Exhibit 10.4

 

MICHAELS STORES, INC.

 

STOCK OPTION AGREEMENT

 

Optionee:  John B. Menzer

 

No. of Shares:  2,500,000

 

Date of Grant:  June 2, 2009

 

Expiration Date:  June 1, 2017

 

This Option and any securities issued upon exercise of this Option are subject
to restrictions on voting and transfer and other provisions as set forth in the
Amended and Restated Stockholders Agreement among Michaels Stores, Inc. and
certain investors, originally dated as of October 31, 2006, as amended and
restated on February 16, 2007 and amended from time to time thereafter (the
“Stockholders Agreement”) and the terms of the Registration Rights Agreement
referred to therein (the “Registration Rights Agreement”).  This Option and any
securities issued upon exercise of this Option constitute an Option and Shares,
respectively, as defined in the Stockholders Agreement.

 

This Stock Option Agreement (this “Agreement”) is hereby entered into between
Michaels Stores, Inc., a Delaware corporation (the “Company”), and the Optionee
named above pursuant to the Company’s 2006 Equity Incentive Plan, as amended
from time to time (the “Plan”).  For the purpose of this Agreement, the “Grant
Date” shall mean the date hereof, June 2, 2009.

 

1.              Grant of Option.  This Agreement evidences the grant by the
Company on the Grant Date to the Optionee of an option (the “Option”) to
purchase, in whole or in part, on the terms provided herein and in the Plan, a
total of 2,500,000 shares of Common Stock of the Company, par value $.10 per
share (the “Shares”), at the following prices per Share:

 

(a)          833,334 Shares at $7.50 per Share (the “Tranche 0 Option”);

 

(b)         833,333 Shares at $15.00 per Share (the “Tranche 1 Option”); and

 

(c)          833,333 Shares at $22.50 per Share (the “Tranche 2 Option”);

 

The Option evidenced by this Agreement is not intended to qualify as an
incentive stock option under Section 422 of the Internal Revenue Code (the
“Code”).

 

2.              Vesting.  During the Optionee’s Employment, the Option will vest
and become exercisable (i) with respect to 20% of the Shares subject to each of
the Tranche 0 Option, Tranche 1 Option and Tranche 2 Option on each of the first
through fifth anniversaries of April 6, 2009 or (ii) if earlier, with respect to
any unvested portion of the Option, upon a Change of Control (as defined in the
Stockholders Agreement).

 

3.              Exercise of Option.

 

(a)          Details of Exercise.  Each election to exercise this Option shall
be subject to the terms and conditions of the Plan and shall be in writing,
signed by the Optionee or by his or her executor or administrator or by the
Person or Persons to whom this Option is transferred by will or the

 

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applicable laws of descent and distribution (the “Legal Representative”), and
made pursuant to and in accordance with the terms and conditions set forth in
the Plan.  The latest date on which this Option may be exercised (the “Final
Exercise Date”) is the date which is the eight (8th) anniversary of the Grant
Date, subject to earlier termination in accordance with the terms and provisions
of the Plan and this Agreement.

 

(b)         Payment of Exercise Price.  The following are permitted forms of
payment for the exercise of this Option and for the remittance of withholding
taxes pursuant to Section 8: (a) cash or check acceptable to the Administrator,
(b) actual or constructive transfer to the Company of shares of Stock owned by
the Optionee for at least six months (or, with the consent of the Administrator,
for less than six months) having an aggregate Fair Market Value at the date of
exercise equal to the aggregate exercise price of the Award, (c) authorization
by the Optionee of the Company to withhold a number of shares of Stock otherwise
issuable to the Optionee under this Option having an aggregate Fair Market Value
on the date of exercise equal to the aggregate exercise price of this Option
and, if applicable, the amount of any withholding tax, (d) at such time, if any,
as the Stock is publicly traded through a broker-assisted “cashless” exercise
program acceptable to the Administrator, and (e) by a combination of such
methods of payment.

 

4.              Effect of Certain Transactions.  In the event of a Change of
Control (as defined in the Stockholders Agreement), this Option will vest and
become fully exercisable.

 

5.              Representations and Warranties of Optionee.  Optionee represents
and warrants that:

 

(a)          Authorization.  Optionee has full legal capacity, power, and
authority to execute and deliver this Agreement and to perform Optionee’s
obligations hereunder.  This Agreement has been duly executed and delivered by
Optionee and is the legal, valid, and binding obligation of Optionee enforceable
against Optionee in accordance with the terms hereof.

 

(b)         No Conflicts.  The execution, delivery, and performance by Optionee
of this Agreement and the consummation by Optionee of the transactions
contemplated hereby will not, with or without the giving of notice or lapse of
time, or both (i) violate any provision of law, statute, rule or regulation to
which Optionee is subject, (ii) violate any order, judgment or decree applicable
to Optionee, or (iii) conflict with, or result in a breach of default under, any
term or condition of any agreement or other instrument to which Optionee is a
party or by which Optionee is bound.

