8-K

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 8-K

CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934

Date of report (Date of earliest event reported): March 14, 2006

MICHAELS STORES, INC.

(Exact Name of Registrant as Specified in Charter)

Delaware	001-09338	75-1943604
(State or Other Jurisdiction	(Commission	(IRS Employer
of Incorporation)	File Number)	Identification No.)

8000 Bent Branch Drive
Irving, Texas 75063
P.O. Box 619566
DFW, Texas 75261-9566
(Address of Principal Executive Offices) (Zip Code)

Registrant’s telephone number, including area code: (972) 409-1300

     Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

TABLE OF CONTENTS

Amended and Restated Bylaws

Amendment to Employment Agreement - R. Michael Rouleau

Fiscal Year 2006 Bonus Plan for R. Michael Rouleau

Fiscal Year 2006 Bonus Plan for Jeffrey N. Boyer

Fiscal Year 2006 Bonus Plan for Gregory A. Sandfort

Fiscal Year 2006 Bonus Plan for Edward F. Sadler

Fiscal Year 2006 Bonus Plan for Thomas C. DeCaro

Press Release

Item 1.01. Entry into a Material Definitive Agreement.

Amendment of R. Michael Rouleau’s Employment Agreement

     Effective as of March 15, 2006, in connection with his retirement from Michaels Stores, Inc. (the “Company”) as described below, Mr. Rouleau, the Company’s Chief Executive Officer and President, and the Company entered into an Amendment to Employment Agreement (the “Amendment”), providing for the amendment of Mr. Rouleau’s Amended and Restated Employment Agreement.

     Pursuant to the Amendment, Mr. Rouleau will serve as Special Advisor to the Board of Directors of the Company (the “Board”). Mr. Rouleau will continue to receive his current base salary of $840,000 through January 31, 2008 and will receive a bonus for fiscal year 2006, prorated to March 31, 2006. Mr. Rouleau and his spouse will continue to participate in the Company’s medical, dental and vision care 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 by the Agreement and the Amendment. Mr. Rouleau’s current life insurance and disability insurance benefits will continue in effect until January 31, 2008, including his Company-owned whole life insurance policies which will be transferred to Mr. Rouleau on January 31, 2008. Mr. Rouleau’s Company-paid automobile will be transferred to him in connection with his retirement and the Company is to make a tax gross-up payment to Mr. Rouleau for the income tax effect of this transfer. In addition, each outstanding option to purchase common stock of the Company granted to Mr. Rouleau prior to August 5, 2005 became fully vested and exercisable, and the exercise period of such options was extended to March 14, 2011. Options granted to Mr. Rouleau after August 4, 2005 are to vest and expire in accordance with their terms.

     The above summary of the Amendment is qualified in its entirety by reference to the full text of the Amendment, a copy of which is attached as Exhibit 10.1 to this Current Report on Form 8-K, and the full text of Mr. Rouleau’s Amended and Restated Employment Agreement, a copy of which is attached as Exhibit 10.1 to the Company’s Form 10-Q for the period ended July 31, 2004, filed by the Company on September 1, 2004, SEC File No. 001-09338, and each is incorporated by reference into this Item 1.01.

2006 Base Compensation and Bonus Plans

     On March 14, 2006, the Compensation Committee of the Board (the “Compensation Committee”) approved the following actions regarding the Company’s executive officers as set out below.

2006 Base Compensation Determination for Executive Officers

     The Compensation Committee approved the annual base compensation rates, payable during continued employment, of the Company’s executive officers, to be effective as of March 26, 2006. The following table sets forth the annual base compensation of the Company’s executive officers for 2006 and 2005:

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			Base
Name and Position	Year		Compensation
Charles J. Wyly, Jr.		2006	$	450,000
Chairman of the Board of Directors		2005	$	450,000
Sam Wyly		2006	$	225,000
Vice Chairman of the Board of Directors		2005	$	225,000
R. Michael Rouleau		2006	$	840,000
President and Chief Executive Officer		2005	$	808,100
Jeffrey N. Boyer		2006	$	390,000
Executive Vice President – Chief		2005	$	375,000
Financial Officer (effective March 15, 2006, President and Chief Financial Officer)
Gregory A. Sandfort		2006	$	310,000
Executive Vice President – General		2005	$	300,000
Merchandise Manager (effective March 15, 2006, President and Chief Operating Officer)
Edward F. Sadler		2006	$	340,000
Executive Vice President –		2005	$	330,000
Store Operations
Thomas C. DeCaro		2006	$	284,000
Executive Vice President –		2005	$	275,000
Supply Chain
Harvey S. Kanter		2006	$	300,000
President – Aaron Brothers (effective		2005	$	290,750
March 15, 2006, Executive Vice President – Chief Merchant)
Thomas M. Bazzone		2006	$	295,000
President – Recollections and Star		2005	$	285,000
Decorators Wholesale (effective March 15, 2006, Executive Vice President – Specialty Businesses)

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Fiscal Year 2006 Bonus Plans

     The Compensation Committee approved the Fiscal Year 2006 Bonus Plans for the following executive officers of the Company:

Name	Position:
R. Michael Rouleau	President and Chief Executive Officer
Jeffrey N. Boyer	Executive Vice President – Chief Financial Officer (effective March 15, 2006, President and Chief Financial Officer)
Gregory A. Sandfort	Executive Vice President – General Merchandise Manager (effective March 15, 2006, President and Chief Operating Officer)
Edward F. Sadler	Executive Vice President – Store Operations
Thomas C. DeCaro	Executive Vice President – Supply Chain

     The Fiscal Year 2006 Bonus Plans for the Company’s executive officers are attached to this Current Report on Form 8-K as Exhibits 10.2, 10.3, 10.4, 10.5 and 10.6, and each is incorporated by reference into this Item 1.01.

Cash Bonus Awards Under 2005 Bonus Plans

     On March 14, 2006, the Compensation Committee approved annual cash bonus awards earned during 2005 to be paid in 2006 to R. Michael Rouleau and Jeffrey N. Boyer in accordance with their respective Fiscal Year 2005 Bonus Plans.¹ In addition, discretionary bonus awards were approved for the following executive officers of the Company in the following amounts:

Name and Position	2005 Bonus
Edward F. Sadler Executive Vice President – Store Operations	$	112,000
Gregory A. Sandfort Executive Vice President – General Merchandise Manager (effective March 15, 2006, President and Chief Operating Officer)	$	91,000

¹ Copies of Mr. Rouleau’s and Mr. Boyer’s Fiscal Year 2005 Bonus Plans are attached as Exhibits 10.1 and 10.2, respectively, to the Company’s Form 8-K filed on April 13, 2005, SEC File No. 001-09338.

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Item 5.02. Departure of Directors or Principal Officers; Election of Directors;

    Appointment of Principal Officers.

     Effective March 15, 2006, the Company and R. Michael Rouleau, the Chief Executive Officer and President of the Company, entered into an amendment to Mr. Rouleau’s Amended and Restated Employment Agreement. Effective as of that date, Mr. Rouleau retired from these offices and any other offices he held with the Company or any of its subsidiaries or affiliates. Concurrent with Mr. Rouleau’s retirement, the Board elected each of Jeffrey N. Boyer and Gregory A. Sandfort as President of the Company, to serve as co-Presidents with the responsibilities of this office divided between them. Mr. Boyer will continue to serve as the Company’s Chief Financial Officer and Mr. Sandfort was also elected to the position of Chief Operating Officer. The Board determined to leave the office of Chief Executive Officer vacant with the responsibilities of this office being assumed by Mr. Boyer and Mr. Sandfort as co-Presidents. A description of Messrs. Boyer’s and Sandfort’s biographical information is as follows:

Jeffrey N. Boyer, President; Age 47

     Mr. Boyer became Executive Vice President—Chief Financial Officer in January 2003 and served in that office until his promotion to President in March of 2006. Prior to joining the Company, Mr. Boyer was Executive Vice President and Chief Financial Officer of Kmart Corporation from May 2001 until November 2001. In January 2002, Kmart Corporation filed a voluntary petition for reorganization under Chapter 11 of the United States Bankruptcy Code. Prior to joining Kmart, he held various positions with Sears, Roebuck and Co., where he served as Senior Vice President and Chief Financial Officer from October 1999 to May 2001, Corporate Controller from June 1998 to October 1999, and Vice President, Finance—Full Line Stores from June 1996 to June 1998. Prior experience includes Vice President of Business Development at The Pillsbury Company from 1995 to 1996 and over six years with Kraft Foods, a unit of the Altria Group, in various senior financial positions.

Gregory A. Sandfort, President; Age 50

     Mr. Sandfort became Executive Vice President—General Merchandise Manager in January 2004 and served in that office until his promotion to President and Chief Operating Officer in March of 2006. From September 2002 to August 2003, Mr. Sandfort served as Vice Chairman and Co-CEO of Kleinert’s, Inc. (d/b/a Buster Brown) where he was directly responsible for all merchandising and operational aspects of Kleinert’s sleepwear, playwear, and retail divisions. In May 2003, Kleinert’s filed a voluntary petition for reorganization under Chapter 11 of the United States Bankruptcy Code, which was subsequently converted to a liquidation under Chapter 7. Prior to that, Mr. Sandfort served as Vice President, General Merchandise Manager—Children’s Apparel, Furniture, Toys, and Electronic Games for Sears, Roebuck and Co. for four years. While at Sears, Roebuck and Co., Mr. Sandfort was directly responsible for the children’s division.

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Item 5.03. Amendment to Articles of Incorporation or Bylaws; Change in Fiscal Year.

     Effective March 15, 2006, the Board amended the Company’s Amended and Restated Bylaws to add the following Section 17 to Article VI thereof:

     “Section 17. SPLITTING OFFICER FUNCTIONS. Any office provided for in this Article VI may be split between two or more officers with the same title by resolution of the Board of Directors, each such officer to have the functions, responsibilities and title provided for in such resolution.”

     A copy of the Company’s Amended and Restated Bylaws adopted as of March 15, 2006 incorporating the foregoing amendment is attached as Exhibit 3.1 to this Current Report on Form 8-K and is incorporated by reference into this Item 5.03.

Item 8.01. Other Events.

     On March 20, 2006, the Company issued a press release, a copy of which is attached as Exhibit 99.1 to this Current Report on Form 8-K and is incorporated by reference into this Item 8.01.

Item 9.01. Financial Statements and Exhibits.

(d) Exhibits.

