**Exhibit 10.4**

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**MICHAELS STORES, INC.**

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**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 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 any securities issued upon exercise of thisOption constitute an Option and Shares, respectively, as defined in theStockholders 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 thisAgreement, the “Grant Date” shall mean the date hereof, June 2, 2009.

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

 

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

 

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

 

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

 

The Option evidenced by this Agreement is notintended to qualify as an incentive stock option under Section 422 of theInternal Revenue Code (the “Code”).

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

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

 

(a)          Details ofExercise.  Each election to exercise this Option shallbe 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 thePerson 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 forthin the Plan.  The latest date on which this Option may be exercised (the “FinalExercise Date”) is the date which is the eight (8th) anniversary of the GrantDate, subject to earlier termination in accordance with the terms andprovisions of the Plan and this Agreement.

 

(b)         Payment ofExercise Price.  The following are permitted forms of paymentfor the exercise of this Option and for the remittance of withholding taxespursuant to Section 8: (a) cash or check acceptable to theAdministrator, (b) actual or constructive transfer to the Company ofshares of Stock owned by the Optionee for at least six months (or, with theconsent of the Administrator, for less than six months) having an aggregateFair Market Value at the date of exercise equal to the aggregate exercise priceof the Award, (c) authorization by the Optionee of the Company to withholda number of shares of Stock otherwise issuable to the Optionee under thisOption having an aggregate Fair Market Value on the date of exercise equal tothe aggregate exercise price of this Option and, if applicable, the amount ofany withholding tax, (d) at such time, if any, as the Stock is publiclytraded through a broker-assisted “cashless” exercise program acceptable to theAdministrator, 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 theStockholders Agreement), this Option will vest and become fully exercisable.

 

**5.****             ****Representations and Warranties of Optionee.**  Optionee represents andwarrants that:

 

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

 

(b)         No Conflicts.  Theexecution, delivery, and performance by Optionee of this Agreement and theconsummation by Optionee of the transactions contemplated hereby will not, withor without the giving of notice or lapse of time, or both (i) violate anyprovision of law, statute, rule or regulation to which Optionee issubject, (ii) violate any order, judgment or decree applicable toOptionee, 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 isa party or by which Optionee is bound.

 

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

 

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

 

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

 

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

 

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

 

“Thesecurities 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 absenceof an effective registration under the Act covering the transfer or an opinionof counsel, satisfactory to the issuer, that registration under the Act is notrequired.”

 

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

 

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

 

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

 

**11.****      ****Effect on Employment.**  Neither the grant of this Option, nor the issuance of Sharesupon exercise of this Option, will give the Optionee any right to be retainedin the employ of the Company or its Affiliates, affect the right of the Companyor its Affiliates to discharge or discipline such Optionee at any time, oraffect any right of such Optionee to terminate his or her Employment at anytime.

 

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

 

**13.****      ****Provisions of the Plan.**  This Agreement is subject in its entirety to the provisions ofthe Plan, which are incorporated herein by reference.  A copy of the Planas in effect on the Grant Date has been furnished to the Optionee.  Byexercising all or any part of this Option, the Optionee agrees to be bound bythe terms of the Plan and this Agreement.  In the event of any conflictbetween the terms of this Agreement and the Plan, the terms of this Agreementshall control.

 

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**14.****      ****Definitions.** Initially capitalized terms not otherwise defined herein have the meaning providedin the Plan.

 

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

 

**[**REMAINDER OF PAGEINTENTIONALLY LEFT BLANK**]**

 

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

 

 
|   | MICHAELS  STORES, INC. |
|--------|------------------------|
|   |                   |   |
|   |                   |   |
|   | By:                    | /s/  Michael J. Veitenheimer |
|   |                   | Name: | Michael  J. Veitenheimer |
|   |                   | Title: | Senior  Vice President — GeneralCounsel and Secretary |

 

 

Dated: June 2, 2009

 

Theundersigned acknowledges and agrees to the terms of this Agreement andacknowledges and agrees that by the undersigned’s execution below, the undersignedis also joining and becoming a party to the Stockholders Agreement and theRegistration Rights Agreement:

 

 
| /s/  John B. Menzer |   |
|---------------------|--------|
| John  B. Menzer     |

 

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