**Exhibit 10.5**

**MICHAELS STORES, INC.**

**STOCKOPTION AGREEMENT**
| Optionee:  Brian C. Cornell    |
|-------------------------------------|
|                                |
| No. of Shares:  2,270,966      |
|                                |
| Date of Grant:  June 4, 2007   |
|                                |
| Expiration Date:  June 4, 2014 |

 

*ThisOption and any securities issued upon exercise of this Option are subject torestrictions on voting and transfer and other provisions as set forth in theAmended and Restated Stockholders Agreement among Michaels Stores, Inc. andcertain investors, originally dated as of October 31, 2006, as amended andrestated on January 31, 2007 and amended from time to time thereafter (the “StockholdersAgreement”) and the terms of the Registration Rights Agreement referred totherein (the “Registration Rights Agreement”). This Option and any securities issued upon exercise of this Optionconstitute an Option and Shares, respectively, as defined in the StockholdersAgreement.*

This Stock OptionAgreement (this “Agreement”) is hereby entered into between Michaels Stores,Inc., a Delaware corporation (the “Company”), and the Optionee named abovepursuant to the Company’s 2006 Equity Incentive Plan, as amended from time totime (the “Plan”).  For the purpose ofthis Agreement, the “Grant Date” shall mean the date hereof, June 4, 2007.

# **1.****                                      Grantof Option.**  This Agreementevidences the grant by the Company on the Grant Date to the Optionee of anoption (the “Option”) to purchase, in whole or in part, on the terms providedherein and in the Plan, a total of 2,270,966 shares of Common Stock of theCompany, par value $.10 per share (the “Shares”), at the following prices perShare:

## (a)                                  756,989Shares at $15.00 per Share (the “Tranche 1 Option”);

## (b)                                 756,989Shares at $22.50 per Share (the “Tranche 2 Option”);

## (c)                                  189,247Shares at $30.00 per Share (the “Tranche 3 Option”);

## (d)                                 189,247Shares at $37.50 per Share (the “Tranche 4 Option”);

## (e)                                  189,247Shares at $45.00 per Share (the “Tranche 5 Option”);

## and

## (f)                                    189,247 Shares at$52.50 per Share (the “Tranche 6 Option”).

## The Option evidenced by this Agreement is not intended to qualify as anincentive stock option under Section 422 of the Internal Revenue Code (the “Code”).

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# **2.****                                      Vesting.**  During the Optionee’s Employment, the Optionwill vest and become exercisable (i) with respect to 20% of the Shares subjectto each of the Tranche 1 Option, Tranche 2 Option, Tranche 3 Option, Tranche 4Option, Tranche 5 Option and Tranche 6 Option on each of the first throughfifth anniversaries of February 16, 2007 or (ii) if earlier, with respect toany unvested portion of the Option, upon a Change of Control (as defined in theStockholders Agreement).

# **3.****                                      Exerciseof Option.**

## (a)                                  Detailsof Exercise.  Each election toexercise this Option shall be subject to the terms and conditions of the Planand shall be in writing, signed by the Optionee or by his or her executor oradministrator or by the Person or Persons to whom this Option is transferred bywill or the applicable laws of descent and distribution (the “LegalRepresentative”), and made pursuant to and in accordance with the terms andconditions set forth in the Plan.  Thelatest date on which this Option may be exercised (the “Final Exercise Date”)is the date which is the seventh (7th) anniversary of the Grant Date, subjectto earlier termination in accordance with the terms and provisions of the Planand this Agreement.

## (b)                                 Paymentof Exercise Price.  The following are permitted forms of paymentfor the exercise of this Option and for the remittance of withholding taxespursuant to Section 8: (a) cash or check acceptable to the Administrator,(b) actual or constructive transfer to the Company of shares of Stockowned by the Optionee for at least six months (or, with the consent of theAdministrator, for less than six months) having an aggregate Fair Market Valueat the date of exercise equal to the aggregate exercise price of the Award, (c)authorization by the Optionee of the Company to withhold a number of shares ofStock otherwise issuable to the Optionee under this Option having an aggregateFair Market Value on the date of exercise equal to the aggregate exercise priceof this Option and, if applicable, the amount of any withholding tax, (d) atsuch time, if any, as the Stock is publicly traded through a broker-assisted “cashless”exercise program acceptable to the Administrator, and (e) by a combinationof such methods of payment.

# **4.****                                      Effectof Certain Transactions.**  In theevent of a Change of Control (as defined in the Stockholders Agreement), thisOption will vest and become fully exercisable.

# **5.****                                      Representationsand Warranties of Optionee.**

# Optionee represents and warrants that:

## (a)                                  Authorization.  Optionee has full legal capacity, power, andauthority to execute and deliver this Agreement and to perform Optionee’sobligations hereunder.  This Agreementhas been duly executed and delivered by Optionee and is the legal, valid, andbinding obligation of Optionee enforceable against Optionee in accordance withthe terms hereof.

## (b)                                 No Conflicts.  The execution, delivery, and performance byOptionee of this Agreement and the consummation by Optionee of the transactionscontemplated

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## hereby will not, with or without the giving of notice or lapse of time,or both (i) violate any provision of law, statute, rule or regulation towhich Optionee is subject, (ii) violate any order, judgment or decree applicableto Optionee, or (iii) conflict with, or result in a breach of default under,any term or condition of any agreement or other instrument to which Optionee isa party or by which Optionee is bound.

