-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IIZ9BXZGd7mhyJizzad9YcA3Sx+NC6XgVSIJs1o/Nn2Wqn47k0fmZ9fQd/v3LiSK EbOMm2KLtjCeLdpgf8OAJg== 0000950136-04-002967.txt : 20040914 0000950136-04-002967.hdr.sgml : 20040914 20040913193524 ACCESSION NUMBER: 0000950136-04-002967 CONFORMED SUBMISSION TYPE: SC 13D PUBLIC DOCUMENT COUNT: 6 FILED AS OF DATE: 20040914 DATE AS OF CHANGE: 20040913 GROUP MEMBERS: CRAFTS RETAIL HOLDING CORP. GROUP MEMBERS: MARC J. LEDER GROUP MEMBERS: RODGER R. KROUSE GROUP MEMBERS: SUN CAPITAL ADVISORS III, LP GROUP MEMBERS: SUN CAPITAL PARTNERS III QP, LP GROUP MEMBERS: SUN CAPITAL PARTNERS III, LLC GROUP MEMBERS: SUN CAPITAL PARTNERS III, LP GROUP MEMBERS: SUN CRAFTS RETAIL, LLC SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: RAG SHOPS INC CENTRAL INDEX KEY: 0000874385 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-HOBBY, TOY & GAME SHOPS [5945] IRS NUMBER: 510333503 STATE OF INCORPORATION: DE FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: SC 13D SEC ACT: 1934 Act SEC FILE NUMBER: 005-42322 FILM NUMBER: 041028406 BUSINESS ADDRESS: STREET 1: 111 WAGARAW RD CITY: HAWTHORNE STATE: NJ ZIP: 07506 BUSINESS PHONE: 9734231303 MAIL ADDRESS: STREET 1: 111 WAGARAW RD CITY: HAWTHORNE STATE: NJ ZIP: 07506 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: Crafts Retail Acquisition Corp. CENTRAL INDEX KEY: 0001302534 IRS NUMBER: 000000000 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D BUSINESS ADDRESS: STREET 1: 5200 TOWN CENTER CIRCLE, SUITE 470 CITY: BOCA RATON STATE: FL ZIP: 33486 BUSINESS PHONE: 561-394-0550 MAIL ADDRESS: STREET 1: 5200 TOWN CENTER CIRCLE, SUITE 470 CITY: BOCA RATON STATE: FL ZIP: 33486 SC 13D 1 file001.htm SCHEDULE 13D

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

SCHEDULE 13D

UNDER THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. __)

Rag Shops, Inc.
- --------------------------------------------------------------------------------
(Name of Issuer)

Common Stock, par value $0.01 per share
- --------------------------------------------------------------------------------
(Title of Class of Securities)

750-624-108
- --------------------------------------------------------------------------------
(CUSIP Number)

September 13, 2004
- --------------------------------------------------------------------------------
(Date of Event Which Requires Filing of this Statement)

Marc J. Leder
Rodger R. Krouse
Sun Capital Partners III, LP
Sun Capital Partners III QP, LP
5200 Town Center Circle, Suite 470
Boca Raton, Florida 33486
Telephone: (561) 394-0550

with a copy to:

Michael Weinsier
Hughes Hubbard & Reed LLP
One Battery Park Plaza
New York, New York 10004
Telephone: (212) 837-6690
- --------------------------------------------------------------------------------
(Name, Address and Telephone Number of Person Authorized to Receive Notices and
Communications)

If the filing person has previously filed a statement on Schedule 13G to report
the acquisition that is the subject of this Schedule 13D, and is filing this
schedule because of ss.ss. 240.13d-1(e), 240.13d-1(f) or 240.13d-1(g), check the
following box / /.

NOTE: Schedules filed in paper format shall include a signed original and five
copies of the schedule, including all exhibits. See Rule 13d-7 for other parties
to whom copies are to be sent.

The information required on the remainder of this cover page shall not be deemed
to be "filed" for the purpose of Section 18 of the Securities Exchange Act of
1934 ("Act") or otherwise subject to the liabilities of that section of the Act
but shall be subject to all other provisions of the Act (however, see the
Notes).

SCHEDULE 13D

CUSIP No. 750-624-108 PAGE 3 OF 21
- --------------------------------------------------------------------------------
1. NAME OF REPORTING PERSONS

Crafts Retail Acquisition Corp.

S.S. or I.R.S. IDENTIFICATION NO. OF ABOVE PERSONS
(Intentionally Omitted)
- --------------------------------------------------------------------------------
2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
(a) [ ]
(b) [x]
- --------------------------------------------------------------------------------
3. SEC USE ONLY

- --------------------------------------------------------------------------------
4. SOURCE OF FUNDS:

WC, BK
- --------------------------------------------------------------------------------
5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEMS 2(d) OR 2(e)

[ ]
- --------------------------------------------------------------------------------
6. CITIZENSHIP OR PLACE OF ORGANIZATION

Delaware
- --------------------------------------------------------------------------------
7. SOLE VOTING POWER:

2,671,199
--------------------------------------
NUMBER OF SHARES 8. SHARED VOTING POWER:
BENEFICIALLY
OWNED BY EACH
REPORTING PERSON --------------------------------------
WITH
9. SOLE DISPOSITIVE POWER:

2,671,199
--------------------------------------

10. SHARED DISPOSITIVE POWER:

- --------------------------------------------------------------------------------
11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON

2,671,199
- --------------------------------------------------------------------------------
12. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES*

[ ]
- --------------------------------------------------------------------------------
13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11):

55.7%
- --------------------------------------------------------------------------------
14. TYPE OF REPORTING PERSON*

CO
- --------------------------------------------------------------------------------

SCHEDULE 13D

CUSIP No. 750-624-108 PAGE 4 OF 21
- --------------------------------------------------------------------------------
1. NAME OF REPORTING PERSONS

Crafts Retail Holding Corp.

- --------------------------------------------------------------------------------
4. SOURCE OF FUNDS:

BK
- --------------------------------------------------------------------------------
5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEMS 2(d) OR 2(e)

[ ]
- --------------------------------------------------------------------------------
6. CITIZENSHIP OR PLACE OF ORGANIZATION

Delaware
- --------------------------------------------------------------------------------
7. SOLE VOTING POWER:

--------------------------------------
NUMBER OF SHARES 8. SHARED VOTING POWER:
BENEFICIALLY
OWNED BY EACH 2,671,199
REPORTING PERSON --------------------------------------
WITH
9. SOLE DISPOSITIVE POWER:

--------------------------------------

10. SHARED DISPOSITIVE POWER:

2,671,199
- --------------------------------------------------------------------------------
11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON

2,671,199
- --------------------------------------------------------------------------------
12. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES*

[ ]
- --------------------------------------------------------------------------------
13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11):

55.7%
- --------------------------------------------------------------------------------
14. TYPE OF REPORTING PERSON*

CO
- --------------------------------------------------------------------------------

SCHEDULE 13D

CUSIP No. 750-624-108 PAGE 5 OF 21
- --------------------------------------------------------------------------------
1. NAME OF REPORTING PERSONS

Sun Crafts Retail, LLC

- --------------------------------------------------------------------------------
4. SOURCE OF FUNDS:

N/A
- --------------------------------------------------------------------------------
5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEMS 2(d) OR 2(e)

[ ]
- --------------------------------------------------------------------------------
6. CITIZENSHIP OR PLACE OF ORGANIZATION

Delaware
- --------------------------------------------------------------------------------
7. SOLE VOTING POWER:

--------------------------------------

10. SHARED DISPOSITIVE POWER:

2,671,199
- --------------------------------------------------------------------------------
11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON

2,671,199
- --------------------------------------------------------------------------------
12. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES*

[ ]
- --------------------------------------------------------------------------------
13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11):

55.7%
- --------------------------------------------------------------------------------
14. TYPE OF REPORTING PERSON*

OO (limited liability company)
- --------------------------------------------------------------------------------

SCHEDULE 13D

CUSIP No. 750-624-108 PAGE 6 OF 21
- --------------------------------------------------------------------------------
1. NAME OF REPORTING PERSONS

Sun Capital Partners III, LP

- --------------------------------------------------------------------------------
4. SOURCE OF FUNDS:

N/A
- --------------------------------------------------------------------------------
5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEMS 2(d) OR 2(e)

[ ]
- --------------------------------------------------------------------------------
6. CITIZENSHIP OR PLACE OF ORGANIZATION

Delaware
- --------------------------------------------------------------------------------
7. SOLE VOTING POWER:

--------------------------------------

10. SHARED DISPOSITIVE POWER:

2,671,199
- --------------------------------------------------------------------------------
11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON

2,671,199
- --------------------------------------------------------------------------------
12. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES*

[ ]
- --------------------------------------------------------------------------------
13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11):

55.7%
- --------------------------------------------------------------------------------
14. TYPE OF REPORTING PERSON*

PN
- --------------------------------------------------------------------------------

SCHEDULE 13D

CUSIP No. 750-624-108 PAGE 7 OF 21
- --------------------------------------------------------------------------------
1. NAME OF REPORTING PERSONS

Sun Capital Partners III QP, LP

- --------------------------------------------------------------------------------
4. SOURCE OF FUNDS:

N/A
- --------------------------------------------------------------------------------
5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEMS 2(d) OR 2(e)

[ ]
- --------------------------------------------------------------------------------
6. CITIZENSHIP OR PLACE OF ORGANIZATION

Delaware
- --------------------------------------------------------------------------------
7. SOLE VOTING POWER:

--------------------------------------

10. SHARED DISPOSITIVE POWER:

2,671,199
- --------------------------------------------------------------------------------
11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON

2,671,199
- --------------------------------------------------------------------------------
12. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES*

[ ]
- --------------------------------------------------------------------------------
13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11):

