Document:

Exhibit 10.3

 

OCCIDENTAL
PETROLEUM CORPORATION

2005
LONG-TERM INCENTIVE PLAN

TOTAL
SHAREHOLDER RETURN INCENTIVE AWARD

TERMS AND CONDITIONS

(Equity-based, Equity and
Cash-settled Award)

 

	
  DATE OF GRANT:

  	
   

  	
  October 13,
  2010

  
	
   

  	
   

  	
   

  
	
  PERFORMANCE SHARES:

  	
   

  	
  See
  Morgan Stanley Smith Barney Benefit Access “Other Awards/ My Awards/Awarded”

  
	
   

  	
   

  	
   

  
	
  PERFORMANCE PERIOD:

  	
   

  	
  October 13, 2010 through October 12, 2013

  

 

The following Terms
and Conditions (these “Terms and Conditions”) are set forth
as of the Date of Grant between OCCIDENTAL PETROLEUM CORPORATION, a Delaware
corporation (“Occidental” and, with its subsidiaries, the “Company”), and the
Eligible Employee receiving this award (the “Grantee”).

 

1.             GRANT
OF PERFORMANCE SHARES.  In accordance with these Terms and Conditions
and the Occidental Petroleum Corporation 2005 Long-Term Incentive Plan, as the
same may be amended from time to time (the “Plan”), Occidental grants to the
Grantee as of the Date of Grant, the right to receive 50% in Shares and 50% in
cash up to the number/value of Performance Shares.  For the purposes of these Terms and
Conditions, “Performance Shares” means a bookkeeping entry that records the
equivalent of Shares awarded pursuant to Sections 4.2 and, to the extent
applicable, 5.2 of the Plan that is payable upon the achievement of the
Performance Goal. Performance Shares are not Shares and have no voting rights
or, except as stated in Section 6, dividend rights.

 

2.             RESTRICTIONS
ON TRANSFER.  (a) Neither
these Terms and Conditions nor any right to receive Shares or cash pursuant to
these Terms and Conditions may be transferred or assigned by the Grantee other
than (i) to a beneficiary designated on a form approved by the Company (if
enforceable under local law), by will or, if the Grantee dies without designating
a beneficiary of a valid will, by the laws of descent and distribution, or (ii) pursuant
to a domestic relations order, if applicable, (if approved or ratified by the
Committee).

 

(b) Further,
if the Grantee was a Named Executive Officer during the last completed fiscal
year prior to vesting, then such Grantee shall retain Beneficial Ownership of
Shares equal to not less than 50% of the net after-tax Shares received under
these Terms and Conditions until the third anniversary date of the vesting of the
Shares under this Award (the “Beneficial Ownership Period”). Compliance with
the foregoing requirement shall be determined by reference to the reports filed
by the Grantee on Forms 3, 4, and 5, as applicable, pursuant to Section 16(a) of
the Securities Exchange Act of 1934 (the “Exchange Act”) and the aggregate
number of Shares reported as Beneficially Owned during the Beneficial Ownership
Period shall be not less than the sum of the number of Shares then required to
be so owned pursuant to these Terms and Conditions and the terms and conditions
of any other grant containing this or a similar requirement.  For purposes of these Terms and Conditions, “Beneficial
Ownership” has the meaning ascribed in Rule 16a-1(2) under the
Exchange Act and “Named Executive Officer” has the meaning ascribed thereto
pursuant to Item 402 of Regulation S-K under the Exchange Act.

 

1

 

3.             PERFORMANCE
GOAL.  The Performance Goal
for the Performance Period is based on Total Shareholder Return (defined as
Total Stockholder Return in the Plan) of the peer companies listed below and
the S&P 500 Index, as set forth on Exhibit 1.  Total Shareholder Return shall be calculated
for each peer company using the average of its last reported sale price per
share of common stock on the New York Stock Exchange - Composite Transactions
for the last ten trading days preceding October 13, 2010 and the average
of its last reported sale price per share of common stock on the New York Stock
Exchange - Composite Transactions for the last ten trading days preceding October 12,
2013.  In addition to Occidental, the
peer companies are: Anadarko Petroleum Corporation, Apache Corporation,
Canadian Natural Resources Limited, Chevron Corporation, ConocoPhillips, Devon
Energy Corporation, EOG Resources, Inc., ExxonMobil Corporation, Hess
Corporation, Marathon Oil Corporation and Royal Dutch Shell plc.  If a peer company ceases to be a
publicly-traded company at any time during the Performance Period, then such
company will be removed as a peer company and the achievement of the
Performance Goal will be determined with respect to the remaining peer
companies as set forth on Exhibit 1.

 

4.             VESTING
AND FORFEITURE OF PERFORMANCE SHARES.  (a) If the Grantee fails to accept this
award prior to the next record date for the payment of dividends on the Common
Stock subsequent to the Date of Grant, then, notwithstanding any other
provision of this award, the Grantee shall forfeit all rights under this award
and this award will become null and void. 
For purposes of this section, acceptance of the award shall occur on the
date the Grantee accepts this Total Shareholder Return Incentive Award through
Morgan Stanley Smith Barney Benefit Access or any replacement online system
designated by the Company.

 

(b) The
Grantee must remain in the continuous employ of the Company through the last
day of the Performance Period to receive payment of this award.  The continuous employment of the Grantee will
not be deemed to have been interrupted by reason of the transfer of the Grantee’s
employment among the Company and its affiliates or an approved leave of
absence.  However, if, prior to the end
of the Performance Period, the Grantee dies or becomes permanently disabled
while in the employ of the Company and terminates as a result thereof, retires
with the consent of the Company, or terminates employment for the convenience
of the Company (each of the foregoing, a “Forfeiture Event”), then the number
of Performance Shares upon which the Grantee’s award is based will be reduced
on a pro rata basis based upon the number of days remaining in the Performance
Period following the date of the Forfeiture Event.  If the Grantee terminates employment
voluntarily or is terminated for cause before the end of the Performance
Period, then these Terms and Conditions will terminate automatically on the
date of Grantee’s termination and Grantee shall forfeit the right to receive
any Shares or cash hereunder.

 

(c) The
Grantee’s right to receive payment of this award in an amount not to exceed the
Performance Shares, rounded up to the nearest whole share, will be based on,
and become nonforfeitable upon the Committee’s certification of, the attainment
of the Performance Goal.

 

(d) Notwithstanding
Section 4(c), if a Change in Control event occurs prior to the end of the
Performance Period, the Grantee’s right to receive payment at 50% of the
Performance Share level (as adjusted for any Forfeiture Event pursuant to Section 4(b))
will become nonforfeitable.  The right to
receive Shares and cash in excess of 50% of the Performance Share level (as
adjusted for any Forfeiture Event pursuant to Section 4(b)) will be
forfeited.

 

(e) Notwithstanding
Section 4(c), if Occidental’s Total Shareholder Return does not exceed the
Total Shareholder Return of the Standard & Poor’s 500 Stock Index
(S&P 500

 

2

 

Index)
for the same period, the Grantee’s right to receive Shares and cash in excess
of 50% of the Performance Share level will be forfeited.  This comparison shall be calculated using
Occidental’s Total Shareholder Return as defined under Section 3, and by
using the average of the closing S&P 500 Index value for the last ten
trading days preceding October 13, 2010 and the average of the closing
S&P 500 Index value for the last ten trading days preceding October 12,
2013 to calculate the Total Shareholder Return for the S&P 500 Index.

 

5.             PAYMENT
OF AWARDS.  The Performance
Shares as adjusted pursuant to Sections 4 and 7 of these Terms and Conditions
will be settled 50% in Shares and 50% in cash. 
The cash payment will equal the closing price of the Shares on the New
York Stock Exchange on the date of the Committee’s certification (the “Certification
Date Value”) of the attainment of the Performance Goal multiplied by 50% of the
Performance Shares earned at the Performance Goal level attained and will be
paid as promptly as practicable after such date.  The Shares covered by these Terms and Conditions
or any prorated portion thereof shall be issued to the Grantee as promptly as
practicable after the Committee’s certification of the attainment of the
Performance Goal or the Change in Control event, as the case may be.  Each of the cash payment and the Share
issuance shall in any event be made no later than the 15th day of the third month following the end of
the first taxable year in which the award is no longer subject to a substantial
risk of forfeiture.

 

6.             CREDITING
AND PAYMENT OF DIVIDEND EQUIVALENTS.  With respect to the number of Performance
Shares listed above, the Grantee will be credited on the books and records of
Occidental with an amount (the “Dividend Equivalent”) equal to the amount per
share of any cash dividends declared by the Board on the outstanding Shares as
and when declared with a record date during the period beginning on the Date of
Grant and ending with respect to any portion of the Performance Shares covered
by these Terms and Conditions on the date on which the Committee certifies the
attainment of the Performance Goal or the Change in Control event, as the case
may be, or, if earlier, the date on which the Grantee forfeits the right to
receive such portion.  Occidental will
pay in cash to the Grantee an amount equal to the Dividend Equivalents credited
to such Grantee, adjusted, if appropriate, to reflect the same payment
percentage that is used to determine the payment of the Performance Shares
following certification of the attainment of the Performance Goal or the Change
in control event, as the case may be, as promptly as may be practicable
following such certification or Change in control event, but, in any event, no
later than the 15th day of the third month following the end of
the first taxable year in which the award is no longer subject to a substantial
risk of forfeiture.

 

7.             ADJUSTMENTS.  (a) The number
of Performance Shares or kind of shares of stock covered by these Terms and
Conditions shall be adjusted as the Committee determines pursuant to Section 7.2
of the Plan in order to prevent dilution or expansion of the Grantee’s rights
under these Terms and Conditions as a result of events such as stock dividends,
stock splits or other changes in the capital structure of Occidental, or any
merger, consolidation, spin-off, liquidation or other corporate transaction
having a similar effect.  If any such
adjustment occurs, the Company will give the Grantee written notice of the
adjustment.

 

(b) In
addition, the Committee may adjust the Performance Goal or other features of
this Grant as permitted by Section 5.2.3 of the Plan.

 

8.             NO
EMPLOYMENT CONTRACT.  Nothing
in these Terms and Conditions confers upon the Grantee any right with respect
to continued employment by the Company, nor limits in any manner the right of
the Company to terminate the employment or adjust the compensation of the
Grantee.  Unless otherwise agreed in a
writing signed by the Grantee and an authorized

 

3

 

representative
of the Company, the Grantee’s employment with the Company is at will and may be
terminated at any time by the Grantee or the Company.

 

9.             TAXES
AND WITHHOLDING.  Regardless
of any action the Company takes with respect to any or all income tax
(including U.S. federal, state and local tax and non-U.S. tax), social
insurance, payroll tax, payment on account or other tax-related items related
to the Grantee’s participation in the Plan and legally applicable to the
Grantee (“Tax-Related Items”), the Grantee acknowledges that the ultimate
liability for all Tax-Related Items is and remains the Grantee’s responsibility
and may exceed the amount actually withheld by the Company.  The Grantee further acknowledges that the
Company (i) makes no representations or undertakings regarding the
treatment of any Tax-Related Items in connection with any aspect of this Total
Shareholder Return Incentive Award, including the grant or vesting of the Total
Shareholder Return Incentive Award and the receipt of Dividend Equivalents; and
(ii) does not commit to and is under no obligation to structure the terms
of the grant or any aspect of the Total Shareholder Return Incentive Award to
reduce or eliminate the Grantee’s liability for Tax-Related Items or achieve
any particular tax result.  Further, if
the Grantee has become subject to tax in more than one jurisdiction between the
Date of Grant and the date of any relevant taxable event, the Grantee
acknowledges that the Company may be required to withhold or account for
Tax-Related Items in more than one jurisdiction.

 

Prior
to the relevant taxable event, the Grantee shall pay or make adequate
arrangements satisfactory to the Company to satisfy all Tax-Related Items.  In this regard, the Grantee authorizes the
Company to withhold all applicable Tax-Related Items legally payable by the
Grantee (A) in connection with the issuance of any Shares or the payment
of cash or any other consideration pursuant to this Total Shareholder Return
Incentive Award (other than the payment of Dividend Equivalents), 50% from any
cash amount payable under these Terms and Conditions and 50% from the Shares
that are issued or transferred to the Grantee pursuant to these Terms and
Conditions, unless the Grantee otherwise instructs the Company in writing not
less than thirty (30) days prior to the end of the Performance Period, or (B) in
connection with the granting of Performance Shares or the payment of Dividend
Equivalents pursuant to this grant of Performance Shares, from the Grantee’s
wages or other cash compensation (including Dividend Equivalents).  The Grantee shall pay to the Company any
amount of Tax-Related Items that the Company may be required to withhold as a
result of the Grantee’s receipt of this Total Shareholder Return Incentive
Award that cannot be satisfied by the means previously described.

