date. April 30, 2006.”



     (b) The definition of “Senior Notes Indenture” is hereby amended by
deleting such definition in its entirety and restating it as follows:




“Senior Notes Indenture. That certain Indenture, dated as of July
6, 2001, between the Borrower and The Bank of New York, as
Trustee, as the same shall be amended, restated, modified,
extended, renewed or replaced.”



     (c) The definition of “Senior Notes” is hereby amended by deleting such
definition in its entirety and restating it as follows:



 









 





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“Senior Notes. Those certain 9 1/4% Senior Notes due 2009, in a
face amount of $200,000,000 as of July 6, 2001, issued pursuant to
the Senior Notes Indenture, as each shall be amended, restated,
modified, extended, renewed or replaced.”



     (d) Section 1.1 is further amended by inserting the following definition
in the appropriate alphabetical order:




“Liquidity. At any time, the sum of (a) cash and Cash Equivalents
plus (b) the Total Commitment minus the Total Outstanding.”



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



     (a) Section 9.4 of the Credit Agreement is hereby amended by deleting such
section in its entirety and restating it as follows:




          “9.4. Distributions. The Borrower and its Subsidiaries will not
make any Distributions, provided, however, (a) in addition to the
Distributions permitted by clauses (b)-(d) below, the Borrower may
declare or pay Distributions so long as the aggregate amount of
Distributions paid after the Closing Date do not exceed in the aggregate
an amount equal to the sum of (i) $70,000,000 plus (ii) fifty percent
(50%) of Consolidated Net Income of the Borrower and its Subsidiaries
with respect to the period (treated as one accounting period) from the
Closing Date to the end of the most recent fiscal quarter, plus (iii) an
amount equal to the aggregate amount of cash proceeds received by the
Borrower after February 3, 2001, in connection with the proceeds received
from the issuance of equity, (b) Subsidiaries of the Borrower may make
Distributions to the Borrower and to Subsidiaries of the Borrower that
have executed a Guaranty, (c) the Borrower and its Subsidiaries may make
Distributions of stock and options to acquire stock pursuant to the terms
of their stock option plans, and (d) Michaels Procurement and Michaels
Finance may make Distributions contemplated by §8.13 hereof. The
Borrower will not hold repurchased shares of its common stock as treasury
stock and, upon the Borrower’s repurchase of shares of its common stock,
it will immediately cancel and retire such stock.”



     (b) Section 9.5 of the Credit Agreement is hereby amended by deleting such
section in its entirety and restating it as follows:




          “9.5. Payments and Modifications of Senior Notes. The Borrower will
not and will not permit any of its Subsidiaries to amend, supplement or
otherwise modify the terms of the Senior Notes that would result in (a)
an increase in the outstanding principal amount of the Senior Notes, (b)
an increase in any principal, interest, fees, or other amounts payable
under the Senior Notes Indenture or the
Senior Notes, (c) a change in any date fixed for any payment of
principal, interest, fees, or other amounts payable under the Senior
Notes Indenture or the Senior Notes (including, without limitation, as a
result of any redemption, defeasance or



 









 





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otherwise), (d) a change in any
percentage of holders of the Senior Notes under the Senior Notes
Indenture required under the terms of such documents to take (or refrain
from taking) any action, (e) a change that grants or permits the granting
of any security interest or Lien on any asset or property of the Borrower
or any Subsidiary to secure the Senior Notes, or (f) it being more
difficult for the Borrower to comply with the covenants contained in such
document. Notwithstanding anything contained herein to the contrary, the
Borrower and any of its Subsidiaries shall be permitted to prepay, redeem
or repurchase, in full (but not in part), the Senior Notes, provided,
that, (a) immediately prior to any prepayment, redemption or repurchase,
the Borrower has Liquidity of not less than $300,000,000, and (b)
immediately after giving effect to the prepayment, redemption or
repurchase, no Default or Event of Default then exists or would result
from such prepayment, redemption or repurchase.”



     §3. Amendment to §10.4 of the Credit Agreement. Section 10.4 of the
Credit Agreement is hereby amended by deleting such section in its entirety and
restating it as follows:




          “10.4. Capital Expenditures. The Borrower will not make, or permit
any Subsidiary of the Borrower to make, Capital Expenditures in any
Fiscal Year set forth in the table below that exceed, in the aggregate,
the amount set forth opposite such fiscal year in such table:



	 	 	 	 	 
	Fiscal Year
	 	Amount

	2003
	 	$	190,000,000	 
	2004
	 	$	165,000,000	 
	2005
	 	$	200,000,000	 
	2006
	 	$	100,000,000	 








provided, however, that, if during any Fiscal Year, the amount of
Capital Expenditures permitted for that Fiscal Year in the table
above is not so utilized, twenty five percent (25%) of such
unutilized amount may be utilized in the next succeeding fiscal
year but not in any subsequent Fiscal Year.”