55.7%
- --------------------------------------------------------------------------------
14. TYPE OF REPORTING PERSON*

PN
- --------------------------------------------------------------------------------

SCHEDULE 13D

CUSIP No. 750-624-108 PAGE 8 OF 21
- --------------------------------------------------------------------------------
1. NAME OF REPORTING PERSONS

Sun Capital Advisors III, LP

- --------------------------------------------------------------------------------
4. SOURCE OF FUNDS:

N/A
- --------------------------------------------------------------------------------
5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEMS 2(d) OR 2(e)

[ ]
- --------------------------------------------------------------------------------
6. CITIZENSHIP OR PLACE OF ORGANIZATION

Delaware
- --------------------------------------------------------------------------------
7. SOLE VOTING POWER:

--------------------------------------

10. SHARED DISPOSITIVE POWER:

2,671,199
- --------------------------------------------------------------------------------
11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON

2,671,199
- --------------------------------------------------------------------------------
12. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES*

[ ]
- --------------------------------------------------------------------------------
13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11):

55.7%
- --------------------------------------------------------------------------------
14. TYPE OF REPORTING PERSON*

PN
- --------------------------------------------------------------------------------

SCHEDULE 13D

CUSIP No. 750-624-108 PAGE 9 OF 21
- --------------------------------------------------------------------------------
1. NAME OF REPORTING PERSONS

Sun Capital Partners III, LLC

- --------------------------------------------------------------------------------
4. SOURCE OF FUNDS:

N/A
- --------------------------------------------------------------------------------
5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEMS 2(d) OR 2(e)

[ ]
- --------------------------------------------------------------------------------
6. CITIZENSHIP OR PLACE OF ORGANIZATION

Delaware
- --------------------------------------------------------------------------------
7. SOLE VOTING POWER:

--------------------------------------

10. SHARED DISPOSITIVE POWER:

2,671,199
- --------------------------------------------------------------------------------
11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON

2,671,199
- --------------------------------------------------------------------------------
12. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES*

[ ]
- --------------------------------------------------------------------------------
13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11):

55.7%
- --------------------------------------------------------------------------------
14. TYPE OF REPORTING PERSON*

OO (limited liability company)
- --------------------------------------------------------------------------------

SCHEDULE 13D

CUSIP No. 750-624-108 PAGE 10 OF 21
- --------------------------------------------------------------------------------
1. NAME OF REPORTING PERSONS

Marc J. Leder

- --------------------------------------------------------------------------------
4. SOURCE OF FUNDS:

N/A
- --------------------------------------------------------------------------------
5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEMS 2(d) OR 2(e)

[ ]
- --------------------------------------------------------------------------------
6. CITIZENSHIP OR PLACE OF ORGANIZATION

U.S.
- --------------------------------------------------------------------------------
7. SOLE VOTING POWER:

--------------------------------------

10. SHARED DISPOSITIVE POWER:

2,671,199
- --------------------------------------------------------------------------------
11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON

2,671,199
- --------------------------------------------------------------------------------
12. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES*

[ ]
- --------------------------------------------------------------------------------
13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11):

55.7%
- --------------------------------------------------------------------------------
14. TYPE OF REPORTING PERSON*

IN
- --------------------------------------------------------------------------------

SCHEDULE 13D

CUSIP No. 750-624-108 PAGE 11 OF 21
- --------------------------------------------------------------------------------
1. NAME OF REPORTING PERSONS

Rodger R. Krouse

- --------------------------------------------------------------------------------
4. SOURCE OF FUNDS:

N/A
- --------------------------------------------------------------------------------
5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEMS 2(d) OR 2(e)

[ ]
- --------------------------------------------------------------------------------
6. CITIZENSHIP OR PLACE OF ORGANIZATION

U.S.
- --------------------------------------------------------------------------------
7. SOLE VOTING POWER:

--------------------------------------

10. SHARED DISPOSITIVE POWER:

2,671,199
- --------------------------------------------------------------------------------
11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON

2,671,199
- --------------------------------------------------------------------------------
12. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES*

[ ]
- --------------------------------------------------------------------------------
13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11):

55.7%
- --------------------------------------------------------------------------------
14. TYPE OF REPORTING PERSON*

IN
- --------------------------------------------------------------------------------

SCHEDULE 13D

CUSIP No. 750-624-108 PAGE 12 OF 21
- --------------------------------------------------------------------------------

ITEM 1. SECURITY AND ISSUER

The class of equity security to which this statement relates is the
common stock, par value $0.01 (the "Common Stock"), of Rag Shops, Inc., a
Delaware corporation (the "Issuer"). The name and address of the principal
executive offices of the Issuer are:

Rag Shops, Inc.
111 Wagaraw Road
Hawthorne, New Jersey 07506

ITEM 2. IDENTITY AND BACKGROUND

This statement is being jointly filed by each of the following persons
pursuant to Rule 13d-1(k) promulgated by the Securities and Exchange Commission
(the "Commission") pursuant to Section 13 of the Securities Exchange Act of
1934, as amended (the "Exchange Act"): Crafts Retail Acquisition Corp., a
Delaware corporation ("Crafts Acquisition"), Crafts Retail Holding Corp., a
Delaware corporation ("Crafts Holding"), Sun Crafts Retail, LLC, a Delaware
limited liability company ("Sun Crafts Retail"), Sun Capital Partners III, LP, a
Delaware limited partnership ("Sun Partners III LP"), Sun Capital Partners III
QP, LP, a Delaware limited partnership ("Sun Partners III QP LP"), Sun Capital
Advisors III, LP, a Delaware limited partnership ("Sun Advisors III"), Sun
Capital Partners III, LLC, a Delaware limited liability company ("Sun Partners
III LLC"), Marc J. Leder ("Leder") and Rodger R. Krouse ("Krouse"). Leder and
Krouse may each be deemed to control Crafts Acquisition, Crafts Holding, Sun
Crafts Retail, Sun Partners III LP, Sun Partners III QP LP, Sun Advisors III,
and Sun Partners III LLC, as Leder and Krouse each own 50% of the membership
interests in Sun Partners III LLC, which in turn is the general partner of Sun
Advisors III, which in turn is the general partner of Sun Partners III LP and
Sun Partners III QP LP. Sun Partners III LP and Sun Partners III QP LP together
own 100% of the membership interests of Sun Crafts Retail, which in turn owns
100% of the equity interest of Crafts Holding which in turn owns 100% of the
equity interest of Crafts Acquisition. Crafts Acquisition, Crafts Holding, Sun
Crafts Retail, Sun Partners III LP, Sun Partners III QP LP, Sun Advisors III,
Sun Partners III LLC, Leder and Krouse are collectively referred to as the
"Reporting Persons."

The principal business address of each of the Reporting Persons is 5200
Town Center Circle, Suite 470, Boca Raton, Florida 33486.

Crafts Acquisition, Crafts Holding, Sun Crafts Retail, Sun Partners III
LP, Sun Partners III QP LP, Sun Advisors III, and Sun Partners III LLC are each
principally engaged in making investments. Crafts Acquisition and Crafts Holding
were formed for the purpose of acquiring the Issuer. Leder and Krouse are
principally engaged in merchant banking and the acquisition and operation of
middle market companies.

During the past five years, none of the Reporting Persons and, to the
knowledge of the Reporting Persons, none of the executive officers or directors
of the Reporting Persons, if applicable, has been convicted in a criminal
proceeding (excluding traffic violations or similar misdemeanors), or has been a
party to a civil proceeding of a judicial or administrative body of competent
jurisdiction and as a result of such proceeding was or is subject to a judgment,
decree or final order enjoining future violations of, or prohibiting or
mandating activities subject to, federal or state securities laws or finding any
violation with respect to such laws.

Certain information with respect to the executive officers and
directors of the Reporting Persons, if applicable, is set forth on Schedule A
attached hereto.

SCHEDULE 13D

CUSIP No. 750-624-108 PAGE 13 OF 21
- --------------------------------------------------------------------------------

ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.

On September 13, 2004, Crafts Holding, Crafts Acquisition and certain
stockholders of the Issuer entered into a Stock Purchase Agreement (the
"Purchase Agreement"), pursuant to which on September 13, 2004 Crafts
Acquisition acquired 2,671,199 shares of Common Stock. A copy of the Purchase
Agreement is attached as Exhibit 2. The shares of Common Stock acquired by
Crafts Acquisition constitute approximately 55.7% of the Issuer's outstanding
Common Stock. The aggregate consideration for the Common Stock acquired by
Crafts Acquisition pursuant to the Purchase Agreement was $11,486,155.70.

All of the shares of Common Stock beneficially owned by the Reporting
Persons were paid for using (1) an aggregate of approximately $4 million dollars
of equity contributions from Sun Partners III LP and Sun Partners III QP LP and
(2) approximately $7.5 million in funds obtained by Crafts Holding pursuant to a
loan (the "Crafts Loan") provided by Harris Trust and Savings Bank and
guaranteed by Sun Partners III LP and Sun Partners III QP LP. Crafts Holdings
contributed the proceeds of the Crafts Loan to Crafts Acquisition in order to
fund the purchase of such Common Stock. It is anticipated that the source of
funds for the Offer and Merger (each as described and defined in Item 4) will be
a combination of equity contributions from Sun Partners III LP and Sun Partners
III QP LP as well as loans from one or more banks or other institutional lenders
(the "Additional Financing"). The exact form of any such Additional Financing,
to the extent available on commercially reasonable terms, has not been
determined. In the event the Additional Financing cannot be obtained on terms
that are satisfactory to the Reporting Persons, in their sole discretion, Crafts
Acquisition will obtain all the funds necessary to complete the Offer and the
Merger out of equity contributions from Sun Partners III LP and Sun Partners III
QP LP.

ITEM 4. PURPOSE OF THE TRANSACTION

The purpose of the transaction consummated under the Purchase Agreement
was to acquire economic and voting control of the Issuer. As a result of the
transaction, the Reporting Persons acquired Common Stock constituting 55.7% of
the Issuer's outstanding Common Stock. The summary of the Purchase Agreement set
forth in Item 3 of this Schedule 13D is incorporated herein by reference.

