Exhibit 10.1

MICHAELS STORES, INC.
SECOND AMENDED AND RESTATED
2001 GENERAL STOCK OPTION PLAN

     This Michaels Stores, Inc. Second Amended and Restated 2001 General Stock
Option Plan (the “Plan”) of Michaels Stores, Inc., a Delaware corporation (the
“Company”), sets forth the Michaels Stores, Inc. General Stock Option Plan
(which became effective as of October 5, 2001), as amended effective as of
September 27, 2004.

     1. Purpose. The purpose of the Plan is to attract and retain the best
available talent and encourage the highest level of performance by Directors (as
defined below) and executive officers and other employees of the Company and its
Subsidiaries (as defined below) and to provide them with incentives to put forth
maximum efforts for the success of the Company’s business, in order to serve the
best interests of the Company and its stockholders. All options granted under
the Plan are intended to be nonstatutory stock options.

     2. Definitions. The following terms, when used in the Plan with initial
capital letters, will have the following meanings:

     (a) “Act” means the Securities Exchange Act of 1934, as in effect from time
to time.

     (b) “Board” means the Board of Directors of the Company.

     (c) “Change of Control” means the first to occur of the events described in
(i) through (v) below, unless a majority of the Directors in office immediately
prior to such event has adopted a resolution prior to or promptly following the
occurrence of any such event stipulating, conditionally, temporarily or
otherwise, that any such event will not result in a “Change of Control”:

     (i) the Company enters into an agreement providing for the merger,
consolidation or reorganization of the Company into or with another corporation
or other entity, and the consummation of such merger, consolidation or
reorganization would result in less than 2/3 of the total combined voting power
of the then-outstanding securities entitled to vote generally in the election of
directors or persons who serve similar functions of the surviving or resulting
entity (“Voting Stock”) of such corporation or entity immediately after such
transaction being held in the aggregate by the holders of Voting Stock of the
Company immediately prior to such event;

     (ii) the Company enters into an agreement to sell or otherwise transfer all
or substantially all of its assets to another corporation, entity or person,
and, if such transfer is to another corporation or entity, the consummation of
such sale or transfer would result in less than 2/3 of the total combined voting
power of the then-outstanding Voting Stock of such corporation or entity
immediately after such sale or transfer being held in the aggregate by the
holders of Voting Stock of the Company immediately prior to such event;

 

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     (iii) there is a report filed on Schedule 13D or Schedule TO (or any
successor schedule, form or report), each as promulgated pursuant to the Act,
disclosing that any person (as the term “person” is used in Section 13(d)(3) or
Section 14(d)(2) of the Act) has become the beneficial owner (as the term
“beneficial owner” is defined under Rule 13d-3 or any successor rule or
regulation promulgated under the Act) of securities representing 1/3 or more of
the total combined voting power of the then-outstanding Voting Stock of the
Company;

     (iv) the Company files a report or proxy statement with the Securities and
Exchange Commission pursuant to the Act disclosing in response to Form 8-K or
Schedule 14A (or any successor schedule, form or report or item therein) that a
change of control of the Company has occurred or will occur in the future
pursuant to any then-existing contract or transaction; or

     (v) if, during any period of two consecutive years, individuals who at the
beginning of any such period constitute the Directors of the Company cease for
any reason to constitute at least a majority thereof; provided, however, that
for purposes of this Paragraph 2(c)(v) each Director who is first elected, or
first nominated for election by the Company’s stockholders, by a vote of at
least 2/3 of the Directors of the Company then still in office who were
Directors at the beginning of any such period will be deemed to have been a
Director at the beginning of such period.

