Document:

Exhibit
10.2

AGREEMENT

AGREEMENT made and
entered into by and between Michaels Stores, Inc. (the “Company”) and Brian
Cornell (the “Executive”), effective as of the 4th day of June, 2007 (the “Effective
Date”).

WHEREAS, the
operations of the Company and its Affiliates are a complex matter requiring
direction and leadership;

WHEREAS, the
Executive is possessed of certain experience and expertise that qualify him to
provide the direction and leadership required by the Company and its
Affiliates; and

WHEREAS, subject
to the terms and conditions hereinafter set forth, the Company therefore wishes
to employ the Executive as its Chief Executive Officer and the Executive wishes
to accept such employment;

NOW, THEREFORE, in
consideration of the foregoing premises and the mutual promises, terms,
provisions and conditions set forth in this Agreement, the parties hereby
agree:

1.                                       Employment.  Subject to the terms and conditions set forth
in this Agreement, the Company hereby offers, and the Executive hereby accepts,
employment.

2.                                       Term.                   Subject to
earlier termination as hereinafter provided, the Executive’s employment
hereunder shall be for a term of five (5) years, commencing on the Effective
Date, and shall renew automatically thereafter for successive terms of one year
each. The term of this Agreement, as from time to time renewed, is hereafter
referred to as “the term of this Agreement” or “the term hereof.”

3.                                       Capacity
and Performance.

(a)                                  During the term
hereof, the Executive shall serve the Company as its Chief Executive Officer (“CEO”).  In addition, and without further
compensation, the Executive agrees to serve as a director of the Company and as
a director and/or officer of one or more of the Company’s Immediate Affiliates
(as defined in Section 13 hereof), in each case if so elected or appointed from
time to time.

(b)                                 During
the term hereof, the Executive shall report to the Board of Directors of the
Company or its designees, currently Matthew Levin and Michael Chae.

(c)                                  During the term
hereof, the Executive shall be employed by the Company on a full-time basis and
shall perform the duties and responsibilities of his position, including,
without limitation, general oversight and direction of the operations of the
Company and such

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other duties and responsibilities on behalf of the Company consistent
with the responsibilities of a Chief Executive Officer, as well as the duties
and responsibilities reasonably related to other positions on behalf of the
Immediate Affiliates, as may be designated from time to time by the Board or by
its Chair or other designee.

(d)                                 During the term
hereof, the Executive shall devote substantially all of his business time and
his best efforts, business judgment, skill and knowledge exclusively to the
advancement of the business and interests of the Company and, if so elected or
appointed, its Immediate Affiliates and to the discharge of his duties and
responsibilities hereunder.  The Company
hereby agrees that the Executive may continue to serve as a director of OfficeMax, Inc. and
may participate in appropriate trade associations.  In addition, he may engage in appropriate
civic, charitable, religious or personal activities that do not conflict or
interfere with the proper performance of his duties hereunder.  However, the Executive shall not engage in
any other business activity or serve in any industry, professional,
governmental or academic position during the term of this Agreement, except as
may be expressly approved in advance by the Board in writing.

4.                                       Compensation
and Benefits.  As compensation for
all services performed by the Executive under and during the term hereof and
subject to performance of the Executive’s duties and of the obligations of the
Executive to the Company and its Immediate Affiliates, pursuant to this
Agreement or otherwise:

(a)                                  Base Salary.  During the term hereof, the Company shall pay
the Executive a base salary at the rate of One Million Dollars ($1,000,000) per
annum, payable in accordance with the payroll practices of the Company for its
executives and subject to increase from time to time by the Board, in its sole
discretion.  Such base salary, as from
time to time increased, is hereafter referred to as the “Base Salary”.

(b)                                 Bonuses.  For each fiscal year completed during the
term hereof, the Executive shall be eligible to earn an annual bonus, subject
to the achievement of such performance targets as shall be determined in the
discretion of the Board.  The Executive’s
target bonus shall be one hundred percent (100%) of Base Salary, with a maximum
bonus potential of two hundred percent (200%) of Base Salary for performance in
excess of the performance targets and with the actual amount of bonus, if any,
to be determined by the Board in its sole discretion.  Such bonus is hereafter referred to as the “Annual
Bonus.”  For the year ending
December 31, 2007, the Annual Bonus will be prorated to reflect the actual
commencement of the Executive’s employment.

