**Exhibit 10.1**

 

**Execution Copy**

 

AGREEMENT

 

AGREEMENT made and entered into by and between Michaels Stores, Inc.(the “Company”) and John B. Menzer (the “Executive”), this 6th day of March,2009.

 

WHEREAS, the operations of the Company and its Affiliates are a complexmatter requiring direction and leadership;

 

WHEREAS, the Executive is possessed of certain experience and expertisethat qualify him to provide the direction and leadership required by theCompany and its Affiliates; and

 

WHEREAS, subject to the terms and conditions hereinafter set forth, theCompany therefore wishes to employ the Executive as its Chief Executive Officerand the Executive wishes to accept such employment;

 

NOW, THEREFORE, in consideration of the foregoing premises and themutual promises, terms, provisions and conditions set forth in this Agreement,the parties hereby agree:

 

1.             Employment.         Subject to the terms andconditions set forth in this Agreement, the Company hereby offers, and theExecutive hereby accepts, employment.

 

2.             Term.      Subject to earliertermination as hereinafter provided, the Executive’s employment hereunder shallbe for a term of five (5) years, commencing on April 15, 2009 or suchearly date as the Company and the Executive may mutually agree (the “EffectiveDate”), and shall renew automatically thereafter for successive terms of oneyear each. The term of this Agreement, as from time to time renewed, ishereafter referred to as “the term of this Agreement” or “the term hereof.”

 

3.             Capacity and Performance.

 

(a)           During the term hereof, the Executive shallserve the Company as its Chief Executive Officer (“CEO”).  In addition,and without further compensation, the Executive agrees to serve as a directorof the Company and, subject to Executive’s Separation Agreement dated January 21,2008 with Wal-Mart Stores, Inc., as a director and/or officer of one ormore of the Company’s Immediate Affiliates (as defined in Section 13hereof), in each case if so elected or appointed from time to time.

 

(b)           During the term hereof, the Executive shallreport to the Board of Directors of the Company or its designees, currentlyMatthew Levin and Michael Chae.

 

(c)           During the term hereof, the Executive shallbe employed by the Company on a full-time basis and shall perform the dutiesand responsibilities of his position, including, without limitation, generaloversight and direction of the operations of the Company and such other dutiesand responsibilities on behalf of the Company consistent with theresponsibilities of a Chief Executive Officer, as well as the duties andresponsibilities reasonably related to other positions on behalf of theImmediate Affiliates, as may be designated from time to time by the Board or byits Chair or other designee.

 

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(d)           During the term hereof, the Executive shalldevote substantially all of his business time and his best efforts, businessjudgment, skill and knowledge exclusively to the advancement of the businessand interests of the Company and, if so elected or appointed, its ImmediateAffiliates and to the discharge of his duties and responsibilitieshereunder.  The Company hereby agrees that the Executive may continue toserve as a director of Emerson Electric Co. and may participate in appropriatetrade associations.  In addition, he may engage in appropriate civic,charitable, religious or personal activities that do not conflict or interferewith the proper performance of his duties hereunder.  However, theExecutive shall not engage in any other business activity or serve in any industry,professional, governmental or academic position during the term of thisAgreement, except as may be expressly approved in advance by the Board inwriting.

 

4.             Compensation and Benefits.  Ascompensation for all services performed by the Executive under and during theterm hereof and subject to performance of the Executive’s duties and of theobligations of the Executive to the Company and its Immediate Affiliates,pursuant to this Agreement or otherwise:

 

(a)           Base Salary.  During the termhereof, the Company shall pay the Executive a base salary at the rate of OneMillion Dollars ($1,000,000) per annum, payable in accordance with the payrollpractices of the Company for its executives and subject to increase from timeto time by the Board, in its sole discretion.  Such base salary, as fromtime to time increased, is hereafter referred to as the “Base Salary”.

 

(b)           Bonuses.  For each fiscal yearcompleted during the term hereof, the Executive shall be eligible to earn anannual bonus under the Company’s annual performance-based bonus plan as fromtime to time in effect, subject to the achievement of such performance targetsas shall be determined in the discretion of the Board.  The Executive’starget bonus shall be one hundred percent (100%) of Base Salary, with a maximumbonus potential of two hundred percent (200%) of Base Salary for performance inexcess of the performance targets and with the actual amount of bonus, if any,to be determined by the Board in its sole discretion.  Such bonus ishereafter referred to as the “Annual Bonus.”   Subject to Section 5, Executive shall beentitled to a non-pro rated bonus in respect of fiscal 2009 in a minimum amountof $1 million.

