8-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC  20549

FORM 8-K

CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934

Date of report (Date of earliest event reported):  October 31, 2006

MICHAELS STORES, INC.
(Exact Name of Registrant as Specified in Charter)

Delaware	001-09338	75-1943604
(State or Other Jurisdiction	(Commission	(IRS Employer
of Incorporation)	File Number)	Identification No.)

8000 Bent Branch Drive
Irving, Texas  75063
P.O. Box 619566
DFW, Texas  75261-9566
(Address of Principal Executive Offices) (Zip Code)

Registrant’s telephone number, including area code: (972) 409-1300

            Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

¨        Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨        Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

¨Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

¨Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Introductory Note

On October 31, 2006, Michaels Stores, Inc. (the “Company” or “Michaels”) announced the completion of the merger of Michaels with an investor group sponsored by Bain Capital Partners, LLC (“Bain”) and The Blackstone Group (“Blackstone” and, together with Bain, the “Sponsors”).

The Sponsors financed the transaction with equity contributions, along with a new $2,400 million senior secured term loan facility, a new senior secured asset-based revolving credit facility providing financing of up to $1,000 million ($400 million of which was drawn at the Closing (as defined below) and the private placement of $750 million aggregate principal amount of 10% senior notes due 2014, $400 million aggregate principal amount of 113¤8% senior subordinated notes due 2016 and $469.4 million aggregate principal amount at maturity of 13% subordinated discount notes due 2016.  Pursuant to the Agreement and Plan of Merger (the “Merger Agreement”), dated as of June 30, 2006, as amended, among Michaels and Bain Paste Mergerco, Inc., a Delaware corporation, Blackstone Paste Mergerco, Inc., a Delaware corporation (together with Bain Paste Mergerco, Inc., the “Mergercos”), Bain Paste Finco, LLC, a Delaware limited liability company, and Blackstone Paste Finco, LLC, a Delaware limited liability company (together with Bain Paste Finco, LLC, the “Fincos”) (the Mergercos and Fincos, collectively, the “Sponsor Entities”), the Mergercos were merged with and into the Company (the “Merger”), and the Company was the surviving corporation (the “Surviving Corporation”) under the Merger.  As a result of the Merger, private equity funds sponsored by the Sponsors, certain co-investors and Highfields Capital I LP, Highfields Capital II L.P. and Highfields Capital III L.P. (together, the “Highfields Funds”) (together with the private equity funds sponsored by the Sponsors, certain co-investors and the Highfields Funds, the “Investors”) now own Michaels.  In connection with the closing of the Merger (the “Closing”) and related transactions (together with the Closing, the “Transactions”), the Company terminated its existing $300 million senior unsecured revolving credit facility.

Item 1.01. Entry into a Material Definitive Agreement.

1.             Senior Secured Asset-Based Revolving Credit Facility

Overview

In connection with the Transactions, on October 31, 2006, the Company entered into a credit agreement and related security and other agreements for a senior secured asset-based revolving credit facility with Banc of America Securities LLC, as joint lead arranger and joint bookrunner, Deutsche Bank Securities Inc., as joint lead arranger, joint bookrunner and syndication agent, J.P. Morgan Securities Inc., as joint lead arranger and joint bookrunner, JPMorgan Chase Bank, N.A., Credit Suisse and Wells Fargo Retail Finance, LLC, as co-documentation agents and Bank of America, N.A. as administrative agent and collateral agent (the “Asset-Based Credit Facility”).

The Asset-Based Credit Facility provides senior secured financing of up to $1,000.0 million, subject to a borrowing base, $400.0 million of which was drawn at the Closing.  The borrowing base at any time equals the sum of 90% of eligible credit

card receivables and debit card receivables; plus between 90% and 85% of the appraised net orderly liquidation value of eligible inventory and of eligible letters of credit plus a percentage of eligible in-transit inventory to be agreed upon, less certain reserves; and the sum of an additional 10% of the appraised net orderly liquidation value of eligible inventory and of eligible letters of credit plus an additional 5% of eligible credit card receivables and debit card receivables in respect of which the Company may borrow up to a maximum amount of $100.0 million in the form of a “last out” tranche. Borrowings under the senior secured asset-based revolving credit facility will be incurred first under the “last out” tranche, and no borrowings will be permitted under any other tranche until the “last out” tranche is fully utilized.  Repayments of the Asset-Based Credit Facility will be applied to the “last out” tranche only after all other tranches have been fully paid down.  The borrowings incurred under the “last out” tranche will be at a higher interest rate, as described under “Interest Rate and Fees” below.  The Asset-Based Credit Facility includes borrowing capacity available for letters of credit and for borrowings on same-day notice, referred to as the swingline loans, and is available in U.S. dollars.

The Asset-Based Credit Facility provides the Company with the right after the successful syndication of the facility to request up to $200.0 million of additional commitments under this facility.  The lenders under this facility are not under any obligation to provide any such additional commitments under this facility, and any increase in commitments is subject to customary conditions precedent.  If the Company were to request any such additional commitments, and the existing lenders or new lenders were to agree to provide such commitments, the facility size could be increased to up to $1,200.0 million, but the Company’s ability to borrow under this facility would still be limited by the amount of the borrowing base.

Interest Rate and Fees

Borrowings under the Asset-Based Credit Facility bear interest at a rate per annum equal to, at the Company’s option, either (a) a base rate determined by reference to the higher of (1) the prime rate of Bank of America, N.A. and (2) the federal funds effective rate plus  1¤2 of 1% or (b) a LIBOR rate determined by reference to the costs of funds for U.S. dollar deposits for the interest period relevant to such borrowing adjusted for certain additional costs, in each case plus an applicable margin. The initial applicable margin for borrowings under the Asset-Based Credit Facility (except in respect of the “last out” tranche described above) is 0.50% with respect to base rate borrowings and 1.50% with respect to LIBOR borrowings, and with respect to any “last out” borrowings, 1.50% with respect to base rate borrowings and 2.50% with respect to LIBOR borrowings. The applicable margin for borrowings under the Asset-Based Credit Facility is subject to adjustment each fiscal quarter based on the excess availability under the Asset-Based Credit Facility.  Swingline loans shall bear interest at a rate per annum equal to the base rate plus the applicable margin.

In addition to paying interest on outstanding principal under the Asset-Based Credit Facility, the Company is required to pay a commitment fee of 0.25% per annum in respect of the unutilized commitments thereunder.  The Company must also pay customary letter of credit fees and agency fees.

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Mandatory Repayments

If, at any time, the aggregate amount of outstanding loans, unreimbursed letter of credit drawings and undrawn letters of credit under the Asset-Based Credit Facility exceeds the lesser of (i) the commitment amount and (ii) the borrowing base, the Company will be required to repay outstanding loans and cash collateralize letters of credit in an aggregate amount equal to such excess, with no reduction of the commitment amount.  If the amount available under the Asset-Based Credit Facility is less than $100.0 million for five consecutive business days, or a payment or bankruptcy event of default has occurred, the Company will be required to repay outstanding loans and cash collateralize letters of credit with the cash it is required to deposit daily in a collection account maintained with the agent under the Asset-Based Credit Facility.

Voluntary Repayments

The Company may voluntarily reduce the unutilized portion of the commitment amount and repay outstanding loans at any time without premium or penalty other than customary “breakage” costs with respect to LIBOR loans.

Amortization and Final Maturity

There is no scheduled amortization under the Asset-Based Credit Facility. The principal amount outstanding of the loans under the Asset-Based Credit Facility is due and payable in full on the fifth anniversary of the closing date.

Guarantees and Security

All obligations under the Asset-Based Credit Facility are unconditionally guaranteed by all of the Company’s existing subsidiaries and are required to be guaranteed by certain of the Company’s future domestic wholly-owned subsidiaries.  All obligations under the Asset-Based Credit Facility, and the guarantees of those obligations, are secured, subject to certain exceptions, by substantially all of the Company’s assets and the assets of its subsidiaries that have guaranteed the Asset-Based Credit Facility (the “Subsidiary Guarantors”), including:

·a first-priority security interest in personal property consisting of inventory and related accounts, cash, deposit accounts, all payments received by the Company or the Subsidiary Guarantors from credit card clearinghouses and processors or otherwise in respect of all credit card charges and debit card charges for sales of inventory by the Company and the Subsidiary Guarantors, and certain related assets and proceeds of the foregoing; and

·a second-priority pledge of all of the capital stock held by the Company (excluding the stock of Michaels of Canada, ULC) and its Subsidiary Guarantors (which pledge, in the case of the capital stock of any foreign subsidiary, is limited to 65% of the voting stock of such foreign subsidiary and 100% of the non-voting stock of such subsidiary); and

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·a second-priority security interest in, and mortgages on, substantially all other tangible and intangible assets of the Company and each Subsidiary Guarantor, including substantially all of the Company’s owned real property and equipment.

Certain Covenants and Events of Default

The Asset-Based Credit Facility contains a number of covenants that, among other things and subject to certain exceptions, restricts the Company’s ability and the ability of its subsidiaries to:

·incur additional indebtedness;

·pay dividends on the Company’s capital stock or redeem, repurchase or retire the Company’s capital stock or its other indebtedness;

·make investments, loans, advances and acquisitions;

·create restrictions on the payment of dividends or other amounts to the Company from its restricted subsidiaries;

·engage in transactions with affiliates of the Company;

·sell assets, including capital stock of the Company’s subsidiaries;

·consolidate or merge; and

·create liens.

The covenants limiting dividends and other restricted payments; investments, loans, advances and acquisitions; and prepayments or redemptions of indebtedness, each permit the restricted actions in an unlimited amount, subject to the satisfaction of certain payment conditions, principally that the Company must have at least $125.0 million of pro forma excess availability under the Asset-Based Credit Facility and that the Company must be in pro forma compliance with the fixed charge coverage ratio described in the next paragraph.

Although the Asset-Based Credit Facility does not require the Company to comply with any financial ratio maintenance covenants, if it has less than $75.0 million of excess availability under the Asset-Based Credit Facility at any time, the Company is not permitted to borrow any additional amounts thereunder unless its pro forma Consolidated Fixed Charge Coverage Ratio (as defined in the Asset-Based Credit Facility) is at least 1.1 to 1.0.

The Asset-Based Credit Facility also contains certain customary affirmative covenants and events of default.

Certain parties to the Asset-Based Credit Facility (or their affiliates) have engaged in, or may in the future engage in, transactions with, and perform services for, the Company and its affiliates in the ordinary course of business or in connection with the Transactions.

