**Exhibit 4.7**

 

***Execution Copy***

 

 

 

REGISTRATION RIGHTS AGREEMENT

 

among

 

Michaels Stores, Inc.

 

and

 

Certain Stockholders of Michaels Stores, Inc.

 

 

Dated as of October 31, 2006

 

 

 

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TABLE OF CONTENTS

 
| ** **                     | ** **                               | **Page** |
|--------------------------------|------------------------------------------|----------|
|                           |                                     |     |
| 1 EFFECTIVENESS; DEFINITIONS.  | 2                                        |
| 1.1.                           | Effectiveness                            | 2        |
| 1.2.                           | Definitions                              | 2        |
|                           |                                     |     |
| 2 HOLDER LOCK-UP.              | 2                                        |
|                           |                                     |     |
| 3 REGISTRATION RIGHTS.         | 3                                        |
| 3.1.                           | Demand Registration Rights.              | 3        |
| 3.2.                           | Piggyback Registration Rights.           | 7        |
| 3.3.                           | Certain Other Provisions.                | 8        |
| 3.4.                           | Indemnification and Contribution.        | 14       |
| 3.5.                           | Permitted Registration Rights Assignees. | 17       |
| 3.6                            | Form S-8 Registration                    | 18       |
|                           |                                     |     |
| 4 REMEDIES.                    | 18                                       |
| 4.1.                           | Generally                                | 18       |
|                           |                                     |     |
| 5 PERMITTED TRANSFEREES.       | 18                                       |
| 5.1.                           | Transfers by Investors                   | 18       |
| 5.2.                           | Transfers by Managers                    | 18       |
|                           |                                     |     |
| 6 AMENDMENT, TERMINATION, ETC. | 19                                       |
| 6.1.                           | Oral Modifications                       | 19       |
| 6.2.                           | Written Modifications                    | 19       |
| 6.3.                           | Effect of Termination                    | 19       |
|                           |                                     |     |
| 7 DEFINITIONS.                 | 19                                       |
| 7.1.                           | Certain Matters of Construction          | 19       |
| 7.2.                           | Definitions                              | 20       |
|                           |                                     |     |
| 8 MISCELLANEOUS.               | 24                                       |
| 8.1.                           | Authority: Effect                        | 24       |
| 8.2.                           | Notices                                  | 24       |
| 8.3.                           | Merger; Binding Effect, Etc              | 26       |
| 8.4.                           | Descriptive Headings                     | 26       |
| 8.5.                           | Counterparts                             | 27       |
| 8.6.                           | Severability                             | 27       |
| 8.7.                           | No Recourse                              | 27       |
|                           |                                     |     |
| 9 GOVERNING LAW.               | 27                                       |
| 9.1.                           | Governing Law                            | 27       |
| 9.2.                           | Consent to Jurisdiction                  | 27       |
| 9.3.                           | WAIVER OF JURY TRIAL                     | 28       |
| 9.4.                           | Exercise of Rights and Remedies          | 28       |

 

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**REGISTRATION RIGHTS AGREEMENT**

 

ThisRegistration Rights Agreement (the “Agreement”) is made as of October31, 2006 by and among:

 

(i)                                     MichaelsStores, Inc. (the “Company”);

 

(ii)                                  MichaelsHoldings LLC (the “LLC”), Highfields Capital I LP, Highfields Capital IILP, and Highfields Capital III LP (collectively, the “Highfields Funds”),4390075 Canada Inc. and any other Person executing this Agreement and listed asan “Investor” on the signature pages hereto and such other Persons who fromtime to time become party hereto by executing a counterpart signature pagehereof and are designated by the Board as “Investors” (collectively with theirPermitted Transferees, the “Investors”);

 

(iii)                               suchother Persons who from time to time become party hereto by executing acounterpart signature page hereof (or an option award, joinder agreement orother agreement that binds such Persons to this Agreement)  and are designated by the Board as “Managers”(collectively, the “Managers”); and

 

(iv)                              suchother Persons, if any, that from time to time become party hereto as holders ofShares pursuant to Section 3.5 solely in the capacity of permitted assigneeswith respect to certain registration rights hereunder (collectively, the “OtherHolders”).

 

**RECITALS**

 

1.             On or about thedate hereof, the Company is consummating a leveraged recapitalizationtransaction on the terms and subject to the conditions of an Agreement and Planof Merger, dated as of June 30, 2006 (as amended, the “Merger Agreement”),among the Company, Bain Paste Mergerco, Inc., a Delaware corporation,Blackstone Paste Mergerco, Inc., a Delaware corporation, Bain Paste Finco, LLC,a Delaware limited liability company, and Blackstone Paste Finco, LLC, aDelaware limited liability company.

 

2.             Upon the closing ofthe transactions contemplated by the Merger Agreement, the Common Stock (asdefined below) of the Company will be held as set forth on Schedule Ihereto.

 

3.             In connection withthe foregoing, the Company and the Investors are entering into a StockholdersAgreement dated on or about the date hereof (the “Stockholders Agreement”).

 

4.             The parties believethat it is in the best interests of the Company and the other parties hereto toset forth their agreements on certain matters.

 

**AGREEMENT**

** **

Therefore, the parties hereto hereby agree as follows:

 

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# **1.**                                      EFFECTIVENESS; DEFINITIONS.

 

## 1.1.          Effectiveness.This Agreement shall become effective on the Closing Date (as defined in theMerger Agreement (referred to herein as the “Closing”).

##  

## 1.2.          Definitions.Certain terms are used in this Agreement as specifically defined herein. Thesedefinitions are set forth or referred to in Section 7 hereof.

##  

# **2.**                                      HOLDER LOCK-UP.

#  

In connection with each underwritten Public Offering each Holder herebyagrees to be bound by and, if requested, to execute and deliver a lock-upagreement with the underwriter(s) of such Public Offering (the “PrincipalLock-Up Agreement”) restricting such Holder’s right to (i) Transfer anyShares or (ii) enter into any swap or other arrangement that transfers toanother any of the economic consequences of ownership of Shares, in each caseto the extent that such restrictions are agreed to (A) in the case of anInitial Public Offering that is not initiated pursuant to Section 3.1.1, by theBoard, (B) in the case of a demand registration under Section 3.1 hereof, byInvestors holding a majority of the Shares proposed to be offered and (C)otherwise, by the holders of a majority of the Shares participating in thePublic Offering; provided, however, that no Holder shall berequired by this Section 2 to be bound by a lock-up agreement covering a periodof greater than 90 days (180 days in the case of the Initial Public Offering)following the effectiveness of the related registration statement plus suchadditional period of up to 17 days as may be required by the underwriters tosatisfy NASD regulations and permit the managing underwriters’ analysts topublish research updates; provided, further, that no Holder willbe required by this Section 2 to be bound by a lock-up agreement unless theHolders that hold a majority of the Shares held by all Holders execute such alock-up agreement with the underwriter(s) of the applicable Public Offering. Notwithstandingthe foregoing, such lock-up agreement shall not apply to (i) transactionsrelating to shares of Common Stock or other securities acquired in (A) openmarket transactions or block purchases after the completion of the InitialPublic Offering or (B) a Public Offering, (ii) Transfers to PermittedTransferees of such Holder in accordance with the terms of this Agreement, and(iii) conversions of shares of Common Stock into other classes of Common Stockwithout change of holder. In addition, notwithstanding the foregoing, any Holder,or group of Affiliated Funds that are Holders, beneficially holding at Closingmore than 5% of the outstanding Shares as of the Closing may elect not to bebound by any lock-up agreement for a Public Offering following (but notincluding) the first Public Offering after the Initial Public Offering thatincludes the sale of Shares by a Holder; provided, however, thatif such a Holder elects not to be so bound, then such Holder will not havepiggyback registration rights under Section 3.2 hereof or demand registration  rights under Section 3.1 hereof with respectto such Public Offering or any future Public Offering thereafter.

 

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# **3.             REGISTRATIONRIGHTS**. The Company will perform and comply, andcause each of its subsidiaries to perform and comply, with such of thefollowing provisions as are applicable to it. Each Holder will perform andcomply with such of the following provisions as are applicable to such Holder.

#  

## 3.1.       DemandRegistration Rights.

##  

### 3.1.1.       IPO DemandRegistration Rights.

###  

#### (a)  From and after the fifthanniversary of the Closing, if the Company has not yet completed the InitialPublic Offering, any Holder that, together with its Affiliates and AffiliatedFunds, beneficially holds at Closing at least 10% of the outstanding Shares asof the Closing, by notice to the Company specifying the intended method ormethods of disposition, may request (each such requesting Holder, an “IPOInitiating Holder”) that the Company effect the registration under theSecurities Act for the Initial Public Offering of all or a specified part ofthe Registrable Securities held by such IPO Initiating Holder.

####  

#### (b)  From and after the seventhanniversary of the Closing, if the Company has not yet completed the Initial PublicOffering, any Holder that, together with its Affiliates and Affiliated Funds,beneficially holds at Closing at least 5% of the outstanding Shares as of theClosing, by notice to the Company specifying the intended method or methods ofdisposition, may request (each such requesting Holder, an “IPO InitiatingHolder”) that the Company effect the registration under the Securities Actfor the Initial Public Offering of all or a specified part of the RegistrableSecurities held by such IPO Initiating Holder.