 

(c)           Vacations.  During the termhereof, the Executive shall be entitled to earn vacation at the rate of five (5) weeksper year, to be taken at such times and intervals as shall be determined by theExecutive, subject to the reasonable business needs of the Company and theapproval of the person to whom the Executive reports.  Vacation shall otherwisebe governed by the policies of the Company, as in effect from time to time.

 

(d)           Other Benefits.  During the termhereof, the Executive shall be entitled to participate in any and all EmployeeBenefit Plans from time to time in effect for the Chief Executive Officer ofthe Company (including a premium car lease) or senior executives of the Companygenerally (including participation in any air mileage programs) .  Suchparticipation shall be subject to the terms of the applicable plan documentsand generally applicable Company policies.  For purposes of thisAgreement, “Employee Benefit Plan” shall have the meaning ascribed tosuch term in Section 3(3) of ERISA, as amended from time to time.

 

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(e)           Business Expenses.  The Companyshall pay or reimburse the Executive for all reasonable, customary andnecessary business expenses incurred or paid by the Executive in theperformance of his duties and responsibilities hereunder, subject to anymaximum annual limit and other restrictions on such expenses set by the Boardand to such reasonable substantiation and documentation as may be specified bythe Company from time to time.  Such expenses shall include, withoutlimitation, the following:

 

(i)            reasonable expenses associated withrelocation of Executive, his family and household goods to Texas and withobtaining suitable housing in Texas, all in accordance with the Company’scurrent executive relocation plan, including engagement of a relocationservice, such as Sirva, Inc., whereby after a customary (60-90 days)marketing period, the relocation service provider will offer to purchaseExecutive’s existing house located at 3005 Red Fox Ridge, Bentonville, Arkansasat a price determined by the average of two independent appraisals,

 

(ii)           reasonable legal fees incurred in connectionwith his negotiation with the Company of this Agreement and the option andrestricted stock award documents described in (f) and (g) below, and

 

(iii)          reasonable travel expenses, includingbusiness class airfare when available.

 

(f)            Restricted Stock Grant.  On theEffective Date, the Company shall provide Executive with a grant of 1,000,000shares of restricted stock pursuant to the form of Restricted Stock AwardAgreement attached as Exhibits A-1 and A-2.

 

(g)           OptionGrant.  On the Effective Date, the Company will grant to Executive anoption to purchase 2,000,000 shares of common stock pursuant to the StockOption Agreement attached as Exhibit B.

 

5.             Termination of Employment and SeveranceBenefits.  Notwithstanding the provisions of Section 2 hereof,the Executive’s employment hereunder shall terminate prior to the expiration ofthe term hereof under the following circumstances:

 

(a)           Death.  In the event of theExecutive’s death prior to the expiration of the term hereof, the Executive’semployment hereunder shall immediately and automatically terminate.  Insuch event, the Company shall pay to the Executive’s designated beneficiary or,if no beneficiary has been designated by the Executive in writing, to hisestate, (i) any Base Salary earned but not paid during the final payrollperiod of the Executive’s employment through the date of termination, (ii) payfor any vacation time earned but not used through the date of termination, (iii) apro-rata bonus for the year in which termination occurs, based on the actualAnnual Bonus that the Executive would have received for such year had heremained employed by the Company for the full year and determined (except tothe extent of the pro rated portion of the minimum target entitlement for 2009(the “pro-rated 2009 minimum”)) based on the Company’s actual results for suchyear (payable (A) if death should occur during fiscal 2009, within thirty(30) days following death to the extent of the pro-rated 2009 minimum, and (B) inevery other case at the time provided in the Company’s then

 

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applicable performance bonus plan, (iv) any bonus compensationearned for the fiscal year preceding that in which termination occurs, butunpaid on the date of termination (paid at the time provided in the Company’sthen applicable performance bonus plan), and (v) any business expensesincurred by the Executive but un-reimbursed on the date of termination, providedthat such expenses and required substantiation and documentation are submittedwithin sixty (60) days of termination and that such expenses are reimbursableunder Company policy (all of the foregoing, “Final Compensation”).  Theportion of the Final Compensation specified in clauses (i) and (ii) aboveshall be paid within thirty (30) days following the date of termination.  The Company shall have no further obligationto the Executive hereunder.