2.             Senior Secured Term Loan Facility

Overview

In connection with the Transactions, on October 31, 2006, the Company entered into a credit agreement and related security and other agreements for a $2,400.0 million senior secured term loan facility with Deutsche Bank Securities Inc., as co-lead arranger and joint bookrunner, J.P. Morgan Securities Inc., as co-lead arranger and joint bookrunner, Banc of America Securities LLC as co-lead arranger and joint bookrunner, JPMorgan Chase Bank, N.A., as syndication agent, Bank of America, N.A.,

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as co-documentation agent, Credit Suisse, as co-documentation agent, and Deutsche Bank AG New York Branch as administrative agent (the “Term Loan Credit Facility”).

Interest Rate and Fees

Borrowings under the Term Loan Credit Facility bear interest at a rate per annum equal to, at the Company’s option, either (a) a base rate determined by reference to the higher of (1) the prime rate of Deutsche Bank and (2) the federal funds effective rate plus  1¤2 of 1% or (b) a LIBOR rate determined by reference to the costs of funds for U.S. dollar deposits for the interest period relevant to such borrowing adjusted for certain additional costs, in each case plus an applicable margin.  The applicable margin is 2.00% with respect to base rate borrowings and 3.00% with respect to LIBOR borrowings.

Mandatory Repayments

The Term Loan Credit Facility requires the Company to prepay outstanding term loans with (x) 100% of the net proceeds of any debt issued by the Company or its subsidiaries (with exceptions for certain debt permitted to be incurred under the Term Loan Credit Facility) and (y) commencing with the fiscal year ending February 2, 2008, 50% (which percentage will be reduced to 25% if the Company’s total leverage ratio is less than a specified ratio and will be reduced to 0% if the Company’s total leverage ratio is less than a specified ratio) of the Company’s annual Excess Cash Flow (as defined by the Term Loan Credit Facility).

Asset Sale Offer

The Company must offer to prepay outstanding term loans at 100% of the principal amount to be prepaid, plus accrued and unpaid interest, with the proceeds of certain asset sales or casualty events under certain circumstances.

Voluntary Repayments

The Company may voluntarily prepay outstanding loans under the senior secured term loan facility at any time without premium or penalty other than customary “breakage” costs with respect to LIBOR loans.

Amortization and Final Maturity

The Company is required to make scheduled quarterly payments, each equal to 0.25% of the original principal amount of the term loans, for the first six years and three quarters, with the balance paid on the seventh anniversary of the closing date.

Guarantees and Security

All obligations under the Term Loan Credit Facility are unconditionally guaranteed by each direct and indirect wholly-owned subsidiary that guarantees the obligations of the Company under the Asset-Based Credit Facility.  All obligations under the Term Loan Credit Facility, and the guarantees of those obligations, are secured, subject to certain

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exceptions, by substantially all of the Company’s assets and the assets of the Subsidiary Guarantors, including:

·a first-priority pledge of all of the capital stock held by the Company (excluding the stock of Michaels of Canada, ULC) and the Subsidiary Guarantors (which pledge, in the case of any foreign subsidiary, is limited to 65% of the voting stock of such foreign subsidiary and 100% of the non-voting stock of such subsidiary); and

·a first-priority security interest in, and mortgages on, substantially all other tangible and intangible assets of the Company and each Subsidiary Guarantor, including substantially all of the Company’s owned real property and equipment, but excluding, among other things, the collateral described in the following bullet point; and

·a second-priority security interest in personal property consisting of inventory and related accounts, cash, deposit accounts, all payments received by the Company or the Subsidiary Guarantors from credit card clearinghouses and processors or otherwise in respect of all credit card charges and debit card charges for sales of inventory by the Company and the Subsidiary Guarantors, certain related assets and proceeds of the foregoing.

Certain Covenants and Events of Default

The Term Loan Credit Facility requires the Company to satisfy and maintain a certain consolidated secured debt ratio.  In addition, the Term Loan Credit Facility contains a number of negative covenants that are substantially similar to those governing the Company’s Senior Notes (described below) and additional covenants related to the security arrangements for the facility.

The Term Loan Credit Facility also contains certain customary affirmative covenants and events of default.

Certain parties to the Term Loan Credit Facility (or their affiliates) have engaged in, or may in the future engage in, transactions with, and perform services for, the Company and its affiliates in the ordinary course of business or in connection with the Transactions.

3.             Senior Indenture and Senior Notes due 2014

General

On October 31, 2006, the Company issued $750.0 million aggregate principal amount of 10% senior notes that mature on November 1, 2014 (the “Senior Notes”).  The Senior Notes were issued pursuant to an indenture dated October 31, 2006 (the “Senior Indenture”), by and among the Company, the guarantors named therein and Wells Fargo Bank, National Association, as trustee.

Guarantees

The Senior Notes are guaranteed, jointly and severally, on an unsecured senior basis, by each of the Company’s subsidiaries existing on the issue date. If the Company creates or acquires a new wholly-owned domestic subsidiary that guarantees the Company’s debt or the debt of a

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guarantor, it will guarantee the Senior Notes unless the Company designates the subsidiary as an “unrestricted subsidiary” under the Senior Indenture.

Ranking

The Senior Notes are the Company’s unsecured senior obligations and rank senior in right of payment to all of the Company’s existing and future debt and other obligations that are, by their terms, expressly subordinated in right of payment to the Senior Notes, including the Senior Subordinated Notes (as defined in Section 4 of this Item 1.01) and the Subordinated Discount Notes (as defined in Section 5 of this Item 1.01); rank equally in right of payment to all of the Company’s existing and future debt and other obligations that are not, by their terms, expressly subordinated in right of payment to the Senior Notes; and are effectively subordinated in right of payment to all of the Company’s existing and future secured debt (including obligations under the Asset-Based Credit Facility and the Term Loan Credit Facility (the “Senior Secured Credit Facilities”)), to the extent of the value of the assets securing such debt, and are structurally subordinated to all obligations of each of the Company’s subsidiaries that is not a guarantor of the Senior Notes.

Similarly, the Senior Note guarantees are the unsecured senior obligations of the guarantors and rank senior in right of payment to all of the applicable guarantor’s existing and future debt and other obligations that are, by their terms, expressly subordinated in right of payment to the Senior Notes, including such guarantor’s guarantee under the Senior Subordinated Notes and the Subordinated Discount Notes; rank equally in right of payment to all of the applicable guarantor’s existing and future debt and other obligations that are not, by their terms, expressly subordinated in right of payment to the Senior Notes; and are effectively subordinated in right of payment to all of the applicable guarantor’s existing and future secured debt (including such guarantor’s guarantee under the Senior Secured Credit Facilities), to the extent of the value of the assets securing such debt.

Optional Redemption

At any time prior to November 1, 2010, the Company may redeem all or a part of the Senior Notes, upon not less than 30 nor more than 60 days’ prior notice mailed by first-class mail to the registered address of each holder of Senior Notes or otherwise delivered in accordance with the procedures of the Depository Trust Company (“DTC”), at a redemption price equal to 100% of the principal amount of the Senior Notes redeemed plus the Applicable Premium (as defined in the Senior Indenture) as of, and accrued and unpaid interest and Additional Interest (as defined in the Senior Indenture), if any, to the date of redemption, subject to the rights of holders of record on the relevant record date to receive interest due on the relevant interest payment date.

On and after November 1, 2010, the Company may redeem the Senior Notes, in whole or in part, upon notice, at the redemption prices (expressed as percentages of principal amount of the Senior Notes to be redeemed) set forth below, plus accrued and unpaid interest thereon and Additional Interest, if any, to the applicable date of redemption, subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date, if redeemed during the twelve-month period beginning on November 1 of each of the years indicated below:

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Year	Percentage
2010	105.000	%
2011	102.500	%
2012 and thereafter	100.000	%

In addition, until November 1, 2009, the Company may, at its option, on one or more occasions redeem up to 35% of the aggregate principal amount of Senior Notes (including the aggregate principal amount of Senior Notes issued after the issue date) at a redemption price equal to 110.000% of the aggregate principal amount thereof, plus accrued and unpaid interest thereon and Additional Interest, if any, to the applicable date of redemption, subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date, with the net cash proceeds of one or more Equity Offerings (as defined in the Senior Indenture); provided that at least 50% of the sum of the aggregate principal amount of Senior Notes originally issued under the Senior Indenture and any Senior Notes that are issued under the Senior Indenture after the issue date remains outstanding immediately after the occurrence of each such redemption; provided further that each such redemption occurs within 90 days of the date of closing of each such Equity Offering.

Change of Control

If the Company experiences a change in control, unless the Company has previously or concurrently mailed a redemption notice with respect to all the outstanding Senior Notes, the Company must make an offer to purchase all of the Senior Notes at a price in cash equal to 101% of the aggregate principal amount thereof, plus accrued and unpaid interest.

Covenants

The Senior Indenture contains covenants limiting, among other things, the Company’s ability and the ability of the Company’s restricted subsidiaries to:

·incur additional debt;

·pay dividends or distributions on the Company’s capital stock or repurchase the Company’s capital stock;

·issue stock of subsidiaries;

·make certain investments;

·create liens on the Company’s assets to secure debt;

·enter into transactions with affiliates;

·merge or consolidate with another company; and

·sell or otherwise transfer assets.

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Events of Default

The Senior Indenture also provides for events of default which, if certain of them occur, would permit the trustee or the holders of at least 25% in principal amount of the then total outstanding Senior Notes to declare the principal, premium, if any, interest and any other monetary obligations on all the then outstanding Senior Notes to be due and payable immediately.

4.             Senior Subordinated Indenture and Senior Subordinated Notes due 2016

General

On October 31, 2006, the Company issued $400.0 million aggregate principal amount of 113¤8% senior subordinated notes that mature on November 1, 2016 (the “Senior Subordinated Notes”).  The Senior Subordinated Notes were issued pursuant to an indenture dated October 31, 2006 (the “Senior Subordinated Indenture”), by and among the Company, the guarantors named therein and Wells Fargo Bank, National Association, as trustee.

Guarantees

The Senior Subordinated Notes are guaranteed, jointly and severally, on an unsecured senior subordinated basis, by each of the Company’s subsidiaries existing on the issue date. If the Company creates or acquires a new wholly-owned domestic subsidiary that guarantees the Company’s debt or the debt of a guarantor, it will guarantee the Senior Subordinated Notes unless the Company designates the subsidiary as an “unrestricted subsidiary” under the Senior Subordinated Indenture.

