Document:

Exhibit 10.1

 

	
  

  Executive Officer

  	
   

  	
  2007 Base Salary(1)

  	
   

  	
  2007 Target Bonus

  (% of Base Salary)(2)

  	
   

  
	
  Henry E. Blair 

  Chairman and Chief Executive Officer

  	
   

  	
  $

  	
  525,000

  	
   

  	
  45.0

  	
  %

  
	
  Thomas R. Beck,
  M.D. 

  President and Chief Operating Officer

  	
   

  	
  $

  	
  353,600

  	
   

  	
  42.5

  	
  %

  
	
  Stephen S.
  Galliker 

  Executive Vice President, Finance and 

  Administration, and Chief Financial 

  Officer

  	
   

  	
  $

  	
  301,479

  	
   

  	
  37.5

  	
  %

  
	
  Ivana Magovcevic-Liebisch,
  Ph.D., J.D. 

  General Counsel and Executive Vice 

  President, Corporate Communications

  	
   

  	
  $

  	
  318,138

  	
   

  	
  37.5

  	
  %

  
	
  Clive R. Wood, Ph.D. 

  Executive Vice President Discovery 

  Research and Chief Scientific Officer

  	
   

  	
  $

  	
  321,000

  	
   

  	
  37.5

  	
  %

  

 

(1) These base salaries
were made retroactive to January 1, 2007.

(2) The target bonus
opportunity can be exceeded by up to 20% of the target for exceptional
performance. For example, an executive with a target bonus of 30% who has
outstanding performance can receive a bonus of as much as 36% of base salary.

 5Exhibit 10.1

MICHAELS
STORES, INC.

2006
EQUITY INCENTIVE PLAN

1.             DEFINED TERMS

Exhibit A, which is incorporated by
reference, defines the terms used in the Plan and sets forth certain
operational rules related to those terms.

2.             PURPOSE

The Plan has been established to advance the interests
of the Company and its Affiliates by providing for the grant to Participants of
stock-based and other incentive Awards. 
Awards under the Plan are intended to align the incentives of the
Company’s executives and investors and to improve the performance of the
Company.  Unless the Administrator
determines otherwise, Awards to be granted under this Plan are expected to be
granted to Participants under agreements substantially in the form attached
hereto as Exhibit B.  Unless the
Administrator determines otherwise, Awards under the Plan are intended to be
exempt from registration under the Securities Act of 1933, as amended.

3.             ADMINISTRATION

The Administrator has
discretionary authority, subject only to the express provisions of the Plan and
the Award Agreements, to interpret the Plan; determine eligibility for and
grant Awards; determine, modify or waive the terms and conditions of any Award;
prescribe forms, rules and procedures; and otherwise do all things necessary to
carry out the purposes of the Plan. 
Except as otherwise provided by the express terms of an Award Agreement,
all determinations of the Administrator made under the Plan will be final and
conclusive and will bind all parties.

4.             LIMITS
ON AWARDS UNDER THE PLAN

(a)           Number of Shares.  A maximum of 14,156,9661 shares of Stock may be delivered in
satisfaction of Awards under the Plan (subject to adjustment as provided in
Section 7(b) of the Plan).  Of such
maximum, the number of shares of Stock delivered in satisfaction of Awards to
Non-Employee Participants shall not exceed 2,359,494 (subject to adjustment as
provided in Section 7(b) of the Plan). 
The limits set forth in this Section 4(a) shall be construed to comply
with Section 422 of the Code and the regulations thereunder.  To the extent consistent with the
requirements of Section 422 of the Code and regulations thereunder, Stock
issued under awards of an acquired company that are converted, replaced or
adjusted in connection with the acquisition shall not reduce the number of
shares of Stock available for Awards under the Plan.  Any shares of Stock which are subject to an
Award that is terminated unexercised, forfeited or surrendered, or expires for
any reason, will again be available for issuance under the Plan.  For 

1 After
giving effect to a 2.9333 for 1 stock split completed immediately prior to
adoption of this Plan.

purposes of the Plan, the term “surrendered”
shall be construed to include Awards (or portions thereof) exercisable for
shares of Stock that a Participant authorizes the Company to withhold in
connection with the exercise price of an Award (or a portion thereof) or to
satisfy a withholding obligation in accordance with the terms of the Plan.

