Exhibit
10.3





Brian C. Cornell


Chief Executive
Officer


Michaels
Stores, Inc.


Fiscal Year 2007


Bonus Plan


CONFIDENTIAL

















Introduction


Your
Fiscal Year 2007 Bonus Plan provides you financial incentives for your
important contributions to our success.  In
your position as Chief Executive Officer, you have the potential to earn up to
a maximum bonus payout of 200% of your
eligible base salary.


Bonus
Measures


Your bonus plan is
based on the overall company performance, your personal performance, and your business
unit 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

  







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


EBITDA


EBITDA (“ee-bid-dah”) is short for “Earnings
Before Interest,
Taxes, Depreciation
and Amortization”.  It is a measure that indicates the Company’s
operating profitability before non-operating expenses and non-cash charges, calculated
by taking operating income and adding back depreciation and amortization
expenses.  Amortization refers
to spreading an intangible asset’s value over that asset’s
useful life.  An example of an
intangible asset would be leasehold improvements (changes we make to a store
location 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 over
that asset’s life, such as store fixtures or computer equipment.


EBITDA is intended
to be a measure that is much more closely linked to the cash flow that the
business generates from its operations – a measure of the profit 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).


EBITDA
minus Inventory Charge


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


Minimum Company Performance Threshold


Before any
Business Unit or Individual Performance portion can be earned, the actual
results of the Corporate Financial Performance measure (Michaels Stores Inc.
EBITDA minus inventory charge) must meet or exceed a minimum level of
performance (“Threshold”).  For Fiscal
Year 2007, the Threshold level is $                   .


Performance
Levels and Bonus Payouts


For all 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 upon the achieved level of performance for each of your
bonus plan measures.  To determine the
actual 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 for
any applicable proration.  If you change
positions during the year, resulting in a change in bonus plan, your base salary
prior to your transfer will be used as the eligible base salary for your former
position.


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











Personal Bonus Calculation
Worksheet - 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 performance
falls at any point between the threshold and maximum goals, your bonus payout
will be scaled according to the performance above or below the target
goal.  The amount of bonus is scaled to
the nearest hundredth of a percent when comparing plan to actual results.  All calculations will be rounded to the
nearest hundredth.  The Individual Performance portion of the
bonus has four bonus payout levels based upon the Annual FY 2007 Performance
Appraisal Rating, and no scaling will be applied.   (Needs Development Performance Rating equals
zero bonus for the performance component).


Bonus Scaling Formulas


The following formulas
illustrate how bonus scaling is applied in calculating the Actual Bonus
percentages achieved for the corporate financial measure and any business unit
measure:


Scenario 1: Actual
performance 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: Actual
performance is below target
goal:


	
  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 for
a bonus under the Fiscal Year 2007 Bonus Plan, the associate must meet all of
the eligibility factors:


1.               Must be in a bonus
eligible 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 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.  Individuals who change positions during the
fiscal year will receive credit for bonus calculation purposes based upon the bonus
level of the position he/she is in on the 15th of
the month, in accordance with the bonus plan for the credited position (see #5).


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


3.               An associate must
have worked for at least three months in a bonus eligible position in Fiscal Year 2007.


4.               An associate must
be 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 Bonus
Plan will normally occur between April 1st and April 30th, following the end of the
fiscal year, provided that all eligibility criteria as set forth in this bonus
plan document are met.  Bonus eligible
positions are defined as any regular full-time or regular part-time associates
in 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 contractors
are not bonus eligible positions.











5.               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 #1)
in each position, the respective base salaries, and the applicable target bonus
amount(s).


6.               An associate is not
eligible for a bonus under this Bonus Plan if the associate received a
Performance Improvement Plan during Fiscal Year 2007 and the associate remains
on the Performance Improvement Plan at the time of bonus payout (check date).


How a
Bonus is Earned


In
order to earn a bonus under this Fiscal Year 2007 Bonus Plan, the associate
must first satisfy all of the requirements in the Eligibility section of the
Bonus Plan.  In addition, and to the
extent allowed by applicable law, the associate will not earn, and no bonus
will be paid, unless the associate is employed in a bonus eligible position at
the end of the fiscal year, February 2, 2008.


To
the extent allowed by law, Michaels Stores, Inc. reserves
the 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 concerning
the duration of any associate’s employment. To the extent allowed by law, the
employment relationship remains “at will” and may be terminated at any time,
with or without cause.  This Bonus Plan
shall be administered by the Compensation Committee of the Board of Directors,
in its sole discretion.