Ranking

The Senior Subordinated Notes are the Company’s unsecured senior subordinated obligations and are subordinated in right of payment to all of the Company’s existing and future senior debt, including the Senior Secured Credit Facilities and the Senior Notes; rank equally in right of payment to all of the Company’s future senior subordinated debt; are effectively subordinated in right of payment to all of the Company’s existing and future secured debt (including obligations under the Senior Secured Credit Facilities), to the extent of the value of the assets securing such debt, and are structurally subordinated to all obligations of each of the Company’s subsidiaries that is not a guarantor of the Senior Subordinated Notes; and rank senior in right of payment to all of the Company’s future debt and other obligations that are, by their terms, expressly subordinated in right of payment to the Senior Subordinated Notes, including the Subordinated Discount Notes (described below).

Similarly, the Senior Subordinated Note guarantees are the unsecured senior subordinated obligations of the guarantors and are subordinated in right of payment to all of the applicable guarantor’s existing and future senior debt, including such guarantor’s guarantees under the Senior Secured Credit Facilities and the Senior Notes; rank equally in right of payment to all of the applicable guarantor’s future senior subordinated debt; are effectively subordinated in right of payment to all of the applicable guarantor’s existing and future secured debt (including such

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guarantor’s guarantee under the Senior Secured Credit Facilities), to the extent of the value of the assets securing such debt; and rank senior in right of payment to all of the applicable guarantor’s future subordinated debt and other obligations that are, by their terms, expressly subordinated in right of payment to the Senior Subordinated Notes, including such guarantor’s guarantee under the Subordinated Discount Notes.

Optional Redemption

At any time prior to November 1, 2011, the Company may redeem all or a part of the Senior Subordinated Notes, upon not less than 30 nor more than 60 days’ prior notice mailed by first-class mail to the registered address of each holder of Senior Subordinated Notes or otherwise delivered in accordance with the procedures of DTC, at a redemption price equal to 100% of the principal amount of Senior Subordinated Notes redeemed plus the Applicable Premium (as defined in the Senior Subordinated Indenture) as of, and accrued and unpaid interest and Additional Interest (as defined in the Senior Subordinated Indenture), if any, to the date of redemption, subject to the rights of holders or record on the relevant record date to receive interest due on the relevant interest payment date.

On and after November 1, 2011, the Company may redeem the Senior Subordinated Notes, in whole or in part, upon notice, at the redemption prices (expressed as percentages of principal amount of the Senior Subordinated Notes to be redeemed) set forth below, plus accrued and unpaid interest thereon and Additional Interest, if any, to the applicable date of redemption, subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date, if redeemed during the twelve-month period beginning on November 1 of each of the years indicated below:

Year	Percentage
2011	105.688	%
2012	103.792	%
2013	101.896	%
2014 and thereafter	100.000	%

In addition, until November 1, 2009, the Company may, at its option, on one or more occasions redeem up to 35% of the aggregate principal amount of Senior Subordinated Notes (including the aggregate principal amount of Senior Subordinated Notes issued after the issue date) at a redemption price equal to 111.375% of the aggregate principal amount thereof, plus accrued and unpaid interest thereon and Additional Interest, if any, to the applicable date of redemption, subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date, with the net cash proceeds of one or more Equity Offerings (as defined in the Senior Subordinated Indenture); provided that at least 50% of the sum of the aggregate principal amount of Senior Subordinated Notes originally issued under the Senior Subordinated Indenture and any Senior Subordinated Notes that are issued under the Senior Subordinated Indenture after the issue date remains outstanding immediately after the occurrence of each such redemption; provided further that each such redemption occurs within 90 days of the date of closing of each such Equity Offering.

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Change of Control

If the Company experiences a change in control, unless the Company has previously or concurrently mailed a redemption notice with respect to all the outstanding Senior Subordinated Notes, the Company must make an offer to purchase all of the Senior Subordinated Notes at a price in cash equal to 101% of the aggregate principal amount thereof, plus accrued and unpaid interest.

Covenants

The Senior Subordinated Indenture contains covenants limiting, among other things, the Company’s ability and the ability of the Company’s restricted subsidiaries to:

·incur additional debt;

·pay dividends or distributions on the Company’s capital stock or repurchase the Company’s capital stock;

·issue stock of subsidiaries;

·make certain investments;

·create liens on the Company’s assets to secure debt;

·enter into transactions with affiliates;

·merge or consolidate with another company; and

·sell or otherwise transfer assets.

Events of Default

The Senior Subordinated Indenture also provides for events of default which, if certain of them occur, would permit the trustee or the holders of at least 25% in principal amount of the then total outstanding Senior Subordinated Notes to declare the principal, premium, if any, interest and any other monetary obligations on all the then outstanding Senior Subordinated Notes to be due and payable immediately; provided, however, that so long as any indebtedness permitted to be incurred under the Senior Subordinated Indenture as part of the Senior Secured Credit Facilities shall be outstanding, there will be certain restrictions on such acceleration, as indicated in the Senior Subordinated Indenture.

5.             Subordinated Discount Indenture and Subordinated Discount Notes due 2016

General

On October 31, 2006, the Company issued $469,449,000 aggregate principal amount at maturity of 13% subordinated discount notes that mature on November 1, 2016 (the “Subordinated Discount Notes,” and, together with the Senior Notes and the Senior Subordinated Notes, the

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“Notes”).  The Subordinated Discount Notes were issued pursuant to an indenture dated October 31, 2006 (the “Subordinated Discount Indenture”), by and among the Company, the guarantors named therein and Wells Fargo Bank, National Association, as trustee.

No cash interest will accrue on the Subordinated Discount Notes prior to November 1, 2011 (the “Full Accretion Date”), although for federal income tax purposes a significant amount of original issue discount, taxable as ordinary income, will be recognized by a holder thereof as such discount accretes.

Guarantees

The Subordinated Discount Notes are guaranteed, jointly and severally, on an unsecured subordinated basis, by each of the Company’s subsidiaries existing on the issue date. If the Company creates or acquires a new wholly-owned domestic subsidiary that guarantees the Company’s debt or the debt of a guarantor, it will guarantee the Subordinated Discount Notes unless the Company designates the subsidiary as an “unrestricted subsidiary” under the Subordinated Discount Indenture.

Ranking

The Subordinated Discount Notes are the Company’s unsecured subordinated obligations and are subordinated in right of payment to all of the Company’s existing and future senior indebtedness (including the Senior Secured Credit Facilities, the Senior Notes and the Senior Subordinated Notes); are effectively subordinated to all of the Company’s secured indebtedness (including the Senior Secured Credit Facilities) to the extent of the value of the Company’s assets securing such indebtedness; and are structurally subordinated to indebtedness of the Company’s subsidiaries that do not guarantee the Subordinated Discount Notes.

Similarly, the Subordinated Discount Note guarantees are the general unsecured subordinated obligations of the guarantors and are subordinated in right of payment to all existing and future senior indebtedness of each such guarantor, including each such guarantor’s guarantees under the Senior Secured Credit Facilities, the Senior Notes and the Senior Subordinated Notes, and are effectively subordinated to all existing and future secured indebtedness of each such guarantor, including each such guarantor’s guarantee under the Senior Secured Credit Facilities, to the extent of the value of the assets securing such debt.

Optional Redemption

At any time prior to November 1, 2011, the Company may redeem all or a part of the Subordinated Discount Notes, upon not less than 30 nor more than 60 days’ prior notice mailed by first-class mail to the registered address of each holder of Subordinated Discount Notes or otherwise delivered in accordance with the procedures of DTC, at a redemption price equal to 100% of the Accreted Value (as defined in the Subordinated Discount Indenture) of the Subordinated Discount Notes redeemed plus the Applicable Premium (as defined in the Subordinated Discount Indenture) as of the date of redemption.

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On and after November 1, 2011, the Company may redeem the Subordinated Discount Notes, in whole or in part, at the redemption prices (expressed as percentages of Accreted Value of the Subordinated Discount Notes to be redeemed) set forth below, plus accrued and unpaid interest thereon, if any, and Additional Interest (to the extent not already included in Accreted Value), if any, to the applicable date of redemption, subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date, if redeemed during the twelve-month period beginning on November 1 of each of the years indicated below:

Year	Percentage
2011	106.500	%
2012	104.333	%
2013	102.167	%
2014 and thereafter	100.000	%

In addition, until November 1, 2009, the Company may, at its option, on one or more occasions redeem up to 35% of the aggregate principal amount at maturity of Subordinated Discount Notes (including the aggregate principal amount at maturity of Subordinated Discount Notes issued after the issue date) at a redemption price equal to  113.000% of the Accreted Value thereof to the applicable date of redemption, with the net cash proceeds of one or more Equity Offerings (as defined in the Subordinated Discount Indenture); provided that at least 50% of the sum of the aggregate principal amount at maturity of Subordinated Discount Notes originally issued under the Subordinated Discount Indenture and any Subordinated Discount Notes that are issued under the Subordinated Discount Indenture after the issue date remains outstanding immediately after the occurrence of each such redemption; provided further that each such redemption occurs within 90 days of the date of closing of each such Equity Offering.

Mandatory Redemption

On May 1, 2012, and, if necessary, any interest payment date thereafter prior to the maturity date, the Company will be required to redeem a portion of each Subordinated Discount Note outstanding on such date equal to the AHYDO Amount, as defined below, on such date.

The redemption price for each portion of a Subordinated Discount Note so redeemed will equal 100% of the Accreted Value of such portion as of the date of redemption.

“AHYDO Amount” means the amount sufficient, but not in excess of the amount necessary, to ensure that a Subordinated Discount Note will not be an “applicable high yield discount obligation” within the meaning of Section 163(i)(1) of the Internal Revenue Code of 1986. Such amount will be approximately equal to (i) the excess of the adjusted issue price (as defined in Section 1272 of the Internal Revenue Code of 1986, as amended) of a Subordinated Discount Note on May 1, 2012 (or any subsequent interest payment date, as applicable) over the original issue price thereof less (ii) an amount equal to one year’s simple uncompounded interest on the original issue price of such Subordinated Discount Note at a rate per annum equal to the yield to maturity on such Subordinated Discount Note.

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Change of Control

If the Company experiences a change in control, unless the Company has previously or concurrently mailed a redemption notice with respect to all the outstanding Subordinated Discount Notes, the Company must make an offer to purchase all of the Subordinated Discount Notes at a price in cash equal to 101% of the Accreted Value thereof plus accrued and unpaid interest, if any, and Additional Interest (to the extent not already included in Accreted Value), if any, to the date of purchase, subject to the right of holders of record of the Subordinated Discount Notes on the relevant record date to receive interest due, if any, on the relevant interest payment date.