(b)           Type of Shares.  Stock delivered under the Plan may be
authorized but unissued Stock or previously issued Stock acquired by the
Company or any of its subsidiaries.  No
fractional shares of Stock will be delivered under the Plan.

5.             ELIGIBILITY
AND PARTICIPATION

The Administrator will select
Participants from among those key Employees and directors of, and consultants
and advisors to, the Company or its Affiliates who, in the opinion of the
Administrator, are in a position to make a significant contribution to the
success of the Company and its Affiliates. 
Eligibility for ISOs is limited to employees of the Company or of a
“parent corporation” or “subsidiary corporation” of the Company as those terms
are defined in Section 424 of the Code.

6.             RULES
APPLICABLE TO AWARDS

(a)           All
Awards

(1)           Award
Provisions.  The
Administrator will determine the terms of all Awards, subject to the
limitations provided herein, and shall furnish to each Participant an Award
Agreement setting forth the terms applicable to the Participant’s Award.  By entering into an Award Agreement, the
Participant agrees to the terms of the Award and of the Plan, to the extent not
inconsistent with the express terms of the Award Agreement.  Notwithstanding any provision of this Plan to
the contrary, awards of an acquired company that are converted, replaced or
adjusted in connection with the acquisition may contain terms and conditions
that are inconsistent with the terms and conditions specified herein, as
determined by the Administrator.

(2)           Transferability.  Neither ISOs, nor, except as the
Administrator otherwise expressly provides, other Awards may be transferred
other than by will or by the laws of descent and distribution, and during a
Participant’s lifetime ISOs (and, except as the Administrator otherwise
expressly provides, other non-transferable Awards requiring exercise) may be
exercised only by the Participant.

(3)           Vesting,
Etc.  The
Administrator may determine the time or times at which an Award will vest or
become exercisable and the terms on which an Award requiring exercise will
remain exercisable.  Without limiting the
foregoing, the Administrator may at any time accelerate the vesting or
exercisability of an Award, regardless of any adverse or potentially adverse
tax consequences resulting from such acceleration.  Unless the Administrator expressly provides
otherwise, however, the following rules will apply if a Participant’s
Employment ceases:  Immediately upon the
cessation of Employment, an Award requiring exercise will cease to be
exercisable and will terminate, and all other Awards to the extent not already
vested will be forfeited, except that:

 2
 

(A)          subject to (B) and (C) below, all
Stock Options and other Awards requiring exercise held by the Participant or
the Participant’s permitted transferees, if any, immediately prior to the
cessation of the Participant’s Employment, to the extent then exercisable, will
remain exercisable for the shorter of (i) a period of 60 days or (ii) the
period ending on the latest date on which such Award could have been exercised
without regard to this Section 6(a)(3), and will thereupon terminate;

(B)          all Stock Options and other Awards
requiring exercise held by a Participant or the Participant’s permitted
transferees, if any, immediately prior to the Participant’s death or
disability, to the extent then exercisable, will remain exercisable for the
shorter of (i) the one year period ending with the first anniversary of the
Participant’s death or disability, as the case may be, or (ii) the period
ending on the latest date on which such Award could have been exercised without
regard to this Section 6(a)(3), and will thereupon terminate; and

(C)          all Stock Options and other Awards
requiring exercise held by a Participant or the Participant’s permitted
transferees, if any, immediately prior to the cessation of the Participant’s
Employment will immediately terminate upon such cessation if such cessation of
Employment has resulted in connection with an act or failure to act
constituting Cause.

(4)           Taxes.  The Administrator will make such provision
for the withholding of taxes as it deems necessary.  The Administrator may, but need not, hold
back shares of Stock from an Award or permit a Participant to tender previously
owned shares of Stock in satisfaction of tax withholding requirements (but not
in excess of the applicable minimum statutory withholding rate).