 

(b)           Disability.

 

(i)            The Company mayterminate the Executive’s employment hereunder, upon notice to the Executive,in the event that the Executive becomes disabled during his employmenthereunder through any illness, injury, accident or condition of either aphysical or psychological nature and, as a result, is unable to performsubstantially all of his duties and responsibilities hereunder, notwithstandingthe provision of any reasonable accommodation, for one hundred and eighty (180)days during any period of three hundred and sixty-five (365) consecutive calendardays (“Disability”).  In the event of such termination, the Company shallhave no further obligation to the Executive, other than for payment of FinalCompensation (which shall be paid at the same time or times as in the case of atermination by reason of death).

 

(ii)           The Board may designateanother employee to act in the Executive’s place during any period of theExecutive’s disability.  Notwithstanding any such designation, theExecutive shall continue to receive the Base Salary in accordance with Section 4(a) andbenefits in accordance with Section 4(e), to the extent permitted by thethen-current terms of the applicable benefit plans, until the Executive becomeseligible for disability income benefits under the Company’s disability incomeplan or until the termination of his employment, whichever shall first occur.

 

(iii)          While receivingdisability income payments under the Company’s disability income plan, theExecutive shall not be entitled to receive any Base Salary under Section 4(a) hereof,but shall continue to participate in Company benefit plans in accordance with Section 4(e) andthe terms of such plans, until the termination of his employment.

 

(iv)          If any question shallarise as to whether during any period the Executive is disabled through anyillness, injury, accident or condition of either a physical or psychologicalnature so as to be unable to perform substantially all of his duties andresponsibilities hereunder, the Executive may, and at the request of theCompany shall, submit to a medical examination by a physician selected by theCompany to whom the Executive or his duly appointed guardian, if any, has noreasonable objection to determine whether the Executive is so disabled and suchdetermination shall for the purposes of this Agreement be conclusive of theissue.  If such question shall arise and the Executive shall fail tosubmit to such medical examination, the Company’s determination of the issueshall be binding on the Executive.

 

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(c)           By the Company for Cause.  TheCompany may terminate the Executive’s employment hereunder for Cause at anytime upon notice to the Executive setting forth in reasonable detail the natureof such Cause.  “Cause” shall mean the following events or conditions, asdetermined by the Board in its reasonable judgment:  (i) theExecutive’s refusal to perform (other than by reason of disability), ormaterial negligence in the performance of, his duties and responsibilities tothe Company or any of its Affiliates, or refusal to follow or carry out anylawful and reasonable direction of the Board, and the continuance of suchrefusal or negligence for a period of ten (10) days after notice to theExecutive; (ii) the material breach by the Executive of any provision ofany material agreement between the Executive and the Company or any of itsAffiliates; (iii) fraud, embezzlement, theft or other dishonesty by theExecutive with respect to the Company or any of its Affiliates; (iv) theconviction of, or a plea of *nolo contendere*by, the Executive to any felony or any other crime involving dishonesty ormoral turpitude; and (v) any other conduct that involves a breach offiduciary obligation on the part of the Executive.  Upon the giving ofnotice of termination of the Executive’s employment hereunder for Cause, theCompany shall have no further obligation to the Executive, other than for FinalCompensation (which shall be paid at the same time or times as in the case of atermination by reason of death).