 

10.           COMPLIANCE
WITH LAW.  The Company will
make reasonable efforts to comply with all applicable federal, state and
non-U.S. securities laws; however, the Company will not issue any Shares or
other securities pursuant to these Terms and Conditions if their issuance would
result in a violation of any such law. 
However, if it is not feasible for the Company to comply with such laws
with respect to the grant or settlement of these awards, then the awards may be
cancelled without any compensation or additional benefits provided to Grantee
as a result of the cancellation.

 

11.           RELATION
TO OTHER BENEFITS.  The
benefits received by the Grantee under these Terms and Conditions will not be
taken into account in determining any benefits to which the Grantee may be
entitled under any profit sharing, retirement or other benefit or compensation
plan maintained by the Company, including the amount of any life insurance
coverage available to any beneficiary of the Grantee under any life insurance
plan covering employees of the Company. 
Additionally, the Performance Shares are not part of normal or expected
compensation or salary for any purposes, including, but not limited to
calculation of any

 

4

 

severance,
resignation, termination, redundancy, end of service payments, bonuses or
long-service awards.  This grant of
Performance Shares does not create any contractual or other right to receive
future grants of Performance Shares, or benefits in lieu of Performance Shares,
even if Grantee has a history of receiving Performance Shares or other stock or
cash awards.

 

12.           AMENDMENTS.  The Plan may be modified, amended, suspended
or terminated by the Board at any time, as provided in the Plan.  Any amendment to the Plan will be deemed to
be an amendment to these Terms and Conditions to the extent it is applicable to
these Terms and Conditions; however, no amendment will adversely affect the
rights of the Grantee under these Terms and Conditions without the Grantee’s
consent.

 

13.           SEVERABILITY.  If one or more of the provisions of these
Terms and Conditions is invalidated for any reason by a court of competent
jurisdiction, the invalidated provisions shall be deemed to be separable from
the other provisions of these Terms and Conditions, and the remaining provisions
of these Terms and Conditions will continue to be valid and fully enforceable.

 

14.           ENTIRE AGREEMENT;
RELATION TO PLAN; INTERPRETATION.  Except as specifically provided in this
Section, these Terms and Conditions, the Exhibit and the Attachments
incorporated in these Terms and Conditions constitute the entire agreement
between the Company and the Grantee with respect to this Total Shareholder
Return Incentive Award.  These Terms and
Conditions are subject to the terms and conditions of the Plan.  In the event of any inconsistent provisions
between these Terms and Conditions and the Plan, the provisions of the Plan
control.  Capitalized terms used in these
Terms and Conditions without definition have the meanings assigned to them in
the Plan.  References to Sections,
Exhibits and Attachments are to Sections and Exhibits of, and Attachments
incorporated in, these Terms and Conditions unless otherwise noted.

 

15.           SUCCESSORS
AND ASSIGNS.  Subject to
Sections 2 and 4, the provisions of these Terms and Conditions shall be for the
benefit of, and be binding upon, the successors, administrators, heirs, legal
representatives and assigns of the Grantee, and the successors and assigns of
the Company.

 

16.           GOVERNING
LAW.  The laws of the State of
Delaware govern the interpretation, performance, and enforcement of these Terms
and Conditions.

 

17.           PRIVACY
RIGHTS.  By accepting this
Total Shareholder Return Incentive Award, the Grantee explicitly and
unambiguously consents to the collection, use and transfer, in electronic or
other form, of the Grantee’s personal data as described in these Terms and
Conditions by and among, as applicable, the Company and its affiliates for the
exclusive purpose of implementing, administering and managing the Grantee’s
participation in the Plan.  The Grantee
understands that the Company holds or may receive from any agent designated by
the Company certain personal information about the Grantee, including, but not
limited to, the Grantee’s name, home address and telephone number, date of
birth, social insurance number or other identification number, salary,
nationality, job title, any shares of stock or directorships held in the
Company, details of this Total Shareholder Return Incentive Award or any other
entitlement to shares of stock awarded, canceled, exercised, vested, unvested
or outstanding in the Grantee’s favor, for the purpose of implementing,
administering and managing the Plan, including complying with applicable tax
and securities laws (“Data”).  Data may
be transferred to any third parties assisting in the implementation,
administration and management of the Plan. 
These recipients may be located in the Grantee’s country or elsewhere,
and may have different

 

5

 

data
privacy laws and protections than the Grantee’s country.  By accepting these Terms and Conditions, the
Grantee authorizes the recipients to receive, possess, use, retain and transfer
the Data, in electronic or other form, for the purposes described above.  The Grantee may, at any time, view Data,
request additional information about the storage and processing of Data,
require any necessary amendments to Data or refuse or withdraw the consents
herein, in any case without cost, by contacting the Committee in writing.  Refusing or withdrawing consent may affect
the Grantee’s ability to participate in the Plan.

 

18.           ELECTRONIC
DELIVERY AND ACCEPTANCE.  The
Company may, in its sole discretion, decide to deliver any documents related to
this Total Shareholder Return Incentive Award granted under the Plan or future
awards that may be granted under the Plan (if any) by electronic means or to
request the Grantee’s consent to participate in the Plan by electronic
means.  The Grantee hereby consents to
receive such documents by electronic delivery and, if requested, to participate
in the Plan through an on-line or electronic system established and maintained
by the Company or another third party designated by the Company.

 

19.           GRANTEE’S
REPRESENTATIONS AND RELEASES. 
By accepting this Total Shareholder Return Incentive Award, the Grantee
acknowledges that the Grantee has read these Terms and Conditions and
understands that (i) the grant of this Total Shareholder Return Incentive
Award is made voluntarily by Occidental in its discretion with no liability on
the part of any of its direct or indirect subsidiaries and that, if the Grantee
is not an employee of Occidental, the Grantee is not, and will not be
considered, an employee of Occidental but the Grantee is a third party
(employee of a subsidiary) to whom this Total Shareholder Return Incentive
Award is granted; (ii) all decisions with respect to future awards, if
any, will be at the sole discretion of Occidental; (iii) the Grantee’s
participation in the Plan is voluntary; (iv) this Total Shareholder Return
Incentive Award is an extraordinary item that does not constitute a regular and
recurring item of base compensation; (v) the future value of any Shares
issued pursuant to this Total Shareholder Return Incentive Award cannot be
predicted and Occidental does not assume liability in the event such Shares
have no value in the future; (vi) subject to the terms of any tax
equalization agreement between the Grantee and the entity employing the
Grantee, the Grantee will be solely responsible for the payment or nonpayment
of taxes imposed or threatened to be imposed by any authority of any
jurisdiction; and (vii) Occidental is not providing any tax, legal or
financial advice with respect to this Total Shareholder Return Incentive Award
or the Grantee’s participation in the Plan.

 

In
consideration of the grant of this Total Shareholder Return Incentive Award, no
claim or entitlement to compensation or damages shall arise from termination of
this Total Shareholder Return Incentive Award or diminution in value of this
Total Shareholder Return Incentive Award or Shares issued pursuant to this
Total Shareholder Return Incentive Award resulting from termination of the
Grantee’s employment by the Company (for any reason whatsoever) and, to the
extent permitted by law, the Grantee irrevocably releases the Company from any
such claim that may arise; if, notwithstanding the foregoing, any such claim is
found by a court of competent jurisdiction to have arisen, then, by accepting
these Terms and Conditions, the Grantee shall be deemed irrevocably to have
waived his or her entitlement to pursue such claim.

 

By
accepting this Total Shareholder Return Incentive Award, the Grantee agrees, to
the extent not contrary to applicable law, to the General Terms of Employment
set out on Attachment 1 and the Arbitration Provisions set out on Attachment 2,
which, in each case, are incorporated in these Terms and Conditions by
reference.

 

6

 

20.           RELATION
TO EMPLOYMENT AGREEMENT.  In
the event of any inconsistent provisions between these Terms and Conditions and
any employment agreement between the Grantee and the Company, the provisions of
these Terms and Conditions control except with respect to Attachment 2
Arbitration Provisions.

 

21.           IMPOSITION OF OTHER
REQUIREMENTS.  Occidental
reserves the right to impose other requirements on the Grantee’s participation
in the Plan and on the Total Shareholder Return Incentive Award, to the extent
Occidental determines it is necessary or advisable in order to comply with
local law or facilitate the administration of the Plan, and to require the
Grantee to sign any additional agreements or undertakings that may be necessary
to accomplish the foregoing.

 

22.           COMPLIANCE
WITH SECTION 409A OF THE INTERNAL REVENUE CODE.  All amounts payable under these Terms and
Conditions are intended to comply with the “short term deferral” exception from
Section 409A of the U.S. Internal Revenue Code (“Section 409A”)
specified in Treas. Reg. § 1.409A-1(b)(4) (or any successor provision).
Notwithstanding the foregoing, to the extent that the Board determines that the
Plan or this award is subject to Section 409A, these Terms and Conditions
shall be interpreted and administered in such a way as to comply with the applicable
provisions of Section 409A to the maximum extent possible.  To the extent that the Board determines that
the Plan or this award is subject to Section 409A and fails to comply with
the requirements of Section 409A, the Board reserves the right (without
any obligation to do so) to amend or terminate the Plan and/or amend,
restructure, terminate or replace this award in order to cause this award to
either not be subject to Section 409A or to comply with the applicable
provisions of such section.

 

7

 

EXHIBIT 1

 

2005 Long-Term Incentive Plan

2010 Total Shareholder Return Incentive Award

 

Total Shareholder Return Payout Schedule

 

	
  TSR Ranking

  	
   

  	
  Payout as a

  % of Maximum

  	
   

  
	
  1st

  	
   

  	
  100%

  	
   

  
	
  2nd

  	
   

  	
  85%

  	
   

  
	
  3rd

  	
   

  	
  70%

  	
   

  
	
  4th

  	
   

  	
  60%

  	
   

  
	
  5th

  	
   

  	
  50%

  	
   

  
	
  6th

  	
   

  	
  40%

  	
   

  
	
  7th

  	
   

  	
  30%

  	
   

  
	
  8th

  	
   

  	
  20%

  	
   

  
	
  9th

  	
   

  	
  10%

  	
   

  
	
  10th

  	
   

  	
  0%

  	
   

  
	
  11th

  	
   

  	
  0%

  	
   

  
	
  12th

  	
   

  	
  0%

  	
   

  

 

If
any of the Peer Companies ceases to be a publicly-traded company during the
Performance Period, such company shall be removed as a Peer Company.  The
remaining Peer Companies shall be ranked from first to last and the payout
percentage for the award shall be determined under the above schedule based on
the Company’s ranking among the remaining Peer Companies, provided, that (1) the
Committee may use its negative discretion to reduce the payout percentage
associated with the Company’s ranking, and (2) if the Company ranks last
among the remaining Peer Companies, the payout percentage shall be 0%.

 

8

 

Attachment 1

 

General Terms of
Employment

 

A.                                  Except as
otherwise required by law or legal process, the Grantee will not publish or
divulge to any person, firm, corporation or institution and will not use to the
detriment of Occidental, or any of its subsidiaries or other affiliates, or any
of their respective officers, directors, employees or stockholders
(collectively, “Occidental Parties”), at any time during or after the Grantee’s
employment by any of them, any trade secrets or confidential information of any
of them (whether generated by them or as a result of any of their business
relationships), including such information as described in Occidental’s Code of
Business Conduct and other corporate policies, without first obtaining the
written permission of an officer of the Company.

 

B.                                    At the time of
leaving employment with the Company, the Grantee will deliver to the Company,
and not keep or deliver to anyone else, any and all credit cards, drawings,
blueprints, specifications, devices, notes, notebooks, memoranda, reports,
studies, correspondence and other documents, and, in general, any and all
materials relating to the Occidental Parties (whether generated by them or as a
result of their business relationships), including any copies (whether in paper
or electronic form), that the Grantee has in the Grantee’s possession or
control.

 

C.                                    The Grantee
will, during the Grantee’s employment by the Company, comply with the
provisions of Occidental’s Code of Business Conduct.

 

D.                                   Except as
otherwise required by the Grantee’s job or permitted by law, the Grantee will
not make statements about any Occidental Parties (1) to the press,
electronic media, to any part of the investment community, to the public, or to
any person connected with, employed by or having a relationship with any of
them without permission of an officer of the Company or (2) that are
derogatory, defamatory or negative. 
Nothing herein, however, shall prevent Grantee from making a good faith
report or complaint to appropriate governmental authorities.  To the fullest extent permitted by law,
Grantee will not interfere with or disrupt any of the Company’s operations or
otherwise take actions intended directly to harm any of the Occidental Parties.

 

E.                                     All inventions,
developments, designs, improvements, discoveries and ideas that the Grantee
makes or conceives in the course of employment by the Company, whether or not
during regular working hours, relating to any design, article of manufacture,
machine, apparatus, process, method, composition of matter, product or any
improvement or component thereof, that are manufactured, sold, leased, used or
under development by, or pertain to the present or possible future business of
the Company shall be a work-for-hire and become and remain the property of
Occidental, its successors and assigns.

