**Exhibit10.2**

 

**MICHAELSSTORES, INC.**

**OFFICERSEVERANCE PAY PLAN**

**Establishedas of April 17, 2008**

 

**I.**              PURPOSE

** **

This Plan has beenestablished by Michaels Stores, Inc. (the “Company”) to provide certainseverance benefits, subject to the terms and conditions set forth, todesignated officers in the event that his/her employment is permanentlyterminated as a result of a Qualifying Termination, as described below.  As a severance pay plan, this Plan isintended to comply with all applicable requirements of the Employee RetirementIncome Security Act of 1974 (“ERISA”) and the regulations promulgated underERISA for top hat employee welfare benefit plans and is to be interpreted in amanner consistent with those requirements. This document contains the provisions of the Plan and the Summary PlanDescription.  This Plan also is intendedto comply with the applicable requirements of Section 409A of the InternalRevenue Code of 1986 as amended (“Section 409A”) and is to be interpretedand 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 CompensationCommittee), Senior Vice President or Executive Vice President.  No other individual will be considered aParticipant.

 

**III.**           QUALIFICATIONS FOR RECEIPT OF PLAN BENEFITS

** **

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

 

 

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**IV.****          ****QUALIFYING TERMINATION**

 

A Participant’stermination of employment is a Qualifying Termination only if all of thefollowing requirements are met and such termination is not enumerated in thelist of exclusions in Section V:

 

A.    TheParticipant is on the active payroll or is on an approved leave of absence witha right to reinstatement at the time employment terminates;

 

B.    theParticipant’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.    theParticipant is not offered other employment with (1) an Affiliate of theCompany (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 acomparable base salary and bonus opportunity; and (c) there is no changein Participant’s principal place of employment to a location more than  35 miles from the Participant’s principalplace of employment immediately prior to the Qualifying Termination;

 

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

 

E.     theParticipant continues employment until the termination date designated by theCompany, or such earlier date to which the Company agrees; and, during theperiod from the date the Participant receives notice of termination until theTermination Date, the Participant continues to perform to the reasonable satisfactionof the Company.

 

**V.**            EXCLUSIONS

** **

The following areexamples 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 leaveshis/her employment with the Company or the Participant’s employment terminatesas a result of death or Disability; or

 

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

 

C.    theParticipant is offered other employment with an Affiliate, Successor or aPurchaser in a position that he or she qualified to perform, with a comparablebase 

 

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

 

D.    theParticipant accepts any employment with an Affiliate, a Successor or aPurchaser.

 

**VI.**           BENEFITS UNDER THE PLAN

 

**A.**    As the sole benefits under thisPlan 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 VicePresident  (or equivalent, as approved bythe Compensation Committee) at the time of a Qualifying Termination who hasless than two years of service from his/her most recent date of hire by theCompany will be eligible for six (6) months of severance pay and such aParticipant with two or more years of service from his/her most recent date ofhire by the Company will be eligible for twelve (12) months of severance pay.

 

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

 

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

 

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

 

(2)  Pro-Rated Annual Bonus:

 

Providedthat the Participant is participating in a Company executive annual bonus planand has been assigned a target bonus under that plan for the fiscal year inwhich the Participant has a Qualified Termination hereunder, the Participantshall be entitled to a pro-rated annual bonus for that fiscal year determinedby multiplying the Participant’s target bonus by a fraction, the numerator ofwhich is the number of calendar days that the Participant was 

 

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employedduring the fiscal year, through the date of termination, and the denominator ofwhich is 365.

 

(3)   Premium Welfare Benefits:

 

Duringthe period of severance pay, and subject to any employee contributionapplicable to the Participant on the date of termination, the Company shallcontinue to contribute to the premium cost of Participant’s participation inthe Company’s group medical and dental plans, provided that the Participant isentitled to continue such participation under applicable law and plan terms andpays 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 anotheremployer-provided plan, the medical and dental benefits described herein shall be secondary to those providedunder such other plan during such applicable period of eligibility.   Nothing in this Section VI(A)(3) shalloperate to reduce, or be construed as reducing, the Participant’s group healthplan continuation rights under the Consolidated Omnibus Budget ReconciliationAct of 1985, as amended (“COBRA”), in any manner and, upon the end ofthe period of severance pay, the Participant, if participating in one or moreof the Company’s medical or dental plans and if otherwise eligible under COBRA,shall be entitled to elect COBRA continuation coverage at the Participant’ssole cost and expense for the full period applicable  upon termination of the period of severancepay.

