Exhibit 10.4

Gregory A. Sandfort

Michaels Stores, Inc.

EVP — Merchandising

Fiscal Year 2005
Bonus Plan

 

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Fiscal Year 2005 Bonus Plan

Purpose

The Fiscal Year 2005 Bonus Plan has been developed to provide financial
incentives to those members of management that can make an important
contribution to Michaels success and to encourage those members to remain with
the Company.

Eligibility

1.   To be eligible for a bonus under the Fiscal Year 2005 Bonus Plan, an
associate must be in a bonus eligible position during Fiscal Year 2005. The
Fiscal Year begins on January 30, 2005, and concludes on January 28, 2006.

2.   An associate must be employed with the Company, in good standing (see #8),
and in a bonus eligible position at the time of bonus payout in order to be
eligible to receive a bonus. If an associate is not employed in a bonus eligible
position at the beginning of the fiscal year, but assumes a bonus eligible
position during the fiscal year, he/she will be eligible to earn a prorated
bonus based upon the number of full months that he/she was in the bonus eligible
position. Individuals who assume a bonus eligible position on or before the 15th
of the month will receive credit for that entire month. Individuals who assume
such a position after the 15th will not receive credit for that month.

3.   Bonus payments will normally occur by April 15th, following the end of the
fiscal year. Associates must be employed at the time of bonus payout in order to
be eligible to receive a bonus.

4.   Anyone hired or placed in a bonus eligible position after November 15, 2005
will not be eligible to earn a bonus under the Fiscal Year 2005 Bonus Plan.

5.   Any associate who is on leave of absence longer than 90 days in Fiscal Year
2005 may be eligible to earn a prorated bonus for time worked during the fiscal
year, in accordance with the normal proration guidelines outlined in this
document.

6.   An associate must be in an active status for at least one month of Fiscal
Year 2005, as defined in this document, to be eligible for any bonus
consideration.

7.   If an associate is promoted or changes position during the fiscal year, the
associate may be eligible for bonus earnings calculated using the number of full
months (see #2) in each position, the respective base salaries, and the
applicable target bonus amount(s).

8.   An associate must be in “good standing” at the time of bonus payout to be
eligible for a Fiscal Year 2005 bonus. An associate does not meet this
requirement if: 1) he/she receives an overall performance rating of
“Unacceptable” for FY 2005; and/or 2) at the time of bonus payout (check date),
he/she is on a Performance Improvement Plan (“PIP”) that was initiated during FY
2005. Associates who are on a Performance Improvement Plan that is initiated in
FY 2006 will be eligible for a bonus payment for FY 2005.

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How a Bonus Is Earned

The following factors must be satisfied in order for an eligible associate to
earn a bonus under the Year 2005 Bonus Plan.

1.   The associate must be eligible as set forth in the Eligibility section of
the Year 2005 Bonus Plan.

2.   In order to earn a bonus under the Year 2005 Bonus Plan, an associate must
be employed by the Company, in a bonus eligible position, at the time bonuses
are paid. If an associate is not employed by the Company in a bonus eligible
position at the time bonuses are paid, regardless of the reason for termination
of employment, the associate does not earn a bonus under the Year 2005 Bonus
Plan.

3.   An associate does not earn a bonus payment for FY 2005 if: 1) he/she
receives an overall performance rating of “Unacceptable” for FY 2005 and/or 2)
at the time of bonus payout he/she is on a Performance Improvement Plan (“PIP”)
that was initiated during FY 2005. Associates who are on a Performance
Improvement Plan that was initiated in FY 2006 will be eligible for a bonus
payment for FY 2005.

The Company anticipates that this bonus 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 of the program will not change.

When bonuses are earned, the Company typically makes bonus payments in April of
the following fiscal year.

Bonus Payout Formula

Bonus payouts will be based upon your earned percentage multiplied by your base
salary as of the first day of the fiscal year (January 30, 2005). Your earned
percentage will be based upon actual performance as compared to Plan.

