**Exhibit10.3**

Brian C. Cornell

Chief ExecutiveOfficer

**MichaelsStores, Inc.**

## **Fiscal Year 2007**

## **Bonus Plan**

***CONFIDENTIAL***

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**Introduction**

YourFiscal Year 2007 Bonus Plan provides you financial incentives for yourimportant contributions to our success.  Inyour position as Chief Executive Officer, you have the potential to earn up toa maximum bonus payout of **200%** of youreligible base salary.

**BonusMeasures**

Your bonus plan isbased on the overall company performance, your personal performance, and your businessunit performance (where applicable):

***Fiscal Year 2007 Bonus Plan Measures, Definitions and Targets***
| **Plan Measure**                                                                  | ** ** | **Measure Definition**                                                                                                                                                                                          | ** ** | **Weight** | ** ** | **Threshold   Performance**                                                                                                                                         | ** ** | **Target   Performance   (PLAN)**                                                                                                                                           | ** ** | **Maximum   Performance**                                                                                                                                                        |
|----------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Corporate Financial Performance: Michaels Stores  Inc. EBITDA minus Inventory Charge * |       | Total Company Sales, *Less*  Cost of Goods Sold, *Less* Selling,  General and Administrative Expenses, *Plus*  Depreciation and Amortization, *Less* Average  Monthly Inventory times     % |       | 75         | %          | $                           (94.0% of PLAN) |       | $                             (100.0% of PLAN) |       | $                             (106.0% of PLAN) |
| Your Performance                                                                       |       | Your FY 2007 Performance Appraisal Rating                                                                                                                                                                            |       | 25         | %          | Mixed   Performance                                                                                                                                                      |       | Solid   Performance                                                                                                                                                                   |       | Exceeds   Expectations                                                                                                                                                                |

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* *May exclude additional charges as approved by theCompensation Committee of the Board of Directors*

**EBITDA**

EBITDA *(“ee-bid-dah”)* is short for “**E**arnings**B**efore **I**nterest,**T**axes, **D**epreciationand **A**mortization”.  It is a measure that indicates the Company’soperating profitability before non-operating expenses and non-cash charges, calculatedby taking operating income and adding back depreciation and amortizationexpenses.  Amortization refersto spreading an intangible asset’s value over that asset’suseful life.  An example of anintangible asset would be leasehold improvements (changes we make to a storelocation to make the building setup consistent with a Michaels store layout). Depreciation,on the other hand, refers to the spreading of a tangible asset’s cost overthat asset’s life, such as store fixtures or computer equipment.

EBITDA is intendedto be a measure that is much more closely linked to the cash flow that thebusiness generates from its operations – a measure of the profit and lossstatement (P&L) based on the cash we take in each day (sales), less theongoing cash we are spending (cost of sales and expenses).

**EBITDAminus Inventory Charge**

The inventorycharge is much like an “interest charge” to cover the cost of buyingand holding inventory, and is subtracted from the EBITDA number.

**Minimum Company Performance Threshold**

Before anyBusiness Unit or Individual Performance portion can be earned, the actualresults of the Corporate Financial Performance measure (Michaels Stores Inc.EBITDA minus inventory charge) must meet or exceed a minimum level ofperformance (“Threshold”).  For FiscalYear 2007, the Threshold level is $                   .

**PerformanceLevels and Bonus Payouts**

For all company, businessunit, and individual performance bonus plan measures, there are four major performancelevels:  Below Threshold, Threshold,Target and Maximum.  Bonus payoutpercentages will be based upon the achieved level of performance for each of yourbonus plan measures.  To determine theactual payout percent, 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 February 2, 2008, and adjusted forany applicable proration.  If you changepositions during the year, resulting in a change in bonus plan, your base salaryprior to your transfer will be used as the eligible base salary for your formerposition.

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

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**Personal Bonus CalculationWorksheet - Brian C. Cornell**
| Threshold Bonus: 30% |   | Target Bonus: 100% |   | Maximum Bonus: 200% |
|----------------------|--------|--------------------|--------|---------------------|

 
| **Measure**                                  | ** ** | **Weight** | ** ** | **Threshold Bonus %** | ** ** | **Target Bonus %** | ** ** | **Maximum Bonus %** | ** ** |
|----------------------------------------------|------------|------------|------------|---------------------------------|------------|------------------------------|------------|-------------------------------|------------|
| MSI EBITDA minus inventory charge            |       | 75         | %          | 22.50                           | %          | 75.00                        | %          | 150.00                        | %          |
| Your Performance  (FY 07 Performance Rating) |       | 25         | %          | 12.50                           | %          | 25.00                        | %          | 50.00                         | %          |

 

**Scaling of Payout Percentage**

When performancefalls at any point between the threshold and maximum goals, your bonus payoutwill be scaled according to the performance above or below the targetgoal.  The amount of bonus is scaled tothe nearest hundredth of a percent when comparing plan to actual results.  All calculations will be rounded to thenearest hundredth.  The Individual Performance portion of thebonus has four bonus payout levels based upon the Annual FY 2007 PerformanceAppraisal Rating, and no scaling will be applied.   (Needs Development Performance Rating equalszero bonus for the performance component).