####  

#### (c)  The Company will use itsbest efforts to (i) effect the registration under the Securities Act (includingby means of a shelf registration pursuant to Rule 415 under the Securities Actif so requested by a majority of the IPO Initiating Holders and if the Companyis then eligible to use such registration) of the Registrable Securities thatthe Company has been requested to register by an IPO Initiating Holder pursuantto this Section 3.1.1 together with all other Registrable Securities that theCompany has been requested to register pursuant to Section 3.2 by otherHolders, all to the extent required to permit the disposition of theRegistrable Securities that the Company has been so requested to register, and(ii) if requested by an IPO Initiating Holder, obtain acceleration of theeffective date of the registration statement relating to such registration; provided,however, that in lieu of using its best efforts to effect theregistration of Registrable Securities requested by an IPO Initiating Holderpursuant to Section 3.1.1(b), the Company may elect to purchase (but will haveno obligation to elect to purchase) or have its designee purchase (the “PurchaseElection”) the Registrable Securities held by the IPO Initiating Holders atsuch Registrable Securities’ fair market value, as determined by a panel ofthree investment banks mutually agreeable to the Company and the IPO InitiatingHolders; except that if the Company and the IPO Initiating Holders are unableto agree on the panel of three investment banks within 30 days of the date onwhich the Purchase Election is made, the panel shall

 

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#### consist of oneinvestment bank picked by the Company, one investment bank picked by the IPOInitiating Holders, and one investment bank mutually agreed upon by the twoinvestment banks picked by the Company and the IPO Initiating Holders.

####  

### 3.1.2.       Post-IPO DemandRegistration Rights. From and after the 180th day following the InitialPublic Offering but subject to Section 2, any Holder that, together with itsAffiliates and Affiliated Funds, beneficially holds the following percentagesof the outstanding Shares as of the Closing (the “Initiating Holders”),by notice to the Company specifying the intended method or methods ofdisposition, may request that the Company effect the registration under theSecurities Act for a Public Offering of all or a specified part of theRegistrable Securities held by such Initiating Holders:

 
| **Ownership** | ** ** | **S-1 or S-3 Demand  or Shelf Setup Rights** | ** ** |
|---------------|------------|----------------------------------------------------------------------------|------------|
| Less than 10% |       | 0                                                                          |       |
| 10% - 20%     |       | 1                                                                          |       |
| 20% - 30%     |       | 2                                                                          |       |
| 30% - 40%     |       | 3                                                                          |       |
| 40% - 50%     |       | 4                                                                          |       |
| 50% - 60%     |       | 5                                                                          |       |
| 60% - 70%     |       | 6                                                                          |       |
| 70% - 80%     |       | 7                                                                          |       |
| 80% - 90%     |       | 8                                                                          |       |
| 90% - 100%    |       | 9                                                                          |       |

###  

### ; provided,however, that the value of Registrable Securities that the InitiatingHolders propose to sell in such Public Offering is at least twenty five milliondollars ($25,000,000) or such lower amount as agreed by the Board. The Companywill then use its best efforts to (i) effect the registration under theSecurities Act (including by means of a shelf registration pursuant to Rule 415under the Securities Act if so requested by a majority of the InitiatingHolders and if the Company is then eligible to use such registration) of theRegistrable Securities that the Company has been requested to register by suchInitiating Holders together with all other Registrable Securities that theCompany has been requested to register pursuant to Section 3.2 by otherHolders, all to the extent required to permit the disposition of the RegistrableSecurities that the Company has been so requested to register, and (ii) ifrequested by an Initiating Holder, obtain acceleration of the effective date ofthe registration statement relating to such registration; provided, however,that the Company shall not be obligated to take any action to effect any suchregistration pursuant to this Section 3.1.2:

###  

#### (a)  during the effectiveness ofany Principal Lock-Up Agreement entered into in connection with anyregistration statement pertaining to an underwritten public offering ofsecurities of the Company for its own account (other than a Rule 145Transaction, or a registration relating solely to employee benefit plans);

 

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#### (b)  upon the request ofInitiating Holders that have previously effected a number of registrations ofRegistrable Securities under this Section 3.1.2 equaling or exceeding thenumbers set forth in the table above with respect to such Initiating Holders; provided,however, that any registration of Registrable Securities (i) which doesnot become and remain effective for at least 270 days in accordance with theprovisions of this Section 3 or (ii) pursuant to which the Initiating Holdersand all other holders of Registrable Securities joining therein are not able toinclude at least 90% of the Registrable Securities that they desired toinclude, shall not be included in the calculation of the numbers ofregistrations contemplated by this clause (b); or

####  

#### (c)  if a registration statementrequested under this Section 3.1.2 became effective within the preceding 90days (unless otherwise consented to by the Board).

####  

### 3.1.3.       Shelf Takedowns.At any time during which the Company has effective a shelf registrationpursuant to Rule 415 under the Securities Act with respect to such Holder’sShares, any Holder (the “Shelf Takedown Holder”), by notice to theCompany specifying the intended method or methods of disposition, may requestthat the Company effect an underwritten offering of the Shelf Takedown Holder’sShares that are subject to such registration statement (an “UnderwrittenShelf Takedown”) of all or a specified part of the Registrable Securitiesheld by such Shelf Takedown Holder; provided, however, that thevalue of Registrable Securities that the Shelf Takedown Holder proposes to sellin an Underwritten Shelf Takedown is at least twenty five million dollars($25,000,000) or such lower amount as agreed by the Board. The Company shallnot be obligated to take any action to effect any such Underwritten ShelfTakedown pursuant to this Section 3.1.3 if an Underwritten Shelf Takedownrequested under this Section 3.1.3 was consummated within the preceding 90 days(unless otherwise consented to by the Board).

###  

### 3.1.4.       Form. Exceptas otherwise provided above or required by law, each registration requestedpursuant to Section 3.1.2 shall be effected by the filing of a registrationstatement on Form S-3 (or any other form which includes substantially the sameinformation as would be required to be included in a registration statement onsuch form as currently constituted); provided that if any registrationrequested pursuant to this Section 3.1 is proposed to be effected on Form S-3(or any successor or similar short-form registration statement) and is inconnection with an underwritten offering, and if the managing underwriter shalladvise the Company in writing that, in its opinion, it is of materialimportance to the success of such proposed offering to file a registrationstatement on Form S-1 (or any successor or similar registration statement) orto include in such registration statement information not required to beincluded pursuant to Form S-3 (or any successor or similar short-formregistration statement), then the Company will file a registration statement onForm S-1 or supplement Form S-3 (or any successor or similar short-formregistration statement) as reasonably requested by such managing underwriter.

 

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### 3.1.5.       Payment ofExpenses. The Company will pay all Registration Expenses in connection withregistrations of Registrable Securities pursuant to this Section 3.1, includingall reasonable expenses (other than fees and disbursements of counsel that donot constitute Registration Expenses) that any Holder incurs in connection witheach registration of Registrable Securities requested pursuant to this Section3.1.

###  

### 3.1.6.       AdditionalProcedures. In the case of a registration pursuant to Section 3.1 hereof,whenever an IPO Initiating Holder or an Initiating Holder is entitled torequest and so requests that such registration shall be effected pursuant to anunderwritten offering, the Company shall include such information in anywritten notice to Holders required by Section 3.2. In such event, the right ofany Holder to have securities owned by such Holder included in suchregistration shall be conditioned upon the inclusion of such Holder’sRegistrable Securities in the underwriting (unless otherwise mutually agreedupon by the IPO Initiating Holder or Initiating Holder and such Holder). Ifrequested by the IPO Initiating Holder, Initiating Holder or Shelf TakedownHolder the Company together with the Holders proposing to distribute theirsecurities through the underwriting will enter into an underwriting agreementwith the underwriters for such offering containing such representations andwarranties by the Company and such Holders and such other terms and provisionsas are customarily contained in underwriting agreements with respect tosecondary distributions, including customary indemnity and contributionprovisions (subject, in each case, to the limitations on such liabilities setforth in this Agreement).

###  

### 3.1.7.       Suspension ofRegistration. If the filing, initial effectiveness or continued use of aregistration statement, including a shelf registration statement pursuant toRule 415 under the Securities Act, in respect of a registration pursuant tothis Section 3.1 at any time would require the Company to make a publicdisclosure of material non-public information, which disclosure in the goodfaith judgment of the Board (after consultation with external legal counsel)(i) would be required to be made in any registration statement so that suchregistration statement would not be materially misleading, (ii) would not berequired to be made at such time but for the filing, effectiveness or continueduse of such registration statement and (iii) would have a material adverseeffect on the Company or its business or on the Company’s ability to effect amaterial proposed acquisition, disposition, financing, reorganization,recapitalization or similar transaction, then the Company may, upon givingprompt written notice of such action to the Holders participating in suchregistration, delay the filing or initial effectiveness of, or suspend use of,such registration statement; provided, that the Company shall not bepermitted to do so (i) for a period exceeding 30 days on any one occasion or(ii) for an aggregate period exceeding 60 days in any 12 month period. In theevent the Company exercises its rights under the preceding sentence, suchHolders agree to suspend, promptly upon their receipt of the notice referred toabove, their use of any prospectus relating to such registration in connectionwith any sale or offer to sell Registrable Securities. The Company shallpromptly notify such Holders of the expiration of any period during which itexercised its rights under this Section 3.1.7. The Company agrees that, in theevent it exercises its rights under this Section 3.1.7, it shall, within 30days following such Holders’ receipt of the notice of suspension, update thesuspended registration statement as may be necessary

 

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### to permit theHolders to resume use thereof in connection with the offer and sale of theirRegistrable Securities in accordance with applicable law.