Covenants

The Subordinated Discount Indenture contains covenants limiting, among other things, the Company’s ability and the ability of the Company’s restricted subsidiaries to:

·incur additional debt;

·pay dividends or distributions on the Company’s capital stock or repurchase the Company’s capital stock;

·issue stock of subsidiaries;

·make certain investments;

·create liens on the Company’s assets to secure debt;

·enter into transactions with affiliates;

·merge or consolidate with another company; and

·sell or otherwise transfer assets.

Events of Default

The Subordinated Discount Indenture also provides for events of default which, if certain of them occur, would permit the trustee or the holders of at least 25% in principal amount at maturity of the then total outstanding Subordinated Discount Notes to declare the accreted value, premium, if any, interest, if any, and any other monetary obligations on all the then outstanding Subordinated Discount Notes to be due and payable immediately; provided, however, that so long as any indebtedness permitted to be incurred under the Subordinated Discount Indenture as part of the Senior Secured Credit Facilities shall be outstanding, there will be certain restrictions on such acceleration, as indicated in the Subordinated Discount Indenture.

6.             Registration Rights Agreements regarding the Notes

On October 31, 2006, the Company entered into registration rights agreements with respect to the Senior Notes, the Senior Subordinated Notes and the Subordinated Discount Notes (the “Registration Rights Agreements”) described above.  Pursuant to the Registration Rights

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Agreements, the Company has agreed that it will use its reasonable best efforts to register with the Securities and Exchange Commission notes having substantially identical terms as the Senior Notes, notes having substantially identical terms as the Senior Subordinated Notes and notes having substantially identical terms as the Subordinated Discount Notes as part of offers to exchange freely tradable exchange notes for each series of the Notes (each, an “Exchange Offer”).

The Company is required to use its reasonable best efforts to cause each Exchange Offer to be completed within 360 days after the issue date of the Notes or, if required, to have one or more shelf registration statements declared effective on the time frames specified in the Registration Rights Agreements.

If the Company fails to meet this target (a “Registration Default”), the annual interest rate on the applicable series of Notes will increase by 0.25%. The annual interest rate on the applicable series of Notes will increase by an additional 0.25% for each subsequent 90-day period during which the Registration Default continues, up to a maximum additional interest rate of 1.00% per year over the applicable interest rate described above.  If the registration default is corrected, the applicable interest rate on the applicable series of Notes will revert to the original level.

Any additional interest payable under the Registration Rights Agreement with respect to the Subordinated Discount Notes will be added to the accreted value of each note, and will not be paid in cash, until the Full Accretion Date described above, and will be calculated on the average accreted value of each note during the applicable 90 day period.

7.             Stockholders Agreements

On October 31, 2006, simultaneous with the Closing, the Company and certain of its stockholders entered into certain stockholders agreements, including a stockholders agreement and a registration rights agreement (the “Stockholders Agreements”).  The Stockholders Agreements contain agreements among the parties with respect to restrictions on the issuance or transfer of shares, including rights of first refusal, participation rights, registration rights (including customary indemnification provisions) and call options.  Any additional management participants who acquire shares of, or options to purchase, capital stock of the Company will be required to become a party to one or more of these agreements.

8.             Management Agreements

On October 31, 2006, upon completion of the Transactions, the Company entered into a management agreement (the “Management Agreement”) with certain affiliates of each of the Sponsors pursuant to which such entities or their affiliates will provide management services to the Company until December 31, 2016, with evergreen extensions thereafter.  Pursuant to the Management Agreement, affiliates of the Sponsors received aggregate transaction fees of $60 million payable on the Closing date in connection with the services provided by such entities related to the Transactions.  In addition, pursuant to the Management Agreement, affiliates of the Sponsors will receive an aggregate annual management fee of $12 million and reimbursement for out-of-pocket expenses incurred by them or their affiliates in connection with the Transactions prior to closing and in connection with the provision of services pursuant to the

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agreements.  Finally, affiliates of the Sponsors will be entitled to receive a fee in connection with certain subsequent financing, acquisition, disposition and change of control transactions of 1% of the gross transaction value of any such transaction.  The Management Agreement includes customary exculpation and indemnification provisions in favor of the Sponsors and their affiliates.  The Management Agreement may be terminated by the Sponsors at any time and will terminate automatically upon an initial public offering or a change of control unless the Company and the Sponsors determine otherwise. Upon termination, each provider of management services will be entitled to a termination fee calculated based on the present value of the annual fees due during the remaining period from the date of termination to the tenth anniversary of the date of the Merger.

On the Closing date of the Merger, Highfields Capital Management LP, an affiliate of the Highfields Funds, and Michaels entered into a management agreement that provides for an annual management fee of $1.0 million for services that Highfields Capital Management LP renders to Michaels following the completion of the Merger.

Item 1.02. Termination of a Material Definitive Agreement.

1.             Five-Year Credit Agreement

On October 31, 2006, in connection with the Transactions, the Credit Agreement, dated as of November 18, 2005, by and among the Company, Bank of America, N.A., as administrative agent, swing line lender, letter of credit issuer and a lender, the other lenders party thereto, JPMorgan Chase Bank, N.A., as syndication agent, Banc of America Securities LLC and J.P. Morgan Securities, Inc., as joint lead arrangers and joint book managers and Citicorp USA, Inc., Wachovia Bank, N.A. and Wells Fargo Bank, N.A., as co-documentation agents (the “Five-Year Credit Agreement”), was terminated.  The Five-Year Credit Agreement was a $300.0 million senior unsecured revolving credit facility.  The Five-Year Credit Agreement had a maturity date of November 18, 2010.  At October 31, 2006, there were no outstanding amounts of principal or interest due under the Five-Year Credit Agreement; the outstanding amount of fees due of $120,080.24 were paid in full in connection with the Transactions.  The Company incurred no early termination penalties in connection with the termination of the Five-Year Credit Agreement.  Under the Five-Year Credit Agreement, the Company was permitted to designate borrowings as base-rate borrowings or Eurocurrency rate borrowings.  Base-rate borrowings accrued interest generally at the applicable base rate, while Eurocurrency rate borrowings accrued interest at a rate equal to the Eurocurrency rate plus a margin, depending on the Company’s consolidated leverage ratio.  The interest rate on Eurocurrency rate borrowings was fixed for one-, two-, three- or six-month periods, at the Company’s option.  In order to remain eligible to borrow under the Five-Year Credit Agreement, the Company was required to maintain a consolidated leverage ratio of not more than 3.5 to 1.0 and a consolidated fixed charge coverage ratio of not less than 2.0 to 1.0.

Certain lenders under the Five-Year Credit Agreement (or their affiliates) have engaged in, or may in the future engage in, transactions with, and perform services for, the Company and its affiliates in the ordinary course of business or in connection with the Transactions.

Item 2.03. Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant

The information set forth in Sections 1, 2, 3, 4 and 5 of Item 1.01 of this Current Report on Form 8-K is incorporated by reference into this Item 2.03.

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Item 3.01. Notice of Delisting or Failure to Satisfy a Continued Listing Rule or Standard; Transfer of Listing.

On October 31, 2006, the Company notified the New York Stock Exchange (the “NYSE”) that the Merger was consummated, pursuant to which Michaels’ stockholders (other than shares held in the Company’s treasury or owned by the Sponsor Entities, shares held by stockholders who properly demanded statutory appraisal rights and rollover shares) became entitled to receive $44.00 per share in cash, without interest, for each share of Michaels common stock.  The Company requested that Michaels common stock be suspended from the NYSE, effective at the close of market on the Closing date, and that the NYSE file with the Securities and Exchange Commission an application on Form 25 to report that shares of Michaels common stock are no longer listed on the NYSE.

Item 3.03. Material Modification to Rights of Security Holders

On October 31, 2006, pursuant to the terms of the Merger Agreement, each share of Michaels common stock (other than shares held in the Company’s treasury or owned by the Sponsor Entities, shares held by stockholders who properly demanded statutory appraisal rights and rollover shares) issued and outstanding immediately prior to the effective time of the Merger was canceled and automatically converted into the right to receive $44.00 per share in cash, without interest.  Pursuant to the terms of the Merger Agreement, effective immediately upon consummation of the Merger on October 31, 2006, the restated certificate of incorporation and bylaws of the Company were amended and restated.  The information set forth in Item 5.03 of this Current Report on Form 8-K is incorporated by reference into this Item 3.03.

Item 5.01. Changes in Control of Registrant.

On October 31, 2006, pursuant to the terms of the Merger Agreement, the Sponsors consummated the Merger of the Mergercos with and into Michaels.  The Company was the surviving corporation in the Merger.  Immediately prior to the Merger, Michaels Holdings LLC (the “LLC”) owned substantially all of the stock of each of the Mergercos.  Each share of capital stock of each of the Mergercos issued and outstanding immediately prior to the Merger was converted into one share of common stock of the Surviving Corporation.  As a result of the Merger, the Company is owned by the LLC, the Highfields Funds and a co-investor with the LLC.  The LLC owns approximately 94% and the Highfields Funds collectively own approximately 6% of the fully diluted capital stock of the Company.

The aggregate consideration paid in connection with the Merger was approximately $6.263 billion, including the payment of fees and expenses related to the Transactions.  The aggregate consideration was funded by the new credit facilities and private offerings of debt securities described in Item 1.01 of this Current Report on Form 8-K, as well as by equity funding from the Investors.

For so long as it owns the majority of the outstanding shares of stock of Michaels, the LLC will effectively have the ability to elect the board of directors of the Company.  Pursuant to the operating agreement of the LLC, Bain and Blackstone have agreed to elect a number of representatives from each of Bain and Blackstone to the board of directors of the Company that is proportionate to their respective holdings in the LLC (initially 50%/50%).

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A copy of the press release issued by the Company on October 31, 2006 announcing the consummation of the Merger is attached as an exhibit hereto and is incorporated herein by reference.

Item 5.02. Departure of Directors or Principal Officers; Election of Directors; Appointment of Principal Officers.

Upon consummation of the Merger, each of Charles J. Wyly, Jr., Sam Wyly, Richard E. Hanlon, Richard C. Marcus, Liz Minyard and Cece Smith ceased to be members of the board of directors of the Company on October 31, 2006.  In addition, in connection with the consummation of the Merger, Charles J. Wyly, Jr. ceased to be the Company’s Chairman of the Board of Directors.

