EXHIBIT
10.5


 


	
  

  	
  Bonus
  Plan for Executive Officers for Fiscal Year 2010

  



 


INTRODUCTION


 


The bonus plan for
executive officers for fiscal year 2010 (the “Plan”) is intended to provide
executives with financial incentives for their important contributions to the
successful attainment of the Company’s goals — by aligning what they do every
day with our Company’s objectives.  Executives in the Plan have the potential to
earn a bonus payout equal to a maximum percentage of bonus eligible base salary
as specified for each participant by the Compensation Committee.  Michaels
Stores, Inc.’s top priority is to achieve its sales and earnings goals, and
maximize company profitability.


 


DEFINITIONS


 


“Associate
Performance Measure” as established by the Compensation Committee, is the individual
performance component of the Plan.


 


“Bonus
Eligible Position” means a full-time associate position in Company’s
corporate headquarters that is designated as a participant in the Plan.


 


“Business
Unit Performance Measure” may include sales, buyer contribution (less
an inventory charge), expense ratios, site productivity, divisional EBIDTA,
operating profit, divisional gross margin and/or manufacturing EBITDA
percentage.


 


“Company” is Michaels
Stores, Inc. and its subsidiaries.


 


“Compensation
Committee” is the Compensation Committee of the Company’s
Board of Directors.


 


“Corporate
Financial Performance Measure” is  EBITDA minus Inventory Charge (which may exclude additional charges as
approved by the Compensation Committee).


 


“EBITDA”
is short for “Earnings Before Interest, Taxes, Depreciation
and Amortization”.  It is a
measure that indicates the Company’s operating profitability before
non-operating expenses and non-cash charges, calculated by taking operating
income and adding back depreciation and amortization expenses. 
Amortization refers to spreading an intangible asset’s value over that asset’s
useful life.  Depreciation refers to the spreading of a tangible asset’s
cost over that asset’s life.  EBITDA is
intended to be a measure that is more closely linked to the cash flow that the
business generates from its operations — a measure of the profit and
loss statement (P&L) based on the cash taken in each day (sales), less the
ongoing cash spent (cost of sales and expenses).


 


“Fiscal
Year 2010” means the fiscal year of the Company beginning January 31,
2010 ending January 29, 2011.


 


“Inventory
Charge” for
purposes of the Plan, is much like an “interest charge” to cover the cost of
buying and holding inventory, and is subtracted from the EBITDA number in order
to give incentive (as a company) to not over-buy inventory, since too much
inventory takes cash away from the Company’s ability to fund initiatives and
pay down debt.  A percent charge per month on the cost of average monthly
inventory the company carries of 12% per year is deducted from the EBITDA
number.


 


BONUS
MEASURES


 


To further the Company’s
strategy of paying for performance, participant bonuses are generally based on
the overall company performance, business unit metrics and associate
performance as measured against established objectives.  For Fiscal Year
2010, the Plan measures for each participant shall consist of: (a) the Corporate
Financial Performance Measure  (b) one
or more Business Unit Performance Measures, if applicable, and (c) an Associate
Performance Measure.  The Compensation Committee will establish the weight
of each measure, and the threshold, target and maximum performance metrics.


 


MSI CONFIDENTIAL


 


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MINIMUM
COMPANY THRESHOLD PERFORMANCE


 


Before any portion tied
to a Business Unit Performance Measure or an Associate Performance Measure can
be earned, the actual results of the Corporate Financial Performance Measure
must at least meet a minimum level of performance (“Threshold”) established by
the Compensation Committee.


 


ELIGIBILITY


 


To be eligible for a
bonus under the Plan, the participant must meet all of the eligibility factors:


 


·      The Fiscal Year 2010 bonus eligibility
dates are from January 31, 2010 to January 29, 2011.  If a
participant is not employed in a Bonus Eligible Position at the beginning of
Fiscal Year 2010, but assumes a Bonus Eligible Position on or before November 15,
2010, the participant will be eligible to earn a prorated bonus based upon the
number of full months that participant was in the Bonus Eligible Position. 
Participants who assume a Bonus Eligible Position on or before the 15  th day of the
month will receive credit for that entire month.  Participants who assume a
Bonus Eligible Position after the 15  th day of any month, will not receive credit for
that month.  Participants who change positions during Fiscal Year 2010
will receive credit for bonus calculation purposes based upon the bonus level
of the position such participant holds on the 15  th day of the month, in accordance with the bonus
plan for the credited position.