 

The
provisions of this Section do not apply to an invention that qualifies
fully under the provisions of Section 2870 of the California Labor Code,
which provides in substance that provisions in an employment agreement
providing that an employee shall assign or offer to assign rights in an
invention to his or her employer do not apply to an invention for which no
equipment, supplies, facilities, or trade secret information of the employer
was used and which was developed entirely on the employee’s own time,
except for those inventions that either (a) relate, at the time of
conception or reduction to practice of the invention, (1) to the business
of the employer or (2) to the employer’s actual or demonstrably
anticipated research or development, or (b) result from any work performed
by the employee for the employer.

 

9

 

F.             The foregoing General Terms of
Employment are not intended to be an exclusive list of the employment terms and
conditions that apply to the Grantee. 
The Company, in its sole discretion, may at any time amend or supplement
the foregoing terms.  The Grantee’s
breach of the foregoing General Terms of Employment will entitle the Company to
take appropriate disciplinary action, including, without limitation, reduction
of the Total Shareholder Return Incentive Award granted pursuant to these Terms
and Conditions and termination of employment.

 

10

 

Attachment 2

 

Arbitration Provisions

 

Any dispute arising out of or in any way related to the Grantee’s
employment with the Company, or the termination of that employment, will be
decided exclusively by final and binding arbitration pursuant to any procedures
required by applicable law.  To the
extent not inconsistent with applicable law, any arbitration will be submitted
to American Arbitration Association (“AAA”) and subject to AAA Employment
Arbitration Rules and Mediation Procedures in effect at the time of filing
of the demand for arbitration.  Only the
following claims are excluded from these Terms and Conditions: (1) claims
for workers’ compensation, unemployment compensation, or state disability
benefits, and claims based upon any pension or welfare benefit plan the terms
of which contain an arbitration or other non-judicial dispute resolution
procedure, (2) to the extent permitted by applicable law, claims for
provisional remedies to maintain the status quo pending the outcome of
arbitration, (3) claims based on compensation award agreements and
incentive plans and (4) claims which are not permitted by applicable law
to be subject to a binding pre-dispute arbitration agreement.

 

Any controversy regarding whether a particular dispute is subject to
arbitration under this Section shall be decided by the arbitrator.

 

To the extent required under applicable law, the Grantee’s
responsibility for payment of the neutral arbitrator’s fees and expenses shall
be limited to an amount equal to the filing fee that would be required for a
state trial court action and the Company shall pay all remaining fees and
expenses of the arbitrator.  Unless
otherwise required under applicable law, the parties shall each pay their pro
rata share of the neutral arbitrator’s expenses and fees.  Any controversy regarding the payment of fees
and expenses under this arbitration provision shall be decided by the
arbitrator.

 

The arbitrator may award any form of remedy or relief (including
injunctive relief) that would otherwise be available in court.  Any award pursuant to said arbitration shall
be accompanied by a written opinion of the arbitrator setting forth the reason
for the award.  The award rendered by the
arbitrator shall be conclusive and binding upon the parties hereto, and
judgment upon the award may be entered, and enforcement may be sought in, any
court of competent jurisdiction. To the extent not inconsistent with applicable
laws, the arbitrator will have the authority to hear and grant motions.

 

11Exhibit 10.1

 

MICHAELS STORES, INC.

 

$800,000,000 73⁄4% Senior Notes due 2018

 

PURCHASE AGREEMENT

 

October 7, 2010

 

Deutsche
Bank Securities Inc.

Banc
of America Securities LLC

Barclays
Capital Inc.

Credit
Suisse Securities (USA) LLC

J.P.
Morgan Securities LLC

Wells
Fargo Securities, LLC

As
Initial Purchasers

c/o Deutsche Bank Securities Inc.

60 Wall Street

New York, New York 10005

 

Ladies
and Gentlemen:

 

Michaels
Stores, Inc., a Delaware corporation (the “Issuer”), will issue and
sell to the several parties named in Schedule I hereto (each an “Initial
Purchaser” and together, the “Initial Purchasers”) $800,000,000
aggregate principal amount of its 73⁄4% Senior Notes due 2018 (the “Securities”).  The Securities will be issued by the Issuer
pursuant to an indenture, to be dated on or about October 21, 2010 (the “Indenture”),
among the Issuer, the Guarantors (as defined herein) and Law Debenture Trust
Company of New York, as trustee (the “Trustee”).

 

The
Securities will be guaranteed (the “Guarantees”) on a senior unsecured
basis by each of the guarantors listed on Annex A-1 hereto (together,
the “Guarantors”).

 

The
Securities will have the benefit of a registration rights agreement (the “Registration
Rights Agreement”), to be dated as of the Closing Date (as defined below),
among the Issuer, the Guarantors and the Initial Purchasers, pursuant to which
the Issuer and the Guarantors will agree to register under the Act and offer to
exchange notes with terms identical to the Securities for the Securities,
subject to the terms and conditions therein specified. Certain other terms used
herein are defined in Section 17 hereof.

 

The
sale of the Securities to the Initial Purchasers will be made without
registration of the Securities under the Act in reliance upon exemptions from
the registration requirements of the Act.

 

 

In
connection with the sale of the Securities, the Issuer has prepared a
preliminary offering memorandum, dated October 6, 2010 (the “Preliminary
Memorandum”) setting forth or including a description of the terms of the
Securities and the Guarantees, the terms of the offering of the Securities and
certain information concerning the Issuer. 
As used herein, “Pricing Disclosure Package” shall mean, the
Preliminary Memorandum, as supplemented or amended by any supplement to the
Preliminary Memorandum listed on Annex B hereto in the most recent form
that has been prepared and delivered by the Issuer to the Initial Purchasers in
connection with their solicitation of offers to purchase Securities prior to
the time when sales of the Securities were first made (the “Time of Sale”).  Promptly after the date hereof and in any
event no later than the second Business Day following the date hereof, the
Issuer will prepare and deliver to each Initial Purchaser a final offering
memorandum (the “Final Memorandum”), which will consist of the
Preliminary Memorandum with such changes therein as are required to reflect the
information contained in the amendments or supplements listed on Annex B
hereto.  The Issuer hereby confirms that
it has authorized the use of the Pricing Disclosure Package, Final Memorandum
and the Recorded Road Show (defined below) in connection with the offer and
sale of the Securities by the Initial Purchasers.

 

The
Securities are being issued to finance, in part, the Issuer’s cash tender offer
(the “Tender Offer”) for any and all of its 10% Senior Notes due 2014
(the “2014 Notes”), any unpaid interest from the most recent interest
payment date applicable to the 2014 Notes, the redemption of any 2014 Notes not
tendered in the Tender Offer and the fees and expenses incurred in connection
therewith.  The issuance of the
Securities, the Tender Offer, the redemption of any 2014 Notes not tendered in
the Tender Offer and the other related transactions described herein and in the
Pricing Disclosure Package are collectively referred to as the “Transactions.”

 

1.             Representations
and Warranties.  The Issuer and the
Guarantors jointly and severally represent and warrant to each Initial
Purchaser as follows as of the date hereof and as of the Closing Date
(references in this Section 1 to the “Offering Memorandum” are to (x) the
Pricing Disclosure Package in the case of representations and warranties made
as of the date hereof and (y) to both the Pricing Disclosure Package and
the Final Memorandum in the case of representations and warranties made as of
the Closing Date):

 

(a)           The Preliminary Memorandum, at the date thereof, did not
contain any untrue statement of a material fact or omit to state any material
fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading.  At the Time of Sale, the Pricing Disclosure
Package does not, and on the Closing Date will not, and the Final Memorandum as
of its date and on the Closing Date will not, contain any untrue statement of a
material fact or omit to state any material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; provided, however, that the Issuer and the
Guarantors make no representation or warranty as to the information contained
in or omitted from the Offering Memorandum, in reliance upon and in conformity
with information furnished in writing to the Issuer by or on behalf of the Initial
Purchasers specifically for inclusion therein. 
The Issuer has not distributed or referred to and will not distribute or
refer to any written communication (as defined in Rule 405 of the Act)
other than the Pricing Disclosure Package, the Final Memorandum and the
investor presentation made orally to 

 

2

 

investors and simultaneously recorded on October 6,
2010 and the corresponding slide deck (the “Recorded Road Show”).  The Recorded Road Show when taken together
with the Preliminary Offering Memorandum made available prior to the time the
Recorded Road Show was made available to investors, did not, and at the Closing
Date will not contain any untrue statement of a material fact or omit to state
a material fact necessary in order to make the statements therein, in the light
of the circumstances under which they were made, not misleading; provided,
however, that the Issuer and the Guarantors make no representation or
warranty as to the information contained in or omitted from the Recorded Road
Show, in reliance upon and in conformity with information furnished in writing
to the Issuer by or on behalf of the Initial Purchasers specifically for
inclusion therein.

 

(b)           Assuming the accuracy of the representations and
warranties of the Initial Purchasers contained in Section 4 and their
compliance with the agreements set forth therein, none of the Issuer or any of
its subsidiaries, or any of their respective Affiliates, or any person acting
on their behalf has, directly or indirectly, made offers or sales of any
security, or solicited offers to buy, any security under circumstances that
would require the registration of the Securities under the Act.

 

(c)           Assuming the accuracy of the representations and
warranties of the Initial Purchasers contained in Section 4 and their
compliance with the agreements set forth therein, none of the Issuer or any of
its subsidiaries or any of their respective Affiliates, or any person acting on
their behalf has: (i) engaged in any form of general solicitation or
general advertising (within the meaning of Regulation D) in connection
with any offer or sale of the Securities or (ii) engaged in any directed
selling efforts (within the meaning of Regulation S) with respect to the
Securities; and the Issuer and each of its subsidiaries and each of their
respective Affiliates and each person acting on their behalf have complied with
the offering restrictions requirement of Regulation S.  Any sale of the Securities by the Issuer
pursuant to Regulation S is not part of a plan or scheme to evade the
registration provisions of the Act.

 

(d)           The Securities satisfy the eligibility requirements of
Rule 144A(d)(3) under the Act.

 

(e)           Assuming the accuracy of the representations and
warranties of the Initial Purchasers contained in Section 4 and their
compliance with the agreements set forth therein, no registration under the Act
of the Securities is required for the offer and sale of the Securities to the
Initial Purchasers or by the Initial Purchasers to the initial purchasers
therefrom, in each case in the manner contemplated herein, in the Pricing
Disclosure Package and in the Final Memorandum and it is not necessary to
qualify the Indenture under the Trust Indenture Act.  The Indenture, as of the Closing Date, will
conform in all material respects to the requirements of an indenture which is
qualified under the Trust Indenture Act.

 

(f)            None of the Issuer, the Guarantors or any of their
respective subsidiaries is or, after giving effect to the offering and sale of
the Securities and the application of the proceeds thereof as described in the
Offering Memorandum, will be an “investment 

 

3

 

company” as defined in the Investment Company Act,
without taking account of any exemption arising out of the number of holders of
the Issuer’s securities.

 

(g)           None of the Issuer, the Guarantors or any of their
respective subsidiaries has paid or agreed to pay to any person any
compensation for soliciting another to purchase any Securities (except as
contemplated in this Agreement).

 

(h)           None of the Issuer or any of its subsidiaries or any of
their respective Affiliates has taken or will take, directly or indirectly, any
action designed to or that has constituted or that would reasonably be expected
to cause or result, under the Exchange Act or otherwise, in stabilization or
manipulation of the price of any security of the Issuer or any of its
subsidiaries to facilitate the sale or resale of the Securities.

 

(i)            Each of the Issuer and its subsidiaries has been duly
organized and is validly existing as an entity in good standing under the laws
of the jurisdiction in which it is chartered or organized with full corporate
or other organizational power and authority to own or lease, as the case may
be, and to operate its properties and conduct its business as described in the
Offering Memorandum, and is duly qualified to do business as a foreign
corporation or other entity and is in good standing under the laws of each jurisdiction
where the ownership or leasing of its properties or the conduct of its business
requires such qualification except where the failure to be so organized or
qualified, have such power or authority or be in good standing would not
reasonably be expected to have a material adverse effect on the condition
(financial or otherwise), business or results of operations of the Issuer and
its subsidiaries, taken as a whole and after giving effect to the Transactions
(a “Material Adverse Effect”).

 

(j)            As of the date hereof, the Issuer has no subsidiaries
other than the entities list on Annex A-2 hereto.

 

(k)           As of July 31, 2010, on a pro forma
basis, after giving effect to the consummation of the Transactions, the Issuer
and its subsidiaries would have had the issued and outstanding capitalization
as set forth in the Offering Memorandum under the heading “Capitalization” and
all the outstanding membership interests or shares of capital stock, as
applicable, of the Issuer and each of its subsidiaries have been duly
authorized and validly issued, if applicable, are fully paid and nonassessable
and were not issued in violation of any preemptive or similar rights and,
except as otherwise set forth in the Offering Memorandum, all outstanding
shares of capital stock or membership interests of the subsidiaries are owned
by the Issuer either directly or indirectly free and clear of any security
interest, claim, lien or encumbrance (other than security interests, claims,
liens, encumbrances and restrictions imposed in connection with the Issuer’s
senior secured credit facilities or permitted thereunder and by the Act and
state securities or “blue sky” laws of certain jurisdictions).