Following these board resignations on October 31, 2006, eight new directors were elected by the Company’s stockholders to the Company’s board of directors: Josh Bekenstein, a managing director at Bain, Michael Chae, a senior managing director at Blackstone in the private equity group, Todd Cook, a principal of Bain, Matthew Kabaker, a principal at Blackstone in the private equity group, Lewis Klessel, an executive vice president in the private equity portfolio practice at Bain, Matt Levin, a managing director at Bain, David McVeigh, an executive director at Blackstone in the private equity group, and James Quella, a senior managing director and senior operating partner at Blackstone in the private equity group.

As a result of their respective positions with each of the Sponsors, one or more of Josh Bekenstein, Michael Chae, Todd Cook, Matthew Kabaker, Lewis Klessel, Matt Levin, David McVeigh and James Quella may be deemed to have an indirect material interest in the Management Agreement by and among the Sponsors and the Company dated as of October 31, 2006. Accordingly, the information set forth in Section 8 of Item 1.01 and Item 5.01 of this Current Report on Form 8-K is incorporated by reference into this Item 5.02.

Item 5.03. Amendments to Articles of Incorporation or Bylaws; Change in Fiscal Year.

Pursuant to the terms of the Merger Agreement, effective immediately upon consummation of the Merger on October 31, 2006, the restated certificate of incorporation of the Company as in effect immediately prior to the Merger was amended and restated and, as so amended, became the amended and restated certificate of incorporation of Michaels, the surviving corporation in the Merger.  A copy of the amended and restated certificate of incorporation of Michaels is attached as an exhibit hereto and is incorporated herein by reference.

On October 31, 2006, following consummation of the Merger, the bylaws of the Company were amended and restated.  A copy of the amended and restated bylaws of Michaels is attached as an exhibit hereto and is incorporated herein by reference.

As amended and restated, the certificate of incorporation and bylaws together set the number of directors constituting the board of directors of the Company at eight  (subject to reduction pursuant to the terms of the certificate of incorporation and bylaws).  The amended and restated certificate of incorporation also contains a provision limiting directors’ obligations in respect of corporate opportunities and provides that Section 203 of the Delaware General Corporation Law will not apply to the Company.  Section 203 restricts transactions between a corporation and an

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“interested stockholder,” generally defined as stockholders owning 15% or more of the voting stock of the corporation.

Pursuant to the amended and restated certificate of incorporation, the Company may not enter into the following transactions without obtaining approval of the stockholder majority:

·certain acquisition or disposition transactions;

·issuance of stock or other equity securities;

·incurrence or prepayment of debt in excess of specified amounts;

·issuance of dividends or distributions;

·redemption or repurchase of stock of the Company in excess of specified amounts;

·an initial public offering;

·a change of control;

·a merger;

·certain transactions with affiliates; and

·certain amendments or waivers of the certificate of incorporation or bylaws.

Item 9.01. Financial Statements and Exhibits

     (d)   Exhibits.

Exhibit No.	Description of Exhibit
3.1	Amended and Restated Certificate of Incorporation of Michaels Stores, Inc.
3.2	Amended and Restated Bylaws of Michaels Stores, Inc.
99.1	Press Release, dated October 31, 2006

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	MICHAELS STORES, INC.
Dated: November 6, 2006	By:	/s/ Jeffrey N. Boyer
		Jeffrey N. Boyer
		President and Chief Financial Officer

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EXHIBIT INDEX

Exhibit No.	Description of Exhibit
3.1	Amended and Restated Certificate of Incorporation of Michaels Stores, Inc.
3.2	Amended and Restated Bylaws of Michaels Stores, Inc.
99.1	Press Release, dated October 31, 2006

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EX-3.1

Exhibit 3.1

AMENDED AND RESTATED

CERTIFICATE OF INCORPORATION

OF

MICHAELS STORES, INC.

1.             Name.  The name of this Corporation is Michaels Stores, Inc.

2.             Registered Office.  The location of the Corporation’s registered office is Corporation Trust Center, 1209 Orange Street in the City of Wilmington, County of New Castle, Delaware 19801.  The name of the registered agent at such address is The Corporation Trust Company.

3.             Purpose.  The purpose for which the Corporation is organized is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware (the “DGCL”).

4.             Stock.  The total number of shares of stock that this Corporation shall have authority to issue is Seventy-Five Million (75,000,000) shares of Common Stock, $0.10 par value per share.  Each share of Common Stock shall be entitled to one vote.

5.             Change in Number of Shares Authorized.  Except as otherwise provided in the provisions establishing a class of stock, the number of authorized shares of any class or series of stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of a majority of the voting power of the Corporation entitled to vote irrespective of the provisions of Section 242(b)(2) of the General Corporation Law of the State of Delaware.

6.             Election of Directors.  The election of directors need not be by written ballot unless the Bylaws shall so require.

7.             Actions Requiring Approval of Stockholder Majority.

7.1.          Definitions.  As used in this Paragraph 7 and Paragraph 8, the following terms have the following definitions:

7.1.1.       “Affiliate” shall mean, with respect to any Person, another Person that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with the Corporation (for purposes of this definition, “control” (including, with correlative meanings, the terms “controlling,” “controlled by” and “under common control with”), as used with respect to the Corporation, means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of the Corporation, whether through the ownership of voting securities, by agreement or otherwise).

7.1.2.       “Affiliated Fund” shall mean, with respect to any Investor, 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 Michaels Holdings LLC, Affiliated Fund shall include each member of Michaels Holdings LLC and the Affiliated Funds of such members.

7.1.3.       “Change of Control” shall mean the occurrence of any of the following: (i) any consolidation or merger of the Corporation with or into any other corporation or other Person, or any other corporate reorganization or transaction (including the acquisition of stock of the Corporation), whether or not the Corporation is a party thereto, in which the stockholders of the Corporation immediately prior to such consolidation, merger, reorganization or transaction, own 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 Corporation 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 Corporation 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 Corporation is a party thereto, after giving effect to which in excess of fifty percent (50%) of the Corporation’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 Securities and Exchange Commission under the Securities Exchange Act of 1934, as in effect from time to time), 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 Corporation.

7.1.4.       “Initial Public Offering” shall mean the initial public offering and sale of Common Stock for cash registered on Form S-1 (or any successor form under the Securities Act of 1933, as in effect from time to time).

7.1.5.       “Investors” shall mean Michaels Holdings LLC, Highfields Capital I LP, Highfields Capital II LP, Highfields Capital III LP and their Affiliated Funds.

7.1.6.       “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.

7.2.          Restricted Actions.  Prior to an Initial Public Offering or the consummation of a Change of Control, the Corporation shall not and shall cause its subsidiaries not to take any of the following actions unless it shall have first obtained the consent of the holders of a majority of the outstanding shares of Common Stock of the Corporation:

7.2.1.       Acquisition or Disposition Transactions.  Enter into or effect any transaction or series of related transactions in any calendar year involving the purchase, rent, license, exchange or other acquisition, or the sale, lease, exchange or other disposal, by the Corporation or any of its subsidiaries of any assets, other than any transaction or series of related transactions in the ordinary course of business for consideration having a fair market value that is less than $100,000,000.

7.2.2.       Issuance of Stock or Other Equity Securities.  Authorize, create or issue any equity securities of the Corporation or any of its subsidiaries (except as may be issued to the Corporation or any of its subsidiaries), issue any options or rights to acquire any equity securities of the Corporation or any of its subsidiaries or grant any registration rights in respect of any such securities, options or rights.

7.2.3.       Incurrence or Prepayment of Debt.

(a) Other than draws under any debt agreement, the execution of which has been approved by the stockholders, incur any indebtedness, assume, guarantee, endorse or otherwise as an accommodation become responsible for the obligations of any other Person (other than cross-guarantees for any indebtedness that has been approved under this Paragraph), enter into any agreement under which it may incur indebtedness in the future, or make any loan, advance or capital contribution to any Person or enter into or effect any transaction or series of related transactions involving the issuance by the Corporation of any debt securities, including rights to acquire any debt securities, in each case in an aggregate amount in excess of $500,000,000, or

(b) effect any voluntary prepayment of indebtedness of the Corporation or any of its subsidiaries in an aggregate amount in excess of $500,000,000.

7.2.4.       Issuance of Dividends or Distributions.  Declare or pay dividends from the Corporation or any of its subsidiaries or make any other distributions by the Corporation or any of its subsidiaries in respect of its equity securities.

7.2.5.       Redemption or Repurchase.  Enter into or effect any transaction or series of related transactions in connection with or involving the redemption or repurchase of stock of the Corporation (other than redemptions or repurchases in an aggregate amount of up to $5,000,000 of stock held by employees or former employees of the Corporation).

7.2.6.       Initial Public Offering.  Register the offer or sale of any equity securities of the Corporation or any of its subsidiaries under the Securities Act of 1933, as in effect from time to time, in connection with, or consummate, an Initial Public Offering; provided, however, that no such approval shall be required for an Initial Public Offering that is demanded by any Person pursuant to an agreement that has been approved by the stockholders.

7.2.7.       Change of Control.  Enter into or effect any transaction or series of related transactions that would constitute a Change of Control.

7.2.8.       Merger.  Enter into or effect any transaction or series of related transactions, involving the merger or consolidation of the Corporation with or into any Person.

7.2.9.       Transactions with Affiliates.   Enter into any transaction or series of related transactions with any of the Corporation’s Affiliates other than Affiliates controlled by the Corporation.

7.2.10.     Amendment or Waiver of Charter or Bylaws.  Amend or waive any provision of this Amended and Restated Certificate of Incorporation or the Bylaws.

8.             Fair Transactions with Affiliates.  Prior to an Initial Public Offering or the consummation of a Change of Control, the Corporation shall not and shall cause its subsidiaries not to enter into any transaction or series of related transactions with any of the Corporation’s Affiliates other than Affiliates controlled by the Corporation unless the Board of Directors shall have first determined that the transaction or series of related transactions is fair to the stockholders of the Corporation.

9.             Amendments.  Notwithstanding any vote required to be taken by the stockholders of the Corporation pursuant to any other provision in this Amended and Restated Certificate of Incorporation or the DGCL, any amendment or waiver of any provision of this Amended and Restated Certificate of Incorporation shall require the approval of each stockholder of the Corporation who would be disproportionately and adversely affected by such amendment or waiver.

10.           Liability of Directors.  A director of this Corporation shall not be liable to this Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except to the extent that exculpation from liability is not permitted under the General Corporation Law of the State of Delaware as in effect at the time such liability is determined.  No amendment or repeal of this Paragraph 10 shall apply to or have any effect on the liability or alleged liability of any director of this Corporation for or with respect to any acts or omissions of such director occurring prior to such amendment or repeal.

