**Exhibit10.5**

** **

 

February 9, 2009

 

Philo Pappas

14 Copeland Drive

Bedford, MA 01730

 

Dear Philo,

 

Congratulations! Onbehalf of Michaels Stores Procurement Company, I am pleased to confirm youroffer for the position of Executive Vice President — Category Management,reporting directly to Brian Cornell with the effective date of February 23,2009, unless otherwise agreed upon. Pursuant to the successful completion ofyour background investigation and verification of information provided us inyour employment application, and contingent upon approval by the Board ofDirectors, the following confirms the details of our offer:

 

**Base Salary**

Effective your first dayof employment, your bi-weekly salary will be **$14,423.10($375,000.06 annualized)**. Your salary increases will be consistent with our policy of advancementon an individual basis and will be prorated in accordance with your start dateand company guidelines.  **Membersof our corporate staff typically receive their annual performance appraisal inApril, based upon their results during the prior fiscal year.  Given the timing of your start date,your first formal appraisal and any prorated merit increase is expected tooccur in April of 2010.**

 

## **Bonus**

You will be eligible to participate in our **ExecutiveVice President Bonus Plan** in Fiscal Year 2009, which is based uponyour results regarding established bonus criteria associated with the bonusplan for your position.  In this plan youhave the potential to earn a max bonus payout up to **100%**of your eligible base salary.  Of the **100%** (max) potential, **50%** (target) isfor attaining plan results, and an additional **50%**is allocated for attaining results above the plan.  Bonus payments normally occur in April ofeach year and will be prorated in accordance with your actual time in theposition and are scaled according to the year end level of performanceachieved, in accordance with your Bonus Plan.

 

**Sign-on Bonus**

Payablewithin (30) days of your start date, you will receive a one-time **sign-on bonus of $20,000.00 (net)**.  Please note, in accordance with companypolicy, any associate who voluntarily leaves the company or is terminated formisconduct within 12 months from the start date will be required to reimbursethe company for any and all monies paid for a sign-on bonus.

 

**Long Term Incentive Plan andCo-Investment Opportunity**

·                  As an Executive Vice President, you willbe eligible to participate in the 2006 Equity Incentive Plan. Attached is aCompensation Illustration which describes the proposed Executive Vice Presidentstock option grant level and the equity potential of such option grant. Thisillustration is not and shall not be considered to be an offer of securities.

 

·                  In addition, you will be eligible to participate inthe Management Co-Investment Program, subject to satisfaction of theco-investment terms and conditions, including your qualification as anappropriate investor under securities laws. This illustration is not and shall not be considered to be an offer ofsecurities.

 

·                  As we discussed, the company anticipates thecompletion of an updated valuation within the next 60 days.  Within 30 days following the completion ofthe valuation, as part of your new hire offer, the company will grant you aone-time restricted stock award in the value of $50,000, with the number of sharescalculated based upon the new valuation, pursuant to the terms of theRestricted Stock Agreement.

 

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# **Relocation**

·      You will be provided**$22,000 net**to cover all of your living expenses, any miscellaneous relocation expenses,and temporary housing expenses beyond the first 90-day period provided by theCompany.

 

·                  During your interim living period,Michaels will pay for **two trips a month for upto six months** for home visits and/or house hunting trips in theDallas-Fort Worth area.  These trips areconsidered taxable income, and will be grossed up.

 

·      You will be provided up to **six monthsof corporate apartment housing** in the Dallas-Fort Worth area duringthe period of time before you have relocated your household to a localresidence.  This relocation expense isconsidered taxable income, and will be grossed up.

 

·                  Michaelswill cover reasonable and customary closing costs (excluding discount points,hazard insurance, deposits and other prepaid expenses) associated with the saleof your existing primary residence in Bedford, MA and the purchase of a newresidence in the Dallas-Fort Worth area. This relocation expense is considered taxable income, and will begrossed up.

 

·                  Michaels will arrange for and cover thecosts of packing and transporting your household goods.  This expense is not considered taxable.

 

·                  Contactour Relocation Administrator, Susann Fortney, at 972.409.1505 to initiate yourmove.  Susann will make a copy of theRelocation policy available to you.

 

·                  Pleasenote an associate who voluntarily leaves the company or is terminated for grossmisconduct within 12 months from the date of the last relocation payment onhis/her behalf, will be required to reimburse the company for all relatedpayments.