###  

## 3.2.       PiggybackRegistration Rights.

##  

### 3.2.1.       PiggybackRegistration.

###  

#### (a)  General. Each timethe Company proposes to register any shares of Common Stock under theSecurities Act on a form which would permit registration of RegistrableSecurities for sale to the public, for its own account and/or for the accountof any other Person (pursuant to Section 3.1 or otherwise) for sale in a PublicOffering, the Company will give notice to all Holders of its intention to do so.Any Holder may, by written response delivered to the Company within 20 daysafter the date of delivery of such notice, request that all or a specified partof such Holder’s Registrable Securities be included in such registration. AHolder may request in any such response that varying numbers of such Holder’sRegistrable Securities be included in the registration based on varying pricesat which such Registrable Securities are to be sold in the registered offering.The Company thereupon will use its best efforts to cause to be included in suchregistration under the Securities Act all Registrable Securities that theCompany has been so requested to register by such Holders, to the extentrequired to permit the disposition (in accordance with the methods to be usedby the Company or, pursuant to Section 3.1, other Holders in such PublicOffering) of the Registrable Securities to be so registered; providedthat (i) if, at any time after giving written notice of its intention toregister any securities, the Company shall determine for any reason not toproceed with the proposed registration of the securities to be sold by it, theCompany may, at its election, give written notice of such determination to eachHolder and, thereupon, shall be relieved of its obligation to register anyRegistrable Securities in connection with such registration (but not from itsobligation to pay the Registration Expenses in connection therewith), and (ii)if such registration involves an underwritten offering, all Holders requestingto be included in the Company’s registration must sell their RegistrableSecurities to the underwriters selected by the Company on the same terms andconditions as apply to the Company (with such differences as may be customaryor appropriate in combined primary and secondary offerings and, in any event,without providing for indemnification or contribution obligations in excess ofwhat is required by Section 3.4) or, in the case of a registration initiatedpursuant to Section 3.1.1 or 3.1.2, the Principal Participating Holders. Noregistration of Registrable Securities effected under this Section 3.2 shallrelieve the Company of any of its obligations to effect registrations ofRegistrable Securities pursuant to Section 3.1 hereof.

####  

#### (b)  Excluded Transactions.The Company shall not be obligated to effect any registration of RegistrableSecurities under this Section 3.2 or give any notice to Holders of the Company’sintent to register Registrable Securities, in each case incidental to theregistration of any of its securities in connection with:

 

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##### (i)               Any PublicOffering relating to employee benefit plans or dividend reinvestment plans;

#####  

##### (ii)              Any PublicOffering relating to the acquisition or merger after the date hereof by theCompany or any of its subsidiaries of or with any other businesses except tothe extent such Public Offering is for the sale of securities for cash; or

#####  

##### (iii)             The InitialPublic Offering, unless such offering shall have been initiated pursuant toSection 3.1.1 or the Board determines otherwise, provided, that even ifsuch offering is the Initial Public Offering and has been initiated pursuant toSection 3.1.1, the Company shall not be obligated to effect any registration ofRegistrable Securities or give any notice to Holders under thisSection 3.2 if the lead underwriters determine that inclusion of suchRegistrable Securities would materially adversely affect the marketability or pricingof the offering for any reason other than the quantum of securities to beoffered in such Initial Public Offering.

#####  

### 3.2.2.       Payment ofExpenses. The Company will pay all Registration Expenses in connection withregistrations of Registrable Securities pursuant to this Section 3.2.

###  

### 3.2.3.       AdditionalProcedures. Holders participating in any Public Offering pursuant to thisSection 3.2 shall take all such actions and execute all such documents andinstruments that are reasonably requested by the Company to effect the sale oftheir Registrable Securities in such Public Offering, including being partiesto the underwriting agreement entered into by the Company and any other sellingshareholders in connection therewith and being liable in respect of the representationsand warranties and the other agreements (including customary sellingstockholder representations, warranties, indemnifications and “lock-up”agreements) for the benefit of the underwriters contained therein; provided,however, that (i) with respect to individual representations,warranties, indemnities and agreements of sellers of Registrable Securities insuch Public Offering, the aggregate amount of such liability shall not exceedsuch holder’s net proceeds from such offering and (ii) to the extent sellingstockholders give further representations, warranties and indemnities, thenwith respect to all other representations, warranties and indemnities ofsellers of Registrable Securities in such Public Offering, the aggregate amountof such liability shall not exceed the lesser of (i) such holder’s pro rataportion of any such liability, in accordance with such holder’s portion of thetotal number of Registrable Securities included in the offering, and (ii) suchholder’s net proceeds from such offering.

###  

## 3.3.       CertainOther Provisions.

##  

### 3.3.1.       Underwriter’sCutback. In connection with any registration of shares, the underwriter maydetermine that marketing factors (including an adverse effect on the per shareoffering price) require a limitation of the number of shares to be underwritten.Notwithstanding any contrary provision of this Section 3 and subject to theterms of this Section 3.3.1, the underwriter may limit the number of shareswhich would otherwise

 

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### be included insuch registration by excluding any or all Registrable Securities from suchregistration, it being understood that, if the registration in questioninvolves a registration for sale of securities for the Company’s own account,then the number of shares which the Company seeks to have registered in suchregistration shall not be subject to exclusion, in whole or in part, under thisSection 3.3.1. Upon receipt of notice from the underwriter of the need toreduce the number of shares to be included in the registration, the Companyshall advise all holders of the Company’s securities that would otherwise beregistered and underwritten pursuant hereto, and the number of shares of suchsecurities, including Registrable Securities, that may be included in theregistration shall be allocated in the following manner, unless the underwritershall determine that marketing factors require a different allocation:  shares, other than Registrable Securities, requestedto be included in such registration by other shareholders shall be excludedunless the Company, with the consent of the parties required to approve anyamendment or waiver of this Agreement pursuant to Section 6.2, has grantedregistration rights which are to be treated on an equal basis with RegistrableSecurities for the purpose of the exercise of the underwriter cutback (suchshares afforded such equal treatment being “Parity Shares”); and, if alimitation on the number of shares is still required, the number of RegistrableSecurities, Parity Shares and other shares of Common Stock that may be includedin such registration shall be allocated among the holders thereof inproportion, as nearly as practicable, as follows:

###  

#### (a)  there shall be firstallocated to each such holder requesting that its Registrable Securities orParity Shares be registered in such registration a number of such shares to beincluded in such registration equal to the lesser of (i) the number of suchshares requested to be registered by such holder, and (ii) a number of suchshares equal to such holder’s Pro Rata Portion;

####  

#### (b)  the balance, if any, notallocated pursuant to clause (a) above shall be allocated to those holdersrequesting that their Registrable Securities or Parity Shares be registered insuch registration that requested to register a number of such shares in excessof such holder’s Pro Rata Portion pro rata to each such holder based upon thenumber of Registrable Securities and Parity Shares held by such holder, or insuch other manner as the holders requesting that their Registrable Securitiesor Parity Shares be registered in such registration may otherwise agree; and

####  

#### (c)  the balance, if any, notallocated pursuant to clause (b) above shall be allocated to shares, other thanRegistrable Securities and Parity Shares, requested to be included in suchregistration by other stockholders.

####  

For purposes of any underwriter cutback, all Registrable Securitiesheld by any Holder shall also include any Registrable Securities held by thepartners, retired partners, shareholders or Affiliates of such Holder, or theestates and family members of any such Holder or such partners and retiredpartners, any trusts for the benefit of any of the foregoing Persons and, atthe election of such Holder or such partners, retired partners, trusts orAffiliates, any Charitable Organization to which any of the foregoing shallhave contributed Common Stock prior to the execution of the underwritingagreement in connection with such underwritten offering, and such Holder and

 

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other Persons shall be deemed to be a single selling Holder, and anypro rata reduction with respect to such selling Holder shall be based upon theaggregate amount of Common Stock owned by all entities and individuals includedwith such selling Holder, as defined in this sentence. No securities excludedfrom the underwriting by reason of the underwriter’s marketing limitation shallbe included in such registration. Upon delivery of a written request pursuant toSection 3.1.1, 3.1.2 or 3.2.1(a) that Registrable Securities be sold in anunderwritten offering, the Holder thereof may not thereafter elect to withdrawtherefrom without the written consent of the Principal Participating Holders. Notwithstandingthe foregoing, (i) if the managing underwriter of any underwritten offeringshall advise the Holders participating in the offering that the RegistrableSecurities covered by the registration statement cannot be sold in suchoffering within a price range acceptable to the IPO Initiating Holder,Initiating Holder or Shelf Takedown Holder, then the IPO Initiating Holder,Initiating Holder or Shelf Takedown Holder shall have the right to withdrawfrom such underwritten offering and, upon any such withdrawal, the PrincipalParticipating Holders remaining after such withdrawal shall have the right tonotify the Company that they have determined that the registration statement beabandoned or withdrawn, in which event the Company shall abandon or withdrawsuch registration statement, (ii) if the price to the public at which theRegistrable Securities are proposed to be sold will be less than 90% of theaverage closing price of the Common Stock during the 10 trading days precedingthe date on which notice of such offering was given pursuant to Section3.2.1(a), then any Holder participating in such underwritten offering may electto withdraw from such offering by written notice to the Company and (iii)nothing in this Section 3.3.1 shall be deemed to limit a Holder’s abilitypursuant to Section 3.2.1(a) to request the registration and sale of varyingnumbers of Registrable Securities based on varying prices at which suchRegistrable Securities are to be sold in the offering. The Company may, butshall not be required to, extend a similar withdrawal right to other Holders ofRegistrable Securities or Parity Shares.

