Document:

Exhibit 4.7

 

Execution Copy

 

 

 

REGISTRATION RIGHTS AGREEMENT

 

among

 

Michaels Stores, Inc.

 

and

 

Certain Stockholders of Michaels Stores, Inc.

 

 

Dated as of October 31, 2006

 

 

 

 

TABLE OF CONTENTS

 

	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  
	
  1 EFFECTIVENESS; DEFINITIONS.

  	
  2

  
	
  1.1.

  	
  Effectiveness

  	
  2

  
	
  1.2.

  	
  Definitions

  	
  2

  
	
   

  	
   

  	
   

  
	
  2 HOLDER LOCK-UP.

  	
  2

  
	
   

  	
   

  	
   

  
	
  3 REGISTRATION RIGHTS.

  	
  3

  
	
  3.1.

  	
  Demand Registration Rights.

  	
  3

  
	
  3.2.

  	
  Piggyback Registration Rights.

  	
  7

  
	
  3.3.

  	
  Certain Other Provisions.

  	
  8

  
	
  3.4.

  	
  Indemnification and Contribution.

  	
  14

  
	
  3.5.

  	
  Permitted Registration Rights Assignees.

  	
  17

  
	
  3.6

  	
  Form S-8 Registration

  	
  18

  
	
   

  	
   

  	
   

  
	
  4 REMEDIES.

  	
  18

  
	
  4.1.

  	
  Generally

  	
  18

  
	
   

  	
   

  	
   

  
	
  5 PERMITTED TRANSFEREES.

  	
  18

  
	
  5.1.

  	
  Transfers by Investors

  	
  18

  
	
  5.2.

  	
  Transfers by Managers

  	
  18

  
	
   

  	
   

  	
   

  
	
  6 AMENDMENT, TERMINATION, ETC.

  	
  19

  
	
  6.1.

  	
  Oral Modifications

  	
  19

  
	
  6.2.

  	
  Written Modifications

  	
  19

  
	
  6.3.

  	
  Effect of Termination

  	
  19

  
	
   

  	
   

  	
   

  
	
  7 DEFINITIONS.

  	
  19

  
	
  7.1.

  	
  Certain Matters of Construction

  	
  19

  
	
  7.2.

  	
  Definitions

  	
  20

  
	
   

  	
   

  	
   

  
	
  8 MISCELLANEOUS.

  	
  24

  
	
  8.1.

  	
  Authority: Effect

  	
  24

  
	
  8.2.

  	
  Notices

  	
  24

  
	
  8.3.

  	
  Merger; Binding Effect, Etc

  	
  26

  
	
  8.4.

  	
  Descriptive Headings

  	
  26

  
	
  8.5.

  	
  Counterparts

  	
  27

  
	
  8.6.

  	
  Severability

  	
  27

  
	
  8.7.

  	
  No Recourse

  	
  27

  
	
   

  	
   

  	
   

  
	
  9 GOVERNING LAW.

  	
  27

  
	
  9.1.

  	
  Governing Law

  	
  27

  
	
  9.2.

  	
  Consent to Jurisdiction

  	
  27

  
	
  9.3.

  	
  WAIVER OF JURY TRIAL

  	
  28

  
	
  9.4.

  	
  Exercise of Rights and Remedies

  	
  28

  

 

i

 

REGISTRATION RIGHTS AGREEMENT

 

This
Registration Rights Agreement (the “Agreement”) is made as of October
31, 2006 by and among:

 

(i)                                     Michaels
Stores, Inc. (the “Company”);

 

(ii)                                  Michaels
Holdings LLC (the “LLC”), Highfields Capital I LP, Highfields Capital II
LP, and Highfields Capital III LP (collectively, the “Highfields Funds”),
4390075 Canada Inc. and any other Person executing this Agreement and listed as
an “Investor” on the signature pages hereto and such other Persons who from
time to time become party hereto by executing a counterpart signature page
hereof and are designated by the Board as “Investors” (collectively with their
Permitted Transferees, the “Investors”);

 

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

 

(iv)                              such
other Persons, if any, that from time to time become party hereto as holders of
Shares pursuant to Section 3.5 solely in the capacity of permitted assignees
with respect to certain registration rights hereunder (collectively, the “Other
Holders”).

 

RECITALS

 

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

 

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

 

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

 

4.             The parties believe
that it is in the best interests of the Company and the other parties hereto to
set forth their agreements on certain matters.

 

AGREEMENT

 

Therefore, the parties hereto hereby agree as follows:

 

 

1.                                      EFFECTIVENESS; DEFINITIONS.

 

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

 

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

 

2.                                      HOLDER LOCK-UP.

 

In connection with each underwritten Public Offering each Holder hereby
agrees to be bound by and, if requested, to execute and deliver a lock-up
agreement with the underwriter(s) of such Public Offering (the “Principal
Lock-Up Agreement”) restricting such Holder’s right to (i) Transfer any
Shares or (ii) enter into any swap or other arrangement that transfers to
another any of the economic consequences of ownership of Shares, in each case
to the extent that such restrictions are agreed to (A) in the case of an
Initial Public Offering that is not initiated pursuant to Section 3.1.1, by the
Board, (B) in the case of a demand registration under Section 3.1 hereof, by
Investors holding a majority of the Shares proposed to be offered and (C)
otherwise, by the holders of a majority of the Shares participating in the
Public Offering; provided, however, that no Holder shall be
required by this Section 2 to be bound by a lock-up agreement covering a period
of greater than 90 days (180 days in the case of the Initial Public Offering)
following the effectiveness of the related registration statement plus such
additional period of up to 17 days as may be required by the underwriters to
satisfy NASD regulations and permit the managing underwriters’ analysts to
publish research updates; provided, further, that no Holder will
be required by this Section 2 to be bound by a lock-up agreement unless the
Holders that hold a majority of the Shares held by all Holders execute such a
lock-up agreement with the underwriter(s) of the applicable Public Offering. Notwithstanding
the foregoing, such lock-up agreement shall not apply to (i) transactions
relating to shares of Common Stock or other securities acquired in (A) open
market transactions or block purchases after the completion of the Initial
Public Offering or (B) a Public Offering, (ii) Transfers to Permitted
Transferees of such Holder in accordance with the terms of this Agreement, and
(iii) conversions of shares of Common Stock into other classes of Common Stock
without change of holder. In addition, notwithstanding the foregoing, any Holder,
or group of Affiliated Funds that are Holders, beneficially holding at Closing
more than 5% of the outstanding Shares as of the Closing may elect not to be
bound by any lock-up agreement for a Public Offering following (but not
including) the first Public Offering after the Initial Public Offering that
includes the sale of Shares by a Holder; provided, however, that
if such a Holder elects not to be so bound, then such Holder will not have
piggyback registration rights under Section 3.2 hereof or demand registration  rights under Section 3.1 hereof with respect
to such Public Offering or any future Public Offering thereafter.

 

2

 

3.             REGISTRATION
RIGHTS. The Company will perform and comply, and
cause each of its subsidiaries to perform and comply, with such of the
following provisions as are applicable to it. Each Holder will perform and
comply with such of the following provisions as are applicable to such Holder.

 

3.1.       Demand
Registration Rights.

 

3.1.1.       IPO Demand
Registration Rights.

 

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

 

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

 

(c)  The Company will use its
best efforts to (i) effect the registration under the Securities Act (including
by means of a shelf registration pursuant to Rule 415 under the Securities Act
if so requested by a majority of the IPO Initiating Holders and if the Company
is then eligible to use such registration) of the Registrable Securities that
the Company has been requested to register by an IPO Initiating Holder pursuant
to this Section 3.1.1 together with all other Registrable Securities that the
Company has been requested to register pursuant to Section 3.2 by other
Holders, all to the extent required to permit the disposition of the
Registrable Securities that the Company has been so requested to register, and
(ii) if requested by an IPO Initiating Holder, obtain acceleration of the
effective date of the registration statement relating to such registration; provided,
however, that in lieu of using its best efforts to effect the
registration of Registrable Securities requested by an IPO Initiating Holder
pursuant to Section 3.1.1(b), the Company may elect to purchase (but will have
no obligation to elect to purchase) or have its designee purchase (the “Purchase
Election”) the Registrable Securities held by the IPO Initiating Holders at
such Registrable Securities’ fair market value, as determined by a panel of
three investment banks mutually agreeable to the Company and the IPO Initiating
Holders; except that if the Company and the IPO Initiating Holders are unable
to agree on the panel of three investment banks within 30 days of the date on
which the Purchase Election is made, the panel shall

 

3

 

consist of one
investment bank picked by the Company, one investment bank picked by the IPO
Initiating Holders, and one investment bank mutually agreed upon by the two
investment banks picked by the Company and the IPO Initiating Holders.

 

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

 

	
  Ownership

  	
   

  	
  S-1 or S-3 Demand

  or Shelf Setup Rights

  	
   

  
	
  Less than 10%

  	
   

  	
  0

  	
   

  
	
  10% - 20%

  	
   

  	
  1

  	
   

  
	
  20% - 30%

  	
   

  	
  2

  	
   

  
	
  30% - 40%

  	
   

  	
  3

  	
   

  
	
  40% - 50%

  	
   

  	
  4

  	
   

  
	
  50% - 60%

  	
   

  	
  5

  	
   

  
	
  60% - 70%

  	
   

  	
  6

  	
   

  
	
  70% - 80%

  	
   

  	
  7

  	
   

  
	
  80% - 90%

  	
   

  	
  8

  	
   

  
	
  90% - 100%

  	
   

  	
  9

  	
   

  

 

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

 

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

 

4

 

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

 

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

 

3.1.3.       Shelf Takedowns.
At any time during which the Company has effective a shelf registration
pursuant to Rule 415 under the Securities Act with respect to such Holder’s
Shares, any Holder (the “Shelf Takedown Holder”), by notice to the
Company specifying the intended method or methods of disposition, may request
that the Company effect an underwritten offering of the Shelf Takedown Holder’s
Shares that are subject to such registration statement (an “Underwritten
Shelf Takedown”) of all or a specified part of the Registrable Securities
held by such Shelf Takedown Holder; provided, however, that the
value of Registrable Securities that the Shelf Takedown Holder proposes to sell
in an Underwritten Shelf Takedown is at least twenty five million dollars
($25,000,000) or such lower amount as agreed by the Board. The Company shall
not be obligated to take any action to effect any such Underwritten Shelf
Takedown pursuant to this Section 3.1.3 if an Underwritten Shelf Takedown
requested under this Section 3.1.3 was consummated within the preceding 90 days
(unless otherwise consented to by the Board).

 

3.1.4.       Form. Except
as otherwise provided above or required by law, each registration requested
pursuant to Section 3.1.2 shall be effected by the filing of a registration
statement on Form S-3 (or any other form which includes substantially the same
information as would be required to be included in a registration statement on
such form as currently constituted); provided that if any registration
requested pursuant to this Section 3.1 is proposed to be effected on Form S-3
(or any successor or similar short-form registration statement) and is in
connection with an underwritten offering, and if the managing underwriter shall
advise the Company in writing that, in its opinion, it is of material
importance to the success of such proposed offering to file a registration
statement on Form S-1 (or any successor or similar registration statement) or
to include in such registration statement information not required to be
included pursuant to Form S-3 (or any successor or similar short-form
registration statement), then the Company will file a registration statement on
Form S-1 or supplement Form S-3 (or any successor or similar short-form
registration statement) as reasonably requested by such managing underwriter.

 

5

 

3.1.5.       Payment of
Expenses. The Company will pay all Registration Expenses in connection with
registrations of Registrable Securities pursuant to this Section 3.1, including
all reasonable expenses (other than fees and disbursements of counsel that do
not constitute Registration Expenses) that any Holder incurs in connection with
each registration of Registrable Securities requested pursuant to this Section
3.1.

 

3.1.6.       Additional
Procedures. In the case of a registration pursuant to Section 3.1 hereof,
whenever an IPO Initiating Holder or an Initiating Holder is entitled to
request and so requests that such registration shall be effected pursuant to an
underwritten offering, the Company shall include such information in any
written notice to Holders required by Section 3.2. In such event, the right of
any Holder to have securities owned by such Holder included in such
registration shall be conditioned upon the inclusion of such Holder’s
Registrable Securities in the underwriting (unless otherwise mutually agreed
upon by the IPO Initiating Holder or Initiating Holder and such Holder). If
requested by the IPO Initiating Holder, Initiating Holder or Shelf Takedown
Holder the Company together with the Holders proposing to distribute their
securities through the underwriting will enter into an underwriting agreement
with the underwriters for such offering containing such representations and
warranties by the Company and such Holders and such other terms and provisions
as are customarily contained in underwriting agreements with respect to
secondary distributions, including customary indemnity and contribution
provisions (subject, in each case, to the limitations on such liabilities set
forth in this Agreement).

 

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

 

6

 

to permit the
Holders to resume use thereof in connection with the offer and sale of their
Registrable Securities in accordance with applicable law.

 

3.2.       Piggyback
Registration Rights.

 

3.2.1.       Piggyback
Registration.

 

(a)  General. Each time
the Company proposes to register any shares of Common Stock under the
Securities Act on a form which would permit registration of Registrable
Securities for sale to the public, for its own account and/or for the account
of any other Person (pursuant to Section 3.1 or otherwise) for sale in a Public
Offering, the Company will give notice to all Holders of its intention to do so.
Any Holder may, by written response delivered to the Company within 20 days
after the date of delivery of such notice, request that all or a specified part
of such Holder’s Registrable Securities be included in such registration. A
Holder may request in any such response that varying numbers of such Holder’s
Registrable Securities be included in the registration based on varying prices
at which such Registrable Securities are to be sold in the registered offering.
The Company thereupon will use its best efforts to cause to be included in such
registration under the Securities Act all Registrable Securities that the
Company has been so requested to register by such Holders, to the extent
required to permit the disposition (in accordance with the methods to be used
by the Company or, pursuant to Section 3.1, other Holders in such Public
Offering) of the Registrable Securities to be so registered; provided
that (i) if, at any time after giving written notice of its intention to
register any securities, the Company shall determine for any reason not to
proceed with the proposed registration of the securities to be sold by it, the
Company may, at its election, give written notice of such determination to each
Holder and, thereupon, shall be relieved of its obligation to register any
Registrable Securities in connection with such registration (but not from its
obligation to pay the Registration Expenses in connection therewith), and (ii)
if such registration involves an underwritten offering, all Holders requesting
to be included in the Company’s registration must sell their Registrable
Securities to the underwriters selected by the Company on the same terms and
conditions as apply to the Company (with such differences as may be customary
or appropriate in combined primary and secondary offerings and, in any event,
without providing for indemnification or contribution obligations in excess of
what is required by Section 3.4) or, in the case of a registration initiated
pursuant to Section 3.1.1 or 3.1.2, the Principal Participating Holders. No
registration of Registrable Securities effected under this Section 3.2 shall
relieve the Company of any of its obligations to effect registrations of
Registrable Securities pursuant to Section 3.1 hereof.

