Document:

exv10w2

 

Exhibit 10.2

 

D.R. HORTON, INC.,

THE GUARANTORS PARTY HERETO,

and

AMERICAN STOCK TRANSFER & TRUST COMPANY,

as

Trustee

 

THIRD SUPPLEMENTAL INDENTURE

Dated as of June 13, 2006

 

Supplementing the Indenture

Dated as of April 11, 2002

with respect to the

8.5% Senior Notes Due 2012

 

 

 

     THIS THIRD SUPPLEMENTAL INDENTURE, dated as of June 13, 2006, to the Indenture, dated as of
April 11, 2002 (as amended, modified or supplemented from time to time in accordance therewith, the
“Indenture”), by and among D.R. HORTON, INC., a Delaware corporation (the “Company”), the
ADDITIONAL GUARANTORS (as defined herein), the EXISTING GUARANTORS (which includes all entities
listed as an Existing Guarantor on the signature pages hereof) and AMERICAN STOCK TRANSFER & TRUST
COMPANY, as trustee (the “Trustee”).

RECITALS

     WHEREAS, the Company and the Trustee entered into the Indenture to provide for the issuance
from time to time of senior debt securities (the “Securities”) to be issued in one or more series
as the Indenture provides;

     WHEREAS, pursuant to the First Supplemental Indenture, dated as of April 11, 2002, among the
Company, the guarantors party thereto and the Trustee, the Company issued a series of Securities
designated as its 8.5% Senior Notes due 2012 (the “Notes”);

     WHEREAS, pursuant to the Second Supplemental Indenture, dated as of January 23, 2006, among
the Company, the guarantors party thereto and the Trustee, the Company caused certain Restricted
Subsidiaries to guarantee the Notes for all purposes under the Indenture;

     WHEREAS, pursuant to Section 4.05 of the Indenture, any Unrestricted Subsidiary that is
redesignated as a Restricted Subsidiary by the Board of Directors of the Company (which includes an
authorized committee thereof) is required to guarantee the Notes for all purposes under the
Indenture;

     WHEREAS, the Board of Directors of the Company has redesignated certain Unrestricted
Subsidiaries of the Company as Restricted Subsidiaries of the Company;

     WHEREAS, pursuant to Section 4.05 of the Indenture, in order for such former Unrestricted
Subsidiaries to be bound by those terms applicable to a Guarantor under the Indenture, such former
Unrestricted Subsidiaries (the “Additional Guarantors”) must execute and deliver a supplemental
indenture pursuant to which such Additional Guarantors shall unconditionally guarantee all of the
Company’s obligations under the Notes on the terms set forth in the Indenture;

     WHEREAS, the execution of this Third Supplemental Indenture has been duly authorized by the
Boards of Directors or other governing bodies of the Company and the Additional Guarantors and all
things necessary to make this Third Supplemental Indenture a legal, valid, binding and enforceable
obligation of the Company and the Additional Guarantors according to its terms have been done and
performed;

1

 

     NOW THEREFORE, for and in consideration of the premises, the Company, the Existing Guarantors
and the Additional Guarantors covenant and agree with the Trustee for the equal and ratable benefit
of the respective holders of the Notes as follows:

ARTICLE I.

ADDITIONAL GUARANTORS

     1.1. In accordance with Section 4.05 of the Indenture and as provided in ARTICLE NINE of the
Indenture and the form of notation on security relating to Guarantee attached thereto, the
following Additional Guarantors hereby unconditionally guarantee all of the Company’s obligations
under the Notes and the Indenture, as it relates to the Notes, on the terms set forth in the
Indenture, including without limitation, Article Nine thereof:

	 	 	 
	Name	 	Jurisdiction of Organization
	D.R. Horton, Inc. — Los Angeles

	 	Delaware
	DRH Regrem XIII, Inc.

	 	Delaware
	DRH Regrem XIV, Inc.

	 	Delaware
	DRH Regrem XV, Inc.

	 	Delaware
	DRH Regrem XVI, Inc.

	 	Delaware
	DRH Regrem XVII, Inc.

	 	Delaware
	DRH Regrem XVIII, Inc.

	 	Delaware
	DRH Regrem XIX, Inc.

	 	Delaware
	DRH Regrem XX, Inc.

	 	Delaware
	DRH Regrem XXI, Inc.

	 	Delaware
	DRH Regrem XXII, Inc.

	 	Delaware
	DRH Regrem XXIII, Inc.

	 	Delaware
	DRH Regrem XXIV, Inc.

	 	Delaware

     1.2 The Trustee is hereby authorized to add the above-named Additional Guarantors to the list
of Guarantors on the Guarantees affixed to the Notes.

ARTICLE II.

MISCELLANEOUS

     2.1. This Third Supplemental Indenture constitutes a supplement to the Indenture, and the
Indenture and this Third Supplemental Indenture shall be read together and shall have the effect so
far as practicable as though all of the provisions thereof and hereof are contained in one
instrument.

     2.2 The parties may sign any number of copies of this Third Supplemental Indenture. Each
signed copy shall be an original, but all of them together represent the same agreement.

     2.3 In the event that any provision in this Third Supplemental Indenture or the Notes shall be
held to be invalid, illegal or unenforceable, the validity, legality and enforceability of the
remaining provisions shall not in any way be affected or impaired thereby.

2

 

     2.4 The article headings herein are for convenience only and shall not affect the construction
hereof.

     2.5 Any capitalized term used in this Third Supplemental Indenture and not defined herein that
is defined in the Indenture shall have the meaning specified in the Indenture, unless the context
shall otherwise require.

     2.6 All covenants and agreements in this Third Supplemental Indenture by the Company, the
Existing Guarantors and the Additional Guarantors shall bind each of their successors and assigns,
whether so expressed or not. All agreements of the Trustee in this Third Supplemental Indenture
shall bind its successors and assigns.

     2.7 The laws of the State of New York shall govern this Third Supplemental Indenture, the
Notes and the Guarantees.

     2.8 Except as amended by this Third Supplemental Indenture, the terms and provisions of the
Indenture shall remain in full force and effect.

     2.9 This Third Supplemental Indenture may not be used to interpret another indenture, loan or
debt agreement of the Company or a Subsidiary. Any such indenture, loan or debt agreement may not
be used to interpret this Third Supplemental Indenture.

     2.10 All liability described in paragraph 13 of the Notes of any director, officer, employee
or stockholder, as such, of the Company is waived and released.

     2.11 The Trustee accepts the modifications of the trust effected by this Third Supplemental
Indenture, but only upon the terms and conditions set forth in the Indenture. Without limiting the
generality of the foregoing, the Trustee assumes no responsibility for the correctness of the
recitals herein contained which shall be taken as the statements of the Company and the Trustee
shall not be responsible or accountable in any way whatsoever for or with respect to the validity
or execution or sufficiency of this Third Supplemental Indenture and the Trustee makes no
representation with respect thereto.

[SIGNATURES INTENTIONALLY APPEAR ON NEXT PAGE FOLLOWING]

3

 

     IN WITNESS WHEREOF, the parties hereto have caused this Third Supplemental Indenture to be
duly executed, all as of the day and year first above written.

	 	 	 	 	 
	 	D.R. HORTON, INC.

 	 
	 	By:  	  /s/ BILL W. WHEAT
 	 
	 	 	Bill W. Wheat 	 
	 	 	Executive Vice President and

Chief Financial Officer 	 
	 

 

 

 

  EXISTING GUARANTORS:

C. RICHARD DOBSON BUILDERS, INC.

CHI CONSTRUCTION COMPANY

CHTEX OF TEXAS, INC.

