Document:

Exhibit
10.41

Quotation

Development
of a *

*

QTE-USJ-0002.01

July 22, 2005

Confidential for Urigen,
Inc.

Client Contact: Mike
Flashner, Ph.D.

1701 Jackson Street, Suite 102

San Francisco, CA 94109

Phone: (650) 627-8140

 

	
  Account Manager: Suzanne Dorsey

  	
   

  	
  Technical Contact:
  Sharon Wu, Ph.D.

  
	
  Phone: 209-834-0270

  	
   

  	
  Phone:  858-547-7842

  

 

	
  

  	
   

  	
  BioPharmaceuticat
  Product Development

  
	
  

  	
   

  	
  Pharmaceutical
  Product Development

  
	
   

  	
  Clinical
  Packaging Services

  
	
   

  	
  Analytical
  Chemistry Services

  
	
   

  	
  Scientific
  and Regulatory Consulting

  
	
   

  	
  Pulmonary
  and Nasal Product Development

  
	
   

  	
   

  	
  Clinical
  and Small Scale Commercial Manufacturing

  

 

*                    Filed
under an application for confidential treatment.

Executive Summary

Cardinal Health PTS, LLC (“Cardinal Health”), by and through its
Biotechnology and Sterile Life Sciences group, will perform formulation
development for Urigen, Inc. (“Urigen”). The total cost for this project is
currently estimated to be $ * over a period of approximately two to three
months for development activities and * for stability testing.

Section 1.     Version History

Table
1:   Revisions

	
  Version

  	
   

  	
  Date Issued

  	
   

  	
  Reason(s)

  	
   

  
	
  00

  	
   

  	
  07/14/05

  	
   

  	
  New Issue

  	
   

  
	
  01

  	
   

  	
  07/22/05

  	
   

  	
  Reduced the number of investigational hours to be performed with
  client approval in Section 6.3.

  	
   

  

 

Section 2.     Scope of Work

A solution of * and * that has been alkalinized with *, *  into the bladder, has been shown to
immediately reduce symptoms of urgency and pain in patients suffering from
interstitial cystitis. Significant symptom relief was achieved using both 1%
and 2% * solutions.

Cardinal Health will acquire analytical methods necessary for product
analysis.* stability will be evaluated on two dosage forms that will contain
*mL of * (*%), * mL of * (* units per mL), with and without *  mL of * %, at a * of *. The product will
preferably consist of a * mL solution that is ready for *. A  laboratory-scale * for manufacturing
sterile drug product will also be developed by Cardinal Health.

2.1.     Safety

2.1.1.    Cardinal Health’s
Responsibilities

Cardinal Health will assess all vendor and Urigen MSDSs and all
handling data for the samples/materials associated with this project. When
samples/materials are categorized as a Controlled Drug Substance (CDS) and/or
Class 4 or above, the samples/materials will require special handling
precautions and are subject to a Safety Handling Surcharge for all handling and
analyses directly associated with the samples/materials.

2.1.2. Urigen’s Responsibilities

Urigen will provide an MSDS and all sample/material handling data for
the samples/materials associated with this project. If samples/materials have
any special handling considerations, Urigen will notify Cardinal Health prior
to the initiation of the project.

	
  9240 Trade Place, Suite
  100  •  San Diego, CA 92126

  
	
  Direct: (858)
  547-7800  •  Facsimile: (858)
  693-5989  •  www.cardinal.com/pts

  
	
  CONFIDENTIAL

  

 

*Filed under an application for
confidential treatment.

 2
 

2.2.     Methods/Documentation

2.2.1.    Cardinal Health’s
Responsibilities

Cardinal Health will review all project-related documentation and
methods received from Urigen associated with this project.

2.2.2. Urigen’s Responsibilities

Urigen will provide all available project-related documentation and
methods to be used for this project.

2.3.     Sample/Materials

2.3.1.    Cardinal Health’s
Responsibilities

Cardinal Health will, as necessary, log in all samples/materials
according to current Standard Operating Procedures. Upon issuance of the final
report or Certificate of Analysis, samples/materials will be stored in
quarantine at Cardinal Health for a period of 30 days. After the 30-day
quarantine, samples/materials will be disposed of at Cardinal Health unless
notified otherwise by Urigen.

2.3.2.    Urigen’s Responsibilities

If available, Urigen will provide all samples/materials necessary to
perform this project. The samples/materials should arrive at Cardinal Health
with all proper documentation. If samples/materials are not available, Urigen
will request Cardinal Health to purchase all necessary samples/materials needed
to perform this project. If return shipment is requested, Urigen will notify
Cardinal Health prior to the disposition of samples/materials.

