Exhibit 10.2

 

MICHAELS STORES, INC.

OFFICER SEVERANCE PAY PLAN

Established as of April 17, 2008

 

I.              PURPOSE

 

This Plan has been established by Michaels Stores, Inc. (the “Company”) to
provide certain severance benefits, subject to the terms and conditions set
forth, to designated officers in the event that his/her employment is
permanently terminated as a result of a Qualifying Termination, as described
below.  As a severance pay plan, this Plan is intended to comply with all
applicable requirements of the Employee Retirement Income Security Act of 1974
(“ERISA”) and the regulations promulgated under ERISA for top hat employee
welfare benefit plans and is to be interpreted in a manner consistent with those
requirements.  This document contains the provisions of the Plan and the Summary
Plan Description.  This Plan also is intended to comply with the applicable
requirements of Section 409A of the Internal Revenue Code of 1986 as amended
(“Section 409A”) and is to be interpreted and administered in a manner
consistent with those requirements.

 

II.            ELIGIBILITY TO PARTICIPATE

 

In order to be eligible to be a participant in this Plan (a ‘Participant’), an
individual must be employed by the Company in a position  with the  title of
Vice President (or equivalent, as approved by the Compensation Committee),
Senior Vice President or Executive Vice President.  No other individual will be
considered a Participant.

 

III.           QUALIFICATIONS FOR RECEIPT OF PLAN BENEFITS

 

In order to qualify for benefits under this Plan, a Participant must meet all of
the following qualifications:  (A) must have a Qualifying Termination, as
defined in Section IV below, while continuing to be Participant; (B) must not be
eligible for severance pay or other termination benefits under any other
severance pay plan or under any employment agreement or other agreement with the
Company or any of its Affiliates (including without limitation a
change-of-control or like agreement) at the time of the Qualifying Termination; 
(C) must sign and return, following the Termination Date, a timely and effective
separation agreement and release of claims in the form attached to this Plan and
marked “Exhibit A” (the “Agreement and Release”); and (D) must comply with the
post-employment obligations set forth in Section VII(B) of this Plan in
accordance with its terms.

 

 

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IV.           QUALIFYING TERMINATION

 

A Participant’s termination of employment is a Qualifying Termination only if
all of the following requirements are met and such termination is not enumerated
in the list of exclusions in Section V:

 

A.    The Participant is on the active payroll or is on an approved leave of
absence with a right to reinstatement at the time employment terminates;

 

B.    the Participant’s employment is terminated by the Company other than for
“Cause” (as hereafter defined) and other than as a result of death or
Disability;

 

C.    the Participant is not offered other employment with (1) an Affiliate of
the Company (as hereafter defined), (2) a successor of the Company (a
“Successor”) or (3) a purchaser of some or all of the assets of the Company (a
“Purchaser”) (a) in a position which the Participant is qualified to perform
(b) that, when compared with the Participant’s last position with the Company,
provides a comparable base salary and bonus opportunity; and (c) there is no
change in Participant’s principal place of employment to a location more than 
35 miles from the Participant’s principal place of employment immediately prior
to the Qualifying Termination;

 

D.    the Participant has not accepted employment, in any position, with an
Affiliate, a Successor or a Purchaser at the time he or she otherwise qualifies
for benefits under this Plan; and

 

E.     the Participant continues employment until the termination date
designated by the Company, or such earlier date to which the Company agrees;
and, during the period from the date the Participant receives notice of
termination until the Termination Date, the Participant continues to perform to
the reasonable satisfaction of the Company.

 

V.            EXCLUSIONS

 

The following are examples of events which would not be a Qualifying Termination
under this Plan. This is not an exclusive list.

 

A.    The Participant resigns, retires or otherwise voluntarily leaves his/her
employment with the Company or the Participant’s employment terminates as a
result of death or Disability; or

 

B.    the Participant’s employment is terminated by the Company for Cause; or

 

C.    the Participant is offered other employment with an Affiliate, Successor
or a Purchaser in a position that he or she qualified to perform, with a
comparable base

 

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salary and bonus opportunity and there is no change in Participant’s principal
place of employment to a location more than  35 miles from the Participant’s
principal place of employment immediately prior to the Qualifying Termination;
or

 

D.    the Participant accepts any employment with an Affiliate, a Successor or a
Purchaser.

 

VI.           BENEFITS UNDER THE PLAN

 

A.    As the sole benefits under this Plan and subject to all Plan terms
and      conditions, a Participant will be entitled to the following:

 

(1)   Severance Pay:

 

(a)   A Participant  in the  position of Vice President  (or equivalent, as
approved by the Compensation Committee) at the time of a Qualifying Termination
who has less than two years of service from his/her most recent date of hire by
the Company will be eligible for six (6) months of severance pay and such a
Participant with two or more years of service from his/her most recent date of
hire by the Company will be eligible for twelve (12) months of severance pay.

 

(b)   A Participant  in the  position of Senior Vice President or Executive Vice
President at the time of a Qualifying Termination who has less than two years of
service from his/her most recent date of hire by the Company will be eligible
for twelve (12) months of severance pay and such a Participant with two or more
years of service from his/her most recent date of hire by the Company will be
eligible for eighteen (18) months of severance pay.