 

(l)            (i) This Agreement has been duly authorized,
executed and delivered by the Issuer and each Guarantor; (ii) the
Indenture, on the Closing Date and prior to the issuance of the Securities,
will have been duly authorized, executed and delivered by the Issuer and each
Guarantor and, assuming due authorization, execution and delivery 

 

4

 

thereof by the Trustee, will constitute a legally
valid and binding instrument enforceable against the Issuer and each Guarantor
in accordance with its terms (in each case subject, as to the enforcement of
remedies, to the effects of (x) bankruptcy, reorganization, insolvency,
fraudulent conveyance, moratorium or other laws affecting creditors’ rights
generally from time to time in effect, (y) general principles of equity
(whether considered in a proceeding in equity or at law) and (z) an
implied covenant of good faith and fair dealing (collectively, the “Enforceability
Limitations”)); (iii) the Securities have been duly authorized by the
Issuer and, when executed and authenticated by the Trustee in accordance with
the provisions of the Indenture and delivered to and paid for by the Initial
Purchasers, will have been duly executed and delivered by the Issuer and will
constitute the legal, valid and binding obligations of the Issuer, entitled to
the benefits of the Indenture (subject to the Enforceability Limitations); and (iv) the
Guarantees have been duly authorized by the Guarantors and when the Indenture
has been executed and delivered, will constitute the legal, valid and binding
obligations of each of the Guarantors, enforceable against each of the
Guarantors in accordance with their terms and entitled to the benefits of the
Indenture (subject to the Enforceability Limitations).

 

(m)          On the Closing Date, the Exchange Securities (as defined in
the Registration Rights Agreement) (including the related guarantees) will have
been duly authorized by the Issuer and each of the Guarantors and, when duly
executed, authenticated, issued and delivered as contemplated by the
Registration Rights Agreement, will be duly and validly issued and outstanding
and will constitute valid and legally binding obligations of the Issuer, as
issuer, and each of the Guarantors, as guarantor, enforceable against the
Issuer and each of the Guarantors in accordance with their terms, subject to the
Enforceability Limitations, and will be entitled to the benefits of the
Indenture.

 

(n)           The Registration Rights Agreement, on the Closing Date and
prior to the issuance of the Securities, will have been duly authorized by the
Issuer and the Guarantors and, when executed and delivered by the Issuer and
the Guarantors (assuming due authorization, execution and delivery thereof by
the Initial Purchasers), will be the legally valid and binding agreement of the
Issuer and each Guarantor, enforceable against the Issuer and each Guarantor
(in each case subject to the Enforceability Limitations), provided that
no representation as to enforceability is made with respect to the Section entitled
“Indemnity and Contribution” therein.

 

(o)           The term “Transaction Documents” refers to this
Agreement, the Registration Rights Agreement, the Securities and the Indenture
(including the Guarantees).  Each of the
Transaction Documents conforms in all material respects to the description
thereof in the Offering Memorandum.

 

(p)           No consent, approval, authorization, filing with or order
of any court or governmental agency or body in the United States or Canada is
required in connection with the execution, delivery and performance of the
Transaction Documents (including, without limitation, the issuance of the
Securities), except such (i) as may be required 

 

5

 

under provincial securities or blue sky laws of any
jurisdiction in which the Securities are offered and sold or (ii) as shall
have been obtained or made prior to the Closing Date.

 

(q)           None of the execution and delivery of the Transaction
Documents, the issuance and sale of the Securities, the issuance of the
Guarantees or the consummation of any other of the transactions herein or
therein contemplated, or the fulfillment of the terms hereof or thereof will
conflict with, result in a breach or violation of or imposition of any lien,
charge or encumbrance upon any property or assets of the Issuer or any of the
Guarantors pursuant to, (i) the terms of any indenture, contract, lease,
mortgage, deed of trust, note agreement, loan agreement or other agreement,
obligation, condition, covenant or instrument to which the Issuer or any of the
Guarantors is a party or bound or to which its or their property is subject; or
(ii) any statute, law, rule, regulation, judgment, order or decree of any
court, regulatory body, administrative agency, governmental body, arbitrator or
other authority having jurisdiction over the Issuer or any of the Guarantors or
any of its or their properties, other than in the cases of clauses (i) and
(ii), such breaches, violations, liens, charges, or encumbrances that would not
reasonably be expected to, individually or in the aggregate, have a Material
Adverse Effect; or result in the violation of the charter, bylaws or any
equivalent organizational document of the Issuer or any of the Guarantors.

 

(r)            The consolidated historical financial statements of the
Issuer and its consolidated subsidiaries included in the Offering Memorandum
present fairly in all material respects the consolidated financial position,
results of operations and cash flows of the Issuer and its consolidated
subsidiaries as of the dates and for the periods indicated and have been
prepared in conformity with United States generally accepted accounting
principles applied on a consistent basis throughout the periods involved
(except as noted therein); the selected historical financial data set forth
under the captions “Offering Memorandum Summary— Summary Historical Financial
and Operating Data” and “Selected Historical Consolidated Financial Data” in
the Offering Memorandum fairly present in all material respects, on the basis
stated in the Offering Memorandum, the information included therein.

 

(s)           No action, suit or proceeding by or before any court or
governmental agency, authority or body or any arbitrator involving the Issuer
or any of its subsidiaries or its or their property is pending or, to the
knowledge of the Issuer and the Guarantors, threatened that (i) would
reasonably be expected to have a material adverse effect on the performance of
the Transaction Documents or the consummation of any of the transactions
contemplated hereby or (ii) would reasonably be expected to have a Material
Adverse Effect, except as set forth in or contemplated in the Offering
Memorandum (exclusive of any amendment or supplement thereto that is not part
of the Pricing Disclosure Package).

 

(t)            Each of the Issuer and its subsidiaries owns or leases
all such real properties as are necessary to the conduct of their respective
operations as currently conducted, except as would not reasonably be expected
to have a Material Adverse Effect.

 

6

 

(u)           None of the Issuer or any of its subsidiaries is in
violation or default of (i) any provision of its charter, bylaws or any
equivalent organizational document; (ii) the terms of any indenture,
contract, lease, mortgage, deed of trust, note agreement, loan agreement or
other agreement, obligation, condition, covenant or instrument to which it is a
party or bound or to which its property is subject; or (iii) any statute,
law, rule, regulation, judgment, order or decree applicable to the Issuer or
any of its subsidiaries of any court, regulatory body, administrative agency,
governmental body, arbitrator or other authority having jurisdiction over the
Issuer or its subsidiaries or any of their respective properties, as
applicable, other than in the cases of clauses (ii) and (iii), such violations
and defaults that would not reasonably be expected to have a Material Adverse
Effect.

 

(v)           Ernst & Young LLP, who have audited certain
financial statements of the Issuer and its consolidated subsidiaries and
delivered their reports with respect to the audited consolidated financial
statements of the Issuer as of and for the year ended January 30, 2010
included in the Offering Memorandum, are independent auditors with respect to
the Issuer within the applicable rules of the Public Company Accounting
Oversight Board.

 

(w)          The Issuer and its subsidiaries have filed all non-U.S.,
U.S. federal, state and local tax returns that are required to be filed or have
requested extensions thereof except in any case in which the failure so to file
would not reasonably be expected to have a Material Adverse Effect and except
as set forth in or contemplated in the Offering Memorandum (exclusive of any
amendment or supplement thereto that is not part of the Pricing Disclosure
Package) and have paid all taxes required to be paid by them and any other tax
assessment, fine or penalty levied against them, to the extent that any of the
foregoing is due and payable, except for any such tax assessment, fine or
penalty that is currently being contested in good faith or as would not
reasonably be expected to have a Material Adverse Effect and except as set
forth in or contemplated in the Offering Memorandum (exclusive of any amendment
or supplement thereto that is not part of the Pricing Disclosure Package).

 

(x)            No labor problem or dispute with the employees of the
Issuer or any of its subsidiaries exists or, to the knowledge of the Issuer and
the Guarantors, is threatened, and the Issuer and the Guarantors are unaware of
any existing labor problem or dispute that would reasonably be expected to have
a Material Adverse Effect.

 

(y)           The Issuer and its subsidiaries taken as a whole are
insured against such losses and risks and in such amounts as are prudent and
customary in the businesses in which they are engaged or as required by law.

 

(z)            After giving effect to the Transactions, no subsidiary of
the Issuer or any Guarantor will be prohibited, directly or indirectly, from
paying any dividends to the Issuer or any Guarantor or any other subsidiary
(except as may be limited by applicable state corporation law), from making any
other distribution on such subsidiary’s capital stock or membership interests
(except as may be limited by applicable law), from repaying to the Issuer or
any Guarantor or any other subsidiary any loans or advances to such subsidiary
from the Issuer or any Guarantor or any other subsidiary or from 

 

7

 

transferring any of such subsidiary’s property or
assets to the Issuer or any Guarantor or any other subsidiary of the Issuer or
any Guarantor, except as described in the Offering Memorandum (exclusive of any
amendment or supplement thereto that is not part of the Pricing Disclosure
Package) or provided pursuant to the Issuer’s senior secured credit facilities.

 

(aa)         The Issuer and its subsidiaries possess all licenses,
certificates, permits and other authorizations issued by the appropriate U.S.
federal, state or non-U.S. regulatory authorities necessary to conduct their
respective businesses, except where the failure to possess such licenses,
certificates, permits and other authorizations would not reasonably be expected
to have a Material Adverse Effect, and none of the Issuer or any of its
subsidiaries has received any notice of proceedings relating to the revocation or
modification of any such license, certificate, authorization or permit that,
singly or in the aggregate, if the subject of an unfavorable decision, ruling
or finding, would reasonably be expected to have a Material Adverse Effect,
except as set forth in or contemplated in the Offering Memorandum (exclusive of
any amendment or supplement thereto that is not part of the Pricing Disclosure
Package).

 

(bb)         The Issuer and each of its subsidiaries maintain a system of
internal accounting controls sufficient to provide reasonable assurance that
(i) transactions are executed in accordance with management’s general or
specific authorizations; (ii) transactions are recorded as necessary to
permit preparation of financial statements in conformity with generally accepted
accounting principles and to maintain asset accountability; (iii) access
to assets is permitted only in accordance with management’s general or specific
authorization; and (iv) the recorded accountability for inventory is
compared with the existing inventory at reasonable intervals and appropriate
action is taken with respect to any differences.

 

(cc)         The Issuer and its subsidiaries (i) are in compliance
with any and all applicable non-U.S., U.S. federal, state and local laws and
regulations relating to the protection of human health and safety (as such is
affected by hazardous or toxic substances or wastes, pollutants or
contaminants), the environment or hazardous or toxic substances or wastes,
pollutants or contaminants (“Environmental Laws”); (ii) have
received and are in compliance with all permits, licenses or other approvals
required of them under applicable Environmental Laws to conduct their
respective businesses; (iii) have not received notice of any actual or
potential liability under any Environmental Law; and (iv) have not been
named as a “potentially responsible party” under the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980, as amended,
except where such non-compliance with Environmental Laws, failure to receive or
comply with required permits, licenses or other approvals, liability or status
as a potentially responsible party would not reasonably be expected to,
individually or in the aggregate, have a Material Adverse Effect and except as
set forth in or contemplated in the Offering Memorandum (exclusive of any
amendment or supplement thereto that is not part of the Pricing Disclosure
Package).

 

8

 

(dd)                          (i) The
minimum funding standard under Section 302 of the Employee Retirement
Income Security Act of 1974, as amended, and the regulations and published
interpretations thereunder (“ERISA”), has been satisfied by each “pension
plan” (as defined in Section 3(2) of ERISA) that has been established
or maintained by the Issuer and/or one or more of its subsidiaries;
(ii) each of the Issuer and its subsidiaries has fulfilled its
obligations, if any, under Section 515 of ERISA; (iii) each pension
plan and welfare plan established or maintained by the Issuer and/or one or
more of its subsidiaries is in compliance in all material respects with the
currently applicable provisions of ERISA; and (iv) none of the Issuer or
any of its subsidiaries has incurred or, except as set forth or contemplated in
the Final Memorandum, would reasonably be expected to incur any material
withdrawal liability under Section 4201 of ERISA, any material liability
under Section 4062, 4063, or 4064 of ERISA, or any other material liability
under Title IV of ERISA; except, in each case, as would not reasonably be
expected to have a Material Adverse Effect.