Exhibit
Number	Description
3.1	Amended and Restated Bylaws of Michaels Stores, Inc.
10.1	Amendment to Employment Agreement, dated March 15, 2006, between Michaels Stores, Inc. and R. Michael Rouleau
10.2	Fiscal Year 2006 Bonus Plan for R. Michael Rouleau
10.3	Fiscal Year 2006 Bonus Plan for Jeffrey N. Boyer
10.4	Fiscal Year 2006 Bonus Plan for Gregory A. Sandfort
10.5	Fiscal Year 2006 Bonus Plan for Edward F. Sadler
10.6	Fiscal Year 2006 Bonus Plan for Thomas C. DeCaro
99.1	Press release issued by Michaels Stores, Inc., dated March 20, 2006

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SIGNATURE

     Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

MICHAELS STORES, INC.
By:	/s/ Jeffrey N. Boyer
	Jeffrey N. Boyer
	President and Chief Financial Officer

Date: March 20, 2006

INDEX TO EXHIBITS

Exhibit
Number	Description
3.1	Amended and Restated Bylaws of Michaels Stores, Inc.
10.1	Amendment to Employment Agreement, dated March 15, 2006, between Michaels Stores, Inc. and R. Michael Rouleau
10.2	Fiscal Year 2006 Bonus Plan for R. Michael Rouleau
10.3	Fiscal Year 2006 Bonus Plan for Jeffrey N. Boyer
10.4	Fiscal Year 2006 Bonus Plan for Gregory A. Sandfort
10.5	Fiscal Year 2006 Bonus Plan for Edward F. Sadler
10.6	Fiscal Year 2006 Bonus Plan for Thomas C. DeCaro
99.1	Press release issued by Michaels Stores, Inc., dated March 20, 2006

EX-3.1

Exhibit 3.1

AMENDED AND RESTATED

BYLAWS

OF

MICHAELS STORES, INC.

Adopted as of March 15, 2006

TABLE OF CONTENTS

	Page
ARTICLE I        OFFICES		1
SECTION 1. REGISTERED OFFICE		1
SECTION 2. OTHER OFFICES		1
ARTICLE II      STOCKHOLDERS		1
SECTION 1. MEETINGS		1
SECTION 2. ANNUAL MEETING		1
SECTION 3. PROPOSED BUSINESS AT ANNUAL MEETINGS		2
SECTION 4. LIST OF STOCKHOLDERS		3
SECTION 5. SPECIAL MEETINGS		3
SECTION 6. NOTICE		4
SECTION 7. QUORUM		4
SECTION 8. VOTING		4
SECTION 9. PROXY		4
ARTICLE III     BOARD OF DIRECTORS		5
SECTION 1. BOARD OF DIRECTORS		5
SECTION 2. NUMBER OF DIRECTORS; ELECTION		5
SECTION 3. VACANCIES AND NEW DIRECTORSHIPS		5
ARTICLE IV     MEETINGS OF THE BOARD		5
SECTION 1. MEETINGS		5
SECTION 2. ANNUAL MEETING		5
SECTION 3. REGULAR MEETINGS		6
SECTION 4. SPECIAL MEETINGS		6
SECTION 5. QUORUM		6
SECTION 6. COMMITTEES		6
SECTION 7. ACTION BY CONSENT		6
SECTION 8. COMPENSATION OF DIRECTORS		6
ARTICLE V      NOTICE OF MEETINGS		7
SECTION 1. FORM OF NOTICE		7
SECTION 2. WAIVER		7
SECTION 3. TELEPHONE MEETINGS		7
ARTICLE VI     OFFICERS		7
SECTION 1. IN GENERAL		7
SECTION 2. ELECTION		7
SECTION 3. OTHER OFFICERS AND AGENTS		7
SECTION 4. COMPENSATION		8
SECTION 5. TERM OF OFFICE AND REMOVAL		8
SECTION 6. CHAIRMAN OF THE BOARD		8
SECTION 7. VICE CHAIRMAN OF THE BOARD		8

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TABLE OF CONTENTS

	Page
SECTION 8.   CHIEF EXECUTIVE OFFICER		8
SECTION 9.   PRESIDENT		8
SECTION 10. VICE PRESIDENTS		8
SECTION 11. SECRETARY		8
SECTION 12. ASSISTANT SECRETARIES		9
SECTION 13. TREASURER		9
SECTION 14. ASSISTANT TREASURERS		9
SECTION 15. CONTROLLER		9
SECTION 16. BONDING		9
SECTION 17. SPLITTING OFFICER FUNCTIONS		9
ARTICLE VII    CERTIFICATES OF SHARES		10
SECTION 1. FORM OF CERTIFICATES		10
SECTION 2. LOST CERTIFICATES		10
SECTION 3. TRANSFER OF SHARES		10
SECTION 4. REGISTERED STOCKHOLDERS		10
ARTICLE VIII   GENERAL PROVISIONS		11
SECTION 1. DIVIDENDS		11
SECTION 2. RESERVES		11
SECTION 3. FISCAL YEAR		11
SECTION 4. SEAL		11
SECTION 5. ANNUAL STATEMENT		11
SECTION 6. CHECKS		11
SECTION 7. TIME PERIODS		11
ARTICLE IX     INDEMNITY		12
SECTION 1. INDEMNIFICATION		12
SECTION 2. INDEMNIFICATION ADDITIONAL TO OTHER RIGHTS		12
ARTICLE X      AMENDMENTS		12
SECTION 1. BY STOCKHOLDERS		12
SECTION 2. BY THE BOARD OF DIRECTORS		12

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AMENDED AND RESTATED
BYLAWS
OF
MICHAELS STORES, INC.

ARTICLE I

OFFICES

     SECTION 1. REGISTERED OFFICE. The initial registered office of the corporation shall be at such place as is designated in the Certificate of Incorporation (herein, as amended from time to time, so called) and thereafter the registered office may be at such other place as the Board of Directors may from time to time designate by resolution.

     SECTION 2. OTHER OFFICES. The corporation may also have offices at such other places both within and without the State of Delaware as the Board of Directors may from time to time determine or the business of the corporation may require.

ARTICLE II

STOCKHOLDERS

     SECTION 1. MEETINGS. All meetings of the stockholders for the election of directors shall be held at the principal office of the corporation or at such other place, within or without the State of Delaware, as may be fixed from time to time by the Board of Directors. Meetings of stockholders for any other purpose may be held at such time and place, within or without the State of Delaware, as shall be stated in the notice of the meeting or in a duly executed waiver of notice thereof. The Chairman, Vice Chairman, Chief Executive Officer or President, or such other officer of the corporation designated by the Board of Directors, will call meetings of the stockholders to order and will act as presiding officer thereof. Except as otherwise provided by the General Corporation Law of the State of Delaware (herein called the “Act”) or the Certificate of Incorporation or unless otherwise determined by the Board of Directors prior to the meeting, the presiding officer of the meeting of the stockholders will also determine the order of business and have the authority in his sole discretion to regulate the conduct of the meeting, including, without limitation, by imposing restrictions on the persons (other than stockholders of the corporation or their duly appointed proxies) who may attend any such meeting of the stockholders, by ascertaining whether any stockholder or the stockholder’s proxy may be excluded from any meeting of the stockholders based upon any determination, by the presiding officer, in his sole discretion, that any such person has unduly disrupted or is likely to disrupt the proceedings at the meeting of the stockholders and by determining the circumstances in which any person may make a statement or ask questions at any meeting of the stockholders.

     SECTION 2. ANNUAL MEETING. An annual meeting of the stockholders shall be held on such date in each fiscal year of the corporation as the Board of Directors will select, if not a legal holiday, and if a legal holiday, then on the next business day following, at which

meeting the stockholders shall elect members of the Board of Directors, and transact such other business as may properly be brought before the meeting.

     SECTION 3. PROPOSED BUSINESS AT ANNUAL MEETINGS.

          (a) At an annual meeting of the stockholders, only such business will be conducted or considered as is properly brought before the meeting. To be properly brought before an annual meeting, business must be (i) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors, (ii) properly brought before the annual meeting by or at the direction of the Board of Directors or (iii) properly brought before the annual meeting by any stockholder of the corporation (A) who is a stockholder of record on the date of the giving of the notice provided for in this Section 3 and on the record date for the determination of stockholders entitled to vote at such annual meeting and (B) who complies with the notice procedures set forth in subsection (b) of this Section 3 (a “Stockholder Notice of Proposed Business”). In addition to any other applicable requirements, for business to be properly brought before an annual meeting by a stockholder, the stockholder must have given timely notice thereof in proper written form to the Secretary of the corporation. To be timely, a Stockholder Notice of Proposed Business must be delivered to or mailed and received at the principal executive offices of the corporation not less than 60 nor more than 90 days prior to the date on which the corporation first mailed its proxy materials for the prior year’s annual meeting of stockholders; provided, however, that in the event that the annual meeting is called for a date that is not within 30 days before or after the anniversary of the prior year’s annual meeting, a Stockholder Notice of Proposed Business will be timely if it is so received not later than the close of business on the 10th day following the first day on which notice of the date of the upcoming annual meeting is publicly disclosed. In no event will the public disclosure of an adjournment of an annual meeting commence a new time period for the giving of a Stockholder Notice of Proposed Business. For purposes of the foregoing, the date on which the corporation first mailed its proxy materials to stockholders will be the date so described in such proxy materials. Notwithstanding the foregoing, for a stockholder’s notice regarding a nomination of directors to be timely, the requirements set forth in the corporation’s Certificate of Incorporation must be satisfied.

          (b) To be in proper written form, a Stockholder Notice of Proposed Business must set forth as to each matter the stockholder proposes to bring before the annual meeting (i) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (ii) the name and address, as they appear on the corporation’s books, of the stockholder proposing such business, (iii) the class and number of shares of the corporation which are beneficially owned or held of record by the stockholder, (iv) a description of all arrangements or understandings between such stockholder and any other person or persons (including their names) in connection with the proposal of such business by such stockholder and any material interest of the stockholder in such business and (v) a representation that such stockholder intends to appear in person or by proxy at the annual meeting to bring such business before the meeting.

          (c) Notwithstanding the foregoing provisions of this Section 3, a stockholder must comply with all applicable requirements of the Securities Exchange Act of 1934 and of any

Page 2 of 12

securities exchange or association on which the corporation’s capital stock is listed or quoted with respect to the matters set forth in this Section 3.

          (d) No business shall be conducted at an annual meeting except in accordance with the procedures set forth in this Section 3. If the presiding officer of an annual meeting determines, in his sole discretion, that business was not properly brought before the meeting in accordance with the provisions of this Section 3, such presiding officer shall declare to the meeting that the business was not properly brought before the meeting and such business shall not be considered at the meeting.

     SECTION 4. LIST OF STOCKHOLDERS. At least 10 days before each meeting of stockholders, a complete list of the stockholders entitled to vote at said meeting, arranged in alphabetical order, with the address of and the number of voting shares held by each, shall be prepared by the officer or agent having charge of the stock transfer books. Nothing contained in this Section 4 shall require the corporation to include electronic mail addresses or other electronic contact information on such list. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, for a period of at least 10 days prior to the meeting: (i) on a reasonably accessible electronic network, provided that the information required to gain access to such list is provided with the notice of the meeting; or (ii) during ordinary business hours, at the principal place of business of the corporation. In the event that the corporation determines to make the list available on an electronic network, the corporation may take reasonable steps to ensure that such information is available only to stockholders of the corporation. If the meeting is to be held at a place, then the list shall be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. If the meeting is to be held solely by means of remote communication, then the list shall also be open to the examination of any stockholder during the whole time of the meeting on a reasonably accessible electronic network, and the information required to access such list shall be provided with the notice of the meeting. The Board of Directors may fix in advance a record date for the purpose of determining stockholders entitled to notice of or to vote at a meeting of stockholders, such record date to be not less than 10 nor more than 60 days prior to such meeting. In the absence of any action by the Board of Directors, the close of business on the day next preceding the day on which notice is given shall be the record date.