 

(c)   One month of severance pay is equal to one-twelfth of a Participant’s base
salary at the annual rate in effect at the time termination occurs.

 

(d)   Years of service means the total number of consecutive completed years of
service with the Company.

 

(2)   Pro-Rated Annual Bonus:

 

Provided that the Participant is participating in a Company executive annual
bonus plan and has been assigned a target bonus under that plan for the fiscal
year in which the Participant has a Qualified Termination hereunder, the
Participant shall be entitled to a pro-rated annual bonus for that fiscal year
determined by multiplying the Participant’s target bonus by a fraction, the
numerator of which is the number of calendar days that the Participant was

 

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employed during the fiscal year, through the date of termination, and the
denominator of which is 365.

 

(3)   Premium Welfare Benefits:

 

During the period of severance pay, and subject to any employee contribution
applicable to the Participant on the date of termination, the Company shall
continue to contribute to the premium cost of Participant’s participation in the
Company’s group medical and dental plans, provided that the Participant is
entitled to continue such participation under applicable law and plan terms and
pays the remainder of such premium cost, and any required administrative fee, in
a timely manner from month to month, and further provided, however, that (A) if
the Participant becomes reemployed with another employer-provided plan, the
medical and  dental benefits described herein shall be secondary to those
provided under such other plan during such applicable period of eligibility.  
Nothing in this Section VI(A)(3) shall operate to reduce, or be construed as
reducing, the Participant’s group health plan continuation rights under the
Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”), in
any manner and, upon the end of the period of severance pay, the Participant, if
participating in one or more of the Company’s medical or dental plans and if
otherwise eligible under COBRA, shall be entitled to elect COBRA continuation
coverage at the Participant’s sole cost and expense for the full period
applicable  upon termination of the period of severance pay.

 

B.    Benefits payable to a Participant under Section VI(A) shall be reduced by
all taxes and other amounts that are required to be withheld under applicable
law.  Severance pay under Section VI(A)(1) shall be payable in the form of
salary continuation at the Company’s regular payroll periods and in accordance
with its regular payroll practices, commencing on the next regular payday which
is at least five (5) business days following the effective date of the Agreement
and Release, but the first payment shall be retroactive to the day immediately
following the date of termination of the Participant’s employment.  Any
pro-rated annual bonus for which a Participant is eligible under
Section VI(A)(2) shall be payable on the later of the date annual bonuses are
payable to active participants in the bonus plan for the fiscal year in which
Participant has a Qualified Termination or the next regular payday which is at
least five (5) business days following the effective date of the Agreement and
Release.

 

C.    Notwithstanding the foregoing, if at the time of the Participant’s
separation from service, the Participant is a “specified employee,” as
hereinafter defined, any and all amounts payable under this Section VI in
connection with such separation from service that constitute deferred
compensation subject to Section 409A, as determined by the Company in its sole
discretion, and that would (but for this

 

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sentence) be payable within six months following such separation from service,
shall instead be paid on the date that follows the date of such separation from
service by six (6) months.  For purposes of the preceding sentence, “separation
from service” shall be determined in a manner consistent with subsection
(a)(2)(A)(i) of Section 409A and the term “specified employee” shall mean an
individual determined by the Company to be a specified employee as defined in
subsection (a)(2)(B)(i) of Section 409A.

 

VII.         CONDITIONS OF RECEIVING PLAN BENEFITS

 

A.    The Agreement and Release.

 

(1)       A Participant who has been informed that he/she will be subject to a
Qualifying Termination will be provided by the Company an Agreement and Release
in the form of attached to this Plan as Exhibit A.  In order to qualify for
severance benefits under this Plan, the Participant must sign, date and return
the Agreement and Release in a timely manner and it must become effective in
accordance with its terms and this Plan.  The Agreement and Release must be
signed and returned no earlier than the day immediately following the
Termination Date and no later than the 21st day following the Termination Date,
except in the event that a Participant who is aged 40 or older has a Qualifying
Termination that is part of a Termination Program, as provided in Section VII
A(2), immediately below.

 

(2)       In the event that a Participant who is aged 40 or older is subject to
a Qualifying Termination in conjunction with one or more other Participants as a
result of a reorganization or a reduction in force or other involuntary
termination program (a “Termination Program”), the Company will provide the
Participant a memorandum containing information regarding the job titles and
ages of those selected, and those not selected, for the Termination Program in
accordance with the federal Older Workers Benefit Protection Act (the “OWBPA
Memorandum”).  Such a Participant will be entitled to consider the Agreement and
Release for 45 days following the later of the Participant’s Termination Date or
the date the Participant receives the OWBPA Memorandum.  In order to qualify for
benefits under this Plan, the Participant must sign and return the Agreement and
Release after both the Participant’s Termination Date and the Participant’s
receipt of the OWBPA Memorandum have occurred, but no later than the 45th day
following his/her Termination Date or the date s/he receives the OWBPA
Memorandum, whichever occurs second.

 

(3)       A Participant who is aged 40 or older on his/her Termination Date,
regardless of whether the Participant is entitled to a 21-day consideration
period under Section VII A(1) or a 45-day consideration period under Section VII
A(2), may revoke the Agreement and Release at any time during the seven day
period that

 

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immediately follows the date the Participant signs the Agreement and Release,
provided that the Participant sends a written notice of revocation to the
Company during that seven day period.  In the event the Participant revokes the
Agreement and Release in writing in a timely manner, the Agreement and Release
shall be void and of no force or effect and the Participant shall not be
eligible to receive benefits of any kind under this Plan.  If the Participant
does not revoke the Agreement and Release, it will take effect on the eighth day
following the date of the Participant’s signing.