Pursuant to the terms of the Purchase Agreement, each stockholder party
thereto has agreed not to acquire any securities or assets of the Issuer for a
specified period of time related to the Merger (as defined below) and to tender
shares of Common Stock of the Issuer issuable upon exercise of options or other
rights in accordance with the terms of the Offer (as defined below).

Concurrently with the execution and delivery of the Purchase Agreement,
Crafts Holding, Crafts Acquisition and the Issuer entered into an Agreement and
Plan of Merger (the "Merger Agreement"), a copy of which is attached as Exhibit
3 and is hereby incorporated herein by reference. Pursuant to the Merger
Agreement, Crafts Holding has agreed to cause Crafts Acquisition to commence an
offer to purchase all of the outstanding Common Stock of Issuer (the "Offer") at
a price per share of $4.30, net to the stockholder in cash (the "Offer Price").
The Offer will be made upon the terms and subject to the conditions in the Offer
to Purchase and related Letter of Transmittal to be sent to Issuer's
stockholders. The Offer is conditioned on, among other things, the absence of
the occurrence of an event that would have a material adverse effect on the
Issuer. Additionally, if shares tendered and not withdrawn constitute less than
90% of the outstanding shares of the Issuer, Crafts Acquisition may extend the
Offer. Subject to certain exceptions, following satisfaction or waiver of the
conditions of the Offer, Crafts Acquisition will purchase all of the outstanding
Common Stock validly tendered and not withdrawn pursuant to the Offer.

The Merger Agreement further provides that after the satisfaction or
waiver of the conditions set forth in the Merger Agreement, including, among
other things, the purchase of Shares pursuant to the Offer thereby consummating
the Offer, Crafts Acquisition will be merged with and into the Issuer (the
"Merger").

SCHEDULE 13D

CUSIP No. 750-624-108 PAGE 14 OF 21
- --------------------------------------------------------------------------------

Following consummation of the Merger, the Issuer will continue as the surviving
corporation and will be a wholly-owned subsidiary of Crafts Holding. The purpose
of the Offer and the Merger is to facilitate the acquisition by Crafts Holding
of all of the shares of Common Stock for cash and thereby enable Crafts Holding
to own 100% of the Issuer. At the effective time of the Merger (the "Effective
Time"), each share issued and outstanding immediately prior to the Effective
Time held by the stockholders (other than shares held by the Issuer as treasury
stock, and shares held by Crafts Holding, Crafts Acquisition and any other
wholly-owned subsidiary of Crafts Holding which will be canceled without
payment) will be canceled and, subject to appraisal rights of dissenting
stockholders under the Delaware General Corporation Law ("DGCL"), converted
automatically into the right to receive the Offer Price. Stockholders who hold
their shares at the time of the Merger and who fully comply with the statutory
dissenters' procedures set forth in the DGCL will be entitled to dissent from
the Merger and have the fair value of their shares (which may be more than,
equal to, or less than the consideration received in the Merger) judicially
determined and paid to them in cash pursuant to the procedures prescribed by the
DGCL.

Upon execution of the Purchase Agreement and the Merger Agreement,
Crafts Holding obtained the right to designate that number of directors, rounded
up to the next whole number, that is proportionate to its equity interest in the
Issuer. The Issuer is required under the Merger Agreement to take all action
necessary to cause such designees to be elected or appointed to the board of
directors, including, without limitation, increasing the number of directors and
seeking and accepting resignations of incumbent directors; provided, however,
that the board of directors must at all times until the effective time of the
merger have at least three directors who are directors on the date of the Merger
Agreement or otherwise not affiliates of Crafts Holding and Crafts Acquisition.
Effective as of the Effective Time of the Merger, the directors and officers of
Crafts Acquisition will become the directors and officers of the Issuer as the
surviving corporation.

In connection with the Merger Agreement, the Issuer's certificate of
incorporation and bylaws as in effect immediately prior to the effective time
will be amended and as so amended will become the organizational instruments of
the surviving corporation following the Merger. The amendments to the
certificate of incorporation and the bylaws are as set forth in the Merger
Agreement and are not directed at impeding the acquisition of control of the
Issuer by any person.

The proposed transactions contemplated by the Offer and the Merger
would, if and when consummated, result in the Common Stock: (i) ceasing to trade
on the Nasdaq SmallCap Market; and (ii) becoming eligible for termination of
registration under Section 12(g)(4) of the Exchange Act.

The foregoing descriptions of the Purchase Agreement and the Merger
Agreement are qualified in their entirety by reference to the full text of the
forms of those agreements, which are incorporated herein by reference.

Except as set forth in the preceding paragraphs, as of the date hereof,
the Reporting Persons do not have any plan or proposal that relates to or would
result in:

(a) The acquisition by any person of additional securities of the
Issuer, or the disposition of securities of the Issuer;

(b) An extraordinary corporate transaction, such as a merger,
reorganization or liquidation, involving the Issuer or any of
its subsidiaries;

SCHEDULE 13D

CUSIP No. 750-624-108 PAGE 15 OF 21
- --------------------------------------------------------------------------------

(d) Any change in the present board of directors or management of
the Issuer, including any plans or proposals to change the
number or term of directors or to fill any existing vacancies
on the board;

(e) Any material change in the present capitalization or dividend
policy of the Issuer;

(f) Any other material change in the Issuer's business or
corporate structure;

(g) Changes in the Issuer's charter, bylaws or instruments
corresponding thereto or other actions which may impede the
acquisition of control of the Issuer by any person;

(h) Causing a class of securities of the Issuer to be delisted
from a national securities exchange or to cease to be
authorized to be quoted in an inter-dealer quotation system of
a registered national securities association;

(i) A class of equity securities of the Issuer becoming eligible
for termination of registration pursuant to Section 12(g)(4)
of the Act; or

(j) Any action similar to any of those enumerated above.

Notwithstanding the foregoing, the Reporting Persons reserve the right
to effect any such actions as any of them may deem necessary or appropriate in
the future.

ITEM 5. INTEREST IN SECURITIES OF THE ISSUER

(a) As of the date hereof, the Reporting Persons may be deemed to
be the beneficial owner, within the meaning of Rule 13d-3 of
the Exchange Act, of 2,671,199 shares of Common Stock, or
approximately 55.7% of the Common Stock outstanding.

(b) Crafts Acquisition has the sole power to vote or direct the
vote of 2,671,199 shares of Common Stock, or approximately
55.7% of the Common Stock outstanding. Each other Reporting
Person may be deemed to have shared power to vote or direct
the vote of 2,671,199 shares of Common Stock, or approximately
55.7% of the Common Stock outstanding. This number is
comprised of the 2,671,199 shares of Common Stock that are
held directly by Crafts Acquisition.

Crafts Acquisition has the sole power to dispose or direct the
disposition of 2,671,199 shares of Common Stock, or
approximately 55.7% of the Common Stock outstanding. Each
other Reporting Person may be deemed to have shared power to
dispose or direct the disposition of 2,671,199 shares of
Common Stock, or approximately 55.7% of the Common Stock
outstanding. This number is comprised of the 2,671,199 shares
of Common Stock that are held directly by Crafts Acquisition.

(c) Except for the transactions described herein, there have been
no other transactions in the securities of the Issuer effected
by the Reporting Persons in the last 60 days.

(d) Except as stated within this Item 5, to the knowledge of the
Reporting Persons, only the Reporting Persons have the right
to receive or the power to direct the receipt of dividends
from, or proceeds from the sale of, the shares of Common Stock
of the Issuer reported by this statement.

SCHEDULE 13D

CUSIP No. 750-624-108 PAGE 16 OF 21
- --------------------------------------------------------------------------------

(e) Inapplicable.

ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT
TO SECURITIES OF THE ISSUER

The Reporting Persons intend to have open communications with the
Issuer's management in order to monitor management's efforts to increase
shareholder value. In connection with that effort, an affiliate of one of the
Reporting Persons has entered into a Management Services Agreement (the
"Management Services Agreement") whereby such person will provide various
administrative and management services to the Issuer in exchange for an annual
fee equal to the greater of $400,000 or 6% of the Issuer's EBITDA (as defined in
the Management Services Agreement). Such affiliate is also entitled to receive
additional management consulting fees equal to 1% of the aggregate consideration
paid to or by the Issuer, its subsidiaries or stockholders in connection with
significant corporate events involving the Company, its subsidiaries or
stockholders, including the closing of the acquisition of the shares of the
Issuer's Common Stock under the Stock Purchase Agreement and the consummation of
the Offer and the Merger. The preceding summary of terms of the Management
Services Agreement is qualified in its entirety by reference to the detailed
provisions of the Management Services Agreement, a copy of which is attached as
Exhibit 4 and incorporated herein by reference.

Except for the agreements described above or in response to Items 3 and
4 of this Schedule 13D, which are hereby incorporated herein by reference, to
the best knowledge of the Reporting Persons, there are no contracts,
arrangements, understandings or relationships (legal or otherwise) between the
persons enumerated in Item 2 of this Schedule 13D, and any other person, with
respect to any securities of the Issuer, including, but not limited to, transfer
or voting of any of the securities, finder's fees, joint ventures, loan or
option agreements, puts or calls, guarantees of profits, divisions of profits or
loss, or the giving or withholding of proxies.