 

(d)           By the Company Other than for Cause. The Company may terminate the Executive’s employment hereunder other than forCause at any time upon notice to the Executive.  In the event of suchtermination, in addition to Final Compensation (which shall be paid at the sametime or times as in the case of a termination by reason of death), then for theperiod of two (2) years following the date of termination, the Companyshall provide the Executive Severance Benefits as follows:  (i) theCompany will pay the Executive Severance Pay equal to the sum of (A) theBase Salary at the annual rate in effect on the date of termination and (B) theExecutive’s target Annual Bonus determined in accordance with Section 4(b) hereofand (ii) (A) if the Company in its discretion determines that it cando so consistent with the requirements of Section 105(h) of the Codeand with applicable law and plan terms, it shall provide continued coverage tothe Executive under its group medical and dental plans, at the Company’s costsubject only to the Executive’s payment of the employee portion (determined onthe same basis as applied to the Executive on the date of termination) plus anyrequired administrative fee, or (B) if the Company in its discretiondetermines that it cannot provide continued coverage on the basis described inclause (A), it shall instead provide continued coverage to the extent requiredby the so-called “COBRA” coverage continuation rules and shall pay to theExecutive, at the same time as it pays the first severance payment under clause(i)(A), a lump sum equal in its reasonable estimation to what would have beenits premium cost under clause (ii)(A) had clause (ii)(A) applied. It shall be a condition to any obligation of the Company to the Executive underthis Section 5(d) or Section 5(e) below, other than theCompany’s obligation to pay the Final Compensation, that the Executive shallhave signed and returned to the Company, not later than forty-five (45) daysafter the date of termination (or by such earlier date as the Company mayspecify), a release of claims in the form attached as Exhibit C (the “Releaseof Claims”) and that seven days after the delivery of such Release of Claimsshall have elapsed without the Executive’s having revoked the Release ofClaims.  The Release of Claims creates legally binding obligations on thepart of the Executive, and the Company and its Affiliates therefore advise theExecutive to seek the advice of an attorney before signing the Release ofClaims.  Provided the foregoing conditions to payment are satisfied, theseverance pay described in Section 5(d)(i) above shall be paidcommencing with the first payroll that 

 

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follows the date of termination by sixty (60) days, with the first suchpayment to include all amounts that would have been paid under Section 5(d)(i) hadpayment commenced with the first payroll after termination of employment. In the event that Executive is entitled to receive benefits upon terminationunder any other agreement with, or plan or policy of, the Company (an “alternativeseverance arrangement”), the provisions of such alternative severancearrangement shall be given effect, if at all, (A) so as not to duplicatethe benefits payable hereunder, and (ii) only to the extent they do notresult in an impermissible acceleration or deferral of any benefits payablehereunder that are subject to the requirements of Section 409A of theInternal Revenue Code of 1986, as amended (the “Code”). Severance Pay to whichthe Executive is entitled hereunder shall be payable on a pro-rated basis atthe Company’s regular payroll periods and in accordance with its normal payrollpractices.

 

(e)           By the Executive for Good Reason. The Executive may terminate his employment hereunder for Good Reason pursuantto the procedures hereinafter specified.  The following shall constituteGood Reason for termination by the Executive:

 

(i)            Removal of theExecutive, without his consent, from the position of CEO of the Company (or asuccessor corporation);

 

(ii)           Material diminution inthe nature or scope of the Executive’s responsibilities, duties or authority;provided, however, that the Company’s failure to continue the Executive’sappointment or election as a director or officer of any of its Affiliates, achange in reporting relationships resulting from the direct or indirect controlof the Company (or a successor corporation) by another corporation or otherentity and any diminution of the business of the Company or any of itsAffiliates or any sale or transfer of equity, property or other assets of theCompany or any of its Affiliates shall not constitute “Good Reason”; or

 

(iii)          Material failure of theCompany to provide the Executive the Base Salary and benefits in accordancewith the terms of Section 4 hereof.

 

To qualify as a termination for Good Reason under this Section 5(e),the Executive must have given notice to the Company, setting forth inreasonable detail the nature of the Good Reason. within ninety (90) days of theinitial existence or occurrence of the event or events purportedly giving riseto Good Reason, the Company must have failed to cure the Good Reason withinthirty (30) days of receiving notice, and termination of employment must haveoccurred within thirty (30) days following the expiration of the thirty-daycure period.  In the event of terminationin accordance with this Section 5(e), the Executive will be entitled tothe payments and benefits to which he would have been had he been terminated bythe Company other than for Cause in accordance with Section 5(d) above,subject to the same conditions to payment as are specified in Section 5(d) aboveand with any payments and benefits to be paid or provided at the same time andin the same manner as prescribed in Section 5(d) above.