     SECTION 5. SPECIAL MEETINGS. Special meetings of the stockholders, for any purpose or purposes, unless otherwise prescribed by the Act, or by the Certificate of Incorporation, or by these Bylaws (herein, as amended from time to time, so called), may be called by the Board of Directors. At a special meeting of stockholders, only such business may be conducted or considered as is properly brought before the meeting. To be properly brought before a special meeting, business must be (i) specified in the notice of the meeting (or any supplement thereto) given by or at the direction of the Board of Directors in accordance with these Bylaws or (ii) otherwise properly brought before the meeting by the presiding officer or by or at the direction of a majority of the Board of Directors. The determination of whether any business sought to be brought before any special meeting of the stockholders is properly brought before such meeting in accordance with this Section 5 will be made by the presiding officer of such meeting. If the presiding officer determines, in his sole discretion, that any business is not

Page 3 of 12

properly brought before such meeting, he will so declare to the meeting and such business will not be conducted or considered.

     SECTION 6. NOTICE. Notice stating the place, if any, day and hour of any meeting of the stockholders and, in case of a special meeting, the purpose or purposes for which the meeting is called, shall be delivered not less than 10 nor more than 60 days before the date of the meeting, either personally, by a form of electronic transmission consented to by the stockholder, or by mail, by or at the direction of the Secretary, or the officer or person calling the meeting, to each stockholder of record entitled to vote at the meeting. Such notice shall include the means of remote communication, if any, by which stockholders and proxyholders may be deemed to be present in person and entitled to vote at such meeting.

     SECTION 7. QUORUM. At all meetings of the stockholders, the presence in person or by proxy of the holders of a majority of the shares issued and outstanding and entitled to vote shall be necessary and sufficient to constitute a quorum for the transaction of business except as otherwise provided by the Act, by the Certificate of Incorporation or by these Bylaws. If, however, such quorum shall not be present or represented at any meeting of the stockholders, the stockholders entitled to vote thereat, present in person or represented by proxy, shall have the power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented, provided, however, that if the adjournment is for more than 30 days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally notified.

     SECTION 8. VOTING. When a quorum is present at any meeting, the vote of the holders of a majority of the shares which have voting power present in person or represented by proxy at such meeting and which have actually voted shall decide any questions brought before such meeting, unless the question is one upon which, by express provision of the Act or of the Certificate of Incorporation or of these Bylaws (including, but not limited to, Article III of these Bylaws), a different vote is required, in which case such express provision shall govern and control the decision of such question. The stockholders present in person or represented by proxy at a duly organized meeting may continue to transact business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum. For purposes of determining under this Section 8 the decision of any question brought before the meeting, shares which abstain, by proxy or in person, in the vote on such decision, shares represented by proxy which withholds authority to vote for, against or with respect to such decision, and shares held of record by a broker or other nominee with respect to which such broker or nominee does not have authority to vote such shares on such question shall not be considered to have been actually voted.

     SECTION 9. PROXY. Each outstanding share, regardless of class, shall be entitled to one vote on each matter submitted to a vote at a meeting of stockholders, except to the extent that the voting rights of the shares of any class or classes are limited or denied by the Certificate of Incorporation. At any meeting of the stockholders, every stockholder having the right to vote shall be entitled to vote in person or by proxy. Every proxy must be in a form permitted under

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the Act, including in writing or pursuant to the transmission of a telegram, cablegram, or other means of electronic transmission (including transmissions by telephone or the Internet) to the person who will be the holder of the proxy or to the proxy solicitation firm, proxy support service organization or like agent duly authorized by the proxyholder. A stockholder may revoke any proxy that is not irrevocable prior to the vote at a stockholder meeting by (a) submitting a written revocation to the Secretary of the corporation, (b) submitting a new proxy in accordance with the procedures established for the meeting after the date of the proxy being revoked, or (c) voting in person at the stockholder meeting.

ARTICLE III

BOARD OF DIRECTORS

     SECTION 1. BOARD OF DIRECTORS. The business and affairs of the corporation shall be managed by its Board of Directors who may exercise all such powers of the corporation and do all such lawful acts and things as are not by the Act or by the Certificate of Incorporation or by these Bylaws directed or required to be exercised or done by the stockholders.

     SECTION 2. NUMBER OF DIRECTORS; ELECTION. The exact number of directors shall be fixed by resolution of the Board of Directors from time to time, none of whom need be stockholders or residents of the State of Delaware. The directors shall be elected by plurality vote at the annual meeting of the stockholders, except as may be provided from time to time in the Certificate of Incorporation (or, in the case of vacancies, below), and each director elected shall hold office for a term expiring at the next annual meeting of the stockholders and until his successor is duly elected and qualified or until the earlier of his resignation, death or removal.

     SECTION 3. VACANCIES AND NEW DIRECTORSHIPS. Any director may be removed either for or without cause, as provided in the Certificate of Incorporation. Newly created directorships resulting from any increase in the number of directors and any vacancies occurring in the Board of Directors for any reason will be filled by the vote of a majority of the directors then in office, although less than a quorum, or, if there is no remaining director, by the stockholders. Each successor director so chosen shall hold office for a term expiring at the next annual meeting of the stockholders and until his successor is duly elected and qualified or until the earlier of his resignation, death or removal.

ARTICLE IV

MEETINGS OF THE BOARD

     SECTION 1. MEETINGS. The directors of the corporation may hold their meetings, both regular and special, at such times and places as are fixed from time to time by resolution of the Board of Directors.

     SECTION 2. ANNUAL MEETING. The first meeting of each newly elected Board of Directors shall be held without further notice immediately following the annual meeting of stockholders, and at the same place, unless by unanimous consent of the directors then elected and serving such time or place shall be changed.

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     SECTION 3. REGULAR MEETINGS. Regular meetings of the Board of Directors may be held without notice at such time and place as shall from time to time be determined by resolution of the Board of Directors.

     SECTION 4. SPECIAL MEETINGS. Special meetings of the Board of Directors may be called by the Chairman of the Board, the Vice Chairman of the Board or by a majority of the directors in office. The purpose of any special meeting shall be specified in the notice or any waiver of notice. Each notice of a meeting of the Board of Directors may be delivered personally or by telephone to a director not later than the day before the day on which the meeting is to be held; sent to a director at his residence or usual place of business, or at any other place of which he will have notified the corporation by telegram, telex, cable, facsimile, electronic transmission or similar means at least 24 hours before the time at which the meeting is to be held; or posted to him at such place by prepaid first class or air mail, as appropriate, at least 3 days before the day on which the meeting is to be held. Notice of a meeting of the Board of Directors need not be given to any director who submits a signed waiver of notice, whether before or after the meeting, or who attends the meeting without protesting, prior to or at its commencement, the lack of notice to him.

     SECTION 5. QUORUM. At all meetings of the Board of Directors the presence of a majority of the number of directors then constituting the Board of Directors shall be necessary and sufficient to constitute a quorum for the transaction of business, and the affirmative vote of at least a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board of Directors, except as may be otherwise specifically provided by the Act or by the Certificate of Incorporation or by these Bylaws. If a quorum shall not be present at any meeting of directors, the directors present thereat may adjourn the meeting from time to time without notice other than announcement at the meeting, until a quorum shall be present.

     SECTION 6. COMMITTEES. The Board of Directors may, by resolution passed by a majority of the whole Board, designate one or more committees of the Board of Directors, each committee to consist of one or more directors of the corporation, which committees shall have such power and authority and shall perform such functions as may be provided in such resolution. Such committee or committees shall have such name or names as may be designated by the Board of Directors and shall keep regular minutes of their proceedings and report the same to the Board of Directors when required.

     SECTION 7. ACTION BY CONSENT. Any action required or permitted to be taken at any meeting of the Board of Directors or any committee of the Board of Directors, may be taken without a meeting if a consent in writing, setting forth the action so taken, is signed by all the members of the Board of Directors or the applicable committee, as the case may be and the writing or writings are filed with the minutes of proceedings of the Board of Directors or committee.

     SECTION 8. COMPENSATION OF DIRECTORS. Directors, as such, shall not receive any stated salary for their services, but may receive such compensation and reimbursements as may be determined from time to time by resolution of the Board of Directors; provided that nothing herein contained shall be construed to preclude any director from serving the corporation in any other capacity and receiving compensation therefor.

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ARTICLE V

NOTICE OF MEETINGS

     SECTION 1. FORM OF NOTICE. Whenever under the provisions of the Act or of the Certificate of Incorporation or of these Bylaws, notice is required to be given to any director or stockholder, and no provision is made as to how such notice shall be given, it shall not be construed to mean personal notice, but any such notice may be given (a) in writing, by mail, postage prepaid, addressed to such director or stockholder at such address as appears on the books of the corporation or (b) by electronic transmission to any director or stockholder who consents to receipt by such means. Any notice required or permitted to be given by mail shall be deemed to be given at the time when the same be thus deposited in the United States mails as aforesaid.

     SECTION 2. WAIVER. Whenever any written notice is required to be given to any stockholder or director of the corporation, under the provisions of the Act or of the Certificate of Incorporation or of these Bylaws, a waiver thereof in writing signed by the person or persons entitled to such notice, whether before or after the time stated in such notice, shall be deemed equivalent to the giving of such notice.

     SECTION 3. TELEPHONE MEETINGS. Members of the Board of Directors or members of any committee designated by the Board of Directors may participate in and hold meetings of the Board of Directors or applicable committee by means of conference telephone or other communications equipment by means of which all persons participating in the meeting can hear each other.

ARTICLE VI

OFFICERS

     SECTION 1. IN GENERAL. The officers of the corporation shall be elected by the Board of Directors and shall be a Chief Executive Officer, a President, a Vice President, a Secretary and a Treasurer. The Board of Directors may also elect a Chairman of the Board, Vice Chairman of the Board, additional Vice Presidents, Assistant Vice Presidents, a Controller, and one or more Assistant Secretaries and Assistant Treasurers. Any two or more offices may be held by the same person. Any of the offices may be left vacant from time to time as the Board of Directors may determine.

     SECTION 2. ELECTION. The Board of Directors, at its first meeting after each annual meeting of stockholders, or at any other time, may elect a Chief Executive Officer, a President, one or more Vice Presidents, a Secretary and a Treasurer, none of whom need be a member of the Board of Directors.

     SECTION 3. OTHER OFFICERS AND AGENTS. The Board of Directors may also elect and appoint such other officers and agents as it shall deem necessary, who shall be elected and appointed for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the Board of Directors or the Chief Executive Officer.

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     SECTION 4. COMPENSATION. The compensation of all officers and agents of the corporation shall be fixed by the Board of Directors or one or more members of the corporation’s management, if so authorized by the Board of Directors.

     SECTION 5. TERM OF OFFICE AND REMOVAL. Each officer of the corporation shall hold office until his death, or his resignation or removal from office, or the election and qualification of his successor, whichever shall first occur. Any officer or agent elected or appointed by the Board of Directors may be removed by the Board of Directors, whenever in its judgment the best interest of the corporation will be served thereby. If the office of any officer becomes vacant for any reason, the vacancy may be filled by the Board of Directors.

     SECTION 6. CHAIRMAN OF THE BOARD. The Chairman of the Board, if any, shall preside at all meetings of the Board of Directors at which he may be present and shall perform such other duties as may be assigned to him by the Board of Directors.

     SECTION 7. VICE CHAIRMAN OF THE BOARD. The Vice Chairman of the Board, if any, shall have such powers and perform such duties as the Board of Directors may from time to time prescribe. In the absence or disability of the Chairman of the Board, the Vice Chairman of the Board shall perform the duties and exercise the powers of the Chairman of the Board.