    Notwithstanding the foregoing provisions of Paragraph 2(c)(iii) or
Paragraph 2(c)(iv), unless otherwise determined in a specific case by majority
vote of the Board, a “Change of Control” will not be deemed to have occurred for
purposes of Paragraph 2(c)(iii) or Paragraph 2(c)(iv) solely because (A) the
Company, (B) a Subsidiary or (C) any employee benefit plan of the Company or any
Subsidiary, either files or becomes obligated to file a report or a proxy
statement under or in response to Schedule 13D, Schedule TO, Form 8-K or
Schedule 14A (or any successor schedule, form or report or item therein) under
the Act disclosing beneficial ownership by it of shares of Voting Stock of the
Company, whether in excess of 1/3 of the total combined voting power of the
then-outstanding Voting Stock of the Company or otherwise, or because the
Company reports that a change of control of the Company has occurred or will
occur in the future by reason of such beneficial ownership or any increase or
decrease thereof.

     (d) “Code” means the Internal Revenue Code of 1986, as in effect from time
to time.

     (e) “Common Stock” means the common stock, par value $.10 per share, of the
Company or any security into which such common stock may be changed by reason of
any transaction or event of the type described in Paragraph 7.

     (f) “Date of Grant” means the date specified by the Stock Option Committee
on which a grant of Stock Options will become effective (which date will not be
earlier than the date on which such committee takes action with respect
thereto).

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     (g) “Director” means a member of the Board.

     (h) “Employee Termination Date” has the meaning ascribed to such term in
Paragraph 5(b)(iii).

     (i) “Guidelines” has the meaning ascribed to such term in Paragraph
5(b)(i).

     (j) “Market Value per Share” means

     (i) if the principal market for the Common Stock is a national securities
exchange or The Nasdaq Stock Market, Inc., then the reported closing sale price
of the Common Stock on that date on the principal exchange or market on which
the Common Stock is then listed or admitted to trading (rounded as may be
appropriate for administrative convenience);

     (ii) if the closing sale price is not available or if the principal market
for the Common Stock is not a national securities exchange and the Common Stock
is not quoted on The Nasdaq Stock Market, Inc., then the average between the
highest bid and lowest asked prices for the Common Stock on such date as
reported on the Nasdaq OTC Bulletin Board Service or by the National Quotation
Bureau, Incorporated or a comparable service (rounded as may be appropriate for
administrative convenience);

     (iii) if the date is not a business day and, as a result, Paragraphs
2(j)(i) and 2(j)(ii) above are inapplicable, then the Market Value per Share
will be determined as of the immediately preceding business day (rounded as may
be appropriate for administrative convenience); and

     (iv) if Paragraphs 2(j)(i) and 2(j)(ii) above are otherwise inapplicable,
then the Market Value per Share will be determined in good faith by the Stock
Option Committee.

     (k) “Option Price” means the purchase price per share payable on exercise
of a Stock Option.

     (l) “Participant” means (i) an individual who is selected by the Stock
Option Committee to receive Stock Options under Paragraph 5 and who is at that
time an executive officer or other employee of the Company or any Subsidiary or
(ii) a Director.

     (m) “Rule 16b-3” means Rule 16b-3 under Section 16 of the Act, as such Rule
is in effect from time to time.

     (n) “Stock Option” means the right to purchase one or more shares of Common
Stock upon exercise of an option granted pursuant to Paragraph 5.

     (o) “Stock Option Committee” means the 2001 General Stock Option Plan
Committee, which is a committee of the Board whose members are appointed by the
Board from time to time. All of the members of the Stock Option Committee, which
may

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    not be less than two, are intended at all times to qualify as “outside
directors” within the meaning of Section 162(m) of the Code and as “Non-Employee
Directors” within the meaning of Rule 16b-3; provided, however, that the failure
of a member of such committee to so qualify will not be deemed to invalidate any
Stock Option granted by such committee.

     (p) “Subsidiary” means any corporation, partnership, limited liability
company, joint venture, trust or other entity in which the Company owns or
controls, directly or indirectly, not less than 50% of the total combined voting
power or equity interests represented by all classes of stock or other equity
interests issued by such corporation, partnership, limited liability company,
joint venture, trust or other entity.

     (q) “Voting Stock” has the meaning ascribed to such term in
Paragraph 2(c)(i).