 

(f)            By the Executive Other than for GoodReason.  The Executive may terminate his employment hereunder at anytime upon sixty (60) days’ notice to the Company. In the event of terminationof the Executive pursuant to this Section 5(f), the Board may elect towaive the period of notice, or any portion thereof, and, if the Board soelects, the Company will pay the 

 

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Executive his Base Salary for the initial sixty (60) days of the noticeperiod (or for any remaining portion of such period).  The Company shallhave no further obligation to the Executive, other than for any FinalCompensation due to him (which shall be paid at the same time or times as inthe case of termination by reason of death).

 

(g)           Timing of Payments.  SeparatePayments.  For purposes of determining whether any payment or series of paymentowed to the Executive hereunder qualify for the “short-term deferral” exceptionunder Section 409A of the Code, each such payment (and each payment in aseries of payments) shall be treated as a separate payment.

 

(h)           Miscellaneous.   For purposes of this Agreement, referencesto termination of employment, retirement, separation from service and similaror correlative terms mean a “separation from service” (as defined at Section 1.409A-1(h) ofthe Treasury Regulations) from the Company and from all other corporations andtrades or businesses, if any, that would be treated as a single “servicerecipient” with the Company under Section 1.409A-a(h)(3) of the TreasuryRegulations, and any reference to date of termination or to similar orcorrelative terms means the date of the separation from service.  If at the relevant time the Executive is a “specifiedemployee” (as defined in the regulations under Section 409A of the Code),as determined by the Company, any payments hereunder that are payable onaccount of the Executive’s separation from service and that are subject to Section 409Aof the Code as nonqualified deferred compensation shall be paid on the later of(i) the date they would have been paid without regard to this subsection(h), and (ii) the date which follows by six months the date of theExecutive’s separation from service.

 

6.             Effect of Termination.  Theprovisions of this Section 6 shall apply to any termination, whether dueto the expiration of the term hereof, pursuant to Section 5 or otherwise.

 

(a)           In the event of the termination of theExecutive’s employment hereunder, payment by the Company of any amounts due inaccordance with the applicable termination provision of Section 5 hereofshall constitute the entire obligation of the Company to the Executive. The Executive shall promptly give the Company notice of all facts necessary forthe Company to determine the amount and duration of its obligations inconnection with any termination pursuant to Section 5(d) or 5(e) hereof.

 

(b)           Except for any right of the Executive tocontinue medical and dental plan participation in accordance with applicablelaw, benefits shall terminate pursuant to the terms of the applicable benefitplans based on the date of termination of the Executive’s employment withoutregard to any continuation of Base Salary or other payment to the Executivefollowing such date of termination.

 

(c)           Provisions of this Agreement shall surviveany termination or expiration of the term hereof, if so provided in thisAgreement or if necessary or desirable to accomplish the purposes of othersurviving provisions, including without limitation the obligations of theExecutive under Sections 7, 8 and 9 hereof.  Any obligation of the Companyotherwise to make payments to or on behalf of the Executive under Section 5(d) or5(e) hereof is expressly conditioned upon the Executive’s continued fullperformance of obligations under Sections 7, 8 and 9 hereof.  TheExecutive recognizes that no compensation is earned after termination of his 

 

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employment hereunder, except as otherwise expressly provided inaccordance with Section 5(d), 5(e) or 5(f) (for any portion ofthe notice period waived).

 

7.             Confidential Information.

 

(a)           The Executive acknowledges that the Companyand its Affiliates continually develop Confidential Information; that theExecutive may develop Confidential Information for the Company or itsAffiliates; and that the Executive may learn of Confidential Information duringthe course of employment.  The Executive will comply with the policies andprocedures of the Company and its Affiliates for protecting ConfidentialInformation and shall not disclose to any Person or use any ConfidentialInformation obtained by the Executive incident to his employment or otherassociation with the Company or any of its Affiliates, other than as requiredfor the proper performance of the Executive’s duties and responsibilities tothe Company and its Affiliates or as required by applicable law or legalprocess after notice to the Company and a reasonable opportunity for it to seekprotection of such Confidential Information prior to disclosure.  The Executiveunderstands that these restrictions shall continue to apply after hisemployment terminates, regardless of the reason for such termination.  Theconfidentiality obligation under this Section 7 shall not apply toinformation which is generally known or readily available to the public at thetime of disclosure or becomes generally known through no wrongful act on thepart of the Executive or any other Person having an obligation ofconfidentiality to the Company or any of its Affiliates.

