Document:

Exhibit 10.16

 

SEPARATION AGREEMENT AND RELEASE

 

I.              Release.    For good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the Executive who has signed
below, also referred to here as the undersigned, with the intention of binding
himself, his heirs, executors, administrators and assigns, does hereby release
and forever discharge Michaels Stores, Inc., a Delaware corporation (the “Company”), its affiliated companies, subsidiaries,
successors, predecessors and assigns, and the present and former officers,
directors, executives, agents, employees and shareholders of the Company and
each of the other foregoing entities (collectively, the “Released Parties”), both individually and in their official
capacities, from any and all claims, actions, causes of action, demands,
rights, damages, debts, accounts, suits, expenses, attorneys’ fees and
liabilities of whatever kind or nature in law, equity, or otherwise, whether
now known or unknown (collectively, the “Claims”), which
the undersigned now has, owns or holds, or has at any time heretofore had,
owned or held against any Released Party, arising out of or in any way
connected with the undersigned’s employment relationship with the Company, its
subsidiaries, predecessors or affiliated entities, or the termination thereof,
or under any Federal, state or local statute, rule, or regulation, or principle
of common, tort or contract law, including but not limited to, Title VII of the
Civil Rights Act of 1964, as amended, 42 U.S.C. §§ 2000e et seq., the Age
Discrimination in Employment Act of 1967, as amended, 29 U.S.C. §§ 621 et seq.,
the Americans with Disabilities Act of 1990, as amended, 42 U.S.C. §§ 12101 et seq., and any other equivalent or similar Federal,
state, or local statute; provided, however, that the Company acknowledges and agrees
that this Separation Agreement and Release satisfies the “Release of Claims”
provision set forth in Section 6(b)(vii) of that certain Change In
Control Severance Agreement entered into between the undersigned and the
Company and dated as of April 26, 2006 (the “Severance Agreement”), that
the representative signing below on behalf of the Company has the full
authority to enter into this Separation Agreement and Release, and that nothing
herein shall release the Company of its obligations under the Severance
Agreement.

 

The  undersigned  affirms  that  he  has  not  filed  or  caused  to  be  filed,  and  is  not  presently  a  party  to  any  Claim,  complaint  or  action  against  any  Released  Party  in  any  forum  or  form  and  that  he  knows  of  no  facts  which  may  lead  to  any  Claim,  complaint  or  action  being  filed  against  any  Released  Party  in  any  forum  by  the  undersigned  or  by  any  agency,  group,  etc.  The  undersigned  further  affirms  that  he  has  been  paid  and/or  has  received  all  leave  (paid  or  unpaid),  compensation,  wages,  bonuses,  commissions,  and/or  benefits  to  which  he  may  be  entitled  and  that  no  other  leave  (paid  or  unpaid),  compensation,  wages,  bonuses,  commissions  and/or  benefits  are  due  to  him  from  the  Company  and  its  subsidiaries,  except  as  specifically  provided  in  this  Separation  Agreement  and  Release  and/or  pursuant  to  the  Severance  Agreement  or  the  Plan  (as  defined  in  Section  II).  The  undersigned  furthermore  affirms  that  he  has  no  known  workplace  injuries  or  occupational  diseases  and  has  been  provided  and/or  has  not  been  denied  any  leave  requested  under  the  FMLA.

 

The  Company  advises  the  undersigned  to  seek  the  advice  of  an  attorney  before  signing  this  Separation  Agreement  and  Release.  The  undersigned  further  declares  and  represents  that  he  has  carefully  read  and  fully  understands  the  terms  of  this  Separation  Agreement  and  Release  and  that  he  has  been  advised  by  the  Company  to  and  had  the  opportunity  to  seek  the  advice  and  assistance  of  counsel  with  regard  to  this  Separation  Agreement  and  Release,  that  he  may  take  up  to  and  including  21  days  from  receipt  of  this  Separation  Agreement  and  Release,  to  consider  whether  to

 

 

sign this Separation Agreement and Release, that he may revoke this
Separation Agreement and Release within seven calendar days after signing it by
delivering to the Company written notification of revocation, and that he
knowingly and voluntarily, of his own free will, without any duress, being
fully informed and after due deliberate action, accepts the terms of and signs
the same as his own free act.