ITEM 7. MATERIAL TO BE FILED AS EXHIBITS

Schedule A Additional Information Required by Item 2 of Schedule 13D

Exhibit 1 Schedule 13D Joint Filing Agreement dated as of September 13,
2004 by and among each of the Reporting Persons

Exhibit 2 Stock Purchase Agreement dated September 13, 2004 by and among
Crafts Retail Holding Corp., Crafts Retail Acquisition Corp.
and certain stockholders of Rag Shops, Inc. (incorporated by
reference to Exhibit 10.1 to Rag Shops' Current Report on Form
8-K filed with the Securities and Exchange Commission on
September 10, 2004)

Exhibit 3 Agreement and Plan of Merger dated September 13, 2004 by and
among Crafts Retail Holding Corp., Crafts Retail Acquisition
Corp. and Rag Shops, Inc. (incorporated by reference to
Exhibit 2.1 to Rag Shops' Current Report on Form 8-K filed
with the Securities and Exchange Commission on September 10,
2004)

Exhibit 4 Management Services Agreement dated September 13, 2004 between
Rag Shops, Inc. and Sun Capital Partners Management III, LLC
(incorporated by reference to Exhibit 10.2 to Rag Shops'
Current Report on Form 8-K filed with the Securities and
Exchange Commission on September 10, 2004)

Exhibit 5 Loan Authorization Agreement dated September 13, 2004 between
Crafts Retail Holding Corp. and Harris Trust and Savings Bank

SCHEDULE 13D

CUSIP No. 750-624-108 PAGE 17 OF 21
- --------------------------------------------------------------------------------

Exhibit 6 Demand Note dated September 13, 2004 of Crafts Retail Holding
Corp. in favor of Harris Trust and Savings Bank

Exhibit 7 Guaranty dated September 13, 2004 of Sun Capital Partners III,
LP in favor of Harris Trust and Savings Bank

Exhibit 8 Guaranty dated September 13, 2004 of Sun Capital Partners III
QP, LP in favor of Harris Trust and Savings Bank

SCHEDULE 13D

CUSIP No. 750-624-108 PAGE 18 OF 21
- --------------------------------------------------------------------------------

SIGNATURES

After reasonable inquiry and to the best of our knowledge and belief,
we certify that the information set forth in this statement is true, complete
and correct. Pursuant to Rule 13d-1(k)(1), each of the undersigned agrees that
this statement is filed on behalf of each of us.

September 13, 2004

CRAFTS RETAIL ACQUISITION CORP.

By: /s/ Marc J. Leder
--------------------------------------
Name: Marc J. Leder
Its: Vice President

CRAFTS RETAIL HOLDING CORP.

By: /s/ Marc J. Leder
--------------------------------------
Name: Marc J. Leder
Its: Vice President

SUN CRAFTS RETAIL, LLC

By: /s/ Marc J. Leder
--------------------------------------
Name: Marc J. Leder
Its: Co-CEO

SUN CAPITAL PARTNERS III, LP

By: Sun Capital Advisors III, LP
Its: General Partner

By: Sun Capital Partners III, LLC
Its: General Partner

By: /s/ Marc J. Leder
--------------------------------------
Name: Marc J. Leder
Its: Co-CEO

SCHEDULE 13D

CUSIP No. 750-624-108 PAGE 19 OF 21
- --------------------------------------------------------------------------------

SUN CAPITAL PARTNERS III QP, LP

By: Sun Capital Advisors III, LP
Its: General Partner

By: Sun Capital Partners III, LLC
Its: General Partner

By: /s/ Marc J. Leder
--------------------------------------
Name: Marc J. Leder
Its: Co-CEO

SUN CAPITAL ADVISORS III, LP

By: Sun Capital Partners III, LLC
Its: General Partner

By: /s/ Marc J. Leder
--------------------------------------
Name: Marc J. Leder
Its: Co-CEO

SUN CAPITAL PARTNERS III, LLC

By: /s/ Marc J. Leder
--------------------------------------
Name: Marc J. Leder
Its: Co-CEO

/s/ Marc J. Leder
------------------------------------------
Marc J. Leder

/s/ Rodger R. Krouse
------------------------------------------
Rodger R. Krouse

SCHEDULE 13D

CUSIP No. 750-624-108 PAGE 20 OF 21
- --------------------------------------------------------------------------------

SCHEDULE A
----------

CRAFTS RETAIL ACQUISITION CORP.

Set forth below is the name and business address of each director and
executive officer of Crafts Retail Acquisition Corp. Each such person is a
citizen of the United States of America:

Name Title Address
- -------------------------------------- ---------------- -------------------------------------------------

Mark J. Leder Vice President 5200 Town Center Circle, Suite 470
Boca Raton, Florida 33486
Rodger R. Krouse Vice President 5200 Town Center Circle, Suite 470
Boca Raton, Florida 33486
C. Deryl Couch Vice President 5200 Town Center Circle, Suite 470
Boca Raton, Florida 33486
Michael Fieldstone Director & 5200 Town Center Circle, Suite 470
Vice President Boca Raton, Florida 33486

CRAFTS RETAIL HOLDING CORP.

Set forth below is the name and business address of each director and
executive officer of Crafts Retail Holding Corp. Each such person is a citizen
of the United States of America:

Name Title Address
- -------------------------------------- ---------------- -------------------------------------------------

SUN CRAFTS RETAIL, LLC

Set forth below is the name and business address of each manager of Sun
Crafts Retail, LLC. Each such person is a citizen of the United States of
America:

Name Title Address
- -------------------------------------- ---------------- -------------------------------------------------

Marc J. Leder Co-CEO 5200 Town Center Circle, Suite 470
Boca Raton, Florida 33486

Rodger R. Krouse Co-CEO 5200 Town Center Circle, Suite 470
Boca Raton, Florida 33486

SCHEDULE 13D

CUSIP No. 750-624-108 PAGE 21 OF 21
- --------------------------------------------------------------------------------

SUN CAPITAL PARTNERS III, LLC

Set forth below is the name and business address of each manager of Sun
Partners III LLC. Each such person is a citizen of the United States of America:

Name Title Address
- -------------------------------------- ---------------- -------------------------------------------------

Marc J. Leder Co-CEO 5200 Town Center Circle, Suite 470
Boca Raton, Florida 33486

Rodger R. Krouse Co-CEO 5200 Town Center Circle, Suite 470
Boca Raton, Florida 33486

EX-99.1 2 file002.htm JOINT FILING AGREEMENT



                                                                       EXHIBIT 1
                                                                       ---------

                       SCHEDULE 13D JOINT FILING AGREEMENT

         In accordance with the requirements of Rule 13d-1(k) under the
Securities Exchange Act of 1934, as amended, and subject to the limitations set
forth therein, the parties set forth below agree to jointly file the Schedule
13D to which this joint filing agreement is attached, and have duly executed
this joint filing agreement as of the date set forth below.

                                   * * * * * *





         IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
signed as of the date set forth opposite their name.

Date:  September 13, 2004            CRAFTS RETAIL ACQUISITION CORP.

                                     By:  /s/ Marc J. Leder
                                         ---------------------------------------
                                     Name:  Marc J. Leder
                                     Its:  Vice President

Date:  September 13, 2004            CRAFTS RETAIL HOLDING CORP.

                                     By:  /s/ Marc J. Leder
                                         ---------------------------------------
                                     Name:  Marc J. Leder
                                     Its: Vice President

Date:  September 13, 2004            SUN CRAFTS RETAIL, LLC

                                     By:  /s/ Marc J. Leder
                                         ---------------------------------------
                                     Name:  Marc J. Leder
                                     Its:  Co-CEO

Date:  September 13, 2004            SUN CAPITAL PARTNERS III, LP

                                     By:  Sun Capital Advisors III, LP
                                     Its:  General Partner

                                     By:  Sun Capital Partners III, LLC
                                     Its:  General Partner

                                     By:  /s/ Marc J. Leder
                                         ---------------------------------------
                                     Name:  Marc J. Leder
                                     Its:  Co-CEO

Date:  September 13, 2004            SUN CAPITAL PARTNERS III QP, LP

                                     By:  Sun Capital Advisors III, LP
                                     Its:  General Partner

                                     By:  Sun Capital Partners III, LLC
                                     Its:  General Partner

                                     By:  /s/ Marc J. Leder
                                         ---------------------------------------
                                     Name:  Marc J. Leder
                                     Its:  Co-CEO

Date:  September 13, 2004            SUN CAPITAL ADVISORS III, LP

                                     By:  Sun Capital Partners III, LLC
                                     Its:  General Partner





                                     By:  /s/ Marc J. Leder
                                         ---------------------------------------
                                     Name:  Marc J. Leder
                                     Its:  Co-CEO

Date:  September 13, 2004            SUN CAPITAL PARTNERS III, LLC

                                     By:  /s/ Marc J. Leder
                                         ---------------------------------------
                                     Name:  Marc J. Leder
                                     Its:  Co-CEO

Date:  September 13, 2004             /s/ Marc J. Leder
                                     -------------------------------------------
                                     Marc J. Leder

Date:  September 13, 2004             /s/ Rodger R. Krouse
                                     -------------------------------------------
                                     Rodger R. Krouse

EX-99.5 3 file003.htm LOAN AUTHORIZATION



                                                                       EXHIBIT 5
                                                                       ---------

                       HARRIS LOAN AUTHORIZATION AGREEMENT



The Company referred to below has applied for, and Harris Trust and Savings
Bank, Chicago, Illinois ("Bank"), has approved the establishment of, a loan
authorization account ("Loan Account") from which the Company may from time to
time request loans up to the maximum amount of credit shown below (the "Maximum
Credit"). Interest on such loans is computed at a variable rate which may change
daily based upon changes in the Bank's Prime Rate. The Company may make
principal payments at any time and in any amount. The request by the Company
for, and the making by the Bank of, any loan against the Loan Account shall
constitute an agreement between the Company and the Bank as follows:


Name of Company:  CRAFTS RETAIL HOLDING CORP., a Delaware corporation


Address:          5200 Town Center Circle
                  Suite 470
                  Boca Raton, FL  33486
                  Attn:
                        ------------------------------------------

Type of Loan Account:     /X/  Revolving, which means as principal is repaid,
                                      the Company may reborrow subject to this
                                      Agreement.

                         / /   Multiple Advances, which means that the Company
                                      may not reborrow any amounts that have
                                      been repaid but may still borrow the
                                      difference between the Maximum Credit and
                                      the principal amounts of prior borrowings.

