Document:

exv10w6

 

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 salaryexv10w6

 

Exhibit 10.6

SECOND AMENDMENT TO

CREDIT AND SECURITY AGREEMENT

          This Amendment, dated as of November 10, 2005, is made by and between Kitty Hawk, Inc., a
Delaware corporation (the “Borrower”), and Wells Fargo Bank, National Association, acting through
its Wells Fargo Business Credit operating division, successor by merger to Wells Fargo Business
Credit, Inc., a Minnesota corporation (the “Lender”).

Recitals

          The Borrower and the Lender are parties to a Credit and Security Agreement dated as of March
22, 2004, and a First Amendment to Credit and Security Agreement dated as of January 31, 2005 (as
amended, the “Credit Agreement”). Capitalized terms used in this Amendment that are defined in the
Credit Agreement shall have the same meanings as defined therein, unless otherwise defined herein.

          The Borrower has requested that certain amendments be made to the Credit Agreement, which the
Lender is willing to make pursuant to the terms and conditions set forth herein.

          NOW, THEREFORE, in consideration of the premises and of the mutual covenants and agreements
herein contained, it is agreed as follows:

          1. Defined Terms.

(a) Section 1.1 of the Credit Agreement is amended by adding or amending, as the case may be, the following definitions:

“Maximum Line” means $15,000,000 unless said amount is reduced pursuant to
Section 2.12, in which event it means such lower amount.

“Monthly Period” means each month when (1) Availability plus the Borrower’s
Liquid Assets held in accounts with Wells Fargo or Wells Fargo Investments
in which the Lender has a Lien is greater than $10,000,000, (2) no Default
exists and (3) collateral audits are satisfactory to the Lender.

“Original Maturity Date” means March 31, 2008.

“Preferred Stock” means the Borrower’s Series B Convertible Preferred Stock
in an amount of not less than $12,000,000 being issued contemporaneously
with the effectiveness of the Second Amendment to the Agreement, and
providing for dividends accruing at a rate not to exceed 8% per annum.

“Required Book Net Worth” means Book Net Worth as of December 31, 2004 as
adjusted appropriately for (i) Net Income and (ii) dividends, payments and
distributions permitted under Section 6.7 hereof from time to time.

 

 

          2. Financial Covenants.

(a) Section 6.2(a) of the Credit Agreement is amended and restated in its entirety to
read as follows:

          (a) Minimum Year-to-Date Net Income. The Borrower will achieve as at the end
of each period described below, Pre-Tax Net Income of not less than the amount set
forth below:

          (i) From January 1, through the fiscal quarter ending December 31, 2005,
Pre-Tax Net Income of not less than a loss of $9,000,000 (i.e., the Borrower may not
lose more than $9,000,000 as at the end of such period); and

          (ii) From January 1, through the fiscal quarter ending March 31, 2006, Pre-Tax
Net Income of not less than a loss of $8,000,000 (i.e., the Borrower may not lose
more than $8,000,000 as at the end of such period); and

          (iii) From January 1, through the fiscal quarter ending June 30, 2006, Pre-Tax
Net Income of not less than a loss of $8,000,000 (i.e., the Borrower may not lose
more than $8,000,000 as at the end of such period); and

          (iv) From January 1, through the fiscal quarter ending September 30, 2006,
Pre-Tax Net Income of not less than a loss of $7,000,000 (i.e., the Borrower may not
lose more than $7,000,000 as at the end of such period); and

          (v) From January 1, through the fiscal quarter ending December 31, 2006,
Pre-Tax Net Income of not less than a loss of $5,000,000 (i.e., the Borrower may not
lose more than $5,000,000 as at the end of such period).

(b) Section 6.2(b) of the Credit Agreement is amended and restated in its entirety to
read as follows:

          (b) Minimum Book Net Worth. The Borrower will maintain the Required Book Net
Worth.

(c) Section 6.2(c) of the Credit Agreement is amended and restated in its entirety to
read as follows:

          (c) Minimum Liquidity Requirement. The Borrower will maintain $4,000,000 in
Liquid Assets at all times.

(d) Section 6.2(d) of the Credit Agreement is amended and restated in its entirety to
read as follows:

          (d) Capital Expenditures. Neither the Borrower nor any Guarantor will incur or
contract to incur Capital Expenditures of more than $4,000,000 in the aggregate
during the fiscal year ending December 31, 2005, with no more than $3,000,000 being
unfinanced. Notwithstanding the foregoing, to the extent the

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Borrower and Guarantors incur or contract to incur Capital Expenditures in an
aggregate amount that is less than the amount set forth above, any unused portion
may be carried forward for use in the subsequent fiscal year ending December 31,
2006.

