AMENDED AND RESTATED STOCKHOLDERS AGREEMENT

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AMENDED AND RESTATED STOCKHOLDERS AGREEMENT

This Amended and Restated Stockholders Agreement (the “ Agreement ”) is made as of February 16, 2007 and amends and restates the Stockholders Agreement dated as of October 31, 2006 (the “ Original Agreement ”), and is 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 of the Original Agreement, the Company consummated 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 was held as set forth on Schedule I hereto.

3.              In connection with the foregoing, the Company and the Investors entered into a Registration Rights Agreement dated on or about the date of the Original Agreement (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.

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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.

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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.

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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:

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(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.

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(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

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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 of the Original Agreement or Issued after the date of the Original Agreement in compliance with the provisions of this Section 3;

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(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.      COMPANY CALL OPTION AND MANAGEMENT PUT RIGHTS.

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

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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 t