**Exhibit 10.1**

 
|  | **Fiscal  Year 2008 Bonus Plan**

** ** |
|--|----------------------------------------------|

 

**INTRODUCTION**

 

ThisFiscal Year 2008 Bonus Plan (the “Plan”) is intended to provide executives andother eligible participants with financial incentives for their importantcontributions to our success.  Executivesin the Plan have the potential to earn a bonus payout equal to a maximumpercentage of bonus eligible base salary as specified for each participant bythe Compensation Committee.  MichaelsStores Inc.’s top priority is to achieve its sales and earnings goals, andmaximize company profitability.

 

**BONUSMEASURES**

 

Tofurther the Company’s strategy of paying for performance, participant bonusesare generally based on the overall company performance, business unit metricsand individual performance as measured against established objectives.  For Fiscal Year 2008, the Plan measures foreach participant shall consist of: (a) a Corporate Financial Performancemeasure of EBITDA minus Inventory Charge **(1)**, (b) aBusiness Unit performance measure, if applicable, and (c) an individualperformance measure as established by the Compensation Committee.  The Compensation Committee will establish theweight of each measure, and the threshold, target and maximum performance metrics.

 

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*(1)**May excludeadditional charges as approved by the Compensation Committee of the Board ofDirectors.*

* *

**EBITDA**

 

EBITDAis short for “**E**arnings **B**efore**I**nterest, **T**axes,**D**epreciation and **A**mortization”.  It is a measure that indicates the Company’soperating profitability before non-operating expenses and non-cash charges,calculated by taking operating income and adding back depreciation andamortization expenses.  Amortizationrefers to spreading an intangible asset’s value over that asset’s useful life.  An example of an intangible asset would beleasehold improvements (changes we make to a store location to make thebuilding setup consistent with a Michaels store layout). Depreciation, on theother hand, refers to the spreading of a tangible asset’s cost over thatasset’s life, such as store fixtures or computer equipment.

 

EBITDAis intended to be a measure that is much more closely linked to the cash flowthat the business generates from its operations – a measure of theprofit and loss statement (P&L) based on the cash we take in each day (sales),less the ongoing cash we are spending (cost of sales and expenses).  Since EBITDA is a key measure common to allMichaels’ corporate bonus plans, everything you and your co-workers do tosupport the stores in driving sales and controlling your work expenses willhelp maximize your bonus potential!

 

**INVENTORY CHARGE**

 

The inventory charge is much like an “interest charge” to cover thecost of buying and holding inventory, and is subtracted from the EBITDA numberin order to give us an incentive as a company to not over-buy inventory, sincetoo much inventory takes cash away from the company’s ability to fundinitiatives and pay down debt.  A percentcharge per month on the cost of average monthly inventory the company carriesof 12% per year is deducted from the EBITDA number.  The resulting EBITDA minus inventory chargeis then used as the key corporate financial performance measure in your bonusplan and all other corporate bonus plans to promote alignment of goalachievement throughout our incentive plans.

**MINIMUM COMPANY THRESHOLD PERFORMANCE**

 

Before any Business Unit or Individual Performance portion can beearned, the actual results of the Corporate Financial Performance measure(Michaels Stores Inc. EBITDA minus inventory charge) must at least meet aminimum level of performance (“Threshold”) established by the CompensationCommittee.

 
| © 2008 MICHAELS STORES INC. |   | MSI CONFIDENTIAL |
|----------------------------------|--------|------------------|

 

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**PERFORMANCELEVELS AND BONUS PAYOUTS**

 

Forall company, business unit, and individual performance bonus plan measures,there are four major performance levels: Below Threshold, Threshold, Target and Maximum.  Bonus payout percentages will be based uponthe achieved level of performance for each of the participant’s bonus planmeasures.  To determine the actual payoutpercent, each bonus measure’s performance must be calculated (percent achievedbetween Threshold and Target, or Target and Maximum), weighted, multiplied bythe eligible base salary as of January 31, 2009, and adjusted for anyapplicable proration.

 

Ifthe participant changes positions during the fiscal year, resulting in a changein bonus plan: 1) his/her base salary prior to the change will be used as theeligible base salary for his/her former position; and 2) he/she will haveseparate performance appraisal ratings – one for the former position and onefor the current position – used in the calculation of his/her year end bonus.(Ratings will be determined by the appropriate supervisor – with the year end ratingdetermining eligibility for merit increase consideration.)

