Exhibit 10.5


MICHAELS STORES, INC.


STOCK
OPTION AGREEMENT


	
  Optionee:  Brian C. Cornell

  
	
   

  
	
  No. of Shares:  2,270,966

  
	
   

  
	
  Date of Grant:  June 4, 2007

  
	
   

  
	
  Expiration Date:  June 4, 2014

  



 


This
Option and any securities issued upon exercise of this Option are subject to
restrictions on voting and transfer and other provisions as set forth in the
Amended and Restated Stockholders Agreement among Michaels Stores, Inc. and
certain investors, originally dated as of October 31, 2006, as amended and
restated on January 31, 2007 and amended from time to time thereafter (the “Stockholders
Agreement”) and the terms of the Registration Rights Agreement referred to
therein (the “Registration Rights Agreement”). 
This Option and any securities issued upon exercise of this Option
constitute an Option and Shares, respectively, as defined in the Stockholders
Agreement.


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


1.                                      Grant
of Option.  This Agreement
evidences the grant by the Company on the Grant Date to the Optionee of an
option (the “Option”) to purchase, in whole or in part, on the terms provided
herein and in the Plan, a total of 2,270,966 shares of Common Stock of the
Company, par value $.10 per share (the “Shares”), at the following prices per
Share:


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


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


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


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


(e)                                  189,247
Shares 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 an
incentive stock option under Section 422 of the Internal Revenue Code (the “Code”).












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


3.                                      Exercise
of Option.


(a)                                  Details
of Exercise.  Each election to
exercise this Option shall be subject to the terms and conditions of the Plan
and shall be in writing, signed by the Optionee or by his or her executor or
administrator or by the Person or Persons to whom this Option is transferred by
will or the applicable laws of descent and distribution (the “Legal
Representative”), and made pursuant to and in accordance with the terms and
conditions set forth in the Plan.  The
latest 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, subject
to earlier termination in accordance with the terms and provisions of the Plan
and this Agreement.


(b)                                 Payment
of Exercise Price.  The following are permitted forms of payment
for the exercise of this Option and for the remittance of withholding taxes
pursuant to Section 8: (a) cash or check acceptable to the Administrator,
(b) actual or constructive transfer to the Company of shares of Stock
owned by the Optionee for at least six months (or, with the consent of the
Administrator, for less than six months) having an aggregate Fair Market Value
at 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 of
Stock otherwise issuable to the Optionee under this Option having an aggregate
Fair Market Value on the date of exercise equal to the aggregate exercise price
of this Option and, if applicable, the amount of any withholding tax, (d) at
such time, if any, as the Stock is publicly traded through a broker-assisted “cashless”
exercise program acceptable to the Administrator, and (e) by a combination
of such methods of payment.


4.                                      Effect
of Certain Transactions.  In the
event of a Change of Control (as defined in the Stockholders Agreement), this
Option will vest and become fully exercisable.


5.                                      Representations
and Warranties of Optionee.


Optionee represents and warrants that:


(a)                                  Authorization.  Optionee has full legal capacity, power, and
authority to execute and deliver this Agreement and to perform Optionee’s
obligations hereunder.  This Agreement
has been duly executed and delivered by Optionee and is the legal, valid, and
binding obligation of Optionee enforceable against Optionee in accordance with
the terms hereof.


(b)                                 No Conflicts.  The execution, delivery, and performance by
Optionee of this Agreement and the consummation by Optionee of the transactions
contemplated



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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 to
which Optionee is subject, (ii) violate any order, judgment or decree applicable
to 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 is
a party or by which Optionee is bound.


(c)                                  Thorough Review,
etc.  Optionee has thoroughly
reviewed the Plan, this Agreement, the Stockholders Agreement and the
Registration Rights Agreement in their entirety.  Optionee has had an opportunity to obtain the
advice of counsel (other than counsel to the Company or its Affiliates) prior
to executing this Agreement, and fully understands all provisions of the Plan
and this Agreement.


(d)                                 Knowledge.  Optionee has been advised that neither this
Option or the Shares received upon this Option’s exercise have been registered
under the Securities Act or any state securities laws and, therefore, none of
those securities can be resold unless they are registered under the Securities
Act and applicable state securities laws or unless an exemption from such
registration requirements is available. 
Except to the extent provided in the Stockholders Agreement and the
Registration Rights Agreement, such Optionee is aware that the Company is under
no obligation to effect any such registration with respect to any such
securities or to file for or comply with any exemption from registration.  Such Optionee is acquiring and holding the
Option and any Shares received upon the Option’s exercise for its own account
and not with a view to, or for resale in connection with, the distribution
thereof in violation of the Securities Act. 
Such Optionee is either an “accredited investor” as defined in
Regulation D under the Securities Act or possesses such knowledge and
experience in financial and business matters that he or she is capable of
evaluating the merits and risks of an investment in the securities of the
Company described in this Agreement.


6.                                      Joinder
to Agreements.  Optionee
acknowledges and agrees that the Shares received upon exercise of this Option
will be subject to the Stockholders Agreement and to the Registration Rights
Agreement and the transfer and other restrictions, rights, and obligations set
forth in those agreements.  By executing
this Agreement, Optionee hereby becomes a party to and bound by the
Stockholders Agreement and the Registration Rights Agreement as a Manager (as
such term is defined in those agreements), without any further action on the
part of Optionee, the Company or any other Person.


7.                                      Legends.  Certificates evidencing any Shares issued
upon exercise of the Option granted hereby may bear the following legends, in
addition to any legends which may be required by the Stockholders Agreement or
by the Registration Rights Agreement:


“The securities
represented by this certificate were issued in a private placement, without
registration under the Securities Act of 1933, as amended (the “Act”), and may
not be sold, assigned, pledged, or otherwise transferred in the absence of an
effective registration under the Act covering the transfer or an opinion of
counsel, satisfactory to the issuer, that registration under the Act is not
required.”



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8.                                      Withholding.  No Shares will be issued, sold or transferred
pursuant to the exercise of this Option unless and until the Person exercising
this Option shall have remitted to the Company an amount sufficient to satisfy
any federal, state, or local withholding tax requirements, or shall have made
other arrangements satisfactory to the Company with respect to such taxes.


9.                                      Nontransferability
of Option.  This Option is not
transferable by the Optionee other than by will or the applicable laws of
descent and distribution, and is exercisable during the Optionee’s lifetime
only by the Optionee.


10.                               Status
Change.  Upon the termination of
the Optionee’s Employment, this Option shall continue or terminate as, and to
the extent provided in the Plan.


11.                               Effect
on Employment.  Neither the grant
of this Option, nor the issuance of Shares upon exercise of this Option, will
give the Optionee any right to be retained in the employ of the Company or its
Affiliates, affect the right of the Company or its Affiliates to discharge or
discipline such Optionee at any time, or affect any right of such Optionee to
terminate his or her Employment at any time.


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


13.                               Provisions
of the Plan.  This Agreement is
subject in its entirety to the provisions of the Plan, which are incorporated
herein by reference.  A copy of the Plan
as 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 this
Agreement.  In the event of any conflict
between the terms of this Agreement and the Plan, the terms of this Agreement
shall control.


14.                               Definitions.  Initially capitalized terms not otherwise
defined herein have the meaning provided in the Plan.


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


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IN WITNESS WHEREOF, the Company has caused this
Agreement 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 terms
of this Agreement and acknowledges and agrees that by the undersigned’s
execution below, the undersigned is also joining and becoming a party to the
Stockholders Agreement and the Registration Rights Agreement:


	
   /s/
  Brian C. Cornell

  	
   

  
	
  Brian C. Cornell