 

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

 

7

 

(i)               Any Public
Offering relating to employee benefit plans or dividend reinvestment plans;

 

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

 

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

 

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

 

3.2.3.       Additional
Procedures. Holders participating in any Public Offering pursuant to this
Section 3.2 shall take all such actions and execute all such documents and
instruments that are reasonably requested by the Company to effect the sale of
their Registrable Securities in such Public Offering, including being parties
to the underwriting agreement entered into by the Company and any other selling
shareholders in connection therewith and being liable in respect of the representations
and warranties and the other agreements (including customary selling
stockholder representations, warranties, indemnifications and “lock-up”
agreements) for the benefit of the underwriters contained therein; provided,
however, that (i) with respect to individual representations,
warranties, indemnities and agreements of sellers of Registrable Securities in
such Public Offering, the aggregate amount of such liability shall not exceed
such holder’s net proceeds from such offering and (ii) to the extent selling
stockholders give further representations, warranties and indemnities, then
with respect to all other representations, warranties and indemnities of
sellers of Registrable Securities in such Public Offering, the aggregate amount
of such liability shall not exceed the lesser of (i) such holder’s pro rata
portion of any such liability, in accordance with such holder’s portion of the
total number of Registrable Securities included in the offering, and (ii) such
holder’s net proceeds from such offering.

 

3.3.       Certain
Other Provisions.

 

3.3.1.       Underwriter’s
Cutback. In connection with any registration of shares, the underwriter may
determine that marketing factors (including an adverse effect on the per share
offering price) require a limitation of the number of shares to be underwritten.
Notwithstanding any contrary provision of this Section 3 and subject to the
terms of this Section 3.3.1, the underwriter may limit the number of shares
which would otherwise

 

8

 

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

 

(a)  there shall be first
allocated to each such holder requesting that its Registrable Securities or
Parity Shares be registered in such registration a number of such shares to be
included in such registration equal to the lesser of (i) the number of such
shares requested to be registered by such holder, and (ii) a number of such
shares equal to such holder’s Pro Rata Portion;

 

(b)  the balance, if any, not
allocated pursuant to clause (a) above shall be allocated to those holders
requesting that their Registrable Securities or Parity Shares be registered in
such registration that requested to register a number of such shares in excess
of such holder’s Pro Rata Portion pro rata to each such holder based upon the
number of Registrable Securities and Parity Shares held by such holder, or in
such other manner as the holders requesting that their Registrable Securities
or Parity Shares be registered in such registration may otherwise agree; and

 

(c)  the balance, if any, not
allocated pursuant to clause (b) above shall be allocated to shares, other than
Registrable Securities and Parity Shares, requested to be included in such
registration by other stockholders.

 

For purposes of any underwriter cutback, all Registrable Securities
held by any Holder shall also include any Registrable Securities held by the
partners, retired partners, shareholders or Affiliates of such Holder, or the
estates and family members of any such Holder or such partners and retired
partners, any trusts for the benefit of any of the foregoing Persons and, at
the election of such Holder or such partners, retired partners, trusts or
Affiliates, any Charitable Organization to which any of the foregoing shall
have contributed Common Stock prior to the execution of the underwriting
agreement in connection with such underwritten offering, and such Holder and

 

9

 

other Persons shall be deemed to be a single selling Holder, and any
pro rata reduction with respect to such selling Holder shall be based upon the
aggregate amount of Common Stock owned by all entities and individuals included
with such selling Holder, as defined in this sentence. No securities excluded
from the underwriting by reason of the underwriter’s marketing limitation shall
be included in such registration. Upon delivery of a written request pursuant to
Section 3.1.1, 3.1.2 or 3.2.1(a) that Registrable Securities be sold in an
underwritten offering, the Holder thereof may not thereafter elect to withdraw
therefrom without the written consent of the Principal Participating Holders. Notwithstanding
the foregoing, (i) if the managing underwriter of any underwritten offering
shall advise the Holders participating in the offering that the Registrable
Securities covered by the registration statement cannot be sold in such
offering within a price range acceptable to the IPO Initiating Holder,
Initiating Holder or Shelf Takedown Holder, then the IPO Initiating Holder,
Initiating Holder or Shelf Takedown Holder shall have the right to withdraw
from such underwritten offering and, upon any such withdrawal, the Principal
Participating Holders remaining after such withdrawal shall have the right to
notify the Company that they have determined that the registration statement be
abandoned or withdrawn, in which event the Company shall abandon or withdraw
such registration statement, (ii) if the price to the public at which the
Registrable Securities are proposed to be sold will be less than 90% of the
average closing price of the Common Stock during the 10 trading days preceding
the date on which notice of such offering was given pursuant to Section
3.2.1(a), then any Holder participating in such underwritten offering may elect
to withdraw from such offering by written notice to the Company and (iii)
nothing in this Section 3.3.1 shall be deemed to limit a Holder’s ability
pursuant to Section 3.2.1(a) to request the registration and sale of varying
numbers of Registrable Securities based on varying prices at which such
Registrable Securities are to be sold in the offering. The Company may, but
shall not be required to, extend a similar withdrawal right to other Holders of
Registrable Securities or Parity Shares.

 

3.3.2.       Registration
Procedures. If, and in each case when, the Company is required to effect a
registration of any Registrable Securities as provided in this Section 3, the
Company shall promptly:

 

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

 

(b)   prepare and file with the
Commission such amendments and supplements to such registration statement and
the prospectus used in connection therewith as may be necessary to keep such
registration statement effective for a period not in excess of 270 days (or
such shorter period which will terminate when all Registrable Securities
covered by such registration statement have been sold) and to comply with the
provisions of the Securities Act and the Exchange Act with respect to the
disposition of all securities covered by such registration statement during
such period in accordance with the intended methods of disposition by the
seller or sellers thereof set forth in such registration statement; provided
that before filing a registration statement or prospectus, or any

 

10

 

amendments or
supplements thereto in accordance with Sections 3.1 or 3.2, the Company will
furnish to counsel selected pursuant to Section 3.3.3 hereof copies of all
documents proposed to be filed, which documents will be subject to the review
of such counsel;

 

(c)  furnish to each seller of
such Registrable Securities such number of copies of such registration
statement and of each amendment and supplement thereto (in each case including
all exhibits filed therewith), such number of copies of the prospectus included
in such registration statement (including each preliminary prospectus and
summary prospectus), in conformity with the requirements of the Securities Act,
and such other documents as such seller may reasonably request in order to
facilitate the disposition of the Registrable Securities by such seller;

 

(d)  use its best efforts to
register or qualify such Registrable Securities covered by such registration in
such jurisdictions as each seller shall reasonably request, and do any and all
other acts and things which may be reasonably necessary or advisable to enable
such seller to consummate the disposition in such jurisdictions of the
Registrable Securities owned by such seller, except that the Company shall not
for any such purpose be required to qualify generally to do business as a
foreign corporation in any jurisdiction where, but for the requirements of this
clause (d), it would not be obligated to be so qualified or to consent to
general service of process in any such jurisdiction;

 

(e)  notify each seller of any
such Registrable Securities covered by such registration statement, at any time
when a prospectus relating thereto is required to be delivered under the
Securities Act, of the Company’s becoming aware that the prospectus included in
such registration statement, as then in effect, includes an untrue statement of
a material fact or omits to state a material fact required to be stated therein
or necessary to make the statements therein not misleading in the light of the
circumstances then existing, and at the request of any such seller, prepare and
furnish to such seller a reasonable number of copies of an amended or
supplemental prospectus as may be necessary so that, as thereafter delivered to
the purchasers of such Registrable Securities, such prospectus shall not
include an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances then existing;

 

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

 

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

 

11

 

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

 

(h)  enter into such customary
agreements (including an underwriting agreement in customary form), which may
include indemnification provisions in favor of underwriters and other Persons
in addition to the provisions of Section 3.4 hereof, and take such other
actions as the Principal Participating Holders or the underwriters, if any,
reasonably requested in order to expedite or facilitate the disposition of such
Registrable Securities;

 

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

 

(j)  make available for
inspection by any seller of such Registrable Securities covered by such
registration statement, by any managing underwriter or underwriters
participating in any disposition to be effected pursuant to such registration
statement and by any attorney, accountant or other agent retained by any such
seller or any such managing underwriter(s), all pertinent financial and other
records, pertinent corporate documents and properties of the Company, and cause
all of the Company’s officers, directors and employees to supply all
information reasonably requested by any such seller, underwriter, attorney,
accountant or agent in connection with such registration statement (subject to
each party referred to in this clause (j) entering into customary
confidentiality agreements in a form reasonably acceptable to the Company);

 

(k)  notify counsel (selected
pursuant to Section 3.3.3 hereof) for the Holders of Registrable Securities
included in such registration statement and the managing underwriter or agent,
immediately, and confirm the notice in writing (i) when the registration
statement, or any post-effective amendment to the registration statement, shall
have become effective, or any supplement to the prospectus or any amendment to
the prospectus shall have been filed, (ii) of the receipt of any comments from
the Commission, (iii) of any request of the Commission to amend the
registration statement or amend or supplement the prospectus or for additional
information, and (iv) of the issuance by the Commission of any stop order
suspending the effectiveness of the registration statement or of any order preventing
or suspending the use of any preliminary prospectus, or of the suspension of
the qualification of the registration statement for offering or sale in any
jurisdiction, or of the institution or threatening of any proceedings for any
of such purposes;

 

(l)  use its best efforts to
prevent the issuance of any stop order suspending the effectiveness of the
registration statement or of any order preventing or

 

12

 

suspending the
use of any preliminary prospectus and, if any such order is issued, to obtain
the withdrawal of any such order as soon as practicable;

 

(m)  if requested by the managing
underwriter or agent or any Holder of Registrable Securities covered by the
registration statement, incorporate in a prospectus supplement or
post-effective amendment such information as the managing underwriter or agent
or such Holder reasonably requests to be included therein, including, with
respect to the number of Registrable Securities being sold by such Holder to
such underwriter or agent, the purchase price being paid therefor by such
underwriter or agent and with respect to any other terms of the underwritten
offering of the Registrable Securities to be sold in such offering; and make
all required filings of such prospectus supplement or post-effective amendment
as soon as practicable after being notified of the matters incorporated in such
prospectus supplement or post-effective amendment;

 

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

 

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

 

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

 

(q)  use its best efforts to make
available the executive officers of the Company to participate with the Holders
of Registrable Securities and any underwriters in any “road shows” that may be
reasonably requested by the Holders in connection with distribution of the
Registrable Securities.

 

3.3.3.       Selection of
Underwriters and Counsel. The underwriters and legal counsel to be retained
by the Company in connection with any Public Offering shall be selected by the
Board; provided that, in the case of an offering following a request
therefor under Section 3.1.1 or 3.1.2, such underwriters and counsel shall be
reasonably acceptable to the Principal Participating Holders. In connection
with any registration of Registrable Securities pursuant to Sections 3.1 and
3.2 hereof, the Principal Participating Holders may select one counsel to
represent all Holders of Registrable Securities covered by such registration; provided,
however, that in the event that the counsel selected as provided above
is also acting as counsel to the Company in

 

13

 

connection
with such registration, the remaining Holders shall be entitled to select one
additional counsel to represent, at the Company’s expense, all such remaining
Holders.

 

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

 

3.3.5.       Other Agreements.
The Company covenants and agrees that, so long as any Person holds any
Registrable Securities in respect of which any registration rights provided for
in Section 3.1 of this Agreement remain in effect, the Company will not,
directly or indirectly, grant to any Person or agree to or otherwise become
obligated in respect of rights of registration in the nature or substantially
in the nature of those set forth in Section 3.1 or 3.2 of this Agreement
without the consent of Stockholders holding a majority of the Registrable
Securities (plus the consent of any Stockholder who would be disproportionately
and adversely affected thereby compared to other Stockholders) other than
registration rights set forth in Section 3.1 or 3.2 that are provided to
Managers or Investors that join this Agreement from time to time.

 

3.4.       Indemnification
and Contribution.

 

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

 

14

 

statement of
any material fact contained or incorporated by reference in any registration
statement under the Securities Act, any preliminary prospectus or final
prospectus included therein, or any related summary prospectus, or any
amendment or supplement thereto, or any document incorporated by reference
therein, or any other such disclosure document (including reports and other
documents filed under the Exchange Act and any document incorporated by
reference therein) or other document or report, (ii) any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading or (iii) any violation
or alleged violation by the Company or any of its subsidiaries of any federal,
state, foreign or common law rule or regulation applicable to the Company or
any of its subsidiaries and relating to action or inaction in connection with
any such registration, disclosure document or other document or report, and
will reimburse such Covered Person for any legal or any other expenses incurred
by it in connection with investigating or defending any such loss, claim,
damage, liability, action or proceeding; provided, however, that
neither the Company nor any of its subsidiaries shall be liable to any Covered
Person in any such case to the extent that any such loss, claim, damage,
liability, action or proceeding arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission made in
such registration statement, any such preliminary prospectus, final prospectus,
summary prospectus, amendment or supplement, incorporated document or other
such disclosure document or other document or report, in reliance upon and in
conformity with written information furnished to the Company or to any of its
subsidiaries through an instrument duly executed by such Covered Person
specifically stating that it is for use in the preparation thereof. The indemnities
of the Company and of its subsidiaries contained in this Section 3.4.1 shall
remain in full force and effect regardless of any investigation made by or on
behalf of such Covered Person and shall survive any transfer of securities or
any termination of this Agreement.

 

3.4.2.       Indemnities to the
Company. Subject to Section 3.4.4, the Company and any of its subsidiaries
may require, as a condition to including any securities in any registration
statement filed pursuant to this Section 3, that the Company and any of its
subsidiaries shall have received an undertaking satisfactory to it from the
prospective seller of such securities, severally and not jointly, to indemnify
and hold harmless the Company and any of its subsidiaries, each director of the
Company or any of its subsidiaries, each officer of the Company or any of its
subsidiaries who shall sign such registration statement and each other Person
(other than such seller), if any, who controls the Company and any of its
subsidiaries within the meaning of Section 15 of the Securities Act or Section
20 of the Exchange Act and each other prospective seller of such securities
with respect to any statement in or omission from such registration statement,
any preliminary prospectus, final prospectus or summary prospectus included
therein, or any amendment or supplement thereto, or any other disclosure
document (including reports and other documents filed under the Exchange Act or
any document incorporated therein) or other document or report, if such statement
or omission was made in reliance upon and in conformity with written
information furnished to the Company or any of its subsidiaries through an
instrument executed by such seller specifically stating that it is for use in
the preparation of such registration statement, preliminary prospectus, final
prospectus, summary prospectus, amendment

 

15

 

or supplement,
incorporated document or other document or report. Such indemnity shall remain
in full force and effect regardless of any investigation made by or on behalf
of the Company, any of its subsidiaries or any such director, officer or
controlling Person and shall survive any transfer of securities or any
termination of this Agreement.

