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EXHIBIT 10.1 AMENDED AND RESTATED
EMPLOYMENT AGREEMENT This Employment Agreement (the Agreement) is made as of July 7, 2004 by
and between Michaels Stores, Inc., a Delaware corporation (the Company), and
R. Michael Rouleau (Executive). This Agreement amends and completely
restates the Employment Agreement dated March 20, 2001, as amended on July 16,
2002, between Executive and the Company. The parties hereto agree as follows:  1.
    
    Employment. The Company agrees to employ Executive and Executive accepts
such employment for the period beginning as of the date hereof and ending
on January 31, 2008, subject to earlier termination pursuant to Paragraph
1(d). After January 31, 2008, this Agreement will continue for successive
one-year terms unless the Company gives written notice to Executive
pursuant to Paragraph 4 of this Agreement at least 120 days prior to the
expiration of any term of this Agreement that the Agreement will not be
renewed. If a Change in Control of the Company (as hereinafter defined)
shall have occurred during any term of this Agreement, this Agreement
shall continue in effect until the term of the Agreement expires.  (a)
    
    Salary, Bonus and Benefits. During the term of this
Agreement, the Company will pay Executive a base salary (Base
Salary) of $675,000 per annum, or such higher amount as the
Companys Board of Directors or an appropriate committee thereof
shall determine in its sole discretion. Base Salary will be paid in
equal bi-weekly installments. On or about April 1 of each year
during the term of this Agreement, Executive shall be eligible to
receive a bonus based on the Companys applicable bonus plan. If a
Change in Control of the Company shall have occurred during any term
of this Agreement, Executive shall be entitled, to the extent
permitted by applicable law, to receive employee benefits under, and
participate in for the remaining term of the Agreement, all employee
benefit plans to which Executive was entitled immediately prior to
the date of the Change in Control, including but not limited to any
applicable pension plan, retirement plan, stock option plan,
employee stock ownership, 401(k) savings plan, disability insurance
plan, life insurance plan, medical and dental insurance plans.(b)
    
    Additional Benefits. In addition to the salary and any bonus
payable to Executive pursuant to Paragraph 1(a), Executive will be
entitled during the term of this Agreement to health insurance, life
insurance, disability insurance, five weeks of vacation annually, a
Company-paid automobile, and such other employment-related benefits
that the Company provides to its executive employees, as well as any
perquisites the Board of Directors or an appropriate committee
thereof may establish. The Company shall reimburse Executive, in
accordance with its standard expense reporting and reimbursement
policies in effect from time to time, for all out-of-pocket expenses
which Executive shall incur in connection with his services for the
Company.




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(c)
    
    Services. During the term of this Agreement, Executive will
serve as Chief Executive Officer of the Company and will perform
such services of an executive and administrative nature for the
Company and its subsidiaries as the Companys Board of Directors
and/or the Companys Chairman of the Board of Directors may from
time to time direct. It is the intention of the parties that,
subject to the directives of the Companys Board of Directors and
its Chairman, Executives principal responsibilities shall be to
direct the day to day management of the Company. Executive will
devote all of his business time and attention (except for vacation
periods and reasonable periods of illness or other incapacity) to
the business of the Company and its subsidiaries.(d)
    
    Termination; Severance Pay. The term of this Agreement will
terminate upon the first to occur of (i) January 31, 2008, (ii)
Executives death or permanent disability (as determined by the
Board of Directors in its good faith judgment) or (iii) the date on
which the Companys Board of Directors terminates Executives
employment for Cause (as defined below). In the event that the
Company shall terminate Executives employment prior to January 31,
2008, otherwise than pursuant to clause (ii) or (iii) above, the
Company shall pay severance pay to Executive by continuing the Base
Salary, as well as all additional benefits described in Paragraph
1(b) and in effect at the time of such termination (other than
medical, dental and vision benefits, which will be provided only on
the terms set forth in Paragraph 1(e)), until January 31, 2008, and
by paying Executive a prorated bonus for the fiscal year of the
Company in which such termination occurs, if Executive would have
earned any bonus under the Companys bonus plan for such fiscal
year. Such payments of Base Salary shall be made in bi-weekly
installments, and such prorated bonus, if any, shall be paid when
bonuses for such fiscal year are paid to Company employees in the
ordinary course of business. For purposes of this Agreement,
Cause shall mean by determination of the Companys Board of
Directors in its good faith judgment that Executive has: (1)
knowingly committed gross misconduct in the performance of his
duties, (2) knowingly committed gross negligence or gross
nonfeasance in the performance of his duties, (3) committed an act
of financial dishonesty against the Company or any of its
subsidiaries, parents or affiliates, or (4) committed any felony
involving moral turpitude.In the event this Agreement is terminated at any time and for
any reason, (i) Executive will have the option to purchase the
Company-paid automobile in his possession at the depreciated book
value of said automobile; and (ii) Executive will automatically
become the owner of his Company-paid whole life insurance policies.(e)
    