(5)           Rights
Limited. 
Nothing in the Plan will be construed as giving any Person the right to
continued Employment with the Company or its Affiliates, or any rights as a
stockholder except as to shares of Stock actually issued under the Plan.  The loss of potential post-termination
appreciation in Awards will not constitute an element of damages in the event
of termination of Employment for any reason, even if the termination is in
violation of an obligation of the Company or its Affiliate to the Participant.

(6)           Stockholders
Agreement and Registration Rights Agreement. Unless
otherwise specifically provided, all Awards issued under the Plan and all Stock
issued thereunder will be subject to the Stockholders Agreement and the
Registration Rights Agreement.

(7)           Section
409A.  Awards
under the Plan are intended either to be exempt from the rules of Section 409A
of the Code or to satisfy those rules, and the Plan and such Awards shall be
construed accordingly.  Notwithstanding
the preceding, neither the Company nor the Administrator nor any employee,
director, or Affiliate of either shall have any liability to any Participant,
beneficiary, any spouse of a Participant or beneficiary, or any other holder of
an Award, with respect to any adverse tax consequences under Section 409A of
the Code.  Granted Awards may be modified
at any time, in the Administrator’s discretion, so as to increase the
likelihood of exemption from or compliance with the rules of Section 409A of
the Code.

 3
 

(b)           Awards
Requiring Exercise

(1)           Time And Manner Of Exercise.  Unless the Administrator expressly provides
otherwise, an Award requiring exercise by the holder will not be deemed to
have been exercised until the Administrator receives a notice of exercise (in
form acceptable to the Administrator) signed by the appropriate Person and
accompanied by any payment required under the Award.  If the Award is exercised by any Person other
than the Participant, the Administrator may require satisfactory evidence that
the Person exercising the Award has the right to do so.

(2)           Exercise
Price.  The
Administrator will determine the exercise price, if any, of each Award
requiring exercise.  Unless the
Administrator determines otherwise, and in all events in the case of a Stock
Option (except as otherwise permitted pursuant to Section 7(b)(1) hereof), the
exercise price of an Award requiring exercise will not be less than the fair
market value of the Stock subject to the Award, determined as of the date of
grant, and in the case of an ISO granted to a ten-percent shareholder within
the meaning of Section 422(b)(6) of the Code, the exercise price will not be
less than 110% of the fair market value of the Stock subject to the Award, determined
as of the date of grant.

(3)           Payment
Of Exercise Price. 
Where the exercise of an Award
is to be accompanied by payment, the Administrator may determine the required
or permitted forms of payment, subject to the following: (a) all payments will
be by cash or check acceptable to the Administrator, or (b) if so
permitted by the Administrator or otherwise expressly set forth in an Award,
(i) by actual or constructive transfer to the Company of shares of Stock owned
by the Participant 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,
(ii) by authorizing the Company to withhold a number of shares of Stock
otherwise issuable to the Participant under the Award being exercised having an
aggregate Fair Market Value on the date of exercise equal to the aggregate
exercise price of the Award, (iii) at such time, if any, as the Stock is
publicly traded through a broker-assisted “cashless” exercise program
acceptable to the Administrator, (iv) by other means acceptable to the
Administrator or (v) by a combination of such methods of payment.  The delivery of shares in payment of
the exercise price under clause (b)(i) or (b)(ii) above may be accomplished
either by actual delivery or by constructive delivery through attestation of
ownership, subject to such rules as the Administrator may prescribe.

(4)           ISOs.  No ISO may be granted under the Plan after
February 14, 2017 but ISOs previously granted may extend beyond that date.

(c)           Awards Not Requiring Exercise

Awards of Restricted Stock and Unrestricted Stock,
whether delivered outright or under Awards of Stock Units or other Awards that
do not require exercise, may be made in exchange for such lawful consideration,
including services, as the Administrator determines.

 4
 

7.             EFFECT OF CERTAIN TRANSACTIONS

(a)           Except
as otherwise provided in an Award Agreement:

(1)           Assumption or Substitution.  In the event of a Corporate Transaction in
which there is an acquiring or surviving entity, the Administrator may provide
for the continuation or assumption of some or all outstanding Awards, or for
the grant of new awards in substitution therefor, by the acquiror or survivor
or any entity controlling, controlled by or under common control with the
acquiror or survivor, in each case on such terms and subject to such conditions
(including vesting or other restrictions) as the Administrator determines are
appropriate.  Unless the Administrator
determines otherwise, the continuation or assumption shall be done on terms and
conditions consistent with Section 409A of the Code.