 

(4)   In the case of a Participant who is less than age 40 on his/her
Termination Date, the Agreement and Release will take effect on the date the
Participant signs and returns the Agreement and Release to the Company.

 

(5)    Please Note:  The Agreement and Release contains legally binding
obligations and the Company advises each Participant to consult an attorney
before signing the Agreement and Release.

 

B.    Post-Employment Restrictions.

 

(1)  Introduction.  In order to qualify for receipt of severance benefits under
this Plan, in addition to other qualifications set forth in this Plan, the
Participant must comply fully with all of the obligations set forth in this
Section VII(B) (the “Post-Employment Restrictions”) from and after the date the
Participant is informed of the Company’s decision to terminate his/her
employment in a Qualifying Termination.

 

(2)  Restriction on Competition.  From the date the Participant is notified of
the Company’s decision to terminate his/her employment until the expiration of
twelve (12) months immediately following the Termination Date, the Participant
shall not, directly or indirectly, alone or in association with others, anywhere
in the Territory, own, manage, operate, control or participate in the ownership,
management, operation or control of, or be connected as an officer, employee,
investor, principal, joint venturer, shareholder, partner, director, consultant,
agent or otherwise with, or have any financial interest (through stock or other
equity ownership, investment of capital, the lending of money or otherwise) in,
any business, venture or activity that directly or indirectly competes, or is in
planning, or has undertaken any preparation, to compete, with the Business of
the Company or any of its Immediate Affiliates (a “Competitor”), except that
nothing contained here shall prevent the Participant’s passive ownership of two
percent (2%) or less of the equity securities of any Competitor that is a
publicly-traded company.  For the purposes of this Agreement, the “Business of
the Company and its Immediate Affiliates” or “Business” is that of arts and
crafts specialty retailer providing materials, ideas and education for creative
activities and the “Territory” is those states within the United States and
those provinces of Canada in which the Company or any of its Immediate
Affiliates is doing or

 

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actively planning to do business at any time during the twelve (12) months
immediately preceding the date of the Participant’s Qualifying Termination.

 

(3)  Restriction on Solicitation of Employees and Independent Contractors.  From
the date the Participant is notified of the Company’s decision to terminate
his/her employment until the expiration of twelve (12) months immediately
following the Termination Date, the Participant shall not, and shall not assist
any other Person to, (a) hire or solicit for hire any employee of the Company or
any of its  Immediate Affiliates or seek to persuade any employee of the Company
or any of its Immediate Affiliates to discontinue employment or (b) solicit or
encourage any independent contractor providing services to the Company or any of
its Immediate Affiliates to terminate or diminish its relationship with them;
provided, however, that these restrictions shall apply only with respect to
employees of, and independent contractors providing services to, the Company or
one of its Immediate Affiliates at any time during the twelve (12) months
immediately preceding the date of the Participant’s Qualifying Termination.

 

(4)  Restriction on Solicitation of Distributors and Vendors.  From the date the
Participant is notified of the Company’s decision to terminate his/her
employment until the expiration of twelve (12) months immediately following the
Termination Date, the Participant shall not directly or indirectly solicit or
encourage any distributor or vendor to the Company or any of its Immediate
Affiliates to terminate or breach any agreement which such distributor or vendor
has with the Company or any of its Immediate Affiliates or to terminate or
diminish its relationship with the Company or any of its Immediate Affiliates;
provided, however, that these restrictions shall apply only with respect to
those distributors and vendors who are doing business with the Company or any of
its Immediate Affiliates at any time during the twelve (12) months immediately
preceding the date of the Participant’s Qualifying Termination.

 

VIII.        TERMINATION OF PLAN BENEFITS

 

Notwithstanding anything to the contrary contained in this Plan, benefits for
which a Participant has qualified and is receiving under this Plan shall
terminate under the following circumstances:

 

A.      If the Participant accepts employment with the Company or one of its
Affiliates, a Successor or a Purchaser after qualifying for benefits under this
Plan, all such benefits shall cease as of the date the Participant commences
such employment.

 

B.      All benefits under this Plan may be terminated by the Company in the
event that it determines that the Participant has breached the Agreement and
Release or the Final Release or has violated any obligation under Section VII
hereof or

 

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otherwise breached any material provision of any written agreement with the
Company or any of its Affiliates.

 

IX.           GENERAL INFORMATION CONCERNING THE PLAN

 

A.      The Company pays the full cost of benefits provided under this Plan from
its general assets and the right of a Participant to receive any payment
hereunder shall be an unsecured claim against the general assets of the
Company.  The Plan at all times shall be entirely unfunded.

 

B.      Notwithstanding anything to the contrary contained herein, benefits to
which a Participant is otherwise entitled under this Plan shall be reduced by
any other payments or benefits to which the Participant is entitled under
applicable law as a result of termination of his/her employment, including
without limitation any federal, state or local law with respect to plant
closings, mass layoffs or the like, but exclusive of any unemployment benefits
to which the Participant is entitled under applicable law.