CONTINENTAL HOMES, INC.

CONTINENTAL RESIDENTIAL, INC.

D.R. HORTON, INC. — BIRMINGHAM

D.R. HORTON, INC. — CHICAGO

D.R. HORTON, INC. — DENVER

D.R. HORTON, INC. — DIETZ-CRANE

D.R. HORTON, INC. — FRESNO

D.R. HORTON, INC. — GREENSBORO

D.R. HORTON, INC. — GULF COAST

D.R. HORTON, INC. — JACKSONVILLE

D.R. HORTON, INC. — LOUISVILLE

D.R. HORTON, INC. — MINNESOTA

D.R. HORTON, INC. — NEW JERSEY

D.R. HORTON, INC. — PORTLAND

D.R. HORTON, INC. — SACRAMENTO

D.R. HORTON, INC. — TORREY

D.R. HORTON LOS ANGELES HOLDING COMPANY, INC.

D.R. HORTON MATERIALS, INC.

D.R. HORTON ORANGE COUNTY, INC.

D.R. HORTON SAN DIEGO HOLDING COMPANY, INC.

DRH CAMBRIDGE HOMES, INC.

DRH CONSTRUCTION, INC.

DRH ENERGY, INC.

DRH REGREM X, INC.

DRH REGREM XI, INC.

DRH SOUTHWEST CONSTRUCTION, INC.

DRH TUCSON CONSTRUCTION, INC.

DRHI, INC.

KDB HOMES, INC.

MEADOWS I, LTD.

MEADOWS VIII, LTD.

MEADOWS IX, INC.

MEADOWS X, INC.

MELMORT CO.

MELODY HOMES, INC.

SCHULER HOMES OF CALIFORNIA, INC.

SCHULER HOMES OF OREGON, INC.

SCHULER HOMES OF WASHINGTON, INC.

SCHULER MORTGAGE, INC.

SCHULER REALTY HAWAII, INC.

SHLR OF CALIFORNIA, INC.

SHLR OF COLORADO, INC.

SHLR OF NEVADA, INC.

SHLR OF UTAH, INC.

SHLR OF WASHINGTON, INC.

VERTICAL CONSTRUCTION CORPORATION

WESTERN PACIFIC FUNDING, INC.

WESTERN PACIFIC HOUSING, INC.

WESTERN PACIFIC HOUSING MANAGEMENT, INC.

	 	 	 	 	 
	By:

	 	     /s/ BILL W. WHEAT	 	 
	 

	 	 

Bill W. Wheat
	 	 
	 	 	Executive Vice President and
Chief Financial Officer

 

 

	 	 	 	 	 	 	 
	 	 	CH INVESTMENTS OF TEXAS, INC.
	 	 	MEADOWS II, LTD.	 	 
	 	 	THE CLUB AT PRADERA, INC.
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ ROBERT E. COLTIN	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Robert E. Coltin	 	 
	 

	 	 	 	Vice President	 	 

 

 

	 	 	 	 	 	 	 
	 	CONTINENTAL HOMES OF TEXAS, L.P.
	 
	 	 	By: CHTEX of Texas, Inc., its General Partner
	 
	 	 	 	 	 	 
	 

	 	 	 	By:
	 	/s/ BILL W. WHEAT
	 

	 	 	 	 	 	 
	 

	 	 	 	 	 	Bill W. Wheat
	 

	 	 	 	 	 	Executive Vice President and Chief Financial Officer
	 
	 	 	 	 	 	 
	 	D.R. HORTON MANAGEMENT COMPANY, LTD.

D.R. HORTON — EMERALD, LTD.

D.R. HORTON — TEXAS, LTD.

DRH REGREM VII, LP

DRH REGREM XII, LP
	 
	 	 	 	 	 	 
	 	 	By: Meadows I, Ltd., its General Partner
	 
	 	 	 	 	 	 
	 

	 	 	 	By:
	 	/s/ BILL W. WHEAT
	 

	 	 	 	 	 	 
	 

	 	 	 	 	 	Bill W. Wheat
	 

	 	 	 	 	 	Executive Vice President and Chief Financial Officer
	 
	 	 	 	 	 	 
	 	SGS COMMUNITIES AT GRANDE QUAY, LLC
	 
	 	 	 	 	 	 
	 	 	By: Meadows IX, Inc., a Member
	 
	 	 	 	 	 	 
	 

	 	 	 	By:
	 	/s/ BILL W. WHEAT
	 

	 	 	 	 	 	 
	 

	 	 	 	 	 	Bill W. Wheat
	 

	 	 	 	 	 	Executive Vice President and Chief Financial Officer
	 
	 	 	 	 	 	 
	 	 	and
	 
	 	 	 	 	 	 
	 	 	By: Meadows X, Inc., a Member
	 
	 	 	 	 	 	 
	 

	 	 	 	By:
	 	/s/ BILL W. WHEAT
	 

	 	 	 	 	 	 
	 

	 	 	 	 	 	Bill W. Wheat
	 

	 	 	 	 	 	Executive Vice President and Chief Financial Officer
	 
	 	 	 	 	 	 
	 	DRH CAMBRIDGE HOMES, LLC

DRH REGREM VIII, LLC
	 
	 	 	 	 	 	 
	 	 	By: D.R. Horton, Inc. — Chicago, its Member
	 
	 	 	 	 	 	 
	 

	 	 	 	By:
	 	/s/ BILL W. WHEAT
	 

	 	 	 	 	 	 
	 

	 	 	 	 	 	Bill W. Wheat
	 

	 	 	 	 	 	Executive Vice President and Chief Financial Officer

 

 

 

HPH HOMEBUILDERS 2000 L.P.

WESTERN PACIFIC HOUSING CO., A CALIFORNIA LIMITED PARTNERSHIP

WESTERN PACIFIC HOUSING-ANTIGUA, LLC

WESTERN PACIFIC HOUSING-AVIARA, L.P.

WESTERN PACIFIC HOUSING-BOARDWALK, LLC

WESTERN PACIFIC HOUSING-BROADWAY, LLC

WESTERN PACIFIC HOUSING-CANYON PARK, LLC

WESTERN PACIFIC HOUSING-CARMEL, LLC

WESTERN PACIFIC HOUSING-CARRILLO, LLC

WESTERN PACIFIC HOUSING-COMMUNICATIONS HILL, LLC

WESTERN PACIFIC HOUSING-COPPER CANYON, LLC

WESTERN PACIFIC HOUSING-CREEKSIDE, LLC

WESTERN PACIFIC HOUSING-CULVER CITY, L.P.

WESTERN PACIFIC HOUSING-DEL VALLE, LLC

WESTERN PACIFIC HOUSING-LOMAS VERDES, LLC

WESTERN PACIFIC HOUSING-LOST HILLS PARK, LLC

WESTERN PACIFIC HOUSING-MCGONIGLE CANYON, LLC

WESTERN PACIFIC HOUSING-MOUNTAINGATE, L.P.

WESTERN PACIFIC HOUSING-NORCO ESTATES, LLC

WESTERN PACIFIC HOUSING-OSO, L.P.

WESTERN PACIFIC HOUSING-PACIFIC PARK II, LLC

WESTERN PACIFIC HOUSING-PARK AVENUE EAST, LLC

WESTERN PACIFIC HOUSING-PARK AVENUE WEST, LLC

WESTERN PACIFIC HOUSING-PLAYA VISTA, LLC

WESTERN PACIFIC HOUSING-POINSETTIA, L.P.