Amount of Maximum Credit:  $8,000,000

Each Loan Requested Shall Be At Least:  $100,000
                                         -------

Variable Interest Rate:    The interest rate applicable prior to the Maturity
                           Date equals the rate per annum announced by
                           the Bank from time to time as its prime commercial
                           rate (the "Prime Rate") plus 0.25%.

Maturity Date: The Loan Account terminates, and Loans are payable, ON DEMAND
(but if no demand, no later than one year from the date hereof).

Periodic Statement reflecting accrued interest will be sent and interest will be
payable: [X] Monthly; [ ] Quarterly

Payments shall be due at the Bank's principal office in
Chicago, Illinois, paid to the order of the Bank, and made by:
                                    / / Debit to Harris Account #______________;

                                    /X/ By Check


1.       Using the Account. All loans and advances from the Loan Account are
         referred to in this Agreement as "Loans". Loan requests must be in
         writing (including by facsimile) or by telephone and shall be sent to
         the Company's Harris Account Officer on or before the date of such
         proposed borrowing. Loan proceeds shall be credited to the Company's
         deposit account at the Bank unless the Bank is directed otherwise by
         special written directions from the Company. The amount of each loan
         requested shall be at least the minimum amount shown above, and the
         Bank shall have the right to refuse to honor any loan requested by the
         Company which is less than that minimum amount, even if the Bank has
         previously honored a loan request for less than the minimum amount. The
         Company shall not request any Loan which, when taken together with the
         Loans then outstanding, would exceed the Maximum Credit. Upon each
         request for a Loan, the






         Company shall furnish to the Bank certificates in the form of Exhibit B
         hereto, properly completed and duly certified by Sun Capital Partners
         III, LP and Sun Capital Partners III QP, LP (individually, a
         "Guarantor" and collectively, the "Guarantors"). If Loans are secured
         directly or indirectly by securities traded on a national exchange or
         by other "margin stock" (as defined by the Federal Reserve Board in
         Regulation U), then the Company promises to furnish the Bank a duly
         executed and completed Form U-1 statement and agrees that the proceeds
         of Loans from the Loan Account will not be used to purchase or carry
         stock, convertible bonds or warrants unless the Company has obtained
         the prior written consent of the Bank.

         Loans will be made available from the Loan Account subject to the
         Bank's approval on a loan-by-loan basis as and when Loans are requested
         by the Company.

         All Loans shall be made against and evidenced by the Company's demand
         note payable to the order of the Bank in the principal amount of
         $8,000,000 such note to be in the form of Exhibit A attached hereto
         (the "Note"). The Bank agrees that notwithstanding the fact that the
         Note is in the principal amount of $8,000,000 it shall evidence only
         the actual unpaid principal balance of Loans made under the Loan
         Account. All Loans made against the Note and the status of all amounts
         evidenced by the Note shall be recorded by the Bank on its books and
         records or, at its option in any instance, endorsed on a schedule to
         the Note and the unpaid principal balance and status and rates so
         recorded or endorsed by the Bank shall be prima facie evidence in any
         court or other proceeding brought to enforce the Note of the principal
         amount remaining unpaid thereon, the status of the Loans evidenced
         thereby and the interest rates applicable thereto, absent manifest
         error; provided that the failure of the Bank to record any of the
         foregoing shall not limit or otherwise affect the obligation of the
         Company to repay the principal amount of the Note together with accrued
         interest thereon. The Bank agrees that if it transfers or assigns the
         Note, the Bank will stamp thereon a statement of the actual principal
         amount evidenced thereby at the time of transfer. The Company agrees
         that in any action or proceeding instituted to collect or enforce
         collection of the Note, the amount shown as owing the Bank on its
         records shall be prima facie evidence of the unpaid balance of
         principal and interest on the Note, absent manifest error.

2.       Interest. The Company shall pay the Bank interest on the unpaid
         principal balance of Loans in accordance with the terms of this
         Agreement. Accrued interest will be billed monthly, and is due by the
         last day of each month (each, an "Interest Payment Date"). Interest for
         each billing period is computed by applying a daily periodic rate based
         on the Bank's Prime Rate plus 0.25% to each day's ending Loan balance.
         Interest shall be computed on the basis of a year of 360 days for the
         actual number of days elapsed. The Bank's Prime Rate reflects market
         rates of interest as well as other factors, and it is not necessarily
         the Bank's best or lowest rate. The daily Loan balance shall be
         computed by taking the principal balance of Loans at the beginning of
         each day, adding any Loans posted to the Loan Account that day, and
         subtracting any principal payments posted to the Loan Account as of
         that day. Interest begins to accrue on the date a Loan is posted to the
         Loan Account. The principal balance of Loans which remains unpaid after
         demand for repayment shall bear interest until paid in full at a
         post-maturity rate of 2% per annum above the interest rate otherwise
         applicable to the Loans (determined as aforesaid). The interest rate
         payable under this Agreement shall be subject, however, to the
         limitation that such interest rate shall never exceed the highest rate
         which the Company may contract to pay under applicable law.

3.       Fees. The Company agrees to pay to the Bank a non-refundable Closing
         Fee in the amount of $20,000.

4.       Guaranty. The Guarantors shall at all times guarantee all Loans.


                                      -2-



5.       Maturity Date; Payments. The Company shall pay to the Bank the
         principal balance of outstanding Loans together with any accrued
         interest ON DEMAND (but if no demand, no later than one year from the
         date HEREOF). Payments received by the Bank shall be applied first to
         accrued interest and then to the principal balance of outstanding Loans
         unless otherwise directed. If any payment from the Company under this
         Agreement becomes due on a Saturday, Sunday, or a day which is a legal
         holiday for banks in the State of Illinois, such payment shall be made
         on the next bank business day and any such extension shall be included
         in computing interest under this Agreement.

6.       Periodic Statements. The Bank will furnish the Company with a statement
         for each billing period (either monthly or quarterly as shown on the
         front of this Agreement) which has any transaction or balance.

7.       Financial Statements. The Company agrees to furnish financial
         information of the Company and each Guarantor to the Bank upon request
         of the Bank from time to time. Such information shall be furnished as
         soon as reasonably possible, but in any event within 30 days after
         request by the Bank. Without any such request, the Company shall
         furnish, or cause to be furnished, to the Bank:

                           (a) as soon as available, and in any event within 30
                  days after the last day of each month, a copy of the
                  consolidated balance sheet of the Company and its subsidiaries
                  as of the last day of such month and the consolidated
                  statements of income, retained earnings and cash flows of the
                  Company and its subsidiaries for the month and the fiscal
                  year-to-date period then ended, each in reasonable detail
                  showing in comparative form the figures for the corresponding
                  date and period in the previous fiscal year, prepared by the
                  Company in accordance with general accepted accounting
                  principles ("GAAP"), except as otherwise stated therein, and
                  certified to by its chief financial officer or such other
                  officer reasonably acceptable to the Bank;

                           (b) as soon as available, and in any event within 90
                  days after the close of each fiscal year of the Company, a
                  copy of the consolidated and consolidating balance sheet of
                  the Company and its subsidiaries as of the close of such
                  period and the consolidated statements of income, retained
                  earnings and cash flows of the Company and its subsidiaries
                  for such period, and accompanying notes thereto, each in
                  reasonable detail showing in comparative form the figures for
                  the previous fiscal year, accompanied by an unqualified
                  opinion thereon of Ernst & Young or another firm of
                  independent public accountants of recognized national
                  standing, selected by the Company and reasonably satisfactory
                  to the Bank, to the effect that the financial statements have
                  been prepared in accordance with GAAP and present fairly in
                  all material respects in accordance with GAAP the consolidated
                  financial condition of the Company and its Subsidiaries as of
                  the close of such fiscal year and the results of their
                  operations and cash flows for the fiscal year then ended;

                           (c) as soon as available, and in any event within 45
                  days after the last day of each month, a certificate as of
                  such date in the form, or substantially the form of Exhibit B
                  hereto, properly completed and certified by each Guarantor;

                           (d) as soon as available, and in any event within 45
                  days after the close of each fiscal quarter of each Guarantor,
                  a copy of each Guarantor's balance sheet as of the last day of
                  such fiscal quarter and its statements of income, retained
                  earnings and cash flows for the fiscal quarter and for the
                  fiscal year-to-date period then ended, each in reasonable
                  detail showing in comparative form the figures for the
                  corresponding date and period in the previous fiscal year,



                                      -3-


                  prepared by such Guarantor in accordance with GAAP and
                  certified to by its chief financial officer or such other
                  officer reasonably acceptable to the Bank; and

                           (e) as soon as available, and in any event within 90
                  days after the close of each fiscal year of each Guarantor, a
                  copy of such Guarantor's balance sheet as of the last day of
                  the fiscal year then ended and its statements of income,
                  retained earnings and cash flows for the fiscal year then
                  ended, and accompanying notes thereto, each in reasonable
                  detail showing in comparative form the figures for the
                  previous fiscal year, accompanied by an unqualified opinion of
                  Grant Thornton or another firm of independent public
                  accountants of recognized standing, selected by such Guarantor
                  and reasonably satisfactory to the Bank to the effect that the
                  financial statements have been prepared in accordance with
                  GAAP and present fairly in all material respects in accordance
                  with GAAP the consolidated financial condition of such
                  Guarantor as of the close of such fiscal year and the results
                  of our operations and cash flows for the fiscal year then
                  ended.