11.           Indemnification.  This Corporation shall, to the maximum extent permitted from time to time under the law of the State of Delaware, indemnify any person who is or was a party or is threatened to be made a party to any threatened, pending or completed action, suit, proceeding or claim, whether civil, criminal, administrative or investigative, by reason of the fact that such person is or was or has agreed to be a director or officer of this Corporation or while a director or officer is or was serving at the request of this Corporation as a director, officer, partner, trustee, employee or agent of any corporation, partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, against judgments, fines, penalties, amounts paid in settlement and expenses (including attorney’s fees and expenses), which expenses shall be advanced to such person upon request, in each case incurred (and not otherwise recovered) in connection with the investigation, preparation to defend or defense of such action, suit, proceeding or claim; provided, however, that the foregoing shall not require this Corporation to indemnify or advance expenses to any person in connection with any action, suit, proceeding, claim or counterclaim initiated by or on behalf of such person.  Such indemnification shall not be exclusive of other indemnification rights arising under any Bylaw, agreement, vote of directors or stockholders or otherwise and shall inure to the benefit of the heirs and legal representatives of such person.  Any person seeking indemnification under this Paragraph 11 shall be deemed to have met the standard of conduct required for such indemnification unless the contrary shall be established.  No amendment or repeal of this Paragraph 11 shall adversely affect any right or protection of a director or officer of this Corporation with respect to any acts or omissions of such director or officer occurring prior to such amendment or repeal.

12.           Survival of Rights Previously Granted.  To the extent this Amended and Restated Certificate of Incorporation amends, repeals, or otherwise modifies the Corporation’s Certificate of Incorporation (the “Prior Certificate”) as in effect immediately prior to the adoption (the “Adoption”) of this Amended and Restated Certificate of Incorporation, and such amendment, repeal, or other modification would adversely affect any right under the Prior Certificate of any person who at any time prior to the Adoption was a director, officer, employee, or agent (including as a fiduciary with respect to an employee benefit plan) of the Corporation, then to that extent the Prior Certificate shall survive the Adoption, and any such person shall have all rights to indemnification and exculpation from liabilities for acts or omissions occurring at or prior to the Adoption and rights to advancement of expenses relating thereto existing in favor of such person immediately prior to the Adoption as provided in the Prior Certificate.

13.           Records.  The books of this Corporation may (subject to any statutory requirements) be kept outside the State of Delaware as may be designated by the Board of Directors or in the Bylaws of this Corporation.

14.           Renunciation of Business Opportunities Doctrine.  To the maximum extent permitted from time to time under the law of the State of Delaware, this Corporation renounces any interest or expectancy of the Corporation in, or in being offered an opportunity to participate in, business opportunities that are from time to time presented to its officers, directors or stockholders, other than those officers, directors or stockholders who are employees of this Corporation. No amendment or repeal of this Paragraph 14 shall apply to or have any effect on the liability or alleged liability of any officer, director or stockholder of the Corporation for or with respect to any opportunities of which such officer, director or stockholder becomes aware prior to such amendment or repeal.

15.           Opt Out of DGCL 203.  This Corporation shall not be governed by Section 203 of the General Corporation Law of the State of Delaware.

EX-3.2

Exhibit 3.2

AMENDED AND RESTATED BYLAWS

OF

MICHAELS STORES, INC.

Section 1.  LAW, CERTIFICATE OF INCORPORATION AND BYLAWS

1.1.          These bylaws are subject to the certificate of incorporation of the corporation.  In these bylaws, references to law, the certificate of incorporation and bylaws mean the law, the provisions of the certificate of incorporation and the bylaws as from time to time in effect.

Section 2.  STOCKHOLDERS

2.1.          Annual Meeting.  The annual meeting of stockholders shall be held at 10:00 a.m. on the second Tuesday in May in each year, unless that day be a legal holiday at the place where the meeting is to be held, in which case the meeting shall be held at the same hour on the next succeeding day not a legal holiday, or at such other date and time as shall be designated from time to time by the board of directors and stated in the notice of the meeting, at which they shall elect a board of directors and transact such other business as may be required by law or these bylaws or as may properly come before the meeting.

2.2.          Special Meetings.  A special meeting of the stockholders may be called at any time by the chairman of the board, if any, the president or the board of directors.  A special meeting of the stockholders shall be called by the secretary, or in the case of the death, absence, incapacity or refusal of the secretary, by an assistant secretary or some other officer, upon application of a majority of the directors or of any stockholder holding directly or indirectly more than ten percent (10%) of the outstanding common stock entitled to vote at any such meeting.  Any such application shall state the purpose or purposes of the proposed meeting.  Any such call shall state the place, date, hour and purposes of the meeting.

2.3.          Place of Meeting.  All meetings of the stockholders for the election of directors or for any other purpose shall be held at such place within or without the State of Delaware as may be determined from time to time by the chairman of the board, if any, the president or the board of directors.  Any adjourned session of any meeting of the stockholders shall be held at the place designated in the vote of adjournment.

2.4.          Notice of Meetings.  Except as otherwise provided by law, a written notice of each meeting of stockholders stating the place, day and hour thereof and, in the case of a special meeting, the purposes for which the meeting is called, shall be given not less then ten nor more than sixty days before the meeting, to each stockholder entitled to vote thereat, and to each stockholder who, by law, by the certificate of incorporation or by these bylaws, is entitled to notice, by leaving such notice with him or at his residence or usual place of business, or by depositing it in the United States mail, postage prepaid, and addressed to such stockholder at his

address as it appears in the records of the corporation.  Such notice shall be given by the secretary, or by an officer or person designated by the board of directors, or in the case of a special meeting by the officer calling the meeting.  As to any adjourned session of any meeting of stockholders, notice of the adjourned meeting need not be given if the time and place thereof are announced at the meeting at which the adjournment was taken except that if the adjournment is for more than thirty days or if after the adjournment a new record date is set for the adjourned session, notice of any such adjourned session of the meeting shall be given in the manner heretofore described.  No notice of any meeting of stockholders or any adjourned session thereof need be given to a stockholder if a written waiver of notice, executed before or after the meeting or such adjourned session by such stockholder, is filed with the records of the meeting or if the stockholder attends such meeting without objecting at the beginning of the meeting to the transaction of any business because the meeting is not lawfully called or convened.  Neither the business to be transacted at, nor the purpose of, any meeting of the stockholders or any adjourned session thereof need be specified in any written waiver of notice.

2.5.          Quorum of Stockholders.  At any meeting of the stockholders a quorum as to any matter shall consist of a majority of the votes entitled to be cast on the matter, except where a larger quorum is required by law, by the certificate of incorporation or by these bylaws.  Any meeting may be adjourned from time to time by a majority of the votes properly cast upon the question, whether or not a quorum is present.  If a quorum is present at an original meeting, a quorum need not be present at an adjourned session of that meeting.  Shares of its own stock belonging to the corporation or to another corporation, if a majority of the shares entitled to vote in the election of directors of such other corporation is held, directly or indirectly, by the corporation, shall neither be entitled to vote nor be counted for quorum purposes; provided, however, that the foregoing shall not limit the right of any corporation to vote stock, including but not limited to its own stock, held by it in a fiduciary capacity.

2.6.          Action by Vote.  When a quorum is present at any meeting, a plurality of the votes properly cast for election to any office shall elect to such office and a majority of the votes properly cast upon any question other than an election to an office shall decide the question, except when a larger vote is required by law, by the certificate of incorporation or by these bylaws.  No ballot shall be required for any election unless requested by a stockholder present or represented at the meeting and entitled to vote in the election.

2.7.          Action without Meetings.  Unless otherwise provided in the certificate of incorporation, any action required or permitted to be taken by stockholders for or in connection with any corporate action may be taken without a meeting, without prior notice and without a vote, if a consent or consents in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted and shall be delivered to the corporation by delivery to its registered office in the State of Delaware by hand or certified or registered mail, return receipt requested, or by overnight courier or facsimile, electronic mail or other electronic transmission (provided that any such electronic transmission sets forth information from which the corporation can determine (a) that such electronic transmission was transmitted by the stockholder or person or persons authorized to act for the stockholder and (b) the date on which such stockholder or

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person or persons authorized to act for the stockholder transmitted such electronic transmission) to its principal place of business or to an officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders are recorded.  Each such written consent shall bear the date of signature of each stockholder who signs the consent; and in the case of any written consent sent by electronic transmission, the date on which such transmission is transmitted shall be deemed the date on which such consent was signed.  No written consent shall be effective to take the corporate action referred to therein unless written consents signed by a number of stockholders sufficient to take such action are delivered to the corporation in any manner specified in this paragraph within sixty days of the earliest dated consent so delivered.

For the purposes of these bylaws, “electronic transmission” means any form of communication, not directly involving the physical transmission of paper, that creates a record that may be retained, retrieved and reviewed by a recipient thereof, and that may be directly reproduced in paper form by such a recipient through an automated process.

If action is taken by consent of stockholders and in accordance with the foregoing, there shall be filed with the records of the meetings of stockholders the writing or writings comprising such consent.

If action is taken by less than unanimous consent of stockholders, prompt notice of the taking of such action without a meeting shall be given to those who have not consented in writing and a certificate signed and attested to by the secretary that such notice was given shall be filed with the records of the meetings of stockholders.

In the event that the action which is consented to is such as would have required the filing of a certificate under any provision of the General Corporation Law of the State of Delaware, if such action had been voted upon by the stockholders at a meeting thereof, the certificate filed under such provision shall state, in lieu of any statement required by such provision concerning a vote of stockholders, that written consent has been given under Section 228 of said General Corporation Law and that written notice has been given as provided in such Section 228.

2.8.          Proxy Representation.  Every stockholder may authorize another person or persons to act for him by proxy in all matters in which a stockholder is entitled to participate, whether by waiving notice of any meeting, objecting to or voting or participating at a meeting, or expressing consent or dissent without a meeting.  Every proxy must be signed by the stockholder or by his attorney-in-fact.  No proxy shall be voted or acted upon after three years from its date unless such proxy provides for a longer period.  A duly executed proxy shall be irrevocable if it states that it is irrevocable and, if, and only as long as, it is coupled with an interest sufficient in law to support an irrevocable power.  A proxy may be made irrevocable regardless of whether the interest with which it is coupled is an interest in the stock itself or an interest in the corporation generally.  The authorization of a proxy may but need not be limited to specified action; provided, however, that if a proxy limits its authorization to a meeting or meetings of stockholders, unless otherwise specifically provided such proxy shall entitle the holder thereof to vote at any adjourned session but shall not be valid after the final adjournment thereof.