(2)           Acceleration
of Certain Awards. 
In the event of a Corporate Transaction (whether or not there is an
acquiring or surviving entity) in which there is no assumption or substitution
as to some or all outstanding Awards, the Administrator may provide (unless the
Administrator determines otherwise, on terms and conditions consistent with
Section 409A of the Code) for (i) treating as satisfied any vesting condition
on any such Award or for (ii) the accelerated delivery of shares of Stock
issuable under each such Award consisting of Restricted Stock Units, in each
case on a basis that gives the holder of the Award a reasonable opportunity, as
determined by the Administrator, following exercise of the Award or the
issuance of the shares, as the case may be, to participate as a stockholder in
the Corporate Transaction.

(3)           Termination of Awards.  Each Award (unless assumed pursuant to the
Section 7(a)(1)), will terminate upon consummation of the Corporate
Transaction, provided that any Restricted Stock Units accelerated pursuant to
clause (ii) of Section 7(a)(2) shall be treated in the same manner as other
shares of Stock (subject to Section 7(a)(4)).

(4)           Additional
Limitations. 
Any share of Stock delivered pursuant to Section 7(a)(2) above with
respect to an Award, other than an Award requiring exercise, may, in the
discretion of the Administrator, contain such restrictions, if any, as the
Administrator deems appropriate to reflect any performance or other vesting
conditions to which the Award was subject and that did not lapse in connection
with the Corporate Transaction.  In the
case of Restricted Stock, the Administrator may require that any amounts
delivered, exchanged or otherwise paid in respect of Stock in connection with
the Corporate Transaction be placed in escrow or otherwise made subject to such
restrictions as the Administrator deems appropriate to carry out the intent of
the Plan.

(b)           Changes In, Distributions With
Respect To And Redemptions Of The Stock

(1)           Basic
Adjustment Provisions. In the event of any stock dividend or other similar
distribution of stock or other securities of the Company, stock split or
combination of shares (including a
reverse stock split), recapitalization, conversion, reorganization,
consolidation, split-up, spin-off, combination, merger, exchange of stock, redemption or repurchase of all or part of the shares
of any class of stock or any
change in the capital structure of the Company or an Affiliate, the
Administrator shall, as it deems appropriate in order to prevent
enlargement or dilution of benefits intended to be made available under the
Plan, make 

 5
 

proportionate adjustments to
the maximum number of shares of Stock that may be delivered under the Plan
under Section 4(a) and shall also, as it deems appropriate, make proportionate
adjustments to the number and kind of shares of stock or securities subject to
Awards then outstanding or subsequently granted, any exercise prices relating
to Awards and any other provision of Awards affected by such change.  Unless the Administrator determines
otherwise, any adjustments hereunder shall be done on terms and conditions
consistent with Section 409A of the Code.

(2)           Certain
Other Adjustments. 
The Administrator may also make adjustments of the type described in
paragraph (1) above to take into account distributions to stockholders or any
other event, if the Administrator determines that adjustments are appropriate
to avoid distortion in the operation of the Plan and to preserve the value of
Awards made hereunder, having due regard for the qualification of ISOs under
Section 422 of the Code, where applicable. 
In the event that an extraordinary dividend or distribution is paid by
the Company to its stockholders, the Administrator shall make adjustments of
the type described in paragraph (1) above to avoid distortion in the operation
of the Plan and to preserve the value of Awards made hereunder, having due
regard for the qualification of ISOs under Section 422 of the Code, where
applicable.  Notwithstanding the
foregoing, no adjustment shall be made to an Award under this paragraph (2) if,
as a result of such adjustment, the Award would not qualify for exclusion from
coverage under Section 409A of the Code. 
For purposes of this Plan, “extraordinary dividend” shall mean any
dividend or distribution paid by the Company to its stockholders, other than
regularly planned dividends or distributions by the Company made in accordance
with an established quarterly or annual dividend program.