 

(b)           All documents, records, tapes and othermedia of every kind and description relating to the business, present orotherwise, of the Company or its Affiliates and any copies, in whole or inpart, thereof (the “Documents”), whether or not prepared by the Executive,shall be the sole and exclusive property of the Company and itsAffiliates.  The Executive shall safeguard all Documents and shallsurrender to the Company at the time his employment terminates, or at suchearlier time or times as the Board or its designee may specify, all Documentsthen in the Executive’s possession or control.

 

8**.****            **Assignment ofRights to Intellectual Property**. **TheExecutive shall promptly and fully disclose all Intellectual Property to theCompany.  The Executive hereby assigns and agrees to assign to the Company(or as otherwise directed by the Company) the Executive’s full right, title andinterest in and to all Intellectual Property developed at any time during hisemployment with the Company, its Affiliates, successors or assigns.  TheExecutive agrees to execute any and all applications for domestic and foreignpatents, copyrights or other proprietary rights and to do such other acts(including without limitation the execution and delivery of instruments offurther assurance or confirmation) requested by the Company to assign theIntellectual Property to the Company and to permit the Company to enforce anypatents, copyrights or other proprietary rights to the Intellectual Property.The Executive will not charge the Company for time spent in complying withthese obligations.  All copyrightable works that the Executive createsshall be considered “work made for hire” and shall, upon creation, be ownedexclusively by the Company.

 

9.             Restricted Activities.  TheExecutive acknowledges the importance to the Company and its Affiliates ofprotecting their trade secrets and other Confidential Information and theirother legitimate business interests, including without limitation the valuabletrade 

 

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secrets, other Confidential Information and goodwill that they havedeveloped or acquired and which they shall continue to develop and acquirewhile the Executive’s employment continues.  The Company agrees, inconsideration of the Executive’s acceptance of the restrictions set forthbelow, to grant the Executive access to trade secrets and other ConfidentialInformation of the Company and its Immediate Affiliates and to their valuablebusiness relationships and their goodwill.  The Executive acknowledges andagrees that the restrictions on his activities during and after his employmentset forth below are necessary to protect the goodwill, Confidential Informationand other legitimate interests of the Company and its Affiliates:

 

(a)           The Executive agrees that, during hisemployment with the Company and for the period of twenty-four (24) monthsimmediately following the termination of his employment, regardless of thebasis or timing of such termination, the Executive will not, directly orindirectly, 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 orotherwise with, or have any financial interest (through stock or other equityownership, investment of capital, the lending of money or otherwise) in, anybusiness, venture or activity that directly or indirectly competes, or is inplanning, or has undertaken any preparation, to compete, with the Business ofthe Company or any of its Immediate Affiliates (a “Competitor”), except thatnothing contained in this Section 9(a) shall prevent the Executive’swholly passive ownership of two percent (2%) or less of the equity securitiesof any Competitor that is a publicly-traded company.  For the purposes ofthis Agreement, the “Business of the Company and its Immediate Affiliates” or “Business”is that of arts and crafts specialty retailer providing materials, ideas andeducation for creative activities and the “Territory” is those states withinthe United States and those provinces of Canada in which the Company or any ofits Immediate Affiliates is doing or actively planning to do business at anytime during the Executive’s employment or, with respect to his obligationshereunder following termination of his employment with the Company, at any timeduring the six (6) months immediately preceding such termination.

 

(b)           The Executive agrees that, during hisemployment with the Company, he will comply with any and all codes of ethics orbusiness conduct of the Company applicable to his position, as in effect fromtime to time, and will not undertake any outside activity, whether or not competitivewith the business of the Company or its Affiliates, that could reasonably giverise to a conflict of interest or otherwise interfere with his duties andobligations to the Company or any of its Affiliates.