WESTERN PACIFIC HOUSING-RIVER RIDGE, LLC

WESTERN PACIFIC HOUSING-ROBINHOOD RIDGE, LLC

WESTERN PACIFIC HOUSING-SANTA FE, LLC

WESTERN PACIFIC HOUSING-SCRIPPS, L.P.

WESTERN PACIFIC HOUSING-SCRIPPS II, LLC

WESTERN PACIFIC HOUSING-SEACOVE, L.P.

WESTERN PACIFIC HOUSING-STUDIO 528, LLC

WESTERN PACIFIC HOUSING-TERRA BAY DUETS, LLC

WESTERN PACIFIC HOUSING-TORRANCE, LLC

WESTERN PACIFIC HOUSING-TORREY COMMERCIAL, LLC

WESTERN PACIFIC HOUSING-TORREY MEADOWS, LLC

WESTERN PACIFIC HOUSING-TORREY MULTI-FAMILY, LLC

WESTERN PACIFIC HOUSING-TORREY VILLAGE CENTER, LLC

WESTERN PACIFIC HOUSING-VINEYARD TERRACE, LLC

WESTERN PACIFIC HOUSING-WINDEMERE, LLC

WESTERN PACIFIC HOUSING-WINDFLOWER, L.P.

WPH-CAMINO RUIZ, LLC

	 	 	 	 	 	 	 
	 	 	By:	 	Western Pacific Housing Management, Inc.,
	 	 	 	 	its Manager, Member or General Partner
	 
	 	 	 	 	 	 
	 

	 	 	 	By:
	 	  /s/ BILL W. WHEAT
	 

	 	 	 	 	 	 
	 

	 	 	 	 	 	  Bill W. Wheat
	 

	 	 	 	 	 	  Executive Vice President and Chief Financial Officer

 

 

	 	 	 	 	 	 	 	 	 
	 	SCHULER HOMES OF ARIZONA LLC

SHA CONSTRUCTION LLC
	 
	 	 	 	 	 	 	 	 
	 	 	By:	 	SRHI LLC,

its Member
	 
	 	 	 	 	 	 	 	 
	 	 	 	 	By:	 	SHLR of Nevada, Inc.

its Member
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	By:
	 	/s/ BILL W. WHEAT
	 

	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	Bill W. Wheat
	 

	 	 	 	 	 	 	 	Executive Vice President and Chief Financial
Officer

	 	 	 	 	 	 	 	 	 	 	 
	 	D.R. HORTON-SCHULER HOMES, LLC	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 	 	By:	 	Vertical Construction Corporation, 

its Manager	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	By:
	 	/s/ BILL W. WHEAT	 	 	 	 
	 

	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	Bill W. Wheat	 	 	 	 
	 

	 	 	 	 	 	Executive Vice President and Chief Financial Officer	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 	SRHI LLC	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 	 	By:	 	SHLR of Nevada, Inc.,

its Member
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	By:
	 	/s/ BILL W. WHEAT	 	 	 	 
	 

	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	Bill W. Wheat	 	 	 	 
	 

	 	 	 	 	 	Executive Vice President and Chief Financial Officer	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 	SSHI LLC	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 	 	By:	 	SHLR of Washington, Inc.,

its Member	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	By:
	 	/s/ BILL W. WHEAT	 	 	 	 
	 

	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	Bill W. Wheat	 	 	 	 
	 

	 	 	 	 	 	Executive Vice President and Chief Financial Officer	 	 	 	 

 

 

  ADDITIONAL GUARANTORS:

D.R. HORTON, INC. — LOS ANGELES

DRH REGREM XIII, INC.

DRH REGREM XIV, INC.

DRH REGREM XV, INC.

DRH REGREM XVI, INC.

DRH REGREM XVII, INC.

DRH REGREM XVIII, INC.

DRH REGREM XIX, INC.

DRH REGREM XX, INC.

DRH REGREM XXI, INC.

DRH REGREM XXII, INC.

DRH REGREM XXIII, INC.

DRH REGREM XXIV, INC.

	 	 	 	 	 
	 

	 	By:
	 	   /s/ BILL W. WHEAT
	 

	 	 	 	 
	 

	 	 	 	Bill W. Wheat
	 

	 	 	 	Executive Vice President and Chief Financial Officer

 

 

	 	 	 	 	 	 	 
	 	 	AMERICAN STOCK TRANSFER & TRUST COMPANY,

as Trustee
	 
	 	 	 	 	 	 
	 

	 	By:
	      /s/ HERBERT J. LEMMER	 	 
	 

	 	 	 	 	 	 
	 

	 	Name:
	 	      Herbert J. Lemmer	 	 
	 

	 	Title:
	 	      Vice Presidentexv10w1

 

Exhibit 10.1

Forms of Award Agreements

under the

Michaels Stores, Inc. 2005 Incentive Compensation Plan

Amended April 21, 2006

 

 

Employee Stock Option Agreement: Performance Vested Award

 

 

MICHAELS STORES, INC.

STOCK OPTION AGREEMENT

	 	 	 	 	 	 	 
	 

	 	Participant:
	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	No. of Shares:	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	Option Price:	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	Date of Grant:	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	Expiration Date:	 	 	 	 
	 

	 	 	 	 	 	 

     Under the terms and conditions of the Michaels Stores, Inc. 2005 Incentive Compensation Plan
(the “Plan”), a copy of which is attached hereto and incorporated herein by reference, Michaels
Stores, Inc., a Delaware corporation (the “Company”), grants to the individual whose name is set
forth above (the “Participant”) an option (the “Option”) to purchase the number of shares of the
Company’s Common Stock set forth above at the price per share set forth above (the “Option Price”).
Terms not defined in this Agreement have the meanings set forth in the Plan.

     The Option will be for a term commencing on the Date of Grant set forth above and ending at
5:00 p.m. Dallas, Texas time on the Expiration Date set forth above. During the term of the
Option, the Option will become exercisable in accordance with the immediately following paragraph;
provided, that in no event will the Participant be entitled to acquire a fraction of a share of
Common Stock pursuant to the Option.

     [Insert Management Objectives to be achieved and time period in which Management Objectives
are to be achieved in order for the Option (or a portion of the Option) to become vested.]

     Notwithstanding the vesting provisions and Expiration Date set forth above, [(a) ]in the event
the Participant’s employment with the Company or any Subsidiary is terminated by long-term
disability (as determined by the Committee in good faith) or death, the portion of the Option which
is unexpired at the time of such termination of employment will automatically become 100% vested
and exercisable and will expire at 5:00 p.m. Dallas, Texas time (i) one day prior to the fifth
anniversary of such long-term disability or (ii) one day prior to the third anniversary of the
Participant’s death[; and (b) subject to the noncompetition provisions set forth below, in the
event of the Participant’s Retirement (as hereinafter defined), [insert effect of Retirement]. For
purposes of this Agreement, the term “Retirement” means the Participant’s termination of employment
with the Company or any Subsidiary at a time when both (A) the Participant has attained at least
age 55 and (B) the sum of the Participant’s full years of employment with the Company and its
Subsidiaries and the Participant’s age in whole years equals 65 or more].

     In the event the Participant’s employment with the Company or any Subsidiary is terminated for
any reason other than [Retirement or ]such long-term disability or death, no further vesting of the
Option will occur after the date of such termination and the Option will expire at 5:00 p.m.
Dallas, Texas time on the 30th calendar day after such termination.

     Notwithstanding any other provision herein, this Option shall become 100% vested and fully
exercisable immediately prior to a Change in Control.

     Payment of the Option Price of any shares purchased under the Option will be made pursuant to
any of the provisions of, and in accordance with, Section 6(c) of the Plan (or any successor
provision).