     SECTION 8. CHIEF EXECUTIVE OFFICER. The Chief Executive Officer of the corporation shall have, subject only to the Board of Directors, general and active management and supervision of the business and affairs of the corporation and shall see that all orders and resolutions of the Board of Directors are carried into effect. He shall have all powers and duties of supervision and management usually vested in the general manager of a corporation, including, without limitation, the supervision and direction of all other officers of the corporation (other than the Chairman of the Board and the Vice Chairman of the Board) and the power to appoint and discharge agents and employees.

     SECTION 9. PRESIDENT. The President shall have, subject only to the Board of Directors and, if the President is not also the Chief Executive Officer, the Chief Executive Officer, general charge of the business, affairs and property of the corporation, and control over its officers (other than the Chairman of the Board, the Vice Chairman of the Board and, if the President is not also the Chief Executive Officer, the Chief Executive Officer), agents and employees. The President shall perform such other duties and shall have such authority and responsibilities as shall be determined from time to time by the Board of Directors or, if the President is not also the Chief Executive Officer, the Chief Executive Officer of the corporation.

     SECTION 10. VICE PRESIDENTS. Each Vice President shall perform such duties and shall have such authority and responsibilities as shall be determined from time to time by the Board of Directors or the Chief Executive Officer of the corporation. In the absence or disability of the President, a Vice President designated by the Board of Directors may perform the duties and exercise the powers of the President.

     SECTION 11. SECRETARY. The Secretary shall attend all meetings of the stockholders and record all votes and the minutes of all proceedings in a book to be kept for that purpose. The Secretary shall perform like duties for the Board of Directors when required. He shall give, or

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cause to be given, notice of all meetings of the stockholders and special meetings of the Board of Directors. The Secretary shall perform such other duties and shall have such authority and responsibilities as shall be determined from time to time by the Board of Directors or the Chief Executive Officer of the corporation. He shall also keep in safe custody the seal of the corporation.

     SECTION 12. ASSISTANT SECRETARIES. Each Assistant Secretary shall perform such duties and shall have such authority and responsibilities as shall be determined from time to time by the Board of Directors or the Chief Executive Officer of the corporation. Unless otherwise provided by the Board of Directors or the Chief Executive Officer, in the absence or disability of the Secretary, any Assistant Secretary may perform the duties and exercise the powers of the Secretary.

     SECTION 13. TREASURER. The Treasurer shall have the custody of all corporate funds and securities, shall keep full and accurate accounts of receipts and disbursements of the corporation, and shall deposit all moneys and other valuable effects in the name and to the credit of the corporation in such depositories as may be designated by the Board of Directors. He shall disburse the funds of the corporation as may be ordered by the Board of Directors, taking proper vouchers for such disbursements, shall render to the Chief Executive Officer and directors, at the regular meetings of the Board of Directors, or whenever they may require it, an account of all his transactions as Treasurer and of the financial condition of the corporation. The Treasurer shall perform such other duties and shall have such authority and responsibilities as shall be determined from time to time by the Board of Directors or the Chief Executive Officer of the corporation.

     SECTION 14. ASSISTANT TREASURERS. Each Assistant Treasurer shall perform such duties and shall have such authority and responsibilities as shall be determined from time to time by the Board of Directors or the Chief Executive Officer of the corporation. Unless otherwise provided by the Board of Directors or the Chief Executive Officer, in the absence or disability of the Treasurer, any Assistant Treasurer may perform the duties and exercise the powers of the Treasurer.

     SECTION 15. CONTROLLER. The Controller shall perform such duties and shall have such authority and responsibilities as shall be determined from time to time by the Board of Directors or the Chief Executive Officer of the corporation.

     SECTION 16. BONDING. If required by the Board of Directors, all or certain of the officers shall give the corporation a bond, in such form, in such sum, and with such surety or sureties as shall be satisfactory to the Board of Directors, for the faithful performance of the duties of their office and for the restoration to the corporation, in case of their death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in their possession or under their control belonging to the corporation.

     SECTION 17. SPLITTING OFFICER FUNCTIONS. Any office provided for in this Article VI may be split between two or more officers with the same title by resolution of the Board of Directors, each such officer to have the functions, responsibilities and title provided for in such resolution.

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ARTICLE VII

CERTIFICATES OF SHARES

     SECTION 1. FORM OF CERTIFICATES. Certificates, in such form as may be determined by the Board of Directors, representing shares to which stockholders are entitled shall be delivered to each stockholder. Such certificates shall be consecutively numbered and shall be entered in the stock book of the corporation as they are issued. Each certificate shall state on the face thereof the holder’s name, the number, class of shares, and the par value of such shares or a statement that such shares are without par value. They shall be signed by the Chairman of the Board or the Vice Chairman of the Board, or the President or a Vice President, and by the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary, and may be sealed with the seal of the corporation or a facsimile thereof. If any certificate is countersigned by a transfer agent, or an assistant transfer agent or registered by a registrar, either of which is other than the corporation or an employee of the corporation, the signatures of the corporation’s officer may be facsimiles. In case any officer or officers who have signed, or whose facsimile signature or signatures have been used on such certificates, shall cease to be such officer or officers of the corporation, whether because of death, resignation or otherwise, before such certificate or certificates have been delivered by the corporation or its agents, such certificate or certificates may nevertheless be adopted by the corporation and be issued and delivered as though the person or persons who signed such certificate or certificates or whose facsimile signature or signatures have been used thereon had not ceased to be such officer or officers of the corporation.

     SECTION 2. LOST CERTIFICATES. The Secretary of the corporation may direct that a new certificate be issued in place of any certificate previously issued by the corporation alleged to have been lost, stolen or destroyed and the Secretary of the corporation may require the owner of such lost, stolen or destroyed certificate, or his legal representative, to give the corporation a bond, in such form, in such sum, and with such surety or sureties as the Secretary may direct as indemnity against any claim that may be made against the corporation with respect to the certificate alleged to have been lost, stolen or destroyed.

     SECTION 3. TRANSFER OF SHARES. Shares of stock shall be transferable only on the books of the corporation by the holder thereof in person or by his duly authorized attorney in fact, lawfully constituted in writing. No transfer shall be made which is inconsistent with law.

     SECTION 4. REGISTERED STOCKHOLDERS. The corporation shall be entitled to treat the holder of record of any share or shares of stock as the holder in fact thereof and, accordingly, shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by law.

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ARTICLE VIII

GENERAL PROVISIONS

     SECTION 1. DIVIDENDS. Dividends upon the outstanding shares of the corporation, subject to the provisions of the Certificate of Incorporation, if any, may be declared by the Board of Directors at any regular or special meeting. Dividends may be declared and paid in cash, in property, or in shares of the corporation, subject to the provisions of the Act and the Certificate of Incorporation. The Board of Directors may fix in advance a record date for the purpose of determining stockholders entitled to receive payment of any dividend, such record date to be not more than 60 days prior to the payment date of such dividend, or the Board of Directors may close the stock transfer books for such purpose for a period of not more than 60 days prior to the payment date of such dividend. In the absence of any action by the Board of Directors, the date upon which the Board of Directors adopts the resolution declaring such dividend shall be the record date.

     SECTION 2. RESERVES. There may be created by resolution of the Board of Directors out of the net profits of the corporation such reserve or reserves as the directors from time to time, in their discretion, think proper to provide for contingencies, or to equalize dividends, or to repair or maintain any property of the corporation, or for such other purpose as the directors shall think beneficial to the corporation, and the directors may modify or abolish any such reserve in the manner in which it was created.

     SECTION 3. FISCAL YEAR. The fiscal year of the corporation shall be fixed by resolution of the Board of Directors.

     SECTION 4. SEAL. The corporation shall have a seal, and said seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. Any officer of the corporation shall have authority to affix the seal to any document requiring it.

     SECTION 5. ANNUAL STATEMENT. The Board of Directors shall present at each annual meeting, and when called for by vote of the stockholders at any special meeting of the stockholders, a full and clear statement of the business and condition of the corporation.

     SECTION 6. CHECKS. All checks or demands for money and notes of the corporation shall be signed by such officer or officers or such other person or persons as the Board of Directors may from time to time designate.

     SECTION 7. TIME PERIODS. In applying any provision of these Bylaws that requires that an act be done or not be done a specified number of days prior to an event or that an act be done during a period of a specified number of days prior to an event, calendar days will be used unless otherwise specified, the day of the doing of the act will be excluded and the day of the event will be included.

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ARTICLE IX

INDEMNITY

     SECTION 1. INDEMNIFICATION. The corporation shall indemnify its directors and officers to the fullest extent permitted by the Act and the Certificate of Incorporation and may, if and to the extent authorized by the Board of Directors, so indemnify any other person whom it has the power to indemnify against any liability, expense or other matter whatsoever.

     SECTION 2. INDEMNIFICATION ADDITIONAL TO OTHER RIGHTS. The rights of indemnification provided for in this Article IX shall be in addition to any rights to which any such director, officer or employee may be entitled under any agreement, vote of stockholders, the Certificate of Incorporation, or as a matter of law or otherwise.

ARTICLE X

AMENDMENTS

     SECTION 1. BY STOCKHOLDERS. These Bylaws may be amended or repealed by the vote of stockholders entitled to at least a majority of the votes which all stockholders are entitled to cast thereon, at any regular or special meeting of the stockholders, duly convened after notice to the stockholders of the purpose.

     SECTION 2. BY THE BOARD OF DIRECTORS. These Bylaws may also be amended or repealed by the Board of Directors by the vote of a majority of directors, except as such power may be limited by any one or more bylaws adopted by the stockholders.

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EX-10.1

Exhibit 10.1

AMENDMENT TO EMPLOYMENT AGREEMENT

     This Amendment to Employment Agreement (this “Amendment”) amends that certain Amended and Restated Employment Agreement (the “Agreement”), dated as of July 7, 2004, by and between Michaels Stores, Inc. (the “Company”) and R. Michael Rouleau (“you”), and is entered into as of the 15th day of March, 2006.

     WHEREAS, you have retired from employment with the Company and in connection therewith, you and the Company are entering into this Amendment for purposes of clarifying certain provisions of the Agreement.

     NOW, THEREFORE, notwithstanding anything to the contrary in the Agreement, the parties hereto agree as follows:

     1. Retirement. Effective as of the date hereof, you retire from all offices and/or positions held with the Company or any subsidiary or affiliate of the Company, and the Company hereby relieves you of all responsibilities and duties to serve as Chief Executive Officer or President, including directing the day-to-day management of the Company. Instead, you agree to serve as Special Advisor to the Company’s Board of Directors (the “Board”) to provide advice and counsel to the Board as reasonably requested and agreed by both parties. Either you or the Company may terminate your service as Special Advisor at any time, but any termination of your service will not affect your rights under Paragraph 2 below. You will be reimbursed by the Company for all reasonable expenses incurred in the course of fulfilling your duties to the Board as its Special Advisor.

     2. Compensation and Benefits. The Agreement is amended to specify in this Paragraph 2 the total compensation and benefits to which you are entitled under the Agreement and this Amendment.

