**Exhibit 10.5**

 

**SEPARATION AGREEMENT ANDRELEASE**

 

I.              Release.  For good and valuable consideration, thereceipt and sufficiency of which is hereby acknowledged, Mr. Harvey Kanter(herein referred **to as** “the undersigned” **or “Mr. Kanter”)**, with the intention of bindinghimself, his heirs, executors, administrators and assigns, does hereby releaseand forever discharge Michaels Stores, Inc., a Delaware corporation (the “Company”),and its present and former parent, officers, directors, executives, agents,employees, affiliated companies, subsidiaries, successors, predecessors andassigns (collectively, the “Released Parties”), from any and all claims,complaints, actions, causes of action, demands, rights, damages, debts,accounts, suits, expenses, attorneys’ fees and liabilities of whatever kind ornature in law, equity, or otherwise, whether now known or unknown(collectively, the “Claims”), which the undersigned now has, owns orholds, or has at any time heretofore had, owned or held against any ReleasedParty, arising out of or in any way connected with the undersigned’s employmentrelationship with the Company, its subsidiaries, predecessors or affiliatedentities, or the termination thereof, under any Federal, state or localstatute, 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, asamended, 42 U.S.C. §§ 2000e etseq., the AgeDiscrimination in Employment Act of 1967, asamended, 29 U.S.C.§§ 621 etseq., the Americans with Disabilities Act of 1990, asamended, 42 U.S.C. §§ 12101, etseq., and any otherequivalent or similar Federal, state, or local statute; provided, however,that nothing herein shall release the Company of its obligations under thatcertain Change in Control Severance Agreement (the “Change in ControlSeverance Agreement”) in which the undersigned participates and pursuant towhich this Separation Agreement and Release is being executed anddelivered.  The undersigned understandsthat, as a result of executing this Separation Agreement and Release, he willnot have the right to assert that the Company or any other Released Partyunlawfully terminated his employment or violated any of his rights inconnection with his employment or otherwise.

 

The undersigned affirms that he has not filed, caused to be filed, orpresently is a party to any Claim against any Released Party in any  forum or form and that he knows of no factswhich may lead to any Claim being filed against any Released Party in any forumby the undersigned or by any agency or group. Except for his final paycheck, the undersigned further affirms that hehas been paid and/or has received all leave (paid or unpaid), compensation,wages, bonuses, commissions, and/or benefits to which he may be entitled andthat no other leave (paid or unpaid), compensation, wages, bonuses, commissionsand/or benefits are due to him from any Released Party, except as specificallyprovided in this Separation Agreement and Release.  The undersigned furthermore affirms that hehas no known workplace injuries or occupational diseases and has been providedand/or has not been denied any leave requested under the FMLA.  If any court assumes jurisdiction of any suchClaim against any Released Party on behalf of the undersigned, the undersignedwill request such court to withdraw the matter.

 

The undersigned further declares and represents that he has carefullyread and fully understands the terms of this Separation Agreement and Release;that he has been advised and had the opportunity to seek the advice andassistance of counsel with regard to this Separation Agreement and Release;that he may take up to and including twenty-one (21) calendar days from receiptof this Separation Agreement and Release to consider whether to sign it; thathe may revoke this, Separation Agreement and Release within seven (7) calendardays after signing it by delivering to the Company written notification ofrevocation; 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.            Resignation andSeverance Compensation.  Thetermination of the undersigned is effective May 25, 2008 (“TerminationDate”) and shall be treated as a resignation for good reason by Mr. Kanter.  Accordingly, the undersigned herebyirrevocably and unconditionally resigns from any officer position he holdswithin Michaels or any of its subsidiaries or divisions effective on theTermination Date.  It is stipulated andagreed that the undersigned’s separation from the Company is other than for “Cause”(as that term is defined in Section 1(i) of the Change in ControlSeverance Agreement).  It is furtherstipulated and agreed that the Company shall pay, provide and/or grant theundersigned all compensation and benefits set forth under Section 6(b) andSection 7 of the Change in Control Severance Agreement.