 

The performance of each bonus measure is evaluated independently, andthe achieved bonus percentage for each measure is added together to arrive atthe percentage of total bonus achieved. A bonus calculation worksheet will be provided to each participant.

 

**SCALING OF PAYOUT PERCENTAGE**

 

When performance falls at any point between the Threshold and Maximumgoals, the participant’s bonus payout will be scaled according to theperformance above or below the Target goal. The bonus amount is scaled to the nearest hundredth of a percent whencomparing plan to actual results.  Allcalculations will be rounded to the nearest hundredth.  TheIndividual Performance portion of the bonus has four bonus payout levels basedupon the Annual FY 2008 Performance Appraisal Rating, and no scaling will beapplied.  (“Needs Development”Performance Rating equals zero bonus for the performance component).

 

**BONUSSCALING FORMULAS**

 

Thefollowing formulas illustrate how bonus scaling is applied in calculating theActual Bonus percentages achieved for the corporate and any business unitfinancial measure:

Scenario 1: Actualperformance is *above*target goal:

Scenario 2: Actualperformance is *below*targetgoal:

*Note: Wtd = Weighted; PLAN = Target*

**ELIGIBILITY**

 

Tobe eligible for a bonus under the Fiscal Year 2008 Bonus Plan, the participantmust meet all of the eligibility factors:

 

·      The Fiscal Year bonus eligibility dates begin on February 3, 2008,and conclude on January 31, 2009. If an associate is not employed in a bonus eligible position at thebeginning of the fiscal year, February 3, 2008, but assumes a bonuseligible position on or before November 15, 2008, he/she will be eligibleto earn a prorated bonus based upon the number of full months that he/she wasin the bonus eligible position. Individuals who assume a bonus eligible position on or before the 15thof the month will receive credit for that entire month.  Individuals who assume such a position afterthe 15th will not receive credit for that month.  Individuals who change positions during thefiscal year will receive credit for bonus calculation purposes based upon thebonus level of the position he/she is in on the 15th of the month,in accordance with the bonus plan for the credited position.

 

·      An associate must have worked for at least three months in a bonuseligible position in Fiscal Year 2008.

 

·      Bonus eligible positions are defined as any regular full-timeassociates in one of the following store or corporate positions:

 
| **Store Positions**                                 | ** ** | **Corporate  Positions**                                                                                                                                                                                                        |
|-----------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Store Manager and Assistant Manager (excludes MITs) |       | Corporate Manager through Executive Committee Member  or FY08 MIK Power eligible associates (Includes Artistree and Aaron Brothers)

 

Distribution Center Coach, Manager, Assistant  General Manager and General Manager |

 

·      An associate must be employed in a bonus eligible position at the endof the fiscal year,

 

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January 31, 2009, in order to be eligible to receive a bonus.  In the event an associate terminatesemployment between February 1, 2009 and the bonus check date, theindividual Performance Appraisal portion of the associate’s bonus will be calculatedbased upon a rating of one level higher than Needs Development (i.e., “MixedPerformance”).  All bonus paymentspayable under this Bonus Plan will normally occur between April 1stand April 30th, following the end of the fiscal year, providedthat all eligibility criteria as set forth in this bonus plan document are met.

 

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

 

·      An associate is not eligible for a bonus under this Bonus Plan if theassociate received a Performance Improvement Plan during Fiscal Year 2008 andthe associate remains on the Performance Improvement Plan at the time of bonuspayout (check date).

 

**HOW A BONUS IS EARNED**

 

In order to earn a bonus under this Fiscal Year 2008 Bonus Plan, theassociate must first satisfy all of the requirements in the Eligibility sectionof the Bonus Plan.  In addition, and tothe extent allowed by applicable law, the associate will not earn, and no bonuswill be paid, unless the associate is employed in a bonus eligible position atthe end of the fiscal year, January 31, 2009.

 

*The Company anticipates that this Bonus Plan will be part of an ongoingbonus program, but the Company does not guarantee that the program will in factcontinue for future periods or that the terms, amounts or measures of theprogram will not change.  To the extentallowed by law,**Michaels Stores, Inc. reserves the right to change orcancel any portion(s) of this Bonus Plan for any reason. This Bonus Plandoes not constitute a contract or other agreement concerning the duration ofany associate’s employment. To the extent allowed by law, the employmentrelationship remains “at will” and may be terminated at any time, with orwithout cause.  This Bonus Plan shall beadministered by the Compensation Committee of the Board of Directors, in itssole discretion.*

 

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