     (a) Until January 31, 2008, you shall continue to receive your per annum base salary applicable at the time of this Agreement ($840,000), to be paid as follows: On September 29, 2006 you shall be paid in a lump sum the amount of your base salary accrued prior to that date. Thereafter, your salary shall be paid by-weekly.

     (b) The Company will immediately transfer to you the automobile purchased for your use prior to your retirement. The value of the car will be included in your income and the Company will provide a tax gross-up payment.

     (c) You are entitled to life insurance and disability insurance now in effect until January 31, 2008. Your Company-owned and paid whole life insurance policies shall continue until January 31, 2008, at which date you shall become the owner of such policies.

     (d) You are entitled to medical, dental and vision benefits on the retirement terms set forth in Paragraph 1(e) of the Agreement (except that such benefits will be coordinated with Medicare coverage only after January 31, 2008).

     (e) You are entitled to receive a bonus for fiscal 2006, prorated to March 31, 2006, under your Fiscal Year 2006 Bonus Plan that shall be paid when bonuses for such fiscal year are paid to Company employees in the ordinary course of business.

     (f) All your outstanding options to purchase common stock of the Company granted prior to August 5, 2005 are fully vested and exercisable and will all expire on March 14, 2011. Your options granted on August 5, 2005 shall vest and expire in accordance with their existing terms.

     3. Effect of Amendment; Continued Enforceability. Except as specifically amended by this Amendment, all existing provisions of the Agreement shall remain in full force and effect, irrespective of the outcome of the Company’s decision to pursue strategic alternatives, and the Agreement, as amended hereby, shall terminate on January 31, 2008, including your service as Special Advisor to the Board.

     IN WITNESS WHEREOF, the parties have executed this Amendment as of the date first written above.

MICHAELS STORES, INC.

By:	/s/ Charles J. Wyly, Jr.	/s/ R. Michael Rouleau
	Charles J. Wyly, Jr.	R. Michael Rouleau
	Chairman of the Board of Directors

EX-10.2

Exhibit 10.2

R. Michael Rouleau

Michaels Stores, Inc.

Fiscal Year 2006

Bonus Plan

President and
Chief Executive Officer

Fiscal Year 2006 Bonus Plan

Purpose

The Fiscal Year 2006 Bonus Plan has been developed to provide financial incentives to those members of management that can make an important contribution to Michaels success and to encourage those members to remain with the Company.

Eligibility

1.	To be eligible for a bonus under the Fiscal Year 2006 Bonus Plan, an associate must be in a bonus eligible position during Fiscal Year 2006. The Fiscal Year begins on January 29, 2006, and concludes on February 3, 2007.
2.	An associate must be employed with the Company, in good standing (see #8), and in a bonus eligible position at the time of bonus payout in order to be eligible to receive a bonus. 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.
3.	Bonus payments will normally occur by April 15th, following the end of the fiscal year. Associates must be employed at the time of bonus payout in order to be eligible to receive a bonus.
4.	Anyone hired or placed in a bonus eligible position after November 15, 2006 will not be eligible to earn a bonus under the Fiscal Year 2006 Bonus Plan.
5.	Any associate who is on leave of absence longer than 90 days in Fiscal Year 2006 may be eligible to earn a prorated bonus for time worked during the fiscal year, in accordance with the normal proration guidelines outlined in this document.
6.	An associate must be in an active status for at least one month of Fiscal Year 2006, as defined in this document, to be eligible for any bonus consideration.
7.	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 #2) in each position, the respective base salaries, and the applicable target bonus amount(s).
8.	An associate must be in “good standing” at the time of bonus payout to be eligible for a Fiscal Year 2006 bonus. An associate does not meet this requirement if: 1) he/she receives an overall performance rating of “Unacceptable” for FY 2006; and/or 2) at the time of bonus payout (check date), he/she is on a Performance Improvement Plan (“PIP”)

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that was initiated during FY 2006. Associates who are on a Performance Improvement Plan that is initiated in FY 2007 will be eligible for a bonus payment for FY 2006.

How a Bonus Is Earned

The following factors must be satisfied in order for an eligible associate to earn a bonus under the Fiscal Year 2006 Bonus Plan.

1.	The associate must be eligible as set forth in the Eligibility section of the Fiscal Year 2006 Bonus Plan.
2.	In order to earn a bonus under the Fiscal Year 2006 Bonus Plan, an associate must be employed by the Company, in a bonus eligible position, at the time bonuses are paid. If an associate is not employed by the Company in a bonus eligible position at the time bonuses are paid, regardless of the reason for termination of employment, the associate does not earn a bonus under the Fiscal Year 2006 Bonus Plan.
3.	An associate does not earn a bonus payment for FY 2006 if: 1) he/she receives an overall performance rating of “Unacceptable” for FY 2006 and/or 2) at the time of bonus payout he/she is on a Performance Improvement Plan (“PIP”) that was initiated during FY 2006. Associates who are on a Performance Improvement Plan that was initiated in FY 2007 will be eligible for a bonus payment for FY 2006.

The Company anticipates that this bonus plan will be part of an ongoing bonus program, but the Company does not guarantee that the program will in fact continue for future periods or that the terms, amounts or measures of the program will not change.

When bonuses are earned, the Company typically makes bonus payments in April of the following fiscal year.

Bonus Payout Formula

Bonus payouts will be based upon your earned percentage multiplied by your base salary as of the first day of the fiscal year (January 29, 2006). Your earned percentage will be based upon actual performance as compared to Plan.

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Bonus Plan Measures, Definitions & Financial Targets

Fiscal Year 2006 Bonus plan measures, definitions and financial targets are as follows:

		Plans Using This		Financial Target
Plan Measure	Measure Definition	Measure		$ or %
Michaels Stores Inc. Company Profit Before Taxes ($)	Gross sales less cost of sales, SG&A expenses & interest, plus investment income and after other income or expenses (excludes effect of one-time charges).	• • • • • •	Corporate Management Distribution Marketing Merchandising Inventory Management Store Ops Corporate	•	$___
Net Income % of Sales (Michaels Stores, U.S. & Canada)	Net Sales less all costs and expenses on the store income statement, excluding the effect of share based compensation expenses.	•	Store Ops Corporate Management	•	___%
Operating Income % of Sales (Michaels Stores, U.S. & Canada) Company / Zone	Net Sales less all costs and expenses on the store income statement, excluding the effect of bonus and share based compensation expenses.	• •	Store Ops Store Ops Support	•	n/a
Store Sales Plan (Michaels Stores, U.S. & Canada) Company / Zone	Net sales on store income statement.	•	All Store Ops	•	$___
Net Buyer Contribution ($)*	Scan margin plus entitlements & other allowances.	•	Merchandising	•	n/a
Merchandise Comp Store Sales Plan ($)	Sales increase in stores open at least 13 months	• • •	Merchandising Marketing Inventory Management	•	$___
Company Monthly Average Inventory ($) per store	Avg. inventory per store for the 13 months 1/06 through 1/07 divided by 13. (Includes stores, warehouse, in-transit only)	• •	Merchandising Inventory Management	•	$___
Supply Chain Expense Ratio	Ratio (%) of supply chain expenses ($) to volume ($)	•	Distribution Corporate	•	n/a
Specific DC Performance	Ratio (%) of DC expense ($) to volume ($)	•	Distribution Center Management	•	n/a

*May include inter-company profit allocation where applicable.

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2006 Bonus Plan — President and CEO — R. Michael Rouleau

Michaels Stores Inc. Company Profit Before Taxes ($M)

Plan:

% of Plan	Bonus Payout % of Salary
104.3% ($___)	100	%
103.7% ($___)	87.5	%
103.0% ($___)	75	%
101.5% ($___)	62.5	%
Plan 100.0% ($___)	50	%
99.0% ($___)	45	%
98.0% ($___)	40	%
97.0% ($___)	30	%
96.0% ($___)	20	%
95.0% ($___)	15	%
94.0% ($___)	10	%
Less than 94%	0	%

Example

* Actual results are 103% of plan

* Total Bonus earned = 75%

EX-10.3

Exhibit 10.3

Jeffrey N. Boyer

Michaels Stores, Inc.

Fiscal Year 2006
Bonus Plan

Executive Vice President -
Chief Financial Officer

Fiscal Year 2006 Bonus Plan

Purpose

The Fiscal Year 2006 Bonus Plan has been developed to provide financial incentives to those members of management that can make an important contribution to Michaels success and to encourage those members to remain with the Company.

Eligibility

1.	To be eligible for a bonus under the Fiscal Year 2006 Bonus Plan, an associate must be in a bonus eligible position during Fiscal Year 2006. The Fiscal Year begins on January 29, 2006, and concludes on February 3, 2007.
2.	An associate must be employed with the Company, in good standing (see #8), and in a bonus eligible position at the time of bonus payout in order to be eligible to receive a bonus. 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.
3.	Bonus payments will normally occur by April 15th, following the end of the fiscal year. Associates must be employed at the time of bonus payout in order to be eligible to receive a bonus.
4.	Anyone hired or placed in a bonus eligible position after November 15, 2006 will not be eligible to earn a bonus under the Fiscal Year 2006 Bonus Plan.
5.	Any associate who is on leave of absence longer than 90 days in Fiscal Year 2006 may be eligible to earn a prorated bonus for time worked during the fiscal year, in accordance with the normal proration guidelines outlined in this document.
6.	An associate must be in an active status for at least one month of Fiscal Year 2006, as defined in this document, to be eligible for any bonus consideration.
7.	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 #2) in each position, the respective base salaries, and the applicable target bonus amount(s).
8.	An associate must be in “good standing” at the time of bonus payout to be eligible for a Fiscal Year 2006 bonus. An associate does not meet this requirement if: 1) he/she receives an overall performance rating of “Unacceptable” for FY 2006; and/or 2) at the time of bonus payout (check date), he/she is on a Performance Improvement Plan (“PIP”) that was initiated during FY 2006. Associates who are on a Performance Improvement Plan that is initiated in FY 2007 will be eligible for a bonus payment for FY 2006.

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How a Bonus Is Earned

The following factors must be satisfied in order for an eligible associate to earn a bonus under the Fiscal Year 2006 Bonus Plan.

1.	The associate must be eligible as set forth in the Eligibility section of the Fiscal Year 2006 Bonus Plan.
2.	In order to earn a bonus under the Fiscal Year 2006 Bonus Plan, an associate must be employed by the Company, in a bonus eligible position, at the time bonuses are paid. If an associate is not employed by the Company in a bonus eligible position at the time bonuses are paid, regardless of the reason for termination of employment, the associate does not earn a bonus under the Fiscal Year 2006 Bonus Plan.
3.	An associate does not earn a bonus payment for FY 2006 if: 1) he/she receives an overall performance rating of “Unacceptable” for FY 2006 and/or 2) at the time of bonus payout he/she is on a Performance Improvement Plan (“PIP”) that was initiated during FY 2006. Associates who are on a Performance Improvement Plan that was initiated in FY 2007 will be eligible for a bonus payment for FY 2006.

The Company anticipates that this bonus plan will be part of an ongoing bonus program, but the Company does not guarantee that the program will in fact continue for future periods or that the terms, amounts or measures of the program will not change.

When bonuses are earned, the Company typically makes bonus payments in April of the following fiscal year.

Bonus Payout Formula

Bonus payouts will be based upon your earned percentage multiplied by your base salary as of the first day of the fiscal year (January 29, 2006). Your earned percentage will be based upon actual performance as compared to Plan.