     3. Shares Available Under Plan. The shares of Common Stock which may be
issued under the Plan will not exceed in the aggregate 5,930,000 shares (which
number has been adjusted, in accordance with the terms of the Plan, for the
two-for-one stock splits in the form of stock dividends issued to stockholders
of record of the Company on November 12, 2001 and September 27, 2004 pursuant to
Paragraph 7), subject to adjustment as provided in Paragraph 7. Such shares may
be shares of original issuance or treasury shares or a combination of the
foregoing. Any shares of Common Stock which are subject to Stock Options that
are terminated unexercised, forfeited or surrendered, or that expire for any
reason, will again be available for issuance under the Plan. For purposes of the
Plan, the term “surrendered” shall be construed to include Stock Options (or
portions thereof) exercisable for shares of Common Stock that an optionee
authorizes the Company to withhold in connection with the exercise of a Stock
Option (or a portion thereof) in accordance with Paragraph 6 to pay the Option
Price or in accordance with Paragraph 8 to satisfy a tax withholding obligation.

     4. Individual Limitation on Stock Options. The maximum aggregate number of
shares of Common Stock with respect to which Stock Options may be granted to any
Participant during any single calendar year will not exceed 300,000 shares
(which number has been adjusted, in accordance with the terms of the Plan, for
the two-for-one stock split in the form of a stock dividend issued to
stockholders of record of the Company on September 27, 2004 pursuant to
Paragraph 7); provided, however, that Stock Options with respect to up to an
additional 700,000 shares (which number has been adjusted, in accordance with
the terms of the Plan, for the two-for-one stock split in the form of a stock
dividend issued to stockholders of record of the Company on September 27, 2004
pursuant to Paragraph 7) may be granted to a Participant who has not previously
been employed by the Company or any of its Subsidiaries upon such Participant’s
initial employment by the Company or any of its Subsidiaries.

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5. Grants of Stock Options

     (a) General. Each grant of Stock Options under the Plan may utilize any or
all of the authorizations, and will be subject to all of the requirements, set
forth below.

     (i) Each grant will specify the number of shares of Common Stock to which
it pertains.

     (ii) Each grant will specify the Option Price, which will not be less than
100% of the Market Value per Share on the Date of Grant.

     (iii) Except as otherwise provided in Paragraphs 5(b)(iii), 5(b)(iv) and
5(c)(iv), each Stock Option granted to a Participant will expire at 5:00 p.m.
Dallas, Texas, time, on the calendar day immediately preceding the fifth
anniversary of the Date of Grant.

     (iv) Successive grants may be made to the same Participant whether or not
any Stock Options previously granted to such Participant remain unexercised.

     (v) Grants may be made to the same Participant, in the same year or
otherwise, under both Paragraph 5(b) and Paragraph 5(c) (i.e., grants may be
made to a Participant for such Participant’s service both as a Director under
Paragraph 5(c) and as an executive officer or other employee of the Company or a
Subsidiary under Paragraph 5(b)).

     (vi) Each grant may be made subject to such transfer restrictions as the
Stock Option Committee may determine.

     (vii) Each grant will be evidenced by a stock option agreement executed on
behalf of the Company by an officer of the Company and delivered to the
Participant and containing such further terms and provisions, consistent with
the Plan, as the Stock Option Committee may approve.

     (viii) Notwithstanding any other provision of this Paragraph 5, upon a
Change of Control each outstanding Stock Option will vest and be fully
exercisable and will remain exercisable until the term of the Stock Option
expires; provided, however, that if a merger, consolidation or reorganization
described in Paragraph 2(c)(i) or a sale or transfer of all or substantially all
of the assets of the Company described in Paragraph 2(c)(ii) is abandoned by the
Company, then, on the date of such abandonment, each Stock Option that vested
and became fully exercisable pursuant to this Paragraph 5(a)(viii) but that has
not been exercised will revert to the exercise terms such Stock Option had prior
to acceleration of vesting under this Paragraph 5(a)(viii) and thereafter vest
and become exercisable in accordance with the terms of the Plan.

     (ix) The periods for vesting of a Stock Option granted under the Plan may
not be accelerated in deviation from the terms set forth in Paragraph 5(b) or

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5(c), as applicable, and the expiration date for a Stock Option granted under
the Plan may not be extended beyond the terms set forth in this Paragraph 5.