 

III.           Severance Pay.  Pursuant to Section 6(b)(i) of theChange in Control Severance Agreement, the Company shall pay****Mr. Kanter a lump-sum payment in the gross amount ofOne Million, One Hundred Forty-Three Thousand,

 

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Four Hundred Fifty-Nine Dollars and 72/100 ($1,143,459.72), subject toall applicable or customary tax withholding requirements.

 

IV.           Prorated AnnualBonus.  Pursuant to Section 6(b)(ii) ofthe Change in Control Severance Agreement, the Company shall pay Mr. Kantera lump-sum payment in the gross amount of Fifty Nine Thousand Dollars and43/100 ($59,000.43), subject to all applicable or customary tax withholdingrequirements.

 

V.            Continued Welfareand Fringe Benefits.  The undersigned’swelfare and fringe benefits will continue in accordance with Section 6(b)(iii) ofthe Change in Control Severance Agreement. The undersigned agrees that he will notify the Company within sevencalendar days of becoming eligible’ under another employer’s medical and/orwelfare benefits plan.  The Company willmake a lump-sum payment in the amount of Two Thousand Seventy Five Dollars and76/100 ($2,075.76) which is the equivalent of certain welfare benefits that areunavailable to the undersigned after the Termination Date.

 

VI.           Savings andRetirement Plan Benefits.  Pursuantto Section 6(b)(v) of the Change in Control Severance Agreement, theCompany will pay a lump-sum payment in the gross amount of Thirty Six Thousand,Seventy Three Dollars and 80/100 ($36,073.80), subject to all applicable orcustomary tax withholding requirements.

 

VII.          OutplacementServices.  Pursuant to Section 6(b)(vi) ofthe Change in Control Severance Agreement, the Company agrees to reimburse him,or directly pay expenses, for outplacement services up to $50,000; provided hecommences such services no later than six months following the ReleaseEffective Date and stops using these services within one year after theTermination Date.

 

VIII.        Protected Rights.  The Company and the undersigned agree thatnothing in this Separation Agreement and Release is intended to or shall beconstrued to affect, limit or otherwise interfere with any non-waivable rightof the undersigned under any Federal, state or local law, including the rightto file a charge or participate in an investigation or proceeding conducted bythe Equal Employment Opportunity Commission (“EEOC”) or to exercise anyother right that cannot be waived under applicable law.  The undersigned is releasing, however, hisright to any monetary recovery or relief should the EEOC or any other agencypursue Claims on his behalf.  Further,should the EEOC or any other agency obtain monetary relief on his behalf, theundersigned assigns to the Company all rights to such relief.

 

IX.           Nonsolicitation/Non-Interferencewith Business Relationships.  Theundersigned further agrees that for one-year after the Termination Date, hewill not, directly or indirectly, (i) solicit, recruit or hire any personwho is at such time, or who at any time during the six-month period prior tosuch solicitation or hiring had been, an employee of, or exclusive consultantthen under contract with, the Company, its subsidiaries, affiliates ordivisions without the Company’s prior written consent; (ii) solicit orencourage any employee of the Company or its subsidiaries, affiliates anddivisions to leave the employment of the Company or its subsidiaries; (iii) intentionallyinterfere with the relationship of the Company or any of its subsidiaries withany employee of, or exclusive consultant then under contract with, the Companyor any such subsidiary; or (iv) intentionally interfere with, disrupt orattempt to disrupt any past, present or prospective relationship, contractualor 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.

 

X.            EquitableRemedies.  The undersignedacknowledges that a violation by the undersigned of any of the covenantscontained in Section IX would cause irreparable damage to the Company andits subsidiaries in an amount that would be material but not readilyascertainable, and that any remedy at law (including the payment of damages)would be inadequate.  Accordingly, theundersigned agrees that, notwithstanding any provision of this SeparationAgreement and Release to the contrary, the Company shall be entitled (withoutthe necessity of showing economic loss or other actual damage) to injunctiverelief (including temporary restraining orders, preliminary injunctions and/orpermanent injunctions) in any court of competent jurisdiction for any actual orthreatened breach of any of the covenants set forth in Section IX inaddition to any other legal or equitable remedies it may have.