    Medical Benefits after Termination of Employment. If, at or
before the termination of this Agreement (including any extensions
of the term of this Agreement), Executive retires from the Company
or his employment is terminated by the Company without Cause or his
employment terminates by reason of permanent disability (within the
meaning of that term under Paragraph 1(d)), Executive and his
current spouse will continue to participate in 2




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the Michaels Stores, Inc. Medical, Dental and Vision Care Plan (the
Plan) on the same basis as that available from time to time to
senior executive officers of the Company and their eligible
dependents, except as otherwise provided in this Paragraph 1(e).
Post-termination benefits provided to Executive under the Plan will
be coordinated with Medicare coverage as if Executive had applied
for and were receiving benefits under both Medicare Part A and
Medicare Part B, with Medicare providing primary coverage and the
Plan providing secondary or supplemental coverage. When
Executives spouse becomes eligible for Medicare, benefits provided
to her under the Plan after Executives retirement or other
termination of employment will also be coordinated with Medicare
coverage as if she had applied for and were receiving benefits
under both Medicare Part A and Medicare Part B, with Medicare
providing primary coverage and the Plan providing secondary or
supplemental coverage. The Company will assist Executive and his
spouse in filing claims and coordinating Plan benefits with
Medicare. Post-termination benefits will be provided under the
Plan to Executive until the earlier of his death or the date he
becomes entitled to medical benefits from another employer and will
be provided to Executives spouse until the earliest of her death,
Executives death, the date she becomes entitled to medical
benefits from another employer or the date she no longer qualifies
as an eligible dependent under the Plan; provided, however, that if
Executives spouse is receiving post-termination benefits under the
Plan at the time of Executives death but has not attained age 65,
such post-termination benefits will continue to be provided to
Executives spouse until her 65th birthday. The Company will bear
the full cost of post-termination benefits provided to Executive
and his spouse under the Plan (other than the cost of Medicare
premiums). If the Plan is unable to provide Executive and his
spouse with the post-termination coverage provided in this
Paragraph 1(e), the Company will purchase health insurance for
Executive and his spouse that provides, to the extent practicable,
reasonably comparable benefits. Notwithstanding the foregoing
provisions, neither Executive nor his spouse will be entitled to
the benefits provided by this Paragraph 1(e) in the event the
Company terminates Executives employment for Cause.If, at or before the termination of this Agreement (including
any extensions of the term of this Agreement), Executives
employment terminates by reason of his death, Executives current
spouse will continue to participate in the Plan on the same basis
described in the preceding paragraph of this Paragraph 1(e) as if
Executives death had occurred after his retirement from the
Company.(f)
    
    Stock Options. In the event this Agreement is terminated at
any time and for any reason, each outstanding option to purchase
common stock of the Company held by Executive at such termination
will become 100% vested and exercisable and (provided that
Executives employment has not been terminated for Cause) will
expire, notwithstanding the stated expiration date of such option,
one day prior to the fifth anniversary of such termination. In the
event of any conflict between the terms of this Paragraph 1(f) and
the terms contained in any 3




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document evidencing any such option, the terms of this Paragraph
1(f) will control.  2.
    
    Confidential Information. Executive acknowledges that the trade secrets
and similar proprietary information obtained by him during the course of
his employment with the Company (including his employment prior to the
date of this Agreement), concerning the business or affairs of the Company
and its subsidiaries are the property of the Company. Therefore,
Executive agrees that, at no time during or after the term of this
Agreement, will he disclose to any unauthorized person or use for his own
account any of such information or data without the written consent of the
Chairman of the Board of Directors, unless and to the extent that the
aforementioned matters become generally known to and available for use by
the public other than as a result of Executives acts or omissions to act.
Executive agrees to deliver to the Company at the termination of his
employment, or at any other time the Company may request, all memoranda,
notes, plans, records, reports and other documents (and copies thereof)
relating to the business of the Company and its subsidiaries which he may
then possess or have under his control.3.
    
    Change in Control. For purposes of this Agreement, the term Change in
Control means the occurrence of any of the following events:  (a)
    
    the Company is merged, consolidated or reorganized into or
with another corporation or other legal person, and as a result of
such merger, consolidation or reorganization less than two-thirds of
the combined voting power of the then-outstanding securities
entitled to vote generally in the election of directors (Voting
Stock) of such corporation or person immediately after such
transaction are held in the aggregate by the holders of Voting Stock
of the Company immediately prior to such transaction;(b)
    
    the Company sells or otherwise transfers all or substantially
all of its assets to another corporation or other legal person, and
as a result of such sale or transfer less than two-thirds of the
combined voting power of the then-outstanding Voting Stock of such
corporation or person immediately after such sale or transfer is
held in the aggregate by the holders of Voting Stock of the Company
immediately prior to such sale or transfer;(c)
    
    there is a report filed on Schedule 13D or Schedule 14D-1 (or
any successor schedule, form or report), each as promulgated
pursuant to the Securities Exchange Act of 1934, as amended (the
Act), disclosing that any person (as the term person is used in
Section 13(d)(3) or Section 14(d)(2) of the Act) has become the
beneficial owner (as the term beneficial owner is defined under
Rule 13d-3 or any successor rule or regulation promulgated under the
Act) of securities representing 20% or more of the combined voting
power of the then-outstanding Voting Stock of the Company;(d)
    
    the Company files a report or proxy statement with the
Securities and Exchange Commission pursuant to the Act disclosing in
response to Form 8-K or Schedule 14A (or any successor schedule,
form or report or item therein) that a 4