(c)                                  Vacations.  During the term hereof, the Executive shall
be entitled to earn vacation at the rate of five (5) weeks per year, to be
taken at such times and intervals as shall be determined by the Executive,
subject to the reasonable business needs of the Company and the approval of the
person to whom the Executive reports. 
Vacation shall otherwise be governed by the policies of the Company, as
in effect from time to time.

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(d)                                 Other Benefits.  During the term hereof, the Executive shall
be entitled to participate in any and all Employee Benefit Plans from time to
time in effect for senior executives of the Company generally.  Such participation shall be subject to the
terms of the applicable plan documents and generally applicable Company
policies.  For purposes of this
Agreement, “Employee Benefit Plan” shall have the meaning ascribed to
such term in Section 3(3) of ERISA, as amended from time to time.

(e)                                  Business Expenses.  The Company shall pay or reimburse the
Executive for all reasonable, customary and necessary business expenses
incurred or paid by the Executive in the performance of his duties and responsibilities
hereunder, subject to any maximum annual limit and other restrictions on such
expenses set by the Board and to such reasonable substantiation and
documentation as may be specified by the Company from time to time.  Such expenses shall include, without
limitation, the following:

(i)                                     reasonable
expenses associated with relocation of Executive, his family and household
goods from California to Texas and with obtaining suitable housing in Texas,
all in accordance with the Company’s current executive relocation plan.

(ii)                                  reasonable
legal fees incurred in connection with his negotiation with the Company of this
Agreement and the option and restricted stock award documents described in (f)
and (g) below, and

(iii)                               reasonable travel
expenses, including business class airfare when available.

(f)                                    Sign-On
Benefits.  On the Effective Date, the
Company shall: (i)  pay to Executive a
bonus of $2,500,000, and (ii) provide Executive with a grant of 133,333 shares
of restricted stock pursuant to the form of Restricted Stock Award Agreement
attached as Exhibit A.

(g)                                 Option
Grant.  On the Effective Date, the
Company will grant to Executive an option to purchase 2,270,966 shares of
common stock pursuant to the Stock Option Agreement attached as Exhibit B.

5.                                       Termination
of Employment and Severance Benefits. 
Notwithstanding the provisions of Section 2 hereof, the Executive’s
employment hereunder shall terminate prior to the expiration of the term hereof
under the following circumstances:

(a)                                  Death.  In the event of the Executive’s death prior
to the expiration of the term hereof, the Executive’s employment hereunder
shall immediately and automatically terminate. 
In such event, the Company shall pay to the Executive’s designated
beneficiary or, if no beneficiary has been designated by the Executive in
writing, to his estate, (i) any Base Salary earned but not paid during the
final payroll period of the Executive’s employment through the date of
termination, (ii) pay for any vacation time earned but not used through the
date of

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termination, (iii) a pro-rata bonus for the year in which termination
occurs, based on the actual Annual Bonus that the Executive would have received
for such year had he remained employed by the Company for the full year and
determined based on the Company’s actual results for such year (payable
promptly following the date such Annual Bonus is determined), (iv) any bonus
compensation awarded for the fiscal year preceding that in which termination
occurs, but unpaid on the date of termination and (v) any business expenses
incurred by the Executive but un-reimbursed on the date of termination,
provided that such expenses and required substantiation and documentation are
submitted within sixty (60) days of termination and that such expenses are reimbursable
under Company policy (all of the foregoing, “Final Compensation”).  The Company shall have no further obligation
to the Executive hereunder.

(b)                                 Disability.