 

3.4.3.       Contribution. If
the indemnification provided for in Sections 3.4.1 or 3.4.2 hereof is
unavailable to a party that would have been entitled to indemnification
pursuant to the foregoing provisions of this Section 3.4 (an “Indemnitee”)
in respect of any losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) referred to therein, then each party that would
have been an indemnifying party thereunder shall, subject to Section 3.4.4 and
in lieu of indemnifying such Indemnitee, contribute to the amount paid or
payable by such Indemnitee as a result of such losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) in such proportion
as is appropriate to reflect the relative fault of such indemnifying party on
the one hand and such Indemnitee on the other in connection with the statements
or omissions which resulted in such losses, claims, damages or liabilities (or
actions or proceedings in respect thereof). The relative fault shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to
state a material fact relates to information supplied by such indemnifying
party or such Indemnitee and the parties’ relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission. The
parties agree that it would not be just or equitable if contribution pursuant
to this Section 3.4.3 were determined by pro rata allocation or by any other
method of allocation which does not take account of the equitable
considerations referred to in the preceding sentence. The amount paid or
payable by a contributing party as a result of the losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) referred to above in
this Section 3.4.3 shall include any legal or other expenses reasonably
incurred by such Indemnitee in connection with investigating or defending any
such action or claim. No Person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any Person who was not guilty of such fraudulent
misrepresentation.

 

3.4.4.       Limitation on
Liability of Holders of Registrable Securities. The liability of each
holder of Registrable Securities in respect of any indemnification or
contribution obligation of such holder arising under this Section 3.4 shall not
in any event exceed an amount equal to the net proceeds to such holder (after
deduction of all underwriters’ discounts and commissions) from the disposition
of the Registrable Securities disposed of by such holder pursuant to such
registration.

 

3.4.5.       Indemnification
Procedures. Promptly after receipt by an Indemnitee of written notice of
the commencement of any action or proceeding with respect to which a claim for
indemnification may be made pursuant to this Section 3.4, such Indemnitee will,
if a claim in respect thereof is to be made against an indemnifying party, give
written notice to the latter of the commencement of such action or proceeding; provided
that the failure of the Indemnitee to give notice as provided herein shall not
relieve the indemnifying party of its obligations under this Section 3.4,
except to the extent that the

 

16

 

indemnifying
party is materially prejudiced by such failure to give notice. In case any such
action or proceeding is brought against an Indemnitee, the indemnifying party
will be entitled to participate in and to assume the defense thereof (at its
expense), jointly with any other indemnifying party similarly notified to the
extent that it may wish, with counsel reasonably satisfactory to such
Indemnitee, and after notice from the indemnifying party to such Indemnitee of
its election so to assume the defense thereof, the indemnifying party will not
be liable to such Indemnitee for any legal or other expenses subsequently
incurred by the latter in connection with the defense thereof other than
reasonable costs of investigation and shall have no liability for any
settlement made by the Indemnitee without the consent of the indemnifying
party, such consent not to be unreasonably withheld. Notwithstanding the
foregoing, if in such Indemnitee’s reasonable judgment a conflict of interest
between such Indemnitee and the indemnifying parties may exist in respect of
such action or proceeding or the indemnifying party does not assume the defense
of any such action or proceeding within a reasonable time after notice of
commencement, the Indemnitee shall have the right to assume or continue its own
defense and the indemnifying party shall be liable for any reasonable expenses
therefor, but in no event will bear the expenses for more than one firm of
counsel for all Indemnitees in each jurisdiction who shall be approved by the
Principal Participating Holders in the registration in respect of which such
indemnification is sought. No indemnifying party will settle any action or
proceeding or consent to the entry of any judgment without the prior written
consent of the Indemnitee, unless such settlement or judgment (i) includes as
an unconditional term thereof the giving by the claimant or plaintiff of a
release to such Indemnitee from all liability in respect of such action or
proceeding and (ii) does not involve the imposition of equitable remedies or
the imposition of any obligations on such Indemnitee and does not otherwise adversely
affect such Indemnitee, other than as a result of the imposition of financial
obligations for which such Indemnitee will be indemnified hereunder.

 

3.5.       Permitted
Registration Rights Assignees.

 

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

 

17

 

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

 

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

 

4.                                      REMEDIES.

 

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

 

5.                                      PERMITTED TRANSFEREES.

 

5.1.          Transfers
by Investors. The rights of an Investor hereunder may be assigned  (but only with all related obligations as set
forth below) in connection with a Transfer of Shares effected in accordance
with the terms of the Stockholders Agreement and this Agreement to a Permitted
Transferee of such Investor. Without prejudice to any other or similar
conditions imposed hereunder with respect to any such Transfer, no assignment
permitted under the terms of this Section 5.1 shall be effective unless the
Permitted Transferee to which such assignment is being made, if not a Stockholder,
has delivered to the Company a written acknowledgment and agreement in form and
substance reasonably satisfactory to the Company that the Shares in respect of
which such assignment is made shall continue to be deemed Shares and shall be
subject to all of the provisions of this Agreement relating to Shares and that
such Permitted Transferee shall be bound by, and shall be a party to, this
Agreement as an Investor. A Permitted Transferee to whom rights are transferred
pursuant to this Section 5.1 may not again transfer such rights to any other
Permitted Transferee, other than as provided in this Section 5.1. An Affiliate
or Affiliated Fund of an Investor to whom rights are assigned pursuant to this
Section 5.1 in connection with a Transfer of Shares by such Investor will be
deemed for all purposes under this Agreement to have been the beneficial Holder
at Closing of the proportionate number of Shares that such Affiliate or
Affiliated Fund held indirectly (through the Transferring Investor and its
Affiliates or Affiliated Funds) on a pass-through basis.

 

5.2.          Transfers
by Managers. The rights of a Manager hereunder may be assigned  (but only with all related obligations as set
forth below) in connection with a Transfer of Shares effected in accordance
with the terms of the Stockholders Agreement and this Agreement to a

 

18

 

Permitted Transferee of such Manager. Without prejudice to any other or
similar conditions imposed hereunder with respect to any such Transfer, no
assignment permitted under the terms of this Section 5.2 shall be effective
unless the Permitted Transferee to which such assignment is being made, if not
a Stockholder, has delivered to the Company a written acknowledgment and
agreement in form and substance reasonably satisfactory to the Company that the
Management Shares in respect of which such assignment is made shall continue to
be deemed Management Shares and shall be subject to all of the provisions of
this Agreement relating to Management Shares and that such Permitted Transferee
shall be bound by, and shall be a party to, this Agreement as a Manager. A
Permitted Transferee to whom rights are transferred pursuant to this Section
5.2 may not again transfer such rights to any other Permitted Transferee, other
than as provided in this Section 5.2.

 

6.                                      AMENDMENT, TERMINATION, ETC.

 

6.1.          Oral
Modifications. This Agreement may not be orally amended, modified, extended
or terminated, nor shall any oral waiver of any of its terms be effective.

 

6.2.          Written
Modifications. This Agreement may be amended, modified, extended or
terminated, and the provisions hereof may be waived, only by an agreement in
writing signed by the Company and the Stockholders that hold a majority of the
Shares held by all Stockholders; provided, however, that any
amendment, modification, extension, termination or waiver (an “Amendment”)
shall also require the consent of any Stockholder who would be
disproportionately and adversely affected thereby. Each such Amendment shall be
binding upon each party hereto and each holder of Shares subject hereto. In
addition, each party hereto and each holder of Shares subject hereto may waive
any right hereunder by an instrument in writing signed by such party or holder.

 

6.3.          Effect
of Termination. No termination under this Agreement shall relieve any
Person of liability for breach prior to termination. In the event this
Agreement is terminated, each Covered Person shall retain the indemnification
rights pursuant to Section 3.4 hereof with respect to any matter that (i) may
be an indemnified liability thereunder and (ii) occurred prior to such
termination.

 

7.                                      DEFINITIONS.

 

For
purposes of this Agreement:

 

7.1.          Certain
Matters of Construction. In addition to the definitions referred to or set
forth below in this Section 7:

 

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

 

(ii)  The word “including” shall
mean including, without limitation;

 

19

 

(iii)  Definitions shall be
equally applicable to both nouns and verbs and the singular and plural forms of
the terms defined; and

 

(iv)  The masculine, feminine and
neuter genders shall each include the other.

 

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

 

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

 

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

 

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

 

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

 

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

 

“business
day” shall mean any day that is not a Saturday, a Sunday or other day on
which banks are required or authorized by law to be closed in the City of New
York.

 

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

 

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

 

“Commission”
shall mean the Securities and Exchange Commission.

 

“Common
Stock” shall mean the common stock, par value $0.10 per share, of the
Company.

 

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

 

“Company
Stock Option Plan” shall mean any equity-based compensation plan of the
Company, either in effect before or after the Closing, including, without
limitation, any plan

 

20

 

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

 

“Convertible
Securities” shall mean any evidence of indebtedness, shares of stock (other
than Common Stock) or other securities (other than Options and Warrants) which
are directly or indirectly convertible into or exchangeable or exercisable for
shares of Common Stock.

 

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

 

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

 

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

 

“Highfields
Funds” shall have the meaning set forth in the Preamble.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

21

 

“Merger
Agreement” shall have the meaning set forth in the Recitals.

 

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

 

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

 

 “Other Holders” shall have the meaning
set forth in the Preamble.

 

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

 

“Permitted
Registration Rights Assignee” shall have the meaning set forth in Section
3.5.1.

 

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

 

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

 

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

 

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

 

“Pro Rata
Portion” shall mean for purposes of Section 3.3, with respect to each
holder of Registrable Securities or Parity Shares requesting that such shares
be registered in such registration statement, a number of such shares equal to
the aggregate number of shares of Common Stock to be registered in such
registration (excluding any shares to be registered for the account of the
Company) multiplied by a fraction, the numerator of which is the aggregate
number of Registrable Securities and Parity Shares held by such holder, and the
denominator of which is the aggregate number of Registrable Securities and
Parity Shares held by all holders requesting that their Registrable Securities
or Parity Shares be registered in such registration.

 

 “Public Offering” shall mean a public
offering and sale of Common Stock for cash pursuant to an effective
registration statement under the Securities Act.

 

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

 

“Registrable
Securities” shall mean (a) all shares of Common Stock that are not then
subject to vesting (i.e., including
shares that were at one time subject to vesting to the extent they have
vested), (b) all shares of Common Stock issuable upon exercise, conversion or
exchange of any vested Option, Warrant or Convertible Security and (c) all
shares of Common Stock directly or indirectly issued or issuable with respect
to the securities referred to in clauses (a) or (b) above

 

22

 

by way
of stock dividend or stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization, in each case
constituting Shares. As to any particular Registrable Securities, such shares
shall cease to be Registrable Securities when (i) such securities shall have
ceased to be Shares hereunder, (ii) a registration statement with respect to
the sale of such securities shall have become effective under the Securities
Act and such securities shall have been disposed of in accordance with such
registration statement, (iii) such securities shall have been Transferred
pursuant to Rule 144 or Rule 145, (iv) disposition of such Shares may be made
under Rule 144 or 145 without volume limitation, (v) such securities shall have
been otherwise transferred to a Person that is not an Affiliate of the
transferor, new certificates for them not bearing a legend restricting further
transfer shall have been delivered by the Company as part of such transfer and
subsequent disposition of them shall not require registration of them under the
Securities Act and such securities may be distributed without volume limitation
or other restrictions on transfer under Rule 144 or Rule 145 (including without
application of paragraphs (c), (e) (f) and (h) of Rule 144), or (vi) such
securities shall have ceased to be outstanding.

 

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

 

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

 

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

 

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

 

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

 

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

 

23

 

Securities
held by a Stockholder (treating such Options, Warrants and Convertible
Securities as a number of Shares equal to the number of Equivalent Shares
represented by such Options, Warrants and Convertible Securities for all
purposes of this Agreement except as otherwise specifically set forth herein).

 

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

 

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

 

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

 

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

 

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

 

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

 

8.                                      MISCELLANEOUS.

 

8.1.          Authority:  Effect. Each party hereto represents and
warrants to and agrees with each other party that the execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby
have been duly authorized on behalf of such party and do not violate any
agreement or other instrument applicable to such party or by which its assets are
bound. This Agreement does not, and shall not be construed to, give rise to the
creation of a partnership among any of the parties hereto, or to constitute any
of such parties members of a joint venture or other association. The Company
and its subsidiaries shall be jointly and severally liable for all obligations
of each such party pursuant to this Agreement.

 

8.2.          Notices.
Any notices, requests, demands and other communications required or permitted
in this Agreement shall be effective if in writing and (i) delivered
personally, (ii) sent by facsimile, or (iii) sent by overnight courier, in each
case, addressed as follows:

 

	
  If to the Company to:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Michaels
  Stores, Inc.