 

C.      Benefits under this Plan are not assignable or subject to alienation.
Likewise, benefits are not subject to attachments by creditors or through legal
process against the Company or any employee or any person claiming through an
employee.

 

D.      Notwithstanding anything to the contrary contained herein, any and all
payments to be provided hereunder to or on behalf of any Participant are subject
to reduction to the extent required by applicable statutes, regulations,
rules and directives of federal, state and other governmental and regulatory
bodies having jurisdiction over the Company.

 

E.      This Plan does not constitute a contract of employment for a specific
term or otherwise alter the at-will nature of the employment relationship
between any employee and the Company or any of its Affiliates.

 

X.            DEFINITIONS

 

Words or phrases, which are initially capitalized or within quotation marks
shall have the meanings provided in this Section X and as provided elsewhere in
this Plan. For purposes of this Plan, the following definition applies:

 

A.            An “Affiliate” means an individual, corporation and other entity
directly or indirectly controlling, controlled by or under common control with
the Company, where control may be by management authority, equity interest or
otherwise.

 

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B.          “Cause” shall mean the following events or conditions, as determined
by the Board of Directors of the Company in its reasonable judgment:  (i) the
Participant’s refusal or failure to perform (other than by reason of
disability), or material negligence in the performance of his or her 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 of Directors of the
Company, and the continuance of such refusal, failure or negligence for a period
of ten (10) days after written notice delivered by the Company to the
Participant that specifically identifies the manner in which the Participant has
failed to perform his or her duties; (ii) the material breach by the Participant
of any provision of any material agreement between the Participant and the
Company or any of its Affiliates; (iii) fraud, embezzlement, theft or other
dishonesty by the Participant with respect to the Company or any of its
Affiliates; (iv) the conviction of, or a plea of nolo contendere by, the
Participant to any felony or any other crime involving dishonesty or moral
turpitude; or
(v) any other conduct that involves a breach of fiduciary duty to the Company on
the part of the Participant.

 

C.          “Disability” means a Participant’s mental or physical impairment
that has prevented the Participant from performing substantially all of the
duties and responsibilities of his/her position for at least 180 days in any 365
consecutive days, as a result of which employment is terminated by the Company.

 

D.          “Immediate Affiliates” means those Affiliates which are one of the
following: (i) a direct or indirect subsidiary of the Company, (ii) a direct or
indirect parent of the Company or (iii) a direct or indirect subsidiary of such
a parent.

 

E.           “Person” means an individual, a corporation, a limited liability
company, an association, a partnership, an estate, a trust and any other entity
or organization, other than the Company or any of its Affiliates.

 

F.           “Termination Date”  means the date on which the Participant’s
employment with the Company terminates.

 

XI.       ADMINISTRATION, CLAIMS PROCEDURE AND GENERAL INFORMATION

 

A.            The Company reserves the right to amend, modify and terminate this
Plan at any time by a written instrument signed by the Board or its designee.
There are no vested benefits under this Plan. Also, the Company, as the Plan
administrator within the meaning of ERISA, reserves full discretion to
administer the Plan in all of its details, subject to the requirements of law.

 

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Company shall have such discretionary powers as are necessary to discharge its
duties. Any interpretation or determination that the Company makes regarding
this Plan, including without limitation determinations of eligibility,
participation and benefits, will be final and conclusive, in the absence of
clear and convincing evidence that the Company acted arbitrarily and
capriciously.

 

B.            Anyone who believes he/she is being denied any rights under this
Plan may file a claim in writing with the Company, as Plan administrator,
addressed to the attention of the Senior Vice President, Human Resources. If the
claim is denied, in whole or in part, the Plan administrator will notify the
claimant in writing, giving the specific reasons for the decision, including
specific reference to the pertinent Plan provisions and a description of any
additional material or information necessary to perfect the claim and an
explanation of why such material or information is necessary. The written notice
will also advise the claimant of his/her right to request a review of the claim
and the steps that need to be taken if the claimant wishes to submit the claim
for review. If the Plan administrator does not notify the claimant of its
decision within 90 days after it had received the claim (or within 180 days, if
special circumstances exist requiring additional time, and if the claimant had
been given a written explanation for the extension within the initial 90-day
period), the claimant should consider the claim to have been denied. At this
time the claimant may request a review of the denial of his/her claim.

 

C.            A request for review must be made in writing by the claimant or
his/her duly authorized representative to the Company, as Plan administrator,
within 60 days after receipt of notice of denial. As part of the claimant’s
request, the claimant may submit written issues and comments to the Plan
administrator, review pertinent documents, and request a hearing. The Plan
administrator’s written decision will be made within 60 days (or 120 days if a
hearing is held or if other special circumstances exist requiring more than 60
days and written notice of the extension is provided to the claimant within the
initial 60-day period) after the claimant’s request has been received. Again,
the decision will include specific reasons, including references to pertinent
Plan provisions.

 

[Signature page follows immediately.]

 

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IN WITNESS WHEREOF, Michaels Stores, Inc. has caused this Plan to be executed as
of the date first above written.

 

 

MICHAELS STORES, INC.