 

II.            Severance  Compensation.  In  connection  with  the  execution  of  this  Separation  Agreement  and  Release,  the  undersigned’s  employment  with  the  Company  will  terminate  effective  July  27,  2007  (“Termination  Date”).  It  is  stipulated  and  agreed  that  the  Company  shall  pay,  provide  and/or  grant  the  undersigned  all  compensation  and  benefits  set  forth  under  the  Severance  Agreement  for  a  “Termination  During  the  Retention  Period  by  the  Company  Without  Cause  or  by  the  Executive  for  Good  Reason”  (including  but  not  limited  to  the  severance  payments  under  Section  6(b)  of  the  Severance  Agreement)  and  for  accrued  but  unused  vacation  pay,  that  the  undersigned  is  also  entitled  to  the  Bonus  set  forth  in  the  Change  In  Control  Retention  Bonus  Plan  (“Plan”)  dated  April  27,  2006,  and  that  the  Company  will  make  payments  and  grants  under  the  Severance  Agreement  and  Plan  in  accordance  with  the  terms  and  conditions  of  those  documents.  Moreover,  the  Company  will  pay  any  “Annual  Bonus”  under  the  first  sentence  of  

Section 6(b)  based  on  the  target  level  in  effect  for  the  undersigned,  president  and  chief  operating  officer,  per  the  Fiscal  Year  2007  Bonus  Plan  (70%).  It  is  further  stipulated  and  agreed  that  in  accordance  with  the  terms  of  the  Company’s  2006  Equity  Incentive  Plan,  upon  the  Termination  Date,  all  unvested  stock  options  granted  to  the  undersigned  by  the  Company  will  be  forfeited  without  further  action  on  the  part  of  any  party.  Accordingly,  the  stock  options  received  by  the  undersigned  on  February  16,  2007  have  been  cancelled  on  the  Company’s  records.  As  a  result  of  the  transfer  of  the  undersigned’s  shares  of  Company  common  stock  to  the  Company  and  the  cancellation  of  the  undersigned’s  stock  options,  it  is  acknowledged  by  both  parties  hereto  that  the  undersigned  will  no  longer  have  any  rights  or  obligations  under  the  Stockholders  Agreement  dated  as  of  October  31,  2007  and  as  amended  and  restated  on  February  16,  2007,  or  the  Registration  Rights  Agreement  dated  October  31,  2007,  each  among  the  Company  and  certain  of  its  stockholders.  Notwithstanding  the  foregoing,  because  of  the  impracticability  of  the  Company’s  providing  the  benefits  described  in  Section  4(e)  of  the  Severance  Agreement  for  a  period  of  more  than  eighteen  (18)  months  following  the  date  of  separation  from  service  of  the  undersigned,  the  Company  shall  provide  such  benefits  to  the  extent  required  under  Section  6(b)(iii)  of  the  Severance  Agreement  during  such  eighteen-month  period  and  in  lieu  of  the  continuation  of  such  benefits  for  the  balance  of  the  Continuation  Period  referenced  in  Section  6(b)(iii)  of  the  Severance  Agreement  shall  pay  to  the  undersigned,  within  ten  (10)  days  following  the  Release  Effective  Date,  an  amount  equal  to  the  Company’s  aggregate  current  cost  of  providing  such  benefits  at  such  level  during  such  balance  of  the  Continuation  Period  to  a  similarly  situated  active  employee  of  the  Company.  The  undersigned  further  acknowledges  and  agrees  that  additional  steps  may  be  required  to  bring  the  Severance  Agreement  into  conformity  with  regulations  under  Section  409A  of  the  Internal  Revenue  Code  and  that,  subject  to  the  provisions  of  Section  13  of  the  Severance  Agreement,  he  will  cooperate  with  the  Company  to  make  any  such  changes.