  	
   

  	
   

  
	
  8000 Bent
  Branch Drive

  	
   

  	
   

  
	
  Irving,
  Texas 75261

  	
   

  	
   

  
	
  Facsimile:

  	
  (972) 409-1901

  	
   

  	
   

  
	
  Attention:

  	
  Jeffrey N.
  Boyer

  	
   

  	
   

  
	
   

  	
  Mark V.
  Beasley

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  with copies to:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Ropes & Gray LLP

  	
   

  	
   

  
	
  One International Place

  	
   

  	
   

  

 

24

 

	
  Boston, Massachusetts 02110

  	
   

  	
   

  
	
  Facsimile: (617) 951-7050

  	
   

  	
   

  
	
  Attention:

  	
  David C.
  Chapin

  	
   

  	
   

  
	
   

  	
  William M.
  Shields

  	
   

  	
   

  
	
   

  	
  R. Newcomb
  Stillwell

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  If to the LLC, to:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  c/o Bain Capital Partners, LLC

  	
   

  	
   

  
	
  111 Huntington Avenue

  	
   

  	
   

  
	
  Boston, Massachusetts 02199

  	
   

  	
   

  
	
  Facsimile:

  	
  (617)
  516-2010

  	
   

  	
   

  
	
  Attention:

  	
  Matthew S.
  Levin

  	
   

  	
   

  
	
   

  	
  Todd M. Cook

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  and

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  c/o Blackstone Management Associates V, LLC

  	
   

  	
   

  
	
  345 Park Avenue, 31st Floor

  	
   

  	
   

  
	
  New York, New York 10154

  	
   

  	
   

  
	
  Facsimile:

  	
  (212)
  583-5712

  	
   

  	
   

  
	
  Attention:

  	
  Michael Chae

  	
   

  	
   

  
	
   

  	
  Matthew S.
  Kabaker

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  with copies to:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Ropes & Gray LLP

  	
   

  	
   

  
	
  One International Place

  	
   

  	
   

  
	
  Boston, Massachusetts 02110

  	
   

  	
   

  
	
  Facsimile:

  	
  (617)
  951-7050

  	
   

  	
   

  
	
  Attention:

  	
  David C.
  Chapin

  	
   

  	
   

  
	
   

  	
  William M.
  Shields

  	
   

  	
   

  
	
   

  	
  R. Newcomb
  Stillwell

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  If to the Highfields Funds, to:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  c/o Highfields Capital Management LP

  	
   

  	
   

  
	
  200 Clarendon Street

  	
   

  	
   

  
	
  Boston, MA 02116

  	
   

  	
   

  
	
  Facsimile:

  	
  (617)
  850-7503

  	
   

  	
   

  
	
  Attention:

  	
  Joseph
  Mazzella

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  with copies to:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Goodwin Procter LLP

  	
   

  	
   

  
	
  Exchange Place

  	
   

  	
   

  

 

25

 

	
  53 State Street

  	
   

  	
   

  
	
  Boston, Massachusetts 02109

  	
   

  	
   

  
	
  Facsimile:

  	
  (617)
  523-1231

  	
   

  	
   

  
	
  Attention:

  	
  Laura C. Hodges Taylor

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  If to 4390075 Canada Inc., to:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  4390075
  Canada Inc.

  	
   

  	
   

  
	
  1 St Clair
  Avenue East

  	
   

  	
   

  
	
  Suite 1003

  	
   

  	
   

  
	
  Toronto,
  Ontario

  	
   

  	
   

  
	
  M4T 2V7

  	
   

  	
   

  
	
  Canada

  	
   

  	
   

  
	
  Facsimile:

  	
  (514) 201-5290

  	
   

  	
   

  
	
  Attention:

  	
  Gregory David

  	
   

  	
   

  

 

 

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

 

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

 

Unless
otherwise specified herein, such notices or other communications shall be
deemed effective (i) on the date received, if personally delivered, (ii) on the
date received if delivered by facsimile on a business day, or if not delivered
on a business day, on the first business day thereafter and (iii) 2 business
days after being sent by overnight courier. Each of the parties hereto shall be
entitled to specify a different address by giving notice as aforesaid to each
of the other parties hereto.

 

8.3.          Merger;
Binding Effect, Etc. This Agreement, together with the Stockholders
Agreement, constitute the entire agreement of the parties with respect to their
subject matter, supersede all prior or contemporaneous oral or written
agreements or discussions with respect to such subject matter, and shall be
binding upon and inure to the benefit of the parties hereto and thereto and
their respective heirs, representatives, successors and permitted assigns. Except
as otherwise expressly provided herein, no Stockholder or other party hereto
may assign any of its respective rights or delegate any of its respective
obligations under this Agreement without the prior written consent of the other
parties hereto, and any attempted assignment or delegation in violation of the
foregoing shall be null and void.

 

8.4.          Descriptive
Headings. The descriptive headings of this Agreement are for convenience of
reference only, are not to be considered a part hereof and shall not be
construed to define or limit any of the terms or provisions hereof.

 

26

 

8.5.          Counterparts.
This Agreement may be executed in multiple counterparts, each of which shall be
deemed an original, but all of which taken together shall constitute one
instrument.

 

8.6.          Severability.
In the event that any provision hereof would, under applicable law, be invalid
or unenforceable in any respect, such provision shall be construed by modifying
or limiting it so as to be valid and enforceable to the maximum extent
compatible with, and possible under, applicable law. The provisions hereof are
severable, and in the event any provision hereof should be held invalid or
unenforceable in any respect, it shall not invalidate, render unenforceable or
otherwise affect any other provision hereof.

 

8.7.          No
Recourse. Notwithstanding anything that may be expressed or implied in this
Agreement, the Company and each Stockholder covenant, agree and acknowledge
that no recourse under this Agreement or any documents or instruments delivered
in connection with this Agreement shall be had against any current or future
director, officer, employee, general or limited partner or member of any
Stockholder or of any Affiliate or assignee thereof, as such, whether by the
enforcement of any assessment or by any legal or equitable proceeding, or by
virtue of any statute, regulation or other applicable law, it being expressly
agreed and acknowledged that no personal liability whatsoever shall attach to,
be imposed on or otherwise be incurred by any current or future officer, agent
or employee of any Stockholder or any current or future member of any
Stockholder or any current or future director, officer, employee, partner or
member of any Stockholder or of any Affiliate or assignee thereof, as such, for
any obligation of any Stockholder under this Agreement or any documents or
instruments delivered in connection with this Agreement for any claim based on,
in respect of or by reason of such obligations or their creation.

 

9.                                      GOVERNING LAW.

 

9.1.          Governing
Law. This Agreement and all claims arising out of or based upon this
Agreement or relating to the subject matter hereof shall be governed by and
construed in accordance with the domestic substantive laws of the State of New
York without giving effect to any choice or conflict of laws provision or rule
that would cause the application of the domestic substantive laws of any other
jurisdiction.

 

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

 

27

 

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

 

9.3.          WAIVER
OF JURY TRIAL. TO THE EXTENT NOT PROHIBITED BY APPLICABLE LAW WHICH CANNOT
BE WAIVED, EACH PARTY HERETO HEREBY WAIVES AND COVENANTS THAT IT WILL NOT
ASSERT (WHETHER AS PLAINTIFF, DEFENDANT OR OTHERWISE) ANY RIGHT TO TRIAL BY
JURY IN ANY FORUM IN RESPECT OF ANY ISSUE OR ACTION, CLAIM, CAUSE OF ACTION OR
SUIT (IN CONTRACT, TORT OR OTHERWISE), INQUIRY, PROCEEDING OR INVESTIGATION
ARISING OUT OF OR BASED UPON THIS AGREEMENT OR THE SUBJECT MATTER HEREOF OR IN
ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE TRANSACTIONS
CONTEMPLATED HEREBY, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING. EACH
PARTY HERETO ACKNOWLEDGES THAT IT HAS BEEN INFORMED BY THE OTHER PARTIES HERETO
THAT THIS SECTION 9.3 CONSTITUTES A MATERIAL INDUCEMENT UPON WHICH THEY ARE
RELYING AND WILL RELY IN ENTERING INTO THIS AGREEMENT. ANY PARTY HERETO MAY
FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION 9.3 WITH ANY COURT AS
WRITTEN EVIDENCE OF THE CONSENT OF EACH SUCH PARTY TO THE WAIVER OF ITS RIGHT
TO TRIAL BY JURY.

 

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

 

[Signature pages
follow]

 

28

 

IN
WITNESS WHEREOF, each of the undersigned has duly executed
this Agreement (or caused this Agreement to be executed on its behalf by its
officer or representative thereunto duly authorized) under seal as of the date
first above written.

 

	
  COMPANY:

  	
  MICHAELS STORES, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Jeffrey N. Boyer

  	
   

  
	
   

  	
  Name: Jeffrey N. Boyer

  
	
   

  	
  Title:   President and Chief
  Financial Officer

  

 

 

[Registration Rights Agreement]

 

 

	
  INVESTORS:

  	
  MICHAELS HOLDINGS LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Todd Cook

  	
   

  
	
   

  	
  Name: Todd Cook

  
	
   

  	
  Title:   Vice President, Secretary
  and Assistant Treasurer

  

 

 

[Registration Rights Agreement]

 

 

	
  INVESTORS:

  	
  HIGHFIELDS CAPITAL I LP, a Delaware limited

  
	
   

  	
  partnership

  
	
   

  	
   

  
	
   

  	
  By: Highfields Associates LLC, its General Partner

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Richard L. Grubman

  	
   

  
	
   

  	
  Name:  Richard L. Grubman

  
	
   

  	
  Title:  Managing Member

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  HIGHFIELDS CAPITAL II LP, a Delaware limited

  
	
   

  	
  partnership

  
	
   

  	
   

  
	
   

  	
  By: Highfields Associates LLC, its General Partner

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Richard L. Grubman

  	
   

  
	
   

  	
  Name:  Richard L. Grubman

  
	
   

  	
  Title:  Managing Member

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  HIGHFIELDS CAPITAL III LP, a Cayman Islands

  
	
   

  	
  exempted limited partnership

  
	
   

  	
   

  
	
   

  	
  By: Highfields Associates LLC, its General Partner

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Richard L. Grubman

  	
   

  
	
   

  	
  Name:  Richard L. Grubman

  
	
   

  	
  Title:  Managing Member

  

 

 

[Registration Rights Agreement]

 

 

	
  INVESTORS

  	
  4390075 CANADA INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Gregory David

  	
   

  
	
   

  	
   

  	
  Name:
  Gregory David

  	
   

  
	
   

  	
   

  	
  Title:
  Director

  	
   

  

 

 

[Registration Rights Agreement]Exhibit 10.1

 

Execution Copy

 

 

 

STOCKHOLDERS AGREEMENT

 

 

among

 

 

Michaels Stores, Inc.

 

 

and

 

 

Certain Stockholders of Michaels Stores, Inc.

 

 

 

Dated as of October 31, 2006

 

 

 

 

TABLE OF CONTENTS

 

	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  
	
  1.

  	
  EFFECTIVENESS; DEFINITIONS.

  	
  2

  
	
   

  	
   

  	
   

  
	
   

  	
  1.1.

  	
  Effectiveness

  	
  2

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  1.2.

  	
  Definitions

  	
  2

  
	
   

  	
   

  	
   

  	
   

  
	
  2.

  	
  TRANSFER RESTRICTIONS.

  	
  2

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  2.1.

  	
  Certain Permitted Transfers.

  	
  2

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  2.2.

  	
  Right of First Refusal.

  	
  3

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  2.3.

  	
  Securities Laws Restrictions

  	
  5

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  2.4.

  	
  Impermissible Transfer

  	
  5

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  2.5.

  	
  Other Restrictions on Transfer

  	
  5

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  2.6.

  	
  Period

  	
  5

  
	
   

  	
   

  	
   

  	
   

  
	
  3.

  	
  RIGHT OF PARTICIPATION.

  	
  5

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  3.1.

  	
  Right of Participation.

  	
  5

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  3.2.

  	
  Post-Issuance Notice

  	
  8

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  3.3.

  	
  Excluded Transactions

  	
  8

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  3.4.

  	
  Certain Provisions Applicable to Options, Warrants and Convertible
  Securities

  	
  9

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  3.5.

  	
  Acquired Shares

  	
  9

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  3.6.

  	
  Period

  	
  9

  
	
   

  	
   

  	
   

  	
   

  
	
  4.

  	
  CALL OPTION.

  	
  9

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  4.1.

  	
  Call Option Upon Termination

  	
  9

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  4.2.

  	
  Payments

  	
  10

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  4.3.

  	
  Closing.

  	
  10

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  4.4.

  	
  Investor Group Call Option

  	
  11

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  4.5.

  	
  Acknowledgment

  	
  11

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  4.6.

  	
  Period

  	
  11

  
	
   

  	
   

  	
   

  	
   

  
	
  5.

  	
  INFORMATION RIGHTS.

  	
  11

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.1.

  	
  Financial and Other Information

  	
  11

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.2.

  	
  Other Information

  	
  12

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.3.

  	
  Confidentiality

  	
  12

  

 

i

 

	
   

  	
  5.4.

  	
  Period

  	
  13

  
	
   

  	
   

  	
   

  	
   

  
	
  6.

  	
  REMEDIES.

  	
  13

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  6.1.

  	
  Generally

  	
  13

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  6.2.

  	
  Deposit

  	
  13

  
	
   

  	
   

  	
   

  	
   

  
	
  7.

  	
  LEGENDS.

  	
  13

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  7.1.

  	
  Restrictive Legend

  	
  13

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  7.2.

  	
  1933 Act Legends

  	
  14

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  7.3.

  	
  Stop Transfer Instruction

  	
  14

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  7.4.

  	
  Termination of 1933 Act Legend

  	
  14

  
	
   

  	
   

  	
   

  	
   

  
	
  8.

  	
  AMENDMENT, TERMINATION, ETC.

  	
  14

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  8.1.

  	
  Oral Modifications

  	
  14

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  8.2.

  	
  Written Modifications

  	
  14

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  8.3.

  	
  Effect of Termination

  	
  15

  
	
   

  	
   

  	
   

  	
   

  
	
  9.

  	
  DEFINITIONS

  	
  15

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  9.1.

  	
  Certain Matters of Construction

  	
  15

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  9.2.

  	
  Definitions

  	
  15

  
	
   

  	
   

  	
   

  	
   

  
	
  10.

  	
  MISCELLANEOUS.

  	
  20

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  10.1.

  	
  Authority:  Effect

  	
  20

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  10.2.

  	
  Notices

  	
  20

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  10.3.

  	
  Merger; Binding Effect, Etc

  	
  22

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  10.4.

  	
  Descriptive Heading

  	
  23

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  10.5.

  	
  Counterparts

  	
  23

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  10.6.

  	
  Severability

  	
  23

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  10.7.

  	
  No Recourse

  	
  23

  
	
   

  	
   

  	
   

  	
   

  
	
  11.

  	
  GOVERNING LAW.

  	
  23

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  11.1.

  	
  Governing Law

  	
  23

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  11.2.

  	
  Consent to Jurisdiction

  	
  23

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  11.3.

  	
  WAIVER OF JURY TRIAL

  	
  24

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  11.4.

  	
  Exercise of Rights and Remedies

  	
  24

  

 

ii

 

STOCKHOLDERS AGREEMENT

 

This Stockholders
Agreement (the “Agreement”) is made as of October 31, 2006 by and among:

 

(i)            Michaels Stores, Inc. (the “Company”);

 

(ii)           Michaels Holdings LLC (the “LLC”),
Highfields Capital I LP, Highfields Capital II LP, and Highfields Capital III
LP (collectively, the “Highfields Funds”), 4390075 Canada Inc. and any
other Person executing this Agreement and listed as an “Investor” on the
signature pages hereto and such other Persons who from time to time become
party hereto by executing a counterpart signature page hereof and are designated
by the Board as “Investors” (collectively with their Permitted Transferees, the
“Investors”);

 

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

 

(iv)          such other Persons, if any, that from time to
time become party hereto as Permitted Transferees of Shares pursuant to Section
2.2 (together with the Investors and the Managers, the “Stockholders”)
in accordance with the terms hereof.