 

 

 

 

 

 

 

 

By

 

 

 

 

 

 

 

Name:

 

 

 

 

 

 

 

Title:

 

 

 

 

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Exhibit A

 

AGREEMENT AND RELEASE

 

* Standard Under 40 Severance Agreement

 

SEVERANCE AGREEMENT AND RELEASE OF CLAIMS

 

I,                                         , the undersigned, am entering into
this Separation Agreement and Release of Claims (this “Agreement”) with Michaels
Stores, Inc. (the “Company”) pursuant to the terms and conditions of the
Michaels Stores, Inc. Officer Severance Pay Plan (the “Plan”).

 

WHEREAS, I was employed by the Company as                  and, in that
position, was a Participant, as defined in the Plan; and

 

WHEREAS, the termination of my employment with the Company, which occurred on
                      , 20       (the “Separation Date”), was a Qualifying
Termination for purpose of the Plan; and

 

WHEREAS, my acceptance of this Agreement in a timely and effective manner and my
meeting of my obligations under it are conditions to my eligibility to receive
severance benefits under the Plan, to which I would not otherwise be entitled;

 

NOW, THEREFORE, in consideration of the foregoing premises and for the purpose
of qualifying for severance benefits in accordance with the Plan, I agree with
the Company as follows:

 

1.             Definitions.  Capitalized terms used in this Agreement shall have
the meaning set forth below or elsewhere in this Agreement.  Any capitalized
term not defined in this Agreement shall have the meaning ascribed to it in the
Plan.  Certain definitions from the Plan are reproduced below for the
convenience of the parties.

 

(a)           An “Affiliate” means an individual, corporation and other entity
directly or indirectly controlling, controlled by or under common control with
the Company, where control may be by management authority, equity interest or
otherwise.

 

(b)           “Confidential Information” means any and all information of the
Company and its Affiliates that is not generally known by those Persons with
whom they compete or do business, or with whom any of them plans to compete or
do business and any and all information, publicly known in whole or in part or
not, which, if disclosed by the Company or its Affiliates would assist in
competition against them.  Confidential Information includes without limitation
such information relating to (i) the development, research, testing,
manufacturing, marketing and financial activities of the Company and its
Affiliates, (ii) the products and services of the Company and its Affiliates,
(iii) the costs, sources of supply, financial performance and strategic plans of
the Company and its Affiliates, (iv) the identity and special needs of the
customers of the Company and its Affiliates and (v) the people and organizations
with whom the Company and its Affiliates have business relationships and those
relationships.  Confidential Information also includes any information that the
Company or any of its Affiliates have received, or may receive hereafter,
belonging to customers or others with any

 

 

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understanding, express or implied, that the information would not be disclosed. 
Confidential Information does not include information that has entered the
public domain other than through my disclosure in violation of my obligations to
the Company or its Affiliates under this Agreement or otherwise or through a
third party in violation of a duty of confidentiality owed to the Company or any
of its Affiliates.

 

(c)           “Immediate Affiliates” means those Affiliates which are one of the
following: (i) a direct or indirect subsidiary of the Company, (ii) a parent to
the Company or (iii) a direct or indirect subsidiary of such a parent.

 

(d)           “Person” means an individual, a corporation, a limited liability
company, an association, a partnership, an estate, a trust and any other entity
or organization, other than the Company or any of its Affiliates.

 

2.             Severance Benefits under the Plan.   Subject to the terms and
conditions of Section VI of the Plan, I will be eligible for (a) severance pay,
(b) a pro-rated bonus for the year in which termination of my employment
occurred, and (c) Company contributions during the Severance Pay Period to the
premium cost of my participation and that of my eligible beneficiaries, if any,
in the Company’s group health plan and certain other welfare plans in which I
and my eligible beneficiaries may continue participation.  The period commencing
on the Separation Date and continuing until the expiration of a number of months
equal to the period of severance pay for which I may qualify under the Plan (as
set forth in the immediately preceding sentence) is the “Severance Pay Period.”

 

3.             Timing and Certain Conditions to Receipt of Severance Benefits:

 

(a)           Commencement of Obligations under this Agreement.  It is expressly
understood and agreed that my obligations under Section 7 and Section 8 of this
Agreement shall commence on the earlier to occur of the Separation Date or the
date I first receive this Agreement (the “Commencement Date”), although the
Commencement Date shall be no earlier that the date I am first informed of the
termination of my employment.  Without limiting the generality of the foregoing,
I must comply with these obligations even before the effective date of this
Agreement in order to be eligible to accept this Agreement and receive severance
benefits under the Plan.   If I fail to comply in full with any of my
obligations under Section 7 or Section 8 of this Agreement at any time from the
Commencement Date through the effective date of this Agreement, the offer of
this Agreement shall automatically be withdrawn.

 

(b)           Obligations as a Condition of Receipt of Severance Benefits.  The
obligation of the Company to make payments to me in accordance with this
Agreement and the Plan is expressly conditioned on my continued full performance
of my obligations under this Agreement, including without limitation under
Section 7 and Section 8 hereof.

 

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4.             Acknowledgement of Full Payment.

