**Exhibit 10.1**

 

**MICHAELS STORES, INC.**

 

**FORM OFSTOCK OPTION AGREEMENT**

 

Optionee:                                                                                                             

 

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

 

ThisStock Option Agreement (this “Agreement”) is hereby entered into betweenMichaels Stores, Inc., a Delaware corporation (the “Company”), and theOptionee named above pursuant to the Company’s 2006 Equity Incentive Plan, asamended from time to time (the “Plan”). For the purpose of this Agreement, the “Grant Date” shall mean            ,20    .

 

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

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| [*With respect to the following Shares in which you  are immediately vested (the “Vested Option”)*]    |
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|                                                                                                             |   |   |
| (a)                                                                                                              |   | [            Shares at $15.00 per Share, with an expiration date of            ,  20    ]; |
|                                                                                                             |   |   |
| (b)                                                                                                              |   | [            Shares at $15.00 per Share, with an expiration date of            ,  20    ]; |
|                                                                                                             |   |   |
| (c)                                                                                                              |   | [            Shares at $22.50 per Share, with an expiration date of            ,  20    ]; and |
|                                                                                                             |   |   |
| (d)                                                                                                              |   | [            Shares at $22.50 per Share, with an expiration date of            ,  20    ]. |
|                                                                                                             |   |   |
| *With  respect to the following Shares subject to vesting as set forth below (the  “Unvested Option”)* |
|                                                                                                             |   |   |
| (e)                                                                                                              |   | Shares at $7.50 per  Share (the “Tranche 0 Option”); |
|                                                                                                             |   |   |
| (f)                                                                                                              |   | Shares at $15.00 per  Share (the “Tranche 1 Option”); and |
|                                                                                                             |   |   |
| (g)                                                                                                              |   | Shares at $22.50 per  Share (the “Tranche 2 Option”). |

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## The Optionevidenced by this Agreement is not intended to qualify as an incentive stock

 

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## option under Section 422of the Internal Revenue Code (the “Code”).

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# **2.****                                     ****Vesting****. **During the Optionee’s Employment, the Unvested Optionwill vest and become exercisable (i) with respect to 20% of the Sharessubject to each of the Tranche 0 Option, Tranche 1 Option and Tranche 2 Optionon each of the first through fifth anniversaries of the Grant Date or (ii) ifearlier, with respect to any unvested portion of the Unvested Option, upon aChange of Control (as defined in the Stockholders Agreement).

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# **3.****                                     ****Exercise of Option****.**

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## (a)                                  Details of Exercise. Each election to exercise this Option shall be subject to the terms andconditions of the Plan and shall be in writing, signed by the Optionee or byhis or her executor or administrator or by the Person or Persons to whom thisOption is transferred by will or the applicable laws of descent anddistribution (the “Legal Representative”), and made pursuant to and in accordancewith the terms and conditions set forth in the Plan.  The latest date on which this Option may beexercised [(i) with respect to the Vested Option is set forth in Section 1above, and (ii)] with respect to the Unvested Option is              ,20    , subject to earlier termination in accordance withthe terms and provisions of the Plan and this Agreement.

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

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# **4.****                                     ****Effect of CertainTransactions****. **In the event of a Corporate Transaction(as defined in the Plan) or a Change of Control (as defined in the StockholdersAgreement), the terms of Article 7 of the Plan shall control.

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# **5.****                                     ****Representations andWarranties of Optionee****.**

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# Optioneerepresents and warrants that:

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## (a)                                  Authorization. Optionee has full legal capacity, power, and authority to execute anddeliver this Agreement and to perform the Optionee’s obligationshereunder.  This Agreement has been dulyexecuted and delivered by the Optionee and is the legal, valid, and bindingobligation of the Optionee enforceable against the Optionee in accordance withthe terms hereof.

 

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## (b)                                 No Conflicts. The execution, delivery, and performance by the Optionee of thisAgreement and the consummation by the Optionee of the transactions contemplatedhereby 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 towhich the Optionee is subject, (ii) violate any order, judgment or decreeapplicable to the Optionee, or (iii) conflict with, or result in a breachof default under, any term or condition of any agreement or other instrument towhich the Optionee is a party or by which the Optionee is bound.

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## (c)                                  Thorough Review, etc. Optionee has thoroughly reviewed the Plan, this Agreement, theStockholders Agreement and the Registration Rights Agreement in theirentirety.  Optionee has had anopportunity to obtain the advice of counsel (other than counsel to the Companyor its Affiliates) prior to executing this Agreement, and fully understands allprovisions of the Plan and this Agreement.