## (c)                                  Thorough Review,etc.  Optionee has thoroughlyreviewed the Plan, this Agreement, the Stockholders Agreement and theRegistration Rights Agreement in their entirety.  Optionee has had an opportunity to obtain theadvice of counsel (other than counsel to the Company or its Affiliates) priorto executing this Agreement, and fully understands all provisions of the Planand this Agreement.

## (d)                                 Knowledge.  Optionee has been advised that neither thisOption or the Shares received upon this Option’s exercise have been registeredunder the Securities Act or any state securities laws and, therefore, none ofthose securities can be resold unless they are registered under the SecuritiesAct and applicable state securities laws or unless an exemption from suchregistration requirements is available. Except to the extent provided in the Stockholders Agreement and theRegistration Rights Agreement, such Optionee is aware that the Company is underno obligation to effect any such registration with respect to any suchsecurities or to file for or comply with any exemption from registration.  Such Optionee is acquiring and holding theOption and any Shares received upon the Option’s exercise for its own accountand not with a view to, or for resale in connection with, the distributionthereof in violation of the Securities Act. Such Optionee is either an “accredited investor” as defined inRegulation D under the Securities Act or possesses such knowledge andexperience in financial and business matters that he or she is capable ofevaluating the merits and risks of an investment in the securities of theCompany described in this Agreement.

# **6.****                                      Joinderto Agreements.**  Optioneeacknowledges and agrees that the Shares received upon exercise of this Optionwill be subject to the Stockholders Agreement and to the Registration RightsAgreement and the transfer and other restrictions, rights, and obligations setforth in those agreements.  By executingthis Agreement, Optionee hereby becomes a party to and bound by theStockholders Agreement and the Registration Rights Agreement as a Manager (assuch term is defined in those agreements), without any further action on thepart of Optionee, the Company or any other Person.

# **7.****                                      Legends.**  Certificates evidencing any Shares issuedupon exercise of the Option granted hereby may bear the following legends, inaddition to any legends which may be required by the Stockholders Agreement orby the Registration Rights Agreement:

“The securitiesrepresented by this certificate were issued in a private placement, withoutregistration under the Securities Act of 1933, as amended (the “Act”), and maynot be sold, assigned, pledged, or otherwise transferred in the absence of aneffective registration under the Act covering the transfer or an opinion ofcounsel, satisfactory to the issuer, that registration under the Act is notrequired.”

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# **8.****                                      Withholding.**  No Shares will be issued, sold or transferredpursuant to the exercise of this Option unless and until the Person exercisingthis Option shall have remitted to the Company an amount sufficient to satisfyany federal, state, or local withholding tax requirements, or shall have madeother arrangements satisfactory to the Company with respect to such taxes.

# **9.****                                      Nontransferabilityof Option.**  This Option is nottransferable by the Optionee other than by will or the applicable laws ofdescent and distribution, and is exercisable during the Optionee’s lifetimeonly by the Optionee.

# **10.****                               StatusChange.**  Upon the termination ofthe Optionee’s Employment, this Option shall continue or terminate as, and tothe extent provided in the Plan.

# **11.****                               Effecton Employment.**  Neither the grantof this Option, nor the issuance of Shares upon exercise of this Option, willgive the Optionee any right to be retained in the employ of the Company or itsAffiliates, affect the right of the Company or its Affiliates to discharge ordiscipline such Optionee at any time, or affect any right of such Optionee toterminate his or her Employment at any time.

# **12.****                               Indemnity.**  Optionee hereby indemnifies and agrees tohold the Company harmless from and against all losses, damages, liabilities andexpenses (including without limitation reasonable attorneys fees and charges)resulting from any breach of any representation, warranty, or agreement ofOptionee in this Agreement or any misrepresentation of Optionee in thisAgreement.

# **13.****                               Provisionsof the Plan.**  This Agreement issubject in its entirety to the provisions of the Plan, which are incorporatedherein by reference.  A copy of the Planas in effect on the Grant Date has been furnished to the Optionee.  By exercising all or any part of this Option,the Optionee agrees to be bound by the terms of the Plan and thisAgreement.  In the event of any conflictbetween the terms of this Agreement and the Plan, the terms of this Agreementshall control.

# **14.****                               Definitions.**  Initially capitalized terms not otherwisedefined herein have the meaning provided in the Plan.

# **15.****                               General.**  For purposes of this Agreement and anydeterminations to be made by the Administrator hereunder, the determinations bythe Administrator shall be binding upon the Optionee and any transferee.

**[**REMAINDER OFPAGE INTENTIONALLY LEFT BLANK**]**

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IN WITNESS WHEREOF, the Company has caused thisAgreement to be executed by its duly authorized officer.
|   | MICHAELS STORES, INC. |
|--------|-----------------------|
|   |                  |
|   |                  |
|   | By:                   | /s/ Jeffrey N. Boyer |
|   |                  | Name: Jeffrey N. Boyer |
|   |                  | Title: President and Chief Financial Officer |

 

Dated:  June 4, 2007

The undersigned acknowledges and agrees to the termsof this Agreement and acknowledges and agrees that by the undersigned’sexecution below, the undersigned is also joining and becoming a party to theStockholders Agreement and the Registration Rights Agreement:
|  /s/  Brian C. Cornell |   |
|-----------------------------|--------|
| Brian C. Cornell            |

 

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