 


·      A participant must have worked for at
least three months in a Bonus Eligible Position in Fiscal Year 2010.


 


·      If a participant is promoted or changes
positions during Fiscal Year 2010, the participant may be eligible for bonus
calculated using the number of full months in each position, the respective
base salaries and performance ratings, and the applicable target bonus
amount(s).


 


·       A
participant must be employed in a Bonus Eligible Position at the end of Fiscal
Year 2010, in order to be eligible to receive a bonus.  In the event a participant
terminates employment between the end of Fiscal Year 2010 and the bonus payment
date, the Associate Performance Measure portion of the participant’s bonus will
be calculated based upon a rating of “Meets Expectations — Low.”  Bonus
payments under this Plan are anticipated to occur in April 2011.


 


·      Participants transferring to a non-Bonus
Eligible Position prior to the end of Fiscal Year 2010 are not eligible to
receive a bonus under the Plan.


 


·      A participant is not eligible for a
bonus under this Plan if the participant received a performance improvement plan
during Fiscal Year 2010 and the participant remains on the performance
improvement plan on bonus payment date.


 


PERFORMANCE
LEVELS AND BONUS PAYOUTS


 


For each of the Company
Performance Measure and the Business Unit Performance Measure there are four
performance levels:  Below Threshold, Threshold, Target and Maximum. 
The portion based on the Associate Performance Measure has four bonus payout
levels based upon the Annual FY 2010 performance appraisal rating: Exceeds
Expectations, Meets Expectations — High, Meets Expectations-Low and Needs
Development.  Bonus payout percentages
will be based upon the achieved level of performance for each of the
participant’s bonus plan measures.


 


To determine the actual
payout percent in connection with the Company Performance Measure and the
Business Unit Performance Measure, each bonus measure’s performance must be
calculated (percent achieved between Threshold and Target, or Target and
Maximum), weighted, multiplied by the eligible base salary as of January 29,
2011, and adjusted for any applicable proration.


 


The performance of each
bonus measure is evaluated independently, and the achieved bonus percentage for
each measure is added together to arrive at the percentage of total bonus
achieved.


 


If the participant
changes positions during Fiscal Year 2010, resulting in a change in the
participant’s bonus plan, then (1) participant’s base salary prior to the
change will be used as the eligible base salary for participant’s former
position; and (2) participant will have separate performance appraisal
ratings — one for the former position and one for the current position — used
in the calculation of participant’s year end bonus. Ratings will be determined
by the Compensation Committee, with input from the Chief Executive Officer for
all participants at the executive vice president level, with the year end
rating determining eligibility for merit increase consideration.


 


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SCALING
OF PAYOUT PERCENTAGE


 


For each of the Company
Performance Measure and the Business Unit Performance Measure, when performance
falls at any point between the Threshold and Maximum goals, the participant’s
bonus payout will be scaled according to the performance above or below the Target
goal.  The bonus amount is scaled to the nearest hundredth of a percent
when comparing plan to actual results.  All calculations will be rounded
to the nearest hundredth.   No
scaling will be applied in connection with the Associate Performance
Measure (a “Needs Development” performance rating results in the
disqualification of the participant from any bonus related to the Associate
Performance Measure).


 


BONUS
SCALING FORMULAS


 


The following formulas
illustrate how bonus scaling is applied in calculating the bonus percentages
achieved for the corporate and any business unit financial measure:


 


Scenario 1: Actual
performance is above
target goal:


 





 


Scenario 2: Actual performance
is below target goal:


 





 


Note:
Wtd = Weighted; PLAN = Target


 


The
Company anticipates that the Plan will be part of an ongoing bonus program, but
the Company does not guarantee that the program will in fact continue for
future periods or that the terms, amounts or measures of the program will not
change.  To the extent allowed by law, Michaels Stores, Inc. reserves
the right to change or cancel any portion(s) of this Plan for any reason.
This Plan does not constitute a contract or other agreement concerning the
duration of any associate’s employment. To the extent allowed by law, the
employment relationship remains “at will” and may be terminated at any time,
with or without cause.  This Plan shall be administered by the
Compensation Committee, in its sole discretion.


 


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