 

B.    Benefits payable to a Participant under Section VI(A) shallbe reduced by all taxes and other amounts that are required to be withheldunder applicable law.  Severance payunder Section VI(A)(1) shall be payable in the form of salarycontinuation at the Company’s regular payroll periods and in accordance withits regular payroll practices, commencing on the next regular payday which isat least five (5) business days following the effective date of theAgreement and Release, but the first payment shall be retroactive to the dayimmediately following the date of termination of the Participant’semployment.  Any pro-rated annual bonusfor which a Participant is eligible under Section VI(A)(2) shall be payableon the later of the date annual bonuses are payable to active participants inthe bonus plan for the fiscal year in which Participant has a QualifiedTermination or the next regular payday which is at least five (5) businessdays following the effective date of the Agreement and Release.

 

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

 

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sentence) be payable withinsix months following such separation from service, shall instead be paid on thedate that follows the date of such separation from service by six (6) months.  For purposes of the preceding sentence, “separationfrom service” shall be determined in a manner consistent with subsection(a)(2)(A)(i) of Section 409A and the term “specified employee” shallmean an individual determined by the Company to be a specified employee asdefined 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 subjectto a Qualifying Termination will be provided by the Company an Agreement andRelease in the form of attached to this Plan as Exhibit A.  In order to qualify for severance benefitsunder this Plan, the Participant must sign, date and return the Agreement andRelease in a timely manner and it must become effective in accordance with itsterms and this Plan.  The Agreement andRelease must be signed and returned no earlier than the day immediatelyfollowing the Termination Date and no later than the 21st day followingthe Termination Date, except in the event that a Participant who is aged 40 orolder has a Qualifying Termination that is part of a Termination Program, asprovided in Section VII A(2), immediately below.

 

(2)       In the event that aParticipant who is aged 40 or older is subject to a Qualifying Termination inconjunction with one or more other Participants as a result of a reorganizationor a reduction in force or other involuntary termination program (a “TerminationProgram”), the Company will provide the Participant a memorandum containinginformation regarding the job titles and ages of those selected, and those notselected, for the Termination Program in accordance with the federal OlderWorkers Benefit Protection Act (the “OWBPA Memorandum”).  Such a Participant will be entitled toconsider the Agreement and Release for 45 days following the later of theParticipant’s Termination Date or the date the Participant receives the OWBPAMemorandum.  In order to qualify forbenefits under this Plan, the Participant must sign and return the Agreementand Release after both the Participant’s Termination Date and theParticipant’s receipt of the OWBPA Memorandum have occurred, but no laterthan the 45th day following his/her Termination Date or the date s/he receivesthe OWBPA Memorandum, whichever occurs second.

 

(3)       A Participant who is aged40 or older on his/her Termination Date, regardless of whether the Participantis entitled to a 21-day consideration period under Section VII A(1) ora 45-day consideration period under Section VII A(2), may revoke theAgreement and Release at any time during the seven day period that 

 

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immediately follows thedate the Participant signs the Agreement and Release, provided that theParticipant sends a written notice of revocation to the Company during thatseven day period.  In the event theParticipant 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 theParticipant shall not be eligible to receive benefits of any kind under thisPlan.  If the Participant does not revokethe Agreement and Release, it will take effect on the eighth day following thedate of the Participant’s signing.

 

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

 

(5)    **Please Note**:  The Agreement and Release contains legallybinding obligations and the Company advises each Participant to consult anattorney before signing the Agreement and Release.