 

III.           Protected Rights. The Company and
the undersigned agree that nothing in this Separation Agreement and Release is
intended to or shall be construed to affect, limit or otherwise interfere with
any non-waivable right of the undersigned under any Federal, state or

 

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local law, including the right to file a charge or participate in an
investigation or proceeding conducted by the Equal Employment Opportunity
Commission (“EEOC”) or to exercise any other right that cannot be waived
under applicable law. The undersigned is releasing, however, his right to any
monetary recovery or relief should the EEOC or any other agency pursue Claims
on his behalf.

 

IV.             Nonsolicitation/Non-Interference
with Business Relationships. The undersigned further agrees that during the
one-year period commencing on the date of his termination of employment with
the Company or its subsidiaries, he will not, directly or indirectly,
(i) solicit, recruit or hire any person who is at such time, or who at any
time during the six-month period prior to such solicitation or hiring had been,
an employee of, or exclusive consultant then under contract with, the Company
or its subsidiaries, without the Company’s prior written consent;
(ii) solicit or encourage any employee of the Company or its subsidiaries
to leave the employment of the Company or its subsidiaries;
(iii) intentionally interfere with the relationship of the Company or any
of its subsidiaries with any employee of, or exclusive consultant then under
contract with, the Company or any such subsidiary; or (iv) intentionally
interfere with, disrupt or attempt to disrupt any past, present or prospective
relationship, contractual or otherwise, between the Company or any of its
subsidiaries, on the one hand, and any of their respective customers or
suppliers, on the other hand. It is
understood, however, that if the undersigned has any obligations under
applicable law that are the same or similar to those described in the preceding
sentence but that will continue to apply to the undersigned after the first
anniversary of the Termination Date, this Separation Agreement and Release does
not release the undersigned from those obligations and the Company does not
waive, for itself or its subsidiaries, any legal right to enforce those
obligations after such first anniversary.

 

V.              Equitable
Remedies. The undersigned acknowledges that a violation by the undersigned
of any of the covenants contained in Section IV would cause irreparable
damage to the Company and its subsidiaries in an amount that would be material
but not readily ascertainable, and that any remedy at law (including the
payment of damages) would be inadequate. Accordingly, the undersigned agrees
that, notwithstanding any provision of this Separation Agreement and Release to
the contrary, the Company shall be entitled (without the necessity of showing
economic loss or other actual damage) to injunctive relief (including temporary
restraining orders, preliminary injunctions and/or permanent injunctions) in
any court of competent jurisdiction for any actual or threatened breach of any
of the covenants set forth in Section IV in addition to any other legal or
equitable remedies it may have. The Company and the undersigned agree that, in
the event that any provision of Section IV or Section VIII is
determined by any court of competent jurisdiction to be unenforceable by reason
of its being extended over too great a time, too large a geographic area or too
great a range of activities, that provision shall be deemed to be modified to
permit its enforcement to the maximum extent permitted by law.

 

VI.             Third-Party
Litigation. The undersigned agrees to be available to the Company and its
affiliates on a reasonable basis in connection with any pending or threatened
claims, charges or litigation in which the Company or any of its affiliates is
now or may become involved, or any other claims or demands made against or upon
the Company or any of its affiliates, regardless of whether or not the
undersigned is a named defendant in any particular case.

 

3

 

VII.      Return of Property.
The undersigned shall return to the Company on or before August 6 2007,
all property of the Company in the undersigned’s possession or subject to the
undersigned’s control, including without limitation any laptop computers, keys,
credit cards, cellular telephones and files. The undersigned shall not alter
any of the Company’s records or computer files in any way after July 27,
2007.

 

VIII.     Confidential
Information. The undersigned agrees to hold confidential, and not to
disclose to any person, firm, corporation, partnership or agency, any trade
secret or Confidential Information (as defined below) gained in the course of
the undersigned’s employment with the Company concerning the Company or any of
its affiliates, except to the extent such disclosure is required by law or
legal process. “Confidential Information” means information belonging to the
Company or any of its affiliates that is not generally known to their competitors
or to those with whom they do business and information entrusted to the Company
or any of its affiliates by a third party with an agreement that the
information will be held in confidence and shall include, without limitation,
information concerning financial affairs, business plans or strategies, product
pricing information, operating policies and procedures, vendor information and
proprietary statistics or reports of the Company and its affiliates. The
undersigned agrees not to remove any Confidential Information from the Company,
not to request that others do so on the undersigned’s behalf and to return any
Confidential Information currently in the undersigned’s possession to the
Company.