Page 3 of 5

Bonus Plan Measures, Definitions & Financial Targets

Fiscal Year 2006 Bonus plan measures, definitions and financial targets are as follows:

				Financial Target
Plan Measure	Measure Definition	Plans Using This Measure		$ or %
Michaels Stores Inc. Company Profit Before Taxes ($)	Gross sales less cost of sales, SG&A expenses & interest, plus investment income and after other income or expenses (excludes effect of one-time charges).	• • • • • •	Corporate Management Distribution Marketing Merchandising Inventory Management Store Ops Corporate	•	$___
Net Income % of Sales (Michaels Stores, U.S. & Canada)	Net Sales less all costs and expenses on the store income statement, excluding the effect of share based compensation expenses.	•	Store Ops Corporate Management	•	___%
Operating Income % of Sales (Michaels Stores, U.S. & Canada) Company / Zone	Net Sales less all costs and expenses on the store income statement, excluding the effect of bonus and share based compensation expenses.	• •	Store Ops Store Ops Support	•	n/a
Store Sales Plan (Michaels Stores, U.S. & Canada) Company / Zone	Net sales on store income statement.	•	All Store Ops	•	$___
Net Buyer Contribution ($)*	Scan margin plus entitlements & other allowances.	•	Merchandising	•	n/a
Merchandise Comp Store Sales Plan ($)	Sales increase in stores open at least 13 months	• • •	Merchandising Marketing Inventory Management	•	$___
Company Monthly Average Inventory ($) per store	Avg. inventory per store for the 13 months 1/06 through 1/07 divided by 13. (Includes stores, warehouse, in-transit only)	• •	Merchandising Inventory Management	•	$___
Supply Chain Expense Ratio	Ratio (%) of supply chain expenses ($) to volume ($)	•	Distribution Corporate	•	n/a
Specific DC Performance	Ratio (%) of DC expense ($) to volume ($)	•	Distribution Center Management	•	n/a

* May include inter-company profit allocation where applicable.

Page 4 of 5

2006 Bonus Plan — Executive Vice President — Chief Financial Officer

Michaels Stores Inc. Company Profit Before Taxes ($M)
Plan:
	Bonus Payout
% of Plan	% of Salary
103+% ($___)		60.0	%
101.5% ($___)		50.0	%
Plan 100.0% ($___)		40.0	%
99.0% ($___)		35.0	%
98.0% ($___)		30.0	%
97.0% ($___)		22.5	%
96.0% ($___)		15.0	%
95.0% ($___)		11.25	%
94.0% ($___)		7.5	%
Less than 94%		0	%

Example

* Actual results are 101.5% of plan

* Total Bonus earned = 50%

Page 5 of 5

EX-10.4

Exhibit 10.4

Gregory A. Sandfort

Michaels Stores, Inc.

Fiscal Year 2006
Bonus Plan

Executive Vice President -
General Merchandise Manager

Fiscal Year 2006 Bonus Plan

Purpose

The Fiscal Year 2006 Bonus Plan has been developed to provide financial incentives to those members of management that can make an important contribution to Michaels success and to encourage those members to remain with the Company.

Eligibility

1.	To be eligible for a bonus under the Fiscal Year 2006 Bonus Plan, an associate must be in a bonus eligible position during Fiscal Year 2006. The Fiscal Year begins on January 29, 2006, and concludes on February 3, 2007.
2.	An associate must be employed with the Company, in good standing (see #8), and in a bonus eligible position at the time of bonus payout in order to be eligible to receive a bonus. 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.
3.	Bonus payments will normally occur by April 15th, following the end of the fiscal year. Associates must be employed at the time of bonus payout in order to be eligible to receive a bonus.
4.	Anyone hired or placed in a bonus eligible position after November 15, 2006 will not be eligible to earn a bonus under the Fiscal Year 2006 Bonus Plan.
5.	Any associate who is on leave of absence longer than 90 days in Fiscal Year 2006 may be eligible to earn a prorated bonus for time worked during the fiscal year, in accordance with the normal proration guidelines outlined in this document.
6.	An associate must be in an active status for at least one month of Fiscal Year 2006, as defined in this document, to be eligible for any bonus consideration.
7.	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 #2) in each position, the respective base salaries, and the applicable target bonus amount(s).
8.	An associate must be in “good standing” at the time of bonus payout to be eligible for a Fiscal Year 2006 bonus. An associate does not meet this requirement if: 1) he/she receives an overall performance rating of “Unacceptable” for FY 2006; and/or 2) at the time of bonus payout (check date), he/she is on a Performance Improvement Plan (“PIP”) that was initiated during FY 2006. Associates who are on a Performance Improvement Plan that is initiated in FY 2007 will be eligible for a bonus payment for FY 2006.

Page 2 of 6

How a Bonus Is Earned

The following factors must be satisfied in order for an eligible associate to earn a bonus under the Fiscal Year 2006 Bonus Plan.

1.	The associate must be eligible as set forth in the Eligibility section of the Fiscal Year 2006 Bonus Plan.
2.	In order to earn a bonus under the Fiscal Year 2006 Bonus Plan, an associate must be employed by the Company, in a bonus eligible position, at the time bonuses are paid. If an associate is not employed by the Company in a bonus eligible position at the time bonuses are paid, regardless of the reason for termination of employment, the associate does not earn a bonus under the Fiscal Year 2006 Bonus Plan.
3.	An associate does not earn a bonus payment for FY 2006 if: 1) he/she receives an overall performance rating of “Unacceptable” for FY 2006 and/or 2) at the time of bonus payout he/she is on a Performance Improvement Plan (“PIP”) that was initiated during FY 2006. Associates who are on a Performance Improvement Plan that was initiated in FY 2007 will be eligible for a bonus payment for FY 2006.

The Company anticipates that this bonus plan will be part of an ongoing bonus program, but the Company does not guarantee that the program will in fact continue for future periods or that the terms, amounts or measures of the program will not change.

When bonuses are earned, the Company typically makes bonus payments in April of the following fiscal year.

Bonus Payout Formula

Bonus payouts will be based upon your earned percentage multiplied by your base salary as of the first day of the fiscal year (January 29, 2006). Your earned percentage will be based upon actual performance as compared to Plan.

Page 3 of 6

Bonus Plan Measures, Definitions & Financial Targets

Fiscal Year 2006 Bonus plan measures, definitions and financial targets are as follows:

		Plans Using This		Financial Target
Plan Measure	Measure Definition	Measure		$ or %
Michaels Stores Inc. Company Profit Before Taxes ($)	Gross sales less cost of sales, SG&A expenses & interest, plus investment income and after other income or expenses (excludes effect of one-time charges).	• • • • • •	Corporate Management Distribution Marketing Merchandising Inventory Management Store Ops Corporate	•	$___
Net Income % of Sales (Michaels Stores, U.S. & Canada)	Net Sales less all costs and expenses on the store income statement, excluding the effect of share based compensation expenses.	•	Store Ops Corporate Management	•	___%
Operating Income % of Sales (Michaels Stores, U.S. & Canada) Company / Zone	Net Sales less all costs and expenses on the store income statement, excluding the effect of bonus and share based compensation expenses.	• •	Store Ops Store Ops Support	•	n/a
Store Sales Plan (Michaels Stores, U.S. & Canada) Company / Zone	Net sales on store income statement.	•	All Store Ops	•	$___
Net Buyer Contribution ($)*	Scan margin plus entitlements & other allowances.	•	Merchandising	•	n/a
Merchandise Comp Store Sales Plan ($)	Sales increase in stores open at least 13 months	• • •	Merchandising Marketing Inventory Management	•	$___
Company Monthly Average Inventory ($) per store	Avg. inventory per store for the 13 months 1/06 through 1/07 divided by 13. (Includes stores, warehouse, in-transit only)	• •	Merchandising Inventory Management	•	$___
Supply Chain Expense Ratio	Ratio (%) of supply chain expenses ($) to volume ($)	•	Distribution Corporate	•	n/a
Specific DC Performance	Ratio (%) of DC expense ($) to volume ($)	•	Distribution Center Management	•	n/a

* May include inter-company profit allocation where applicable.

Page 4 of 6

2006 Bonus Plan — Executive Vice President — General Merchandise Manager

Bonus Criteria	Point Value
1. Michaels Stores Inc. Company Profit Before Taxes ($M)		40
2. Merchandising Comp Store Sales Plan ($B)		60
3. Company Monthly Average Inventory ($K) per Store		40
Total Points:		140

1. Michaels Stores Inc. Company Profit Before Taxes ($M)
40 Potential Points
Plan:

% of Plan	Points Earned
103+% ($___)		40
101.5% ($___)		35
Plan 100% ($___)		30
98% ($___)		25
96% ($___)		20
94% ($___)		15
Less than 94%		0

2. Merchandising Comp Store Sales Plan ($B)
60 Potential Points
Plan:

% of Plan	Points Earned
102+% ($___)		60
101% ($___)		50
Plan 100% ($___)		40
99% ($___)		35
98% ($___)		30
97% ($___)		25
96% ($___)		20
Less than 96%		0

Page 5 of 6

2006 Bonus Plan — Executive Vice President — General Merchandise Manager

3. Company Monthly Average Inventory ($K) per Store
40 Potential Points
Plan:

% of Plan	Points Earned
Less than 100% ($___)		40
Plan 100% ($___)		30
101% ($___)		25
102% ($___)		20
103% ($___)		15
104% ($___)		10
105% ($___)		5
More than 105%		0

Bonus Payout Matrix

Total Points Earned	Bonus Payout % of Salary
Super - 100+		60.0	%
Stretch - 90		50.0	%
Target - 80		40.0	%
75		35.0	%
70		30.0	%
65		25.0	%
60		20.0	%
55		15.0	%
Less than 55		0.0	%

Example

* Actual results are 98% of Criterion 1 plan = 25 points earned
* Actual results are 100% of Criterion 2 plan = 40 points earned
* Actual results are 101% of Criterion 3 plan = 25 points earned
* Total points earned = 90
*Total Bonus earned = 50% of salary

Page 6 of 6

EX-10.5

Exhibit 10.5

Edward F. Sadler

Michaels Stores, Inc.

Fiscal Year 2006
Bonus Plan

Executive Vice President -
Store Operations

Fiscal Year 2006 Bonus Plan

Purpose

The Fiscal Year 2006 Bonus Plan has been developed to provide financial incentives to those members of management that can make an important contribution to Michaels success and to encourage those members to remain with the Company.

Eligibility

1. To be eligible for a bonus under the Fiscal Year 2006 Bonus Plan, an associate must be in a bonus eligible position during Fiscal Year 2006. The Fiscal Year begins on January 29, 2006, and concludes on February 3, 2007.

2. An associate must be employed with the Company, in good standing (see #8), and in a bonus eligible position at the time of bonus payout in order to be eligible to receive a bonus. 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.

3. Bonus payments will normally occur by April 15th, following the end of the fiscal year. Associates must be employed at the time of bonus payout in order to be eligible to receive a bonus.

4. Anyone hired or placed in a bonus eligible position after November 15, 2006 will not be eligible to earn a bonus under the Fiscal Year 2006 Bonus Plan.

5. Any associate who is on leave of absence longer than 90 days in Fiscal Year 2006 may be eligible to earn a prorated bonus for time worked during the fiscal year, in accordance with the normal proration guidelines outlined in this document.