     The Option may not be sold, pledged, assigned or transferred in any manner other than by will
or the laws of descent and distribution, pursuant to a qualified domestic relations order or, with
the consent of the Committee, by gifts to family members of the Participant, including to trusts in
which family

 

 

members of the Participant own more than 50% of the beneficial interests, to foundations in
which family members of the Participant or the Participant control the management of assets, to
other entities in which more than 50% of the voting interests are owned by family members of the
Participant or the Participant and to charitable organizations described in Section 170(c) of the
Code.

     [The Participant acknowledges that he or she is employed by the Company or a Subsidiary in a
capacity that will necessarily allow the Participant access to confidential information regarding
the business of the Company and its Subsidiaries. The Participant understands that if he or she
becomes engaged in the business of a competitor of the Company or any of its Subsidiaries, it will
be inevitable that the Participant will use or disclose such confidential information to or for the
benefit of such competitor. Therefore, the Participant agrees that for a period of two years
following the date of the Participant’s Retirement, the Participant will not directly or indirectly
participate, in any capacity, in the ownership, management, operation or control of, or have any
financial interest in, any business which is in competition with any business conducted by the
Company or any Subsidiary in the United States or Canada. In the event that the Participant
violates any of the noncompetition provisions set forth above, (i) the Participant will promptly
notify the Senior Vice President – Human Resources of the Company of such violation; (ii) the
unexpired portion of the Option will expire immediately upon the occurrence of such violation; and
(iii) in the event that the Participant has exercised or purported to exercise all or any part of
the Option on or following the first date of such violation, the Participant will pay to the
Company, immediately upon demand, an amount equal to the before-tax gain realized by the
Participant upon such exercise(s) or purported exercise(s).]

     The Participant hereby accepts and agrees to be bound by all the terms and conditions of the
Plan and this Agreement. Any amendment to the Plan will be deemed to be an amendment to this
Agreement to the extent that the Plan amendment is applicable hereto; provided, however, that no
amendment will adversely affect the rights of the Participant under this Agreement without the
Participant’s consent. This Agreement may be executed simultaneously in multiple counterparts,
each of which will be deemed an original, but all of which together constitute one and the same
instrument.

	 	 	 	 	 	 	 
	ACCEPTED:	 	MICHAELS STORES, INC.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	 	 	 
	 

	 	 	 	 	 	 
	Signature of Participant

	 	Title:
	 	Vice President – Treasurer and Investor
Relations	 	 

2

 

Employee Stock Option Agreement: Time Vested Award

 

 

MICHAELS STORES, INC.

STOCK OPTION AGREEMENT

	 	 	 	 	 	 	 
	 

	 	Participant:
	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	No. of Shares:	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	Option Price:	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	Date of Grant:	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	Expiration Date:	 	 	 	 
	 

	 	 	 	 	 	 

     Under the terms and conditions of the Michaels Stores, Inc. 2005 Incentive Compensation Plan
(the “Plan”), a copy of which is attached hereto and incorporated herein by reference, Michaels
Stores, Inc., a Delaware corporation (the “Company”), grants to the individual whose name is set
forth above (the “Participant”) an option (the “Option”) to purchase the number of shares of the
Company’s Common Stock set forth above at the price per share set forth above (the “Option Price”).
Terms not defined in this Agreement have the meanings set forth in the Plan.

     The Option will be for a term commencing on the Date of Grant set forth above and ending at
5:00 p.m. Dallas, Texas time on the Expiration Date set forth above. During the term of the
Option, the Option will become exercisable in accordance with the following schedule (the “Vesting
Schedule”):

	 	 	 
	Portion of Option Exercisable	 	On and After
	33 1/3%

	 	First Anniversary of Date of Grant
	66 2/3%

	 	Second Anniversary of Date of Grant
	100%

	 	Third Anniversary of Date of Grant

     In no event, however, will the Participant be entitled to acquire a fraction of a share of Common
Stock pursuant to the Option.

     Notwithstanding the Vesting Schedule and Expiration Date set forth above, (a) in the event the
Participant’s employment with the Company or any Subsidiary is terminated by long-term disability
(as determined by the Committee in good faith) or death, the portion of the Option which is
unexpired at the time of such termination of employment will automatically become 100% vested and
exercisable and will expire at 5:00 p.m. Dallas, Texas time (i) one day prior to the fifth
anniversary of such long-term disability or (ii) one day prior to the third anniversary of the
Participant’s death; and (b) subject to the noncompetition provisions set forth below, in the event
of the Participant’s Retirement (as hereinafter defined), the portion of the Option which is
unexpired at the time of Retirement will continue to vest and become exercisable following
Retirement in accordance with the Vesting Schedule and will expire at 5:00 p.m. Dallas, Texas time
on the Expiration Date set forth above. For purposes of this Agreement, the term “Retirement”
means the Participant’s termination of employment with the Company or any Subsidiary at a time when
both (A) the Participant has attained at least age 55 and (B) the sum of the Participant’s full
years of employment with the Company and its Subsidiaries and the Participant’s age in whole years
equals 65 or more.

     In the event the Participant’s employment with the Company or any Subsidiary is terminated for
any reason other than Retirement or such long-term disability or death, no further vesting of the
Option will occur after the date of such termination and the Option will expire at 5:00 p.m.
Dallas, Texas time on the 30th calendar day after such termination.

     Notwithstanding any other provision herein, this Option shall become 100% vested and fully
exercisable immediately prior to a Change in Control.

 

 

     Payment of the Option Price of any shares purchased under the Option will be made
pursuant to any of the provisions of, and in accordance with, Section 6(c) of the Plan (or any
successor provision).

     The Option may not be sold, pledged, assigned or transferred in any manner other than by will
or the laws of descent and distribution, pursuant to a qualified domestic relations order or, with
the consent of the Committee, by gifts to family members of the Participant, including to trusts in
which family members of the Participant own more than 50% of the beneficial interests, to
foundations in which family members of the Participant or the Participant control the management of
assets, to other entities in which more than 50% of the voting interests are owned by family
members of the Participant or the Participant and to charitable organizations described in Section
170(c) of the Code.

     The Participant acknowledges that he or she is employed by the Company or a Subsidiary in a
capacity that will necessarily allow the Participant access to confidential information regarding
the business of the Company and its Subsidiaries. The Participant understands that if he or she
becomes engaged in the business of a competitor of the Company or any of its Subsidiaries, it will
be inevitable that the Participant will use or disclose such confidential information to or for the
benefit of such competitor. Therefore, the Participant agrees that for a period of two years
following the date of the Participant’s Retirement, the Participant will not directly or indirectly
participate, in any capacity, in the ownership, management, operation or control of, or have any
financial interest in, any business which is in competition with any business conducted by the
Company or any Subsidiary in the United States or Canada. In the event that the Participant
violates any of the noncompetition provisions set forth above, (i) the Participant will promptly
notify the Senior Vice President – Human Resources of the Company of such violation; (ii) the
unexpired portion of the Option will expire immediately upon the occurrence of such violation; and
(iii) in the event that the Participant has exercised or purported to exercise all or any part of
the Option on or following the first date of such violation, the Participant will pay to the
Company, immediately upon demand, an amount equal to the before-tax gain realized by the
Participant upon such exercise(s) or purported exercise(s).

     The Participant hereby accepts and agrees to be bound by all the terms and conditions of the
Plan and this Agreement. Any amendment to the Plan will be deemed to be an amendment to this
Agreement to the extent that the Plan amendment is applicable hereto; provided, however, that no
amendment will adversely affect the rights of the Participant under this Agreement without the
Participant’s consent. This Agreement may be executed simultaneously in multiple counterparts,
each of which will be deemed an original, but all of which together constitute one and the same
instrument.