 

IX.       Survival of
Indemnification Rights. Notwithstanding anything to the contrary in this
Separation Agreement and Release or the Severance Agreement, any and all
rights, benefits, duties and obligations owed by either the undersigned or the
Company under the Officer Indemnification Agreement (entered into between the undersigned
and the Company and dated as of August 22, 2003) shall remain in full
force and effect, and nothing herein or in the Severance Agreement shall
change, waive, or otherwise modify the rights, benefits, duties and obligations
under that Officer Indemnification Agreement.

 

X.         Amendment. This
Agreement amends and restates Exhibit A to the Severance Agreement, to
which amendment and restatement the parties hereby consent. The Severance
Agreement is otherwise unchanged.

 

XI.       GOVERNING
LAW. THIS SEPARATION AGREEMENT AND RELEASE SHALL BE DEEMED TO BE MADE IN
THE STATE OF TEXAS, AND THE VALIDITY, INTERPRETATION, CONSTRUCTION AND
PERFORMANCE OF THIS AGREEMENT IN ALL RESPECTS SHALL BE GOVERNED BY THE LAWS OF
THE STATE OF TEXAS WITHOUT REGARD TO ITS PRINCIPLES OF CONFLICTS OF LAW.

 

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XII.         Release Effective
Date. This Separation Agreement and Release shall be effective on the
latest of the Termination Date (July 27, 2007), the date it is signed for
the Company or the eighth calendar day following the date it is signed by the
Executive.

 

 

	
   

  	
  EXECUTIVE:

  
	
   

  	
   

  	
   

  
	
   

  	
  /s/ Gregory A. Sandfort

  
	
   

  	
  Gregory A. Sandfort

  
	
   

  	
   

  	
   

  
	
   

  	
  Date:

  	
  August 1, 2007

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  ACCEPTED AND AGREED:

  
	
   

  	
   

  	
   

  
	
   

  	
  MICHAELS STORES, INC.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Brian C. Cornell

  
	
   

  	
  Name:

  	
  Brian C. Cornell

  
	
   

  	
  Title:

  	
  Chief Executive Officer

  
								

 

5

 

ACKNOWLEDGMENTS

 

	
  STATE OF TEXAS

  	
  §

  
	
   

  	
  §

  
	
  COUNTY OF DALLAS 

  	
  §

  

 

BEFORE ME, the undersigned authority, on this day
personally appeared Brian C. Cornell, Chief Executive Officer of MICHAELS STORES, INC. a Delaware
corporation, known to me to be the person whose name is subscribed to the
foregoing instrument and acknowledged to me that he executed the same for the
purposes and consideration therein expressed, in the capacity therein stated
and as the act and deed of said corporation.

 

GIVEN
MY HAND AND SEAL this 2nd day of August, 2007.

 

 

	
   

  	
   

  	
   

  	
  /s/ Veronica Larsen

  
	
  

  	
  VERONICA LARSEN

  MY COMMISSION
  EXPIRES
 October 7,
  2009

  	
   

  	
  Notary Public in and for
  the

  
	
  State of Texas

  
	
   

  
	
   

  
	
  Veronica Larsen

  
	
   

  	
   

  	
   

  	
  Notary’s Printed Name and

  
	
   

  	
   

  	
   

  	
  Commission Expiration

  

 

 

	
  STATE OF TEXAS

  	
  §

  
	
   

  	
  §

  
	
  COUNTY OF DALLAS 

  	
  §

  

 

BEFORE ME, the undersigned authority, on this day
personally appeared GREGORY A. SANDFORT, known
to me to be the person whose name is subscribed to the foregoing instrument,
and acknowledged to me that he executed the same for the purposes and
consideration therein expressed.

 

GIVEN UNDER MY HAND AND SEAL on this 1st day of August, 2007.