 

(ee)                            The Issuer and
its subsidiaries own, possess, license or have other rights to use all patents,
trademarks and service marks, trade names, copyrights, domain names (in each
case including all registrations and applications to register same),
inventions, trade secrets, technology, know-how and other intellectual property
(collectively, the “Intellectual Property”) necessary for the conduct of
their respective businesses as now conducted or as proposed in the Offering
Memorandum to be conducted, except where the failure to own, possess, license
or otherwise have such rights would not reasonably be expected to have a
Material Adverse Effect.  Except as set
forth in the Offering Memorandum, and except as would not reasonably be
expected to have a Material Adverse Effect, (i) the Issuer and its
subsidiaries own, or have rights to use under license, all such Intellectual
Property free and clear in all respects of all adverse claims, liens or other
encumbrances; (ii) to the knowledge of the Issuer and the Guarantors,
there is no infringement by third parties of any such Intellectual Property;
(iii) there is no pending or, to the knowledge of the Issuer and the
Guarantors, threatened action, suit, proceeding or claim by any third party
challenging the Issuer’s or its subsidiaries’ rights in or to any such
Intellectual Property; (iv) there is no pending or, to the Issuer’s and
the Guarantors’ knowledge, threatened action, suit, proceeding or claim by any
third party challenging the validity, scope or enforceability of any such
Intellectual Property; and (v) there is no pending or, to the knowledge of
the Issuer and the Guarantors, threatened action, suit, proceeding or claim by
any third party that the Issuer or any of its subsidiaries infringes or
otherwise violates any patent, trademark, copyright, trade secret or other
proprietary rights of any third party.

 

(ff)                                Neither the
issuance, sale and delivery of the Securities and, when issued, the Guarantees,
nor the application of the proceeds thereof by the Issuer as described in the
Offering Memorandum will violate Regulation T, U or X of the Board of
Governors of the Federal Reserve System, as the same is in effect on the
Closing Date.

 

(gg)                          To the
knowledge of the Issuer, immediately after the consummation of the Transactions
and the other transactions contemplated by this Agreement, (i) the fair
value and present fair saleable value of the assets of the Issuer and its
subsidiaries taken 

 

9

 

as a whole on a going concern basis will exceed the
sum of their stated liabilities and identified contingent liabilities taken as
a whole; and (ii) the Issuer and its subsidiaries on a consolidated basis
will not be (a) left with unreasonably small capital with which to carry
on their business as it is proposed to be conducted, (b) unable to pay
their debts (contingent or otherwise) as they mature or (c) otherwise
insolvent.

 

(hh)                          No
forward-looking statement (within the meaning of Section 27A of the Act
and Section 21E of the Exchange Act) or presentation of market-related or
statistical data contained in the Offering Memorandum has been made or
reaffirmed without a reasonable basis or has been disclosed other than in good
faith.

 

(ii)                                  There are no
stamp or other issuance or transfer taxes or duties or other similar fees or
charges imposed by any governmental authority required under applicable law to
be paid in connection with the execution and delivery of this Agreement, the
Indenture or the Registration Rights Agreement, the issuance or sale hereunder
by the Issuer of the Securities, or the issuance by the Guarantors of the
Guarantees.

 

(jj)                                  The legality,
validity, enforceability or admissibility into evidence of any of the Pricing
Disclosure Package, Offering Memorandum, this Agreement, the Securities, the
Guarantees, the Indenture or the Registration Rights Agreement in any
jurisdiction in which Michaels of Canada, ULC (the “Foreign Guarantor”)
is organized or does business is not dependent upon such document being
submitted into, filed or recorded with any court or other authority in any such
jurisdiction on or before the date hereof or that any tax, imposition or charge
be paid in any such jurisdiction on or in respect of any such document.

 

(kk)                            It is not
necessary under the laws of any jurisdiction in which the Foreign Guarantor is
organized or does business that any of the holders of the Securities be licensed,
qualified or entitled to carry on business in any such jurisdiction by reason
only of the execution, delivery, performance or enforcement of any of this
Agreement, the Securities, the Guarantees, the Indenture or the Registration
Rights Agreement.

 

(ll)                                  The Foreign
Guarantor has the power to submit and has taken all necessary corporate action
to submit to the jurisdiction of any federal or state court located in the
borough of Manhattan in the City of New York (a “New York Court”).

 

(mm)                      A holder of
Securities, the Trustee under the Indenture and each Initial Purchaser are each
entitled to sue as plaintiff in the courts of the jurisdiction of formation and
domicile of the Foreign Guarantor for the enforcement of their respective
rights under this Agreement, the Securities, the Guarantees, the Indenture and
the Registration Rights Agreement and such access to such courts will not be
subject to any conditions which are not applicable to residents of such
jurisdiction or a company incorporated in such jurisdiction, other than (a) the
requirement to be extra-provincially registered or to obtain a license,
certificate or similar instrument or (b) the requirement to post a bond,
security or guarantee with respect to court costs and legal fees.

 

10

 

(nn)                          Subject to such
qualifications and assumptions as are set forth in the opinion of relevant
local counsel for the Foreign Guarantor, the courts of the jurisdiction of
formation and domicile of the Foreign Guarantor will recognize and enforce a
judgment obtained against the Foreign Guarantor in a New York Court in an
action arising out of or in connection with this Agreement, the Securities, the
Guarantees, the Indenture or the Registration Rights Agreement, in each case,
without reconsidering the merits thereof.

 

Any
certificate signed by any officer of the Issuer, the Guarantors or their
respective subsidiaries and delivered to the Initial Purchasers or counsel for
the Initial Purchasers in connection with the offering of the Securities and,
when issued, the Guarantees, shall be deemed a joint and several representation
and warranty by each of the Issuer, the Guarantors and their respective
subsidiaries, as to matters covered thereby, to each Initial Purchaser.

 

2.                                       Purchase and Sale.  Subject to the terms and conditions and in
reliance upon the representations and warranties herein set forth, the Issuer
agrees to issue and sell to each Initial Purchaser, and each Initial Purchaser
agrees, severally and not jointly, to purchase from the Issuer, at a purchase
price of 97.512% of the principal amount thereof, plus accrued interest, if
any, from October 21, 2010 to the Closing Date, the principal amount of
Securities set forth opposite such Initial Purchaser’s name in Schedule I
hereto.

 

3.                                       Delivery and Payment.  Delivery of and payment for the Securities
shall be made at the offices of Cahill Gordon & Reindel LLP, 80 Pine
Street, New York, New York 10005, at 9:00 A.M. New York City  time on October 21, 2010 or at such
time on such later date not more than three Business Days after the foregoing
date as the Initial Purchasers shall designate, which date and time may be
postponed by agreement between the Initial Purchasers and the Issuer or as
provided in Section 9 hereof (such date and time of delivery and payment
for the Securities being herein called the “Closing Date”).  Delivery of the Securities shall be made to
the Initial Purchasers for the respective accounts of the several Initial
Purchasers against payment by the several Initial Purchasers of the purchase
price thereof to or upon the order of the Issuer by wire transfer payable in
same-day funds to the account specified by the Issuer.  Delivery of the Securities shall be made through
the facilities of The Depository Trust Company unless the Initial Purchasers
shall otherwise instruct.

 

4.                                       Offering by Initial
Purchasers.

 

(a)                                  Each Initial Purchaser
acknowledges that the Securities have not been and will not be registered under
the Act and may not be offered or sold within the United States or to, or for
the account or benefit of, U.S. persons, except pursuant to an exemption from,
or in a transaction not subject to, the registration requirements of the Act.

 

(b)                                 Each Initial Purchaser,
severally and not jointly, represents and warrants to and agrees with the
Issuer and the Guarantors, that:

 

(i)                                     it has not
offered or sold, and will not offer or sell, any Securities within the United
States or to, or for the account or benefit of, U.S. persons (x) as part
of their 

 

11

 

distribution at any time or
(y) otherwise until 40 days after the later of the commencement of the
offering and the date of closing of the offering except:

 

(A)                              to those
persons whom it reasonably believes to be “qualified institutional buyers” (as
defined in Rule 144A under the Act) or if any such person is buying for
one or more institutional accounts for which such person is acting as a
fiduciary or agent, only when such person has represented to it that each such
account is a qualified institutional buyer to whom notice has been given that
such sale or delivery is being made in reliance on Rule 144A and, in each
case, in transactions in accordance with Rule 144A or

 

(B)                                in accordance
with Rule 903 of Regulation S;

 

(ii)                                  neither it nor
any person acting on its behalf has made or will make offers or sales of the
Securities in the United States by means of any form of general solicitation or
general advertising (within the meaning of Regulation D) in the United States
or in any manner involving a public offering within the meaning of Section 4(2) of
the Act;

 

(iii)                               in connection
with each sale pursuant to Section 4(b)(i)(A), it has taken or will take
reasonable steps to ensure that the purchaser of such Securities is aware that
such sale is being made in reliance on Rule 144A;

 

(iv)                              neither it, nor
any of its Affiliates nor any person acting on its or their behalf has engaged
or will engage in any directed selling efforts (within the meaning of
Regulation S) with respect to the Securities;

 

(v)                                 it has not
entered and will not enter into any contractual arrangement with any
distributor (within the meaning of Regulation S) with respect to the
distribution of the Securities, except with its Affiliates or with the prior
written consent of the Issuer;

 

(vi)                              it and its
Affiliates and any person acting on its behalf have complied and will comply
with the offering restrictions requirement of Regulation S;

 

(vii)                           at or prior to
the confirmation of sale of Securities sold in reliance of Regulation S
(other than a sale of Securities pursuant to Section 4(b)(i)(A) of
this Agreement), it shall have sent to each distributor, dealer or person
receiving a selling concession, fee or other remuneration that purchases
Securities from it during the distribution compliance period (within the
meaning of Regulation S) a confirmation or notice to substantially the
following effect:

 

“The
Securities covered hereby have not been registered under the U.S. Securities
Act of 1933 (the “Act”) and may not be offered or sold within the United
States or to, or for the account or benefit of, U.S. persons (i) as part
of their distribution at any time or (ii) otherwise until 40 days after
the later of the commencement of the offering and the date of closing of the
offering, except in either case in accordance with Regulation S or 

 

12

 

Rule 144A
under the Act.  Terms used in this
paragraph have the meanings given to them by Regulation S;”

 

(viii)                        in relation to
each Member State (each, a “Relevant Member State”) of the European
Economic Area that has implemented the Prospectus Directive (as defined below)
with effect from and including the date on which the Prospectus Directive is
implemented in that Relevant Member State (the “Relevant Implementation Date”),
it has not made and will not make an offer of Securities to the public (as
defined below) in that Relevant Member State prior to the publication of a
prospectus in relation to the Securities that has been approved by the
competent authority in that Relevant Member State or, where appropriate,
approved in another Relevant Member State and notified to the competent
authority in that Relevant Member State, all in accordance with the Prospectus
Directive, except that it may, with effect from and including the Relevant
Implementation Date, make an offer of Securities to the public in that Relevant
Member State at any time: (A) to legal entities which are authorized or
regulated to operate in the financial markets or, if not so authorized or
regulated, whose corporate purpose is solely to invest in securities; (B) to
any legal entity which has two or more of (1) an average of at least 250
employees during the last financial year; (2) a total balance sheet of
more than €43,000,000 and (3) an annual net turnover of more than
€50,000,000, as shown in its last annual or consolidated accounts; or (C) in
any other circumstances which do not require the publication by the Issuer of a
prospectus pursuant to Article 3 of the Prospectus Directive;  For the purposes of this provision, the
expression an “offer of Securities to the public” in relation to any Securities
in any Relevant Member State means the communication in any form and by any
means of sufficient information on the terms of the offer and the Securities to
be offered so as to enable an investor to decide to purchase or subscribe the
Securities, as the same may be varied in that Member State by any measure
implementing the Prospectus Directive in that Member State and the expression “Prospectus
Directive” means Directive 2003/71/EC and includes any relevant implementing
measure in each Relevant Member State;

 

(ix)                                it has only
communicated or caused to be communicated and will only communicate or cause to
be communicated an invitation or inducement to engage in investment activity
(within the meaning of Section 21 of the Financial Services and Markets
Act of 2000 (“FSMA”)) received by it in connection with the issue or
sale of the Securities in circumstances in which Section 21(1) of the
FSMA does not apply to the Issuer;

 

(x)                                   it has complied
and will comply with all applicable provisions of the FSMA with respect to
anything done by it in relation to the Securities in, from or otherwise
involving the United Kingdom; and

 

(xi)                                it is an
institutional “accredited investor” (as defined in 501(a) of
Regulation D).

 

5.                                       Agreements.  The Issuer and the Guarantors agree, jointly
and severally, in each case with each Initial Purchaser as follows:

 

13

 

(a)                                  The Issuer will
furnish to each Initial Purchaser and to counsel for the Initial Purchasers,
without charge, during the period referred to in paragraph (c) below,
as many copies of the Pricing Disclosure Package and Final Memorandum and any
amendments and supplements thereto as they may reasonably request.

 

(b)                                 The Issuer and
the Guarantors will not make any amendment or supplement to the Pricing
Disclosure Package and Final Memorandum or otherwise distribute or refer to any
written communication that constitutes an offer to sell or a solicitation of an
offer to buy the Securities (other than the Pricing Disclosure Package, the
Recorded Road Show and the Final Memorandum) that shall be reasonably
disapproved by Deutsche Bank Securities Inc. (“DBSI”) after reasonable
notice thereof.