 

(c)          Thorough Review, etc.  Optionee has thoroughly reviewed the Plan,
this Agreement, the Stockholders Agreement and the Registration Rights Agreement
in their entirety.  Optionee has had an opportunity to obtain the advice of
counsel (other than counsel to the Company or its Affiliates) prior to executing
this Agreement, and fully understands all provisions of the Plan and this
Agreement.

 

(d)         Knowledge.  Optionee has been advised that neither this Option or
the Shares received upon this Option’s exercise have been registered under the
Securities Act or any state securities laws and, therefore, none of those
securities can be resold unless they are registered under the Securities Act and
applicable state securities laws or unless an exemption from such registration
requirements is available.  Except to the extent provided in the Stockholders
Agreement and the Registration Rights Agreement, such Optionee is aware that the
Company is under no obligation to effect any such registration with respect to
any such securities or to file for or comply with any exemption from
registration.  Such Optionee is acquiring and holding the Option and any Shares
received upon the Option’s exercise for its own account and not with a view to,
or for resale in connection with, the distribution thereof in violation of the
Securities Act.  Such Optionee is

 

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either an “accredited investor” as defined in Regulation D under the Securities
Act or possesses such knowledge and experience in financial and business matters
that he or she is capable of evaluating the merits and risks of an investment in
the securities of the Company described in this Agreement.

 

6.              Joinder to Agreements.  Optionee acknowledges and agrees that
the Shares received upon exercise of this Option will be subject to the
Stockholders Agreement and to the Registration Rights Agreement and the transfer
and other restrictions, rights, and obligations set forth in those agreements. 
By executing this Agreement, Optionee hereby becomes a party to and bound by the
Stockholders Agreement and the Registration Rights Agreement as a Manager (as
such term is defined in those agreements), without any further action on the
part of Optionee, the Company or any other Person.

 

7.              Legends.  Certificates evidencing any Shares issued upon
exercise of the Option granted hereby may bear the following legends, in
addition to any legends which may be required by the Stockholders Agreement or
by the Registration Rights Agreement:

 

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

 

8.              Withholding.  No Shares will be issued, sold or transferred
pursuant to the exercise of this Option unless and until the Person exercising
this Option shall have remitted to the Company an amount sufficient to satisfy
any federal, state, or local withholding tax requirements, or shall have made
other arrangements satisfactory to the Company with respect to such taxes.

 

9.              Nontransferability of Option.  This Option is not transferable
by the Optionee other than by will or the applicable laws of descent and
distribution, and is exercisable during the Optionee’s lifetime only by the
Optionee.

 

10.       Status Change.  Upon the termination of the Optionee’s Employment,
this Option shall continue or terminate as, and to the extent provided in the
Plan.

 

11.       Effect on Employment.  Neither the grant of this Option, nor the
issuance of Shares upon exercise of this Option, will give the Optionee any
right to be retained in the employ of the Company or its Affiliates, affect the
right of the Company or its Affiliates to discharge or discipline such Optionee
at any time, or affect any right of such Optionee to terminate his or her
Employment at any time.

 

12.       Indemnity.  Optionee hereby indemnifies and agrees to hold the Company
harmless from and against all losses, damages, liabilities and expenses
(including without limitation reasonable attorneys fees and charges) resulting
from any breach of any representation, warranty, or agreement of Optionee in
this Agreement or any misrepresentation of Optionee in this Agreement.

 

13.       Provisions of the Plan.  This Agreement is subject in its entirety to
the provisions of the Plan, which are incorporated herein by reference.  A copy
of the Plan as in effect on the Grant Date has been furnished to the Optionee. 
By exercising all or any part of this Option, the Optionee agrees to be bound by
the terms of the Plan and this Agreement.  In the event of any conflict between
the terms of this Agreement and the Plan, the terms of this Agreement shall
control.

 

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14.       Definitions.  Initially capitalized terms not otherwise defined herein
have the meaning provided in the Plan.

 

15.       General.  For purposes of this Agreement and any determinations to be
made by the Administrator hereunder, the determinations by the Administrator
shall be binding upon the Optionee and any transferee.

 

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IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its
duly authorized officer.

 

 

 

MICHAELS STORES, INC.

 

 

 

 

 

 

 

By:

/s/ Michael J. Veitenheimer

 

 

Name:

Michael J. Veitenheimer

 

 

Title:

Senior Vice President — General Counsel and Secretary

 

 

Dated:  June 2, 2009

 

The undersigned acknowledges and agrees to the terms of this Agreement and
acknowledges and agrees that by the undersigned’s execution below, the
undersigned is also joining and becoming a party to the Stockholders Agreement
and the Registration Rights Agreement:

 

 

/s/ John B. Menzer

 

John B. Menzer

 

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