 

 

	
   

  	
   

  	
   

  	
  /s/ Pete Benenati

  
	
  

  	
  PETE BENENATI

  MY COMMISSION EXPIRES

  February 19, 2008

  	
   

  	
  Notary Public in and for
  the

  
	
  State of Texas

  
	
   

  
	
  Pete Benenati

  
	
   

  	
   

  	
   

  	
  Notary’s Printed Name and

  
	
   

  	
   

  	
   

  	
  Commission Expiration

  

 

6Exhibit 10.17

 

Michaels Stores, Inc.

8000 Bent Branch
Drive

Irving, TX  75063

 

July 27,
2007

 

Mr. Gregory
A. Sandfort 

316 Chestnut Bend

Colleyville, Texas 76034

 

Dear
Mr. Sandfort:

 

In
view of your unique position as the co-president of Michaels Stores, Inc.
(the “Company”) and the substantial transition contribution you made following
the recapitalization/ merger transaction completed on October 31, 2006,
the Company wishes both to reward you for that contribution and to secure for
itself your consulting services for a period of time following the termination
of your employment. Provided that you accept it, this letter will confirm the agreement
between you and the Company concerning your consulting services, the compensation you will
receive under this Agreement, and certain ancillary matters, on the following
terms and conditions:

 

1.             Reference is made
to the revised Separation Agreement and Release, a copy of which is
attached hereto (the “Separation Agreement”) between you and Michaels Stores,
inc. (the “Company”). This Agreement is in addition to, and shall not supersede
or be superseded by, the Separation Agreement. Provided you sign and
return it in a timely manner, this Agreement shall take effect
on the Release Effective Date as defined in the Separation Agreement. If
the Separation Agreement does not take effect in a timely manner, this Agreement shall
be void and of no force or effect.

 

2.             As compensation for
your services and other performance under this Agreement, the Company agrees to
pay you $1,403,464.40 (One Million Four Hundred and Three Thousand Four Hundred
and Sixty-four Dollars and Forty Cents), payable in a single lump sum within ten (10) business
days following the Release Effective Date. This lump sum shall be in addition
to the compensation and benefits to be provided you under Section II of
the Separation Agreement. The lump sum to be provided you under this Agreement
will be reduced by the withholdings, if  any, which the
Company determines that it is legally required to withhold. In addition, as
promptly as reasonably practical following the effective date of this
Agreement, the Company will purchase the automobile (2007 BMW M5; Vin#:
WBSNB93567CX07424) currently leased for your use and transfer
title to you. You agree that you shall be solely responsible for any tax liability to
you arising from that transfer. The Company will transfer ownership to you of the home computer,
peripheral equipment and Treo previously provided by the Company for your business use;
provided that you first promptly return all such equipment to the Company to permit it to
remove all information stored on that equipment that is related to the business
of the Company and its affiliates and all software
installed on that equipment that is not licensed for your personal
use. If, at the time you return the equipment, you provide basic software
licensed

 

 

for
your personal use, the Company will have that software installed on the
equipment before returning it to you.

 

3.               You agree to make
yourself reasonably available and to provide such advice and other consulting
services, reasonably related to your knowledge, skills and experience, as
Company representatives may request from time to time during the thirty (30)
days following the effective date of this Agreement. Such services will be
provided during normal working hours, unless otherwise mutually agreed, and the
Company will make reasonable efforts to accommodate
your other commitments.

 

4.               The services you
provide to the Company under this Agreement will be provided as an independent
contractor and not as an employee. As an independent contractor, you will be
solely responsible for all taxes for compensation received under this Agreement
and will not be eligible to participate in any compensation or benefit plans
provided by the Company to employees. Also, as an independent contractor, you
may not attempt to bind the Company to any obligation or pledge its credit
unless authorized in writing to do so by me or another expressly designated
officer of the Company.

 

5.       You agree to hold in
confidence and not to use or disclose any trade secrets or other confidential
information which you create or to which you have access while providing
consulting services under this Agreement and to return any documents containing
confidential information at the conclusion of those services or at such earlier
times as requested by Company representatives. You also agree that from and
after the effective date of this Agreement you will not disparage or criticize,
directly, indirectly or by implication, the Company, its direct and indirect
investors, its management or its Business (as defined in Section 5 below)
to the media (whether print, electronic or otherwise) or in any public
statement or to those whom you know or reasonably should know to be employees
of the Company or considering employment or to be persons with whom the Company
does, or is planning to do, business. (This is not intended to limit your
statements to your immediate family members or to your legal or tax advisors, provided
they agree not to repeat any disparaging or critical statements to those to
whom you have agreed not to make such statements hereunder.)