Section 3.     Project Activities

3.1.     Cardinal Health’s Responsibilities

A.                      Acquire
methods for the analysis of *

B.                      Evaluate
* stability of * days. Time points will include time *, *, *, *, * and *
Testing at each time point will include *

C.                      Develop
a process for *

D.                      Manufacture
non-GMP batch of probe formulation.

E.                        Conduct
stability program on the non-GMP batch * *

3.2.     Urigen’s Responsibilities

Urigen will sign the Protocol and provide a technical contact that will
be available for technical discussions and to make decisions that are needed in
reference to this project. Urigen will not

	
  9240 Trade Place, Suite
  100  •  San Diego, CA 92126

  
	
  Direct: (858)
  547-7800  •  Facsimile: (858)
  693-5989  •  www.cardinal.com/pts

  
	
  CONFIDENTIAL

  

 

*Filed under an application for confidential treatment.

 3
 

use any samples/materials shipped from Cardinal Health
for this project in a manner that is inconsistent with the scope of this
project.

Section 4.     Specifications

4.1.               Cardinal Health’s
Responsibilities

Cardinal Health will document the specifications in the Protocol.

4.2.     Urigen’s
Responsibilities

Urigen will provide all specifications necessary to perform this
project.

Section 5.     Scheduling/Deliverables

5.1.               Scheduling

Cardinal Health must receive a signed Quotation, containing
Standard Terms and Conditions, a Purchase Order number, a signed Protocol, and
all samples/materials in order for this project to be scheduled. Once
scheduled, Urigen will be notified by Cardinal Health of the anticipated start
and completion date of the project activities.

Rush services are available at Urigen’s request, if
rush services are requested, additional costs will be incurred, ranging from 10
to 100% of the project cost and depending upon on the lead-time provided and
Urigen-requested turnaround time.

5.2.     Communication

In order to establish a collaborative relationship
between Urigen and Cardinal Health, Cardinal Health will appoint a Project
Coordinator to serve as a point of contact for Urigen and to oversee progress
on this project. Upon initiation of the project, Cardinal Health and Urigen
will establish a communication plan, if requested, that may include conference
calls and visits.

5.3.     Deliverables

A report or Certificate of Analysis will be issued
upon completion of the project activities or at the end of each project phase.

	
  9240 Trade Place, Suite 100  •  San
  Diego, CA 92126

  
	
  Direct: (858) 547-7800  •  Facsimile:
  (858) 693-5989  •  www.cardinal.com/pts

  
	
  CONFIDENTIAL

  

 

 4

Section 6.     Cost Proposal

6.1.     Project Cost

Table 2:   Total Estimated Project Costs

	
  Cardinal Health Activity

  	
   

  	
  Estimated

  Cost

  	
   

  
	
  Project Initiation Fee

  	
   

  	
  Waived

  	
   

  
	
  Acquisition of
  Analytical Methods (for the analysis of * *

  	
   

  	
  $

  	
  *

  	
   

  
	
  * Stability Study

  	
   

  	
  $

  	
  *

  	
   

  
	
  Development of *

  	
   

  	
  $

  	
  *

  	
   

  
	
  Manufacture of Small
  Scale non-GMP Batch

  	
   

  	
  $

  	
  *

  	
   

  
	
  Stability Testing of
  non-GMP batch (details are provided in Table 3)

  	
   

  	
  $

  	
  *

  	
   

  
	
  Total
  Estimated Protect Cost =

  	
   

  	
  $

  	
  *

  	
   

  

 

Table 3:   Stability Cost Table

	
  

  	
   

  	
  Test Interval *

  	
   

  
	
  Condition

  	
   

  	
  T0

  	
   

  	
  *

  	
   

  	
  *

  	
   

  	
  *

  	
   

  	
  *

  	
   

  
	
  Drug Product Storage at *

  	
   

  	
   

  	
   

  	
  $

  	
  *

  	
   

  	
  $

  	
  *

  	
   

  	
  $

  	
  *

  	
   

  	
  $

  	
  *

  	
   

  
	
  Drug Product Storage at *

  	
   

  	
  $

  	
  *

  	
   

  	
  $

  	
  *

  	
   

  	
  $

  	
  *

  	
   

  	
  $

  	
  *

  	
   

  	
  $

  	
  *

  	
   

  
	