8.       Representations and Warranties. In consideration of establishing and
         maintaining the Loan Account, the Company hereby represents and
         warrants to the Bank that: (a) the Company is a corporation duly
         organized, validly existing, and in good standing under the laws of its
         state of incorporation; (b) the execution, delivery, and performance by
         the Company of this Agreement and the Note are within its powers, have
         been duly authorized by all necessary action, and do not contravene the
         Company's articles of incorporation or by-laws or any law or
         contractual restriction binding on or affecting the Company; (c) no
         authorization or approval or other action by, and no notice to or
         filing with, any governmental authority or regulatory body is required
         for the Company's due execution, delivery, and performance of this
         Agreement or the Note; (d) this Agreement is, and the Note when
         executed and delivered by the Company will be, the Company's legal,
         valid, and binding obligation enforceable against the Company in
         accordance with its terms except as such enforceability may be limited
         by bankruptcy, insolvency, reorganization, moratorium or similar state
         or federal debtor relief laws from time to time in effect which affect
         the enforcement of creditors' rights in general and the availability of
         equitable remedies; (e) the Company is not engaged in the business of
         extending credit for the purpose of purchasing or carrying margin stock
         (within the meaning of Regulation U issued by the Board of Governors of
         the Federal Reserve System), and no proceeds of the Loans will be used
         to purchase or carry any margin stock or to extend credit to others for
         the purpose of purchasing or carrying any margin stock; and (f) there
         is no pending or threatened action or proceeding affecting the Company
         before any court, governmental agency or arbitrator, which may
         materially adversely affect the Company's financial condition or
         operations or which purports to affect the legality, validity, or
         enforceability of this Agreement or the Note.

9.       DEMAND OBLIGATION; ENFORCEMENT. THE LOANS ARE PAYABLE "ON DEMAND."
         ACCORDINGLY, THE BANK CAN DEMAND PAYMENT IN FULL OF THE LOANS AT ANY
         TIME IN ITS SOLE DISCRETION EVEN IF THE COMPANY HAS COMPLIED WITH ALL
         OF THE TERMS OF THIS AGREEMENT.

         No delay by the Bank in the exercise of any right or remedy shall
         operate as a waiver thereof, and no single or partial exercise by the
         Bank of any right or remedy shall preclude any other or further
         exercise thereof or the exercise of any other right or remedy. The
         Company agrees to pay to the Bank all reasonable expenses incurred or
         paid by the Bank in connection with the establishment and maintenance
         of the Loan Account and the collection of the Loans and any court costs
         and other reasonable amounts due under this Agreement, including,
         without limitation, reasonable attorneys' fees. The Bank shall have the
         right at any time to set-off the balance of any deposit account that
         the Company may at any time maintain with the Bank against



                                      -4-



         any amounts at any time owing under this Agreement, whether or not the
         balance of Loans under this Agreement is then due.

10.      Termination; Renewal. The availability of additional Loans under this
         Agreement will automatically terminate ON DEMAND (but if no demand, no
         later than one year from the date hereof). The Bank reserves the right
         at any time without notice to terminate the Loan Account, suspend the
         Company's borrowing privileges or refuse any Loan request even though
         the Company has complied with all of the terms under this Agreement.
         The Company may terminate this Agreement at any time effective upon
         receipt by the Bank of at least 15 days prior written notice. No
         termination under this Section shall affect the Bank's rights or the
         Company's obligations regarding payment or default under this
         Agreement. Such termination shall not affect the Company's obligation
         to pay all Loans and the interest accrued through the date of final
         payment. The Bank may also elect to honor Loan requests after
         termination of this Agreement, and the Company agrees that any such
         payment by the Bank shall constitute a Loan to Company under this
         Agreement.

11.      Notices. The Bank may rely on instructions from the Company with
         respect to any matters relating to this Agreement or the Loan Account,
         including telephone loan requests (including by facsimile) which are
         made by persons whom the Bank reasonably believes to be the persons
         authorized by the Company to make such loan requests. All notices and
         statements to be furnished by the Bank shall be sufficient if delivered
         to any such person at the billing address for the Loan Account shown on
         the records of the Bank. All notices from the Company shall be sent to
         the Bank at P.O. Box 755, Chicago, Illinois 60690, to the attention of
         the Loan Accounting Division. The Company waives presentment and notice
         of dishonor. This Agreement constitutes the entire understanding of the
         parties with respect to the subject matter hereof and any prior
         agreements, whether written or oral, with respect thereto are
         superseded hereby. No amendment or waiver of any provision of this
         Agreement or the Note, nor consent to any departure by the Company
         therefrom, shall in any event be effective unless the same shall be in
         writing and signed by the Bank and the Company. If any part of this
         Agreement is unenforceable, that will not make any other part
         unenforceable. This Agreement shall be governed by the laws of the
         State of Illinois.

12.      Consent to Jurisdiction. THE COMPANY SUBMITS TO THE NON-EXCLUSIVE
         JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE NORTHERN
         DISTRICT OF ILLINOIS AND OF ANY ILLINOIS STATE COURT SITTING IN COOK
         COUNTY, ILLINOIS, FOR PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF
         OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.

13.      Jury Trial Waiver. THE COMPANY AND THE BANK WAIVE ANY AND ALL RIGHT TO
         TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO
         THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.

                                    * * * * *


                                      -5-




         The Company Agrees to the Terms Set Forth Above.


         Signed by Company on September 13, 2004



                                       CRAFTS RETAIL HOLDING CORP.



                                       By: /s/ Kevin Feinblum
                                           -------------------------------------
                                           Name:  Kevin Feinblum
                                                  ------------------------------
                                           Title: Vice President
                                                  ------------------------------


         Accepted and agreed to this 13th day of September, 2004.

                                       HARRIS TRUST AND SAVINGS BANK



                                       By: /s/ Kathleen J. Collins
                                           -------------------------------------
                                           Name: Kathleen J. Collins
                                                --------------------------------
                                           Title: Vice-President
                                                 -------------------------------



                                      -6-

EX-99.6 4 file004.htm DEMAND NOTE



                                                                       EXHIBIT 6
                                                                       ---------

                                   DEMAND NOTE

$8,000,000                                                    September 13, 2004

         ON DEMAND, for value received, the undersigned, CRAFTS RETAIL HOLDING
CORP., a Delaware corporation, promises to pay to the order of HARRIS TRUST AND
SAVINGS BANK (the "Bank") at its offices at 111 West Monroe Street, Chicago,
Illinois, the principal sum of Eight Million Dollars and 00/100 ($8,000,000) or,
if less, the amount outstanding under the Harris Loan Authorization Agreement
referred to below together with interest payable at the times and at the rates
and in the manner set forth in the Harris Loan Authorization Agreement referred
to below.

         This Note evidences borrowings by the undersigned under that certain
Harris Loan Authorization Agreement dated as of September 13, 2004, between the
undersigned and the Bank; and this Note and the holder hereof are entitled to
all the benefits provided for under the Harris Loan Authorization Agreement, to
which reference is hereby made for a statement thereof. The undersigned hereby
waives presentment and notice of dishonor. The undersigned agrees to pay to the
holder hereof all court costs and other reasonable expenses, legal or otherwise,
incurred or paid by such holder in connection with the collection of this Note.
It is agreed that this Note and the rights and remedies of the holder hereof
shall be construed in accordance with and governed by the laws of the State of
Illinois.



                                       CRAFTS RETAIL HOLDING CORP.



                                       By: /s/ Kevin Feinblum
                                           ------------------------------------
                                           Name:  Kevin Feinblum
                                           Title: Vice President

EX-99.7 5 file005.htm GUARANTY



                                                                       EXHIBIT 7
                                                                       ---------

                                    GUARANTY

         For value received and in consideration of advances made or to be made,
or credit given or to be given, or other financial accommodation afforded or to
be afforded to CRAFTS RETAIL HOLDING CORP., a Delaware corporation (hereinafter
designated as the "Borrower"), by HARRIS TRUST AND SAVINGS BANK, Chicago,
Illinois (hereinafter called the "Bank"), from time to time, the undersigned
hereby guarantees the full and prompt payment to the Bank at maturity and at all
times thereafter of any and all indebtedness, obligations and liabilities of
every kind and nature of the Borrower to the Bank (including liabilities of
partnerships created or arising while the Borrower may have been or may be a
member thereof), howsoever evidenced, whether now existing or hereafter created
or arising, whether direct or indirect, absolute or contingent, or joint or
several, and howsoever owned, held or acquired, whether through discount,
overdraft, purchase, direct loan or as collateral, or otherwise (hereinafter all
such indebtedness, obligations and liabilities being collectively referred to as
the "Indebtedness"); and the undersigned further agrees to pay all expenses,
legal and/or otherwise (including court costs and reasonable attorneys' fees),
paid or incurred by the Bank in endeavoring to collect the Indebtedness, or any
part thereof, and in protecting, defending or enforcing this guaranty in any
litigation, bankruptcy or insolvency proceedings or otherwise collectively with
the Indebtedness, the "Guarantied Obligations"). Notwithstanding anything herein
to the contrary, the liability of the undersigned hereunder is limited to the
lesser of (x) two percent (2%) of the Guarantied Obligations for which the Bank
seeks recovery under this Guaranty and the Guaranties executed in favor of the
Bank by SUN CAPITAL PARTNERS III QP, LP relating to the Guarantied Obligations
and (y) One Hundred Sixty Thousand Dollars ($160,000) plus interest on all loans
and/or advances hereunder and all expenses hereinbefore mentioned. Payments
received on the Guarantied Obligations from any other guarantor shall not reduce
the amount otherwise recoverable hereunder.

         The undersigned further acknowledges and agrees with the Bank that:

         1. This guaranty is a continuing, absolute and unconditional guaranty,
and shall remain in full force and effect until written notice of its
discontinuance shall be actually received by the Bank, and also until any and
all of the Indebtedness created, existing or committed to before receipt of such
notice shall be fully paid. The death or dissolution of the undersigned shall
not terminate this guaranty until notice of such death or dissolution shall have
been actually received by the Bank, nor until all of the Indebtedness created or
existing before receipt of such notice shall be fully paid. The granting of
credit from time to time by the Bank to the Borrower in excess of the amount to
which the right of recovery under this guaranty is limited and without notice to
the undersigned, is hereby also authorized and shall in no way affect or impair
this guaranty.