 

### 3.3.2.       RegistrationProcedures. If, and in each case when, the Company is required to effect aregistration of any Registrable Securities as provided in this Section 3, theCompany shall promptly:

###  

#### (a)  prepare and, in any eventwithin 45 days (30 days in the case of a Form S-3 registration) after the endof the period under Section 3.2.1(a) within which a piggyback request forregistration may be given to the Company, file with the Commission aregistration statement with respect to such Registrable Securities and use itsbest efforts to cause such registration statement to become effective within 90days of the initial filing;

####  

#### (b)   prepare and file with theCommission such amendments and supplements to such registration statement andthe prospectus used in connection therewith as may be necessary to keep suchregistration statement effective for a period not in excess of 270 days (orsuch shorter period which will terminate when all Registrable Securitiescovered by such registration statement have been sold) and to comply with theprovisions of the Securities Act and the Exchange Act with respect to thedisposition of all securities covered by such registration statement duringsuch period in accordance with the intended methods of disposition by theseller or sellers thereof set forth in such registration statement; providedthat before filing a registration statement or prospectus, or any

 

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#### amendments orsupplements thereto in accordance with Sections 3.1 or 3.2, the Company willfurnish to counsel selected pursuant to Section 3.3.3 hereof copies of alldocuments proposed to be filed, which documents will be subject to the reviewof such counsel;

####  

#### (c)  furnish to each seller ofsuch Registrable Securities such number of copies of such registrationstatement and of each amendment and supplement thereto (in each case includingall exhibits filed therewith), such number of copies of the prospectus includedin such registration statement (including each preliminary prospectus andsummary prospectus), in conformity with the requirements of the Securities Act,and such other documents as such seller may reasonably request in order tofacilitate the disposition of the Registrable Securities by such seller;

####  

#### (d)  use its best efforts toregister or qualify such Registrable Securities covered by such registration insuch jurisdictions as each seller shall reasonably request, and do any and allother acts and things which may be reasonably necessary or advisable to enablesuch seller to consummate the disposition in such jurisdictions of theRegistrable Securities owned by such seller, except that the Company shall notfor any such purpose be required to qualify generally to do business as aforeign corporation in any jurisdiction where, but for the requirements of thisclause (d), it would not be obligated to be so qualified or to consent togeneral service of process in any such jurisdiction;

####  

#### (e)  notify each seller of anysuch Registrable Securities covered by such registration statement, at any timewhen a prospectus relating thereto is required to be delivered under theSecurities Act, of the Company’s becoming aware that the prospectus included insuch registration statement, as then in effect, includes an untrue statement ofa material fact or omits to state a material fact required to be stated thereinor necessary to make the statements therein not misleading in the light of thecircumstances then existing, and at the request of any such seller, prepare andfurnish to such seller a reasonable number of copies of an amended orsupplemental prospectus as may be necessary so that, as thereafter delivered tothe purchasers of such Registrable Securities, such prospectus shall notinclude an untrue statement of a material fact or omit to state a material factrequired to be stated therein or necessary to make the statements therein notmisleading in the light of the circumstances then existing;

####  

#### (f)  otherwise use its bestefforts to comply with all applicable rules and regulations of the Commission,and make available to its security holders, as soon as reasonably practicable(but not more than 18 months) after the effective date of the registrationstatement, an earnings statement which shall satisfy the provisions of Section11(a) of the Securities Act;

####  

#### (g)   (i) if such RegistrableSecurities are Common Stock (including Common Stock issuable upon conversion,exchange or exercise of another security), use its best efforts to list suchRegistrable Securities on any securities

 

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#### exchange onwhich the Common Stock is then listed if such Registrable Securities are notalready so listed; and (ii) use its best efforts to provide a transfer agentand registrar for such Registrable Securities covered by such registrationstatement not later than the effective date of such registration statement;

####  

#### (h)  enter into such customaryagreements (including an underwriting agreement in customary form), which mayinclude indemnification provisions in favor of underwriters and other Personsin addition to the provisions of Section 3.4 hereof, and take such otheractions as the Principal Participating Holders or the underwriters, if any,reasonably requested in order to expedite or facilitate the disposition of suchRegistrable Securities;

####  

#### (i)  obtain a “cold comfort”letter or letters from the Company’s independent public accountants incustomary form and covering matters of the type customarily covered by “coldcomfort” letters as the Principal Participating Holders shall reasonablyrequest;

####  

#### (j)  make available forinspection by any seller of such Registrable Securities covered by suchregistration statement, by any managing underwriter or underwritersparticipating in any disposition to be effected pursuant to such registrationstatement and by any attorney, accountant or other agent retained by any suchseller or any such managing underwriter(s), all pertinent financial and otherrecords, pertinent corporate documents and properties of the Company, and causeall of the Company’s officers, directors and employees to supply allinformation reasonably requested by any such seller, underwriter, attorney,accountant or agent in connection with such registration statement (subject toeach party referred to in this clause (j) entering into customaryconfidentiality agreements in a form reasonably acceptable to the Company);

####  

#### (k)  notify counsel (selectedpursuant to Section 3.3.3 hereof) for the Holders of Registrable Securitiesincluded in such registration statement and the managing underwriter or agent,immediately, and confirm the notice in writing (i) when the registrationstatement, or any post-effective amendment to the registration statement, shallhave become effective, or any supplement to the prospectus or any amendment tothe prospectus shall have been filed, (ii) of the receipt of any comments fromthe Commission, (iii) of any request of the Commission to amend theregistration statement or amend or supplement the prospectus or for additionalinformation, and (iv) of the issuance by the Commission of any stop ordersuspending the effectiveness of the registration statement or of any order preventingor suspending the use of any preliminary prospectus, or of the suspension ofthe qualification of the registration statement for offering or sale in anyjurisdiction, or of the institution or threatening of any proceedings for anyof such purposes;

####  

#### (l)  use its best efforts toprevent the issuance of any stop order suspending the effectiveness of theregistration statement or of any order preventing or

 

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#### suspending theuse of any preliminary prospectus and, if any such order is issued, to obtainthe withdrawal of any such order as soon as practicable;

 

#### (m)  if requested by the managingunderwriter or agent or any Holder of Registrable Securities covered by theregistration statement, incorporate in a prospectus supplement orpost-effective amendment such information as the managing underwriter or agentor such Holder reasonably requests to be included therein, including, withrespect to the number of Registrable Securities being sold by such Holder tosuch underwriter or agent, the purchase price being paid therefor by suchunderwriter or agent and with respect to any other terms of the underwrittenoffering of the Registrable Securities to be sold in such offering; and makeall required filings of such prospectus supplement or post-effective amendmentas soon as practicable after being notified of the matters incorporated in suchprospectus supplement or post-effective amendment;

####  

#### (n)  cooperate with the Holdersof Registrable Securities covered by the registration statement and themanaging underwriter or agent, if any, to facilitate the timely preparation anddelivery of certificates (not bearing any restrictive legends) representingsecurities to be sold under the registration statement, and enable suchsecurities to be in such denominations and registered in such names as themanaging underwriter or agent, if any, or such Holders may request;

####  

#### (o)  obtain for delivery to theHolders of Registrable Securities being registered and to the underwriter oragent an opinion or opinions from counsel for the Company in customary form andin form, substance and scope reasonably satisfactory to such Holders,underwriters or agents and their counsel;

####  

#### (p)  cooperate with each sellerof Registrable Securities and each underwriter or agent participating in thedisposition of such Registrable Securities and their respective counsel inconnection with any filings required to be made with the NASD; and

####  

#### (q)  use its best efforts to makeavailable the executive officers of the Company to participate with the Holdersof Registrable Securities and any underwriters in any “road shows” that may bereasonably requested by the Holders in connection with distribution of theRegistrable Securities.

####  

### 3.3.3.       Selection ofUnderwriters and Counsel. The underwriters and legal counsel to be retainedby the Company in connection with any Public Offering shall be selected by theBoard; provided that, in the case of an offering following a requesttherefor under Section 3.1.1 or 3.1.2, such underwriters and counsel shall bereasonably acceptable to the Principal Participating Holders. In connectionwith any registration of Registrable Securities pursuant to Sections 3.1 and3.2 hereof, the Principal Participating Holders may select one counsel torepresent all Holders of Registrable Securities covered by such registration; provided,however, that in the event that the counsel selected as provided aboveis also acting as counsel to the Company in

 

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### connectionwith such registration, the remaining Holders shall be entitled to select oneadditional counsel to represent, at the Company’s expense, all such remainingHolders.

###  

### 3.3.4.       Company Lock-Up.If any registration pursuant to Section 3.1 of this Agreement shall be inconnection with an underwritten Public Offering, the Company agrees not toeffect any public sale or distribution of any Common Stock of the Company (orsecurities convertible into or exchangeable or exercisable for Common Stock)(in each case, other than as part of such underwritten public offering andother than pursuant to a registration on Form S-4 or S-8) for its own account,within 90 days (or such shorter period as the managing underwriters mayrequire) after, the effective date of such registration (except as part of suchregistration).

###  

### 3.3.5.       Other Agreements.The Company covenants and agrees that, so long as any Person holds anyRegistrable Securities in respect of which any registration rights provided forin Section 3.1 of this Agreement remain in effect, the Company will not,directly or indirectly, grant to any Person or agree to or otherwise becomeobligated in respect of rights of registration in the nature or substantiallyin the nature of those set forth in Section 3.1 or 3.2 of this Agreementwithout the consent of Stockholders holding a majority of the RegistrableSecurities (plus the consent of any Stockholder who would be disproportionatelyand adversely affected thereby compared to other Stockholders) other thanregistration rights set forth in Section 3.1 or 3.2 that are provided toManagers or Investors that join this Agreement from time to time.

###  

## 3.4.       Indemnificationand Contribution.

##  

### 3.4.1.       Indemnities of theCompany. In the event of any registration of any Registrable Securities orother debt or equity securities of the Company or any of its subsidiaries underthe Securities Act pursuant to this Section 3 or otherwise, and in connectionwith any registration statement or any other disclosure document produced by oron behalf of the Company or any of its subsidiaries including reports requiredand other documents filed under the Exchange Act, and other documents pursuantto which any debt or equity securities of the Company or any of itssubsidiaries are sold (whether or not for the account of the Company or itssubsidiaries), the Company will, and hereby does, and will cause each of itssubsidiaries, jointly and severally, to indemnify and hold harmless each holderof Registrable Securities, any Person who is or might be deemed to be acontrolling Person of the Company or any of its subsidiaries within the meaningof Section 15 of the Securities Act or Section 20 of the Exchange Act, theirrespective direct and indirect partners, advisory board members, advisors,directors, officers, trustees, members and shareholders, and each other Person,if any, who controls any such holder or any such controlling Person within themeaning of Section 15 of the Securities Act or Section 20 of the Exchange Act(each such Person being referred to herein as a “Covered Person”),against any losses, claims, damages or liabilities (or actions or proceedingsin respect thereof), joint or several, to which such Covered Person may be orbecome subject under the Securities Act, the Exchange Act, any other securitiesor other law of any jurisdiction, the common law or otherwise, insofar as suchlosses, claims, damages or liabilities (or actions or proceedings in respectthereof) arise out of or are based upon (i) any untrue statement or allegeduntrue

 