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2.9.          Inspectors.  The directors or the person presiding at the meeting may, and shall if required by applicable law, appoint one or more inspectors of election and any substitute inspectors to act at the meeting or any adjournment thereof.  Each inspector, before entering upon the discharge of his duties, shall take and sign an oath faithfully to execute the duties of inspector at such meeting with strict impartiality and according to the best of his ability.  The inspectors, if any, shall determine the number of shares of stock outstanding and the voting power of each, the shares of stock represented at the meeting, the existence of a quorum, the validity and effect of proxies, and shall receive votes, ballots or consents, hear and determine all challenges and questions arising in connection with the right to vote, count and tabulate all votes, ballots or consents, determine the result, and do such acts as are proper to conduct the election or vote with fairness to all stockholders.  On request of the person presiding at the meeting, the inspectors shall make a report in writing of any challenge, question or matter determined by them and execute a certificate of any fact found by them.

2.10.        List of Stockholders.  The secretary shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at such meeting, arranged in alphabetical order and showing the address of each stockholder and the number of shares registered in his name.  The stock ledger shall be the only evidence as to who are stockholders entitled to examine such list or to vote in person or by proxy at such meeting.

Section 3.  BOARD OF DIRECTORS

3.1.          Number.  The corporation shall have one or more directors, the number of directors to be determined from time to time only by vote or action in writing thereon of the holders of a majority of the issued and outstanding shares of the particular class or series of stock entitled to vote in the election of such directors.  The number of directors shall initially be eight.  Except in connection with the election of directors at a meeting of stockholders, the number of directors may be decreased only to eliminate vacancies by reason of death, resignation or removal of one or more directors.  No director need be a stockholder.

3.2.          Tenure.  Except as otherwise provided by law, by the certificate of incorporation or by these bylaws, each director shall hold office for a period of three years and until his successor is elected and qualified, or until he sooner dies, resigns, is removed or becomes disqualified.

3.3.          Powers.  The business and affairs of the corporation shall be managed by or under the direction of the board of directors who shall have and may exercise all the powers of the corporation and do all such lawful acts and things as are not by law, the certificate of incorporation or these bylaws directed or required to be exercised or done by the stockholders.

3.4.          Vacancies.  Vacancies in the board of directors, including vacancies resulting from any increase in the number of directors, may be filled only by vote or action in writing thereon of the holders of a majority of the issued and outstanding shares of the particular class or series of stock entitled to vote in the election of such directors.  Any such vote or action taken in regard to a vacancy or vacancies arising when one or more directors shall resign from the board, effective at a future date, shall take effect when such resignation or resignations become

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 effective.  The directors shall have and may exercise all their powers notwithstanding the existence of one or more vacancies in their number, subject to any requirements of law or of the certificate of incorporation or of these bylaws as to the number of directors required for a quorum or for any vote or other actions.

3.5.          Committees.  The board of directors may, by vote of a majority of the whole board, (a) designate, change the membership of or terminate the existence of any committee or committees, each committee to consist of one or more of the directors; (b) designate one or more directors as alternate members of any such committee who may replace any absent or disqualified member at any meeting of the committee; and (c) determine the extent to which each such committee shall have and may exercise the powers of the board of directors in the management of the business and affairs of the corporation, including the power to authorize the seal of the corporation to be affixed to all papers which require it and the power and authority to declare dividends or to authorize the issuance of stock; excepting, however, such powers which by law, by the certificate of incorporation or by these bylaws they are prohibited from so delegating.  Except as the board of directors may otherwise determine, any committee may make rules for the conduct of its business, but unless otherwise provided by the board or such rules, its business shall be conducted as nearly as may be in the same manner as is provided by these bylaws for the conduct of business by the board of directors.  Each committee shall keep regular minutes of its meetings and report the same to the board of directors upon request.

3.6.          Regular Meetings.  Regular meetings of the board of directors may be held without call or notice at such places within or without the State of Delaware and at such times as the board may from time to time determine, provided that notice of the first regular meeting following any such determination shall be given to absent directors.  A regular meeting of the directors may be held without call or notice immediately after and at the same place as the annual meeting of stockholders.

3.7.          Special Meetings.  Special meetings of the board of directors may be held at any time and at any place within or without the State of Delaware designated in the notice of the meeting, when called by the chairman of the board, if any, the president, or by any of the directors, reasonable notice thereof being given to each director by the secretary or by the chairman of the board, if any, the president or the director or directors calling the meeting.

3.8.          Notice.  It shall be reasonable and sufficient notice to a director to send notice by United States mail or overnight courier at least five business days before the meeting addressed to him at his usual or last known business or residence address or to give notice to him by facsimile, electronic mail or other electronic transmission (as set forth herein) or in person or by telephone at least twenty-four hours before the meeting.  Notice of a meeting need not be given to any director if a written waiver of notice, executed by him before or after the meeting, is filed with the records of the meeting, or to any director who attends the meeting without protesting prior thereto or at its commencement the lack of notice to him.  Neither notice of a meeting nor a waiver of a notice need specify the purposes of the meeting.

3.9.          Quorum.  Except as may be otherwise provided by law, by the certificate of incorporation or by these bylaws, at any meeting of the directors, a majority of the total number

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of directors constituting the whole board shall constitute a quorum.  Any meeting may be adjourned from time to time by a majority of the votes cast upon the question, whether or not a quorum is present, and the meeting may be held as adjourned without further notice.

3.10.        Action by Vote.  Except as may be otherwise provided by law, by the certificate of incorporation or by these bylaws, when a quorum is present at any meeting the vote of a majority of the directors present shall be the act of the board of directors.

3.11.        Action Without a Meeting.  Any action required or permitted to be taken at any meeting of the board of directors or a committee thereof may be taken without a meeting if all the members of the board or of such committee, as the case may be, consent thereto in writing, and such writing or writings are filed with the records of the meetings of the board or of such committee.  Such consent shall be treated for all purposes as the act of the board or of such committee, as the case may be.

3.12.        Participation in Meetings by Conference Telephone.  Members of the board of directors, or any committee designated by such board, may participate in a meeting of such board or committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other or by any other means permitted by law.  Such participation shall constitute presence in person at such meeting.

3.13.        Compensation.  In the discretion of the board of directors, each director may be paid such fees for his services as director and be reimbursed for his reasonable expenses incurred in the performance of his duties as director as the board of directors from time to time may determine.  Nothing contained in this section shall be construed to preclude any director from serving the corporation in any other capacity and receiving reasonable compensation therefor.

3.14.        Interested Directors and Officers.

(a)           No contract or transaction between the corporation and one or more of its directors or officers, or between the corporation and any other corporation, partnership, association, or other organization in which one or more of the corporation’s directors or officers are directors or officers, or have a financial interest, shall be void or voidable solely for this reason, or solely because the director or officer is present at or participates in the meeting of the board or committee thereof which authorizes the contract or transaction, or solely because his or their votes are counted for such purpose, if:

(1)           The material facts as to his relationship or interest and as to the contract or transaction are disclosed or are known to the board of directors or the committee, and the board or committee in good faith authorizes the contract or transaction by the affirmative votes of a majority of the disinterested directors, even though the disinterested directors be less than a quorum; or

(2)           The material facts as to his relationship or interest and as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the stockholders; or

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(3)           The contract or transaction is fair as to the corporation as of the time it is authorized, approved or ratified, by the board of directors, a committee thereof, or the stockholders.

(b)           Common or interested directors may be counted in determining the presence of a quorum at a meeting of the board of directors or of a committee which authorizes the contract or transaction.

Section 4.  OFFICERS AND AGENTS

4.1.          Enumeration; Qualification.  The officers of the corporation shall be a president, a treasurer, a secretary and such other officers, if any, as the board of directors from time to time may in its discretion elect or appoint including without limitation a chairman of the board, one or more co-presidents and vice presidents and a controller.  The corporation may also have such agents, if any, as the board of directors from time to time may in its discretion choose.  Any officer may be but none need be a director or stockholder.  Any two or more offices may be held by the same person.

4.2.          Powers.  Subject to law, to the certificate of incorporation and to the other provisions of these bylaws, each officer shall have, in addition to the duties and powers herein set forth, such duties and powers as are commonly incident to his office and such additional duties and powers as the board of directors may from time to time designate.

4.3.          Election.  The officers may be elected by the board of directors at their first meeting following the annual meeting of the stockholders or at any other time.  At any time or from time to time the directors may delegate to any officer their power to elect or appoint any other officer or any agents.

4.4.          Tenure.  Each officer shall hold office until the third meeting of the board of directors following the next annual meeting of the stockholders and until his respective successor is chosen and qualified unless a shorter period shall have been specified by the terms of his election or appointment, or in each case until he sooner dies, resigns, is removed or becomes disqualified.  Each agent shall retain his authority at the pleasure of the directors, or the officer by whom he was appointed or by the officer who then holds agent appointive power.

4.5.          Chairman of the Board of Directors, Chief Executive Officer, Presidents and Vice Presidents.  The chairman of the board, if any, shall have such duties and powers as shall be designated from time to time by the board of directors.  Unless the board of directors otherwise specifies, the chairman of the board, or if there is none the chief executive officer, shall preside, or designate the person who shall preside, at all meetings of the stockholders and of the board of directors.

Unless the board of directors otherwise specifies, the chief executive officer, or if none has been appointed, the president or presidents, shall have direct charge of all business operations of the corporation and, subject to the control of the directors, shall have general charge and supervision of the business of the corporation.

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Any vice presidents shall have such duties and powers as shall be set forth in these bylaws or as shall be designated from time to time by the board of directors or by any president.

4.6.          Treasurer and Assistant Treasurers.  Unless the board of directors otherwise specifies, the treasurer shall be the chief financial officer of the corporation and shall be in charge of its funds and valuable papers, and shall have such other duties and powers as may be designated from time to time by the board of directors or by any president.  If no controller is elected, the treasurer shall, unless the board of directors otherwise specifies, also have the duties and powers of the controller.

Any assistant treasurers shall have such duties and powers as shall be designated from time to time by the board of directors, any president or the treasurer.

4.7.          Controller and Assistant Controllers.  If a controller is elected, he shall, unless the board of directors otherwise specifies, be the chief accounting officer of the corporation and be in charge of its books of account and accounting records, and of its accounting procedures.  He shall have such other duties and powers as may be designated from time to time by the board of directors, any president or the treasurer.

Any assistant controller shall have such duties and powers as shall be designated from time to time by the board of directors, any president, the treasurer or the controller.