 

# **Benefits**

·      You and your family will be eligible to participate inour comprehensive **executive medical, dentaland vision plans** at no cost to you. The medical and dental plansprovide for all medically necessary care without a deductible orcoinsurance.  Your coverage will begin onyour first day of employment, after completing our enrollment process.  Additionally, after 90 days, you will receive at no cost **$50,000** of Basic Life Insurance and Accidental Death and Dismembermentcoverage.  You may also purchase groupsupplemental life insurance for yourself, your spouse and any dependents andparticipate in our flexible spending accounts.

 

·                  Through our Executive Life and Savings Program, youwill be covered for **$1,000,000** ofcompany paid **Group Variable Universal Life Insurance**upon starting work for Michaels Stores.  This coverage also providesa tax-advantaged opportunity for savings, including an employer matchso that your contributions up through 6% of eligible earnings can be matched at50% between this program and the 401(k) Plan.

 

·                  You will also be enrolled, at no cost toyou, in our **Executive Short Term Disability Plan**and **Executive Long Term Disability Coverage**on your first day of active employment.

 

·                  Youand your spouse are also eligible for an annual **ExecutivePhysical** at the Cooper Clinic.

 

·                  Afteryou have completed six months of active service, you will be eligible toparticipate in our **401(k) Plan**.  This plan offers you a 50% match on the first6% of your earnings that you contribute to the Plan, a variety of investmentoptions, and the flexibility to perform daily fund transfers.  During calendar year 2009, the IRS allows youto contribute a maximum of $16,500 pre-tax dollars to the Plan; however, youmay be limited to a lesser amount due to the IRC discrimination testing resultseach year.  The Highly CompensatedEmployee (HCE) 401(k) contribution limit for 2009 is 2%. You may **rollover** any distribution from a prior employer’s qualifiedretirement plan immediately **without waiting six months**.

 

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·      You will be eligible to receive **three (3) weeks of paid vacation** in your first year ofemployment, following your 90th day of employment.  Additional vacation time will be earned inaccordance with company policy.

 

·                  Sick days and personal days will beearned in accordance with company policy.

 

·                  With certain restrictions, you will beentitled to receive a **25% discount** onmerchandise purchased in our Michaels and Aaron Brothers stores.

 

·                  As we discussed, our executive benefitsare currently under review and the above reflects our current Executive VicePresident level benefits package.  As anExecutive Vice President, your benefits offering will be commensurate with yourposition as an Executive Vice President of Michaels.

 

**Confidentiality and At Will**

Duringyour employment with Michaels you will receive confidential, proprietary and tradesecret information.  Michaels has a vitalinterest in maintaining its confidential information.  Accordingly, we will rely upon you to protectthe confidentiality such information obtained during your employment.

 

Thisis an at-will employment relationship, and either you or Michaels may terminatethe relationship for any reason, with or without cause, and with or withoutnotice.  As an Executive Vice President,you are eligible to participate in our Officer Severance Plan, pursuant to theterms and conditions of that plan.

 

Philo, it goes withoutsaying that we look forward to having you join the Michaels team and lookforward to receiving your positive response to this offer.  On your first day of employment you will needto bring acceptable forms of identification for I-9 verification purposes.  If you have any questions, please contact meat 972-409-5200.

 

Sincerely,

 

 

Shawn Hearn

Senior Vice President —Human Resources

 

Attachments

 

cc:        BrianCornell

 

**RESPONSETO OFFER FORM**

Please indicate your agreementto the above by signing and dating below. Return the signed documents to Michelle Gadison via fax number (972)409-1772 and US mail the original to:

 

**Michaels, 8000 Bent Branch Drive, Irving, TX 75063**

**Attention: Michelle Gadison**

 

I, Philo Pappas acceptthe offer extended to me by Michaels under the terms outlined in this letter.

(Printed Name)

 
|       | /s/ Philo Pappas |       | February 10,  2009 |   |
|------------|------------------|------------|-------------------------|--------|
| ** ** | **(SIGNATURE)**  | ** ** | **(DATE)**              |

 

**Please retain a copy of this document for your records.**

Paymentof compensation or benefits (other than base pay) is subject to the eligibilityprovisions, individual benefit elections and other terms of the plans as theyapply.  For clarification or detailsconcerning any of the plans, refer to the Plan document.  In the event of a conflict between thisdocument and the Plan document, the Plan document will control, since this isan offer letter and is only considered a summary of Plan Features.  Michaels Stores Inc. reserves the rightto change or cancel any plan details outlined in this offer letter for anyreason in accordance with federal, state or local laws.

 

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