         2. In case of the death, incompetency, dissolution, liquidation or
insolvency (howsoever evidenced) of, or the institution of bankruptcy or
receivership proceedings against the Borrower or the undersigned, all of the
Indebtedness then existing shall, at the option of the Bank, immediately become
due or accrued and payable from the undersigned. All dividends or other payments
received from the Borrower or on account of the Indebtedness from whatsoever




source, shall be taken and applied as payment in gross, and this guaranty shall
apply to and secure any ultimate balance that shall remain owing to the Bank.

         3. The liability hereunder shall in no wise be affected or impaired by
(and the Bank is hereby authorized to make from time to time, without notice to
anyone), any sale, pledge, surrender, compromise, settlement, release, renewal,
extension, indulgence, alteration, substitution, exchange, change in,
modification or other disposition of any of the Indebtedness, either express or
implied, or of any contract or contracts evidencing any of the Indebtedness, or
of any security or collateral therefor. The liability hereunder shall in no wise
be affected or impaired by any acceptance by the Bank of any security for or
other guarantors upon any of the Indebtedness, or by any failure, neglect or
omission on the part of the Bank to realize upon or protect any of the
Indebtedness, or any collateral or security therefor, or to exercise any lien
upon or right of appropriation of any moneys, credits or property of the
Borrower, possessed by the Bank, toward the liquidation of the Indebtedness, or
by any application of payments or credits thereon. The Bank shall have the
exclusive right to determine how, when and what application of payments and
credits, if any, shall be made on the Indebtedness, or any part thereof. In
order to hold the undersigned liable hereunder, there shall be no obligation on
the part of the Bank, at any time, to resort for payment to the Borrower or to
any other guaranty, or to any other persons or corporations, their properties or
estates, or resort to any collateral, security, property, liens or other rights
or remedies whatsoever, and the Bank shall have the right to enforce this
guaranty irrespective of whether or not other proceedings or steps seeking
resort to or realization upon or from any of the foregoing are pending.

         4. All diligence in collection or protection, and all presentment,
demand, protest and/or notice, as to any and everyone, whether or not the
Borrower or the undersigned or others, of dishonor and of default and of
non-payment and of the creation and existence of any and all of the
Indebtedness, and of any security and collateral therefor, and of the acceptance
of this guaranty, and of any and all extensions of credit and indulgence
hereunder, are waived. No act of commission or omission of any kind, or at any
time, upon the part of the Bank in respect to any matter whatsoever, shall in
any way affect or impair this guaranty.

         5. The undersigned will not exercise or enforce any right of
exoneration, contribution, reimbursement, recourse or subrogation available to
the undersigned against any person liable for payment of the Indebtedness, or as
to any security therefor, unless and until the full amount owing to the Bank on
the Indebtedness has been paid and the payment by the undersigned of any amount
pursuant to this guaranty shall not in any wise entitle the undersigned to any
right, title or interest (whether by way of subrogation or otherwise) in and to
any of the Indebtedness or any proceeds thereof or any security therefor unless
and until the full amount owing to the Bank on the Indebtedness has been paid.

         6. The Bank may, without any notice whatsoever to any one, sell, assign
or transfer all of the Indebtedness, or any part thereof, or grant
participations therein, and in that event each and every immediate and
successive assignee, transferee, or holder of or participant in all or any part
of the Indebtedness, shall have the right to enforce this guaranty, by suit or
otherwise, for the benefit of such assignee, transferee, holder or participant,
as fully as if such assignee, transferee, holder or participant were herein by
name specifically given such rights, powers and benefits; but



                                      -2-


the Bank shall have an unimpaired right to enforce this guaranty for the benefit
of the Bank or any such participant, as to so much of the Indebtedness that it
has not sold, assigned or transferred.

         7. The undersigned waives any and all defenses, claims and discharges
of the Borrower, or any other obligor, pertaining to the Indebtedness, except
the defense of discharge by payment in full. Without limiting the generality of
the foregoing, the undersigned will not assert, plead or enforce against the
Bank any defense of waiver, release, discharge in bankruptcy, statute of
limitations, res judicata, statute of frauds, anti-deficiency statute, fraud,
incapacity, minority, usury, illegality or unenforceability which may be
available to the Borrower or any other person liable in respect of any of the
Indebtedness, or any setoff available against the Bank to the Borrower or any
such other person, whether or not on account of a related transaction. The
undersigned agrees that the undersigned shall be and remain liable for any
deficiency remaining after foreclosure of any mortgage or security interest
securing the Indebtedness, whether or not the liability of the Borrower or any
other obligor for such deficiency is discharged pursuant to statute or judicial
decision.

         8. If any payment applied by the Bank to the Indebtedness is thereafter
set aside, recovered, rescinded or required to be returned for any reason
(including, without limitation, the bankruptcy, insolvency or reorganization of
the Borrower or any other obligor), the Indebtedness to which such payment was
applied shall for the purposes of this guaranty be deemed to have continued in
existence, notwithstanding such application, and this guaranty shall be
enforceable as to such of the Indebtedness as fully as if such application had
never been made.

         9. The liability of the undersigned under this guaranty is in addition
to and shall be cumulative with all other liabilities of the undersigned to the
Bank as guarantor of the Indebtedness, without any limitation as to amount,
unless the instrument or agreement evidencing or creating such other liability
specifically provides to the contrary.

         10. Any invalidity or unenforceability of any provision or application
of this guaranty shall not affect other lawful provisions and applications
hereof, and to this end the provisions of this guaranty are declared to be
severable. This guaranty shall be construed according to the law of the State of
Illinois, in which State it shall be performed by the undersigned and may not be
waived, amended, released or otherwise changed except by a writing signed by the
Bank.

         11. This guaranty and every part thereof shall be effective upon
delivery to the Bank, without further act, condition or acceptance by the Bank,
shall be binding upon the undersigned, and upon the heirs, legal
representatives, successors and assigns of the undersigned, and shall inure to
the benefit of the Bank, its successors, legal representatives and assigns. The
undersigned waives notice of the Bank's acceptance hereof.

         12. Guarantor hereby represents and warrants to the Bank that there is
no pending or threatened action or proceeding affecting the Guarantor before any
court, governmental agency or arbitrator, which may materially adversely affect
the Guarantor's financial condition or operations or which purports to affect
the legality, validity, or enforceability of this Guaranty.


                                      -3-




         SIGNED AND DELIVERED by the undersigned, at Chicago, Illinois, this
13th day of September, 2004. THE UNDERSIGNED ACKNOWLEDGES RECEIPT OF A COMPLETED
COPY OF THIS GUARANTY AS OF THE TIME OF EXECUTION.

                                      SUN CAPITAL PARTNERS III, LP

                                      By:Sun Capital Advisors III, LP
                                      Its: General Partner

                                            By:   Sun Capital Partners III, LLC
                                            Its:  General Partner


                                            By: /s/ Rodger R. Krouse
                                                --------------------------------
                                            Name:  Rodger R. Krouse
                                                   -----------------------------
                                            Its:  Co-CEO
                                                  ------------------------------



                         IMPORTANT NOTICE TO GUARANTORS

         YOU ARE BEING ASKED TO GUARANTEE THIS DEBT, AS WELL AS ALL FUTURE DEBTS
OF THE BORROWER ENTERED INTO WITH THE BANK. THINK CAREFULLY BEFORE YOU DO. IF
THE BORROWER DOESN'T PAY THE DEBT, YOU WILL HAVE TO. BE SURE YOU CAN AFFORD TO
PAY IF YOU HAVE TO, AND THAT YOU WANT TO ACCEPT THIS RESPONSIBILITY.

         YOU MAY HAVE TO PAY UP TO THE FULL AMOUNT OF THE DEBT IF THE BORROWER
DOES NOT PAY. YOU MAY ALSO HAVE TO PAY LATE FEES OR COLLECTION COSTS, WHICH
INCREASE THIS AMOUNT.

         THE BANK CAN COLLECT THIS DEBT FROM YOU WITHOUT FIRST TRYING TO COLLECT
FROM THE BORROWER. THE BANK CAN USE THE SAME COLLECTION METHODS AGAINST YOU THAT
CAN BE USED AGAINST THE BORROWER, SUCH AS SUING YOU, GARNISHING YOUR WAGES, ETC.
IF THIS DEBT IS EVER IN DEFAULT, THAT FACT MAY BECOME PART OF YOUR CREDIT
RECORD.

         THIS NOTICE IS NOT THE CONTRACT THAT MAKES YOU LIABLE FOR THE DEBT.

EX-99.8 6 file006.htm GUARANTY



                                                                       EXHIBIT 8
                                                                       ---------
                                    GUARANTY

         For value received and in consideration of advances made or to be made,
or credit given or to be given, or other financial accommodation afforded or to
be afforded to CRAFTS RETAIL HOLDING CORP., a Delaware corporation (hereinafter
designated as the "Borrower"), by HARRIS TRUST AND SAVINGS BANK, Chicago,
Illinois (hereinafter called the "Bank"), from time to time, the undersigned
hereby guarantees the full and prompt payment to the Bank at maturity and at all
times thereafter of any and all indebtedness, obligations and liabilities of
every kind and nature of the Borrower to the Bank (including liabilities of
partnerships created or arising while the Borrower may have been or may be a
member thereof), howsoever evidenced, whether now existing or hereafter created
or arising, whether direct or indirect, absolute or contingent, or joint or
several, and howsoever owned, held or acquired, whether through discount,
overdraft, purchase, direct loan or as collateral, or otherwise (hereinafter all
such indebtedness, obligations and liabilities being collectively referred to as
the "Indebtedness"); and the undersigned further agrees to pay all expenses,
legal and/or otherwise (including court costs and reasonable attorneys' fees),
paid or incurred by the Bank in endeavoring to collect the Indebtedness, or any
part thereof, and in protecting, defending or enforcing this guaranty in any
litigation, bankruptcy or insolvency proceedings or otherwise collectively with
the Indebtedness, the "Guarantied Obligations"). Notwithstanding anything herein
to the contrary, the liability of the undersigned hereunder is limited to the
lesser of (x) Ninety Eight Percent (98%) of the Guarantied Obligations for which
the Bank seeks recovery under this Guaranty and the Guaranty executed in favor
of the Bank by Sun Capital Partners III, LP relating to the Guarantied
Obligations and (y) Seven Million Eight Hundred Forty Thousand and 00/100
Dollars ($7,840,000) plus interest on all loans and/or advances hereunder and
all expenses hereinbefore mentioned. Payments received on the Guarantied
Obligations from any other guarantor shall not reduce the amount otherwise
recoverable hereunder.