(i)                                     The
Company may terminate the Executive’s employment hereunder, upon notice to the
Executive, in the event that the Executive becomes disabled during his
employment hereunder through any illness, injury, accident or condition of
either a physical or psychological nature and, as a result, is unable to
perform substantially all of his duties and responsibilities hereunder,
notwithstanding the provision of any reasonable accommodation, for one hundred
and eighty (180) days during any period of three hundred and sixty-five (365)
consecutive calendar days (“Disability”). 
In the event of such termination,
the Company shall have no further obligation to the Executive, other than for
payment of Final Compensation.

(ii)                                  The
Board may designate another employee to act in the Executive’s place during any
period of the Executive’s disability. 
Notwithstanding any such designation, the Executive shall continue to
receive the Base Salary in accordance with Section 4(a) and benefits in
accordance with Section 4(e), to the extent permitted by the then-current terms
of the applicable benefit plans, until the Executive becomes eligible for
disability income benefits under the Company’s disability income plan or until
the termination of his employment, whichever shall first occur.

(iii)                               While
receiving disability income payments under the Company’s disability income
plan, the Executive shall not be entitled to receive any Base Salary under
Section 4(a) hereof, but shall continue to participate in Company benefit plans
in accordance with Section 4(e) and the terms of such plans, until the
termination of his employment.

(iv)                              If
any question shall arise as to whether during any period the Executive is
disabled through any illness, injury, accident or condition of either a
physical or psycholog­ical nature so as to be unable to perform substantially
all of his duties and responsibilities hereunder, the Executive may, and at the
request of the Company shall, submit to a medical examination by a physician
selected by the Company to whom the Executive or his duly appointed guardian,
if any, has no reasonable objection to determine whether the Executive is so
disabled and such determination shall for the purposes of this Agreement be
conclusive of the issue.  If such
question shall arise

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and the
Executive shall fail to submit to such medical examination, the Company’s determination
of the issue shall be binding on the Executive.

(c)                                  By the Company for
Cause.  The Company may terminate the
Executive’s employment hereunder for Cause at any time upon notice to the
Executive setting forth in reasonable detail the nature of such Cause.  “Cause” shall
mean the following events or conditions, as determined by the Board in its
reasonable judgment:  (i) the Executive’s
refusal or failure to perform (other than by reason of disability), or material
negligence in the performance of, his duties and responsibilities to the
Company or any of its Affiliates, or refusal or failure to follow or carry out
any reasonable direction of the Board, and the continuance of such refusal,
failure or negligence for a period of ten (10) days after notice to the
Executive; (ii) the material breach by the Executive of any provision of any material
agreement between the Executive and the Company or any of its Affiliates; (iii)
fraud, embezzlement, theft or other dishonesty by the Executive with respect to
the Company or any of its Affiliates; (iv) the conviction of, or a plea of nolo contendere by, the Executive to any
felony or any other crime involving dishonesty or moral turpitude; and (v) any
other conduct that involves a breach of fiduciary obligation on the part of the
Executive.  Upon the giving of
notice of termination of the Executive’s employment hereunder for Cause, the
Company shall have no further obligation to the Executive, other than for Final
Compensation.

(d)                                 By the Company
Other than for Cause.  The Company
may terminate the Executive’s employment hereunder other than for Cause at any
time upon notice to the Executive.  In
the event of such termination, in addition to Final Compensation, then for the
period of two (2) years following the date of termin­ation, the Company shall
provide the Executive Severance Benefits as follows:  (i) the Company will pay the Executive
Severance Pay equal to the sum of (A) the Base Salary at the annual rate in
effect on the date of termination and (B) the Executive’s target Annual Bonus
determined in accordance with Section 4(b) hereof and (ii) subject to any
employee contribution applicable to the Executive on the date of termination,
the Company shall continue to contribute to the premium cost of the Executive’s
participation in the Company’s group medical and dental plans, provided that
the Executive is entitled to continue such participation under applicable law
and plan terms and pays the remainder of such premium cost, and any required
administrative fee, in a timely manner from month to month.  Any
obligation of the Company to the Executive hereunder is conditioned, however,
on the Executive signing and returning to the Company a timely and effective
release of claims in the form provided by the Company (the “Release of Claims”).  The Release of Claims required for
separation benefits in accordance with Section 5(d) or Section 5(e) hereof
creates legally binding obligations on the part of the Executive and the
Company and its Affiliates therefore advise the Executive to seek the advice of
an attorney before signing the Release of Claims.  Severance Pay to which the
Executive is entitled hereunder shall be payable on a pro-rated basis at the
Company’s regular payroll periods and in accordance with its normal payroll
practices and will begin at the Company’s next regular payroll period which is
at least five (5) business days following the later of the effective date of
the Release of Claims or the date the Release of Claims, signed by the
Executive, is received by the Company, but the first payment shall be
retroactive to next business day following the date of termination.  In the event that Executive is entitled to
receive benefits upon termination under any other agreement with, or plan or
policy