     (b) Grants to Executive Officers and Other Employees.

     (i) The Stock Option Committee may from time to time authorize grants of
Stock Options to executive officers and other employees of the Company and its
Subsidiaries upon such terms and conditions as such committee may determine
consistent with Paragraph 5(a) above, and the Board may, but will not be
required to, ratify such grants from time to time. The number of shares of
Common Stock for which a Stock Option granted under this Paragraph 5(b) is
exercisable, and the period or periods of continuous service by the Participant
with the Company or any Subsidiary that are necessary before such Stock Option
or portions thereof become exercisable, will be determined, and the grant
thereof will be made, in accordance with Paragraph 5(b)(ii) and the guidelines
(the “Guidelines”) adopted by the Stock Option Committee from time to time. The
Stock Option Committee may amend, or provide for exemptions to or deviations
from, the Guidelines.

     (ii) Each Stock Option granted to a Participant pursuant to this Paragraph
5(b) will vest 1/3 on the first anniversary of the Date of Grant, 1/3 on the
second anniversary of the Date of Grant and 1/3 on the third anniversary of the
Date of Grant.

     (iii) Notwithstanding any other provision of the Plan, on the date on which
a Participant’s employment is terminated by reason of the Participant’s
retirement at or after the age of 60, long-term disability (as determined by the
Stock Option Committee in good faith) or death (the date of such retirement,
disability or death, as the case may be, being referred to herein as the
“Employee Termination Date”), each outstanding Stock Option granted to the
Participant pursuant to this Paragraph 5(b) will immediately vest, to the extent
not vested, and become fully exercisable on the Employee Termination Date and
will expire (A) in the case of retirement or long-term disability, at 5:00 p.m.,
Dallas, Texas, time, on the calendar day immediately preceding the fifth
anniversary of the Employee Termination Date, and (B) in the case of death, at
5:00 p.m., Dallas, Texas, time, on the calendar day immediately preceding the
third anniversary of the Employee Termination Date.

     (iv) Notwithstanding any other provision of the Plan, on the date on which
a Participant’s employment is terminated by reason other than retirement at or
after the age of 60, long-term disability (as determined by the Stock Option
Committee in good faith) or death, the unvested portion of each outstanding
Stock Option granted to such Participant pursuant to this Paragraph 5(b) will
terminate immediately, and the vested portion of each such Stock Option will
expire at 5:00 p.m., Dallas, Texas, time, on the 30th calendar day following the
date of such termination.

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     (c) Grants to Directors.

     (i) Grants of Stock Options to employee and non-employee Directors of the
Company, commencing with the annual meeting of stockholders of the Company in
2001, will be automatic pursuant to a “formula plan” for grants of Stock Options
under the Plan, such formula plan to consist of the provisions set forth in
Paragraphs 5(c)(ii), 5(c)(iii) and 5(c)(iv).

     (ii) On the date of first election to the Board, if such election is not at
an annual meeting of the stockholders of the Company, and immediately after each
annual meeting of the stockholders of the Company, each Director will be granted
a Stock Option to purchase 35,000 shares of Common Stock.

     (iii) Each Stock Option granted to a Director pursuant to this Paragraph
5(c) will fully vest on the Date of Grant.

     (iv) Notwithstanding any other provision of the Plan, on the date of a
Director’s death, any unexpired Stock Option granted to such Director pursuant
to this Paragraph 5(c) unexercised on the date of such Director’s death will
expire at 5:00 p.m., Dallas, Texas, time, on the calendar day immediately
preceding the third anniversary of the Director’s death.

     (d) If an optionee who participates in the Michaels Stores, Inc. Deferred
Compensation Plan (the “Deferred Compensation Plan”) elects to defer delivery of
the shares of Common Stock to be acquired upon exercise of a Stock Option (or a
portion thereof), the date of the issuance and delivery of such shares shall be
the date elected by the optionee under the Deferred Compensation Plan, but for
all purposes under the Plan, such shares shall be deemed to have been issued and
delivered on the date of exercise of the Stock Option (or a portion thereof). An
election by an optionee to participate in the Deferred Compensation Plan with
respect to exercise of a Stock Option (or a portion thereof) requires compliance
with the terms and conditions of the Deferred Compensation Plan, including
Option Price payment provisions that may be more restrictive than provided in
Paragraph 6 of the Plan.