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### statement ofany material fact contained or incorporated by reference in any registrationstatement under the Securities Act, any preliminary prospectus or finalprospectus included therein, or any related summary prospectus, or anyamendment or supplement thereto, or any document incorporated by referencetherein, or any other such disclosure document (including reports and otherdocuments filed under the Exchange Act and any document incorporated byreference therein) or other document or report, (ii) any omission or allegedomission to state therein a material fact required to be stated therein ornecessary to make the statements therein not misleading or (iii) any violationor alleged violation by the Company or any of its subsidiaries of any federal,state, foreign or common law rule or regulation applicable to the Company orany of its subsidiaries and relating to action or inaction in connection withany such registration, disclosure document or other document or report, andwill reimburse such Covered Person for any legal or any other expenses incurredby it in connection with investigating or defending any such loss, claim,damage, liability, action or proceeding; provided, however, thatneither the Company nor any of its subsidiaries shall be liable to any CoveredPerson in any such case to the extent that any such loss, claim, damage,liability, action or proceeding arises out of or is based upon an untruestatement or alleged untrue statement or omission or alleged omission made insuch registration statement, any such preliminary prospectus, final prospectus,summary prospectus, amendment or supplement, incorporated document or othersuch disclosure document or other document or report, in reliance upon and inconformity with written information furnished to the Company or to any of itssubsidiaries through an instrument duly executed by such Covered Personspecifically stating that it is for use in the preparation thereof. The indemnitiesof the Company and of its subsidiaries contained in this Section 3.4.1 shallremain in full force and effect regardless of any investigation made by or onbehalf of such Covered Person and shall survive any transfer of securities orany termination of this Agreement.

###  

### 3.4.2.       Indemnities to theCompany. Subject to Section 3.4.4, the Company and any of its subsidiariesmay require, as a condition to including any securities in any registrationstatement filed pursuant to this Section 3, that the Company and any of itssubsidiaries shall have received an undertaking satisfactory to it from theprospective seller of such securities, severally and not jointly, to indemnifyand hold harmless the Company and any of its subsidiaries, each director of theCompany or any of its subsidiaries, each officer of the Company or any of itssubsidiaries who shall sign such registration statement and each other Person(other than such seller), if any, who controls the Company and any of itssubsidiaries within the meaning of Section 15 of the Securities Act or Section20 of the Exchange Act and each other prospective seller of such securitieswith respect to any statement in or omission from such registration statement,any preliminary prospectus, final prospectus or summary prospectus includedtherein, or any amendment or supplement thereto, or any other disclosuredocument (including reports and other documents filed under the Exchange Act orany document incorporated therein) or other document or report, if such statementor omission was made in reliance upon and in conformity with writteninformation furnished to the Company or any of its subsidiaries through aninstrument executed by such seller specifically stating that it is for use inthe preparation of such registration statement, preliminary prospectus, finalprospectus, summary prospectus, amendment

 

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### or supplement,incorporated document or other document or report. Such indemnity shall remainin full force and effect regardless of any investigation made by or on behalfof the Company, any of its subsidiaries or any such director, officer orcontrolling Person and shall survive any transfer of securities or anytermination of this Agreement.

###  

### 3.4.3.       Contribution. Ifthe indemnification provided for in Sections 3.4.1 or 3.4.2 hereof isunavailable to a party that would have been entitled to indemnificationpursuant to the foregoing provisions of this Section 3.4 (an “Indemnitee”)in respect of any losses, claims, damages or liabilities (or actions orproceedings in respect thereof) referred to therein, then each party that wouldhave been an indemnifying party thereunder shall, subject to Section 3.4.4 andin lieu of indemnifying such Indemnitee, contribute to the amount paid orpayable by such Indemnitee as a result of such losses, claims, damages orliabilities (or actions or proceedings in respect thereof) in such proportionas is appropriate to reflect the relative fault of such indemnifying party onthe one hand and such Indemnitee on the other in connection with the statementsor omissions which resulted in such losses, claims, damages or liabilities (oractions or proceedings in respect thereof). The relative fault shall bedetermined by reference to, among other things, whether the untrue or allegeduntrue statement of a material fact or the omission or alleged omission tostate a material fact relates to information supplied by such indemnifyingparty or such Indemnitee and the parties’ relative intent, knowledge, access toinformation and opportunity to correct or prevent such statement or omission. Theparties agree that it would not be just or equitable if contribution pursuantto this Section 3.4.3 were determined by pro rata allocation or by any othermethod of allocation which does not take account of the equitableconsiderations referred to in the preceding sentence. The amount paid orpayable by a contributing party as a result of the losses, claims, damages orliabilities (or actions or proceedings in respect thereof) referred to above inthis Section 3.4.3 shall include any legal or other expenses reasonablyincurred by such Indemnitee in connection with investigating or defending anysuch action or claim. No Person guilty of fraudulent misrepresentation (withinthe meaning of Section 11(f) of the Securities Act) shall be entitled tocontribution from any Person who was not guilty of such fraudulentmisrepresentation.

###  

### 3.4.4.       Limitation onLiability of Holders of Registrable Securities. The liability of eachholder of Registrable Securities in respect of any indemnification orcontribution obligation of such holder arising under this Section 3.4 shall notin any event exceed an amount equal to the net proceeds to such holder (afterdeduction of all underwriters’ discounts and commissions) from the dispositionof the Registrable Securities disposed of by such holder pursuant to suchregistration.

###  

### 3.4.5.       IndemnificationProcedures. Promptly after receipt by an Indemnitee of written notice ofthe commencement of any action or proceeding with respect to which a claim forindemnification may be made pursuant to this Section 3.4, such Indemnitee will,if a claim in respect thereof is to be made against an indemnifying party, givewritten notice to the latter of the commencement of such action or proceeding; providedthat the failure of the Indemnitee to give notice as provided herein shall notrelieve the indemnifying party of its obligations under this Section 3.4,except to the extent that the

 

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### indemnifyingparty is materially prejudiced by such failure to give notice. In case any suchaction or proceeding is brought against an Indemnitee, the indemnifying partywill be entitled to participate in and to assume the defense thereof (at itsexpense), jointly with any other indemnifying party similarly notified to theextent that it may wish, with counsel reasonably satisfactory to suchIndemnitee, and after notice from the indemnifying party to such Indemnitee ofits election so to assume the defense thereof, the indemnifying party will notbe liable to such Indemnitee for any legal or other expenses subsequentlyincurred by the latter in connection with the defense thereof other thanreasonable costs of investigation and shall have no liability for anysettlement made by the Indemnitee without the consent of the indemnifyingparty, such consent not to be unreasonably withheld. Notwithstanding theforegoing, if in such Indemnitee’s reasonable judgment a conflict of interestbetween such Indemnitee and the indemnifying parties may exist in respect ofsuch action or proceeding or the indemnifying party does not assume the defenseof any such action or proceeding within a reasonable time after notice ofcommencement, the Indemnitee shall have the right to assume or continue its owndefense and the indemnifying party shall be liable for any reasonable expensestherefor, but in no event will bear the expenses for more than one firm ofcounsel for all Indemnitees in each jurisdiction who shall be approved by thePrincipal Participating Holders in the registration in respect of which suchindemnification is sought. No indemnifying party will settle any action orproceeding or consent to the entry of any judgment without the prior writtenconsent of the Indemnitee, unless such settlement or judgment (i) includes asan unconditional term thereof the giving by the claimant or plaintiff of arelease to such Indemnitee from all liability in respect of such action orproceeding and (ii) does not involve the imposition of equitable remedies orthe imposition of any obligations on such Indemnitee and does not otherwise adverselyaffect such Indemnitee, other than as a result of the imposition of financialobligations for which such Indemnitee will be indemnified hereunder.

###  

## 3.5.       PermittedRegistration Rights Assignees.

##  

### 3.5.1.       RegistrationRights. The rights of a holder of Registrable Securities to cause theCompany to register its Registrable Securities pursuant to Section 3.1 or 3.2may be assigned (but only with all related obligations as set forth below) in aTransfer effected in accordance with the terms of the Stockholders Agreementand this Agreement to:  (a) a CharitableOrganization, (b) a Permitted Transferee or (c) any other transferee that,together with its Affiliates, in the case of this clause (c) acquires shares ofRegistrable Securities either (i) for consideration of at least $20,000,000 or(ii) having a then fair market value (determined in good faith by the Board) ofat least $20,000,000 (the transferees described in clauses (a), (b) and (c)each a “Permitted Registration Rights Assignee”). Without prejudice toany other or similar conditions imposed hereunder, including Section 5, withrespect to any such Transfer, no assignment permitted under the terms of thisSection 3.5.1 shall be effective unless the Permitted Registration RightsAssignee, if not a Stockholder, has delivered to the Company a writtenacknowledgment and agreement in form and substance reasonably satisfactory tothe Company that such Registrable Securities in respect of which suchassignment is made shall be deemed Shares and shall be subject to all of theprovisions of this Agreement relating to Shares and that such PermittedRegistration Rights

 

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### Assignee shallbe bound by, and shall be an Other Holder party to, this Agreement and the holderof Shares hereunder. A transferee to whom rights are transferred pursuant tothis Section 3.5.1 may not again transfer such rights to any Person, other thanas provided in this Section 3.5.1.

###  

## 3.6.          FormS-8 Registration. The Company shall use commercially reasonable efforts (a)to file, not later than 60 calendar days following the effectiveness of aregistration statement in connection with the Initial Public Offering, aregistration statement on Form S-8 (or successor registration statement) coveringthe shares of Common Stock issuable upon exercise of equity-based awardsgranted under all Company Stock Option Plans, and (b) to keep such registrationstatement (or a successor registration statement) effective for so long asthere are equity-based awards outstanding and exercisable under any suchCompany Stock Option Plan.

##  

# **4.**                                      REMEDIES.

#  

## 4.1.          Generally.The parties shall have all remedies available at law, in equity or otherwise inthe event of any breach or violation of this Agreement or any default hereunder.The parties acknowledge and agree that in the event of any breach of thisAgreement, in addition to any other remedies which may be available, each ofthe parties hereto shall be entitled to specific performance of the obligationsof the other parties hereto and, in addition, to such other equitable remedies(including preliminary or temporary relief) as may be appropriate in thecircumstances.