6. An associate must be in an active status for at least one month of Fiscal Year 2006, as defined in this document, to be eligible for any bonus consideration.

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

8. An associate must be in “good standing” at the time of bonus payout to be eligible for a Fiscal Year 2006 bonus. An associate does not meet this requirement if: 1) he/she receives an overall performance rating of “Unacceptable” for FY 2006; and/or 2) at the time of bonus payout (check date), he/she is on a Performance Improvement Plan (“PIP”) that was initiated during FY 2006. Associates who are on a Performance Improvement Plan that is initiated in FY 2007 will be eligible for a bonus payment for FY 2006.

Page 2 of 6

How a Bonus Is Earned

The following factors must be satisfied in order for an eligible associate to earn a bonus under the Fiscal Year 2006 Bonus Plan.

1. The associate must be eligible as set forth in the Eligibility section of the Fiscal Year 2006 Bonus Plan.

2. In order to earn a bonus under the Fiscal Year 2006 Bonus Plan, an associate must be employed by the Company, in a bonus eligible position, at the time bonuses are paid. If an associate is not employed by the Company in a bonus eligible position at the time bonuses are paid, regardless of the reason for termination of employment, the associate does not earn a bonus under the Fiscal Year 2006 Bonus Plan.

3. An associate does not earn a bonus payment for FY 2006 if: 1) he/she receives an overall performance rating of “Unacceptable” for FY 2006 and/or 2) at the time of bonus payout he/she is on a Performance Improvement Plan (“PIP”) that was initiated during FY 2006. Associates who are on a Performance Improvement Plan that was initiated in FY 2007 will be eligible for a bonus payment for FY 2006.

The Company anticipates that this bonus plan will be part of an ongoing bonus program, but the Company does not guarantee that the program will in fact continue for future periods or that the terms, amounts or measures of the program will not change.

When bonuses are earned, the Company typically makes bonus payments in April of the following fiscal year.

Bonus Payout Formula

Bonus payouts will be based upon your earned percentage multiplied by your base salary as of the first day of the fiscal year (January 29, 2006). Your earned percentage will be based upon actual performance as compared to Plan.

Page 3 of 6

Bonus Plan Measures, Definitions & Financial Targets

Fiscal Year 2006 Bonus plan measures, definitions and financial targets are as follows:

			Financial Target
Plan Measure	Measure Definition	Plans Using This Measure	$ or %
Michaels Stores Inc. Company Profit Before Taxes ($)	Gross sales less cost of sales, SG&A expenses & interest, plus investment income and after other income or expenses (excludes effect of one-time charges).	• Corporate Management • Distribution • Marketing • Merchandising • Inventory Management • Store Ops Corporate	• $
Net Income % of Sales (Michaels Stores, U.S. & Canada)	Net Sales less all costs and expenses on the store income statement, excluding the effect of share based compensation expenses.	• Store Ops Corporate Management	• ___%
Operating Income % of Sales (Michaels Stores, U.S. & Canada) Company / Zone	Net Sales less all costs and expenses on the store income statement, excluding the effect of bonus and share based compensation expenses.	• Store Ops • Store Ops Support	• n/a
Store Sales Plan (Michaels Stores, U.S. & Canada) Company / Zone	Net sales on store income statement.	• All Store Ops	• $
Net Buyer Contribution ($)*	Scan margin plus entitlements & other allowances.	• Merchandising	• n/a
		• Merchandising
Merchandise Comp Store Sales Plan ($)	Sales increase in stores open at least 13 months	• Marketing • Inventory Management	• $
Company Monthly Average Inventory ($) per store	Avg. inventory per store for the 13 months 1/06 through 1/07 divided by 13. (Includes stores, warehouse, in-transit only)	• Merchandising • Inventory Management	• $
Supply Chain Expense Ratio	Ratio (%) of supply chain expenses ($) to volume ($)	• Distribution Corporate	• n/a
Specific DC Performance	Ratio (%) of DC expense ($) to volume ($)	• Distribution Center    Management	• n/a

*May include inter-company profit allocation where applicable.

Page 4 of 6

2006 Bonus Plan — Executive Vice President — Store Operations

Bonus Criteria	Point Value
1. Michaels Stores Inc. Company Profit Before Taxes ($M)		30
2. Stores Sales Plan (Michaels Stores, U.S. and Canada)		40
3. Net Income % of Sales (Michaels Stores, U.S. and Canada)		40
Total Points:		110

1. Michaels Stores Inc. Company Profit Before Taxes ($M)
30 Potential Points
Plan:

% of Plan	Points Earned
103+% ($___)	30
101.5% ($___)	25
Plan 100% ($___)	20
98% ($___)	15
96% ($___)	10
94% ($___)	5
Less than 94%	0

2. Stores Sales Plan (Michaels Stores, U.S. and Canada)
40 Potential Points
Plan:

% of Plan	Points Earned
103+% ($___)	40
102% ($___)	35
Plan 100% ($___)	30
99% ($___)	25
98% ($___)	20
97% ($___)	15
96% ($___)	10
95% ($___)	5
Less than 95%	0

Page 5 of 6

2006 Bonus Plan — Executive Vice President — Store Operations

3. Net Income % of Sales
(Michaels Stores, U.S. and Canada)
40 Potential Points
Plan:

% of Plan	Points Earned
+0.50% (___%)	40
+0.25% (___%)	35
Plan 0.00% (___%)	30
-0.25% (___%)	25
-0.50% (___%)	20
-0.75% (___%)	15
-1.00% (___%)	10
More than -1.00% (___%)	0

Bonus Payout Matrix

Total Points Earned	Bonus Payout % of Salary
Super - 100+	60%
Stretch - 90	50%
Target - 80	40%
75	35%
70	30%
65	25%
60	20%
55	15%
Less than 55	0%

Example

* Actual results are 100% of Criterion 1 plan = 20 points earned
* Actual results are 100% of Criterion 2 plan = 30 points earned
* Actual results are +0.25% of Criterion 3 plan = 35 points earned
* Total points earned = 85
*Total Bonus earned = 40% of salary

Page 6 of 6

EX-10.6

Exhibit 10.6

Thomas C. DeCaro

Michaels Stores, Inc.

Fiscal Year 2006
Bonus Plan

Executive Vice President -
Supply Chain

Fiscal Year 2006 Bonus Plan

Purpose

The Fiscal Year 2006 Bonus Plan has been developed to provide financial incentives to those members of management that can make an important contribution to Michaels success and to encourage those members to remain with the Company.

Eligibility

1.	To be eligible for a bonus under the Fiscal Year 2006 Bonus Plan, an associate must be in a bonus eligible position during Fiscal Year 2006. The Fiscal Year begins on January 29, 2006, and concludes on February 3, 2007.
2.	An associate must be employed with the Company, in good standing (see #8), and in a bonus eligible position at the time of bonus payout in order to be eligible to receive a bonus. 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.
3.	Bonus payments will normally occur by April 15th, following the end of the fiscal year. Associates must be employed at the time of bonus payout in order to be eligible to receive a bonus.
4.	Anyone hired or placed in a bonus eligible position after November 15, 2006 will not be eligible to earn a bonus under the Fiscal Year 2006 Bonus Plan.
5.	Any associate who is on leave of absence longer than 90 days in Fiscal Year 2006 may be eligible to earn a prorated bonus for time worked during the fiscal year, in accordance with the normal proration guidelines outlined in this document.
6.	An associate must be in an active status for at least one month of Fiscal Year 2006, as defined in this document, to be eligible for any bonus consideration.
7.	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 #2) in each position, the respective base salaries, and the applicable target bonus amount(s).
8.	An associate must be in “good standing” at the time of bonus payout to be eligible for a Fiscal Year 2006 bonus. An associate does not meet this requirement if: 1) he/she receives an overall performance rating of “Unacceptable” for FY 2006; and/or 2) at the time of bonus payout (check date), he/she is on a Performance Improvement Plan (“PIP”) that was initiated during FY 2006. Associates who are on a Performance Improvement Plan that is initiated in FY 2007 will be eligible for a bonus payment for FY 2006.

Page 2 of 6

How a Bonus Is Earned

The following factors must be satisfied in order for an eligible associate to earn a bonus under the Fiscal Year 2006 Bonus Plan.

1.	The associate must be eligible as set forth in the Eligibility section of the Fiscal Year 2006 Bonus Plan.
2.	In order to earn a bonus under the Fiscal Year 2006 Bonus Plan, an associate must be employed by the Company, in a bonus eligible position, at the time bonuses are paid. If an associate is not employed by the Company in a bonus eligible position at the time bonuses are paid, regardless of the reason for termination of employment, the associate does not earn a bonus under the Fiscal Year 2006 Bonus Plan.
3.	An associate does not earn a bonus payment for FY 2006 if: 1) he/she receives an overall performance rating of “Unacceptable” for FY 2006 and/or 2) at the time of bonus payout he/she is on a Performance Improvement Plan (“PIP”) that was initiated during FY 2006. Associates who are on a Performance Improvement Plan that was initiated in FY 2007 will be eligible for a bonus payment for FY 2006.

The Company anticipates that this bonus plan will be part of an ongoing bonus program, but the Company does not guarantee that the program will in fact continue for future periods or that the terms, amounts or measures of the program will not change.

When bonuses are earned, the Company typically makes bonus payments in April of the following fiscal year.

Bonus Payout Formula

Bonus payouts will be based upon your earned percentage multiplied by your base salary as of the first day of the fiscal year (January 29, 2006). Your earned percentage will be based upon actual performance as compared to Plan.

Page 3 of 6

Bonus Plan Measures, Definitions & Financial Targets

Fiscal Year 2006 Bonus plan measures, definitions and financial targets are as follows:

		Plans Using This		Financial Target
Plan Measure	Measure Definition	Measure		$ or %
Michaels Stores Inc. Company Profit Before Taxes ($)	Gross sales less cost of sales, SG&A expenses & interest, plus investment income and after other income or expenses (excludes effect of one-time charges).	• • • • • •	Corporate Management Distribution Marketing Merchandising Inventory Management Store Ops Corporate	•	$___
Net Income % of Sales (Michaels Stores, U.S. & Canada)	Net Sales less all costs and expenses on the store income statement, excluding the effect of share based compensation expenses.	•	Store Ops Corporate Management	•	___%
Operating Income % of Sales (Michaels Stores, U.S. & Canada) Company / Zone	Net Sales less all costs and expenses on the store income statement, excluding the effect of bonus and share based compensation expenses.	• •	Store Ops Store Ops Support	•	n/a
Store Sales Plan (Michaels Stores, U.S. & Canada) Company / Zone	Net sales on store income statement.	•	All Store Ops	•	$___
Net Buyer Contribution ($)*	Scan margin plus entitlements & other allowances.	•	Merchandising	•	n/a
Merchandise Comp Store Sales Plan ($)	Sales increase in stores open at least 13 months	• • •	Merchandising Marketing Inventory Management	•	$___
Company Monthly Average Inventory ($) per store	Avg. inventory per store for the 13 months 1/06 through 1/07 divided by 13. (Includes stores, warehouse, in-transit only)	• •	Merchandising Inventory Management	•	$___
Supply Chain Expense Ratio	Ratio (%) of supply chain expenses ($) to volume ($)	•	Distribution Corporate	•	n/a
Specific DC Performance	Ratio (%) of DC expense ($) to volume ($)	•	Distribution Center Management	•	n/a

* May include inter-company profit allocation where applicable.