	 	 	 	 	 	 	 
	ACCEPTED:	 	MICHAELS STORES, INC.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 	 	 
	Signature of Participant

	 	Title:
	 	Vice President – Treasurer and Investor
Relations	 	 

2

 

Director Stock Option Agreement

 

 

MICHAELS STORES, INC.

STOCK OPTION AGREEMENT

	 	 	 	 	 	 	 
	 

	 	Participant:
	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	No. of Shares:	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	Option Price:	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	Date of Grant:	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	Expiration Date:	 	 	 	 
	 

	 	 	 	 	 	 

     Under the terms and conditions of the Michaels Stores, Inc. 2005 Incentive Compensation Plan
(the “Plan”), a copy of which is attached hereto and incorporated herein by reference, Michaels
Stores, Inc., a Delaware corporation (the “Company”), grants to the individual whose name is set
forth above (the “Participant”) an option (the “Option”) to purchase the number of shares of the
Company’s Common Stock set forth above at the price per share set forth above (the “Option Price”).
Terms not defined in this Agreement have the meanings set forth in the Plan.

     The Option will be for a term commencing on the Date of Grant set forth above and ending at
5:00 p.m. Dallas, Texas time on the Expiration Date set forth above. The Option is fully
exercisable on and after the Date of Grant.

     Notwithstanding the Expiration Date set forth above, in the event of the Participant’s death,
the Option shall automatically expire at 5:00 p.m. Dallas, Texas time one day prior to the third
anniversary of the Participant’s death.

     Payment of the Option Price of any shares purchased under the Option will be made pursuant to
any of the provisions of, and in accordance with, Paragraph 6(c) of the Plan (or any successor
provision).

     The Option may not be sold, pledged, assigned or transferred in any manner other than by will
or the laws of descent and distribution, pursuant to a qualified domestic relations order or, with
the consent of the Committee, by gifts to family members of the Participant, including to trusts in
which family members of the Participant own more than 50% of the beneficial interests, to
foundations in which family members of the Participant or the Participant control the management of
assets, to other entities in which more than 50% of the voting interests are owned by family
members of the Participant or the Participant and to charitable organizations described in Section
170(c) of the Code.

     The Participant hereby accepts and agrees to be bound by all the terms and conditions of the
Plan and this Agreement. Any amendment to the Plan will be deemed to be an amendment to this
Agreement to the extent that the Plan amendment is applicable hereto; provided, however, that no
amendment will adversely affect the rights of the Participant under this Agreement without the
Participant’s consent. This Agreement may be executed simultaneously in multiple counterparts,
each of which will be deemed an original, but all of which together constitute one and the same
instrument.

	 	 	 	 	 	 	 
	ACCEPTED:	 	MICHAELS STORES, INC.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 	 	 
	Signature of Participant

	 	 	 	Title:	 	 

 

 

Restricted Stock Award Agreement: Performance Vested Award

 

 

MICHAELS STORES, INC.

RESTRICTED STOCK AWARD AGREEMENT

	 	 	 	 	 	 	 	 	 
	 

	 	Participant:
	 	 	 	 	 	 
	 	 	 	 	 	 	 
	 	 	No. of Restricted Shares:	 	 	 	 
	 

	 	 	 	 	 	 	 	 
	 

	 	Date of Grant:	 	 	 	 	 	 
	 	 	 	 	 	 	 

     Under the terms and conditions of the Michaels Stores, Inc. 2005 Incentive Compensation Plan
(the “Plan”), a copy of which is attached hereto and incorporated herein by reference, Michaels
Stores, Inc., a Delaware corporation (the “Company”), grants to the individual whose name is set
forth above (the “Participant”) the number of restricted shares of the Company’s Common Stock set
forth above (the “Restricted Shares”). Terms not defined in this Agreement have the meanings set
forth in the Plan.

     The Restricted Shares may not be transferred, sold, pledged, exchanged, assigned or otherwise
encumbered or disposed of by the Participant, except to the Company, until they become vested in
accordance with the immediately following paragraph. Except as hereinafter provided, any purported
transfer, encumbrance or other disposition of the Restricted Shares before they become vested will
be null and void, and the other party to any such purported transaction will not obtain any rights
to or interest in the Restricted Shares. Notwithstanding the foregoing, the Participant may
transfer the Restricted Shares, prior to the time they become vested, pursuant to a qualified
domestic relations order or, with the consent of the Committee, by gifts to family members of the
Participant, including to trusts in which family members of the Participant own more than 50% of
the beneficial interests, to foundations in which family members of the Participant or the
Participant control the management of assets, to other entities in which more than 50% of the
voting interests are owned by family members of the Participant or the Participant and to
charitable organizations described in Section 170(c) of the Code; provided, however, that the
Restricted Shares will remain unvested and subject to forfeiture in the hands of any transferee
until they vest pursuant to the terms of this Agreement in the same manner as if the Restricted
Shares continued to be held by the Participant.

     [Insert Management Objectives to be achieved and time period in which Management Objectives
are to be achieved in order for the Restricted Shares (or a portion of the Restricted Shares) to
become vested.]

     Notwithstanding the vesting provisions set forth above, [(a) ]in the event the Participant’s
employment with the Company or any Subsidiary is terminated by long-term disability (as determined
by the Committee in good faith) or death, the unvested Restricted Shares at the time of such
termination of employment will automatically become 100% vested[, and (b) subject to the
noncompetition provisions set forth below, in the event of the Participant’s Retirement (as
hereinafter defined), [insert effect of Retirement]. For purposes of this Agreement, the term
“Retirement” means the Participant’s termination of employment with the Company or any Subsidiary
at a time when both (A) the Participant has attained at least age 55 and (B) the sum of the
Participant’s full years of employment with the Company and its Subsidiaries and the Participant’s
age in whole years equals 65 or more].

     In the event the Participant’s employment with the Company or any Subsidiary is terminated for
any reason other than [Retirement or ]such long-term disability or death, the unvested Restricted
Shares will be forfeited immediately upon such termination, and the certificates (if any)
representing the unvested Restricted Shares will be canceled.

     Notwithstanding any other provision herein, immediately prior to a Change in Control the
unvested Restricted Shares will become 100% vested and the risk of forfeiture will terminate.

     Except as otherwise provided herein, the Participant will have all of the rights of a
stockholder with respect to the Restricted Shares, including the right to vote such shares and
receive any dividends

 

 

that may be paid thereon; provided, however, that any additional shares of
Common Stock or other securities that the Participant may become entitled to receive pursuant to a
stock dividend, stock split, combination of shares, recapitalization, merger, consolidation,
separation or reorganization or any other change in the capital structure of the Company will be
subject to the same restrictions as the Restricted Shares.

     On the date any Restricted Shares vest, the Company will automatically withhold a number of
vested Restricted Shares sufficient to satisfy the Participant’s tax obligations with respect to
such vested Restricted Shares, unless the Participant notifies the Company that he or she will use
other arrangements to satisfy such tax obligations, which must be satisfactory to the Company.

     Any certificates representing the Restricted Shares will be held in custody by the Company,
together with a stock power endorsed in blank by the Participant with respect thereto, until the
Restricted Shares vest in accordance with this Agreement. In order for this Agreement to be
effective, the Participant must sign and return such stock power as directed by the Company.

