Exhibit
10.3





Harvey S. Kanter


Executive Vice
President – Chief Merchant


Michaels
Stores, Inc.


Fiscal Year 2007


Bonus
Plan











Introduction


Your Fiscal Year 2007
Bonus Plan provides you financial incentives for your important contributions
to our success.   In your position as
Executive Vice President – Chief Merchant, you have the potential to earn up to
a maximum bonus payout of 100% 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    %

  	
   

  	
  50%

  	
   

  	
  $            

  	
   

  	
  $            

  	
   

  	
  $            

  	
   

  
	
  Your
  Performance

  	
   

  	
  Your
  FY 2007 Performance Appraisal Rating

  	
   

  	
  25%

  	
   

  	
  Mixed

  Performance

  	
   

  	
  Solid

  Performance

  	
   

  	
  Exceeds

  Expectations

  	
   

  
	
  Buyer
  Contribution $ minus Inventory Charge

  	
   

  	
  Scan
  Margin Plus Entitlements, Less Average Monthly Inventory
  Times     %

  	
   

  	
  15%

  	
   

  	
  $           

  (95.0% of PLAN)

  	
   

  	
  $           

  (98.5% of PLAN)

  	
   

  	
  $           

  (102.0% of PLAN)

  	
   

  
	
  Merchandising Comp
  Sales $

  	
   

  	
  Represents sales for stores considered to be in
  “Comp” status, i.e., stores in their 14th month of operation or longer.

  	
   

  	
  10%

  	
   

  	
  $        

  (94.0% of PLAN)

  	
   

  	
  $        

  (98.5% of PLAN)

  	
   

  	
  $        

  (102.0% of PLAN)

  	
   

  



 






* 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 - Harvey Kanter


	
  Threshold Bonus: 15%

  	
   

  	
  Target Bonus: 50%

  	
   

  	
  Maximum Bonus: 100%

  



 


	
  Measure

  	
   

  	
  Weight

  	
   

  	
  Threshold Bonus%

  	
   

  	
  Target Bonus%

  	
   

  	
  Maximum Bonus%

  
	
  MSI EBITDA minus inventory charge

  	
   

  	
  50%

  	
   

  	
  7.50%

  	
   

  	
  25.00%

  	
   

  	
  50.00%

  
	
  Your Performance

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  (FY 07 Performance Rating)

  	
   

  	
  25%

  	
   

  	
  6.25%

  	
   

  	
  12.50%

  	
   

  	
  25.00%

  
	
  Buyer Contribution $minus Inventory Charge

  	
   

  	
  15%

  	
   

  	
  2.25%

  	
   

  	
  7.50%

  	
   

  	
  15.00%

  
	
  Merchandising Comp Sales $

  	
   

  	
  10%

  	
   

  	
  1.50%

  	
   

  	
  5.00%

  	
   

  	
  10.00%

  



 


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 has no scaling 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:





Scenario 2: Actual performance is below
target 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 in accordance with federal, state and local
laws. 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.