 

6.               You agree that,
during the period of twelve (12) months immediately following the effective
date of this Agreement, you will not, directly or indirectly, alone or in
association with others, anywhere in the Territory, own, manage, operate,
control or participate in the ownership, management, operation or control of,
or be connected as an officer, employee, investor, principal, joint venturer,
shareholder, partner, director, consultant, agent or otherwise with, or have
any financial interest (through stock or other equity ownership, investing of
capital, lending of money or otherwise) in, any business, venture or activity
that competes, directly or indirectly, with the Business of the Company and its
Immediate Affiliates as conducted or in planning as of the date your employment
with the Company terminates or at any time during the immediately preceding
twelve months (a “Competitor”), except that nothing contained in this Section 5
shall prevent your wholly passive ownership of three percent (3%) or less of
the equity securities of any Competitor that is a publicly-traded company. For
the purposes of this Agreement, the “Immediate Affiliates” of the Company are
its direct and indirect subsidiaries, its parents, and the direct and indirect
subsidiaries of those parents; the “Business of the Company and its Immediate
Affiliates” or “Business” is that of arts and crafts specialty retailer
providing materials, ideas and education for creative activities and the “Territory”
is those states within the

 

2

 

United
States and those provinces of Canada in which the Company or any of its
Immediate Affiliates was doing or actively planning to do business as of the
date your employment terminated or at any time during the immediately preceding
twelve (12) months.

 

7.     You acknowledge that you
have carefully read and considered the terms and conditions of this Agreement,
including the restraints contained in Section 6. You agree that those
restraints are necessary for the reasonable and proper protection of the
Company and its Immediate Affiliates and are reasonable in subject matter,
length of time and geographic area. You further
acknowledge that, were you to breach any of the covenants contained in Section 6,
the damage to the Company and its Immediate Affiliates would be
irreparable. You also freely acknowledge that those
restrictions will not prevent you from earning a livelihood while they are in effect. You
therefore agree that the Company, in addition to any other remedies available
to it, shall be entitled to preliminary and permanent injunctive relief against
any breach or threatened breach by you of any of those covenants, without having to
post bond. It is also agreed that, in the event that any provision of Section 6
is be determined by any court of competent jurisdiction to be
unenforceable by reason of its being extended over too great a time, too large a
geographic area or too great a range of activities, the provision shall be
deemed to be modified to permit its enforcement to the maximum
extent permitted by law.

 

8.     In signing both this
Agreement and the Separation Agreement, you acknowledge that you
initially received a Separation and Release Agreement on July 5, 2007,
which is substantively the same as the Separation Agreement attached hereto,
and, whether or not the changes to this Agreement
are material, you freely and voluntarily waive any right you may have to an
additional twenty-one (21) days to consider the Separation Agreement. Rather, you agree, that if you
wish to accept this Agreement and the Separation Agreement, you must sign, date
and return both to me on or before August 3, 2007.
You may revoke the Separation Agreement at any time during
the seven-day period immediately following the date of your signing, provided that you do so
to me in writing, in which event both the Separation Agreement and this Agreement shall
become void and of no force or effect. If you do not revoke the Separation
Agreement, then, at the expiration of the seven-day period, this Agreement and
the Separation Agreement shall both take effect as legally-binding
agreements between you and the Company.

 

If
this Agreement is acceptable to you, please sign and return it to me no later
than the date you sign and return the Separation Agreement. Provided you do so,
this Agreement shall take effect as provided in Section 1
hereof.

 

 

	
   

  	
  Very
  truly yours,

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  /s/
  Brian C. Cornell

  
	
   

  	
  Brian
  C. Cornell,

  
	
   

  	
  Chief
  Executive Officer

  

 

3

 

	
  ACCEPTED
  AND AGREED:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  /s/
  Gregory A. Sandfort 

  	
   

  
	
  Gregory
  A. Sandfort 

  	
   

  

 

4

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