 

(c)                                  (1) If at
any time prior to the completion of the sale of the Securities by the Initial
Purchasers (as determined by DBSI, but in no event more than 180 days after the
date hereof), any event occurs as a result of which, in the opinion of counsel
for the Initial Purchasers, or counsel for the Issuer, it is necessary to amend
or supplement the Final Memorandum, as then amended or supplemented, (i) in
order that the Final Memorandum would not include any untrue statement of a
material fact or omit to state any material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, or (ii) comply with applicable law, the Issuer will
promptly (A) notify DBSI of any such event; (B) subject to the
requirements of paragraph (b) of this Section 5, prepare an
amendment or supplement that will correct such statement or omission or effect
such compliance; and (C) supply any supplemented or amended Final Memorandum
to the several Initial Purchasers and counsel for the Initial Purchasers
without charge in such quantities as they may reasonably request and (2) if
at any time prior to the Closing Date (i) any event shall occur or
condition shall exist as a result of which any of the Pricing Disclosure
Package as then amended or supplemented or the Recorded Road Show would include
any untrue statement of a material fact or omit to state any material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading or (ii) it is
necessary to amend or supplement any of the Pricing Disclosure Package or the
Recorded Road Show so that any of the Pricing Disclosure Package or the
Recorded Road Show, as the case may be, will comply with applicable law, the
Issuer will immediately notify the Initial Purchasers thereof and forthwith
prepare and, subject to paragraph (b) above, furnish to the Initial
Purchasers such amendments or supplements to any of the Pricing Disclosure
Package or the Recorded Road Show as may be necessary so that the statements in
any of the Pricing Disclosure Package or the Recorded Road Show as so amended
or supplemented do not contain any untrue statement of a material fact or omit to
state any material fact necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading.

 

(d)                                 The Issuer will
assist the Initial Purchasers in arranging, if necessary, for the qualification
of the Securities for sale by the Initial Purchasers under the laws of such
jurisdictions in the United States as the Initial Purchasers may designate and
will maintain such qualifications in effect so long as required for the sale of
the Securities; provided that in no event shall the Issuer or any of the
Guarantors be obligated to qualify 

 

14

 

to do business in any jurisdiction where it is not
now so qualified or to take any action that would reasonably be expected to
subject it to service of process in suits, other than those arising out of the
offering or sale of the Securities, in any jurisdiction where it is not now so
subject or to subject themselves to taxation in any jurisdiction.  The Issuer will promptly advise the Initial
Purchasers of the receipt by it or the Guarantors of any notification with
respect to the suspension of the qualification of the Securities or the
Guarantees for sale in any jurisdiction or the initiation or threatening of any
proceeding for such purpose.

 

(e)                                  During the
period from the Closing Date until one year after the Closing Date, the Issuer
will not, and will not permit any of its Affiliates to, resell any Securities
that have been acquired by any of them except for Securities resold in a
transaction registered under the Act.

 

(f)                                    The Issuer, the
Guarantors and their Affiliates and any person acting on their behalf will not
make offers or sales of any security (as defined in the Act), or solicit offers
to buy any security, under circumstances that could be integrated with the sale
of the Securities in a manner that would reasonably be expected to require the
registration of the Securities under the Act.

 

(g)                                 Except in
connection with the Exchange Offer (as defined in the Registration Rights
Agreement) or the Shelf Registration Statement (as defined in the Registration
Rights Agreement), the Issuer and its Affiliates and any person acting on their
behalf will not engage in any form of general solicitation or general
advertising (within the meaning of Regulation D) in connection with any
offer or sale of the Securities in the United States.

 

(h)                                 So long as any
of the Securities are “restricted securities” within the meaning of
Rule 144(a)(3) under the Act, the Issuer and its subsidiaries will,
unless they become subject to and comply with Section 13 or 15(d) of
the Exchange Act or file the periodic reports contemplated by such provisions
pursuant to the terms of the Indenture, provide to each holder of such
restricted securities and to each prospective purchaser (as designated by such
holder) of such restricted securities, upon the request of such holder or
prospective purchaser, any information required to be provided by
Rule 144A(d)(4) under the Act (it being acknowledged and agreed that,
prior to the first date on which information is required to be provided under
the Indenture, the information contained in the Final Memorandum is sufficient
for this purpose).

 

(i)                                     The Issuer and
its Affiliates and any person acting on their behalf will not, engage in any
directed selling efforts with respect to the Securities, and each of them will
comply with the offering restrictions requirement of Regulation S.  Terms used in this paragraph have the
meanings given to them by Regulation S.

 

(j)                                     The Issuer will
cooperate with the Initial Purchasers and use its commercially reasonable
efforts to permit the Securities to be eligible for clearance and settlement
through The Depository Trust Company.

 

15

 

(k)           The Issuer, the Guarantors and their Affiliates will not
for a period of 60 days following the Closing Date, without the prior written
consent of a majority in interest of the Initial Purchasers, offer, sell or
contract to sell, pledge or otherwise dispose of (or enter into any transaction
that is designed to, or might reasonably be expected to, result in the
disposition (whether by actual disposition or effective economic disposition
due to cash settlement or otherwise) by the Issuer, any of the Guarantors or
any of their respective Affiliates or any person in privity with the Issuer,
any of the Guarantors or any of their respective Affiliates), directly or
indirectly, or announce the offering of, any capital markets debt securities
issued or guaranteed by the Issuer or any of the Guarantors (other than the
Securities and the Guarantees).

 

(l)            The Issuer and the Guarantors, jointly and severally,
agree to pay the costs and expenses relating to the following matters:  (i) the
fees of the Trustee (and its counsel); (ii) the
preparation, printing or reproduction of the Pricing Disclosure Package and the
Final Memorandum and each amendment or supplement to either of them; (iii) the printing (or reproduction) and
delivery (including postage, air freight charges and charges for counting and
packaging) of such copies of the Pricing Disclosure Package and the Final
Memorandum, and all amendments or supplements to either of them, as may, in
each case, be reasonably requested for use in connection with the offering and
sale of the Securities; (iv) any
stamp or transfer taxes in connection with the original issuance and sale of
the Securities; (v) the printing (or
reproduction) and delivery, any blue sky memorandum to investors in connection
with the offering of the Securities; (vi) any
registration or qualification of the Securities for offer and sale under the
securities or blue sky laws of the several states and any other jurisdictions
specified pursuant to Section 5(d) (including filing fees and the
reasonable fees and expenses of counsel for the Initial Purchasers relating to
such registration and qualification); (vii) the
approval of the Securities for book-entry transfer by DTC;  (viii) the “roadshow” and any other
meetings with prospective investors in the Securities; (ix) the fees and expenses of the Issuer’s accountants and the
fees and expenses of counsel (including local and special counsel) of the
Issuer; (x) the rating of the Securities by rating agencies; and (xi) all other costs and expenses incident
to the performance by the Issuer of their obligations hereunder.

 

(m)          The Issuer will use the proceeds from the sale of the
Securities in the manner described in the Pricing Disclosure Package and the
Final Memorandum under the caption “Use of Proceeds.”

 

(n)           The Issuer and the Guarantors jointly and severally
acknowledge and agree that the Initial Purchasers are acting solely in the
capacity of an arm’s length contractual counterparty to the Issuer and the
Guarantors with respect to the offering of Securities contemplated hereby
(including in connection with determining the terms of the offering) and not as
a financial advisor or a fiduciary to or an agent of the Issuer, any of the
Guarantors or any other person.  Additionally,
no Initial Purchaser is advising the Issuer, any of the Guarantors or any other
person as to any legal, tax, investment, accounting or regulatory matters in
any jurisdiction.  The Issuer and the
Guarantors shall consult with their own advisors concerning such matters and
shall be responsible for 

 

16

 

making their own independent investigation and
appraisal of the transactions contemplated hereby, and the Initial Purchasers
shall have no responsibility or liability to the Issuer or any of the
Guarantors with respect thereto. Any review by the Initial Purchasers of the
Issuer and the Guarantors, the transactions contemplated hereby or other
matters relating to such transactions will be performed solely for the benefit
of the Initial Purchasers and shall not be on behalf of the Issuer or any of
the Guarantors.

 

6.             Conditions
to the Obligations of the Initial Purchasers.  The obligations of the Initial Purchasers to
purchase the Securities shall be subject to the accuracy in all material respects
of the representations and warranties (except to the extent already qualified
by materiality, in which case such obligations shall be subject to the accuracy
of such representations and warranties in all respects) of the Issuer and the
Guarantors contained herein at the Time of Sale and the Closing Date, to the
accuracy of the statements of the Issuer and the Guarantors made in any
certificates pursuant to the provisions hereof, to the performance by the
Issuer and the Guarantors of their obligations hereunder and to the following
additional conditions:

 

(a)           The Issuer shall have requested and caused (i) Ropes &
Gray LLP, counsel for the Issuer and those Guarantors organized or incorporated
in the State of Delaware, to furnish to the Initial Purchasers an opinion and
letter dated the Closing Date and substantially in the form of Exhibit A,
(ii) Troutman Sanders LLP, Virginia counsel for the Issuer and Michaels
Stores Card Services, LLC, to furnish to the Initial Purchasers an opinion
dated the Closing Date and substantially in the form of Exhibit B-1
and (iii) McInnes Cooper, Nova Scotia counsel for the Issuer and the
Foreign Guarantor, to furnish to the Initial Purchasers an opinion letter dated
the Closing Date and substantially in form of Exhibit B-2.

 

(b)           The Initial Purchasers shall have received from Cahill
Gordon & Reindel LLP, counsel for the Initial Purchasers, such opinion
letter and advice letter, each dated the Closing Date and addressed to the
Initial Purchasers, with respect to the issuance and sale of the Securities,
the Indenture, Pricing Disclosure Package and the Final Memorandum (as amended
or supplemented at the Closing Date) and other related matters as the Initial
Purchasers may reasonably require, and the Issuer and the Guarantors shall have
furnished to such counsel such documents as they reasonably request for the
purpose of enabling them to pass upon such matters.

 

(c)           The Issuer shall have furnished to the Initial Purchasers
a certificate, signed by (x) the chairman, chief executive officer,
president or vice president and (y) the chief financial officer, treasurer
or principal financial or accounting officer of the Issuer and the Guarantors,
dated the Closing Date, to the effect that the signers of such certificate have
reviewed the Pricing Disclosure Package and the Final Memorandum, any amendment
or supplement to the Pricing Disclosure Package and the Final Memorandum and
this Agreement and that:

 

(i)      the representations and warranties of the Issuer and the
Guarantors in this Agreement are true and correct in all material respects at
the Time of Sale and on the Closing Date, and the Issuer and the Guarantors
have complied in all 

 

17

 

material respects with all
the agreements and satisfied all the conditions on their part to be performed
or satisfied hereunder at or prior to the Closing Date; and

 

(ii)     since the date of the most recent financial statements included
in the Pricing Disclosure Package and the Final Memorandum (exclusive of any
amendment or supplement thereto), there has been no material adverse change in
the condition (financial or otherwise), business or results of operations of
the Issuer and its subsidiaries, taken as a whole, except as set forth in or
contemplated in the Pricing Disclosure Package and the Final Memorandum
(exclusive of any amendment or supplement thereto).

 

(d)           The Issuer shall have requested and caused Ernst &
Young LLP to furnish to the Initial Purchasers a “comfort” letter, (i) at
and dated as of the date hereof with respect to the Pricing Disclosure Package
and (ii) in bring-down form at and dated as of the Closing Date with
respect to the Final Memorandum, each such letter in form and substance
reasonably satisfactory to the Initial Purchasers, confirming that they are
independent auditors within the meaning of the Exchange Act and the applicable
published rules and regulations thereunder and confirming certain matters
with respect to the audited and unaudited financial statements and other
financial and accounting information contained in the Pricing Disclosure
Package and Final Memorandum, as applicable, including any amendment or
supplement thereto at the date of the applicable letter.

 

(e)           Subsequent to the Time of Sale or, if earlier, the dates
as of which information is given in the Pricing Disclosure Package and the
Final Memorandum, there shall not have been any change or development in the
condition (financial or otherwise), business or results of operations of the
Issuer and its subsidiaries, taken as a whole and after giving effect to the
Transactions, except as set forth in or contemplated in the Pricing Disclosure
Package and the Final Memorandum, the effect of which is, or would reasonably
be expected to become, in the judgment of a majority in interest of the Initial
Purchasers, so material and adverse as to make it impractical or inadvisable to
proceed with the offering, sale or delivery of the Securities on the terms and
in the manner contemplated in the Pricing Disclosure Package and the Final
Memorandum.

 

(f)            At the Closing Date, the Issuer, the Guarantors and the
Trustee shall have entered into the Indenture and the Initial Purchasers shall
have received counterparts, conformed as executed thereof.