##  

# **5.**                                      PERMITTED TRANSFEREES.

#  

## 5.1.          Transfersby Investors. The rights of an Investor hereunder may be assigned  (but only with all related obligations as setforth below) in connection with a Transfer of Shares effected in accordancewith the terms of the Stockholders Agreement and this Agreement to a PermittedTransferee of such Investor. Without prejudice to any other or similarconditions imposed hereunder with respect to any such Transfer, no assignmentpermitted under the terms of this Section 5.1 shall be effective unless thePermitted Transferee to which such assignment is being made, if not a Stockholder,has delivered to the Company a written acknowledgment and agreement in form andsubstance reasonably satisfactory to the Company that the Shares in respect ofwhich such assignment is made shall continue to be deemed Shares and shall besubject to all of the provisions of this Agreement relating to Shares and thatsuch Permitted Transferee shall be bound by, and shall be a party to, thisAgreement as an Investor. A Permitted Transferee to whom rights are transferredpursuant to this Section 5.1 may not again transfer such rights to any otherPermitted Transferee, other than as provided in this Section 5.1. An Affiliateor Affiliated Fund of an Investor to whom rights are assigned pursuant to thisSection 5.1 in connection with a Transfer of Shares by such Investor will bedeemed for all purposes under this Agreement to have been the beneficial Holderat Closing of the proportionate number of Shares that such Affiliate orAffiliated Fund held indirectly (through the Transferring Investor and itsAffiliates or Affiliated Funds) on a pass-through basis.

##  

## 5.2.          Transfersby Managers. The rights of a Manager hereunder may be assigned  (but only with all related obligations as setforth below) in connection with a Transfer of Shares effected in accordancewith the terms of the Stockholders Agreement and this Agreement to a

 

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## Permitted Transferee of such Manager. Without prejudice to any other orsimilar conditions imposed hereunder with respect to any such Transfer, noassignment permitted under the terms of this Section 5.2 shall be effectiveunless the Permitted Transferee to which such assignment is being made, if nota Stockholder, has delivered to the Company a written acknowledgment andagreement in form and substance reasonably satisfactory to the Company that theManagement Shares in respect of which such assignment is made shall continue tobe deemed Management Shares and shall be subject to all of the provisions ofthis Agreement relating to Management Shares and that such Permitted Transfereeshall be bound by, and shall be a party to, this Agreement as a Manager. APermitted Transferee to whom rights are transferred pursuant to this Section5.2 may not again transfer such rights to any other Permitted Transferee, otherthan as provided in this Section 5.2.

##  

# **6.**                                      AMENDMENT, TERMINATION, ETC.

#  

## 6.1.          OralModifications. This Agreement may not be orally amended, modified, extendedor terminated, nor shall any oral waiver of any of its terms be effective.

##  

## 6.2.          WrittenModifications. This Agreement may be amended, modified, extended orterminated, and the provisions hereof may be waived, only by an agreement inwriting signed by the Company and the Stockholders that hold a majority of theShares held by all Stockholders; provided, however, that anyamendment, modification, extension, termination or waiver (an “Amendment”)shall also require the consent of any Stockholder who would bedisproportionately and adversely affected thereby. Each such Amendment shall bebinding upon each party hereto and each holder of Shares subject hereto. Inaddition, each party hereto and each holder of Shares subject hereto may waiveany right hereunder by an instrument in writing signed by such party or holder.

##  

## 6.3.          Effectof Termination. No termination under this Agreement shall relieve anyPerson of liability for breach prior to termination. In the event thisAgreement is terminated, each Covered Person shall retain the indemnificationrights pursuant to Section 3.4 hereof with respect to any matter that (i) maybe an indemnified liability thereunder and (ii) occurred prior to suchtermination.

##  

# **7.**                                      DEFINITIONS.

#  

Forpurposes of this Agreement:

 

## 7.1.          CertainMatters of Construction. In addition to the definitions referred to or setforth below in this Section 7:

##  

##### (i)  The words “hereof’, “herein”,“hereunder” and words of similar import shall refer to this Agreement as awhole and not to any particular Section or provision of this Agreement, andreference to a particular Section of this Agreement shall include allsubsections thereof;

#####  

##### (ii)  The word “including” shallmean including, without limitation;

 

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##### (iii)  Definitions shall beequally applicable to both nouns and verbs and the singular and plural forms ofthe terms defined; and

#####  

##### (iv)  The masculine, feminine andneuter genders shall each include the other.

#####  

## 7.2.          Definitions.The following terms shall have the following meanings:

##  

“Affiliate”shall mean, with respect to any specified Person, (a) any other Person whichdirectly or indirectly through one or more intermediaries controls, or iscontrolled by, or is under common control with, such specified Person (for thepurposes of this definition, “control” (including, with correlative meanings,the terms “controlling,” “controlled by” and “under common control with”), asused with respect to any Person, means the possession, directly or indirectly,of the power to direct or cause the direction of the management or policies ofsuch Person, whether through the ownership of voting securities, by agreementor otherwise); and (b) with respect to any natural Person, any Member of theImmediate Family of such natural Person.

 

“AffiliatedFund” means with respect to any Investors, each corporation, trust, limitedliability company, general or limited partnership or other entity under commoncontrol with that Investor (including any such entity with the same generalpartner or principal investment advisor as that Investor or with a generalpartner or principal investment advisor that is an Affiliate of the generalpartner or principal investment advisor of that Investor), and in the case ofthe LLC, Affiliated Fund shall include each member of the LLC.

 

 “Agreement” shall have the meaning setforth in the Preamble.

 

“Amendment”shall have the meaning set forth in Section 6.2.

 

“Board”shall mean the board of directors of the Company.

 

“businessday” shall mean any day that is not a Saturday, a Sunday or other day onwhich banks are required or authorized by law to be closed in the City of NewYork.

 

“CharitableOrganization” means a charitable organization as described by Section501(c)(3) of the Internal Revenue Code of 1986, as in effect from time to time.

 

“Closing”shall have the meaning set forth in Section 1.1.

 

“Commission”shall mean the Securities and Exchange Commission.

 

“CommonStock” shall mean the common stock, par value $0.10 per share, of theCompany.

 

“Company”shall have the meaning set forth in the Preamble.

 

“CompanyStock Option Plan” shall mean any equity-based compensation plan of theCompany, either in effect before or after the Closing, including, withoutlimitation, any plan

 

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governingRollover Options (as defined in the Merger Agreement) and the Company’s 2006Equity Incentive Plan.

 

“ConvertibleSecurities” shall mean any evidence of indebtedness, shares of stock (otherthan Common Stock) or other securities (other than Options and Warrants) whichare directly or indirectly convertible into or exchangeable or exercisable forshares of Common Stock.

 

“CoveredPerson” shall have the meaning set forth in Section 3.4.1.

 

“EquivalentShares” shall mean, at any date of determination, (a) as to any outstandingshares of Common Stock, such number of shares of Common Stock and (b) as to anyoutstanding Options, Warrants or Convertible Securities which constituteShares, the maximum number of shares of Common Stock for which or into whichsuch Options, Warrants or Convertible Securities may at the time be exercised,converted or exchanged (or which will become exercisable, convertible orexchangeable on or prior to, or by reason of, the transaction or circumstancein connection with which the number of Equivalent Shares is to be determined).

 

“ExchangeAct” shall mean the Securities Exchange Act of 1934, as in effect from timeto time.

 

“HighfieldsFunds” shall have the meaning set forth in the Preamble.

 

“Holders”shall mean the holders of Registrable Securities under this Agreement.

 

“Indemnitee”shall have the meaning set forth in Section 3.4.3.

 

“InitialPublic Offering” shall mean the initial Public Offering registered on FormS-1 (or any successor form under the Securities Act) after the date hereof.

 

“IPOInitiating Holders” shall have the meaning set forth in Section 3.1.1.

 

“InitiatingHolders” shall have the meaning set forth in Section 3.1.2.

 

“Investors”shall have the meaning set forth in the Preamble.

 

“LLC”shall have the meaning set forth in the Preamble.

 

“ManagementShares” shall mean all Shares held by a Manager. Any Management Shares thatare Transferred by the holder thereof to such holder’s Permitted Transfereesshall remain Management Shares in the hands of such Permitted Transferee.

 

“Managers”shall have the meaning set forth in the Preamble.

 

“Membersof the Immediate Family” means, with respect to any individual, each spouseor child or other descendants of such individual, each trust created solely forthe benefit of one or more of the aforementioned Persons and their spouses andeach custodian or guardian of any property of one or more of the aforementionedPersons in his or her capacity as such custodian or guardian.

 

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“MergerAgreement” shall have the meaning set forth in the Recitals.

 

“NASD”shall mean the National Association of Securities Dealers, Inc.

 

“Options”shall mean any options to subscribe for, purchase or otherwise directly acquireCommon Stock, other than any such option held by the Company or any right topurchase shares pursuant to this Agreement.

 

 “Other Holders” shall have the meaningset forth in the Preamble.

 

“ParityShares” shall have the meaning set forth in Section 3.3.1.

 

“PermittedRegistration Rights Assignee” shall have the meaning set forth in Section3.5.1.

 

“PermittedTransferee” shall have the meaning set forth in the Stockholders Agreement.

 

“Person”shall mean any individual, partnership, corporation, company, association,trust, joint venture, limited liability company, unincorporated organization,entity or division, or any government, governmental department or agency orpolitical subdivision thereof.

 

 “Principal Lock-Up Agreement” shallhave the meaning set forth in Section 2.

 

“PrincipalParticipating Holders” shall mean, with respect to any Public Offering,(i) the Holder including the greatest number of Registrable Securities insuch Public Offering or (ii) if there is more than one such Holder includingthe greatest number of Registrable Securities in such Public Offering (i.e., ifmore than one Holder is including the same amount), a majority of such Holders.