Page 4 of 6

2006 Bonus Plan — Executive Vice President — Supply Chain

Bonus Criteria	Point Value
1.Michaels Stores Inc. Company Profit Before Taxes ($M)		40
2.Merchandising Comp Store Sales Plan ($B)		60
3.Company Monthly Average Inventory ($K) per Store		40
Total Points:		140

1. Michaels Stores Inc. Company Profit Before Taxes ($M)
40 Potential Points
Plan:

% of Plan	Points Earned
103+% ($___)		40
101.5% ($___)		35
Plan 100% ($___)		30
98% ($___)		25
96% ($___)		20
94% ($___)		15
Less than 94%		0

2. Merchandising Comp Store Sales Plan ($B)
60 Potential Points
Plan:

% of Plan	Points Earned
102+% ($___)		60
101% ($___)		50
Plan 100% ($___)		40
99% ($___)		35
98% ($___)		30
97% ($___)		25
96% ($___)		20
Less than 96%		0

Page 5 of 6

2006 Bonus Plan — Executive Vice President – Supply Chain

3. Company Monthly Average Inventory ($K) per Store
40 Potential Points
Plan:

% of Plan	Points Earned
Less than 100% ($___)		40
Plan 100% ($___)		30
101% ($___)		25
102% ($___)		20
103% ($___)		15
104% ($___)		10
105% ($___)		5
More than 105%		0

Bonus Payout Matrix

Total Points Earned	Bonus Payout % of Salary
Super — 100+		60.0	%
Stretch — 90		50.0	%
Target — 80		40.0	%
75		35.0	%
70		30.0	%
65		25.0	%
60		20.0	%
55		15.0	%
Less than 55		0.0	%

Example

* Actual results are 98% of Criterion 1 plan = 25 points earned
* Actual results are 100% of Criterion 2 plan = 40 points earned
* Actual results are 101% of Criterion 3 plan = 25 points earned
* Total points earned = 90
*Total Bonus earned = 50% of salary

EX-99.1

Exhibit 99.1

MICHAELS STORES ANNOUNCES DECISION TO EXPLORE STRATEGIC
ALTERNATIVES FOR ENHANCING SHAREHOLDER VALUE

President and CEO Michael Rouleau Retires – Oversaw Transformation of
Michaels into Nation’s Leading Arts and Crafts Retailer

Jeffrey Boyer and Gregory Sandfort Promoted to Co-Presidents – Executives Have
Strategic, Financial, Merchandising and Operations Strengths

Irving, TX, March 20, 2006 – Michaels Stores, Inc. (NYSE: MIK) today announced that its Board has decided to begin a process to explore strategic alternatives to enhance shareholder value including, but not limited to, a potential sale of the Company. The Company said it has retained JPMorgan as its financial advisor in this process, which it expects will take a number of months. There can be no assurance that a transaction will result and the Company does not intend to disclose developments regarding its exploration unless and until its Board of Directors has approved a specific transaction.

The Company also announced its Board of Directors has named Jeffrey N. Boyer and Gregory A. Sandfort as Co-Presidents of the Company. Boyer, previously Executive Vice President and Chief Financial Officer, and Sandfort, previously Executive Vice President, General Merchandise Manager, succeed R. Michael Rouleau, who is retiring as President and CEO after a decade of exemplary service.

Boyer, 47, and Sandfort, 50, will report to the Company’s Board and to Chairman Charles J. Wyly, Jr. In addition to continuing as Chief Financial Officer, Boyer’s responsibilities will include information technology, human resources, real estate, strategic planning, legal, and new businesses; Sandfort, who also will be Chief Operating Officer, will be responsible for merchandising, store operations, marketing and supply chain areas. Rouleau, 67, becomes a special advisor to the Board. The office of Chief Executive Officer has been left vacant by the Board, and the duties and authorities of that office have been assigned to the newly appointed Co-Presidents, Boyer and Sandfort.

Further strengthening its management team, the Company also announced the promotions, effective immediately, of two senior executives. Harvey S. Kanter, 44, previously President of the Company’s Aaron Brothers business, has been named Executive Vice President – Chief Merchant, assuming Sandfort’s former position.

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Thomas Bazzone, 39, who had been President of the Company’s Recollections scrapbooking and Star Wholesale businesses, becomes Executive Vice President — Specialty Businesses, with added responsibility for Aaron Brothers’ art and framing stores as well as future business development opportunities.

Chairman Charles J. Wyly, Jr., said, “We have completed a thorough review of the Company’s position, as well as the opportunities Michaels Stores faces over the near and long term. With a rapidly evolving retail market, we are focused on all opportunities to enhance the strength of the Michaels business, attract new customers and more effectively respond to – and shape – their changing arts and crafts interests, even as we continue to build a world-class retail organization and infrastructure.”

Wyly continued: “The Company’s growth under Michael Rouleau has put us in a strong position to consider new ways to realize the full value of our franchise. Our decision to explore strategic alternatives is driven by a commitment to create value for our shareholders and exciting new opportunities for our employees, while positioning the Company to expand market share, improve customer service, and deliver stronger performance.”

Wyly added, “We are grateful to Michael for his exceptional leadership and dedication to the Company over the past ten years, and his contributions to making Michaels Stores the nation’s leading arts and crafts retailer. Jeff Boyer and Greg Sandfort have all the necessary skills – strategic vision, financial acumen, merchandising savvy and operational expertise – to lead Michaels Stores into its next phase.”

Company Well-Positioned for Emerging Opportunities

Michaels Stores has had nine consecutive years of record financial performance, increasing its market capitalization from $310 million in 1996 to approximately $4.5 billion in 2006; as of January 28, 2006, the Company was debt-free and had over $450 million in cash and cash equivalents. The Company continues to transform itself into a sophisticated and centralized modern retailer, and has become the industry leader by pursuing an aggressive store opening, relocation and remodel program, creating an efficient and effective infrastructure and keeping a strong focus on ways to enhance its merchandise offerings.

Michael Rouleau said: “After a decade as CEO of Michaels, I leave very proud of what we’ve achieved. Moving forward, I believe that the Company is perfectly positioned to innovate, to broaden our reach, to expand the industry and to better serve customers as a truly world-class retailer. Jeff and Greg are ready to capitalize on the enormous opportunities that lie ahead for Michaels, and now is the time to pass the baton. I have every confidence that our capable management team is up to the task of making Michaels a bigger, more agile, faster growing retailer.”

Jeffrey Boyer said, “I’m excited for the opportunity to help take the Company to the next level, both financially and operationally, building on what Michael Rouleau has accomplished. I look forward to continuing to work with Greg and our exceptionally

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strong management team to further grow our business and create even greater value for our shareholders.”

Gregory Sandfort said, “The strong operational and financial foundation that Michael Rouleau has put in place will enable us to translate our new strategy for continued growth and success into tangible results. Today, we have the tools, organization, management, merchandise, and suppliers in place to become a truly world-class retailer. We will continue to fully leverage these strengths to enhance our operating performance, develop and execute on our long-term plans for growth and ensure the smooth continuity of our management and operations.”

About Jeff Boyer

Jeff Boyer is a veteran executive with over 20 years of experience in finance and marketing in the retail and consumer products industries, with companies such as Sears, Kmart, Pillsbury, General Foods, Kraft, and Quaker Oats. Since joining Michaels Stores in January 2003 as Executive Vice President and Chief Financial Officer, Jeff Boyer has played an invaluable role in helping the Company achieve strong financial performance, record growth, industry-leading return on equity and substantial cash flow generation.

About Greg Sandfort

Greg Sandfort, a long-time retailing executive, became Executive Vice President – General Merchandise Manager at Michaels Stores in January 2004. In that position, he has played a key role in the Company’s program to remodel and standardize stores and improve and broaden its merchandise offerings. Prior to joining Michaels Stores, Mr. Sandfort served as Vice-Chairman and Co-CEO of Kleinert’s, Inc. where he was directly responsible for all aspects of the company’s sleepwear, playwear, and retail divisions. Mr. Sandfort also was Vice President, General Merchandise Manager for Sears, Roebuck and Co. and held a number of merchandising positions with Federated Stores.

About Harvey Kanter

Harvey Kanter has extensive retailing experience with Michaels Stores as President of its Aaron Brothers business since April 2003. Prior to joining Michaels Stores, Kanter was with Eddie Bauer, where he was most recently Vice President and Managing Director. He also has held executive positions at Sears, Roebuck and Co., Carter Hawley Hale Department Stores, William Filene’s and Sons, and Dayton Hudson Corporation.

About Tom Bazzone

A veteran retailer, Tom Bazzone had been President of the Company’s Recollections scrapbooking and Star Wholesale businesses since May 2004. He came to Michaels from Restoration Hardware where he was Executive Vice President, Chief Operating Officer and Director. Previously, he was with Red Envelope (where he was President and Chief Operating Officer), Williams-Sonoma, and Grossman’s, a building materials company.

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About Michaels Stores

Michaels Stores, Inc. is the world’s largest specialty retailer of arts, crafts, framing, floral, wall decor, and seasonal merchandise for the hobbyist and do-it-yourself home decorator. As of March 15, 2006, the Company owns and operates 896 Michaels stores in 48 states and Canada, 165 Aaron Brothers stores, 11 Recollections stores and four Star Wholesale operations.

Media and Investor Contact:

Michael Gross, Robinson Lerer & Montgomery, 646-805-2003

Forward Looking Statements

This document may contain forward-looking statements that reflect our plans, estimates, and beliefs. Any statements contained herein that are not statements of historical fact should be considered forward-looking statements and should be read in conjunction with our consolidated financial statements and related notes in our Annual Report on Form 10-K for the fiscal year ended January 29, 2005, and in our Quarterly Reports on Form 10-Q for the quarters ended April 30, 2005, July 30, 2005 and October 29, 2005. Factors that could cause or contribute to differences between our forward-looking plans, estimates, and beliefs and actual results include, but are not limited to: our ability to remain competitive in the areas of merchandise quality, price, breadth of selection, customer service, and convenience; our ability to anticipate and/or react to changes in customer demand; changes in consumer confidence; unexpected consumer responses to promotional programs; unusual weather conditions; the execution and management of our store growth and the availability of acceptable real estate locations for new store openings; the effective maintenance of our perpetual inventory and automated replenishment systems and related impacts to inventory levels; delays in the receipt of merchandise ordered from our suppliers due to delays in connection with either the manufacture or shipment of such merchandise; transportation delays (including dock strikes and other work stoppages); changes in political, economic, and social conditions; commodity, energy and fuel cost increases, currency fluctuations, and changes in import duties; our ability to maintain the security of electronic and other confidential information; our ability to establish effective internal controls over financial reporting for inventories and cost of sales under our proposed weighted average cost method; financial difficulties of any of our insurance providers, key vendors, or suppliers; and other factors as set forth in our Annual Report on Form 10-K for the fiscal year ended January 29, 2005, particularly in “Critical Accounting Policies and Estimates” and “Risk Factors,” and in our other Securities and Exchange Commission filings. We intend these forward-looking statements to speak only as of the time of this release and do not undertake to update or revise them as more information becomes available.

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