(3)           Continuing
Application of Plan Terms.  References in the Plan to shares of Stock
will be construed to include any stock or securities resulting from an adjustment
pursuant to this Section 7.

8.             LEGAL
CONDITIONS ON DELIVERY OF STOCK

The Company shall use best efforts to ensure, prior to
delivering shares of Stock pursuant to the Plan or removing any restriction
from shares of Stock previously delivered under the Plan, that (a) all legal
matters in connection with the issuance and delivery of such shares have been
addressed and resolved, and (b) if the outstanding Stock is at the time of
delivery listed on any stock exchange, the shares to be delivered have been
listed or authorized to be listed on such exchange upon official notice of
issuance.  Neither the Company nor any
Affiliate will be obligated to deliver any shares of Stock pursuant to the Plan
or to remove any restriction from shares of Stock previously delivered under
the Plan until the conditions set forth in the preceding sentence have been
satisfied and all other conditions of the Award have been satisfied or
waived.  If the sale of Stock has not
been registered under the Securities Act of 1933, as amended, the Company may
require, as a condition to exercise of the Award, such representations or
agreements as counsel for the Company may consider appropriate to avoid
violation of such Act.  The Company may
require that certificates evidencing Stock issued under the Plan bear an
appropriate legend reflecting any restriction on transfer applicable to such
Stock, and the Company may hold the certificates pending lapse of the
applicable restrictions.  In no event will
the Company be required to register the sale of shares of Stock in order to
comply with the first sentence of this Section 8.

 6
 

9.             AMENDMENT
AND TERMINATION

The Administrator may at any time or times amend the
Plan or any outstanding Award for any purpose which may at the time be
permitted by law, and may at any time terminate the Plan as to any future
grants of Awards; provided, that except as
otherwise expressly provided in the Plan the Administrator may not, without the
Participant’s consent, alter the terms of an Award so as to affect adversely
the Participant’s rights under the Award, unless the Administrator expressly
reserved the right to do so at the time of the Award.  The Administrator expressly reserves the
right to amend or alter the terms of any Award if such Award or a portion thereof
would be reasonably likely to be treated as a “liability award” under guidance
issued or provided by the Financial Accounting Standards Board (FASB), provided
that the Administrator may not make any such amendment or alteration unless the
Chief Executive Officer of the Company has provided prior written consent
thereto.  Any amendments to the Plan
shall be conditioned upon stockholder approval only to the extent, if any, such
approval is required by applicable law (including the Code), as determined by the
Administrator.  The termination of the
Plan will not adversely affect the terms of any outstanding Award.

10.          OTHER
COMPENSATION ARRANGEMENTS

The existence of the Plan or the grant of any Award
will not in any way affect the right of the Company or an Affiliate to Award a
Person bonuses or other compensation in addition to Awards under the Plan.

11.          WAIVER
OF JURY TRIAL

(a)           Waiver of Jury Trial.  By accepting an Award under the Plan, each
Participant waives any right to a trial by jury in any action, proceeding or
counterclaim concerning any rights under the Plan and any Award, or under any
amendment, waiver, consent, instrument, document or other agreement delivered
or which in the future may be delivered in connection therewith, and agrees
that any such action, proceedings or counterclaim shall be tried before a court
and not before a jury.  By accepting an
Award under the Plan, each Participant certifies that no officer,
representative or attorney of the Company or any Affiliate has represented,
expressly or otherwise, that the Company would not, in the event of any action,
proceeding or counterclaim, seek to enforce the foregoing waivers.

(b)           Arbitration.  In the event the waiver in Section 11(a) is
held to be invalid or unenforceable, if requested by the Company, the parties
shall attempt in good faith to resolve any controversy or claim arising out of
or relating to this Plan or any Award hereunder promptly by negotiations
between themselves or their representatives who have authority to settle the controversy.  If the matter has not been resolved within
sixty (60) days of the initiation of such procedure, the Company may require
that the parties submit the controversy
to arbitration by one arbitrator mutually agreed upon by the Parties, and if no
agreement can be reached within 30 days after names of potential arbitrators
have been proposed by the American Arbitration Association (the “AAA”), then by one arbitrator having reasonable experience in corporate
incentive plans of the type provided for in this Plan and who is chosen by the
AAA.  The arbitration shall be
governed by the Federal Arbitration Act, 9 U.S.C. Section 1, et seq., and
judgment upon the award rendered by the arbitrator may be entered in any court
having 