 

##### “Pro RataPortion” shall mean for purposes of Section 3.3, with respect to eachholder of Registrable Securities or Parity Shares requesting that such sharesbe registered in such registration statement, a number of such shares equal tothe aggregate number of shares of Common Stock to be registered in suchregistration (excluding any shares to be registered for the account of theCompany) multiplied by a fraction, the numerator of which is the aggregatenumber of Registrable Securities and Parity Shares held by such holder, and thedenominator of which is the aggregate number of Registrable Securities andParity Shares held by all holders requesting that their Registrable Securitiesor Parity Shares be registered in such registration.

#####  

 “Public Offering” shall mean a publicoffering and sale of Common Stock for cash pursuant to an effectiveregistration statement under the Securities Act.

 

“PurchaseElection” shall have the meaning set forth in Section 3.1.1(c).

 

“RegistrableSecurities” shall mean (a) all shares of Common Stock that are not thensubject to vesting (*i.e.,* includingshares that were at one time subject to vesting to the extent they havevested), (b) all shares of Common Stock issuable upon exercise, conversion orexchange of any vested Option, Warrant or Convertible Security and (c) allshares of Common Stock directly or indirectly issued or issuable with respectto the securities referred to in clauses (a) or (b) above

 

22

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by wayof stock dividend or stock split or in connection with a combination of shares,recapitalization, merger, consolidation or other reorganization, in each caseconstituting Shares. As to any particular Registrable Securities, such sharesshall cease to be Registrable Securities when (i) such securities shall haveceased to be Shares hereunder, (ii) a registration statement with respect tothe sale of such securities shall have become effective under the SecuritiesAct and such securities shall have been disposed of in accordance with suchregistration statement, (iii) such securities shall have been Transferredpursuant to Rule 144 or Rule 145, (iv) disposition of such Shares may be madeunder Rule 144 or 145 without volume limitation, (v) such securities shall havebeen otherwise transferred to a Person that is not an Affiliate of thetransferor, new certificates for them not bearing a legend restricting furthertransfer shall have been delivered by the Company as part of such transfer andsubsequent disposition of them shall not require registration of them under theSecurities Act and such securities may be distributed without volume limitationor other restrictions on transfer under Rule 144 or Rule 145 (including withoutapplication of paragraphs (c), (e) (f) and (h) of Rule 144), or (vi) suchsecurities shall have ceased to be outstanding.

 

“RegistrationExpenses” means any and all expenses incident to performance of orcompliance with Section 3 of this Agreement (other than underwriting discountsand commissions paid to underwriters and transfer taxes, if any), including (a)all Commission and securities exchange or NASD registration and filing fees,(b) all fees and expenses of complying with securities or blue sky laws(including reasonable fees and disbursements of counsel for the underwriters inconnection with blue sky qualifications of the Registrable Securities), (c) allprinting, messenger and delivery expenses, (d) all fees and expenses incurredin connection with the listing of the Registrable Securities on any securitiesexchange or NASD pursuant to Section 3.3.2(g) and all rating agency fees, (e)the fees and disbursements of counsel for the Company and of its independent publicaccountants, including the expenses of any special audits and/or “cold comfort”letters required by or incident to such performance and compliance, (f) thereasonable fees and disbursements of one counsel for the Holders selectedpursuant to the terms of Section 3 and one counsel for certain Holders selectedpursuant to the second proviso of Section 3.3.3, if applicable, (g) anyfees and disbursements customarily paid by the issuers of securities, (h)expenses incurred in connection with any road show (including the reasonableout-of-pocket expenses of the Holders) and (i) fees and expenses incurred inconnection with the distribution or transfer of Registrable Securities to or bya Holder or its permitted transferees in connection with a Public Offering.

 

“Rule144” shall mean Rule 144 under the Securities Act (or any successor Rule).

 

“Rule145” shall mean Rule 145 under the Securities Act (or any successor Rule).

 

“Rule145 Transaction” shall mean a registration on Form S-4 (or any successorForm) pursuant to Rule 145.

 

“SecuritiesAct” shall mean the Securities Act of 1933, as in effect from time to time.

 

“Shares”shall mean (a) all shares of Common Stock held by a Stockholder, wheneverissued, including all shares of Common Stock issued upon the exercise,conversion or exchange of any Options, Warrants or Convertible Securities and(b) all Options, Warrants and Convertible

 

23

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Securitiesheld by a Stockholder (treating such Options, Warrants and ConvertibleSecurities as a number of Shares equal to the number of Equivalent Sharesrepresented by such Options, Warrants and Convertible Securities for allpurposes of this Agreement except as otherwise specifically set forth herein).

 

“ShelfTakedown Holders” shall have the meaning set forth in Section 3.1.3.

 

“Stockholders”shall mean Investors, Managers and Other Holders.

 

“StockholdersAgreement” shall have the meaning set forth in the Recitals.

 

“Transfer”shall mean any sale, pledge, assignment, encumbrance or other transfer ordisposition of any Shares to any other Person, whether directly, indirectly,voluntarily, involuntarily, by operation of law, pursuant to judicial processor otherwise.

 

“UnderwrittenShelf Takedown” shall have the meaning set forth in Section 3.1.3.

 

“Warrants”shall mean any warrants to subscribe for, purchase or otherwise directlyacquire Common Stock.

 

# **8.**                                      MISCELLANEOUS.

#  

## 8.1.          Authority:  Effect. Each party hereto represents andwarrants to and agrees with each other party that the execution and delivery ofthis Agreement and the consummation of the transactions contemplated herebyhave been duly authorized on behalf of such party and do not violate anyagreement or other instrument applicable to such party or by which its assets arebound. This Agreement does not, and shall not be construed to, give rise to thecreation of a partnership among any of the parties hereto, or to constitute anyof such parties members of a joint venture or other association. The Companyand its subsidiaries shall be jointly and severally liable for all obligationsof each such party pursuant to this Agreement.

##  

## 8.2.          Notices.Any notices, requests, demands and other communications required or permittedin this Agreement shall be effective if in writing and (i) deliveredpersonally, (ii) sent by facsimile, or (iii) sent by overnight courier, in eachcase, addressed as follows:

##  

| If to the Company to:   |              |   |
|-------------------------|-------------------|--------|
|                    |              |   |
| Michaels  Stores, Inc.  |              |   |
| 8000 Bent  Branch Drive |              |   |
| Irving,  Texas 75261    |              |   |
| Facsimile:              | (972) 409-1901    |   |   |
| Attention:              | Jeffrey N.  Boyer |   |   |
|                    | Mark V.  Beasley  |   |   |
|                    |              |   |   |
| with copies to:         |              |   |
|                    |              |   |
| Ropes & Gray LLP    |              |   |
| One International Place |              |   |

 

24

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| Boston, Massachusetts 02110                 |                  |   |
|---------------------------------------------|-----------------------|--------|
| Facsimile: (617) 951-7050                   |                  |   |
| Attention:                                  | David C.  Chapin      |   |   |
|                                        | William M.  Shields   |   |   |
|                                        | R. Newcomb  Stillwell |   |   |
|                                        |                  |   |
| If to the LLC, to:                          |                  |   |
|                                        |                  |   |
| c/o Bain Capital Partners, LLC              |                  |   |
| 111 Huntington Avenue                       |                  |   |
| Boston, Massachusetts 02199                 |                  |   |
| Facsimile:                                  | (617)  516-2010       |   |   |
| Attention:                                  | Matthew S.  Levin     |   |   |
|                                        | Todd M. Cook          |   |   |
|                                        |                  |   |
| and                                         |                  |   |
|                                        |                  |   |
| c/o Blackstone Management Associates V, LLC |                  |   |
| 345 Park Avenue, 31st Floor                 |                  |   |
| New York, New York 10154                    |                  |   |
| Facsimile:                                  | (212)  583-5712       |   |   |
| Attention:                                  | Michael Chae          |   |   |
|                                        | Matthew S.  Kabaker   |   |   |
|                                        |                  |   |
| with copies to:                             |                  |   |
|                                        |                  |   |
| Ropes & Gray LLP                        |                  |   |
| One International Place                     |                  |   |
| Boston, Massachusetts 02110                 |                  |   |
| Facsimile:                                  | (617)  951-7050       |   |   |
| Attention:                                  | David C.  Chapin      |   |   |
|                                        | William M.  Shields   |   |   |
|                                        | R. Newcomb  Stillwell |   |   |
|                                        |                  |   |
| If to the Highfields Funds, to:             |                  |   |
|                                        |                  |   |
| c/o Highfields Capital Management LP        |                  |   |
| 200 Clarendon Street                        |                  |   |
| Boston, MA 02116                            |                  |   |
| Facsimile:                                  | (617)  850-7503       |   |   |
| Attention:                                  | Joseph  Mazzella      |   |   |
|                                        |                  |   |   |
| with copies to:                             |                  |   |
|                                        |                  |   |
| Goodwin Procter LLP                         |                  |   |
| Exchange Place                              |                  |   |

 

25

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| 53 State Street                |                   |   |
|--------------------------------|------------------------|--------|
| Boston, Massachusetts 02109    |                   |   |
| Facsimile:                     | (617)  523-1231        |   |   |
| Attention:                     | Laura C. Hodges Taylor |   |   |
|                           |                   |   |
| If to 4390075 Canada Inc., to: |                   |   |
|                           |                   |   |
| 4390075  Canada Inc.           |                   |   |
| 1 St Clair  Avenue East        |                   |   |
| Suite 1003                     |                   |   |
| Toronto,  Ontario              |                   |   |
| M4T 2V7                        |                   |   |
| Canada                         |                   |   |
| Facsimile:                     | (514) 201-5290         |   |   |
| Attention:                     | Gregory David          |   |   |

 

 

If to a Manager, or a direct or indirect transferee of a Manager, to itat the address set forth in the records of the Company.

 

Noticeto the holder of record of any shares of capital stock shall be deemed to benotice to the holder of such shares for all purposes hereof.