     [The Participant acknowledges that he or she is employed by the Company or a Subsidiary in a
capacity that will necessarily allow the Participant access to confidential information regarding
the business of the Company and its Subsidiaries. The Participant understands that if he or she
becomes engaged in the business of a competitor of the Company or any of its Subsidiaries, it will
be inevitable that the Participant will use or disclose such confidential information to or for the
benefit of such competitor. Therefore, the Participant agrees that for a period of two years
following the date of the Participant’s Retirement, the Participant will not directly or indirectly
participate, in any capacity, in the ownership, management, operation or control of, or have any
financial interest in, any business which is in competition with any business conducted by the
Company or any Subsidiary in the United States or Canada. In the event that the Participant
violates any of the noncompetition provisions set forth above, (i) the Participant will promptly
notify the Senior Vice President – Human Resources of the Company of such violation; (ii) the
unvested Restricted Shares will be forfeited immediately upon the occurrence of such violation, and
the certificates (if any) representing the unvested Restricted Shares will be canceled; and (iii)
if any of the Restricted Shares that were unvested on the first date of such violation were
delivered to the Participant or were otherwise treated as vested after such date, the Participant
will pay to the Company, immediately upon demand, an amount equal to the aggregate Market Value per
Share of the Restricted Shares that were so delivered or otherwise treated as vested, such
aggregate Market Value per Share to be determined as of the first date of such violation.]

     If any provision hereof is held to be illegal, invalid or unenforceable under present or
future laws, such provision shall be fully severable and the remaining provisions hereof shall
remain in full force in effect and shall not be affected by such illegal, invalid or unenforceable
provision.

     The Participant hereby accepts and agrees to be bound by all the terms and conditions of the
Plan and this Agreement. Any amendment to the Plan will be deemed to be an amendment to this
Agreement to the extent that the Plan amendment is applicable hereto; provided, however, that no
amendment will adversely affect the rights of the Participant under this Agreement without the
Participant’s consent. This Agreement may be executed simultaneously in multiple counterparts,
each of which will be deemed an original, but all of which together constitute one and the same
instrument.

	 	 	 	 	 
	ACCEPTED:	 	MICHAELS STORES, INC.
	 
	 	 	 	 
	 

	 	By:	 	 
	 

	 	 	 	 
	[Name of Participant]

	 	 	 	Name:
	 

	 	 	 	Title:

	 	 	 	 	 
	Date:

	 	 	 	 
	 

	 	 	 	 

2

 

STOCK POWER

     FOR VALUE received, the undersigned does hereby sell, assign and transfer unto Michaels
Stores, Inc. (the “Company”) that number of shares of the Company’s common stock awarded to the
undersigned pursuant to the Restricted Stock Award Agreement with a Grant Date of                                         
(the “Agreement”) that is the subject of forfeiture under the terms of the Michaels Stores, Inc.
2005 Incentive Compensation Plan (the “Plan”) or that is transferred to the Company in satisfaction
of the tax obligations of the undersigned as provided in the Plan and the Agreement, and the
undersigned does hereby irrevocably constitute and appoint the Secretary or Treasurer of the
Company to transfer said stock on the books of the Company, with full power of substitution in the
premises.

	 	 	 	 	 	 	 
	Date:

	 	 	 	 	 	 
	 

	 	 
	 	 	 	 
	 

	 	 	 	[Name of Participant]	 	 

3

 

Restricted Stock Award Agreement: Time Vested Award

 

 

MICHAELS STORES, INC.

RESTRICTED STOCK AWARD AGREEMENT

	 	 	 	 	 	 	 	 	 
	 

	 	Participant:
	 	 	 	 	 	 
	 	 	 	 	 	 	 
	 	 	No. of Restricted Shares:	 	 	 	 
	 

	 	 	 	 	 	 	 	 
	 

	 	Date of Grant:	 	 	 	 	 	 
	 	 	 	 	 	 	 

     Under the terms and conditions of the Michaels Stores, Inc. 2005 Incentive Compensation Plan
(the “Plan”), a copy of which is attached hereto and incorporated herein by reference, Michaels
Stores, Inc., a Delaware corporation (the “Company”), grants to the individual whose name is set
forth above (the “Participant”) the number of restricted shares of the Company’s Common Stock set
forth above (the “Restricted Shares”). Terms not defined in this Agreement have the meanings set
forth in the Plan.

     The Restricted Shares may not be transferred, sold, pledged, exchanged, assigned or otherwise
encumbered or disposed of by the Participant, except to the Company, until they become vested in
accordance with the schedule set forth below (the “Vesting Schedule”). Except as hereinafter
provided, any purported transfer, encumbrance or other disposition of the Restricted Shares before
they become vested will be null and void, and the other party to any such purported transaction
will not obtain any rights to or interest in the Restricted Shares. Notwithstanding the foregoing,
the Participant may transfer the Restricted Shares, prior to the time they become vested, pursuant
to a qualified domestic relations order or, with the consent of the Committee, by gifts to family
members of the Participant, including to trusts in which family members of the Participant own more
than 50% of the beneficial interests, to foundations in which family members of the Participant or
the Participant control the management of assets, to other entities in which more than 50% of the
voting interests are owned by family members of the Participant or the Participant and to
charitable organizations described in Section 170(c) of the Code; provided, however, that the
Restricted Shares will remain unvested and subject to forfeiture in the hands of any transferee
until they vest pursuant to the terms of this Agreement in the same manner as if the Restricted
Shares continued to be held by the Participant.

	 	 	 
	No. of Vested Shares	 	On and After
	(1/3)

	 	First Anniversary of Date of Grant
	(1/3)

	 	Second Anniversary of Date of Grant
	(1/3)

	 	Third Anniversary of Date of Grant

     Notwithstanding the Vesting Schedule set forth above, (a) in the event the Participant’s
employment with the Company or any Subsidiary is terminated by long-term disability (as determined
by the Committee in good faith) or death, the unvested Restricted Shares at the time of such
termination of employment will automatically become 100% vested, and (b) subject to the
noncompetition provisions set forth below, in the event of the Participant’s Retirement (as
hereinafter defined), the unvested Restricted Shares at the time of Retirement will continue to
vest following Retirement in accordance with the Vesting Schedule. For purposes of this Agreement,
the term “Retirement” means the Participant’s termination of employment with the Company or any
Subsidiary at a time when both (A) the Participant has attained at least age 55 and (B) the sum of
the Participant’s full years of employment with the Company and its Subsidiaries and the
Participant’s age in whole years equals 65 or more.

     In the event the Participant’s employment with the Company or any Subsidiary is terminated for
any reason other than Retirement or such long-term disability or death, the unvested Restricted
Shares will be forfeited immediately upon such termination, and the certificates (if any)
representing the unvested Restricted Shares will be canceled.

 

 

     Notwithstanding any other provision herein, immediately prior to a Change in Control the
unvested Restricted Shares will become 100% vested and the risk of forfeiture will terminate.

     Except as otherwise provided herein, the Participant will have all of the rights of a
stockholder with respect to the Restricted Shares, including the right to vote such shares and
receive any dividends that may be paid thereon; provided, however, that any additional shares of
Common Stock or other securities that the Participant may become entitled to receive pursuant to a
stock dividend, stock split, combination of shares, recapitalization, merger, consolidation,
separation or reorganization or any other change in the capital structure of the Company will be
subject to the same restrictions as the Restricted Shares.

     On the date any Restricted Shares vest, the Company will automatically withhold a number of
vested Restricted Shares sufficient to satisfy the Participant’s tax obligations with respect to
such vested Restricted Shares, unless the Participant notifies the Company that he or she will use
other arrangements to satisfy such tax obligations, which must be satisfactory to the Company.

     Any certificates representing the Restricted Shares will be held in custody by the Company,
together with a stock power endorsed in blank by the Participant with respect thereto, until the
Restricted Shares vest in accordance with this Agreement. In order for this Agreement to be
effective, the Participant must sign and return such stock power as directed by the Company.