 

**B.****   ****Post-Employment Restrictions.**

 

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

 

(2)  **Restriction on Competition**. From the date the Participant isnotified of the Company’s decision to terminate his/her employment until theexpiration of twelve (12) months immediately following the Termination Date,the Participant shall not, directly or indirectly, alone or in association withothers, anywhere in the Territory, own, manage, operate, control or participatein the ownership, management, operation or control of, or be connected as anofficer, 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 ofmoney or otherwise) in, any business, venture or activity that directly orindirectly competes, or is in planning, or has undertaken any preparation, tocompete, with the Business of the Company or any of its Immediate Affiliates (a“Competitor”), except that nothing contained here shall prevent the Participant’spassive ownership of two percent (2%) or less of the equity securities of anyCompetitor that is a publicly-traded company. For the purposes of this Agreement, the “Business of the Company and itsImmediate Affiliates” or “Business” is that of arts and crafts specialtyretailer providing materials, ideas and education for creative activities andthe “Territory” is those states within the United States and those provinces ofCanada in which the Company or any of its Immediate Affiliates is doing or 

 

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activelyplanning to do business at any time during the twelve (12) months immediatelypreceding the date of the Participant’s Qualifying Termination.

 

(3)  **Restriction onSolicitation of Employees and Independent Contractors**.  From the date the Participant is notified ofthe Company’s decision to terminate his/her employment until the expiration oftwelve (12) months immediately following the Termination Date, the Participantshall not, and shall not assist any other Person to, (a) hire or solicitfor hire any employee of the Company or any of its  Immediate Affiliates or seek to persuade anyemployee of the Company or any of its Immediate Affiliates to discontinueemployment or (b) solicit or encourage any independent contractorproviding services to the Company or any of its Immediate Affiliates toterminate or diminish its relationship with them; provided, however, that theserestrictions shall apply only with respect to employees of, and independentcontractors providing services to, the Company or one of its ImmediateAffiliates at any time during the twelve (12) months immediately preceding thedate of the Participant’s Qualifying Termination.

 

(4)  **Restriction onSolicitation of Distributors and Vendors**.  From the date the Participant is notified ofthe Company’s decision to terminate his/her employment until the expiration oftwelve (12) months immediately following the Termination Date, the Participantshall not directly or indirectly solicit or encourage any distributor or vendorto the Company or any of its Immediate Affiliates to terminate or breach anyagreement which such distributor or vendor has with the Company or any of itsImmediate Affiliates or to terminate or diminish its relationship with theCompany or any of its Immediate Affiliates; provided, however, that theserestrictions shall apply only with respect to those distributors and vendorswho are doing business with the Company or any of its Immediate Affiliates atany time during the twelve (12) months immediately preceding the date of theParticipant’s Qualifying Termination.

 

**VIII.**        TERMINATION OF PLAN BENEFITS

** **

Notwithstandinganything to the contrary contained in this Plan, benefits for which aParticipant has qualified and is receiving under this Plan shall terminateunder the following circumstances:

 

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

 

B.      Allbenefits under this Plan may be terminated by the Company in the event that itdetermines that the Participant has breached the Agreement and Release or theFinal Release or has violated any obligation under Section VII hereof or 

 

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otherwise breachedany material provision of any written agreement with the Company or any of itsAffiliates.

 

**IX.****          ****GENERAL INFORMATION CONCERNINGTHE PLAN**

 

A.      TheCompany pays the full cost of benefits provided under this Plan from itsgeneral assets and the right of aParticipant to receive any payment hereunder shall be an unsecured claimagainst the general assets of the Company. The Plan at all times shall be entirely unfunded.

 

B.      Notwithstandinganything to the contrary contained herein, benefits to which a Participant isotherwise entitled under this Plan shall be reduced by any other payments orbenefits to which the Participant is entitled under applicable law as a resultof 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 entitledunder applicable law.

 

C.      Benefitsunder this Plan are not assignable or subject to alienation. Likewise, benefitsare not subject to attachments by creditors or through legal process againstthe Company or any employee or any person claiming through an employee.