     §4. Amendment to Exhibit G to the Credit Agreement. Exhibit G to the
Credit Agreement is hereby amended by deleting Appendix I attached thereto and
replacing such Appendix I in the form attached hereto as Annex A.



 









 





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     §5. Amendment Fee. The Borrower hereby agrees to pay to each Bank that
executes this Third Amendment a fee in an amount equal to 0.05% of the
Commitment of each such Bank (the “Amendment Fee”).



     §6. Conditions to Effectiveness. This Third Amendment shall not become
effective until the Agent receives the following:




          (a) a counterpart of this Third Amendment, executed by the
Borrower, the Guarantor and the Banks;




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




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



     §7. 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 Third Amendment, 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 Third Amendment (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 Third Amendment; and




          (b) This Third Amendment 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.



     §8. 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.



 









 





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     §9. 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.



     §10. Counterparts. This Third Amendment 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.



     §11. Governing Law. THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED
AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK (EXCLUDING
THE LAWS APPLICABLE TO CONFLICTS OR CHOICE OF LAW OTHER THAN GENERAL
OBLIGATIONS LAW §5-1401 AND §5-1402).



[Remainder of Page Intentionally Left Blank]




[Signature Page to Follow]




 









 





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


	 	 	 	 	 
	 	MICHAELS STORES, INC.

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



	 	 	 	 	 
	 	FLEET NATIONAL BANK, individually and

as Agent

 	 
	 	By:  	/s/ Dan M. Killian
 	 
	 	 	Name:  	Dan M. Killian 	 
	 	 	Title:  	Managing Director 	 
	 



	 	 	 	 	 
	 	WELLS FARGO BANK, N.A.

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



	 	 	 	 	 
	 	LASALLE BANK NATIONAL ASSOCIATION

 	 
	 	By:  	/s/ June Courtney
 	 
	 	 	Name:  	June Courtney 	 
	 	 	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/ Jennifer L. Thurston
 	 
	 	 	Name:  	Jennifer L. Thurston 	 
	 	 	Title:  	Assistant Vice President 	 
	 



	 	 	 	 	 
	 	WACHOVIA BANK NATIONAL ASSOCIATION

(successor by merger to FIRST UNION

NATIONAL BANK)

 	 
	 	By:  	/s/ Susan T. Vitale
 	 
	 	 	Name:  	Susan T. Vitale 	 
	 	 	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 Madden
 	 
	 	 	Name:  	Lucille Madden 	 
	 	 	Title:  	Vice President 	 
	 




 









 





RATIFICATION OF GUARANTY




     The undersigned Guarantor hereby acknowledges and consents to the
foregoing Third Amendment as of October 6, 2004, 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/ David R. Keepes

	


	     Name: David R. Keepes

	     Title: Treasurer

	 

	Address:

	c/o Michaels Stores, Inc.

	8000 Bent Brach Drive

	Irving, TX 75063








 









 





ANNEX A



APPENDIX I TO EXHIBIT G




MICHAELS STORES, INC.

COMPLIANCE CERTIFICATE WORKSHEET

AS OF _______ __, ____




	 	 	 	 	 
	Section
	 	Calculation

	10.1. Maximum Adjusted Balance Sheet Leverage Ratio
	 	 	 	 
	A. Consolidated Funded Debt (sum of (1) through (3))
	 	$	—	 
	(1) Outstanding principal amount of the Loans
	 	$	—	 
	(2) plus Indebtedness with respect to Capitalized Leases
	 	$	—	 
	(3) plus all other Indebtedness subject to payment of
interest
	 	$	—	 
	B. Six (6) times Consolidated Rental Expense for the four consecutive
fiscal quarters just ended
	 	$	—	 
	(a) All rental expense of the Borrower and its
subsidiaries for such period determined on a
consolidated basis in accordance with GAAP
	 	$	—	 
	 