 

RECITALS

 

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

 

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

 

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

 

4.             The
parties believe that it is in the best interests of the Company and the
Stockholders to set forth their agreements on certain matters.

 

 

AGREEMENT

 

Therefore, the parties
hereto hereby agree as follows:

 

1.             EFFECTIVENESS;
DEFINITIONS.

 

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

 

1.2.       Definitions.  Certain terms are used in this Agreement as
specifically defined herein.  These
definitions are set forth or referred to in Section 9 hereof.

 

2.             TRANSFER
RESTRICTIONS.

 

No holder of Shares may
Transfer such Shares to any other Person at any time except as provided in this
Section 2.

 

2.1.       Certain Permitted
Transfers.

 

2.1.1.       Intra-Investor Group Transfers.  Any holder of Investor Shares may Transfer any
or all of such Shares to an Affiliate or Affiliated Fund of such holder.

 

2.1.2.       Estate Planning.  Subject to the provisions of Section 4, any
holder of Shares who is a natural Person may Transfer any or all of such Shares
(i) by gift to, or for the benefit of, any Member or Members of the Immediate
Family of such holder or (ii) by Transfer to a trust, private foundation or
entity formed for estate planning purposes for the benefit of such holder
and/or any Member or Members of the Immediate Family of such holder so long as
such holder serves as trustee for such trust or in an equivalent capacity with
respect to any such private foundation or other entity and provided that
the trust instrument or other documents governing such trust, private
foundation or other entity provides that such holder, as trustee (or
equivalent), shall retain sole and exclusive control over the voting and
disposition of such Shares until the termination of this Agreement.

 

2.1.3.       Upon Death.  Subject to the provisions of Section 4, if
applicable, upon the death of any holder of Shares who is a natural Person,
such Shares may be distributed by the will or other instrument taking effect at
death of such holder or by applicable laws of descent and distribution to such
holder’s estate, executors, administrators, personal representatives, heirs,
legatees or distributees, whether or not such recipients are Members of the
Immediate Family of such holder.

 

2.1.4.       Company or Other Persons with Board Approval.  Any holder of Shares may Transfer any or all
of such Shares (i) with the Board’s approval, to the Company or any subsidiary
of the Company or (ii) to such other Persons as the Board may approve.

 

2

 

2.1.5.       Additional Permitted Transfers by Investors.  Any holder of Investor Shares may Transfer
any or all of such Shares to its partners, members or other holders of its
beneficial interests in connection with the termination of such holder’s legal
existence, subject to compliance with Section 2 of the Registration Rights
Agreement.  Any such Transfer may be made
no earlier than twelve months prior to the termination of such holder’s legal
existence.

 

No Transfer permitted
under the terms of this Section 2.1 shall be effective unless the transferee of
such Shares (each, a “Permitted Transferee”) has delivered to the
Company a written acknowledgment and agreement in form and substance reasonably
satisfactory to the Company that such Shares to be received by such Permitted
Transferee will remain Investor Shares or Management Shares, as the case may
be, and will be subject to all of the provisions of this Agreement and that
such Permitted Transferee will be bound by, and will be a party to, this Agreement
as the holder of Investor Shares or Management Shares, as the case may be,
hereunder; provided, however, that (a) any Shares that are
Transferred to any director, officer or employee of, or consultant or adviser
to, the Company or any of its subsidiaries will thereafter become Management
Shares hereunder, and (b) any Shares that are Transferred to any Investor will
thereafter become Investor Shares hereunder; and provided further that
no Transfer by any holder of Shares to a Permitted Transferee will relieve such
holder of any of its obligations hereunder. 
Notwithstanding anything to the contrary herein or otherwise, the Board
will have no obligation to approve any Transfer to any Person pursuant to
Section 2.1.4.

 

2.2.       Right of First Refusal.

 

2.2.1.       Right of First Refusal.  In addition to Transfers permitted under
Section 2.1, each holder of Shares other than holders of Management Shares may
Transfer Shares to any Prospective Transferee in compliance with this Section
2.2.

 

2.2.2.       Notice. 
Any holder of Shares other than holders of Management Shares that has a
bona fide, binding, written offer to purchase all or any portion of such
Shares, shall first deliver to the Company a written notice (the “ROFR Offer
Notice”) at least 60 days prior to such proposed Transfer.  The ROFR Offer Notice shall include:

 

(a)           the
principal terms and conditions of the proposed Transfer, including (i) the
names and addresses of the Prospective Transferees, (ii) the number and class
of the Shares to be Transferred to each such Prospective Transferee, (iii) the
date of the proposed Transfer, (iv) the proposed purchase price, (v) any other
material terms of the proposed Transfer and (vi) a copy of such bona fide,
binding, written offer from the Prospective Transferees; and

 

(b)           an
irrevocable offer (a “ROFR Option”) to Sell all such Shares to the
Company or its designee for a purchase price equal to or less than the price
specified in the ROFR Offer Notice for such Shares and otherwise on terms that
are the same or more favorable to the Company than the terms that would apply
to such proposed Sale to the Prospective Transferees.

 

3

 

2.2.3.       Acceptance.  Any ROFR Option may be exercised by delivery
of written notice of acceptance (the “ROFR Acceptance Notice”) to the
offeror within 60 days after delivery of the related ROFR Offer Notice.  The ROFR Acceptance Notice shall state that
the Company or its designee has elected to exercise the ROFR Option.  The ROFR Option will be allocated among the
Company and its designees in such proportion as the Company may, in its sole
discretion, determine.

 

2.2.4.       Failure to Exercise ROFR.  If the Company or its designee(s) do not
deliver a ROFR Acceptance Notice as provided in Section 2.2.3, then they shall
be deemed to have forfeited any right to purchase the subject Shares hereunder,
and the holder of such Shares shall be free to sell such Shares to the
Prospective Transferee upon the terms set forth in the ROFR Offer Notice within
the 120 day period following the delivery of the ROFR Offer Notice.

 

2.2.5.       Closing. 
The closing of any purchase and sale of Shares pursuant to the exercise
of any ROFR Option shall take place as soon as reasonably practicable, and in
any event not later than 45 days after delivery of the ROFR Acceptance Notice
(provided, that such time shall be extended as necessary to comply with
applicable legal requirements) at the principal office of the Company, or at
such other time and location as the parties to such purchase may mutually
determine.  At the closing of any
purchase and sale of Shares following the exercise of any ROFR Option, the
holders of Shares to be sold will deliver to the Company (or to its
designee(s), if applicable) a certificate or certificates representing the
Shares to be purchased duly endorsed, or with stock (or equivalent) powers duly
endorsed, for transfer with signature guaranteed, free and clear of any Adverse
Claim, with any necessary stock (or equivalent) transfer tax stamps affixed,
together with such certifications, representations and warranties as the
Company may reasonably request regarding matters such as that:  (a) such holder has full right, title and
interest in and to such Shares; (b) such holder has all necessary power and
authority and has taken all necessary action to sell such Shares as
contemplated; and (c) there is no Adverse Claim with respect to such Shares,
and the Company (or its designee(s), if applicable) will pay to such holder by
certified or bank check or wire transfer of immediately available federal funds
the purchase price of the Shares being purchased by it.  If the purchase price includes consideration
other than cash, the cash equivalent value of the non-cash consideration will
be determined by the Board in good faith.

 

2.2.6.       Acknowledgment.  Each holder of Shares acknowledges and agrees
that, without limiting such holder’s rights under Section 5, neither the
Company nor any of its designee(s) (nor any other Person directly or indirectly
affiliated with the Company or its designees, whether as a significant
stockholder, director, officer, manager, employee, agent or otherwise) shall
have any duty or obligation to affirmatively disclose to such selling
Stockholders, and they shall not have any right to be advised of, any material
information regarding the Company or otherwise at any time prior to or upon the
exercise of any ROFR Option or any purchase of the Shares in accordance with
the terms of this Section 2.2.

 

4

 

2.2.7.       Joinder to this Agreement.  No Transfer of Shares permitted under the
terms of this Section 2.2 shall be effective unless, and it shall be a
condition to any such Transfer of any Shares that, the transferee of such
Shares has delivered to the Company a written acknowledgment and agreement in
form and substance reasonably satisfactory to the Company to the effect that
the transferee will be bound by the terms and conditions of this Agreement to
the same extent as the holder Transferring such Shares is bound at the time of
such Transfer.

 

2.3.       Securities Laws
Restrictions.  No holder of Shares
may Transfer such Shares to any other Person unless such holder first takes all
reasonable and customary steps, to the reasonable satisfaction of the Company
(subject to reasonable cooperation from the Company to facilitate such sale,
but without necessity of registering Shares under applicable securities laws),
to ensure that such Transfer (a) would not violate applicable securities laws
and (b) would not cause the Company to be required to register a class of
equity securities pursuant to Section 12(g) of the Exchange Act or the rules
and regulations adopted thereunder.

 

2.4.       Impermissible Transfer.  Any attempted Transfer of Shares not
permitted under the terms of this Section 2 shall be null and void, and the
Company shall not in any way give effect to any such impermissible Transfer.

 

2.5.       Other Restrictions on
Transfer.  The restrictions on
Transfer contained in this Agreement are in addition to any other restrictions
on Transfer to which a Stockholder may be subject, including any restrictions
on Transfer contained in a restricted stock agreement, stock option agreement
or stock subscription agreement.

 

2.6.       Period.  Each of the foregoing provisions of this
Section 2 shall expire upon the earlier of (a) the consummation of a Change of
Control or (b) the effectiveness of the Company’s registration statement in
connection with the Initial Public Offering.

 

3.             RIGHT OF
PARTICIPATION.

 

Subject to Section 3.3,
the Company shall not, and shall not permit any direct or indirect subsidiary
of the Company (the Company and each such subsidiary, an “Issuer”) to,
issue or sell any shares of any of its capital stock or any securities
convertible into or exchangeable for any shares of its capital stock, issue or
grant any options or warrants for the purchase of, or enter into any agreements
providing for the issuance (contingent or otherwise) of, any of its capital
stock or any stock or securities convertible into or exchangeable for any shares
of its capital stock, in each case, to any Investor (including any holder of
more than 10% of the interests in the LLC) or an Affiliate of any Investor
(each an “Issuance” of “Subject Securities”), except in
compliance with the provisions of Section 3.1 or Section 3.2.

 

3.1.       Right of Participation.

 

3.1.1.       Offer. 
Not fewer than 20 business days prior to the consummation of an
Issuance, a notice (the “Participation Notice”) shall be furnished by
the Issuer to each holder of Investor Shares and Management Participation
Shares (the “Participation Offerees”). 
The Participation Notice shall include:

 

5

 

(a)           the
principal terms and conditions of the proposed Issuance, including (i) the
amount, kind and terms of the Subject Securities to be included in the
Issuance, (ii) the number of Equivalent Shares represented by such Subject
Securities (if applicable), (iii) the percentage of the total Fair Market Value
of Equivalent Shares outstanding as of immediately prior to giving effect to
such Issuance which the Fair Market Value of Equivalent Shares held by such
Participation Offeree constitutes (excluding for such purposes Unvested
Management Shares, the “Participation Portion”), (iv) the price
(including if applicable, the Price Per Equivalent Share) per unit of the
Subject Securities, including a description of any pricing formulae and of any
non-cash consideration sufficiently detailed to permit valuation thereof, (v)
the proposed manner of disposition, (vi) the name and address of the Person to
whom the Subject Securities will be issued (the “Prospective Subscriber”)
and (vii) if known, the proposed Issuance date; and

 

(b)           an
offer by the Issuer to issue, at the option of each Participation Offeree, to
such Participation Offeree such portion of the Subject Securities to be
included in the Issuance as may be requested by such Participation Offeree (not
to exceed the Participation Portion of the total amount of Subject Securities
to be included in the Issuance), on the same terms and conditions, with respect
to each unit of Subject Securities issued to the Participation Offerees, as
each of the Prospective Subscribers shall be issued units of Subject
Securities.

 

3.1.2.       Exercise.

 

(a)           General.  Each Participation Offeree desiring to accept
the offer contained in the Participation Notice shall accept such offer by
furnishing a written commitment to the Issuer within 15 business days after the
effectiveness of the Participation Notice specifying the amount of Subject Securities
(not in any event to exceed the Participation Portion of the total amount of
Subject Securities to be included in the Issuance) which such Participation
Offeree desires to be issued to it (each a “Participating Buyer”).  Each Participation Offeree who does not so
accept such offer in compliance with the above requirements, including the
applicable time periods, shall be deemed to have waived all rights to
participate in such Issuance, and the Issuer shall thereafter be free to issue
Subject Securities in such Issuance to the Prospective Subscriber and any
Participating Buyers, at a price no less than the minimum price set forth in
the Participation Notice and on other principal terms not substantially more
favorable to the Prospective Subscriber than those set forth in the
Participation Notice, without any further obligation to such non-accepting
Participation Offerees pursuant to this Section 3.  If, prior to consummation, the terms of such
proposed Issuance shall change with the result that the price shall be less
than the minimum price set forth in the Participation Notice or the other
principal terms shall be substantially more favorable to the Prospective
Subscriber than those set forth in the Participation Notice, it shall be
necessary for a separate Participation Notice to be furnished, and the terms
and provisions of this Section 3.1 separately complied with, in order to
consummate such Issuance pursuant to this Section 3.1.

 

6

 

(b)           Irrevocable
Acceptance.  The acceptance of each
Participating Buyer shall be irrevocable except as hereinafter provided, and
each such Participating Buyer shall be bound and obligated to acquire in the
Issuance on the same terms and conditions, with respect to each unit of Subject
Securities issued, as the Prospective Subscriber, such amount of Subject
Securities as such Participating Buyer shall have specified in such
Participating Buyer’s written commitment.

 

(c)           Time
Limitation.  If at the end of the
180th day following the date of the effectiveness of the Participation Notice
the Issuer has not completed the Issuance, each Participating Buyer shall be
released from all obligations under the written commitment, the Participation
Notice shall be null and void, and it shall be necessary for a separate
Participation Notice to be furnished, and the terms and provisions of this
Section 3.1 separately complied with, in order to consummate such Issuance
pursuant to this Section 3.1.

 

3.1.3.       Other Securities.  The Issuer may condition the participation of
the Participation Offerees in an Issuance upon the purchase by such
Participation Offerees of any securities (including, if applicable, debt
securities) other than Subject Securities (“Other Securities”) if and to
the extent that Prospective Subscribers’ participation in such Issuance is so
conditioned.  In such case, each
Participating Buyer shall acquire in the Issuance, together with the Subject
Securities to be acquired by it, Other Securities in the same proportion to the
Subject Securities to be acquired by it as the proportion of Other Securities
to Subject Securities being acquired by the Prospective Subscriber in the
Issuance, on the same terms and conditions, as to each unit of Subject
Securities and Other Securities issued to the Participating Buyers, as the
Prospective Subscriber shall be issued units of Subject Securities and Other
Securities.