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of, the Company, he shall be entitled to
receive either the benefits under this Agreement or under such other agreement,
but not both, on an individual benefit basis, as he selects (“No Duplication of
Benefits”).

(e)                                  By the Executive
for Good Reason.  The Executive may
terminate his employment hereunder for Good Reason, upon notice to the Company
setting forth in reasonable detail the nature of such Good Reason.  The following shall constitute Good Reason
for termination by the Executive:

(i)                                     Removal
of the Executive, without his consent, from the position of CEO of the Company
(or a successor corporation);

(ii)                                  Material
diminution in the nature or scope of the Executive’s responsibilities, duties
or authority which is not cured within ten (10) days following the Company’s
receipt of notice from the Executive setting forth in reasonable detail the
nature of such diminution; provided, however, that the Company’s failure to
continue the Executive’s appointment or election as a director or officer of
any of its Affiliates, a change in reporting relationships resulting from the
direct or indirect control of the Company (or a successor corporation) by
another corporation or other entity and any diminution of the business of the
Company or any of its Affiliates or any
sale or transfer of equity,
property or other assets of the Company or any of its Affiliates shall not
constitute “Good Reason”; or

(iii)                               Material
failure of the Company to provide the Executive the Base Salary and benefits in
accordance with the terms of Section 4 hereof, excluding an inadvertent failure
which is cured within ten (10) days following the Company’s receipt of notice
from the Executive specifying in reasonable detail the nature of such failure.

In the event of termination in accordance with this Section 5(e), and,
in accordance with the No Duplication of Benefits principle contained in
Section 5(d), then the Executive will be entitled to the Severance
Benefits he would have been entitled to receive had the Executive been
terminated by the Company other than for Cause in accordance with Section 5(d)
above; provided that the Executive satisfies all conditions to such
entitlement, including without limitation the signing of a timely and effective
Release of Claims.

(f)                                    By the Executive
Other than for Good Reason.  The
Executive may terminate his employment hereunder at any time upon sixty (60)
days’ notice to the Company. In the event of termination of the Executive
pursuant to this Section 5(f), the Board may elect to waive the period of
notice, or any portion thereof, and, if the Board so elects, the Company will
pay the Executive his Base Salary for the initial sixty (60) days of the notice
period (or for any remaining portion of such period).  The Company shall have no further obligation
to the Executive, other than for any Final Compensation due to him.

(g)                                 Timing of Payments.  If,
at the time of the Executive’s separation from service, the Executive is a “specified
employee,” as hereinafter defined, any and all amounts payable under this
Section 5 in connection with such separation from service that constitute

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deferred
compensation subject to Section 409A of the Internal Revenue Code of 1986, as
amended, (“Section 409A”), as determined by the Company in its sole discretion,
and that would (but for this sentence) be payable within six months following
such separation from service, shall instead be paid on the date that follows
the date of such separation from service by six (6) months.  For purposes of the preceding sentence, “separation
from service” shall be determined in a manner consistent with subsection
(a)(2)(A)(i) of Section 409A and the term “specified employee” shall mean an
individual determined by the Company to be a specified employee as defined in
subsection (a)(2)(B)(i) of Section 409A.

6.                                       Effect of
Termination.  The provisions of this
Section 6 shall apply to any termination, whether
due to the expiration of the term hereof, pursuant to Section 5 or otherwise.