 

(a)           I acknowledge that I have been paid in full any and all
compensation due me from the Company or any of its Affiliates, whether for
services provided or otherwise, through the Separation Date and that, exclusive
of any severance benefits for which I qualify in accordance with the terms and
conditions of the Plan, as set forth in Section 2 of this Agreement, nothing
further is owed to me.  Without limiting the generality of the foregoing
acknowledgement, I specifically acknowledge that I have received (i) all salary
due through the Separation Date, (ii) pay in full for any vacation I had earned
but not used through the Separation Date, (iii) reimbursement for any business
expenses I had incurred through the Separation Date that are eligible for
reimbursement under applicable Company policies, and (iv) payment of all bonus
or other incentive compensation due me, exclusive only of any pro-rated bonus
for which I may be eligible under the Plan for the year in which my employment
with the Company terminated.

 

(b)           I also represent and warrant that I am not entitled to any
payments (in cash or equity) or any other benefits under any representation,
agreement or understanding, whether oral or written, or any plan, program or
arrangement of any kind, with the Company or any of its Affiliates as a result
of the termination of my employment and I hereby waive irrevocably any such
entitlement, should it exist.

 

5.             Reduction of Severance Benefits for Certain Statutory Payments. I
acknowledge that severance benefits to which I may otherwise be entitled under
the Plan shall be reduced by any payments or benefits to which I may be entitled
under applicable law as a result of termination of my employment, including
without limitation any federal, state or local law with respect to plant
closings, mass layoffs or group benefit plan continuation following termination
or the like, but excluding any unemployment benefits to which I may be eligible
under applicable law.

 

6.             Status of Employee Benefits, Paid Time Off and Stock Options.
 Except for any right I may have under COBRA to continue my participation and
that of my qualified beneficiaries in the Company’s medical plan or any other
Company plan to which COBRA is applicable (such as, by way of example only, a
dental or vision plan, if made available by the Company), my participation in
all Company employee benefit plans has ended as of the Separation Date, in
accordance with the terms of those plans.  I also acknowledge that I will not
continue to earn vacation or other paid time off after the Separation Date. My
rights and obligations with respect to any equity granted to me by the Company
or any of its Immediate Affiliates which had vested as of the Separation Date
shall be governed by any applicable equity participation plans and any
agreements and other requirements and limitations applicable to such equity or
to Company employees who have been granted equity in connection with their
employment.  All equity granted me by the Company which remained unvested as of
the Separation Date shall have been cancelled and shall have terminated as of
that date.

 

7.             Ancillary Covenants.  The covenants set forth below are ancillary
to this Agreement with the Company, which concerns the termination of my
employment and my qualification for severance benefits under the Plan.  My
acceptance of these covenants and my complying with my obligations under them
are a condition to my eligibility to receive severance benefits under the Plan.

 

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(a)           Acknowledgement of the Company’s Interest and the Adequacy of the
Consideration for the Covenants. I acknowledge the importance to the Company and
its Immediate Affiliates of protecting their legitimate business interests,
including without limitation the valuable Confidential Information (as defined
in Section 1 above) and goodwill that they have developed or acquired at
considerable expense.  I acknowledge that, in my employment with the Company, I
have had access to Confidential Information that, if it were disclosed, would
assist in competition against the Company and its Affiliates, including without
limitation proprietary customer information, and that I also have generated
goodwill for the Company and its Affiliates in the course of my employment.  I
further acknowledge and I agree that the restrictions on my activities set forth
below are necessary to protect the goodwill, Confidential Information and other
legitimate interests of the Company and its Affiliates and that my acceptance of
these restrictions is a condition of my receipt of severance benefits under the
Plan, to which I would not otherwise be entitled, and such severance benefits
are good and sufficient consideration to support my agreement to and compliance
with these covenants.

 

(b)           Covenants of Non-Competition and Non-Solicitation

 

(i)            Agreement Not to Compete.   I agree that, during the twelve (12)
months immediately following the Separation Date, I shall not, directly or
indirectly, alone or in association with others, anywhere in the Territory, own,
manage, operate, control or participate in the ownership, management, operation
or control of, or be connected as an officer, employee, investor, principal,
joint venturer, shareholder, partner, director, consultant, agent or otherwise
with, or have any financial interest (through stock or other equity ownership,
investment of capital, the lending of money or otherwise) in, any business,
venture or activity that directly or indirectly competes, or is in planning, or
has undertaken any preparation, to compete, with the Business of the Company or
any of its Immediate Affiliates (a “Competitor”), except that nothing contained
here shall prevent my passive ownership of two percent (2%) or less of the
equity securities of any Competitor that is a publicly-traded company.  For the
purposes of this Agreement, the “Business of the Company and its Immediate
Affiliates” or the “Business” is that of arts and crafts specialty retailer
providing materials, ideas and education for creative activities and the
“Territory” is comprised of those states within the United States and those
provinces of Canada in which the Company or any of its Immediate Affiliates was
doing or actively planning to do business at any time during the twelve (12)
months immediately preceding the Separation Date.

 

(ii)           Restriction on Solicitation of Employees and Independent
Contractors.  I agree that, during the twelve (12) months immediately following
the Separation Date, I shall not, and shall not assist any other Person to,
(A) hire or solicit for hire any employee of the Company or any of its Immediate
Affiliates or seek to persuade any employee of the Company or any of its
Immediate Affiliates to discontinue employment or (B) solicit or encourage any
independent contractor providing services to the Company or any of its Immediate
Affiliates to terminate or diminish its relationship with them; provided,
however, that these restrictions shall apply only with respect to employees of,
and independent contractors providing services to, the Company or one of

 

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its Immediate Affiliates who were such on the Separation Date or at any time
during the nine (9) months immediately preceding the Separation Date.