 

3.1.4.       Certain Legal Requirements.  In the event that the participation in any
Issuance by a holder of Shares as a Participating Buyer would require under
applicable law (a) the registration or qualification of such securities or (b)
the provision to any participant in the Issuance of any information (other than
information required to be provided pursuant to Section 5) regarding the
Company, its subsidiaries, such securities or the Issuer that is not otherwise
required to be provided for the Issuance, such holder of Shares shall not have
the right to participate in the Issuance. 
Without limiting the generality of the foregoing, it is understood and
agreed that neither the Company nor the Issuer shall be under any obligation to
effect a registration of such securities under the Securities Act or similar
state statutes.

 

3.1.5.       Further Assurances.  Each Participating Buyer will take or cause
to be taken all such reasonable actions as may be necessary or reasonably
desirable in order to consummate each Issuance pursuant to this Section 3.1 and
any related transactions expeditiously, including executing, acknowledging and
delivering consents, assignments, waivers and other documents or instruments;
filing applications, reports, returns, filings and other documents or
instruments with governmental authorities; and otherwise cooperating with the
Company, the Issuer and the Prospective Subscriber.  Without limiting the generality of the
foregoing, each such Participating Buyer agrees

 

7

 

to
execute and deliver such subscription and other agreements specified by the
Issuer to which the Prospective Subscriber will be party.

 

3.1.6.       Closing. 
The closing of an Issuance pursuant to Section 3.1 shall take place at
such time and place as the Issuer shall specify by notice to each Participating
Buyer.  At the Closing of any Issuance
under this Section 3.1.6 each Participating Buyer shall be delivered the notes,
certificates or other instruments evidencing the Subject Securities (and, if
applicable, Other Securities) to be issued to such Participating Buyer,
registered in the name of such Participating Buyer or its designated nominee,
free and clear of any Adverse Claims, with any transfer tax stamps affixed,
against delivery by such Participating Buyer of the applicable consideration.

 

3.2.       Post-Issuance Notice.  Notwithstanding the notice requirements of
Sections 3.1.1 and 3.1.2, as long as such action would not materially
disadvantage any Person who would have been a Participation Offeree, the Issuer
may proceed with any Issuance prior to having complied with the provisions of
Section 3.1; provided that the Issuer shall:

 

(a)           provide
to each holder of Shares who would have been a Participation Offeree in
connection with such Issuance (i) with prompt notice of such Issuance and (ii)
the Participation Notice described in Section 3.1.1 in which the actual price
per unit of Subject Securities (and, if applicable, actual Price Per Equivalent
Share) shall be set forth;

 

(b)           offer
to issue to such holder of Shares such number of securities of the type issued
in the Issuance as may be requested by such holder of Shares (not to exceed the
Participation Portion that such holder of Shares would have been entitled to
pursuant to Section 3.1 multiplied by the sum of (i) the number of Subject
Securities included in the Issuance and (ii) the aggregate number of Shares
issued pursuant to this Section 3.2 with respect to such Issuance) on the
same economic terms and conditions with respect to such securities as the
subscribers in the Issuance received; and

 

(c)           keep
such offer open for a period of 10 business days, during which period, each
such holder may accept such offer by sending a written acceptance to the Issuer
committing to purchase an amount of such securities (not in any event to exceed
the Participation Portion that such holder would have been entitled to pursuant
to Section 3.1 multiplied by the sum of (i) the number of Subject
Securities included in such Issuance and (ii) the aggregate number of
Shares issued pursuant to this Section 3.2 with respect to such Issuance).

 

3.3.       Excluded Transactions.  The provisions of this Section 3 shall not
apply to Issuances by the Company or any subsidiary of the Company as follows:

 

(a)           Any
Issuance of Common Stock upon the exercise or conversion of any Common Stock,
Options, Warrants or Convertible Securities outstanding or approved on the date
hereof or Issued after the date hereof in compliance with the provisions of
this Section 3;

 

8

 

(b)           Any
Issuance of Common Stock pursuant to the Initial Public Offering;

 

(c)           The
Issuance of Shares in connection with the Closing; or

 

(d)           Any
Issuance of shares of Common Stock in connection with any stock split, stock
dividend or recapitalization approved by the Board.

 

3.4.       Certain Provisions
Applicable to Options, Warrants and Convertible Securities.  In the event that the Issuance of Subject
Securities shall result in any increase in the number of shares of Common Stock
issuable upon exercise, conversion or exchange of any Options, Warrants or
Convertible Securities, the number of shares (or Equivalent Shares, if
applicable) of Subject Securities (and Other Securities, if applicable) which
the holders of such Options, Warrants or Convertible Securities, as the case
may be, shall be entitled to purchase pursuant to Section 3.1, if any, shall be
reduced, share for share, by the amount of any such increase.

 

3.5.       Acquired Shares.  Any Subject Securities constituting Common
Stock acquired by any holder of Shares pursuant to this Section 3 shall be
deemed for all purposes hereof to be Investor Shares or Management Shares
hereunder of like kind with the Shares then held by the acquiring holder
hereunder.

 

3.6.       Period.  Each of the foregoing provisions of this
Section 3 shall expire on the earlier of (a) the consummation of a Change
of Control or (b) the closing of the Initial Public Offering.

 

4.             CALL OPTION.

 

4.1.       Call Option Upon
Termination.  Except as the Company
may otherwise agree in writing with any Manager with respect to Shares held by
such Manager’s Management Call Group, upon any termination of the employment by
the Company and its subsidiaries of any Manager (by the Company, such Manager
or otherwise), the Company shall have the right to purchase all of the
Management Shares held by such Manager or originally issued to such Manager but
held by one or more Permitted Transferees (collectively, the “Management
Call Group”) on the following terms (the “Management Call Option”):

 

4.1.1.         Purchased Management Shares.  The Company may purchase all of the Purchased
Management Shares held by such Management Call Group at a per share price equal
to the Fair Market Value of such Shares on the Management Call Notice Date.

 

4.1.2.       Other Shares.  For all Management Shares which are not
Purchased Management Shares, the following terms shall apply:

 

(a)           Termination
for Cause. If such termination is the result of termination of such Manager’s
employment by the Company or its subsidiaries for Cause, then the Company may
purchase all or any portion of the Shares held by such Management Call Group at
a per Share price equal to the lesser of the

 

9

 

Cost or the
Fair Market Value of such Shares on the Management Call Notice Date.

 

(b)           Death
or Disability.  If such termination
is the result of the death or Disability of such Manager, then the Company may
purchase all or any portion of the Shares held by such Management Call
Group at a per Share price equal to the Fair Market Value of such Shares on the
Management Call Notice Date.

 

(c)           Termination
by Manager.  If such termination is
the result of termination by a Manager (but not by the Company) other than by
reason of the Manager’s death or Disability and other than in circumstances
where the Company or its subsidiaries would have grounds to terminate such
Manager for Cause, then the Company may purchase all or any portion of the
Shares held by such Management Call Group at a per Share price equal to the
Fair Market Value of such Shares on the Management Call Notice Date.

 

(d)           Termination by
the Company Not for Cause.  If such
termination is the result of termination by the Company or its
subsidiaries and such termination is not for Cause, then the Company may
purchase all or any portion of the Shares held by such Management Call
Group at a per Share price equal to the Fair Market Value of such Shares on the
Management Call Notice Date.

 

4.1.3.       Notices. Any Management Call Option may
be exercised by delivery of written notice thereof (the “Management Call
Notice”) to all members of the applicable Management Call Group from whom
the Company has elected to purchase Shares no later than the Management Call
Notice Date.  The Management Call Notice
shall state that the Company has elected to exercise the Management Call Option
and the price or date for determining the price of such shares.  For purposes of this Section 4, the “Management
Call Notice Date” shall mean the date of delivery of a Management Call
Notice, which, if delivered, shall be no later than 240 days after (but not
before the date that is one day after the six-month anniversary of) the later
of (i) the date of termination of employment or (ii) the exercise of any Option
originally granted to such Manager or the date upon which any Unvested Shares
granted to such Manager become Vested Shares.

 

4.1.4.       Vesting.  The rights of the Company to purchase
Management Shares under this Section 4 are in addition to, and do not modify,
any vesting requirements that may be included in the terms of any Management
Shares, and any Shares which remain subject to restrictions upon termination by
a Manager shall be automatically forfeited to the Company, if applicable, in
accordance with their terms.

 

4.2.       Payments.  The Company shall make any payment required
to be made by the Company to the Management Call Group under any provision of
this Section 4 in cash.

 

4.3.       Closing.

 

4.3.1.       The closing of any purchase and sale of
Management Shares pursuant to this Section 4 shall take place as soon as
reasonably practicable, and in any event not

 

10

 

later
than 30 days after the Management Call Notice Date (provided that such
time shall be extended as necessary to comply with applicable legal
requirements) at the principal office of the Company, or at such other time and
location as the parties to such purchase may mutually determine.

 

4.3.2.       At the closing of any purchase and sale of
Management Shares following the exercise of any Management Call Option, the
holders of Shares to be sold shall deliver to the Company a certificate or
certificates representing the Shares to be purchased by the Company duly
endorsed, or with stock (or equivalent) powers duly endorsed, for transfer with
signature guaranteed, free and clear of any Adverse Claim, with any necessary
stock (or equivalent) transfer tax stamps affixed, and the Company shall pay to
such holder by certified or bank check or wire transfer of immediately
available federal funds the purchase price of the Shares being purchased by the
Company.  The delivery of a certificate
or certificates for Shares by any Person selling Shares pursuant to any
Management Call Option shall be deemed a representation and warranty by such
Person that:  (a) such Person has full
right, title and interest in and to such Shares; (b) such Person has all
necessary power and authority and has taken all necessary action to sell such
Shares as contemplated and (c) such Shares are free and clear of any and all
Adverse Claims.

 

4.4.       Investor Group Call
Option.  If the Company shall elect
not to purchase pursuant to this Section all Management Shares that are held by
a Management Call Group, the Company may, in its discretion, allocate all of
its rights to purchase such Shares under this Section to one or more Investors
in the discretion of the Company, provided however that any purchase of Shares
by an Investor shall be for cash and shall be made within the time periods set
forth for the Company’s performance under this Section.

 

4.5.       Acknowledgment.  Each holder of Management Shares acknowledges
and agrees that neither the Company nor any Person directly or indirectly
affiliated with the Company (in each case whether as a director, officer,
manager, employee, agent or otherwise) shall have any duty or obligation to
affirmatively disclose to holders of Management Shares, and they shall not have
any right to be advised of, any material information regarding the Company or
otherwise at any time prior to, upon, or in connection with any termination of
his or her employment by the Company or its subsidiaries upon the exercise of
any Management Call Option or any purchase of the Shares in accordance with the
terms hereof.

 

4.6.       Period.  The foregoing provisions of this Section 4
shall expire upon the earlier of (a) the consummation of a Change of Control
and (b) the closing of the Initial Public Offering.

 

5.             INFORMATION RIGHTS.

 

5.1.       Financial and Other
Information.  The Company shall
provide or cause to be provided, to any Stockholder that, together with its
Affiliates or Affiliated Funds, initially holds more than 5% of the outstanding
Common Stock as of the Closing (a “Five Percent Stockholder”), the
following information:

 

11

 

5.1.1.       Annual Reports.  As soon as available, and in any event within
90 days after the end of each fiscal year, the consolidated balance sheet of
the Company and its subsidiaries as at the end of such fiscal year and the
consolidated statements of income, cash flows and stockholders’ equity for such
fiscal year of the Company and its subsidiaries, accompanied by the audit
report of independent certified public accountants of recognized national
standing with respect thereto.

 

5.1.2.       Quarterly Reports.  As soon as available, and in any event within
45 days after the end of each of the first three fiscal quarters of each fiscal
year, the unaudited consolidated balance sheet of the Company and its
subsidiaries as at the end of such fiscal quarter and the consolidated
statements of income, cash flows and stockholder’s equity for such fiscal
quarter and the portion of the fiscal year then ended with such fiscal quarter
of the Company and its subsidiaries.  

 

5.1.3.       Monthly Reports.  As soon as available, and in any event within
30 days after the end of each fiscal month, other than the last month of any
fiscal quarter or of the fiscal year, the unaudited consolidated balance sheet
of the Company and its subsidiaries as at the end of such fiscal month and the
consolidated statements of income, cash flows and stockholder’s equity for such
fiscal month and the portion of the fiscal year then ended with such fiscal
month of the Company and its subsidiaries.

 

If, at any time, the
Company is required by the rules and regulations of the Commission to file
annual and quarterly reports electronically with the Commission through the Commission’s
Electronic Data Gathering, Analysis and Retrieval System (or any successor
system), or is voluntarily filing such reports, then the obligations of the
Company under Sections 5.1.1 and 5.1.2 shall be satisfied by the making of such
filings.

 

5.2.       Other Information.  The Company will also furnish to each Five
Percent Stockholder with reasonable promptness, such other information and data
with respect to the Company as such Stockholder may from time to time
reasonably request, which information will not be used for any purpose by such
Five Percent Stockholder other than to evaluate his, her or its investment in
the Company and shall be subject to the confidentiality provisions of Section
5.3 below.

 

5.3.       Confidentiality.  Each Five Percent Stockholder covenants and
agrees that if such Five Percent Stockholder receives information under this
Section 5, such Five Percent Stockholder shall keep confidential, and cause its
officers, directors, employees, agents and representatives, to keep confidential,
all information, materials and documents concerning the business of the Company
and its subsidiaries furnished by, or on behalf of, the Company or its
subsidiaries or otherwise acquired by such Five Percent Stockholder (the “Confidential
Information”).  Notwithstanding the
foregoing, a Five Percent Stockholder shall be permitted to disclose
Confidential Information:  (a) to its
officers, managers, directors, employees, agents and representatives and
Affiliates provided that such Confidential Information shall remain
confidential; (b) to the extent required by applicable laws and regulations or
by any subpoena or similar legal process, or to the extent requested by any
governmental agency or authority; (c) to the extent such Confidential
Information (i) becomes publicly available other than as a result of a breach
of this Agreement, (ii) becomes available to the Five Percent Stockholder on a
non-

 

12

 

confidential
basis from a source other than the Company or its subsidiaries or (iii) was
available to the Five Percent Stockholder on a non-confidential basis prior to
its disclosure to the Five Percent Stockholder by the Company or its
subsidiaries; or (d) to the extent the Company or its subsidiaries shall have consented
to such disclosure in writing.