(a)                                  In the event of the
termination of the Executive’s employment hereunder, payment by the Company of
any amounts due in accordance with the applicable termination provision of
Section 5 hereof shall constitute the entire obligation of the Company to the
Executive.  The Executive shall promptly
give the Company notice of all facts necessary for the Company to determine the
amount and duration of its obligations in connection with any termination
pursuant to Section 5(d) or 5(e) hereof.

(b)                                 Except for any right
of the Executive to continue medical and dental plan participation in accordance
with applicable law, benefits shall terminate pursuant to the terms of the
applicable benefit plans based on the date of termination of the Executive’s
employment without regard to any continuation of Base Salary or other payment
to the Executive following such date of termination.

(c)                                  Provisions of this
Agreement shall survive any termination or expiration of the term hereof, if so
provided in this Agreement or if necessary or desirable to accomplish the
purposes of other surviving provisions, including without limitation the
obligations of the Executive under Sections 7, 8 and 9 hereof.  Any obligation of the Company otherwise to
make payments to or on behalf of the Executive under Section 5(d) or 5(e)
hereof is expressly conditioned upon the Executive’s continued full performance
of obligations under Sections 7, 8 and 9 hereof.  The Executive recognizes that no compensation
is earned after termination of his employment hereunder, except as otherwise
expressly provided in accordance with Section 5(d), 5(e) or 5(f) (for any
portion of the notice period waived).

7.                                       Confidential
Information.

(a)                                  The Executive
acknowledges that the Company and its Affiliates continually develop
Confidential Information; that the Executive may develop Confidential Information
for the Company or its Affiliates; and that the Executive may learn of
Confidential Information during the course of employment.  The Executive will comply with the policies
and procedures of the Company and its Affiliates for protecting Confidential Information
and shall not disclose to any Person or use any Confidential Information
obtained by the Executive incident to his employment or other association with
the Company or any of its Affiliates, other than as required for the proper
performance of the Executive’s duties and responsibilities to the

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Company and its Affiliates or as required by applicable law or legal
process after notice to the Company and a reasonable opportunity for it to see
protection of such Confidential Information prior to disclosure.  The Executive understands that these
restrictions shall continue to apply after his employment terminates,
regardless of the reason for such termination. 
The confidentiality obligation under this Section 7 shall not apply to
information which is generally known or readily available to the public at the
time of disclosure or becomes generally known through no wrongful act on the
part of the Executive or any other Person having an obligation of
confidentiality to the Company or any of its Affiliates.

(b)                                 All documents,
records, tapes and other media of every kind and description relating to the
business, present or otherwise, of the Company or its Affiliates and any
copies, in whole or in part, thereof (the “Documents”), whether or not prepared
by the Executive, shall be the sole and exclusive property of the Company and
its Affiliates.  The Executive shall
safeguard all Documents and shall surrender to the Company at the time his
employment terminates, or at such earlier time or times as the Board or its
designee may specify, all Documents then in the Executive’s possession or
control.

8.                                       Assignment
of Rights to Intellectual Property.  The Executive shall promptly and
fully disclose all Intellectual Property to the Company.  The Executive hereby assigns and agrees to
assign to the Company (or as otherwise directed by the Company) the Executive’s
full right, title and interest in and to all Intellectual Property developed at
any time during his employment with the Company, its Affiliates, successors or
assigns.  The Executive agrees to execute
any and all applications for domestic and foreign patents, copyrights or other
proprietary rights and to do such other acts (including without limitation the
execution and delivery of instruments of further assurance or confirmation)
requested by the Company to assign the Intellectual Property to the Company and
to permit the Company to enforce any patents, copyrights or other proprietary
rights to the Intellectual Property. The Executive will not charge the Company
for time spent in complying with these obligations.  All copyrightable works that the Executive
creates shall be considered “work made for hire” and shall, upon creation, be
owned exclusively by the Company.