4.8.          Secretary and Assistant Secretaries.  The secretary shall record all proceedings of the stockholders, of the board of directors and of committees of the board of directors in a book or series of books to be kept therefor and shall file therein all actions by written consent of stockholders or directors.  In the absence of the secretary from any meeting, an assistant secretary, or if there be none or he is absent, a temporary secretary chosen at the meeting, shall record the proceedings thereof.  Unless a transfer agent has been appointed, the secretary shall keep or cause to be kept the stock and transfer records of the corporation, which shall contain the names and record addresses of all stockholders and the number of shares registered in the name of each stockholder.  He shall have such other duties and powers as may from time to time be designated by the board of directors or any president.

Any assistant secretaries shall have such duties and powers as shall be designated from time to time by the board of directors, any president or the secretary.

Section 5.  RESIGNATIONS AND REMOVALS

5.1.          Any director or officer may resign at any time by delivering his resignation in writing to the chairman of the board, if any, any president, or the secretary or to a meeting of the board of directors.  Such resignation shall be effective upon receipt unless specified to be effective at some other time, and without in either case the necessity of its being accepted unless the resignation shall so state.  Except as may be otherwise provided by law, by the certificate of incorporation or by these bylaws, a director (including persons elected by stockholders to fill vacancies in the board) may be removed from office with or without cause by the vote of the holders of a majority of the issued and outstanding shares of the particular class or series entitled to vote in the election of such directors.  The board of directors may at any time remove any

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officer either with or without cause.  The board of directors may at any time terminate or modify the authority of any agent.

Section 6.  VACANCIES

6.1.          If the office of any president, any vice president, the treasurer or the secretary becomes vacant, the directors may elect a successor by vote of a majority of the directors then in office.  If the office of any other officer becomes vacant, any person or body empowered to elect or appoint that officer may choose a successor.  Each such successor shall hold office for the unexpired term, and in the case of any president, any vice president, the treasurer and the secretary until his successor is chosen and qualified or in each case until he sooner dies, resigns, is removed or becomes disqualified.  Any vacancy of a directorship shall be filled as specified in Section 3.4 of these bylaws.

Section 7.  CAPITAL STOCK

7.1.          Stock Certificates.  Each stockholder shall be entitled to a certificate stating the number and the class and the designation of the series, if any, of the shares held by him, in such form as shall, in conformity to law, the certificate of incorporation and the bylaws, be prescribed from time to time by the board of directors.  Such certificate shall be signed by the chairman or vice chairman of the board, if any, or any president or any vice president and by the treasurer or an assistant treasurer or by the secretary or an assistant secretary.  Any of or all the signatures on the certificate may be a facsimile.  In case an officer, transfer agent or registrar who has signed or whose facsimile signature has been placed on such certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if he were such officer, transfer agent or registrar at the time of its issue.

7.2.          Loss of Certificates.  In the case of the alleged theft, loss, destruction or mutilation of a certificate of stock, a duplicate certificate may be issued in place thereof, upon such terms, including receipt of a bond sufficient to indemnify the corporation against any claim on account thereof, as the board of directors may prescribe.

Section 8.  TRANSFER OF SHARES OF STOCK

8.1.          Transfer on Books.  Subject to the restrictions, if any, stated or noted on the stock certificate, shares of stock may be transferred on the books of the corporation by the surrender to the corporation or its transfer agent of the certificate therefor properly endorsed or accompanied by a written assignment and power of attorney properly executed, with necessary transfer stamps affixed, and with such proof of the authenticity of signature as the board of directors or the transfer agent of the corporation may reasonably require.  Except as may be otherwise required by law, by the certificate of incorporation or by these bylaws, the corporation shall be entitled to treat the record holder of stock as shown on its books as the owner of such stock for all purposes, including the payment of dividends and the right to receive notice and to vote or to give any consent with respect thereto and to be held liable for such calls and assessments, if any, as may

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lawfully be made thereon, regardless of any transfer, pledge or other disposition of such stock until the shares have been properly transferred on the books of the corporation.

It shall be the duty of each stockholder to notify the corporation of his post office address.

8.2.          Record Date.  In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, the board of directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the board of directors, and which record date shall not be more than sixty nor less than ten days before the date of such meeting.  If no such record date is fixed by the board of directors, the record date for determining the stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held.  A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the board of directors may fix a new record date for the adjourned meeting.

In order that the corporation may determine the stockholders entitled to consent to corporate action in writing without a meeting, the board of directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the board of directors, and which date shall not be more than ten days after the date upon which the resolution fixing the record date is adopted by the board of directors.  If no such record date has been fixed by the board of directors, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting, when no prior action by the board of directors is required by the General Corporation Law of the State of Delaware, shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the corporation by delivery to its registered office in Delaware by hand or certified or registered mail, return receipt requested, or by overnight courier or facsimile, electronic mail or other electronic transmission (as set forth herein) to its principal place of business or to an officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders are recorded.  If no record date has been fixed by the board of directors and prior action by the board of directors is required by the General Corporation Law of the State of Delaware, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting shall be at the close of business on the day on which the board of directors adopts the resolution taking such prior action.

In order that the corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights or to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the board of directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted, and which record date shall be not more than sixty days prior to such payment, exercise or other action.  If no such record date is fixed, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the board of directors adopts the resolution relating thereto.

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Section 9.  CORPORATE SEAL

9.1.          Subject to alteration by the board of directors, the seal of the corporation shall consist of a flat-faced circular die with the word “Delaware” and the name of the corporation cut or engraved thereon, together with such other words, dates or images as may be approved from time to time by the directors.

Section 10.  EXECUTION OF PAPERS

10.1.        Except as the board of directors may generally or in particular cases authorize the execution thereof in some other manner, all deeds, leases, transfers, contracts, bonds, notes, checks, drafts or other obligations made, accepted or endorsed by the corporation shall be signed by the chairman of the board, if any, any president, any vice president or the treasurer.

Section 11.  FISCAL YEAR

11.1.        The fiscal year of the corporation shall be fixed by resolution of the board of directors from time to time and shall initially be the Saturday closest to January 31.

Section 12.  AMENDMENTS

12.1.        Notwithstanding any vote required to be taken by the stockholders of the Corporation pursuant to any other provision in these bylaws, any adoption, amendment, repeal or waiver of any provision of these bylaws shall require the approval of each stockholder of the Corporation who would be disproportionately and adversely affected by such adoption,  amendment, repeal or waiver.

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EX-99.1

Exhibit 99.1

MICHAELS STORES ANNOUNCES COMPLETION OF

MERGER AGREEMENT WITH

BAIN CAPITAL AND BLACKSTONE AFFILIATES

Irving, TX, October 31, 2006 — Michaels Stores, Inc. (NYSE: MIK) today announced the completion of the merger of Michaels Stores with affiliates of two leading global private investment firms, Bain Capital Partners LLC and The Blackstone Group.

On June 30, 2006, affiliates of Bain Capital and Blackstone entered into a merger transaction with Michaels Stores for a purchase price of more than $6 billion.  Under the terms of the merger agreement, Michaels Stores stockholders are entitled to receive $44 per share in cash, without interest.

With the transaction completed, Bain Capital and Blackstone now own equal stakes in Michaels Stores, and funds affiliated with Highfields Capital Management own a minority stake.  Senior management of the Company also will acquire a minority stake of the Company.  The current Michaels management team, led by Jeffrey Boyer and Gregory Sandfort, will continue to operate the business.

“We are pleased with the successful outcome of this transaction,” Mr. Boyer said. “We look forward to partnering with Bain Capital and Blackstone to take Michaels Stores to the next level, both operationally and financially, and to realize our Company’s full long-term potential with the help of our dedicated employees.”  

“Our new partners share our vision of the significant growth opportunities at Michaels as we further accelerate our critical merchandising, marketing, strategic sourcing and operating initiatives,” Mr. Sandfort stated. “We are focused on enhancing our business by attracting new customers and continuously improving the service we offer.”

On October 5, 2006, Michaels Stores stockholders approved the merger agreement at a special meeting, with more than 99% of shares present voting for approval. The number of shares voting to approve the merger agreement represented more than 78% of the total number of shares outstanding and entitled to vote.

As a result of this transaction, Michaels Stores stock will cease trading on the New York Stock Exchange at market close today, October 31, 2006.  Stockholders who hold shares through a bank or broker will not have to take any action to have their shares converted

into cash, since these conversions will be handled by the bank or broker.  Stockholders who hold certificates can exchange their certificates for $44 per share in cash, without interest, through our transfer agent, Computershare Investor Services. Computershare will be sending out instructions to registered stockholders in the next several days regarding specific actions they will need to take to exchange their shares for the merger consideration.

About Michaels Stores

Michaels Stores, Inc. (www.michaels.com) is the world’s largest specialty retailer of arts, crafts, framing, floral, home décor, and seasonal merchandise for the hobbyist and do-it-yourself home decorator. As of October 31, 2006, the Company owns and operates 919 Michaels stores in 48 states and Canada, 165 Aaron Brothers stores, 11 Recollections stores, and four Star Wholesale operations.

About Bain Capital

Bain Capital (www.baincapital.com) is a global private investment firm that manages several pools of capital including private equity, venture capital, public equity, and leveraged debt assets with approximately $40 billion in assets under management. Since its inception in 1984, Bain Capital has made private equity investments and add-on acquisitions in over 230 companies around the world, including such leading retailers and consumer companies as Toys "R" Us, Burger King, Staples, Burlington Coat Factory, Shopper's Drug Mart, Brookstone, Domino's Pizza, Dollarama, Sealy Corp., Sports Authority and Duane Reade.  Headquartered in Boston, Bain Capital has offices in New York, London, Munich, Hong Kong, Shanghai, and Tokyo.

About The Blackstone Group

The Blackstone Group, a global private investment and advisory firm, was founded in 1985. The firm has raised a total of approximately $67 billion for alternative asset investing since its formation of which approximately $30 billion has been for private equity investing. The Private Equity Group is currently investing its fifth general private equity fund with commitments of $15.6 billion, and has over 60 experienced professionals with broad sector expertise. Blackstone’s other core businesses include Private Real Estate Investing, Corporate Debt Investing, Hedge Funds, Mutual Fund Management, Private Placement, Marketable Alternative Asset Management, and Investment Banking Advisory Services. Further information is available at http://www.blackstone.com.

Media and Investor Contact:

For Michaels Stores:

Michael Gross

Robinson Lerer & Montgomery

646-805-2003

For Bain Capital:

Alex Stanton

Stanton Crenshaw Communications

212-780-0701

alex@stantoncrenshaw.com

For The Blackstone Group:

John Ford

The Blackstone Group

212-583-5559

ford@blackstone.com

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