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 24, 2006

MICHAELS STORES, INC.

(Exact Name of Registrant as Specified in Charter)

Delaware	001-09338	75-1943604
(State or Other Jurisdiction of Incorporation)	(Commission File Number)	(IRS Employer 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

	Item 1.01. Entry into a Material Definitive Agreement.
	Item 9.01. Financial Statements and Exhibits.
SIGNATURE
INDEX TO EXHIBITS
Fiscal Year 2006 Bonus Plan for Jeffrey N. Boyer
Fiscal Year 2006 Bonus Plan for Gregory A. Sandfort
Fiscal Year 2006 Bonus Plan for Harvey S. Kanter
Fiscal Year 2006 Bonus Plan for Thomas M. Bazzone

Item 1.01. Entry into a Material Definitive Agreement.

     As of March 24, 2006, the Compensation Committee (the “Compensation Committee”) of the Board of Directors of Michaels Stores, Inc. (the “Company”) approved the following actions regarding certain of the Company’s executive officers as set out below.

2006 Base Compensation Determination for Executive Officers

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

			Base
Name and Position1	Year		Compensation
Jeffrey N. Boyer		2006	$	500,000
President and Chief Financial Officer		2005	$	375,000
Gregory A. Sandfort		2006	$	500,000
President and Chief Operating Officer		2005	$	300,000
Harvey S. Kanter		2006	$	350,000
Executive Vice President — Chief Merchant		2005	$	290,750
Thomas M. Bazzone		2006	$	350,000
Executive Vice President — Specialty Businesses		2005	$	285,000

¹ Each of the following officers was promoted to his current position, effective as of March 15, 2006. Accordingly, these changes in base compensation supersede the changes made by the Compensation Committee on March 14, 2006; see the Company’s Form 8-K filed on March 20, 2006, SEC File No. 001-09338.

2

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:
Jeffrey N. Boyer2	President and Chief Financial Officer
Gregory A. Sandfort2	President and Chief Operating Officer
Harvey S. Kanter	Executive Vice President — Chief Merchant
Thomas M. Bazzone	Executive Vice President — Specialty Businesses

     The Fiscal Year 2006 Bonus Plans for the foregoing executive officers are attached to this Current Report on Form 8-K as Exhibits 10.1, 10.2, 10.3 and 10.4, and each is incorporated by reference into this Item 1.01.

Item 9.01. Financial Statements and Exhibits.

(d) Exhibits.

Exhibit
Number		Description
	10.1	Fiscal Year 2006 Bonus Plan for Jeffrey N. Boyer
	10.2	Fiscal Year 2006 Bonus Plan for Gregory A. Sandfort
	10.3	Fiscal Year 2006 Bonus Plan for Harvey S. Kanter
	10.4	Fiscal Year 2006 Bonus Plan for Thomas M. Bazzone

² Supersedes the Fiscal Year 2006 Bonus Plans approved by the Compensation Committee on March 14, 2006; see the Company’s Form 8-K filed on March 20, 2006, SEC File No. 001-09338.

3

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 29, 2006

4

INDEX TO EXHIBITS

Exhibit
Number		Description
	10.1	Fiscal Year 2006 Bonus Plan for Jeffrey N. Boyer
	10.2	Fiscal Year 2006 Bonus Plan for Gregory A. Sandfort
	10.3	Fiscal Year 2006 Bonus Plan for Harvey S. Kanter
	10.4	Fiscal Year 2006 Bonus Plan for Thomas M. Bazzone

EX-10.1

Exhibit 10.1

Jeffrey N. Boyer

Michaels Stores, Inc.

Fiscal Year 2006
Bonus Plan

President and
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.

Page 2 of 5

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:

Plan Measure	Measure Definition	Plans Using This	Financial Target
		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).	Ÿ    Corporate      Management Ÿ    Distribution Ÿ    Marketing Ÿ    Merchandising Ÿ    Inventory      Management Ÿ    Store Ops      Corporate	Ÿ     $
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.	Ÿ    Store Ops      Corporate      Management	Ÿ                         %
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.	Ÿ    Store Ops Ÿ    Store Ops      Support	Ÿ     n/a
Store Sales Plan (Michaels Stores, U.S. & Canada) Company / Zone	Net sales on store income statement.	Ÿ    All Store Ops	Ÿ     $
Net Buyer Contribution ($)*	Scan margin plus entitlements & other allowances.	Ÿ    Merchandising	Ÿ     n/a
Merchandise Comp Store Sales Plan ($)	Sales increase in stores open at least 13 months.	Ÿ    Merchandising Ÿ    Marketing Ÿ    Inventory      Management	Ÿ     $
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)	Ÿ    Merchandising Ÿ    Inventory      Management	Ÿ     $
Supply Chain Expense Ratio	Ratio (%) of supply chain expenses ($) to volume ($)	Ÿ    Distribution      Corporate	Ÿ     n/a
Specific DC Performance	Ratio (%) of DC expense ($) to volume ($)	Ÿ    Distribution      Center      Management	Ÿ     n/a

     *May include inter-company profit allocation where applicable.

Page 4 of 5

2006 Bonus Plan — President and Chief Financial Officer

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

% of Plan	Bonus Payout
	% of Salary
103+% ($___)	80%
101.5% ($___)	70%
Plan 100.0% ($___)	60%
99.0% ($___)	50%
98.0% ($___)	40%
97.0% ($___)	30%
96.0% ($___)	20%
95.0% ($___)	15%
94.0% ($___)	10%
Less than 94%	0%

Example

* Actual results are 100% of plan

* Total Bonus earned = 60%

Page 5 of 5

EX-10.2

Exhibit 10.2

Gregory A. Sandfort

Michaels Stores, Inc.

Fiscal Year 2006
Bonus Plan

President and
Chief Operating 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.

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.

Bonus Plan Measures, Definitions & Financial Targets

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

Plan Measure	Measure Definition	Plans Using This	Financial Target
		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).	Ÿ    Corporate      Management Ÿ    Distribution Ÿ    Marketing Ÿ    Merchandising Ÿ    Inventory      Management Ÿ    Store Ops      Corporate	Ÿ     $
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.	Ÿ    Store Ops      Corporate      Management	Ÿ                         %
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.	Ÿ    Store Ops Ÿ    Store Ops      Support	Ÿ     n/a
Store Sales Plan (Michaels Stores, U.S. & Canada) Company / Zone	Net sales on store income statement.	Ÿ    All Store Ops	Ÿ     $___
Net Buyer Contribution ($)*	Scan margin plus entitlements & other allowances.	Ÿ     Merchandising	Ÿ     n/a
Merchandise Comp Store Sales Plan ($)	Sales increase in stores open at least 13 months.	Merchandising Ÿ    Marketing Ÿ    Inventory      Management	Ÿ     $
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)	Ÿ    Merchandising Ÿ    Inventory      Management	Ÿ     $
Supply Chain Expense Ratio	Ratio (%) of supply chain expenses ($) to volume ($)	Ÿ    Distribution      Corporate	Ÿ     n/a
Specific DC Performance	Ratio (%) of DC expense ($) to volume ($)	Ÿ    Distribution      Center      Management	Ÿ     n/a

     *May include inter-company profit allocation where applicable.

2006 Bonus Plan — President and Chief Operating Officer

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

	Bonus Payout
% of Plan	% of Salary
103+% ($___)	80%
101.5% ($___)	70%
Plan 100.0% ($___)	60%
99.0% ($___)	50%
98.0% ($___)	40%
97.0% ($___)	30%
96.0% ($___)	20%
95.0% ($___)	15%
94.0% ($___)	10%
Less than 94%	0%

Example

* Actual results are 100% of plan

* Total Bonus earned = 60%

EX-10.3

Exhibit 10.3

Harvey S. Kanter

Michaels Stores, Inc.

Fiscal Year 2006
Bonus Plan

Executive Vice President -
Chief Merchant

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:

Plan Measure	Measure Definition	Plans Using This	Financial Target
		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).	Ÿ    Corporate       Management Ÿ    Distribution Ÿ    Marketing Ÿ    Merchandising Ÿ    Inventory       Management Ÿ    Store Ops       Corporate	Ÿ     $
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.	Ÿ    Store Ops       Corporate       Management	Ÿ                         %
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.	Ÿ    Store Ops Ÿ    Store Ops       Support	Ÿ     n/a
Store Sales Plan (Michaels Stores, U.S. & Canada) Company / Zone	Net sales on store income statement.	Ÿ    All Store Ops	Ÿ     $
Net Buyer Contribution ($)*	Scan margin plus entitlements & other allowances.	Ÿ    Merchandising	Ÿ     n/a
Merchandise Comp Store Sales Plan ($)	Sales increase in stores open at least 13 months.	Ÿ    Merchandising Ÿ    Marketing Ÿ    Inventory       Management	Ÿ     $
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)	Ÿ    Merchandising Ÿ    Inventory       Management	Ÿ     $
Supply Chain Expense Ratio	Ratio (%) of supply chain expenses ($) to volume ($)	Ÿ    Distribution       Corporate	Ÿ     n/a
Specific DC Performance	Ratio (%) of DC expense ($) to volume ($)	Ÿ    Distribution       Center       Management	Ÿ     n/a

     *May include inter-company profit allocation where applicable.

Page 4 of 6

2006 Bonus Plan — Executive Vice President — Chief Merchant

Bonus Criteria	Point Value
1. Michaels Stores Inc. Company Profit Before Taxes ($M)	40
2. Merchandising Comp Store Sales Plan ($)	60
3. Company Monthly Average Inventory ($) 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 ($)
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 — Chief Merchant

3. Company Monthly Average Inventory ($) 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-10.4

Exhibit 10.4

Thomas M. Bazzone

Michaels Stores, Inc.

Fiscal Year 2006
Bonus Plan

Executive Vice President -
Specialty Businesses

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.

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Bonus Plan Measures, Definitions & Financial Targets

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

Plan Measure	Measure Definition	Plans Using This	Financial Target
		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).	Ÿ    Corporate      Management Ÿ    Distribution Ÿ    Marketing Ÿ    Merchandising Ÿ    Inventory      Management Ÿ    Store Ops      Corporate	Ÿ    $
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.	Ÿ    Store Ops      Corporate      Management	Ÿ         %
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.	Ÿ    Store Ops Ÿ    Store Ops      Support	Ÿ    n/a
Store Sales Plan (Michaels Stores, U.S. & Canada) Company / Zone	Net sales on store income statement.	Ÿ    All Store Ops	Ÿ    $
Net Buyer Contribution ($)*	Scan margin plus entitlements & other allowances.	Ÿ    Merchandising	Ÿ    n/a
Merchandise Comp Store Sales Plan ($)	Sales increase in stores open at least 13 months.	Ÿ    Merchandising Ÿ    Marketing Ÿ    Inventory      Management	Ÿ    $
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)	Ÿ    Merchandising Ÿ    Inventory      Management	Ÿ    $
Supply Chain Expense Ratio	Ratio (%) of supply chain expenses ($) to volume ($)	Ÿ    Distribution      Corporate	Ÿ    n/a
Specific DC Performance	Ratio (%) of DC expense ($) to volume ($)	Ÿ    Distribution      Center      Management	Ÿ    n/a

     *May include inter-company profit allocation where applicable.

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2006 Bonus Plan — Executive Vice President — Specialty Businesses

Bonus Criteria	Bonus Potential
1. Aaron Brothers Company Profit Before Taxes ($M)		36	%
2. Recollections Company Profit Before Taxes ($M)		12	%
3. STAR Company Profit Before Taxes ($M)		12	%
Total Bonus Potential:		60	%

1. Aaron Brothers Company Profit Before Taxes ($M)
36% Potential Bonus
Plan:

Performance	Points Earned
120%	36%
110%	30%
Plan 100%	24%
95%	12%
90%	6%
Less than 90%	0%

2. Recollections Company Profit Before Taxes ($M)
12% Potential Bonus
Plan:

Performance	Points Earned
94% ($___)	12%
97% ($___)	10%
Plan 100% ($___)	8%
103% ($___)	6%
106% ($___)	4%
More than 106%	0%

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2006 Bonus Plan — Executive Vice President — Specialty Businesses

3. STAR Company Profit Before Taxes ($M)
12% Potential Bonus
Plan:

Performance	Points Earned
132.8% ($___)	12%
116.4% ($___)	10%
Plan 100% ($___)	8%
89.1% ($___)	6%
78.1% ($___)	4%
Less than 78.1% ($___)	0%

Example

* Actual Criterion 1 results are 100% = 24% bonus earned
* Actual Criterion 2 results are 100% = 8% bonus earned
* Actual Criterion 3 results are 100% = 8% bonus earned
*Total Bonus earned = 40% of salary

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