 7
 

jurisdiction thereof. The place of arbitration shall be Dallas, Texas,
or any other location mutually agreed to between the parties. The arbitrator
shall apply the law as established by decisions of the Delaware federal and/or
state courts in deciding the merits of claims and defenses under federal law or
any state or federal anti-discrimination law. The arbitrator is required to
state, in writing, the reasoning on which the award rests.  Notwithstanding the foregoing, this paragraph
shall not preclude either party from pursuing a court action for the sole
purpose of obtaining a temporary restraining order or a preliminary injunction
in circumstances in which such relief is appropriate.

12.          GOVERNING
LAW

Except as otherwise provided by the express terms of
an Award Agreement, the provisions of the Plan and of Awards under the Plan
shall be governed by and interpreted in accordance with the laws of the State
of Delaware, but without giving effect to the principles of conflicts of laws.

Adopted:  February 15, 2007

 

 8

EXHIBIT A

Definitions
of Terms

The following terms, when used in the Plan, will have
the meanings and be subject to the provisions set forth below:

“Administrator”:  The Board or, if one or more has been
appointed, a committee of the Board to which the Board has delegated its
responsibilities hereunder. The Administrator may delegate ministerial tasks to
such Persons as it deems appropriate.

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

“Award”:  Any or a combination of the following:

(i)            Stock Options;

(ii)           Restricted Stock;

(iii)          Unrestricted Stock;

(iv)          Stock Units, including Restricted
Stock Units;

(v)                                 Awards
(other than Awards described in (i) through (iv) above) that are convertible
into or exchangeable for Stock on such terms and conditions as the
Administrator determines;

(vi)          Performance Awards; and

(vii)                           Current
or deferred grants of cash (which the Company may make payable by any of its
direct or indirect subsidiaries) or loans, made in connection with other
Awards.

“Award Agreement”:  A written agreement between the Company and
the Participant evidencing the Award.

“Board”:  The Board of Directors of Michaels Stores,
Inc.

“Cause”:  With respect to any Participant, the
following events or conditions, as determined by the Board in its reasonable
judgment:  (i) the refusal or
failure to perform (other than by reason of disability), or material negligence
in the performance of such Participant’s duties and responsibilities to the
Company or any of its Affiliates, or refusal or failure to follow 

or carry out any reasonable direction of the Board, and the continuance
of such refusal, failure or negligence for a period of 10 days after written
notice delivered by the Company to such Participant that specifically
identifies the manner in which the Participant has failed to perform his or her
duties; (ii) the material breach by such Participant of any provision of any
material agreement between such Participant and the Company or any of its
Affiliates; (iii) fraud, embezzlement, theft or other dishonesty by such
Participant with respect to the Company or any of its Affiliates; (iv) the
conviction of, or a plea of nolo contendere
by, such Participant to any felony or any other crime involving dishonesty or
moral turpitude; and (v) any other conduct that involves a breach of fiduciary
duty to the Company on the part of such Participant.

“Code”:  The U.S. Internal Revenue Code of 1986 as
from time to time amended and in effect, or any successor statute as from time
to time in effect.  For the avoidance of
doubt, any reference to any section of the Code includes reference to any
regulations (including proposed or temporary regulations) promulgated under
that section and any Internal Revenue Service guidance thereunder.

“Company”:  Michaels Stores, Inc., a Delaware
corporation.

“Company Employee”:  Any individual who is
employed by the Company or a subsidiary of the Company.

“Corporate Transaction”: Any of
the following: any sale of all or substantially all of the assets of the
Company, change in the ownership of the capital stock of the Company,
reorganization, recapitalization, merger (whether or not the Company is the
surviving entity), consolidation, exchange of capital stock of the Company or
other restructuring involving the Company, 
provided, that, in each case, to the
extent any amount constituting “nonqualified deferred compensation” subject to
Section 409A of the Code would become payable under an Award by reason of a
Corporate Transaction, it shall become payable only if the event or circumstances
constituting the Corporate Transaction would also constitute a change in the
ownership or effective control of the Company, or a change in the ownership of
a substantial portion of the Company’s assets, within the meaning of subsection
(a)(2)(A)(v) of Section 409A of the Code.