     6. Payment. The Option Price will be payable (i) in cash or by check
acceptable to the Company, (ii) by the transfer to the Company of shares of
Common Stock, having an aggregate Market Value per Share on the business day
immediately preceding the date of exercise equal to the aggregate Option Price,
that are owned by the optionee and, unless otherwise determined by the Stock
Option Committee or the Board, either (A) were acquired from a person other than
the Company or (B) have been held by the optionee for at least six months,
(iii) by deferred payment from the proceeds of sale through a bank or broker of
some or all of the shares of Common Stock to which such exercise relates, (iv)
by authorizing the Company to withhold a number of shares of Common Stock
otherwise issuable to the optionee, having an aggregate Market Value per Share
on the business day immediately preceding the date of exercise equal to the
aggregate Option Price (provided that, unless otherwise determined by the Stock
Option Committee or the Board, the optionee must attest that the optionee owns
on the date of exercise such number of shares and that the shares either (A)
were acquired from a person other than the Company or (B)

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have been held by the optionee for at least six months), (v) in any other form
of valid consideration acceptable to the Stock Option Committee or (vi) by a
combination of such methods of payment; provided, however, that the payment
methods described in clauses (ii), (iii) and (iv) will not be available at any
time that the Company is prohibited from purchasing or acquiring such shares of
Common Stock.

     7. Adjustments. The Stock Option Committee or the Board will make or
provide for such adjustments in the maximum number of shares specified in
Paragraph 3 and Paragraph 4, in the number of shares of Common Stock covered by
outstanding Stock Options granted hereunder, in the Option Price applicable to
any such Stock Options, and/or in the kind of shares covered thereby (including
shares of another issuer), as such committee or the Board, as applicable, in its
sole discretion, exercised in good faith, may determine is equitably required to
prevent dilution or enlargement of the rights of Participants that otherwise
would result from any stock dividend, stock split, combination of shares,
recapitalization or other change in the capital structure of the Company,
merger, consolidation, spin-off, reorganization, partial or complete
liquidation, issuance of rights or warrants to purchase securities or any other
corporate transaction or event having an effect similar to any of the foregoing.
Moreover, if any such transaction or event occurs, the Stock Option Committee or
the Board, each in its sole discretion, may provide in substitution for any or
all outstanding Stock Options under the Plan such alternative consideration as
the Stock Option Committee or the Board, as applicable, may determine in good
faith to be equitable in the circumstances and may require in connection with
such substitution the surrender of all Stock Options so replaced. In the event
the Stock Option Committee shall disagree with the Board with respect to the
foregoing adjustments, the Board’s determination will be final and conclusive.
Any fractional shares resulting from the foregoing adjustments will be
eliminated.

     8. Withholding of Taxes. To the extent that the Company is required to
withhold federal, state, local or foreign taxes in connection with any benefit
realized by an optionee under the Plan, and the amounts available to the Company
for such withholding are insufficient, it will be a condition to the realization
of such benefit that the optionee make arrangements satisfactory to the Company
for payment of the balance of such taxes required or requested to be withheld.
In addition, an optionee may elect to have a tax withholding obligation of the
Company in connection with the exercise of a Stock Option (or a portion thereof)
with respect to which an election to participate in the Deferred Compensation
Plan has not been made, in an amount not greater than the minimum tax
withholding obligation associated with such exercise, satisfied with shares of
Common Stock (having an aggregate Market Value per Share on the business day
immediately preceding the date of exercise equal to the amount of the tax
withholding obligation or part thereof that the optionee elected to have so
satisfied) that would otherwise be transferred to the optionee on exercise of
the Stock Option (or a portion thereof).