     (e) Section 6.2 of the Credit Agreement is amended by adding a new Section (f) to the
end thereof to read as follows:

          (f) New Covenants. On or before 30 days prior to the fiscal year ending
December 31, 2006, the Borrower and the Lender shall agree on new covenant levels
for Section 6.2 for periods after the fiscal year ending December 31, 2006. The new
covenant levels will be based on the Borrower’s projections for such periods.

          3. Lockbox; Collateral Account; Application of Payments. Section 2.11(b) of the
Credit Agreement is amended by adding (iii) at the end thereof to read as follows:

          (iii) Notwithstanding anything in this Agreement to the contrary, so long as
the Monthly Period is in effect, proceeds of accounts deposited in the Collateral
Account will be remitted to the Borrower rather than applied directly to the payment
of the Obligations.

          4. Reporting Requirements. Section 6.1(s) of the Credit Agreement is amended by
adding the following sentence at the end thereof to read as follows: “Provided that the Monthly
Period is in effect, the Borrower will deliver to the Lender sales credits and collections reports
within 15 days after the end of each month.

          5. Dividends and Distributions. Section 6.7 of the Credit Agreement is amended and
restated in its entirety to read as follows:

          Section 6.7 Dividends and Distributions. Except as provided herein,
the Borrower will not declare or pay any dividends (other than dividends payable
solely in stock of the Borrower) on any class of its stock or make any payment on
account of the purchase, redemption or other retirement of any shares of such stock
or make any distribution in respect thereof, either directly or indirectly,
provided, that (i) if no Event of Default has occurred or is continuing and (ii)
Availability is at least $4,000,000 after giving effect to such dividend, purchase,
redemption, retirement or other distribution payment, the Borrower may declare and
pay dividends on, or make any payment on account of the purchase, redemption or
other retirement of any shares of, the Preferred Stock.

          6. Events of Default. Section 7.1(b) of the Credit Agreement is amended and restated
in its entirety to read as follows:

          (b) Default in the performance, or breach, of any covenant or agreement of the
Borrower contained in this Agreement and, in the case of Section 6.1(d), 

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          (e), (k), (l), (q) and (s) such default shall continue for a
period of seven (7) Banking Days;

          7. No Other Changes. Except as explicitly amended by this Amendment, all of the terms
and conditions of the Credit Agreement shall remain in full force and effect and shall apply to any
advance or letter of credit thereunder.

          8. Amendment Fee. The Borrower shall pay to the Lender a fully earned, non-refundable
fee in the amount of $15,000 in consideration of the Lender’s execution and delivery of this
Amendment. The Lender is authorized to make an Advance to pay the Amendment Fee.

          9. Conditions Precedent. This Amendment shall be effective when the Lender shall have
received an executed original hereof, together with each of the following, each in substance and
form acceptable to the Lender in its sole discretion:

          (a) The Acknowledgment and Agreement of Guarantors set forth at the end of this
Amendment, duly executed by each Guarantor.

          (b) A Certificate of Authority of the Borrower certifying as to such matters as the
Lender may reasonably request.

          (c) The closing and funding of the Preferred Stock transaction, on substantially the
terms and conditions previously provided to Lender, with gross proceeds of at least
$12,000,000.

          10. Representations and Warranties. The Borrower hereby represents and warrants to
the Lender as follows:

          (a) The Borrower has all requisite power and authority to execute this Amendment and to
perform all of its obligations hereunder, and this Amendment has been duly executed and
delivered by the Borrower and constitutes the legal, valid and binding obligation of the
Borrower, enforceable in accordance with its terms.

          (b) The execution, delivery and performance by the Borrower of this Amendment have been
duly authorized by all necessary corporate action and do not (i) require any authorization,
consent or approval by any governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, (ii) violate any provision of any law, rule or
regulation or of any order, writ, injunction or decree presently in effect, having
applicability to the Borrower, or the articles of incorporation or by-laws of the Borrower,
or (iii) result in a breach of or constitute a default under any indenture or loan or credit
agreement or any other agreement, lease or instrument to which the Borrower is a party or by
which it or its properties may be bound or affected.

          (c) All of the representations and warranties contained in Article V of the Credit
Agreement are correct on and as of the date hereof as though made on and as of such date,
except to the extent that such representations and warranties relate solely to an earlier
date.

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          11. References. All references in the Credit Agreement to “this Agreement” shall be
deemed to refer to the Credit Agreement as amended hereby; and any and all references in the
Security Documents to the Credit Agreement shall be deemed to refer to the Credit Agreement as
amended hereby.

          12. No Waiver. The execution of this Amendment and acceptance of any documents
related hereto shall not be deemed to be a waiver of any Default or Event of Default under the
Credit Agreement or breach, default or event of default under any Security Document or other
document held by the Lender, whether or not known to the Lender and whether or not existing on the
date of this Amendment.

