Document:

Exhibit
10.5

 

 

February 9, 2009

 

Philo Pappas

14 Copeland Drive

Bedford, MA 01730

 

Dear Philo,

 

Congratulations! On
behalf of Michaels Stores Procurement Company, I am pleased to confirm your
offer 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 of
your background investigation and verification of information provided us in
your employment application, and contingent upon approval by the Board of
Directors, the following confirms the details of our offer:

 

Base Salary

Effective your first day
of employment, your bi-weekly salary will be $14,423.10
($375,000.06 annualized). 
Your salary increases will be consistent with our policy of advancement
on an individual basis and will be prorated in accordance with your start date
and company guidelines.  Members
of our corporate staff typically receive their annual performance appraisal in
April, 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 to
occur in April of 2010.

 

Bonus

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

 

Sign-on Bonus

Payable
within (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 company
policy, any associate who voluntarily leaves the company or is terminated for
misconduct within 12 months from the start date will be required to reimburse
the company for any and all monies paid for a sign-on bonus.

 

Long Term Incentive Plan and
Co-Investment Opportunity

·                  As an Executive Vice President, you will
be eligible to participate in the 2006 Equity Incentive Plan. Attached is a
Compensation Illustration which describes the proposed Executive Vice President
stock option grant level and the equity potential of such option grant. This
illustration is not and shall not be considered to be an offer of securities.

 

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

 

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

 

 

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 the
Company.

 

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

 

·      You will be provided up to six months
of corporate apartment housing in the Dallas-Fort Worth area during
the period of time before you have relocated your household to a local
residence.  This relocation expense is
considered taxable income, and will be grossed up.

 

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

 

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

 

·                  Contact
our Relocation Administrator, Susann Fortney, at 972.409.1505 to initiate your
move.  Susann will make a copy of the
Relocation policy available to you.

 

·                  Please
note an associate who voluntarily leaves the company or is terminated for gross
misconduct within 12 months from the date of the last relocation payment on
his/her behalf, will be required to reimburse the company for all related
payments.

 

Benefits

·      You and your family will be eligible to participate in
our comprehensive executive medical, dental
and vision plans at no cost to you. The medical and dental plans
provide for all medically necessary care without a deductible or
coinsurance.  Your coverage will begin on
your 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 Dismemberment
coverage.  You may also purchase group
supplemental life insurance for yourself, your spouse and any dependents and
participate in our flexible spending accounts.

 

·                  Through our Executive Life and Savings Program, you
will be covered for $1,000,000 of
company paid Group Variable Universal Life Insurance
upon starting work for Michaels Stores.  This coverage also provides
a tax-advantaged opportunity for savings, including an employer match
so that your contributions up through 6% of eligible earnings can be matched at
50% between this program and the 401(k) Plan.

 

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

 

·                  You
and your spouse are also eligible for an annual Executive
Physical at the Cooper Clinic.

 

·                  After
you have completed six months of active service, you will be eligible to
participate in our 401(k) Plan.  This plan offers you a 50% match on the first
6% of your earnings that you contribute to the Plan, a variety of investment
options, and the flexibility to perform daily fund transfers.  During calendar year 2009, the IRS allows you
to contribute a maximum of $16,500 pre-tax dollars to the Plan; however, you
may be limited to a lesser amount due to the IRC discrimination testing results
each year.  The Highly Compensated
Employee (HCE) 401(k) contribution limit for 2009 is 2%. You may rollover any distribution from a prior employer’s qualified
retirement plan immediately without waiting six months.

 

2

 

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

 

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

 

·                  With certain restrictions, you will be
entitled to receive a 25% discount on
merchandise purchased in our Michaels and Aaron Brothers stores.

 

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

 

Confidentiality and At Will

During
your employment with Michaels you will receive confidential, proprietary and trade
secret information.  Michaels has a vital
interest in maintaining its confidential information.  Accordingly, we will rely upon you to protect
the confidentiality such information obtained during your employment.

 

This
is an at-will employment relationship, and either you or Michaels may terminate
the relationship for any reason, with or without cause, and with or without
notice.  As an Executive Vice President,
you are eligible to participate in our Officer Severance Plan, pursuant to the
terms and conditions of that plan.

 

Philo, it goes without
saying that we look forward to having you join the Michaels team and look
forward to receiving your positive response to this offer.  On your first day of employment you will need
to bring acceptable forms of identification for I-9 verification purposes.  If you have any questions, please contact me
at 972-409-5200.

 

Sincerely,

 

 

Shawn Hearn

Senior Vice President —
Human Resources

 

Attachments

 

cc:        Brian
Cornell

 

RESPONSE
TO OFFER FORM

Please indicate your agreement
to 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 accept
the 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.

Payment
of compensation or benefits (other than base pay) is subject to the eligibility
provisions, individual benefit elections and other terms of the plans as they
apply.  For clarification or details
concerning any of the plans, refer to the Plan document.  In the event of a conflict between this
document and the Plan document, the Plan document will control, since this is
an offer letter and is only considered a summary of Plan Features.  Michaels Stores Inc. reserves the right
to change or cancel any plan details outlined in this offer letter for any
reason in accordance with federal, state or local laws.

 

3Exhibit
10.6

 

COMPENSATION
POLICY REGARDING COMPANY CARS

 

The Company shall provide automobiles leased by it for the use of
certain specified officers, described below, as part of their
compensation.  Each such officer shall have the right to receive a new
automobile leased by the Company, with a fair market value not to exceed
$100,000, not more frequently than once every 24 months.  Upon the Company’s
lease of any new automobile for one of the specified officers, the automobile
previously authorized for use of such officer shall be returned to the
Company.  During use by such officer, the car shall be insured by and for
the benefit of the Company, and the Company shall bear the cost of needed
maintenance and repair.  All other operational costs shall be borne by the
officer.  The officers to whom this policy applies shall be the Chief
Executive Officer and the President of the Company.

 

 

Dated:  April 17,
2009

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