         The undersigned further acknowledges and agrees with the Bank that:

         1. This guaranty is a continuing, absolute and unconditional guaranty,
and shall remain in full force and effect until written notice of its
discontinuance shall be actually received by the Bank, and also until any and
all of the Indebtedness created, existing or committed to before receipt of such
notice shall be fully paid. The death or dissolution of the undersigned shall
not terminate this guaranty until notice of such death or dissolution shall have
been actually received by the Bank, nor until all of the Indebtedness created or
existing before receipt of such notice shall be fully paid. The granting of
credit from time to time by the Bank to the Borrower in excess of the amount to
which the right of recovery under this guaranty is limited and without notice to
the undersigned, is hereby also authorized and shall in no way affect or impair
this guaranty.

         2. In case of the death, incompetency, dissolution, liquidation or
insolvency (howsoever evidenced) of, or the institution of bankruptcy or
receivership proceedings against the Borrower or the undersigned, all of the
Indebtedness then existing shall, at the option of the Bank, immediately become
due or accrued and payable from the undersigned. All dividends or other payments
received from the Borrower or on account of the Indebtedness from whatsoever





source, shall be taken and applied as payment in gross, and this guaranty shall
apply to and secure any ultimate balance that shall remain owing to the Bank.

         3. The liability hereunder shall in no wise be affected or impaired by
(and the Bank is hereby authorized to make from time to time, without notice to
anyone), any sale, pledge, surrender, compromise, settlement, release, renewal,
extension, indulgence, alteration, substitution, exchange, change in,
modification or other disposition of any of the Indebtedness, either express or
implied, or of any contract or contracts evidencing any of the Indebtedness, or
of any security or collateral therefor. The liability hereunder shall in no wise
be affected or impaired by any acceptance by the Bank of any security for or
other guarantors upon any of the Indebtedness, or by any failure, neglect or
omission on the part of the Bank to realize upon or protect any of the
Indebtedness, or any collateral or security therefor, or to exercise any lien
upon or right of appropriation of any moneys, credits or property of the
Borrower, possessed by the Bank, toward the liquidation of the Indebtedness, or
by any application of payments or credits thereon. The Bank shall have the
exclusive right to determine how, when and what application of payments and
credits, if any, shall be made on the Indebtedness, or any part thereof. In
order to hold the undersigned liable hereunder, there shall be no obligation on
the part of the Bank, at any time, to resort for payment to the Borrower or to
any other guaranty, or to any other persons or corporations, their properties or
estates, or resort to any collateral, security, property, liens or other rights
or remedies whatsoever, and the Bank shall have the right to enforce this
guaranty irrespective of whether or not other proceedings or steps seeking
resort to or realization upon or from any of the foregoing are pending.

         4. All diligence in collection or protection, and all presentment,
demand, protest and/or notice, as to any and everyone, whether or not the
Borrower or the undersigned or others, of dishonor and of default and of
non-payment and of the creation and existence of any and all of the
Indebtedness, and of any security and collateral therefor, and of the acceptance
of this guaranty, and of any and all extensions of credit and indulgence
hereunder, are waived. No act of commission or omission of any kind, or at any
time, upon the part of the Bank in respect to any matter whatsoever, shall in
any way affect or impair this guaranty.

         5. The undersigned will not exercise or enforce any right of
exoneration, contribution, reimbursement, recourse or subrogation available to
the undersigned against any person liable for payment of the Indebtedness, or as
to any security therefor, unless and until the full amount owing to the Bank on
the Indebtedness has been paid and the payment by the undersigned of any amount
pursuant to this guaranty shall not in any wise entitle the undersigned to any
right, title or interest (whether by way of subrogation or otherwise) in and to
any of the Indebtedness or any proceeds thereof or any security therefor unless
and until the full amount owing to the Bank on the Indebtedness has been paid.

         6. The Bank may, without any notice whatsoever to any one, sell, assign
or transfer all of the Indebtedness, or any part thereof, or grant
participations therein, and in that event each and every immediate and
successive assignee, transferee, or holder of or participant in all or any part
of the Indebtedness, shall have the right to enforce this guaranty, by suit or
otherwise, for the benefit of such assignee, transferee, holder or participant,
as fully as if such assignee, transferee, holder or participant were herein by
name specifically given such rights, powers and benefits; but



                                      -2-


the Bank shall have an unimpaired right to enforce this guaranty for the benefit
of the Bank or any such participant, as to so much of the Indebtedness that it
has not sold, assigned or transferred.

         7. The undersigned waives any and all defenses, claims and discharges
of the Borrower, or any other obligor, pertaining to the Indebtedness, except
the defense of discharge by payment in full. Without limiting the generality of
the foregoing, the undersigned will not assert, plead or enforce against the
Bank any defense of waiver, release, discharge in bankruptcy, statute of
limitations, res judicata, statute of frauds, anti-deficiency statute, fraud,
incapacity, minority, usury, illegality or unenforceability which may be
available to the Borrower or any other person liable in respect of any of the
Indebtedness, or any setoff available against the Bank to the Borrower or any
such other person, whether or not on account of a related transaction. The
undersigned agrees that the undersigned shall be and remain liable for any
deficiency remaining after foreclosure of any mortgage or security interest
securing the Indebtedness, whether or not the liability of the Borrower or any
other obligor for such deficiency is discharged pursuant to statute or judicial
decision.

         8. If any payment applied by the Bank to the Indebtedness is thereafter
set aside, recovered, rescinded or required to be returned for any reason
(including, without limitation, the bankruptcy, insolvency or reorganization of
the Borrower or any other obligor), the Indebtedness to which such payment was
applied shall for the purposes of this guaranty be deemed to have continued in
existence, notwithstanding such application, and this guaranty shall be
enforceable as to such of the Indebtedness as fully as if such application had
never been made.

         9. The liability of the undersigned under this guaranty is in addition
to and shall be cumulative with all other liabilities of the undersigned to the
Bank as guarantor of the Indebtedness, without any limitation as to amount,
unless the instrument or agreement evidencing or creating such other liability
specifically provides to the contrary.

         10. Any invalidity or unenforceability of any provision or application
of this guaranty shall not affect other lawful provisions and applications
hereof, and to this end the provisions of this guaranty are declared to be
severable. This guaranty shall be construed according to the law of the State of
Illinois, in which State it shall be performed by the undersigned and may not be
waived, amended, released or otherwise changed except by a writing signed by the
Bank.

         11. This guaranty and every part thereof shall be effective upon
delivery to the Bank, without further act, condition or acceptance by the Bank,
shall be binding upon the undersigned, and upon the heirs, legal
representatives, successors and assigns of the undersigned, and shall inure to
the benefit of the Bank, its successors, legal representatives and assigns. The
undersigned waives notice of the Bank's acceptance hereof.

         12. Guarantor hereby represents and warrants to the Bank that there is
no pending or threatened action or proceeding affecting the Guarantor before any
court, governmental agency or arbitrator, which may materially adversely affect
the Guarantor's financial condition or operations or which purports to affect
the legality, validity, or enforceability of this Guaranty.



                                      -3-




         SIGNED AND DELIVERED by the undersigned, at Chicago, Illinois, this
13th day of September, 2004. THE UNDERSIGNED ACKNOWLEDGES RECEIPT OF A COMPLETED
COPY OF THIS GUARANTY AS OF THE TIME OF EXECUTION.

                                     SUN CAPITAL PARTNERS III QP, LP

                                     By:Sun Capital Advisors III, LP
                                     Its: General Partner

                                           By:   Sun Capital Partners III, LLC
                                           Its:  General Partner


                                           By: /s/ Rodger R. Krouse
                                               ---------------------------------
                                           Name:  Rodger R. Krouse
                                                  ------------------------------
                                           Its:  Co-CEO
                                                 -------------------------------



                         IMPORTANT NOTICE TO GUARANTORS

         YOU ARE BEING ASKED TO GUARANTEE THIS DEBT, AS WELL AS ALL FUTURE DEBTS
OF THE BORROWER ENTERED INTO WITH THE BANK. THINK CAREFULLY BEFORE YOU DO. IF
THE BORROWER DOESN'T PAY THE DEBT, YOU WILL HAVE TO. BE SURE YOU CAN AFFORD TO
PAY IF YOU HAVE TO, AND THAT YOU WANT TO ACCEPT THIS RESPONSIBILITY.

         YOU MAY HAVE TO PAY UP TO THE FULL AMOUNT OF THE DEBT IF THE BORROWER
DOES NOT PAY. YOU MAY ALSO HAVE TO PAY LATE FEES OR COLLECTION COSTS, WHICH
INCREASE THIS AMOUNT.

         THE BANK CAN COLLECT THIS DEBT FROM YOU WITHOUT FIRST TRYING TO COLLECT
FROM THE BORROWER. THE BANK CAN USE THE SAME COLLECTION METHODS AGAINST YOU THAT
CAN BE USED AGAINST THE BORROWER, SUCH AS SUING YOU, GARNISHING YOUR WAGES, ETC.
IF THIS DEBT IS EVER IN DEFAULT, THAT FACT MAY BECOME PART OF YOUR CREDIT
RECORD.

         THIS NOTICE IS NOT THE CONTRACT THAT MAKES YOU LIABLE FOR THE DEBT.



                                      -4-

-----END PRIVACY-ENHANCED MESSAGE-----