 

D.      Notwithstandinganything to the contrary contained herein, any and all payments to be providedhereunder to or on behalf of any Participant are subject to reduction to theextent required by applicable statutes, regulations, rules and directivesof federal, state and other governmental and regulatory bodies havingjurisdiction over the Company.

 

**E.**      **This Plan does notconstitute a contract of employment for a specific term or otherwise alter theat-will nature of the employment relationship between any employee and theCompany or any of its Affiliates.**

 

**X.**            DEFINITIONS

** **

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

 

A.            An“Affiliate” means an individual, corporation and other entity directly orindirectly 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 orconditions, as determined by the Board of Directors of the Company in itsreasonable judgment:  (i) theParticipant’s refusal or failure to perform (other than by reason ofdisability), or material negligence in the performance of his or her duties andresponsibilities to the Company or any of its Affiliates, or refusal or failureto follow or carry out any reasonable direction of the Board of Directors ofthe Company, and the continuance of such refusal, failure or negligence for aperiod of ten (10) days after written notice delivered by the Company tothe Participant that specifically identifies the manner in which theParticipant has failed to perform his or her duties; (ii) the materialbreach by the Participant of any provision of any material agreement betweenthe Participant and the Company or any of its Affiliates; (iii) fraud,embezzlement, theft or other dishonesty by the Participant with respect to theCompany or any of its Affiliates; (iv) the conviction of, or a plea of *nolo contendere* by, the Participant to anyfelony or any other crime involving dishonesty or moral turpitude; or (v) any other conduct that involves a breach of fiduciary duty to the Companyon the part of the Participant.

 

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

 

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

 

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

 

F.           “TerminationDate”  means the date on which theParticipant’s employment with the Company terminates.

 

**XI.**       ADMINISTRATION,CLAIMS PROCEDURE AND GENERAL INFORMATION

** **

A.            TheCompany reserves the right to amend, modify and terminate this Plan at any timeby a written instrument signed by the Board or its designee. There are novested benefits under this Plan. Also, the Company, as the Plan administratorwithin the meaning of ERISA, reserves full discretion to administer the Plan inall of its details, subject to the requirements of law. 

 

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Companyshall 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 andbenefits, will be final and conclusive, in the absence of clear and convincingevidence that the Company acted arbitrarily and capriciously.

 

B.            Anyonewho believes he/she is being denied any rights under this Plan may file a claimin writing with the Company, as Plan administrator, addressed to the attentionof the Senior Vice President, Human Resources. If the claim is denied, in wholeor in part, the Plan administrator will notify the claimant in writing, givingthe specific reasons for the decision, including specific reference to thepertinent Plan provisions and a description of any additional material orinformation necessary to perfect the claim and an explanation of why suchmaterial or information is necessary. The written notice will also advise theclaimant of his/her right to request a review of the claim and the steps thatneed to be taken if the claimant wishes to submit the claim for review. If thePlan administrator does not notify the claimant of its decision within 90 daysafter it had received the claim (or within 180 days, if special circumstancesexist requiring additional time, and if the claimant had been given a writtenexplanation for the extension within the initial 90-day period), the claimantshould consider the claim to have been denied. At this time the claimant mayrequest a review of the denial of his/her claim.

 

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

 

*[Signature page follows immediately.]*

 

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IN WITNESS WHEREOF, MichaelsStores, Inc. has caused this Plan to be executed as of the date firstabove written.

 

 
| MICHAELS STORES, INC. |   |   |
|-----------------------|--------|--------|
|                  |   |   |
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| 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 ofClaims (this “Agreement”) with Michaels Stores, Inc. (the “Company”)pursuant to the terms and conditions of the Michaels Stores, Inc. OfficerSeverance 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 employmentwith the Company, which occurred on                      ,20       (the “Separation Date”), was aQualifying Termination for purpose of the Plan; and

 

WHEREAS, my acceptance of this Agreement in atimely and effective manner and my meeting of my obligations under it areconditions to my eligibility to receive severance benefits under the Plan, towhich I would not otherwise be entitled;

 

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

 

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

 

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

 