     The Participant acknowledges that he or she is employed by the Company or a Subsidiary in a
capacity that will necessarily allow the Participant access to confidential information regarding
the business of the Company and its Subsidiaries. The Participant understands that if he or she
becomes engaged in the business of a competitor of the Company or any of its Subsidiaries, it will
be inevitable that the Participant will use or disclose such confidential information to or for the
benefit of such competitor. Therefore, the Participant agrees that for a period of two years
following the date of the Participant’s Retirement, the Participant will not directly or indirectly
participate, in any capacity, in the ownership, management, operation or control of, or have any
financial interest in, any business which is in competition with any business conducted by the
Company or any Subsidiary in the United States or Canada. In the event that the Participant
violates any of the noncompetition provisions set forth above, (i) the Participant will promptly
notify the Senior Vice President – Human Resources of the Company of such violation; (ii) the
unvested Restricted Shares will be forfeited immediately upon the occurrence of such violation, and
the certificates (if any) representing the unvested Restricted Shares will be canceled; and (iii)
if any of the Restricted Shares that were unvested on the first date of such violation were
delivered to the Participant or were otherwise treated as vested after such date, the
Participant will pay to the Company, immediately upon demand, an amount equal to the aggregate
Market Value per Share of the Restricted Shares that were so delivered or otherwise treated as
vested, such aggregate Market Value per Share to be determined as of the first date of such
violation.

     If any provision hereof is held to be illegal, invalid or unenforceable under present or
future laws, such provision shall be fully severable and the remaining provisions hereof shall
remain in full force in effect and shall not be affected by such illegal, invalid or unenforceable
provision.

     The Participant hereby accepts and agrees to be bound by all the terms and conditions of the
Plan and this Agreement. Any amendment to the Plan will be deemed to be an amendment to this
Agreement to the extent that the Plan amendment is applicable hereto; provided, however, that no
amendment will adversely affect the rights of the Participant under this Agreement without the
Participant’s consent. This Agreement may be executed simultaneously in multiple counterparts,
each of which will be deemed an original, but all of which together constitute one and the same
instrument.

2

 

	 	 	 	 	 	 	 	 	 
	ACCEPTED:	 	 	 	MICHAELS STORES, INC.	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	By:	 	 	 	 
	 	 	 	 	 	 	 
	[Name of Participant]	 	 	 	Name:	 	 
	 

	 	 	 	 	 	Title:	 	 
	Date:
	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	 

3

 

STOCK POWER

     FOR VALUE received, the undersigned does hereby sell, assign and transfer unto Michaels
Stores, Inc. (the “Company”) that number of shares of the Company’s common stock awarded to the
undersigned pursuant to the Restricted Stock Award Agreement with a Grant Date of ___
(the “Agreement”) that is the subject of forfeiture under the terms of the Michaels Stores, Inc.
2005 Incentive Compensation Plan (the “Plan”) or that is transferred to the Company in satisfaction
of the tax obligations of the undersigned as provided in the Plan and the Agreement, and the
undersigned does hereby irrevocably constitute and appoint the Secretary or Treasurer of the
Company to transfer said stock on the books of the Company, with full power of substitution in the
premises.

	 	 	 	 	 	 	 
	Date:
	 	 	 	 	 	 
	 

	 	 
	 	 	 	 
	 

	 	 	 	[Name of Participant]
	 	 

4

 

Appreciation Rights Agreement: Performance Vested Award

 

 

MICHAELS STORES, INC.

APPRECIATION RIGHTS AGREEMENT

	 	 	 	 	 	 	 
	 

	 	Participant:
	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	No. of Shares:	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	Grant Price:	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	Date of Grant:	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	Expiration Date:	 	 	 	 
	 

	 	 	 	 	 	 

     Under the terms and conditions of the Michaels Stores, Inc. 2005 Incentive Compensation Plan
(the “Plan”), a copy of which is attached hereto and incorporated herein by reference, Michaels
Stores, Inc., a Delaware corporation (the “Company”), grants to the individual whose name is set
forth above (the “Participant”) appreciation rights (the “Appreciation Rights”) with respect to the
number of shares of the Company’s Common Stock set forth above. The Appreciation Rights are
freestanding Appreciation Rights and are not granted in tandem with Stock Options. Terms not
defined in this Agreement have the meanings set forth in the Plan.

     The number of shares of Common Stock to be issued to the Participant on the exercise of the
Appreciation Rights will be the number of shares of Common Stock having an aggregate Market Value
per Share on the date of exercise equal to ___% of the aggregate Spread of the Appreciation Rights
that are exercised, rounded down to the nearest whole share[, provided, however, that the maximum
Spread per share of Common Stock may not exceed $___]. No Appreciation Rights may be exercised
except at a time when the Spread is positive.

     The term of the Appreciation Rights will commence upon the Date of Grant and, unless earlier
terminated in accordance with the provisions below, will expire at 5:00 p.m. Dallas, Texas time on
the Expiration Date set forth above. During the term of the Appreciation Rights, the Appreciation
Rights will become vested and may be exercised in accordance with the immediately following
paragraph.

     [Insert Management Objectives to be achieved and time period in which Management Objectives
are to be achieved in order for the Appreciation Rights (or a portion of the Appreciation Rights)
to become vested.]

     Notwithstanding the vesting provisions and Expiration Date set forth above, [(a) ]in the event
the Participant’s employment with the Company or any Subsidiary is terminated by long-term
disability (as determined by the Committee in good faith) or death, the portion of the Appreciation
Rights which is unexpired at the time of such termination of employment will automatically become
100% vested and exercisable and will expire at 5:00 p.m. Dallas, Texas time (i) one day prior to
the fifth anniversary of such long-term disability or (ii) one day prior to the third anniversary
of death[; and (b) subject to the noncompetition provisions set forth below, in the event of the
Participant’s Retirement (as hereinafter defined), [insert effect of Retirement]. For purposes of
this Agreement, the term “Retirement” means the Participant’s termination of employment with the
Company or any Subsidiary at a time when both (A) the Participant has attained at least age 55 and
(B) the sum of the Participant’s full years of employment with the Company and its Subsidiaries and
the Participant’s age in whole years equals 65 or more].

     In the event the Participant’s employment with the Company or any Subsidiary is terminated for
any reason other than [Retirement or ]such long-term disability or death, no further vesting of the
Appreciation Rights will occur after the date of such termination and the Appreciation Rights will
expire at 5:00 p.m. Dallas, Texas time on the 30th calendar day after such termination.

 

 

     Notwithstanding any other provision herein, the Appreciation Rights shall become 100% vested
and fully exercisable immediately prior to a Change in Control.

     The Appreciation Rights granted hereby may not be sold, pledged, assigned or transferred in
any manner other than by will or the laws of descent and distribution, pursuant to a qualified
domestic relations order or, with the consent of the Committee, by gifts to family members of the
Participant, including to trusts in which family members of the Participant own more than 50% of
the beneficial interests, to foundations in which family members of the Participant or the
Participant control the management of assets, to other entities in which more than 50% of the
voting interests are owned by family members of the Participant or the Participant and to
charitable organizations described in Section 170(c) of the Code.