9.                                       Restricted
Activities.  The Executive acknowledges
the importance to the Company and its Affiliates of protecting their trade
secrets and other Confidential Information and their other legitimate business
interests, including without limitation the valuable trade secrets, other
Confidential Information and goodwill that they have developed or acquired and
which they shall continue to develop and acquire while the Executive’s
employment continues.  The Company
agrees, in consideration of the Executive’s acceptance of the restrictions set
forth below, to grant the Executive access to trade secrets and other
Confidential Information of the Company and its Immediate Affiliates and to
their valuable business relationships and their goodwill.  The Executive acknowledges and agrees that
the restrictions on his activities during and after his employment set forth
below are necessary to protect the goodwill, Confidential Information and other
legitimate interests of the Company and its Affiliates:

(a)                                  The
Executive agrees that, during the his employment with the Company and for the
period of twenty-four (24) months immediately following the termination of his

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employment,
regardless of the basis or timing of such termination, the Executive will not,
directly or indirectly, alone or in association with others, anywhere in the
Territory, own, manage, operate, control or participate in the ownership,
management, operation or control of, or be connected as an officer, employee,
investor, principal, joint venturer, shareholder, partner, director,
consultant, agent or otherwise with, or have any financial interest (through
stock or other equity ownership, investment of capital, the lending of money or
otherwise) in, any business, venture or activity that directly or indirectly
competes, or is in planning, or has undertaken any preparation, to compete,
with the Business of the Company or any of its Immediate Affiliates (a “Competitor”),
except that nothing contained in this Section 9(a) shall prevent the Executive’s
wholly passive ownership of two percent (2%) or less of the equity securities
of any Competitor that is a publicly-traded company.  For the purposes of this Agreement, the “Business
of the Company and its Immediate Affiliates” or “Business” is that of arts and
crafts specialty retailer providing materials, ideas and education for creative
activities and the “Territory” is those states within the United States and
those provinces of Canada in which the Company or any of its Immediate
Affiliates is doing or actively planning to do business at any time during the
Executive’s employment or, with respect to his obligations hereunder following
termination of his employment with the Company, at any time during the six (6)
months immediately preceding such termination.

(b)                                 The Executive agrees
that, during his employment with the Company, he will comply with any and all
codes of ethics or business conduct of the Company applicable to his position,
as in effect from time to time, and will not undertake any outside activity,
whether or not competitive with the business of the Company or its Affiliates,
that could reasonably give rise to a conflict of interest or otherwise
interfere with his duties and obligations to the Company or any of its
Affiliates.

(c)                                  The Executive agrees
that, during his employment and during the period  of twenty-four (24) months immediately
following termination of his employment, regardless of the basis or timing of
such termination, the Executive will not, and will not assist any other Person
to, (a) hire or solicit for hire any employee of the Company or any of its
Immediate Affiliates or seek to persuade any employee of the Company or any of
its Immediate Affiliates to discontinue employment or (b) solicit or encourage
any independent contractor providing services to the Company or any of its Immediate
Affiliates to terminate or diminish its relationship with them; provided,
however, that, after termination of the Executive’s employment with the
Company, these restrictions shall apply only with respect to employees of, and
independent contractors providing services to, the Company or any of its
Immediate Affiliates on the date the Executive’s employment with the Company
terminates or at any time during the preceding twelve (12) months.

(d)                                 The
Executive agrees that, during his employment and during the period  of 
twenty-four (24) months immediately following termination of his
employment, regardless of the basis or timing of such termination, the
Executive will not directly or indirectly solicit or encourage any distributor
or vendor to the Company or any of its Immediate Affiliates to terminate or
breach any agreement with the Company or any of its Immediate Affiliates or to
terminate or diminish its relationship with the Company or any of its Immediate
Affiliates;

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provided, however, that,
after termination of the Executive’s employment with the Company, these
restrictions shall apply only with respect to those distributors and vendors
who were doing business with the Company or any of its Affiliates on the date
the Executive’s employment terminates or at any time during the preceding
twelve (12) months.