 

(g)           At the Closing Date, the Issuer and the Guarantors and the
Initial Purchasers shall have entered into the Registration Rights Agreement
and the Initial Purchasers shall have received counterparts, conformed as
executed thereof.

 

(h)           Subsequent to the date hereof, there shall not have been
any decrease in the rating of the Securities by any “nationally recognized
statistical rating organization” (as defined for purposes of Rule 436(g) under
the Act) or any notice given of any intended or potential decrease in any such
rating or of a possible change in any such rating that does not indicate the
direction of the possible change.

 

18

 

(i)            Prior to the Closing Date, the Issuer and the Guarantors
shall have furnished to the Initial Purchasers such further information,
certificates and documents as the Initial Purchasers may reasonably request, as
set forth in the closing memorandum relating to the Transactions.

 

(j)            Prior to the Closing Date, the Issuer and the Guarantors
shall have taken all action reasonably required to be taken by them to have the
Securities declared eligible for clearance and settlement through The
Depository Trust Company.

 

All
opinions, letters, evidence and certificates mentioned above or elsewhere in
this Agreement shall be deemed to be in compliance with the provisions hereof
only if they are in form and substance reasonably satisfactory to the Initial
Purchasers and counsel for the Initial Purchasers.

 

The
documents required to be delivered by this Section 6 will be available for
inspection at the office of Cahill Gordon & Reindel LLP, 80 Pine
Street, New York, New York 10005, on the Business Day prior to the
Closing Date.

 

7.             Reimbursement
of Expenses.  If the sale of the
Securities provided for herein is not consummated because any condition to the
obligations of the Initial Purchasers set forth in Section 6 hereof is not
satisfied, because of any termination pursuant to Section 10 hereof or
because of any refusal, inability or failure on the part of the Issuer or the
Guarantors to perform any agreement herein or comply with any provision hereof
other than by reason of a default by any of the Initial Purchasers, including
as described in Section 9 hereof, the Issuer and the Guarantors will,
jointly and severally, reimburse the Initial Purchasers on behalf of the
Initial Purchasers on demand for all reasonable expenses (including reasonable
fees and disbursements of Cahill Gordon & Reindel LLP) that shall have
been incurred by them in connection with the proposed purchase and sale of the
Securities.

 

8.             Indemnification
and Contribution.

 

(a)           The
Issuer and the Guarantors jointly and severally agree to indemnify and hold
harmless each Initial Purchaser, the directors, officers and Affiliates of each
Initial Purchaser and each person who controls any Initial Purchaser within the
meaning of either the Act or the Exchange Act against any and all losses,
claims, damages or liabilities, joint or several, to which they or any of them
may become subject under the Act, the Exchange Act or other U.S. federal or
state statutory law or regulation, at common law or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise
out of or are based upon any untrue statement or alleged untrue statement of a
material fact contained in the Pricing Disclosure Package, Recorded Road Show
(when taken together with the Preliminary Offering Memorandum) or Final
Memorandum or in any amendment or supplement thereto or in any other written
communication by the Issuer or a Guarantor that constitutes an offer to sell or
a solicitation of an offer to buy the Securities or arise out of or are based
upon the omission or alleged omission to state therein a material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, and agree (subject to the
limitations set forth in the provisos to this sentence) to reimburse each such
indemnified party, as incurred, for any legal or other expenses reasonably
incurred by it in connection with 

 

19

 

investigating or defending any such loss, claim,
damage, liability or action; provided, however, that the Issuer
and the Guarantors will not be liable in any such case to the extent that any
such loss, claim, damage or liability arises out of or is based upon any such
untrue statement or alleged untrue statement or omission or alleged omission
made in the Pricing Disclosure Package, Recorded Road Show or Final Memorandum,
or in any amendment thereof or supplement thereto, in reliance upon and in
conformity with written information furnished to the Issuer by or on behalf of
any Initial Purchaser specifically for inclusion therein.  This indemnity agreement will be in addition
to any liability that the Issuer and the Guarantors may otherwise have.  The Issuer and the Guarantors shall not be
liable under this Section 8 to any indemnified party regarding any
settlement or compromise or consent to the entry of any judgment with respect
to any pending or threatened claim, action, suit or proceeding in respect of
which indemnification or contribution may be sought hereunder (whether or not
the indemnified parties are actual or potential parties to such claim or
action) unless such settlement, compromise or consent is consented to by the
Issuer which consent shall not be unreasonably withheld.

 

(b)           Each
Initial Purchaser severally, and not jointly, agrees to indemnify and hold
harmless (i) the Issuer and the Guarantors, (ii) each person, if any,
who controls (within the meaning of either the Act or the Exchange Act) the
Issuer or any of the Guarantors, and (iii) the directors and officers of
the Issuer and the Guarantors, to the same extent as the foregoing indemnity
from the Issuer and the Guarantors to each Initial Purchaser, but only with
reference to written information relating to such Initial Purchaser furnished
to the Issuer by or on behalf of such Initial Purchaser specifically for
inclusion in the Pricing Disclosure Package, the Recorded Road Show or the
Final Memorandum (or in any amendment or supplement thereto).  This indemnity agreement will be in addition
to any liability that any Initial Purchaser may otherwise have.  The Issuer acknowledges that the ninth
paragraph under the heading “Private Placement” in the Preliminary Memorandum
and the Final Memorandum constitute the only information furnished in writing
by or on behalf of the Initial Purchasers for inclusion in the Pricing
Disclosure Package, the Recorded Road Show or the Final Memorandum.

 

(c)           Promptly
after receipt by an indemnified party under this Section 8 of notice of
the commencement of any action, such indemnified party will, if a claim in
respect thereof is to be made against the indemnifying party under this
Section 8, notify the indemnifying party in writing of the commencement
thereof; but the failure so to notify the indemnifying party (i) will not
relieve it from liability under paragraph (a) or (b) above
unless and to the extent it did not otherwise learn of such action and such
failure results in the forfeiture by the indemnifying party of substantial
rights or defenses and (ii) will not, in any event, relieve the
indemnifying party from any obligations to any indemnified party other than the
indemnification obligation provided in paragraph (a) or (b) above,
except as provided in paragraph (d) below. 
The indemnifying party shall be entitled to appoint counsel (including
local counsel) of the indemnifying party’s choice at the indemnifying party’s
expense to represent the indemnified party in any action for which
indemnification is sought (in which case the indemnifying party shall not
thereafter be responsible for the fees and expenses of any separate counsel,
other than local counsel if not appointed by the indemnifying party, retained
by the indemnified party or parties except as set forth below); provided,
however, that such counsel shall be reasonably satisfactory to the
indemnified party.  Notwithstanding the
indemnifying party’s election to appoint counsel (including local counsel) to
represent the indemnified party in 

 

20

 

an action, the indemnified party shall have the
right to employ separate counsel (including local counsel), and the
indemnifying party shall bear the reasonable fees, costs and expenses of such
separate counsel if (i) the use of counsel chosen by the indemnifying
party to represent the indemnified party would present such counsel with a
conflict of interest (based on the advice of counsel to the indemnified party);
(ii) such action includes both the indemnified party and the indemnifying
party and the indemnified party shall have reasonably concluded (based on the
advice of counsel to the indemnified party) that there may be legal defenses
available to it and/or other indemnified parties that are different from or
additional to those available to the indemnifying party; (iii) the
indemnifying party shall not have employed counsel reasonably satisfactory to
the indemnified party to represent the indemnified party within a reasonable
time after notice of the institution of such action; or (iv) the
indemnifying party shall authorize the indemnified party to employ separate
counsel at the expense of the indemnifying party.  It is understood and agreed that the
indemnifying party shall not, in connection with any proceeding or related
proceeding in the same jurisdiction, be liable for the reasonable fees and
expenses of more than one separate firm (in addition to any local counsel) for
all indemnified parties.  Any such
separate firm for any Initial Purchaser, its Affiliates, directors and officers
and any control persons of such Initial Purchaser shall be designated in
writing by DBSI and any such separate firm for the Issuer or any of the
Guarantors and any control persons of the Issuer or any of the Guarantors shall
be designated in writing by the Issuer. 
In the event that any Initial Purchaser, its Affiliates, directors and
officers or any control persons of such Initial Purchaser are indemnified parties
collectively entitled, in connection with a proceeding in a single
jurisdiction, to the payment of fees and expenses of a single separate firm
under this Section 8(c), and any such Initial Purchaser, its Affiliates,
directors and officers or any control persons of such Initial Purchaser cannot
agree to a mutually acceptable separate firm to act as counsel thereto, then
such separate firm for all such indemnified parties shall be designated in
writing by DBSI.  An indemnifying party
will not, without the prior written consent of the indemnified parties, settle
or compromise or consent to the entry of any judgment with respect to any
pending or threatened claim, action, suit or proceeding in respect of which
indemnification or contribution may be sought hereunder (whether or not the
indemnified parties are actual or potential parties to such claim, action, suit
or proceeding) unless such settlement, compromise or consent includes an
unconditional release of each indemnified party from all liability arising out
of such claim, action, suit or proceeding and does not include any statement as
to, or any admission of, fault, culpability or failure to act by or on behalf
of any indemnified party.

 

(d)           In
the event that the indemnity provided in paragraph (a) or (b) of
this Section 8 is unavailable to or insufficient to hold harmless an
indemnified party for any reason (other than by virtue of the failure of an
indemnified party to notify the indemnifying party of its right to
indemnification pursuant to subsection (a) or (b) above, where such
failure materially prejudices the indemnifying party (through the forfeiture of
substantial rights or defenses)), the Issuer and the Guarantors, jointly and
severally on the one hand, and the Initial Purchasers, on the other hand,
severally agree to contribute to the aggregate losses, claims, damages and
liabilities (including legal or other expenses reasonably incurred in
connection with investigating or defending any loss, claim, damage, liability
or action) (collectively “Losses”) to which the Issuer or any Guarantor
and one or more of the Initial Purchasers may be subject in such proportion as
is appropriate to reflect the relative benefits received by the Issuer and the
Guarantors, on the one hand, and by the Initial Purchasers, on the other hand,
from the offering 

 

21

 

of the Securities. 
If the allocation provided by the immediately preceding sentence is
unavailable for any reason or not permitted by applicable law, the Issuer and
the Guarantors, on the one hand, and the Initial Purchasers, on the other hand,
severally shall contribute in such proportion as is appropriate to reflect not
only such relative benefits but also the relative fault of the Issuer and the
Guarantors, on the one hand, and the Initial Purchasers, on the other hand, in
connection with the statements or omissions that resulted in such Losses, as
well as any other relevant equitable considerations.  Benefits received by the Issuer and the
Guarantors shall be deemed to be equal to the total net proceeds from the
offering (before deducting expenses) received by them, and benefits received by
the Initial Purchasers shall be deemed to be equal to the total purchase
discounts and commissions.  Relative
fault shall be determined by reference to, among other things, whether any
untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information provided by
the Issuer or any Guarantor, on the one hand, or the Initial Purchasers, on the
other hand, the intent of the parties and their relative knowledge, access to
information and opportunity to correct or prevent such untrue statement or
omission and any other equitable considerations appropriate in the
circumstances.  The Issuer, the
Guarantors and the Initial Purchasers agree that it would not be just and
equitable if the amount of such contribution were determined by pro rata
allocation or any other method of allocation that does not take account of the
equitable considerations referred to above. 
Notwithstanding the provisions of this Section 8, in no case shall
any Initial Purchaser be responsible for any amount in excess of the purchase
discount or commission applicable to the Securities related to the Losses
purchased by such Initial Purchaser hereunder. Notwithstanding the provisions
of this paragraph (d), no person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.  The Initial
Purchasers’ obligations to contribute pursuant to this Section 8 are
several in proportion to their respective purchase obligations hereunder and
not joint.  For purposes of this Section 8,
each person, if any, who controls an Initial Purchaser within the meaning of
either the Act or the Exchange Act and each director, officer, employee,
Affiliate and agent of an Initial Purchaser shall have the same rights to
contribution as such Initial Purchaser, and each person who controls the Issuer
or any Guarantor within the meaning of either the Act or the Exchange Act and
the respective officers and directors of the Issuer and the Guarantors shall
have the same rights to contribution as the Issuer and the Guarantors, subject
in each case to the applicable terms and conditions of this paragraph (d).