	 	 	x 6	 
	 
	 	$	—	 
	C. Sum of A. plus B.
	 	$	—	 
	D. Total Capital (Item (1) plus Item (2) below)
	 	$	—	 
	(1) Consolidated Net Worth (Item (a) minus Item (b))
	 	$	—	 
	(a) Consolidated Total Assets
	 	$	—	 
	(b) Consolidated Total Liabilities
(minus any subscriptions receivable)
	 	$	—	 
	(2) Consolidated Funded Debt (Item A. above)
	 	$	—	 
	E. Item B above (Six (6) times Consolidated Rental Expense for the
four consecutive fiscal quarters just ended)
	 	$	—	 
	F. Sum of D. plus E.
	 	$	—	 
	G. Ratio of C. to F.
	 	 	—	 
	Ratio not to exceed 0.75 to 1.00
	 	 	 	 







 









 





	 	 	 	 	 
	10.2. Minimum Cash Flow Coverage Ratio
	 	 	 	 
	A. Consolidated EBITDAR (sum of (1) through (6))
(all amounts calculated for any period of 4 consecutive fiscal quarters)
	 	$	—	 
	(1) Consolidated Net Income of the Borrower and its Subsidiaries
	 	$	—	 
	(2) plus income taxes
	 	$	—	 
	(3) plus Consolidated Total Interest Expense
	 	$	—	 
	(4) plus depreciation and amortization
	 	$	—	 
	(5) plus Consolidated Rental Expense
	 	$	—	 
	(6) plus noncash charges
	 	$	—	 
	B. Fixed Charges (sum of (1) through (3))
(all amounts calculated for the trailing 4 quarters period)
	 	$	—	 
	(1) Consolidated Total Interest Expense
	 	$	—	 
	(2) plus scheduled principal amortization on Indebtedness (including
amortization related to Capitalized Leases)
	 	$	—	 
	(3) plus Consolidated Rental Expense
	 	$	—	 
	C. Ratio of A. to B.
	 	 	—	 
	Ratio must be at least 2.15 : 1.00
	 	 	 	 
	10.3. Cash Flow Leverage Ratio
	 	 	 	 
	A. Consolidated Funded Debt (sum of (1) through (3))
	 	$	—	 
	(1) Outstanding principal amount of the Loans
	 	$	—	 
	(2) plus Indebtedness with respect to Capitalized Leases
	 	$	—	 
	(3) plus all other Indebtedness subject to payment of interest
	 	$	—	 
	B. Consolidated EBITDA for such period
	 	$	—	 
	(1) Consolidated Net Income of the Borrower and its Subsidiaries
	 	$	—	 
	(2) plus income taxes
	 	$	—	 
	(3) plus Consolidated Total Interest Expense
	 	$	—	 
	(4) plus depreciation and amortization
	 	$	—	 
	(5) plus noncash charges
	 	$	—	 
	C. Ratio of A. to B.
	 	 	—	 
	Ratio cannot exceed 1.50 to 1.00
	 	 	 	 








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	10.4 Capital Expenditures
	 	 	 	 
	A. Aggregate Capital Expenditures of Borrower and its Subsidiaries made year-to-date
	 	$	—	 
	B. Aggregate Capital Expenditures of Borrower and its Subsidiaries calculated for the
period of four consecutive fiscal quarters just ended
	 	$	—	 
	C. Capital Expenditures Permitted in current fiscal year (see table below)
	 	$	—	 
	D. Capital Expenditures permitted but not spent in prior fiscal year (carryover amount)
	 	$	—	 
	E. Item D. multiplied by .25
	 	$	—	 







     Amount in line A. not to exceed sum of lines C. and D.



	 	 	 	 	 
	Fiscal Year
	 	Capital Expenditures

	2003
	 	$	190,000,000	 
	2004
	 	$	165,000,000	 
	2005
	 	$	200,000,000	 
	2006
	 	$	100,000,000	 







	 	 	 	 	 
	9.4. Distributions
	 	 	 	 
	A. Aggregate Distributions made by the Borrower after the Closing Date
	 	$	—	 
	B. $70,000,000
	 	$	70,000,000	 
	C. Consolidated Net Income for Borrower and its Subsidiaries for the period after the
Closing Date to the end of the most recent fiscal quarter
	 	$	—	 
	D. Item C. multiplied by .50
	 	$	—	 
	E. Aggregate amount of cash proceeds received by the Borrower after February 3, 2001
in connection with the issuance of equity.
	 	$	—	 
	F. Item B. plus Item D. plus Item E.
	 	$	—	 
	Item A. not to exceed Item F. for compliance
	 	 	 	 








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