10.                                 Notification
Requirement.  Until the conclusion of
twenty-four (24) months following termination of his employment with the
Company, the Executive shall give notice to the Company of each new business
activity he plans to undertake, at least ten (10) business days prior to
beginning any such activity.  Such notice
shall state the name and address of the Person for whom such activity is
undertaken and the nature of the Executive’s business relationship(s) and
position(s) with such Person.  The
Executive shall provide the Company with such other pertinent information
concerning such business activity as the Company may reasonably request in
order to determine the Executive’s continued compliance with his obligations
under Sections 7, 8 and 9 hereof.

11.                                 Enforcement
of Covenants.  The Executive
acknowledges that he has carefully read and considered all the terms and
conditions of this Agreement, including the restraints imposed upon him
pursuant to Sections 7, 8 and 9 hereof. 
The Executive agrees without reservation that each of the restraints
contained herein is necessary for the reasonable and proper protection of the
goodwill, Confidential Information and other legitimate interests of the
Company and its Affiliates; that each and every one of those restraints is
reasonable in respect to subject matter, length of time and geographic area;
and that these restraints, individually or in the aggregate, will not prevent
him from obtaining other suitable employment during the period in which the
Executive is bound by these restraints. 
The Executive further agrees that he will never assert, or permit to be
asserted on his behalf, in any forum, any position contrary to the
foregoing.   The Executive further acknowledges
that, were he to breach any of the covenants contained in Sections 7, 8 or 9
hereof, the damage to the Company and its Affiliates would be irreparable.  The Executive therefore agrees that the
Company, in addition to any other remedies available to it, shall be entitled
to preliminary and permanent injunctive relief against any breach or threatened
breach by the Executive of any of said covenants, without having to post
bond.  The parties further agree that, in
the event that any provision of Section 7, 8 or 9 hereof shall be determined by
any court of competent jurisdiction to be unenforceable by reason of its being
extended over too great a time, too large a geographic area or too great a
range of activities, such provision shall be deemed to be modified to permit
its enforcement to the maximum extent permitted by law.

12.                                 Conflicting
Agreements.  The Executive hereby
represents and warrants that the execution of this Agreement and the
performance of his obligations hereunder will not breach or be in conflict with
any other agreement to which the Executive is a party or is bound and that the
Executive is not now subject to any covenants against competition or similar
covenants or any court order or other legal obligation that would affect the
performance of his obligations hereunder. 
The Executive will not disclose to or use on behalf of the Company any
proprietary information of a third party without such party’s consent.

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13.                                 Definitions.  Words or phrases which are initially
capitalized or are within quotation marks shall have the meanings provided in
this Section and as provided elsewhere herein. 
For purposes of this Agreement, the following definitions apply:

(a)                                  “Affiliates”
means all persons and entities directly or indirectly controlling, controlled
by or under common control with the Company, where control may be by either
management authority, contract or equity interest.

(b)                                 “Confidential
Information” means any and all information of the Company and its Affiliates
that is not generally known by those Persons with whom they compete or do
business, or with whom any of them plans to compete or do business and any and
all information, publicly known in whole or in part or not, which, if disclosed
by the Company or its Affiliates would assist in competition against them.
Confidential Information includes without limitation such information relating
to (i) the development, research, testing, manufacturing, marketing and
financial activities of the Company and its Affiliates, (ii) the products and
services of the Company and its Affiliates, (iii) the costs, sources of supply,
financial performance and strategic plans of the Company and its Affiliates,
(iv) the identity and special needs of the customers of the Company and its
Affiliates and (v) the people and organizations with whom the Company and its
Affiliates have business relationships and those relationships.  Confidential Information also includes any
information that the Company or any of its Affiliates have received, or may
receive hereafter, belonging to customers or others with any understanding,
express or implied, that the information would not be disclosed.

(c)                                  “Immediate
Affiliates” means those Affiliates which are one of the following: (i) a direct
or direct subsidiary of the Company, (ii) a parent to the Company or (iii) a
direct or indirect subsidiary of such a parent.