(b)           “Confidential Information” means any and allinformation of the Company and its Affiliates that is not generally known bythose Persons with whom they compete or do business, or with whom any of themplans to compete or do business and any and all information, publicly known inwhole or in part or not, which, if disclosed by the Company or its Affiliateswould assist in competition against them. Confidential Information includes without limitation such informationrelating to (i) the development, research, testing, manufacturing,marketing and financial activities of the Company and its Affiliates, (ii) theproducts and services of the Company and its Affiliates, (iii) the costs,sources of supply, financial performance and strategic plans of the Company andits Affiliates, (iv) the identity and special needs of the customers ofthe Company and its Affiliates and (v) the people and organizations withwhom the Company and its Affiliates have business relationships and thoserelationships.  Confidential Informationalso includes any information that the Company or any of its Affiliates havereceived, 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 includeinformation that has entered the public domain other than through my disclosurein violation of my obligations to the Company or its Affiliates under thisAgreement or otherwise or through a third party in violation of a duty of confidentialityowed to the Company or any of its Affiliates.

 

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

 

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

 

2.             **Severance Benefits underthe Plan**.   Subject to theterms and conditions of Section VI of the Plan, I will be eligible for (a) severancepay, (b) a pro-rated bonus for the year in which termination of myemployment occurred, and (c) Company contributions during the SeverancePay Period to the premium cost of my participation and that of my eligiblebeneficiaries, if any, in the Company’s group health plan and certain otherwelfare plans in which I and my eligible beneficiaries may continueparticipation.  The period commencing onthe Separation Date and continuing until the expiration of a number of monthsequal to the period of severance pay for which I may qualify under the Plan (asset forth in the immediately preceding sentence) is the “Severance Pay Period.”

 

3.             **Timing and CertainConditions to Receipt of Severance Benefits:**

 

(a)           **Commencement of Obligations under this Agreement.**  It is expressly understood and agreed that myobligations under Section 7 and Section 8 of this Agreement shallcommence on the earlier to occur of the Separation Date or the date Ifirst receive this Agreement (the “Commencement Date”), although theCommencement Date shall be no earlier that the date I am first informed of thetermination of my employment.  Withoutlimiting the generality of the foregoing, I must comply with these obligationseven before the effective date of this Agreement in order to be eligible toaccept this Agreement and receive severance benefits under the Plan.   If I fail to comply in full with any of myobligations under Section 7 or Section 8 of this Agreement at anytime 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 makepayments to me in accordance with this Agreement and the Plan is expresslyconditioned on my continued full performance of my obligations under thisAgreement, including without limitation under Section 7 and Section 8hereof.

 

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4.             **Acknowledgement of FullPayment**.

 

(a)           I acknowledge that I have been paid in fullany and all compensation due me from the Company or any of its Affiliates,whether for services provided or otherwise, through the Separation Date andthat, exclusive of any severance benefits for which I qualify in accordancewith the terms and conditions of the Plan, as set forth in Section 2 ofthis Agreement, nothing further is owed to me. Without limiting the generality of the foregoing acknowledgement, Ispecifically acknowledge that I have received (i) all salary due throughthe Separation Date, (ii) pay in full for any vacation I had earned butnot used through the Separation Date, (iii) reimbursement for any businessexpenses I had incurred through the Separation Date that are eligible forreimbursement under applicable Company policies, and (iv) payment of allbonus or other incentive compensation due me, exclusive only of any pro-ratedbonus for which I may be eligible under the Plan for the year in which myemployment with the Company terminated.

 

(b)           I also represent and warrant that I am notentitled to any payments (in cash or equity) or any other benefits under anyrepresentation, agreement or understanding, whether oral or written, or anyplan, program or arrangement of any kind, with the Company or any of itsAffiliates as a result of the termination of my employment and I hereby waiveirrevocably any such entitlement, should it exist.