 

Unlessotherwise specified herein, such notices or other communications shall bedeemed effective (i) on the date received, if personally delivered, (ii) on thedate received if delivered by facsimile on a business day, or if not deliveredon a business day, on the first business day thereafter and (iii) 2 businessdays after being sent by overnight courier. Each of the parties hereto shall beentitled to specify a different address by giving notice as aforesaid to eachof the other parties hereto.

 

## 8.3.          Merger;Binding Effect, Etc. This Agreement, together with the StockholdersAgreement, constitute the entire agreement of the parties with respect to theirsubject matter, supersede all prior or contemporaneous oral or writtenagreements or discussions with respect to such subject matter, and shall bebinding upon and inure to the benefit of the parties hereto and thereto andtheir respective heirs, representatives, successors and permitted assigns. Exceptas otherwise expressly provided herein, no Stockholder or other party heretomay assign any of its respective rights or delegate any of its respectiveobligations under this Agreement without the prior written consent of the otherparties hereto, and any attempted assignment or delegation in violation of theforegoing shall be null and void.

##  

## 8.4.          DescriptiveHeadings. The descriptive headings of this Agreement are for convenience ofreference only, are not to be considered a part hereof and shall not beconstrued to define or limit any of the terms or provisions hereof.

 

26

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## 8.5.          Counterparts.This Agreement may be executed in multiple counterparts, each of which shall bedeemed an original, but all of which taken together shall constitute oneinstrument.

##  

## 8.6.          Severability.In the event that any provision hereof would, under applicable law, be invalidor unenforceable in any respect, such provision shall be construed by modifyingor limiting it so as to be valid and enforceable to the maximum extentcompatible with, and possible under, applicable law. The provisions hereof areseverable, and in the event any provision hereof should be held invalid orunenforceable in any respect, it shall not invalidate, render unenforceable orotherwise affect any other provision hereof.

##  

## 8.7.          NoRecourse. Notwithstanding anything that may be expressed or implied in thisAgreement, the Company and each Stockholder covenant, agree and acknowledgethat no recourse under this Agreement or any documents or instruments deliveredin connection with this Agreement shall be had against any current or futuredirector, officer, employee, general or limited partner or member of anyStockholder or of any Affiliate or assignee thereof, as such, whether by theenforcement of any assessment or by any legal or equitable proceeding, or byvirtue of any statute, regulation or other applicable law, it being expresslyagreed and acknowledged that no personal liability whatsoever shall attach to,be imposed on or otherwise be incurred by any current or future officer, agentor employee of any Stockholder or any current or future member of anyStockholder or any current or future director, officer, employee, partner ormember of any Stockholder or of any Affiliate or assignee thereof, as such, forany obligation of any Stockholder under this Agreement or any documents orinstruments delivered in connection with this Agreement for any claim based on,in respect of or by reason of such obligations or their creation.

##  

# **9.**                                      GOVERNING LAW.

#  

## 9.1.          GoverningLaw. This Agreement and all claims arising out of or based upon thisAgreement or relating to the subject matter hereof shall be governed by andconstrued in accordance with the domestic substantive laws of the State of NewYork without giving effect to any choice or conflict of laws provision or rulethat would cause the application of the domestic substantive laws of any otherjurisdiction.

##  

## 9.2.          Consentto Jurisdiction. Each party to this Agreement, by its execution hereof, (i)hereby irrevocably submits to the exclusive jurisdiction of the state andfederal courts sitting in the State of New York for the purpose of any action,claim, cause of action or suit (in contract, tort or otherwise), inquiry,proceeding or investigation arising out of or based upon this Agreement orrelating to the subject matter hereof, (ii) hereby waives to the extent notprohibited by applicable law, and agrees not to assert, and agrees not to allowany of its subsidiaries to assert, by way of motion, as a defense or otherwise,in any such action, any claim that it is not subject personally to thejurisdiction of the above-named courts, that its property is exempt or immunefrom attachment or execution, that any such proceeding brought in one of theabove-named courts is improper, or that this Agreement or the subject matterhereof or thereof may not be enforced in or by such court and (iii) herebyagrees not to commence or maintain any action, claim, cause of action or suit(in contract, tort or otherwise), inquiry, proceeding or investigation arisingout of or based upon this Agreement or relating to the subject matter hereof orthereof

 

27

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## other than before one of the above-named courts nor to make any motionor take any other action seeking or intending to cause the transfer or removalof any such action, claim, cause of action or suit (in contract, tort orotherwise), inquiry, proceeding or investigation to any court other than one ofthe above-named courts whether on the grounds of inconvenient forum orotherwise. Notwithstanding the foregoing, to the extent that any party heretois or becomes a party in any litigation in connection with which it may assertindemnification rights set forth in this agreement, the court in which suchlitigation is being heard shall be deemed to be included in clause (i) above. Notwithstandingthe foregoing, any party to this Agreement may commence and maintain an actionto enforce a judgment of any of the above-named courts in any court ofcompetent jurisdiction. Each party hereto hereby consents to service of processin any such proceeding in any manner permitted by New York law, and agrees thatservice of process by registered or certified mail, return receipt requested,at its address specified pursuant to Section 8.2 hereof is reasonablycalculated to give actual notice.

##  

## 9.3.          WAIVEROF JURY TRIAL. TO THE EXTENT NOT PROHIBITED BY APPLICABLE LAW WHICH CANNOTBE WAIVED, EACH PARTY HERETO HEREBY WAIVES AND COVENANTS THAT IT WILL NOTASSERT (WHETHER AS PLAINTIFF, DEFENDANT OR OTHERWISE) ANY RIGHT TO TRIAL BYJURY IN ANY FORUM IN RESPECT OF ANY ISSUE OR ACTION, CLAIM, CAUSE OF ACTION ORSUIT (IN CONTRACT, TORT OR OTHERWISE), INQUIRY, PROCEEDING OR INVESTIGATIONARISING OUT OF OR BASED UPON THIS AGREEMENT OR THE SUBJECT MATTER HEREOF OR INANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE TRANSACTIONSCONTEMPLATED HEREBY, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING. EACHPARTY HERETO ACKNOWLEDGES THAT IT HAS BEEN INFORMED BY THE OTHER PARTIES HERETOTHAT THIS SECTION 9.3 CONSTITUTES A MATERIAL INDUCEMENT UPON WHICH THEY ARERELYING AND WILL RELY IN ENTERING INTO THIS AGREEMENT. ANY PARTY HERETO MAYFILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION 9.3 WITH ANY COURT ASWRITTEN EVIDENCE OF THE CONSENT OF EACH SUCH PARTY TO THE WAIVER OF ITS RIGHTTO TRIAL BY JURY.

##  

## 9.4.          Exerciseof Rights and Remedies. No delay of or omission in the exercise of anyright, power or remedy accruing to any party as a result of any breach ordefault by any other party under this Agreement shall impair any such right,power or remedy, nor shall it be construed as a waiver of or acquiescence inany such breach or default, or of any similar breach or default occurringlater; nor shall any such delay, omission nor waiver of any single breach ordefault be deemed a waiver of any other breach or default occurring before orafter that waiver.

##  

**[**Signature pagesfollow**]**

 

28

----

 

**INWITNESS WHEREOF**, each of the undersigned has duly executedthis Agreement (or caused this Agreement to be executed on its behalf by itsofficer or representative thereunto duly authorized) under seal as of the datefirst above written.

 
| *COMPANY:* | **MICHAELS STORES, INC.**                                 |
|------------|-----------------------------------------------------------|
|       |                                                      |
|       |                                                      |
|       | By:                                                       | /s/ Jeffrey N. Boyer |   |
|       | Name: Jeffrey N. Boyer                                    |
|       | Title:   President and Chief  Financial Officer |

 

 

*[Registration Rights Agreement]*

 

----

 
| *INVESTORS:* | **MICHAELS HOLDINGS LLC**                                             |
|--------------|-----------------------------------------------------------------------|
|         |                                                                  |
|         |                                                                  |
|         | By:                                                                   | /s/ Todd Cook |   |
|         | Name: Todd Cook                                                       |
|         | Title:   Vice President, Secretary  and Assistant Treasurer |

 

 

*[Registration Rights Agreement]*

 

----

 
| *INVESTORS:* | **HIGHFIELDS CAPITAL I LP, a Delaware limited**    |
|--------------|----------------------------------------------------|
|         | **partnership**                                    |
|         | ** **                                         |
|         | By: Highfields Associates LLC, its General Partner |
|         |                                               |
|         |                                               |
|         | By:                                                | /s/ Richard L. Grubman |   |
|         | Name:  Richard L. Grubman                     |
|         | Title:  Managing Member                       |
|         |                                               |
|         |                                               |
| ** **   | **HIGHFIELDS CAPITAL II LP, a Delaware limited**   |
|         | **partnership**                                    |
|         | ** **                                         |
|         | By: Highfields Associates LLC, its General Partner |
|         |                                               |
|         |                                               |
|         | By:                                                | /s/ Richard L. Grubman |   |
|         | Name:  Richard L. Grubman                     |
|         | Title:  Managing Member                       |
|         |                                               |
|         |                                               |
| ** **   | **HIGHFIELDS CAPITAL III LP, a Cayman Islands**    |
|         | **exempted limited partnership**                   |
|         | ** **                                         |
|         | By: Highfields Associates LLC, its General Partner |
|         |                                               |
|         |                                               |
|         | By:                                                | /s/ Richard L. Grubman |   |
|         | Name:  Richard L. Grubman                     |
|         | Title:  Managing Member                       |

 

 

*[Registration Rights Agreement]*

 

----

 
| *INVESTORS* | **4390075 CANADA INC.** |
|-------------|-------------------------|
|        |                    |
|        |                    |
|        | By:                     | /s/ Gregory David |   |
|        |                    | Name:  Gregory David |   |
|        |                    | Title:  Director |   |

 

 

*[Registration Rights Agreement]*

 

----