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## (d)                                 Knowledge.  Optionee hasbeen advised that neither this Option or the Shares received upon this Option’sexercise have been registered under the Securities Act or any state securitieslaws and, therefore, none of those securities can be resold unless they areregistered under the Securities Act and applicable state securities laws orunless an exemption from such registration requirements is available.  Except to the extent provided in theStockholders Agreement and the Registration Rights Agreement, the Optionee isaware that the Company is under no obligation to effect any such registrationwith respect to any such securities or to file for or comply with any exemptionfrom registration.  Optionee is acquiringand holding the Option and any Shares received upon the Option’s exercise forits own account and not with a view to, or for resale in connection with, thedistribution thereof in violation of the Securities Act.  Optionee is either an “accredited investor”as defined in Regulation D under the Securities Act or possesses such knowledgeand experience in financial and business matters that he or she is capable ofevaluating the merits and risks of an investment in the securities of theCompany described in this Agreement.

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# **6.****                                     ****Other Agreements**. Optionee acknowledges and agrees that the Shares received upon exerciseof this Option will be subject to the Stockholders Agreement and to theRegistration Rights Agreement and the transfer and other restrictions, rights,and obligations set forth in those agreements. By executing this Agreement, the Optionee hereby becomes a party to andbound by the Stockholders Agreement and the Registration Rights Agreement as aManager (as such term is defined in those agreements), without any furtheraction on the part of the Optionee, the Company or any other Person.

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# **7.****                                     ****Legends****. **Certificates evidencing any Shares issued uponexercise of the Option granted hereby may bear the following legends, in additionto any legends which may be required by the Stockholders Agreement or by theRegistration Rights Agreement:

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“THESECURITIES REPRESENTED BY THIS CERTIFICATE WERE ISSUED IN A PRIVATE PLACEMENT,WITHOUT REGISTRATION UNDER THE SECURITIES ACT

 

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OF1933, AS AMENDED (THE “ACT”), AND MAY NOT BE SOLD, ASSIGNED, PLEDGED, OROTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION UNDER THE ACTCOVERING 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 pursuantto the exercise of this Option unless and until the Person exercising thisOption shall have remitted to the Company an amount sufficient to satisfy anyfederal, state, or local withholding tax requirements, or shall have made otherarrangements satisfactory to the Company with respect to such taxes.

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

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

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# **11.****                              ****Effect on Employment****. **Neither the grant of this Option, nor the issuance ofShares upon exercise of this Option, will give the Optionee any right to beretained in the employ of the Company or its Affiliates, affect the right ofthe Company or its Affiliates to discharge or discipline the Optionee at anytime, or affect any right of the Optionee to terminate his or her Employment atany time.

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# **12.****                              ****Indemnity****.** Optionee hereby indemnifies and agrees to hold the Company harmless fromand against all losses, damages, liabilities and expenses (including withoutlimitation reasonable attorneys fees and charges) resulting from any breach ofany representation, warranty, or agreement of the Optionee in this Agreement orany misrepresentation of the Optionee in this Agreement.

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# **13.****                              ****Provisions of the Plan****. **This Agreement is subject in its entirety to theprovisions of the Plan, which are incorporated herein by reference.  A copy of the Plan as in effect on the GrantDate has been furnished to the Optionee. By exercising all or any part of this Option, the Optionee agrees to bebound by the terms of the Plan and this Agreement.  In the event of any conflict between theterms of this Agreement and the Plan, the terms of this Agreement shallcontrol.

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# **14.****                              ****Definitions****. **Initially capitalized terms not otherwise definedherein have the meaning provided in the Plan.

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

 

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INWITNESS WHEREOF, the Company has caused this Agreement to be executed by itsduly authorized officer.

 

 
| DATED: |                   |
|--------|------------------------|
|   |                   |
|   |                   |
|   | MICHAELS STORES,  INC. |
|   |                   |
|   |                   |
|   | By:                    |   |
|   |                   | Michael J.  Veitenheimer |
|   |                   | Senior Vice  President — General Counsel and Secretary |

 

 

Theundersigned acknowledges and agrees to the terms of this Stock Option Agreementand acknowledges and agrees that by the undersigned’s execution below, theundersigned is also joining and becoming a party to the Amended and RestatedStockholders Agreement and the Registration Rights Agreement.

 

 
|   |               |
|--------|--------------------|
|   | [Name of Optionee] |

 

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