EXHIBIT 10.20

SECOND AMENDMENT AND CONSENT
TO
REVOLVING CREDIT AGREEMENT

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

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

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

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

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

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

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

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

 

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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[SIGNATURE PAGE TO FOLLOW]

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

            MICHAELS STORES, INC.
      By:   /s/ D. R. Keepes         Name:   David Keepes        Title:  
Treasurer     

            FLEET NATIONAL BANK, individually and
as Agent
      By:   /s/ Judith C. E. Kelly         Name:   Judith C. E. Kelly       
Title:   Managing Director     

            WELLS FARGO BANK, N.A.
      By:   /s/ Linda G. Davis         Name:   Linda G. Davis        Title:  
Vice President     

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

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

 

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            US BANK NATIONAL ASSOCIATION (successor
by merger to FIRSTAR, N.A.)
      By:   /s/ Amanda Schmitt         Name:   Amanda Schmitt        Title:  
Assistant Vice President     

            WACHOVIA BANK, NATIONAL ASSOCIATION
(formerly known as First Union National
Bank)
      By:   /s/ William F. Fox         Name:   William F. Fox        Title:  
Vice President     

            COMPASS BANK, an Alabama state bank
      By:   /s/ R. Bruce Frey         Name:   R. Bruce Frey        Title:   Vice
President     

            THE BANK OF NEW YORK
      By:   /s/ Lucille C. Madden         Name:   Lucille C. Madden       
Title:   Vice President     

 

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RATIFICATION OF GUARANTY

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

            AARON BROTHERS, INC.
      By:   /s/ D. R. Keepes         Name:   David R. Keepes        Title:  
Treasurer     

            Address:
c/o Michaels Stores, Inc.
8000 Bent Brach Drive
Irving, TX 75063
                       

 

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Schedule 1A

Restructuring Agreements

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