          13. Release. The Borrower, and each Guarantor by signing the Acknowledgment and
Agreement of Guarantors set forth below, each hereby absolutely and unconditionally releases and
forever discharges the Lender, and any and all participants, parent corporations, subsidiary
corporations, affiliated corporations, insurers, indemnitors, successors and assigns thereof,
together with all of the present and former directors, officers, agents and employees of any of the
foregoing (each individually, an “Indemnitee” and collectively, “Indemnitees”), from any and all
claims, demands or causes of action of any kind, nature or description, whether arising in law or
equity or upon contract or tort or under any state or federal law or otherwise, which the Borrower
or such Guarantor has had, now has or has made claim to have against any such person for or by
reason of any act, omission, matter, cause or thing whatsoever arising from the beginning of time
to and including the date of this Amendment, whether such claims, demands and causes of action are
matured or unmatured or known or unknown, excluding, however, any actions taken by an Indemnitee in
bad faith, any willful misconduct by an Indemnitee and gross negligence of Indemnitees.

          14. Costs and Expenses. The Borrower hereby reaffirms its agreement under the Credit
Agreement to pay or reimburse the Lender on demand for all costs and expenses incurred by the
Lender in connection with the Loan Documents, including without limitation all reasonable fees and
disbursements of legal counsel. Without limiting the generality of the foregoing, the Borrower
specifically agrees to pay all fees and disbursements of counsel to the Lender for the services
performed by such counsel in connection with the preparation of this Amendment and the documents
and instruments incidental hereto. The Borrower hereby agrees that the Lender may, at any time or
from time to time in its sole discretion and without further authorization by the Borrower, make a
loan to the Borrower under the Credit Agreement, or apply the proceeds of any loan, for the purpose
of paying any such fees, disbursements, costs and expenses and the fee required under Paragraph 4
hereof.

          15. Miscellaneous. This Amendment and the Acknowledgment and Agreement of Guarantors
may be executed in any number of counterparts, each of which when so executed and delivered shall
be deemed an original and all of which counterparts, taken together, shall constitute one and the
same instrument.

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          IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed as of
the date first written above.

	 	 	 	 	 
	WELLS FARGO BANK, NATIONAL
	 	 KITTY HAWK, INC.
	ASSOCIATION, acting through its Wells
	 	 	 	 
	Fargo Business Credit operating division,
	 	 	 	 
	successor by merger to Wells Fargo Business
	 	 	 	 
	Credit, Inc.
	 	 	 	 

	 	 	 	 	 	 	 	 	 	 	 	 	 
	By
	 	/s/ Joseph M. Sammons	 	 	By	/s/ James R. Kupferschmid
	 
	 	 	 	 	 	 	 	 
	 
	 	Joseph M. Sammons	 	 	 	 	Name:  	James R. Kupferschmid
	 
	 	 	 	 	 	 	 	 	 	 
	 
	 	Its Vice President	 	 	 	 	Title:  	Vice President and CFO
	 
	 	 	 	 	 	 	 	 	 	 

-6-

 

ACKNOWLEDGMENT AND AGREEMENT OF GUARANTORS

          The undersigned, each a guarantor of the indebtedness of Kitty Hawk, Inc. (the “Borrower”) to
Wells Fargo Business Credit, Inc. (the “Lender”) pursuant to a separate Guaranty each dated as of
March 22, 2004 (each, a “Guaranty”), hereby (i) acknowledges receipt of the foregoing Amendment;
(ii) consents to the terms (including without limitation the release set forth in Paragraph 13 of
the Amendment) and execution thereof; (iii) reaffirms its obligations to the Lender pursuant to the
terms of its Guaranty; and (iv) acknowledges that the Lender may amend, restate, extend, renew or
otherwise modify the Credit Agreement and any indebtedness or agreement of the Borrower, or enter
into any agreement or extend additional or other credit accommodations, without notifying or
obtaining the consent of the undersigned and without impairing the liability of the undersigned
under its Guaranty for all of the Borrower’s present and future indebtedness to the Lender.

	 	 	 	 	 
	 	KITTY HAWK AIRCARGO, INC.

 	 
	 	By  	/s/ James R. Kupferschmid
 	 
	 	 	Name:  	James R. Kupferschmid 	 
	 	 	Title:  	Vice President and CFO 	 
	 

	 	 	 	 	 
	 	KITTY HAWK CARGO, INC.

 	 
	 	By  	/s/ James R. Kupferschmid
 	 
	 	 	Name:  	James R. Kupferschmid 	 
	 	 	Title:  	Vice President and CFO 	 
	 

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