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Bonus Plan Measures, Definitions & Financial Targets

Fiscal Year 2005 Bonus plan measures, definitions and financial targets are as
follows:

                                                              Financial Target  
  Plan Measure     Measure Definition     Plans Using This Measure     $ or %  
                         
Michaels Stores Inc. Company Profit Before Taxes (PBT)
    Gross sales less cost of     •   Corporate Management                  
sales, SG&A expenses &     •   Distribution                   interest, plus
investment     •   Marketing              

    income and after other     •   Merchandising              

    income or expenses     •   Inventory Management     •   $___    

    (excludes effect of stock     •   Store Ops Corporate              

    option expensing and one-                        

    time charges).                        

                                                     
Company Net Income as a % of Sales (Michaels Stores U.S. & Canada)
                                                                Line 650 on
Store income     •   Store Ops Corporate Management     •   ___%        
statement.                        

                                                     
Operating Income as a % of Sales (Michaels Stores U.S. & Canada) Company / Zone
                                        •   Store Ops     •   n/a         Line
625 on Store income     •   Store Ops Support                   statement.      
                                         
Stores Sales Plan (Michaels Stores U.S. & Canada) Company / Zone
                                  Line 25 — Net Sales on                        
    Store income statement.     •   All Store Ops     •   $___    
 
                                                     

    Scan margin plus                        
Net Buyer
    entitlements & other     •   Merchandising     •   n/a    
Contribution *
    allowances.                                                
Merchandise Comp Stores Sales Plan minus Dept 33 (in Dollars)
    Sales increase in stores open     •   Merchandising                   at
least 13 months, minus     •   Inventory Management     •   $___         Dept
33.                                                                            
 
Merchandise Comp Store Sales Plan (in Dollars)
    Sales increase in stores open                             at least
13 months.     •   Marketing     •   n/a                                        
                 

    Avg. inventory per store for                        
Company Monthly Average Inventory per store (in Dollars)
    the 13 months 1/05 through     •   Merchandising                   1/06
divided by 13.     •   Inventory Management     •   $___         (Included
stores, warehouse,                        

    in-transit only)                                                
Supply Chain Expense Ratio
    Ratio (%) of Supply Chain     •   Distribution Corporate                  
Expenses ($) to Volume ($)               •   n/a                            

          •   Distribution Center Management     •   n/a    
Specific DC Performance
    Ratio (%) of expense ($) to                             volume ($)          
                                   

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*May include inter-company profit allocation where applicable.

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2005 Bonus Plan — Executive Vice President, Merchandising

                    Bonus Criteria     Point Value    
1.  Michaels Stores Inc. Company Profit Before Taxes
      40      
2.  Merchandising Comp Store Sales Plan minus Dept 33
      40      
3.  Company Monthly Average Inventory ($) per Store
      30      
Total Points:
      110      

1. Michaels Stores Inc. Company Profit Before Taxes
40 Potential Points
Plan: $___________________

              % of Plan     Points Earned        
104+% ($___)
      40          
102% ($___)
      35          
100% ($___)
      30          
98% ($___)
      25          
96% ($___)
      20          
94% ($___)
      15          
Less than 94%
      0  

2. Merchandising Comp Store Sales Plan minus Dept 33
40 Potential Points
Plan: $___________________

              % of Plan     Points Earned          
101+% ($___)
      40          
100% ($___)
      35          
99% ($___)
      30          
98% ($___)
      25          
97% ($___)
      20          
96% ($___)
      15          
95% ($___)
      10          
94% ($___)
      5          
Less than 94%
      0  

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2005 Bonus Plan — Executive Vice President, Merchandising

3. Company Monthly Average Inventory ($) per Store
30 Potential Points
Plan: $___________________

              % of Plan     Points Earned        
100% ($___)
      30          
101% ($___)
      25          
102% ($___)
      20          
103% ($___)
      15          
104% ($___)
      10          
105% ($___)
      5          
More than 105%
      0  

Bonus Payout Matrix

                    Total Points Earned           Bonus Payout % of Salary      
       
Super — 100+
            50.0 %              
Stretch — 90
            45.0 %              
Target — 80
            40.0 %              
75
            35.0 %              
70
            30.0 %              
65
            25.0 %              
60
            20.0 %              
55
            15.0 %              
Less than 55
            0.0 %

Example

* Actual results are 99% of Criterion 1 plan = 25 points earned
* Actual results are 100% of Criterion 2 plan = 35 points earned
* Actual results 101% of Criterion 3 plan = 25 points earned
* Total points earned = 85
*Total Bonus earned = 40% of salary

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