 

5.4.       Period.  Each of the foregoing provisions of this
Section 5 shall expire on the closing of the Initial Public Offering.

 

6.             REMEDIES.

 

6.1.       Generally.  The Company and each holder of Shares shall
have all remedies available at law, in equity or otherwise in the event of any
breach or violation of this Agreement or any default hereunder by the Company
or any holder of Shares.  The parties
acknowledge and agree that in the event of any breach of this Agreement, in addition
to any other remedies which may be available, each of the parties hereto shall
be entitled to specific performance of the obligations of the other parties
hereto and, in addition, to such other equitable remedies (including,
preliminary or temporary relief) as may be appropriate in the circumstances.

 

6.2.       Deposit.  Without limiting the generality of Section
6.1, if any holder of Shares fails to deliver to the purchaser thereof the
certificate or certificates evidencing Shares to be Sold pursuant to Section 4
hereof, such purchaser may, at its option, in addition to all other remedies it
may have, deposit the purchase price for such Shares with any national bank or
trust company having combined capital, surplus and undivided profits in excess
of One Hundred Million Dollars ($100,000,000) (the “Escrow Agent”) and
the Company shall cancel on its books the certificate or certificates
representing such Shares and thereupon all of such holder’s rights in and to
such Shares shall terminate.  Thereafter,
upon delivery to such purchaser by such holder of the certificate or
certificates evidencing such Shares (duly endorsed, or with stock powers duly
endorsed, for transfer, with signature guaranteed, free and clear of any
Adverse Claims, and with any transfer tax stamps affixed), such purchaser shall
instruct the Escrow Agent to deliver the purchase price (without any interest
from the date of the closing to the date of such delivery, any such interest to
accrue to such purchaser) to such holder.

 

7.             LEGENDS.

 

7.1.       Restrictive Legend.  Each certificate representing Shares shall
have the following legend endorsed conspicuously thereupon:

 

The sale,
encumbrance or other disposition of the shares of stock represented by this
certificate are subject to the provisions of a Stockholders Agreement and a
Registration Rights Agreement, in each case to which the issuer and certain of
its stockholders are party, a copy of which may be inspected at the principal
office of the issuer or obtained from the issuer without charge.

 

Each certificate
representing Investor Shares shall also have the following legend endorsed
conspicuously thereupon:

 

13

 

The shares of
stock represented by this certificate were originally issued to, or issued with
respect to shares originally issued to, the following Investor:               .

 

Each certificate
representing Management Shares shall also have the following legend endorsed
conspicuously thereupon:

 

The shares of
stock represented by this certificate were originally issued to, or issued with
respect to shares originally issued to, the following Manager:               .

 

Any person who acquires
Shares which are not subject to any of the terms of this Agreement shall have
the right to have such legend (or the applicable portion thereof) removed from
certificates representing such Shares.

 

7.2.       1933 Act Legends.  Each certificate representing Shares shall
have the following legend endorsed conspicuously thereupon:

 

The securities represented by this certificate
were issued in a private placement, without registration under the Securities
Act of 1933, as amended (the “Act”), and may not be sold, assigned, pledged or
otherwise transferred in the absence of an effective registration under the Act
covering the transfer or an opinion of counsel, satisfactory to the issuer,
that registration under the Act is not required.

 

7.3.       Stop Transfer
Instruction.  The Company will
instruct any transfer agent not to register the Transfer of any Shares until
the conditions specified in the foregoing legends are satisfied.

 

7.4.       Termination of 1933 Act
Legend.  The requirement imposed by
Section 7.2 hereof shall cease and terminate as to any particular Shares (i)
when, in the opinion of Ropes & Gray LLP, or other counsel reasonably
acceptable to the Company, such legend is no longer required in order to assure
compliance by the Company with the Securities Act or (ii) when such Shares have
been effectively registered under the Securities Act or transferred pursuant to
Rule 144.  Wherever (x) such requirement
shall cease and terminate as to any Shares or (y) such Shares shall be
transferable under paragraph (k) of Rule 144, the holder thereof shall be
entitled to receive from the Company, as the case may be, without expense, new
certificates not bearing the legend set forth in Section 7.2 hereof.

 

8.             AMENDMENT,
TERMINATION, ETC.

 

8.1.       Oral Modifications.  This Agreement may not be orally amended,
modified, extended or terminated, nor shall any oral waiver of any of its terms
be effective.

 

8.2.       Written Modifications.  This Agreement may be amended, modified,
extended or terminated, and the provisions hereof may be waived, only by an
agreement in writing signed by the Company and the Stockholders that hold a
majority of the Shares held by all Stockholders;

 

14

 

provided,
however, that any amendment, modification, extension, termination or
waiver (an “Amendment”) shall also require the consent of any
Stockholder who would be disproportionately and adversely affected thereby.

 

Each such Amendment shall
be binding upon each party hereto and each holder of Shares subject
hereto.  In addition, each party hereto
and each holder of Shares subject hereto may waive any right hereunder by an
instrument in writing signed by such party or holder.

 

8.3.       Effect of Termination.  No termination under this Agreement shall
relieve any Person of liability for breach prior to termination.

 

9.             DEFINITIONS.  For purposes
of this Agreement:

 

9.1.       Certain Matters of
Construction.  In addition to the
definitions referred to or set forth below in this Section 9:

 

(a)           The
words “hereof’, “herein”, “hereunder” and words of similar import shall refer
to this Agreement as a whole and not to any particular Section or provision of
this Agreement, and reference to a particular Section of this Agreement shall
include all subsections thereof;

 

(b)           The
word “including” shall mean including, without limitation;

 

(c)           Definitions
shall be equally applicable to both nouns and verbs and the singular and plural
forms of the terms defined; and

 

(d)           The
masculine, feminine and neuter genders shall each include the other.

 

9.2.       Definitions.  The following terms shall have the following
meanings:

 

“Adverse Claim”
shall have the meaning set forth in Section 8-102 of the applicable Uniform
Commercial Code.

 

“Affiliate” shall
mean, with respect to any specified Person, (i) any other Person which directly
or indirectly through one or more intermediaries controls, or is controlled by,
or is under common control with, such specified Person (for the purposes of
this definition, “control” (including, with correlative meanings, the terms “controlling,”
“controlled by” and “under common control with”), as used with respect to any
Person, means the possession, directly or indirectly, of the power to direct or
cause the direction of the management or policies of such Person, whether
through the ownership of voting securities, by agreement or otherwise); and
(ii) with respect to any natural Person, any Member of the Immediate Family of
such natural Person.

 

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

 

15

 

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

 

“Amendment” shall
have the meaning set forth in Section 8.2.

 

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

 

“business day”
shall mean any day that is not a Saturday, a Sunday or other day on which banks
are required or authorized by law to be closed in the City of New York.

 

“Cause”, with respect to any Manager, shall mean the following
events or conditions, as determined by the Board in its reasonable
judgment:  (i) the refusal or
failure to perform (other than by reason of disability), or material negligence
in the performance of such Manager’s duties and responsibilities to the Company
or any of its Affiliates, or refusal or failure to follow or carry out any
reasonable direction of the Board, and the continuance of such refusal, failure
or negligence for a period of 10 days after notice to such Manager; (ii) the
material breach by such Manager of any provision of any material agreement
between such employee and the Company or any of its Affiliates; (iii) fraud,
embezzlement, theft or other dishonesty by such Manager with respect to the
Company or any of its Affiliates; (iv) the conviction of, or a plea of nolo contendere by, such Manager to any felony or any other
crime involving dishonesty or moral turpitude; and (v) any other conduct that
involves a breach of fiduciary obligation on the part of such Manager or
otherwise could reasonably be expected to have a material adverse effect upon
the business, interests or reputation of the Company or any of its Affiliates.

 

“Change of Control”
shall mean the occurrence of any of the following: (i) any consolidation or
merger of the Company with or into any other corporation or other Person, or
any other corporate reorganization or transaction (including the acquisition of
capital stock of the Company), whether or not the Company is a party thereto,
in which the stockholders of the Company immediately prior to such
consolidation, merger, reorganization or transaction, own capital stock either
(A) representing directly, or indirectly through one or more entities, less
than fifty percent (50%) of the economic interests in or voting power of the
Company or other surviving entity immediately after such consolidation, merger,
reorganization or transaction or (B) that does not directly, or indirectly
through one or more entities, have the power to elect a majority of the entire
board of directors of the Company or other surviving entity immediately after
such consolidation, merger, reorganization or transaction, (ii) any stock sale
or other transaction or series of related transactions, whether or not the
Company is a party thereto, after giving effect to which in excess of fifty
percent (50%) of the Company’s voting power is owned directly, or indirectly
through one or more entities, by any Person and its “affiliates” or “associates”
(as such terms are defined in the rules adopted by the Commission under the
Exchange Act), other than the Investors and their respective Affiliated Funds,
excluding, in any case referred to in clause (i) or (ii) the Initial Public
Offering or any bona fide primary or secondary public offering following the
occurrence of the Initial Public Offering; or (iii) a sale, lease or other
disposition of all or substantially all of the assets of the Company.

 

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

 

“Commission” shall
mean the Securities and Exchange Commission.

 

16

 

“Common Stock”
shall mean the common stock, par value $0.10 per share, of the Company.

 

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

 

“Confidential Information”
shall have the meaning set forth in Section 5.3.

 

“Convertible
Securities” shall mean any evidence of indebtedness, shares of stock (other
than Common Stock) or other securities (other than Options and Warrants) which
are directly or indirectly convertible into or exchangeable or exercisable for
shares of Common Stock.

 

“Cost” shall mean
with respect to any Management Shares, the purchase price paid for such
Management Shares by the original holder thereof less any distributions
received with respect to such Management Shares; provided, that the Cost
of (i) unvested shares of capital stock shall equal the purchase price paid for
such shares, if any, and (ii) unvested options shall equal zero; and provided,
further, that any consideration included in the purchase price for any
unvested Shares shall equal zero.

 

“Disability”, with
respect to any Manager, shall have the meaning ascribed to such term in any
employment agreement, severance or other similar agreement between such Manager
and the Company or any of its subsidiaries, or, if no such agreement exists or
the provisions of such agreements conflict, the disability of a Manager during
his employment hereunder through any illness, injury, accident or condition of
either a physical or psychological nature as a result of which he is unable to
perform substantially all of his duties and responsibilities hereunder,
notwithstanding the provision of any reasonable accommodation, for ninety (90)
consecutive days during any period of three hundred and sixty-five (365)
consecutive calendar days.

 

“Equivalent Shares”
shall mean, at any date of determination, (i) as to any outstanding shares of
Common Stock, such number of shares of Common Stock and (ii) as to any
outstanding Options, Warrants or Convertible Securities which constitute
Shares, the maximum number of shares of Common Stock for which or into which
such Options, Warrants or Convertible Securities may at the time be exercised,
converted or exchanged (or which will become exercisable, convertible or exchangeable
on or prior to, or by reason of, the transaction or circumstance in connection
with which the number of Equivalent Shares is to be determined).

 

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

 

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

 

“Fair Market Value”
shall mean, as of any date, as to any Share, the Board’s good faith
determination of the fair value of such Share as of the applicable reference
date.

 

“Five Percent
Stockholder” shall have the meaning set forth in Section 5.1.

 

“Highfields Funds”
shall have the meaning set forth in the Preamble.

 

17

 

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

 

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

 

“Investor Shares”
shall mean all Shares held by an Investor.

 

“Issuance” shall
have the meaning set forth in Section 3.

 

“Issuer” shall
have the meaning set forth in Section 3.

 

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

 

“Management Call Group”
shall have the meaning set forth in Section 4.1.

 

“Management Call
Notice” shall have the meaning set forth in Section 4.1.3.

 

“Management Call
Notice Date” shall have the meaning set forth in Section 4.1.3.

 

“Management Call
Option” shall have the meaning set forth in Section 4.1.

 

“Management
Participation Shares” means Purchased Management Shares and, without duplication,
Vested Management Shares.

 

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

 

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

 

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

 

“Merger Agreement”
shall have the meaning set forth in the Recitals.

 

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

 

“Other Securities”
shall have the meaning set forth in Section 3.1.3.

 

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

 

“Participation Notice”
shall have the meaning set forth in Section 3.1.1.

 

“Participation
Offerees” shall have the meaning set forth in Section 3.1.1.

 

18

 

“Participation Portion”
shall have the meaning set forth in Section 3.1.1.

 

“Permitted Transferee”
shall have the meaning set forth in Section 2.1.

 

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

 

“Price Per Equivalent
Share” means the Board’s good faith determination of the price per
Equivalent Share of any Convertible Securities or Options which are the subject
of an issuance pursuant to Section 3 hereof.

 

“Prospective
Subscriber” shall have the meaning set forth in Section 3.1.1.

 

“Prospective
Transferee” shall mean any Person other than a competitor of the Company.

 

 “Public Offering” shall mean a public
offering and sale of Common Stock for cash pursuant to an effective
registration statement under the Securities Act.

 

“Purchased Management
Shares” shall mean, with respect to any Manager or direct or indirect
Permitted Transferee of a Manager, all of the Management Shares which were
either (i) originally purchased from the Company by that Manager for cash,
(ii) retained by that Manager in respect of Rollover Shares (as defined in the
Merger Agreement) or (iii) retained by that Manager in respect of Rollover
Options (as defined in the Merger Agreement). 
Shares issued to Managers directly or indirectly pursuant to an
incentive plan or scheme, including any restricted stock award (whether or not
vested), Options and Shares issued upon exercise of Options (except those
specified in clause (iii) above), are not Purchased Management Shares for purposes
of this Agreement.

 

“Registration Rights
Agreement” shall have the meaning set forth in the Recitals.

 

“ROFR Acceptance
Notice” shall have the meaning set forth in Section 2.2.3.

 

“ROFR Offer Notice”
shall have the meaning set forth in Section 2.2.2.

 

“ROFR Option”
shall have the meaning set forth in Section 2.2.2.

 

“Sale” shall mean
a Transfer for value and the terms “Sell” and “Sold” shall have correlative
meanings.

 

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

 

“Shares” shall
mean (i) all shares of Common Stock held by a Stockholder, whenever issued,
including all shares of Common Stock issued upon the exercise, conversion or
exchange of any Options, Warrants or Convertible Securities and (ii) all
Options, Warrants and Convertible Securities held by a Stockholder (treating
such Options, Warrants and Convertible Securities as a number of Shares equal
to the number of Equivalent Shares represented by such

 

19

 

Options, Warrants and
Convertible Securities for all purposes of this Agreement except as otherwise
specifically set forth herein).