 

(iii)          Restriction on Solicitation of Distributors and Vendors.  I agree
that, during the twelve (12) months immediately following the Separation Date, I
shall not directly or indirectly solicit or encourage any distributor or vendor
to the Company or any of its Immediate Affiliates to terminate or diminish its
relationship with the Company or any of its Immediate Affiliates; provided,
however, that these restrictions shall apply only with respect to those
distributors and vendors who are doing business with the Company or any of its
Immediate Affiliates on the Separation Date or at any time during the twelve
(12) months immediately preceding the Separation Date.

 

(c)           Notification Requirement.  I agree that, until the first
anniversary of the Separation Date, I will provide the Company notice in writing
of any change in my address and of each new job or other business activity in
which I plan to engage if it is related to the Business of the Company and its
Immediate Affiliates.  I further agree to provide such notice at least fifteen
(15) business days prior to beginning any such job or activity.  Such notice
shall state the name and address of the Person to whom I propose to provide
services and the nature of my position with that Person.  I agree to provide the
Company with such other pertinent information concerning such new job or other
business activity as the Company may reasonably request in order to determine my
continued compliance with my obligations under this Agreement.  I further agree
to notify any Person to whom I intend to provide services, as an employee,
independent contractor or otherwise, of my obligations under this Agreement and
hereby consent to notification by the Company or its agents to any such Persons
about my obligations under this Agreement.

 

8.             Other Obligations.

 

(a)           Agreement Not to Use or Disclose Confidential Information.  I
agree that I shall not at any time disclose to any Person or use any
Confidential Information that I obtained incident to my service to, or any other
association with, the Company or any of its Affiliates or any of their
predecessors or successors, other than as required by applicable law or legal
process (e.g., a subpoena or court order) after notice to the Company and a
reasonable opportunity for the Company to seek protection of the Confidential
Information prior to any such disclosure.

 

(b)           Agreement of No Public Comment and Non-Disparagement.  I agree
that I will not make any public statement or comment concerning the Company or
any of its Affiliates, their direct or indirect investors, their management or
their businesses and agree that this restriction applies whether communication
is oral or in writing, whether made directly or indirectly, and includes without
limitation communication to or through the media (print, electronic or
otherwise).  I further agree that I will not disparage or criticize the Company
or any of its Affiliates, their direct or indirect investors, management or
businesses, not only through public statement or comment, but also to any of the
employees of the Company or any of its Affiliates, or to any Person with whom
the Company or any of its Affiliates is doing, or is planning to do, business.

 

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(c)           Return of Company Property. I represent and warrant that I have
returned to the Company any and all documents, materials and information
(whether in hardcopy, on electronic media or otherwise) related to the business
(present or otherwise) of the Company or any of its Affiliates and all other
property of the Company or any of its Affiliates in my possession or control,
including without limitation keys, access cards, credit cards, computer,
telephone and other office equipment.  Further, I represent and warrant that I
have not retained any copy of any document, material or information of the
Company or any of its Affiliates (other than documentation provided expressly
for my personal use and retention, such as, by way of example and not
limitation, documentation concerning my participation in Company benefit
plans).  I also agree that I will not, for any purpose, attempt to access or use
any computer or computer network or system of the Company or any of its
Affiliates after the Separation Date, unless expressly requested to do so by an
authorized representative of the Company.  Further, I represent and warrant that
I have disclosed to the Company all passwords necessary or desirable to enable
the Company to access any information which I have password-protected on any of
the computer equipment or computer network or system of the Company or any of
its Affiliates.

 

(d)           Employee Cooperation.  I agree that, during the Severance Pay
Period, and without additional compensation, I will provide to the Company,
promptly on its request, advice and consultation with respect to my former
duties and responsibilities.  I also agree, during the Severance Pay Period and
thereafter, to cooperate with the Company with respect to all matters arising
during or related to my employment, including without limitation matters in
connection with any governmental investigation, litigation or regulatory or
other proceeding which may have arisen or which may arise following the signing
of this Agreement.  I understand that the Company will make reasonable efforts
not to materially interfere with the timing of any employment or other business
obligations I may have.  While it is agreed that I will not be entitled to
compensation for any such cooperation during the Severance Pay Period, the
Company will reimburse my out-of-pocket expenses incurred in complying with the
Company’s requests hereunder, provided such expenses are authorized by the
Company in advance and the Company will pay me a reasonable hourly or per diem
rate for any such cooperation requested by the Company after the Severance Pay
Period ends, exclusive of any time spent in testifying as a fact witness in any
legal proceeding.