 

5.             **Reduction of SeveranceBenefits for Certain Statutory Payments**. I acknowledge thatseverance benefits to which I may otherwise be entitled under the Plan shall bereduced by any payments or benefits to which I may be entitled under applicablelaw as a result of termination of my employment, including without limitationany federal, state or local law with respect to plant closings, mass layoffs orgroup benefit plan continuation following termination or the like, butexcluding any unemployment benefits to which I may be eligible under applicablelaw.

 

6.**             Statusof Employee Benefits, Paid Time Off and Stock Options**. ** **Except for any right I may haveunder COBRA to continue my participation and that of my qualified beneficiariesin the Company’s medical plan or any other Company plan to which COBRA isapplicable (such as, by way of example only, a dental or vision plan, if madeavailable by the Company), my participation in all Company employee benefitplans has ended as of the Separation Date, in accordance with the terms ofthose plans.  I also acknowledge that Iwill not continue to earn vacation or other paid time off after the SeparationDate. My rights and obligations with respect to any equity granted to me by theCompany or any of its Immediate Affiliates which had vested as of theSeparation Date shall be governed by any applicable equity participation plansand any agreements and other requirements and limitations applicable to suchequity or to Company employees who have been granted equity in connection withtheir employment.  All equity granted meby the Company which remained unvested as of the Separation Date shall havebeen cancelled and shall have terminated as of that date.

 

7.             **AncillaryCovenants**.  The covenants setforth below are ancillary to this Agreement with the Company, which concernsthe termination of my employment and my qualification for severance benefitsunder the Plan.  My acceptance of thesecovenants and my complying with my obligations under them are a condition to myeligibility to receive severance benefits under the Plan.

 

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(a)           **Acknowledgement of theCompany’s Interest and the Adequacy of the Consideration for the Covenants**.I acknowledge the importance to the Company and its Immediate Affiliates ofprotecting their legitimate business interests, including without limitationthe valuable Confidential Information (as defined in Section 1 above) andgoodwill that they have developed or acquired at considerable expense.  I acknowledge that, in my****employment with the Company, I have hadaccess to Confidential Information that, if it were disclosed, would assist incompetition against the Company and its Affiliates, including withoutlimitation proprietary customer information, and that I also have generatedgoodwill for the Company and its Affiliates in the course of myemployment.  I further acknowledge and Iagree that the restrictions on my activities set forth below are necessary toprotect the goodwill, Confidential Information and other legitimate interestsof the Company and its Affiliates and that my acceptance of these restrictionsis a condition of my receipt of severance benefits under the Plan, to which Iwould not otherwise be entitled, and such severance benefits are good andsufficient consideration to support my agreement to and compliance with thesecovenants.

 

(b)           **Covenantsof Non-Competition and Non-Solicitation**

 

(i)**            AgreementNot to Compete**.   I agree that,during the twelve (12) months immediately following the Separation Date, Ishall not, directly or indirectly, alone or in association with others,anywhere in the Territory, own, manage, operate, control or participate in theownership, 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 (throughstock or other equity ownership, investment of capital, the lending of money orotherwise) in, any business, venture or activity that directly or indirectlycompetes, 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 twopercent (2%) or less of the equity securities of any Competitor that is apublicly-traded company.  For thepurposes of this Agreement, the “Business of the Company and its ImmediateAffiliates” or the “Business” is that of arts and crafts specialty retailerproviding materials, ideas and education for creative activities and the “Territory”is comprised of those states within the United States and those provinces ofCanada in which the Company or any of its Immediate Affiliates was doing oractively planning to do business at any time during the twelve (12) monthsimmediately preceding the Separation Date.

 

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

 

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its ImmediateAffiliates who were such on the Separation Date or at any time during the nine (9) monthsimmediately preceding the Separation Date.

 

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

 

(c)           **Notification Requirement**.  I agree that, until the first anniversary ofthe Separation Date, I will provide the Company notice in writing of any changein my address and of each new job or other business activity in which I plan toengage if it is related to the Business of the Company and its ImmediateAffiliates.  I further agree to providesuch notice at least fifteen (15) business days prior to beginning any such jobor activity.  Such notice shall state thename and address of the Person to whom I propose to provide services and thenature of my position with that Person. I agree to provide the Company with such other pertinent informationconcerning such new job or other business activity as the Company mayreasonably request in order to determine my continued compliance with myobligations under this Agreement.  Ifurther agree to notify any Person to whom I intend to provide services, as anemployee, independent contractor or otherwise, of my obligations under thisAgreement and hereby consent to notification by the Company or its agents toany such Persons about my obligations under this Agreement.