 

(c)           The Executive agrees that, during hisemployment and during the period  of twenty-four (24) months immediatelyfollowing termination of his employment, regardless of the basis or timing ofsuch termination, the Executive will not, and will not assist any other Personto, (a) hire or solicit for hire any employee of the Company or any of itsImmediate Affiliates or seek to persuade any employee of the Company or any ofits Immediate Affiliates to discontinue employment or (b) solicit orencourage any independent contractor providing services to the Company or anyof its Immediate Affiliates to terminate or diminish its relationship withthem; provided, however, that, after termination of the Executive’s employmentwith the Company, these restrictions shall apply only with respect to employeesof, and independent contractors providing services to, the Company or any ofits Immediate Affiliates on the date the Executive’s 

 

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employment with the Company terminates or at any time during thepreceding twelve (12) months.

 

(d)           The Executive agrees that, during hisemployment and during the period  of  twenty-four (24) monthsimmediately following termination of his employment, regardless of the basis ortiming of such termination, the Executive will not directly or indirectlysolicit or encourage any distributor or vendor to the Company or any of itsImmediate Affiliates to terminate or breach any agreement with the Company orany of its Immediate Affiliates or to terminate or diminish its relationshipwith the Company or any of its Immediate Affiliates;  provided, however, that, after termination ofthe Executive’s employment with the Company, these restrictions shall applyonly with respect to those distributors and vendors who were doing business withthe Company or any of its Affiliates on the date the Executive’s employmentterminates or at any time during the preceding twelve (12) months.

 

10.           NotificationRequirement.  Until the conclusion of twenty-four (24) monthsfollowing termination of his employment with the Company, the Executive shallgive notice to the Company of each new business activity he plans to undertake,at least ten (10) business days prior to beginning any suchactivity.  Such notice shall state the name and address of the Person forwhom such activity is undertaken and the nature of the Executive’s businessrelationship(s) and position(s) with such Person.  The Executiveshall provide the Company with such other pertinent information concerning suchbusiness activity as the Company may reasonably request in order to determinethe Executive’s continued compliance with his obligations under Sections 7, 8and 9 hereof.

 

11.           Enforcementof Covenants.  The Executive acknowledges that he has carefully readand considered all the terms and conditions of this Agreement, including therestraints imposed upon him pursuant to Sections 7, 8 and 9 hereof.  TheExecutive agrees without reservation that each of the restraints containedherein is necessary for the reasonable and proper protection of the goodwill,Confidential Information and other legitimate interests of the Company and itsAffiliates; that each and every one of those restraints is reasonable inrespect to subject matter, length of time and geographic area; and that theserestraints, individually or in the aggregate, will not prevent him fromobtaining other suitable employment during the period in which the Executive isbound by these restraints.  The Executive further agrees that he willnever assert, or permit to be asserted on his behalf, in any forum, anyposition contrary to the foregoing.   The Executive furtheracknowledges that, were he to breach any of the covenants contained in Sections7, 8 or 9 hereof, the damage to the Company and its Affiliates would be irreparable. The Executive therefore agrees that the Company, in addition to any otherremedies available to it, shall be entitled to preliminary and permanentinjunctive relief against any breach or threatened breach by the Executive ofany of said covenants, without having to post bond.  The parties furtheragree that, in the event that any provision of Section 7, 8 or 9 hereofshall be determined by any court of competent jurisdiction to be unenforceableby reason of its being extended over too great a time, too large a geographicarea or too great a range of activities, such provision shall be deemed to bemodified to permit its enforcement to the maximum extent permitted by law.

 

12.           ConflictingAgreements.  The Executive hereby represents and warrants that theexecution of this Agreement and the performance of his obligations hereunderwill not breach or

 

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be in conflict with any other agreement to which the Executive is aparty or is bound and that the Executive is not now subject to any covenantsagainst competition or similar covenants or any court order or other legalobligation that would affect the performance of his obligationshereunder.  The Executive will not disclose to or use on behalf of theCompany any proprietary information of a third party without such party’sconsent.

 

13.           Definitions. Words or phrases which are initially capitalized or are within quotation marksshall have the meanings provided in this Section and as provided elsewhereherein.  For purposes of this Agreement, the following definitions apply:

 

(a)           “Affiliates” meansall persons and entities directly or indirectly controlling, controlled by orunder common control with the Company, where control may be by eithermanagement authority, contract or equity interest.