 

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

 

“Subject Securities”
shall have the meaning set forth in Section 3.

 

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

 

“Unvested Management
Shares” shall mean, at any time, all Management Shares that are not Vested
Management Shares or Purchased Management Shares.

 

“Vested Management
Shares” shall mean, at any time, all Management Shares that are granted or
issued under any restricted stock award, stock option award or similar program
with respect to which all applicable vesting conditions have been satisfied.

 

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

 

10.           MISCELLANEOUS.

 

10.1.     Authority:  Effect. 
Each party hereto represents and warrants to and agrees with each other
party that the execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby have been duly authorized on behalf of
such party and do not violate any agreement or other instrument applicable to
such party or by which its assets are bound. 
This Agreement does not, and shall not be construed to, give rise to the
creation of a partnership among any of the parties hereto, or to constitute any
of such parties members of a joint venture or other association.

 

10.2.     Notices.  Any notices, requests, demands, claims and
other communications required or permitted in this Agreement shall be effective
if in writing and (a) delivered personally, (b) sent by facsimile, or (c) sent
by overnight courier, in each case, addressed as follows:

 

	
   

  	
  If to the Company to:

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Michaels Stores, Inc.

  
	
   

  	
   

  	
  8000 Bent Branch Drive

  
	
   

  	
   

  	
  Irving, Texas  75261

  
	
   

  	
   

  	
  Facsimile:

  	
  (972) 409-1901

  
	
   

  	
   

  	
  Attention:

  	
  Jeffrey N. Boyer

  
	
   

  	
   

  	
   

  	
  Mark V. Beasley

  
					

 

20

 

	
   

  	
  with copies to:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Ropes
  & Gray LLP

  	
   

  
	
   

  	
   

  	
  One International Place

  	
   

  
	
   

  	
   

  	
  Boston, MA  02110

  
	
   

  	
   

  	
  Facsimile:

  	
  (617) 951-7050

  
	
   

  	
   

  	
  Attention:

  	
  David
  C. Chapin

  
	
   

  	
   

  	
   

  	
  William
  M. Shields

  
	
   

  	
   

  	
   

  	
  R.
  Newcomb Stillwell

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  If
  to the LLC, to:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  c/o
  Bain Capital Partners, LLC

  	
   

  
	
   

  	
   

  	
  111
  Huntington Avenue

  	
   

  
	
   

  	
   

  	
  Boston,
  Massachusetts  02199

  
	
   

  	
   

  	
  Facsimile:

  	
  (617) 516-2010

  
	
   

  	
   

  	
  Attention:

  	
  Matthew S. Levin

  
	
   

  	
   

  	
   

  	
  Todd M. Cook

  
	
   

  	
  and

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  c/o
  Blackstone Management Associates V, LLC

  	
   

  
	
   

  	
   

  	
  345
  Park Avenue, 31st Floor

  	
   

  
	
   

  	
   

  	
  New
  York, New York 10154

  
	
   

  	
   

  	
  Facsimile:

  	
  (212)
  583-5712

  
	
   

  	
   

  	
  Attention:

  	
  Michael
  Chae

  
	
   

  	
   

  	
   

  	
  Matthew
  S. Kabaker

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  with
  copies to:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Ropes
  & Gray LLP

  	
   

  
	
   

  	
   

  	
  One International Place

  	
   

  
	
   

  	
   

  	
  Boston, MA  02110

  
	
   

  	
   

  	
  Facsimile:

  	
  (617) 951-7050

  
	
   

  	
   

  	
  Attention:

  	
  David
  C. Chapin

  
	
   

  	
   

  	
   

  	
  William
  M. Shields

  
	
   

  	
   

  	
   

  	
  R.
  Newcomb Stillwell

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  If
  to the Highfields Funds, to them:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  c/o Highfields Capital
  Management LP

  	
   

  
	
   

  	
   

  	
  John Hancock Tower

  	
   

  
	
   

  	
   

  	
  200 Clarendon Street, 51st
  Floor

  	
   

  
	
   

  	
   

  	
  Boston, Massachusetts
  02116

  
	
   

  	
   

  	
  Facsimile:

  	
  (617) 850-7503

  
	
   

  	
   

  	
  Attention:

  	
  Joseph Mazzella

  
					

 

21

 

	
   

  	
  with copies to:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Goodwin Procter LLP

  	
   

  
	
   

  	
   

  	
  Exchange Place

  	
   

  
	
   

  	
   

  	
  Boston, Massachusetts
  02109

  
	
   

  	
   

  	
  Facsimile: 

  	
  617) 523-1231

  
	
   

  	
   

  	
  Attention:

  	
  Laura C. Hodges Taylor

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  If to 4390075 Canada Inc.,
  to:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  4390075 Canada Inc.

  	
   

  
	
   

  	
   

  	
  1 St Clair Avenue East 

  	
   

  
	
   

  	
   

  	
  Suite 1003

  	
   

  
	
   

  	
   

  	
  Toronto, Ontario

  	
   

  
	
   

  	
   

  	
  M4T 2V7

  	
   

  
	
   

  	
   

  	
  Canada

  
	
   

  	
   

  	
  Facsimile:

  	
  (514) 201-5290

  
	
   

  	
   

  	
  Attention:

  	
  Gregory David

  
						

 

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

 

If to any other
Stockholder, to it at the address set forth in the records of the Company.

 

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

 

Unless otherwise
specified herein, such notices or other communications shall be deemed effective
(a) on the date received, if personally delivered, (b) on the date received if
delivered by facsimile on a business day, or if not delivered on a business
day, on the first business day thereafter and (c) 2 business days after being
sent by overnight courier.  Each of the
parties hereto shall be entitled to specify a different address by giving
notice as aforesaid to each of the other parties hereto.

 

10.3.     Merger; Binding Effect,
Etc.  This Agreement, together with
the Registration Rights Agreement, constitute the entire agreement of the
parties with respect to their subject matter, supersede all prior or
contemporaneous oral or written agreements or discussions with respect to such
subject matter, and shall be binding upon and inure to the benefit of the
parties hereto and their respective heirs, representatives, successors and
permitted assigns.  Except as otherwise
expressly provided herein, no Stockholder party hereto may assign any of his,
her or its respective rights or delegate any of his, her or its respective
obligations under this Agreement without the prior written consent of the
Company and the Stockholders that hold a majority of the Shares held by all
Stockholders, and any attempted assignment or delegation in violation of the
foregoing shall be null and void.

 

22

 

10.4.     Descriptive Heading.  The descriptive headings of this Agreement
are for convenience of reference only, are not to be considered a part hereof
and shall not be construed to define or limit any of the terms or provisions
hereof.

 

10.5.     Counterparts.  This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original, but all of which taken
together shall constitute one instrument.

 

10.6.     Severability.  In the event that any provision hereof would,
under applicable law, be invalid or unenforceable in any respect, such
provision shall be construed by modifying or limiting it so as to be valid and
enforceable to the maximum extent compatible with, and possible under,
applicable law.  The provisions hereof
are severable, and in the event any provision hereof should be held invalid or
unenforceable in any respect, it shall not invalidate, render unenforceable or
otherwise affect any other provision hereof.

 

10.7.     No Recourse.  Notwithstanding anything that may be
expressed or implied in this Agreement, the Company and each Stockholder
covenant, agree and acknowledge that no recourse under this Agreement or any
documents or instruments delivered in connection with this Agreement shall be
had against any current or future director, officer, employee, general or
limited partner or member of any Stockholder or of any Affiliate or assignee
thereof, as such, whether by the enforcement of any assessment or by any legal
or equitable proceeding, or by virtue of any statute, regulation or other
applicable law, it being expressly agreed and acknowledged that no personal
liability whatsoever shall attach to, be imposed on or otherwise be incurred by
any current or future officer, agent or employee of any Stockholder or any
current or future member of any Stockholder or any current or future director,
officer, employee, partner or member of any Stockholder or of any Affiliate or
assignee thereof, as such, for any obligation of any Stockholder under this
Agreement or any documents or instruments delivered in connection with this
Agreement for any claim based on, in respect of or by reason of such
obligations or their creation.

 

11.           GOVERNING LAW.

 

11.1.     Governing Law.  This Agreement and all claims arising out of
or based upon this Agreement or relating to the subject matter hereof shall be
governed by and construed in accordance with the domestic substantive laws of
the State of New York without giving effect to any choice or conflict of laws
provision or rule that would cause the application of the domestic substantive
laws of any other jurisdiction.

 

11.2.     Consent to Jurisdiction.  Each party to this Agreement, by its
execution hereof, (a) hereby irrevocably submits to the exclusive jurisdiction
of the state and federal courts sitting in the State of New York for the
purpose of any action, claim, cause of action or suit (in contract, tort or
otherwise), inquiry, proceeding or investigation arising out of or based upon
this Agreement or relating to the subject matter hereof, (b) hereby waives to
the extent not prohibited by applicable law, and agrees not to assert, and
agrees not to allow any of its subsidiaries to assert, by way of motion, as a
defense or otherwise, in any such action, any claim that it is not subject
personally to the jurisdiction of the above-named courts, that its property is
exempt or immune from attachment or execution, that any such proceeding brought
in one of the above-

 

23

 

named courts is improper, or that this Agreement or
the subject matter hereof or thereof may not be enforced in or by such court
and (c) hereby agrees not to commence or maintain any action, claim, cause of
action or suit (in contract, tort or otherwise), inquiry, proceeding or
investigation arising out of or based upon this Agreement or relating to the
subject matter hereof or thereof other than before one of the above-named
courts nor to make any motion or take any other action seeking or intending to
cause the transfer or removal of any such action, claim, cause of action or
suit (in contract, tort or otherwise), inquiry, proceeding or investigation to
any court other than one of the above-named courts whether on the grounds of
inconvenient forum or otherwise. 
Notwithstanding the foregoing, (x) to the extent that any party hereto
is or becomes a party in any litigation in connection with which it may assert
indemnification rights set forth in this agreement, the court in which such litigation
is being heard shall be deemed to be included in clause (a) above; and (y) any
party to this Agreement may commence and maintain an action to enforce a
judgment of any of the above-named courts in any court of competent
jurisdiction.  Each party hereto hereby
consents to service of process in any such proceeding in any manner permitted
by New York law, and agrees that service of process by registered or certified
mail, return receipt requested, at its address specified pursuant to Section
10.2 hereof is reasonably calculated to give actual notice.

 

11.3.     WAIVER OF JURY TRIAL.  TO THE EXTENT NOT PROHIBITED BY APPLICABLE
LAW WHICH CANNOT BE WAIVED, EACH PARTY HERETO HEREBY WAIVES AND COVENANTS THAT
IT WILL NOT ASSERT (WHETHER AS PLAINTIFF, DEFENDANT OR OTHERWISE) ANY RIGHT TO
TRIAL BY JURY IN ANY FORUM IN RESPECT OF ANY ISSUE OR ACTION, CLAIM, CAUSE OF
ACTION OR SUIT (IN CONTRACT, TORT OR OTHERWISE), INQUIRY, PROCEEDING OR
INVESTIGATION ARISING OUT OF OR BASED UPON THIS AGREEMENT OR THE SUBJECT MATTER
HEREOF OR IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE
TRANSACTIONS CONTEMPLATED HEREBY, IN EACH CASE WHETHER NOW EXISTING OR
HEREAFTER ARISING.  EACH PARTY HERETO
ACKNOWLEDGES THAT IT HAS BEEN INFORMED BY THE OTHER PARTIES HERETO THAT THIS
SECTION 11.3 CONSTITUTES A MATERIAL INDUCEMENT UPON WHICH THEY ARE RELYING AND
WILL RELY IN ENTERING INTO THIS AGREEMENT. 
ANY PARTY HERETO MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS
SECTION 11.3 WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF EACH SUCH
PARTY TO THE WAIVER OF ITS RIGHT TO TRIAL BY JURY.

 

11.4.     Exercise of Rights and
Remedies.  No delay of or omission in
the exercise of any right, power or remedy accruing to any party as a result of
any breach or default by any other party under this Agreement shall impair any
such right, power or remedy, nor shall it be construed as a waiver of or
acquiescence in any such breach or default, or of any similar breach or default
occurring later; nor shall any such delay, omission nor waiver of any single
breach or default be deemed a waiver of any other breach or default occurring
before or after that waiver.

 

[Signature pages follow]

 

24

 

IN
WITNESS WHEREOF, each
of the undersigned has duly executed this Agreement (or caused this Agreement
to be executed on its behalf by its officer or representative thereunto duly
authorized) as of the date first above written.

 

	
  COMPANY

  	
  MICHAELS STORES, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Jeffrey N. Boyer

  
	
   

  	
   

  	
  Name: Jeffrey N. Boyer

  
	
   

  	
   

  	
  Title:   President and Chief Financial Officer

  

 

[Stockholders Agreement]

 

 

	
  INVESTORS

  	
  MICHAELS
  HOLDINGS LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Todd
  Cook

  
	
   

  	
   

  	
  Name: Todd Cook

  
	
   

  	
   

  	
  Title: Vice
  President, Secretary and

  
	
   

  	
   

  	
  Assistant
  Treasurer

  

 

[Stockholders Agreement]

 

 

	
  INVESTORS

  	
  HIGHFIELDS
  CAPITAL I LP, a Delaware limited

  partnership

  
	
   

  	
   

  
	
   

  	
  By:

  	
  Highfields
  Associates LLC, its General Partner

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Richard
  L. Grubman

  	
   

  
	
   

  	
   

  	
  Name:Richard
  L. Grubman

  
	
   

  	
   

  	
  Title:  Managing
  Member

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  HIGHFIELDS
  CAPITAL II LP, a Delaware limited

  partnership

  
	
   

  	
   

  
	
   

  	
  By:

  	
  Highfields
  Associates LLC, its General Partner

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Richard
  L. Grubman

  	
   

  
	
   

  	
   

  	
  Name:Richard
  L. Grubman

  
	
   

  	
   

  	
  Title:  Managing
  Member

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  HIGHFIELDS
  CAPITAL III LP, a Cayman Islands

  exempted limited partnership

  
	
   

  	
   

  
	
   

  	
  By:

  	
  Highfields
  Associates LLC, its General Partner

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Richard
  L. Grubman

  	
   

  
	
   

  	
   

  	
  Name:Richard
  L. Grubman

  
	
   

  	
   

  	
  Title:  Managing
  Member

  

 

[Stockholders Agreement]

 

 

	
  INVESTORS

  	
  4390075
  CANADA INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Gregory
  David

  
	
   

  	
   

  	
  Name:
  Gregory David

  
	
   

  	
   

  	
  Title:Director

  

 

[Stockholders Agreement]

 

 

SCHEDULE I

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