 

8.             **OtherObligations**.

 

(a)           **Agreement Not to Use or Disclose ConfidentialInformation**.  I agree that Ishall not at any time disclose to any Person or use any Confidential Informationthat I obtained incident to my service to, or any other association with, theCompany 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 reasonableopportunity for the Company to seek protection of the Confidential Informationprior to any such disclosure.

 

(b)           **Agreement ofNo Public Comment and Non-Disparagement**.  I agree that I will not make any publicstatement or comment concerning the Company or any of its Affiliates, theirdirect or indirect investors, their management or their businesses and agreethat this restriction applies whether communication is oral or in writing,whether made directly or indirectly, and includes without limitationcommunication to or through the media (print, electronic or otherwise).  I further agree that I will not disparage orcriticize the Company or any of its Affiliates, their direct or indirectinvestors, management or businesses, not only through public statement orcomment, but also to any of the employees of the Company or any of itsAffiliates, or to any Person with whom the Company or any of its Affiliates isdoing, or is planning to do, business.

 

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(c)           **Return of Company Property**. I represent and warrant that Ihave 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 otherproperty 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 ofany 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 myparticipation in Company benefit plans). I also agree that I will not, for any purpose, attempt to access or useany computer or computer network or system of the Company or any of itsAffiliates after the Separation Date, unless expressly requested to do so by anauthorized representative of the Company. Further, I represent and warrant that I have disclosed to the Companyall passwords necessary or desirable to enable the Company to access anyinformation which I have password-protected on any of the computer equipment orcomputer network or system of the Company or any of its Affiliates.

 

(d)           **Employee Cooperation**. I agree that, during the Severance Pay Period, and without additionalcompensation, I will provide to the Company, promptly on its request, adviceand consultation with respect to my former duties and responsibilities.  I also agree, during the Severance Pay Periodand thereafter, to cooperate with the Company with respect to all mattersarising during or related to my employment, including without limitationmatters in connection with any governmental investigation, litigation orregulatory or other proceeding which may have arisen or which may arisefollowing the signing of this Agreement. I understand that the Company will make reasonable efforts not tomaterially interfere with the timing of any employment or other businessobligations I may have.  While it isagreed that I will not be entitled to compensation for any such cooperationduring the Severance Pay Period, the Company will reimburse my out-of-pocketexpenses incurred in complying with the Company’s requests hereunder, providedsuch expenses are authorized by the Company in advance and the Company will payme a reasonable hourly or per diem rate for any such cooperation requested bythe Company after the Severance Pay Period ends, exclusive of any time spent intestifying as a fact witness in any legal proceeding.

 

9.             **Enforcement**.  I acknowledge that I have carefully read andconsidered all the terms and conditions of this Agreement, including therestraints imposed on me pursuant to Sections 7 and 8 of this Agreement.  I agree that those restraints are necessaryfor the reasonable and proper protection of the Company and its Affiliates andthat each and every one of the restraints is reasonable with respect to subjectmatter, length of time and geographic area. I further acknowledge that, were I to breach any of the covenantscontained in Section 7 or Section 8 of this Agreement, the damage tothe Company would be irreparable. Further, I freely acknowledge that the restrictions contained inSections 7 and 8 will not, individually or in the aggregate, prevent me fromearning a livelihood while they are in effect. I therefore agree that the Company, in addition to any other remediesavailable to it under this Agreement or at law, shall be entitled topreliminary and permanent injunctive relief against any breach or threatenedbreach by me of any of the obligations set forth in Section 7 or Section 8of 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 7or Section 8 of this Agreement shall be determined by any court ofcompetent jurisdiction to be unenforceable by reason of its being extended overtoo great a time, too large a geographic area or too great a range ofactivities, such provision shall be deemed to be modified to permit itsenforcement to the maximum extent permitted by law.  I also agree that each of the Affiliatesshall have the right to enforce all of my obligations to the Affiliate underthis Agreement.