 

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

 

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

 

(d)           “IntellectualProperty” means inventions, discoveries, developments, methods, processes,compositions, works, concepts and ideas (whether or not patentable orcopyrightable or constituting trade secrets) conceived, made, created,developed or reduced to practice by the Executive (whether alone or withothers, whether or not during normal business hours or on or off Companypremises) during the Executive’s employment that relate to the Business of theCompany or any of its Immediate Affiliates or to any prospective activity ofthe Company or any of its Immediate Affiliates or to any work performed by theExecutive for the Company or any of its Immediate Affiliates or that make useof  Confidential Information or any of the equipment or facilities orother resources of the Company or any of its Immediate Affiliates.

 

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

 

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15.           Withholding. All payments made by the Company under this Agreement shall be reduced by anytax or other amounts required to be withheld by the Company under applicablelaw.

 

16.           Assignment. Neither the Company nor the Executive may make any assignment of this Agreementor any interest herein, by operation of law or otherwise, without the priorwritten consent of the other; provided, however, that the Company may assignits rights and obligations under this Agreement without the consent of theExecutive in the event that the Executive is transferred to a position with anyof the Affiliates or in the event that the Company shall hereafter effect areorganization, consolidate with, or merge into, any Person or transfer all orsubstantially all of its properties or assets to any Person.  ThisAgreement shall inure to the benefit of and be binding upon the Company and theExecutive, their respective successors, executors, administrators, heirs andpermitted assigns.

 

17.           Severability. If any portion or provision of this Agreement shall to any extent be declaredillegal or unenforceable by a court of competent jurisdiction, then theremainder of this Agreement, or the application of such portion or provision incircumstances other than those as to which it is so declared illegal orunenforceable, shall not be affected thereby, and each portion and provision ofthis Agreement shall be valid and enforceable to the fullest extent permittedby law.

 

18.           Waiver. No waiver of any provision hereof shall be effective unless made in writing andsigned by the waiving party.  The failure of either party to require theperformance of any term or obligation of this Agreement, or the waiver byeither party of any breach of this Agreement, shall not prevent any subsequentenforcement of such term or obligation or be deemed a waiver of any subsequentbreach.

 

19.           Notices. Any and all notices, requests, demands and other communications provided for bythis Agreement shall be in writing and shall be effective when delivered inperson, consigned to a reputable national courier service or deposited in theUnited States mail, postage prepaid, registered or certified, and addressed tothe Executive at his last known address on the books of the Company or, in thecase of the Company, at its principal place of business, attention of the Chairof the Board, or to such other address as either party may specify by notice tothe other actually received.

 

20.           EntireAgreement.  This Agreement constitutes the entire agreement betweenthe parties and supersedes all prior communications, agreements andunderstandings, written or oral, with respect to the terms and conditions ofthe Executive’s employment.

 

21.           Amendment. This Agreement may be amended or modified only by a written instrument signedby the Executive and by a expressly authorized representative of the Board.

 

22.           Headings. The headings and captions in this Agreement are for convenience only and in noway define or describe the scope or content of any provision of this Agreement.

 

23.           Counterparts.  ThisAgreement may be executed in two or more counterparts, each of which shall bean original and all of which together shall constitute one and the sameinstrument.

 

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24.           Governing Law. This is a Texas contract and shall be construed and enforced under and be governedin all respects by the laws of the State of Texas, without regard to theconflict of laws principles thereof.

 

[Signature page follows immediately.]

 

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IN WITNESS WHEREOF, this Agreement has been executed as a sealedinstrument by the Company, by its duly authorized representative, and by theExecutive, as of the date first above written.

 
| THE EXECUTIVE:       |   | THE COMPANY:          |
|----------------------|--------|-----------------------|
|                 |   |                  |
|                 |   |                  |
|                 |   | MICHAELS STORES, INC. |
|                 |   |                  |
|                 |   |                  |
| /s/ John B. Menzer   |   | By:                   | /s/ Matthew S. Levin |
|  John B. Menzer |   |                  | Matthew S. Levin |
|                 |   |                  |
|                 |   | By:                   | /s/ Michael S. Chae |
|                 |   |                  | Michael S. Chae |

 

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