“Employee”:  Any individual who is employed by the Company
or an Affiliate.

“Employment”: 
A Participant’s employment or other service
relationship with the Company and its Affiliates.  Unless the Administrator provides otherwise,
a change in the capacity in which a Participant is employed by or renders
services to the Company and/or its Affiliates, whether as an Employee,
director, consultant or advisor, or a change in the entity by which the
Participant is employed or to which the Participant rendered services, will not
be deemed a termination of Employment so long as the Participant continues
providing services in a capacity and to an entity described in Section 5.  If a Participant’s relationship is with an
Affiliate and that entity ceases to be an Affiliate, the Participant will be
deemed to cease Employment when the entity ceases to be an Affiliate unless the
Participant transfers Employment to the Company or its remaining Affiliates.

 A-2
 

“Fair Market Value”: As of any
date, as to any share of Stock, the Board’s reasonable, good faith
determination of the fair value of such share as of the applicable reference
date (which determination is absent manifest error), taking into account and
giving due consideration to such factors as the Board determines are
appropriate, including without limitation: (i) amounts paid for shares in
recently completed arms-length transactions, (ii) valuations of companies
comparable to the Company and its subsidiaries and (iii) the financial performance
and expected financial performance of the Company and its subsidiaries.

“ISO”:  A Stock Option intended to be an “incentive
stock option” within the meaning of Section 422 of the Code.  Each option granted pursuant to the Plan will
be treated as providing by its terms that it is to be a non-incentive stock
option unless, as of the date of grant, it is expressly designated as an ISO.

“Non-Employee Participant”:  Any Participant that is not a Company
Employee.

 “Participant”:  An individual who is granted an Award under
the Plan.

“Performance Award”:  An Award subject to Performance Criteria.

“Performance Criteria”:  Specified criteria the satisfaction of which
is a condition for the grant, exercisability, vesting or full enjoyment of an
Award.  If a Performance Award so
provides, such criteria may be made subject to appropriate adjustments taking
into account the effect of significant corporate transactions or similar events
for the purpose of maintaining the probability that the specified criteria will
be satisfied.  Such adjustments shall be
made only in the amount deemed reasonably necessary, after consultation with
the Company’s accountants, to reflect accurately the direct and measurable
effect of such event on such criteria.

“Person”:  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.

“Plan”:  This Michaels Stores, Inc. 2006 Equity
Incentive Plan as from time to time amended and in effect.

“Registration Rights
Agreement”: Registration Rights Agreement, dated as of October 31,
2006, among the Company and certain Affiliates, stockholders and Participants
as from time to time amended and in effect.

“Restricted Stock”:  An Award of Stock for so
long as the Stock remains subject to restrictions under this Plan or such Award
requiring that it be redelivered or offered for sale to the Company if
specified conditions are not satisfied.

“Restricted Stock Unit”:  A Stock Unit that is, or as
to which the delivery of Stock or cash in lieu of Stock is, subject to the
satisfaction of specified performance or other vesting conditions.

 “Stock”:  Common stock, $.10 par value per share, of
the Company.

 A-3
 

“Stockholders Agreement”: Amended
and Restated Stockholders Agreement, originally dated as of October 31, 2006,
among the Company and certain Affiliates, stockholders and Participants as
amended and restated on February 16, 2007 and from time to time thereafter and
in effect.

“Stock Option”: 
An option entitling the recipient to acquire Stock
upon payment of the per share exercise price set forth in the applicable Award
Agreement.

“Stock Unit”:  An unfunded and
unsecured promise, denominated in shares of Stock, to deliver Stock or cash
measured by the value of the Stock in the future.

“Unrestricted Stock”:  An Award of Stock not
subject to any restrictions under the Plan.

 

 A-4

EXHIBIT B

Form of
Award Agreement

[omitted]

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