 

10.           **Release ofClaims**.**** For and in consideration of the severancebenefits to be made to me in connection with my separation from employment withthe Company as set forth in the Plan and this Agreement, and as a condition ofmy receipt of those severance benefits, I, on my own behalf and on behalf of myheirs, beneficiaries, executors, administrators and representatives, and allothers connected with or claiming through me, hereby release and foreverdischarge 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 ofthe foregoing, and all others connected with any of them, and any and allbenefit plans maintained by the Company and its Affiliates and all present andformer representatives, agents, trustees, fiduciaries and administrators ofsuch plans, all of the foregoing, both individually and in their officialcapacities, from any and all liabilities, of any nature whatsoever, whetherknown or unknown, which I had in the past, now have or might now have, throughthe date on which I sign this Agreement, based on any federal, state or locallaw, regulation or other requirement, whichmay have arisen in connection with my employment with the Company or thecessation thereof.     I acknowledge that signing this Agreementdoes not limit or otherwise interfere with my right to file a charge orparticipate in an investigation or proceeding conducted by the Equal EmploymentOpportunity Commission (the “EEOC”) or other appropriate state agency.  I understand, however, that I am releasingthe right to any monetary recovery or relief should the EEOC or any otheragency pursue claims on my behalf.  Excludedfrom the scope of this release, however, are any rights I have toindemnification under the charter, by-laws or other governing documents of theCompany or any of its Affiliates; any vested benefits I have under the Company’squalified retirement plan; and any rights arising under this Agreement or thePlan following the effective date of this Agreement.

 

11.           **EntireAgreement, Amendments, Waivers and Governing Law.**

 

(a)           ThisAgreement constitutes the entire agreement between me and the Company, andsupersedes all prior and contemporaneous agreements and understandings, writtenor oral, concerning my employment, its termination and all related matters,excluding only any agreements between me and the Company or any of itsAffiliates concerning protection of confidential information, assignment ofrights to inventions or other intellectual property, or covenants againstcompetition or solicitation of employees, independent contractors, customers,vendors, distributors or others, any outstanding loans or other financialobligations that I have to the Company or any of its Affiliates or under any benefitplan maintained by the Company or any of its Affiliates, my obligations underthe Plan and my obligations, if any, with respect to the securities of theCompany or any of its Immediate Affiliates, all of which shall remain in fullforce and effect in accordance with their terms.

 

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(b)           ThisAgreement may not be modified or amended and no breach shall be deemed to bewaived unless in writing signed by me and an expressly authorizedrepresentative of the Company.  Iunderstand and agree that the obligation of the Company to make payments to meunder this Agreement or the Plan is expressly conditioned on my continued fullperformance of my obligations under this Agreement and the Plan.

 

(c)           Thecaptions and headings in this Agreement are for convenience only and in no waydefine 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 shallbe an original and all of which together shall constitute one and the sameinstrument.

 

(d)           ThisAgreement shall be governed by and construed in accordance with the laws of theState of Texas, without giving any effect to any choice or conflict of lawprovision or rule that would cause the application of the laws of anyother jurisdiction.

 

12.           **Acceptance of this Agreement and Related Matters**. Iacknowledge that I may not sign this Agreement prior to the SeparationDate.  I further acknowledge that Iunderstand I may take up to twenty-one (21) days from the later of theSeparation Date or the date of my receipt of this Agreement to consider thisAgreement before signing it.  In signingthis Agreement, I give the Company assurance that I have signed it voluntarilyand with a full understanding of its terms; that I have had full and sufficientopportunity, before signing this Agreement, to consider its terms and toconsult with any person of my choosing; and that, in signing this Agreement, Ihave not relied on any promises or representations, express or implied, thatare 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 sealon 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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