     [The Participant acknowledges that he or she is employed by the Company or a Subsidiary in a
capacity that will necessarily allow the Participant access to confidential information regarding
the business of the Company and its Subsidiaries. The Participant understands that if he or she
becomes engaged in the business of a competitor of the Company or any of its Subsidiaries, it will
be inevitable that the Participant will use or disclose such confidential information to or for the
benefit of such competitor. Therefore, the Participant agrees that for a period of two years
following the date of the Participant’s Retirement, the Participant will not directly or indirectly
participate, in any capacity, in the ownership, management, operation or control of, or have any
financial interest in, any business which is in competition with any business conducted by the
Company or any Subsidiary in the United States or Canada. In the event that the Participant
violates any of the noncompetition provisions set forth above, (i) the Participant will promptly
notify the Senior Vice President – Human Resources of the Company of such violation; (ii) the
unexpired portion of the Appreciation Rights will expire immediately upon the occurrence of such
violation; and (iii) in the event that the Participant has exercised or purported to exercise all
or any part of the Appreciation Rights on or following the first date of such violation, the
Participant will pay to the Company, immediately upon demand, an amount equal to the before-tax
gain realized by the Participant upon such exercise(s) or purported exercise(s).]

     The Participant hereby accepts and agrees to be bound by all the terms and conditions of the
Plan and this Agreement. Any amendment to the Plan will be deemed to be an amendment to this
Agreement to the extent that the Plan amendment is applicable hereto; provided, however, that no
amendment will adversely affect the rights of the Participant under this Agreement without the
Participant’s consent. This Agreement may be executed simultaneously in multiple counterparts,
each of which will be deemed an original, but all of which together constitute one and the same
instrument.

	 	 	 	 	 	 	 
	ACCEPTED:	 	MICHAELS STORES, INC.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 	 	 
	Signature of Participant

	 	Title:
	 	Vice President – Treasurer and Investor
Relations	 	 

2

 

Appreciation Rights Agreement: Time Vested Award

 

 

MICHAELS STORES, INC.

APPRECIATION RIGHTS AGREEMENT

	 	 	 	 	 	 	 
	 

	 	Participant:
	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	No. of Shares:	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	Grant Price:	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	Date of Grant:	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	Expiration Date:	 	 	 	 
	 

	 	 	 	 	 	 

     Under the terms and conditions of the Michaels Stores, Inc. 2005 Incentive Compensation Plan
(the “Plan”), a copy of which is attached hereto and incorporated herein by reference, Michaels
Stores, Inc., a Delaware corporation (the “Company”), grants to the individual whose name is set
forth above (the “Participant”) appreciation rights (the “Appreciation Rights”) with respect to the
number of shares of the Company’s Common Stock set forth above. The Appreciation Rights are
freestanding Appreciation Rights and are not granted in tandem with Stock Options. Terms not
defined in this Agreement have the meanings set forth in the Plan.

     The number of shares of Common Stock to be issued to the Participant on the exercise of the
Appreciation Rights will be the number of shares of Common Stock having an aggregate Market Value
per Share on the date of exercise equal to ___% of the aggregate Spread of the Appreciation Rights
that are exercised, rounded down to the nearest whole share[, provided, however, that the maximum
Spread per share of Common Stock may not exceed $___]. No Appreciation Rights may be exercised
except at a time when the Spread is positive.

     The term of the Appreciation Rights will commence upon the Date of Grant and, unless earlier
terminated in accordance with the provisions below, will expire at 5:00 p.m. Dallas, Texas time on
the Expiration Date set forth above. During the term of the Appreciation Rights, the Appreciation
Rights will become vested and may be exercised in accordance with the following schedule (the
“Vesting Schedule”):

	 	 	 
	Portion of Appreciation Rights Exercisable	 	On or After
	33 1/3%

	 	First Anniversary of Date of Grant
	66 2/3%

	 	Second Anniversary of Date of Grant
	100%

	 	Third Anniversary of Date of Grant

     Notwithstanding the Vesting Schedule and Expiration Date set forth above, (a) in the event the
Participant’s employment with the Company or any Subsidiary is terminated by long-term disability
(as determined by the Committee in good faith) or death, the portion of the Appreciation Rights
which is unexpired at the time of such termination of employment will automatically become 100%
vested and exercisable and will expire at 5:00 p.m. Dallas, Texas time (i) one day prior to the
fifth anniversary of such long-term disability or (ii) one day prior to the third anniversary of
the Participant’s death; and (b) subject to the noncompetition provisions set forth below, in the
event of the Participant’s Retirement (as hereinafter defined), the portion of the Appreciation
Rights which is unexpired at the time of Retirement will continue to vest and become exercisable
following Retirement in accordance with the Vesting Schedule and will expire at 5:00 p.m. Dallas,
Texas time on the Expiration Date set forth above. For purposes of this Agreement, the term
“Retirement” means the Participant’s termination of employment with the Company or any Subsidiary
at a time when both (A) the Participant has attained at least age 55 and (B) the sum of the
Participant’s full years of employment with the Company and its Subsidiaries and the Participant’s
age in whole years equals 65 or more.

 

 

     In the event the Participant’s employment with the Company or any Subsidiary is terminated for
any reason other than Retirement or such long-term disability or death, no further vesting of the
Appreciation Rights will occur after the date of such termination and the Appreciation Rights will
expire at 5:00 p.m. Dallas, Texas time on the 30th calendar day after such termination.

     Notwithstanding any other provision herein, the Appreciation Rights shall become 100% vested
and fully exercisable immediately prior to a Change in Control.

     The Appreciation Rights granted hereby may not be sold, pledged, assigned or transferred in
any manner other than by will or the laws of descent and distribution, pursuant to a qualified
domestic relations order or, with the consent of the Committee, by gifts to family members of the
Participant, including to trusts in which family members of the Participant own more than 50% of
the beneficial interests, to foundations in which family members of the Participant or the
Participant control the management of assets, to other entities in which more than 50% of the
voting interests are owned by family members of the Participant or the Participant and to
charitable organizations described in Section 170(c) of the Code.

     The Participant acknowledges that he or she is employed by the Company or a Subsidiary in a
capacity that will necessarily allow the Participant access to confidential information regarding
the business of the Company and its Subsidiaries. The Participant understands that if he or she
becomes engaged in the business of a competitor of the Company or any of its Subsidiaries, it will
be inevitable that the Participant will use or disclose such confidential information to or for the
benefit of such competitor. Therefore, the Participant agrees that for a period of two years
following the date of the Participant’s Retirement, the Participant will not directly or indirectly
participate, in any capacity, in the ownership, management, operation or control of, or have any
financial interest in, any business which is in competition with any business conducted by the
Company or any Subsidiary in the United States or Canada. In the event that the Participant
violates any of the noncompetition provisions set forth above, (i) the Participant will promptly
notify the Senior Vice President – Human Resources of the Company of such violation; (ii) the
unexpired portion of the Appreciation Rights will expire immediately upon the occurrence of such
violation; and (iii) in the event that the Participant has exercised or purported to exercise all
or any part of the Appreciation Rights on or following the first date of such violation, the
Participant will pay to the Company, immediately upon demand, an amount equal to the before-tax
gain realized by the Participant upon such exercise(s) or purported exercise(s).

     The Participant hereby accepts and agrees to be bound by all the terms and conditions of the
Plan and this Agreement. Any amendment to the Plan will be deemed to be an amendment to this
Agreement to the extent that the Plan amendment is applicable hereto; provided, however, that no
amendment will adversely affect the rights of the Participant under this Agreement without the
Participant’s consent. This Agreement may be executed simultaneously in multiple counterparts,
each of which will be deemed an original, but all of which together constitute one and the same
instrument.

	 	 	 	 	 	 	 
	ACCEPTED:	 	MICHAELS STORES, INC.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 	 	 
	Signature of Participant

	 	Title:
	 	Vice President – Treasurer and Investor
Relations	 	 

2

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