 

9.             Default
by an Initial Purchaser.  If any one
or more Initial Purchasers shall fail to purchase and pay for any of the
Securities agreed to be purchased by such Initial Purchaser hereunder and such
failure to purchase shall constitute a default in the performance of its or
their obligations under this Agreement, the remaining Initial Purchasers shall
be obligated severally to take up and pay for (in the respective proportions
that the principal amount of the Securities set forth opposite their names in Schedule I
hereto bears to the aggregate principal amount of the Securities set forth
opposite the names of all the remaining Initial Purchasers) the Securities that
the defaulting Initial Purchaser or Initial Purchasers agreed but failed to
purchase; provided, however, that in the event that the aggregate
principal amount of the Securities that the defaulting Initial Purchaser or
Initial Purchasers agreed but failed to purchase shall exceed 10% of the
aggregate principal amount of the Securities set forth in Schedule I
hereto, the Issuer shall be entitled to a period of 36 hours within which to
procure another party or parties reasonably 

 

22

 

satisfactory to the non-defaulting Initial
Purchasers to purchase no less than the amount of such unpurchased Securities
that exceeds 10% of the principal amount thereof upon such terms herein set
forth.  If, however, the Issuer shall not
have completed such arrangements within 36 hours after such default and the
principal amount of unpurchased Securities exceeds 10% of the principal amount
of Securities to be purchased on such date, then this Agreement will terminate
without liability as to the Securities to any non-defaulting Initial Purchaser
or the Issuer.  In the event of a default
by any Initial Purchaser as set forth in this Section 9, the Closing Date
shall be postponed for such period, not exceeding five Business Days, to effect
any changes that in the opinion of counsel for the Issuer or counsel for the
Initial Purchasers shall determine are necessary in the Final Memorandum or in
any other documents or arrangements may be effected.  Nothing contained in this Agreement shall
relieve any defaulting Initial Purchaser of its liability, if any, to the
Issuer or any nondefaulting Initial Purchaser for damages occasioned by its
default hereunder.

 

10.           Termination.  This Agreement shall be subject to
termination in the absolute discretion of a majority in interest of the Initial
Purchasers, by notice given to the Issuer prior to delivery of and payment for
the Securities, if at any time prior to such time (i) trading in any
securities generally on the New York Stock Exchange or the NASDAQ Stock Market
shall have been suspended or materially limited or minimum prices shall have
been established on such exchange or the NASDAQ Stock Market; (ii) a
banking moratorium shall have been declared either by U.S. federal or New York
State authorities;  or
(iii) there shall have occurred any outbreak or escalation of hostilities,
declaration by the United States of a national emergency or war or other
calamity or crisis the effect of which on financial markets is such as to make
it, in the judgment of a majority in interest of the Initial Purchasers,
impractical or inadvisable to proceed with the offering, sale or delivery of
the Securities as contemplated in the Pricing Disclosure Package and the Final
Memorandum.

 

11.           Representations and
Indemnities to Survive.  The
respective agreements, representations, warranties, indemnities and other
statements of the Issuer and the Guarantors or, with respect to Sections 5(c),
(f), (g) and (i) hereof, their respective officers and of the Initial
Purchasers set forth in or made pursuant to this Agreement will remain in full
force and effect, regardless of any investigation made by or on behalf of the
Initial Purchasers or the Issuer or any Guarantor, or any of the indemnified
parties referred to in Section 8 hereof, and will survive delivery of and
payment for the Securities.  The
provisions of Sections 7 and 8 hereof shall survive the termination or
cancellation of this Agreement.

 

12.           Notices.  All communications hereunder will be in
writing and effective only on receipt and, if sent to the Initial Purchasers,
will be mailed, delivered or faxed to Deutsche Bank Securities Inc. (fax no.:
(212) 797-4564 and confirmed to 60 Wall Street, New York, New York 10005),
Attention: Legal Department; or, if sent to the Issuer or the Guarantors, will
be mailed, delivered or faxed c/o Chief Financial Officer (fax no.:  (972) 409-1901 and confirmed to it at 8000
Bent Branch Drive, Irving TX 75063 Attention:  General Counsel (fax no.: (972)
409-1965).  The Issuer shall be entitled
to act and rely upon any request, consent, notice or agreement given or made on
behalf of the Initial Purchasers by DBSI.

 

23

 

13.           Successors.  This Agreement will inure to the benefit of
and be binding upon the parties hereto and at and after the Closing Date, the
Issuer and the Guarantors and their respective successors and the indemnified
parties referred to in Section 8 hereof and their respective successors
and no other person will have any right or obligation hereunder.  No purchaser of Securities from any Initial
Purchaser shall be deemed to be a successor merely by reason of such purchase.

 

14.           Applicable
Law; Waiver of Jury Trial; Submission to Jurisdiction; Judgment Currency.  This Agreement will be governed by and
construed in accordance with the laws of the State of New York applicable to
contracts made and to be performed within the State of New York.  The parties hereto each hereby waive any
right to trial by jury in any action, proceeding or counterclaim arising out of
or relating to this Agreement.  Any
proceeding related to this Agreement or the transactions contemplated hereby
shall be exclusively commenced, prosecuted or continued in any court of the
State of New York located in the City and County of New York or in the United
States District Court for the Southern District of New York, and the Issuer and
the Guarantors hereby consent to the jurisdiction of such courts and personal
service with respect thereto.  If, for
the purposes of obtaining judgment in any court, it is necessary to convert a
sum due hereunder in dollars into another currency, the parties hereto agree,
to the fullest extent that they may effectively do so, that the rate of
exchange used shall be that at which in accordance with normal banking
procedures, DBSI could purchase (and remit in New York City) dollars with such
other currency on the Business Day preceding that on which final judgment is given.  The obligations of the Issuer and the
Guarantors in respect of any sum due hereunder shall, notwithstanding any
judgment in a currency other than dollars, be discharged only to the extent
that on the Business Day following its receipt of any sum adjudged to be so due
in such other currency, DBSI may, in accordance with normal banking procedures,
purchase (and remit in New York City) dollars with such other currency; if the
dollars so purchased and remitted are less than the sum originally due any Initial
Purchaser or any indemnified party in dollars, the Issuer and the Guarantors
agree, as a separate obligation and notwithstanding any such judgment, to
indemnify the relevant payee against such loss, and if the dollars so purchased
exceed the sum originally due in dollars, such excess shall be remitted to the
payor.

 

15.           Counterparts.  This Agreement may be signed in one or more
counterparts (which may be delivered in original form or facsimile or “pdf”
file thereof), each of which when so executed shall constitute an original and
all of which together shall constitute one and the same agreement.

 

16.           Headings.  The section headings used herein are for
convenience only and shall not affect the construction hereof.

 

17.           Definitions.  The terms that follow, when used in this
Agreement, shall have the meanings indicated.

 

“Act”
shall mean the Securities Act of 1933, as amended, and the rules and
regulations of the Commission promulgated thereunder.

 

“Affiliate”
shall have the meaning specified in Rule 501(b) of Regulation D.

 

24

 

“Business
Day” shall mean any day other than a Saturday, a Sunday or a legal holiday
or a day on which commercial banking institutions or trust companies are
authorized or required by law to close in New York City.

 

“Code”
shall mean the Internal Revenue Code of 1986, as amended.

 

“Commission”
shall mean the Securities and Exchange Commission.

 

“Exchange
Act” shall mean the Securities Exchange Act of 1934, as amended, and the rules and
regulations of the Commission promulgated thereunder.

 

“Investment
Company Act” shall mean the Investment Company Act of 1940, as amended, and
the rules and regulations of the Commission promulgated thereunder.

 

“Regulation D”
shall mean Regulation D under the Act.

 

“Regulation S”
shall mean Regulation S under the Act.

 

“Trust
Indenture Act” shall mean the Trust Indenture Act of 1939, as amended, and
the rules and regulations of the Commission promulgated thereunder.

 

25

 

If
the foregoing is in accordance with your understanding of our agreement, please
sign and return to us the enclosed duplicate hereof, whereupon this letter and
your acceptance shall represent a binding agreement among the Issuer, the
Guarantors and the several Initial Purchasers.

 

	
   

  	
  Very truly
  yours,

  
	
   

  	
   

  
	
   

  	
  MICHAELS STORES, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Charles M. Sonsteby

  
	
   

  	
   

  	
  Name:

  	
  Charles
  M. Sonsteby

  
	
   

  	
   

  	
  Title:

  	
  Chief
  Administrative Office and Chief

  
	
   

  	
   

  	
   

  	
  Financial
  Officer

  
	
   

  	
   

  	
   

  
	
   

  	
  AARON BROTHERS, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Charles M. Sonsteby

  
	
   

  	
   

  	
  Name:

  	
  Charles
  M. Sonsteby

  
	
   

  	
   

  	
  Title:

  	
  President,
  Chief Administrative Officer

  
	
   

  	
   

  	
   

  	
  and
  Chief Financial Officer

  
	
   

  	
   

  	
   

  
	
   

  	
  ARTISTREE, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Charles M. Sonsteby

  
	
   

  	
   

  	
  Name:

  	
  Charles
  M. Sonsteby

  
	
   

  	
   

  	
  Title:

  	
  Chief
  Administrative Officer and

  
	
   

  	
   

  	
   

  	
  Chief
  Financial Officer

  
	
   

  	
   

  	
   

  
	
   

  	
  MICHAELS FINANCE COMPANY, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Charles M. Sonsteby

  
	
   

  	
   

  	
  Name:

  	
  Charles
  M. Sonsteby

  
	
   

  	
   

  	
  Title:

  	
  President,
  Chief Administrative Officer

  
	
   

  	
   

  	
   

  	
  and
  Chief Financial Officer

  
	
   

  	
   

  	
   

  
	
   

  	
  MICHAELS STORES PROCUREMENT COMPANY, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Charles M. Sonsteby

  
	
   

  	
   

  	
  Name:

  	
  Charles
  M. Sonsteby

  
	
   

  	
   

  	
  Title:

  	
  Chief
  Administrative Officer and Chief

  
	
   

  	
   

  	
   

  	
  Financial
  Officer

  

 

[Signature
Page to Purchase Agreement]

 

 

	
   

  	
  MICHAELS OF CANADA, ULC

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Charles M. Sonsteby

  
	
   

  	
   

  	
  Name:

  	
  Charles
  M. Sonsteby

  
	
   

  	
   

  	
  Title:

  	
  Chief
  Administrative Officer and Chief

  
	
   

  	
   

  	
   

  	
  Financial
  Officer

  
	
   

  	
   

  	
   

  
	
   

  	
  MICHAELS STORES CARD SERVICES, LLC

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Charles M. Sonsteby

  
	
   

  	
   

  	
  Name:

  	
  Charles
  M. Sonsteby

  
	
   

  	
   

  	
  Title:

  	
  President,
  Chief Administrative Officer

  
	
   

  	
   

  	
   

  	
  and
  Chief Financial Officer

  

 

[Signature
Page to Purchase Agreement]

 

 

The foregoing Agreement is hereby confirmed and accepted as of the date
first above written.

 

DEUTSCHE
BANK SECURITIES INC.

BANC OF AMERICA SECURITIES LLC

BARCLAYS
CAPITAL INC.

CREDIT
SUISSE SECURITIES (USA) LLC

J.P.
MORGAN SECURITIES LLC

WELLS
FARGO SECURITIES, LLC

 

	
  By: Deutsche Bank Securities Inc.

  
	
   

  
	
   

  	
  For
  itself, and the other several

  
	
   

  	
  Initial
  Purchasers named

  
	
   

  	
  in
  Schedule I to the foregoing Agreement

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/
  Scott Sartorius

  	
   

  
	
   

  	
  Name:
  Scott Sartorius

  
	
   

  	
  Title:
  Managing Director

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/
  Kevin M. Sherlock

  	
   

  
	
   

  	
  Name:
  Kevin M. Sherlock

  
	
   

  	
  Title:
  Managing Director

  

 

[Signature
Page to Purchase Agreement]

 

 

SCHEDULE I

 

	
  Initial Purchasers

  	
   

  	
  Principal Amount of

  Securities To Be

  Purchased

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Deutsche Bank Securities Inc.

  	
   

  	
  $

  	
  180,000,000

  	
   

  
	
  Banc of America Securities LLC

  	
   

  	
  124,000,000

  	
   

  
	
  Barclays Capital Inc.

  	
   

  	
  124,000,000

  	
   

  
	
  Credit Suisse Securities (USA) LLC

  	
   

  	
  124,000,000

  	
   

  
	
  J.P. Morgan Securities LLC

  	
   

  	
  124,000,000

  	
   

  
	
  Wells Fargo Securities, LLC

  	
   

  	
  124,000,000

  	
   

  
	
  Total

  	
   

  	
  $

  	
  800,000,000

  	
   

  

 

 

ANNEX A-1

 

Aaron
Brothers, Inc., a Delaware corporation

 

Artistree, Inc.,
a Delaware corporation

Michaels Finance Company, Inc., a Delaware corporation

Michaels Stores Procurement Company, Inc., a Delaware corporation

Michaels of Canada, ULC, a Nova Scotia unlimited liability company

Michaels Stores Card Services, LLC, a Virginia limited liability company

 

 

ANNEX A-2

 

Aaron
Brothers, Inc.

Aaron
Brother Card Services, LLC

Artistree, Inc.

Canada
Artistree, Inc.

Michaels Finance Company, Inc. 

Michaels Stores Procurement Company, Inc. 

Michaels of Canada, ULC 

Michaels Stores Card Services, LLC

 

 

ANNEX B

 

Preliminary Offering Memorandum Supplements

 

1.             Pricing Supplement dated October 7,
2010.

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