     9. Administration of the Plan.

     (a) Unless administration of the Plan has been expressly assumed by the
Board pursuant to a resolution of the Board, the Plan will be administered by
the Stock Option Committee. For purposes of any action taken by the Stock Option
Committee, a majority of the members will constitute a quorum, and the action of
the members present

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    at any meeting at which a quorum is present, or acts unanimously approved in
writing, will be the acts of the Stock Option Committee.

     (b) The Stock Option Committee has the full authority and discretion to
administer the Plan and to take any action that is necessary or advisable in
connection with the administration of the Plan, including without limitation the
authority and discretion to interpret and construe any provision of the Plan or
of any agreement, notification or document evidencing the grant of a Stock
Option. The interpretation and construction by the Stock Option Committee of any
such provision and any determination by the Stock Option Committee pursuant to
any provision of the Plan or of any such agreement, notification or document
will be final and conclusive. No member of the Stock Option Committee will be
liable for any such action or determination made in good faith.

     10. Amendments, Etc.

     (a) To the extent not inconsistent with Paragraph 5, the Stock Option
Committee may, without the consent of the optionee, amend any agreement
evidencing a Stock Option granted under the Plan, or otherwise take action, to
expand or limit the payment methods under Paragraph 6, to waive any condition or
restriction applicable to such Stock Option or to the exercise of such Stock
Option, or to expand the events that would constitute a Change of Control of the
Company under Paragraph 2(c) and may, with the consent of the optionee, amend
any such agreement in any other respect.

     (b) The Plan may be amended from time to time by the Board or any duly
authorized committee thereof (including, without limitation, the Stock Option
Committee). In the event any law, or any rule or regulation issued or
promulgated by the Internal Revenue Service, the Securities and Exchange
Commission, the National Association of Securities Dealers, Inc., any stock
exchange or market upon which the Common Stock is listed for trading, or any
other governmental or quasi-governmental agency having jurisdiction over the
Company, the Common Stock or the Plan, requires the Plan to be amended, or in
the event Rule 16b-3 is amended or supplemented (e.g., by addition of
alternative rules) or any of the rules under Section 16 of the Act are amended
or supplemented, in either event to permit the Company to remove or lessen any
restrictions on or with respect to Stock Options, the Board and any duly
authorized committee thereof (including, without limitation, the Stock Option
Committee) reserves the right to amend the Plan to the extent of any such
requirement, amendment or supplement, and all Stock Options then outstanding
will be subject to such amendment.

     (c) None of the Board, the Stock Option Committee or any other committee of
the Board may authorize the amendment of any outstanding Stock Option to reduce
the Option Price without the further approval of the stockholders of the
Company. Furthermore, no Stock Option may be cancelled and replaced with Stock
Options having a lower Option Price without further approval of the stockholders
of the Company. This Paragraph 10(c) is intended to prohibit the repricing of
“underwater” Stock Options and will not be construed to prohibit the adjustments
provided for in Paragraph 7.

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     (d) If the Stock Option Committee determines, with the advice of legal
counsel, that any provision of the Plan would prevent the grant of any Stock
Option intended to qualify as performance-based compensation within the meaning
of Section 162(m) of the Code from so qualifying, such Plan provision with
respect to such grant will be invalid and cease to have any effect without
affecting the validity or effectiveness of any other provision of the Plan with
respect to such grant or otherwise.

     (e) The Plan may be terminated at any time by action of the Board. The
termination of the Plan will not adversely affect the terms of any outstanding
Stock Option.

     (f) The Plan will not confer upon any Participant any right with respect to
continuance of employment or other service with the Company or any Subsidiary,
nor will it interfere in any way with any right the Company or any Subsidiary
would otherwise have to terminate a Participant’s employment or other service at
any time.

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     11. Termination. No grant shall be made under the Plan after October 5,
2011, but all grants made on or prior to such date shall continue in effect
thereafter subject to the terms thereof and of the Plan.

     

  MICHAELS STORES, INC.

         

  By:   /s/ R. MICHAEL ROULEAU

     

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      R. Michael Rouleau

      President and Chief Executive Officer

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