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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