**Bonus Scaling Formulas**

The following formulasillustrate how bonus scaling is applied in calculating the Actual Bonuspercentages achieved for the corporate financial measure and any business unitmeasure:

Scenario 1: Actualperformance is *above*target goal:
| Wtd Achieved Bonus% = (Wtd Max Bonus% -  Wtd Target Bonus%) x | Actual Perf - PLAN Perf Goal |  + Wtd Target Bonus % |
|---------------------------------------------------------------|------------------------------|----------------------------|
| Max Perf Goal - PLAN Perf Goal                                |

 

Scenario 2: Actualperformance is *below*targetgoal:
| Wtd Achieved Bonus% = (Wtd Target Bonus%  - Wtd Threshold Bonus%) x | Actual Perf -  Threshold Perf Goal |  + Wtd Threshold  Bonus % |
|---------------------------------------------------------------------|------------------------------------|-------------------------------------|
| PLAN Perf Goal -  Threshold Perf Goal                               |

 

*Note: Wtd = Weighted; PLAN = Target*

**Eligibility**

To be eligible fora bonus under the Fiscal Year 2007 Bonus Plan, the associate must meet all ofthe eligibility factors:

1.               Must be in a bonuseligible position during Fiscal Year 2007. The Fiscal Year begins on February 4, 2007, and concludes on February 2,2008.  If an associate is not employed ina bonus eligible position at the beginning of the fiscal year, but assumes abonus eligible position during the fiscal year, he/she will be eligible to earna prorated bonus based upon the number of full months that he/she was in thebonus eligible position.  Individuals whoassume a bonus eligible position on or before the 15th ofthe 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 the bonuslevel of the position he/she is in on the 15th ofthe month, in accordance with the bonus plan for the credited position (see #5).

2.               An associate mustbe hired in a bonus eligible position on or before November 15, 2007.

3.               An associate musthave worked for at least three months in a bonus eligible position in **F**iscal Year 2007.

4.               An associate mustbe employed in a bonus eligible position at the end of the fiscal year,February 2, 2008, in order to be eligible to receive a bonus.  All bonus payments payable under this BonusPlan will normally occur between April 1st and April 30th, following the end of thefiscal year, provided that all eligibility criteria as set forth in this bonusplan document are met.  Bonus eligiblepositions are defined as any regular full-time or regular part-time associatesin one of the following store or corporate positions:  
| **Store  Positions**                 | ** ** | **Corporate Positions**                                                                             |
|--------------------------------------|------------|-----------------------------------------------------------------------------------------------------|
| Store Manager and  Assistant Manager |       | Corporate Manager through Executive Committee Member  (Includes Artistree and Specialty Businesses) |
|                                 |       | Distribution Center Coach, Manager, Assistant  General Manager and General Manager                  |

 

Note: Temporary employees and independent contractorsare not bonus eligible positions.

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5.               If an associate ispromoted or changes position during the fiscal year, the associate may beeligible for bonus earnings calculated using the number of full months (see #1)in each position, the respective base salaries, and the applicable target bonusamount(s).

6.               An associate is noteligible for a bonus under this Bonus Plan if the associate received aPerformance Improvement Plan during Fiscal Year 2007 and the associate remainson the Performance Improvement Plan at the time of bonus payout (check date).

**How aBonus is Earned**

Inorder to earn a bonus under this Fiscal Year 2007 Bonus Plan, the associatemust first satisfy all of the requirements in the Eligibility section of theBonus Plan.  In addition, and to theextent 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, February 2, 2008.

*Tothe extent allowed by law,**Michaels Stores, Inc. reservesthe right to change or cancel any portion(s) of this Bonus Plan for any reason.This Bonus Plan does not constitute a contract or other agreement concerningthe duration of any associate’s employment. To the extent allowed by law, theemployment relationship remains “at will” and may be terminated at any time,with or without cause.  This Bonus Planshall be administered by the Compensation Committee of the Board of Directors,in its sole discretion.*

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