 

9.             Enforcement.  I acknowledge that I have carefully read and
considered all the terms and conditions of this Agreement, including the
restraints imposed on me pursuant to Sections 7 and 8 of this Agreement.  I
agree that those restraints are necessary for the reasonable and proper
protection of the Company and its Affiliates and that each and every one of the
restraints is reasonable with respect to subject matter, length of time and
geographic area.  I further acknowledge that, were I to breach any of the
covenants contained in Section 7 or Section 8 of this Agreement, the damage to
the Company would be irreparable.  Further, I freely acknowledge that the
restrictions contained in Sections 7 and 8 will not, individually or in the
aggregate, prevent me from earning a livelihood while they are in effect.  I
therefore agree that the Company, in addition to any other remedies available to
it under this Agreement or at law, shall be entitled to preliminary and
permanent injunctive relief against any breach or threatened breach by me of any
of the obligations set forth in Section 7 or Section 8 of this Agreement,
without having to post bond.  I further agree with the Company that, in the
event that any

 

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provision of Section 7 or Section 8 of this Agreement shall be determined by any
court of competent jurisdiction to be unenforceable by reason of its being
extended over too great a time, too large a geographic area or too great a range
of activities, such provision shall be deemed to be modified to permit its
enforcement to the maximum extent permitted by law.  I also agree that each of
the Affiliates shall have the right to enforce all of my obligations to the
Affiliate under this Agreement.

 

10.           Release of Claims.  For and in consideration of the severance
benefits to be made to me in connection with my separation from employment with
the Company as set forth in the Plan and this Agreement, and as a condition of
my receipt of those severance benefits, I, on my own behalf and on behalf of my
heirs, beneficiaries, executors, administrators and representatives, and all
others connected with or claiming through me, hereby release and forever
discharge the Company and its Affiliates and all of the respective past, present
and future shareholders, officers, directors, general and limited partners,
members, managers, employees, agents, predecessors, successors and assigns of
the foregoing, and all others connected with any of them, and any and all
benefit plans maintained by the Company and its Affiliates and all present and
former representatives, agents, trustees, fiduciaries and administrators of such
plans, all of the foregoing, both individually and in their official capacities,
from any and all liabilities, of any nature whatsoever, whether known or
unknown, which I had in the past, now have or might now have, through the date
on which I sign this Agreement, based on any federal, state or local law,
regulation or other requirement, which may have arisen in connection with my
employment with the Company or the cessation thereof.     I acknowledge that
signing this Agreement does not limit or otherwise interfere with my right to
file a charge or participate in an investigation or proceeding conducted by the
Equal Employment Opportunity Commission (the “EEOC”) or other appropriate state
agency.  I understand, however, that I am releasing the right to any monetary
recovery or relief should the EEOC or any other agency pursue claims on my
behalf.  Excluded from the scope of this release, however, are any rights I have
to indemnification under the charter, by-laws or other governing documents of
the Company or any of its Affiliates; any vested benefits I have under the
Company’s qualified retirement plan; and any rights arising under this Agreement
or the Plan following the effective date of this Agreement.

 

11.           Entire Agreement, Amendments, Waivers and Governing Law.

 

(a)           This Agreement constitutes the entire agreement between me and the
Company, and supersedes all prior and contemporaneous agreements and
understandings, written or oral, concerning my employment, its termination and
all related matters, excluding only any agreements between me and the Company or
any of its Affiliates concerning protection of confidential information,
assignment of rights to inventions or other intellectual property, or covenants
against competition or solicitation of employees, independent contractors,
customers, vendors, distributors or others, any outstanding loans or other
financial obligations that I have to the Company or any of its Affiliates or
under any benefit plan maintained by the Company or any of its Affiliates, my
obligations under the Plan and my obligations, if any, with respect to the
securities of the Company or any of its Immediate Affiliates, all of which shall
remain in full force and effect in accordance with their terms.

 

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(b)           This Agreement may not be modified or amended and no breach shall
be deemed to be waived unless in writing signed by me and an expressly
authorized representative of the Company.  I understand and agree that the
obligation of the Company to make payments to me under this Agreement or the
Plan is expressly conditioned on my continued full performance of my obligations
under this Agreement and the Plan.

 

(c)           The captions and headings in this Agreement are for convenience
only and in no way define or describe the scope or content of any provision of
this Agreement. This Agreement may be executed in two or more counterparts, each
of which shall be an original and all of which together shall constitute one and
the same instrument.

 

(d)           This Agreement shall be governed by and construed in accordance
with the laws of the State of Texas, without giving any effect to any choice or
conflict of law provision or rule that would cause the application of the laws
of any other jurisdiction.

 

12.           Acceptance of this Agreement and Related Matters. I acknowledge
that I may not sign this Agreement prior to the Separation Date.  I further
acknowledge that I understand I may take up to twenty-one (21) days from the
later of the Separation Date or the date of my receipt of this Agreement to
consider this Agreement before signing it.  In signing this Agreement, I give
the Company assurance that I have signed it voluntarily and with a full
understanding of its terms; that I have had full and sufficient opportunity,
before signing this Agreement, to consider its terms and to consult with any
person of my choosing; and that, in signing this Agreement, I have not relied on
any promises or representations, express or implied, that are not set forth
expressly in this Agreement or the Plan.

 

[Signature page follows immediately.]

 

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INTENDING TO BE LEGALLY BOUND, I have signed this Agreement under seal on the
date indicated below.

 

 

Signature:

 

 

 

 

 

Name (Printed):

 

 

 

 

 

Date of signing:

 

 

 

 

 

 

 

 

ACCEPTED AND AGREED:

 

 

MICHAELS STORES, INC.

 

 

 

 

 

 

 

 

By:

 

 

 

 

 

Name (Printed)

 

 

 

 

 

Title:

 

 

 

 

 

Date of signing:

 

 

 

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