 

XI.           Third-Party.  The undersigned agrees to be available to theCompany, its affiliates and their attorneys on a reasonable basis in connectionwith any pending or threatened claims, charges or litigation in which theCompany or any of its affiliates is now or may become involved, or any otherclaims or demands made against

 

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or upon the Company or any of its affiliates, regardless of whether ornot the undersigned is a named defendant in any particular case.

 

XII.         Return of Property.  Unless expressly stated otherwise herein, theundersigned shall return to the Company on or before the Termination Date, allproperty of the Company in the undersigned’s possession or subject to theundersigned’s control, including without limitation any keys, credit cards, andfiles, including all copies.  Theundersigned shall not alter any of the Company’s records or computer files inany way after the Termination Date.  TheCompany is allowing the undersigned to keep his cellular phone and laptopcomputer, except that all company files on such computer must be returned tothe Company on or before the Termination Date.

 

XIII.        ConfidentialInformation.  The undersigned agreesto hold confidential, and not to disclose to any person, firm, corporation,partnership or agency, any trade****secret orConfidential Information (as defined below) gained in the course of theundersigned’s employment with the Company concerning the Company, its subsidiaries,affiliates, divisions, or employees except if such disclosure is required bylaw or legal process.  “ConfidentialInformation” shall include, without limitation, information concerningfinancial affairs, business plans or strategies, product pricing information,operating policies and procedures, vendor information and proprietarystatistics or reports.  The undersignedagrees not to remove any Confidential Information from the Company, not torequest that others do so on the undersigned’s behalf, and to return anyConfidential Information currently in the undersigned’s possession or controlto the Company.

 

XIV.        Non-Disparagement.  Mr. Kanter agrees not to make anydisparaging comments or statements, whether orally, electronically, or inwriting concerning the Company.  TheCompany agrees that no director or officer shall make any disparaging comments,whether orally, electronically, or in writing, concerning Mr. Kanter.

 

XV.         Reimbursement ofLegal Fees.  The Company shallreimburse Mr. Kanter for legal fees in connection with review of thisAgreement in an amount not to exceed ten thousand dollars ($10,000.00).

 

XVI.**       **StockOptions..  In accordance with theCompany’s 2006 Equity Incentive Plan, upon the Termination Date, all unvestedstock options granted to the undersigned by the Company will be forfeitedwithout further action on the part of any party.

 

XVII.**      **Severability.  If any term or provision of this SeparationAgreement and Release is invalid, illegal or incapable of being enforced by anyapplicable law or public policy, all other conditions and provisions of thisSeparation Agreement and Release shall nonetheless remain in full force andeffect so long as the economic and legal substance of the transactionscontemplated by this Separation Agreement and Release is not affected in anymanner materially adverse to any party.

 

**[Remaining portion intentionally left black]**

 

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

 

Effective on the eighthcalendar day following the date set forth below.

 

 
|       | MICHAELS STORES, INC.  (“Company”)                            |
|------------|-------------------------------------------------------------------------|
|       |                                                                    |   |
|       |                                                                    |   |
|       | By:                                                                     | /s/ Shawn Hearn |
|       | Name:                                                                   | Shawn Hearn |
|       | Title:                                                                  |   SVP, Human  Resources |
| ** ** | Date Signed:  5/23/08                                              |
|       |                                                                    |   |
|       |                                                                    |   |
|       | EMPLOYEE  (“undersigned” or “Mr. Kanter”) |
|       |                                                                    |   |
|       |                                                                    |   |
|       | /s/   Harvey  S. Kanter                                       |
|       | Harvey S. Kanter                                                        |   |
|       | Date Signed:                                                            |   5/27/08 |
|       |                                                                    |   |
|       |                                                                    |   |
|       | /s/ Audra Fower                                                         |
|       | Audra Fowler  5-27-08                                              |
|       |                                                                    |
|       | [NOTARY SEAL]                                                           |
|       |                                                                    |
|       | I have  identified & notarized the signature of                |
|       | Mr. Harvey Kanter.                                                 |
|            |                                                                         |  |  |  |  |  |  |  |

 

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