(d)                                 “Intellectual Property”
means inventions, discoveries, developments, methods, processes, compositions,
works, concepts and ideas (whether or not patentable or copyrightable or
constituting trade secrets) conceived, made, created, developed or reduced to
practice by the Executive (whether alone or with others, whether or not during
normal business hours or on or off Company premises) during the Executive’s
employment that relate to the Business of the Company or any of its Immediate
Affiliates or to any prospective activity of the Company or any of its
Immediate Affiliates or to any work performed by the Executive for the Company
or any of its Immediate Affiliates or that make use of  Confidential Information or any of the
equipment or facilities or other resources of the Company or any of its
Immediate Affiliates.

(e)                                  “Person” means an
individual, a corporation, a limited liability company, an association, a
partnership, an estate, a trust and any other entity or organization, other
than the Company or any of its Affiliates.

15.                                 Withholding.  All payments made by the Company under this
Agreement shall be reduced by any tax or other amounts required to be withheld
by the Company under applicable law.

 11
 

16.                                 Assignment.  Neither the Company nor the Executive may
make any assignment of this Agreement or any interest herein, by operation of
law or otherwise, without the prior written consent of the other; provided,
however, that the Company may assign its rights and obligations under this
Agreement without the consent of the Executive in the event that the Executive
is transferred to a position with any of the Affiliates or in the event that
the Company shall hereafter effect a reorganization, consolidate with, or merge
into, any Person or transfer all or substantially all of its properties or
assets to any Person.  This Agreement
shall inure to the benefit of and be binding upon the Company and the
Executive, their respective successors, executors, administrators, heirs and
permitted assigns.

17.                                 Severability.  If any portion or provision of this Agreement
shall to any extent be declared illegal or unenforceable by a court of
competent jurisdiction, then the remainder of this Agreement, or the
application of such portion or provision in circumstances other than those as
to which it is so declared illegal or unenforceable, shall not be affected
thereby, and each portion and provision of this Agreement shall be valid and
enforceable to the fullest extent permitted by law.

18.                                 Waiver.  No waiver of any provision hereof shall be
effective unless made in writing and signed by the waiving party.  The failure of either party to require the
performance of any term or obligation of this Agreement, or the waiver by
either party of any breach of this Agreement, shall not prevent any subsequent
enforcement of such term or obligation or be deemed a waiver of any subsequent
breach.

19.                                 Notices.  Any and all notices, requests, demands and
other communications provided for by this Agreement shall be in writing and
shall be effective when delivered in person, consigned to a reputable national
courier service or deposited in the United States mail, postage prepaid,
registered or certified, and addressed to the Executive at his last known
address on the books of the Company or, in the case of the Company, at its
principal place of business, attention of the Chair of the Board, or to such
other address as either party may specify by notice to the other actually
received.

20.                                 Entire Agreement.  This Agreement constitutes the entire
agreement between the parties and supersedes all prior communications,
agreements and understandings, written or oral, with respect to the terms and
conditions of the Executive’s employment.

21.                                 Amendment.  This Agreement may be amended or modified
only by a written instrument signed by the Executive and by a expressly
authorized representative of the Board.

22.                                 Headings.  The headings and captions in this Agreement
are for convenience only and in no way define or describe the scope or content
of any provision of this Agreement.

 12
 

23.                                 Counterparts.  This Agreement may be executed in two or more
counterparts, each of which shall be an original and all of which together
shall constitute one and the same instrument.

24.                                 Governing
Law.  This is a Texas contract and
shall be construed and enforced under and be governed in all respects by the
laws of the State of Texas, without regard to the conflict of laws principles
thereof.

[Signature page
follows immediately.]

 13

IN WITNESS
WHEREOF, this Agreement has been executed as a sealed instrument by the
Company, by its duly authorized representative, and by the Executive, as of the
date first above written.

	
  THE EXECUTIVE:

  	
  THE COMPANY:

  
	
   

  	
   

  
	
   

  	
   

  
	
  Brian Cornell

  	
  MICHAELS STORES, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   /s/ Brian Cornell

  	
   

  	
  By:

  	
  /s/ Jeffrey N. Boyer

  
	
   

  	
   

  	
   

  
	
   

  	
  Title:

  	
  President and Chief Financial OfficerExhibit
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.

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