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change in control of the Company has occurred or will occur in the
future pursuant to any then-existing contract or transaction; or(e)
    
    if, during any period of two consecutive years, individuals
who at the beginning of any such period constitute the directors of
the Company cease for any reason to constitute at least a majority
thereof; provided, however, that for purposes of this Paragraph 3(e)
each director who is first elected, or first nominated for election
by the Companys stockholders, by a vote of at least two-thirds of
the directors of the Company (or a committee thereof) then still in
office who were directors of the Company at the beginning of any
such period will be deemed to have been a director of the Company at
the beginning of such period.  Notwithstanding the foregoing provisions of Paragraph 3(c) or (d) above,
unless otherwise determined in a specific case by majority vote of the
Board, a Change in Control will not be deemed to have occurred for
purposes of Paragraph 3(c) or (d) above solely because (A) the Company,
(B) a Subsidiary or (C) any Company-sponsored employee benefit plan of
the Company or any Subsidiary either files or becomes obligated to file a
report or a proxy statement under or in response to Schedule 13D,
Schedule 14D-1, Form 8-K or Schedule 14A (or any successor schedule, form
or report or item therein) under the Act disclosing beneficial ownership
by it of shares of Voting Stock of the Company, whether in excess of 20%
or otherwise, or because the Company reports that a change in control of
the Company has occurred or will occur in the future by reason of such
beneficial ownership or any decrease thereof.4.
    
    Notices. Any notice provided for in this Agreement must be in writing
and must be either personally delivered, or mailed by first class mail, to
the recipient at the address below indicated: To the Company: Michaels Stores, Inc.
8000 Bent Branch Drive
Irving, Texas 75063 Attention: Senior Vice President, Human Resources To Executive: R. Michael Rouleau
3505 Turtle Creek Boulevard
Unit 15C
Dallas, Texas 75219  or such other address or to the attention of such other person as the
recipient party shall have specified by prior written notice to the
sending party. Any notice under this Agreement will be deemed to have
been given when so delivered or mailed. 5




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5.
    
    Severability. Whenever possible, each provision of this Agreement will
be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be
invalid, illegal or unenforceable in any respect under any applicable law
or rule in any jurisdiction, such invalidity, illegality or
unenforceability will not affect any other provision or any other
jurisdiction, but this Agreement will be reformed, construed and enforced
in such jurisdiction as if such invalid, illegal or unenforceable
provision had never been contained herein.6.
    
    Complete Agreement. This Agreement constitutes the complete agreement
and understanding between the parties hereto and supersedes and preempts
any prior understandings, agreements or representations by or between the
parties hereto, written or oral, which may have related to the subject
matter hereof in any way, including without limitation that certain
Employment Agreement, dated as of April 29, 1997, by and between the
Company and Executive.7.
    
    Counterparts. This Agreement may be executed in separate counterparts,
each of which is deemed to be an original and all of which taken together
constitute one and the same agreement.8.
    
    Successors and Assignability. This Agreement is intended to bind and
inure to the benefit of and be enforceable by Executive and his heirs,
executors or administrators, and to bind and inure to the benefit of and
be enforceable by the Company and its successors and assigns. This
Agreement shall not be assignable by Executive, except by will or pursuant
to the laws of descent and distribution.9.
    
    Choice of Law. All questions concerning the construction, validity, and
interpretation of this Agreement will be governed by the internal law, and
not the law of conflicts, of the State of Texas, including without
limitation the Texas statute of limitations.10.
    
    Remedies. Each of the parties to this Agreement will be entitled to
enforce its rights under this Agreement specifically, to recover damages
by reason of any breach of any provision of this Agreement and to exercise
all other rights existing in its favor. The parties hereto agree and
acknowledge that money damages may not be an adequate remedy for any
breach of the provisions of this Agreement and that any party may in its
sole discretion apply to any court of law or equity of competent
jurisdiction for specific performance and/or injunctive relief in order to
enforce or prevent any violations of the provisions of this Agreement.11.
    
    Amendments and Waivers. Any provision of this Agreement may be amended
or waived only with the prior written consent of the Company and
Executive.12.
    
    Legal Fees. In the event of any litigation between the parties hereto
relating to this Agreement, the prevailing party will be entitled to
recover from the losing party reimbursement for the prevailing partys
reasonable attorneys fees and expenses. 6




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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above. MICHAELS STORES, INC.By
    /s/ Charles J. Wyly, Jr.Charles J. Wyly, Jr.Chairman of the Board of Directors/s/ R. Michael RouleauR. Michael Rouleau 7