  Drug Product Storage at *

  	
   

  	
   

  	
   

  	
  $

  	
  *

  	
   

  	
  $

  	
  *

  	
   

  	
  $

  	
  *

  	
   

  	
  *

  	
   

  
	
  Total
  Cost per Timepoint =

  	
   

  	
  $

  	
  *

  	
   

  	
  $

  	
  *

  	
   

  	
  $

  	
  *

  	
   

  	
  $

  	
  *

  	
   

  	
  $

  	
  *

  	
   

  
	
  Stability Testing Subtotal =

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  $

  	
   

  	
  *

  	
   

  

 

NOTE: The pricing
for the accelerated conditions ($* per time point) in the cost table above is
provided under the assumption that analysis will be performed concurrently with
samples from the * condition.

6.2.     Additional Fees

If copies of raw data are requested in the course of
an active project, Urigen will be invoiced at $150/hour for time required to
generate and compile the data.

All requested samples/materials purchased by Cardinal
Health for this project will be invoiced to Urigen, at cost. Non-standard or
special instrumentation or equipment required solely for Urigen’s project will
be invoiced to Urigen following Urigen approval.

6.3.     Revisions to Pricing

Cardinal Health reserves the right to revise quoted
costs for any project as a result of initial scope change, revisions in
Protocols, modifications of test methods, final review of test

	
  9240 Trade Place, Suite 100  •  San
  Diego, CA 92126

  
	
  Direct: (858) 547-7800  •  Facsimile:
  (858) 693-5989  •  www.cardinal.com/pts

  
	
  CONFIDENTIAL

  

 

*Filed under an application for confidential
treatment.

 5
 

methods, undocumented requirements, retesting or
resynthesis, or any unforeseen difficulty in executing the project. The
additional work will be performed based on written agreement from Urigen and
will be documented on a Cardinal Health Quotation Amendment Request (QAR).

All required investigational work (such as OOS
investigations, troubleshooting chromatographic methods, etc.) may be conducted
without prior approval from Urigen, for up to 4 scientist hours per occurrence.
If the additional work requires going beyond 4 hours, Urigen will be contacted
prior to continuation. All investigational retesting performed that is not
directly due to a Cardinal Health error will be invoiced to Urigen.

Section 7.     Invoicing and Payment Terms

7.1.               Invoicing

Cardinal Health will issue monthly invoices for work in process.

7.2.               Payment Terms

Payments toward all invoices are due within 30 days of
receipt of invoice and are non-refundable. Any applicable wire transfer fee
must be included in the payment issued to Cardinal Health. Remit all payments
to:

Cardinal Health PTS, LLC 

4673 Collections Center Drive 

Chicago, IL 60693 

Phone: 919-481-4855

Section 8.     Additional Project Terms

8.1.     Termination
/ Cancellation

Either party may terminate the Project or any portion
thereof at any time by providing forty-five (45) days written notice. In the
event of a termination by Urigen, Cardinal Health will promptly scale down the
affected portion of the Project to avoid (or minimize, where non-cancelable)
any further related expenses. On the effective date of termination, Urigen will
make payment to Cardinal Health in an amount equal to the costs incurred by
Cardinal Health for all work performed prior to the effective date, any costs
necessary to scale-down the Project, any non-cancelable commitments made by
Cardinal Health prior to notice of termination, and any cancellation fees
pursuant to the details below. Additionally, Cardinal Health will invoice
Urigen the cost of any sample/materials, reference materials, equipment, and
supplies purchased by Cardinal Health specifically for this project.

If this Project is cancelled by Urigen for purposes
within their control, Cardinal Health reserves the right to invoice Project
Cancellation fees according to the following schedule: acceptance of quotation
but no approved protocol, $500; acceptance of protocol but no laboratory work,
$1,500; and after laboratory work has begun, time plus 10%.

	
  9240 Trade Place, Suite 100  •  San
  Diego, CA 92126

  
	
  Direct: (858) 547-7800  •  Facsimile:
  (858) 693-5989  •  www.cardinal.com/pts

  
	
  CONFIDENTIAL

  

 

 6

8.2. Standard Terms and
Conditions

All work performed under this quotation is subject to the Standard
Terms and Conditions between Cardinal Health and Urigen as defined as follows:

A.       [Illegible] By Cardinal
Health.

B.                        Audits.
Client may conduct one quality assurance facility audit per year at no cost.
Additional audits will be invoiced separately at the current rate for such
services.

C.                        Regulatory
Inspections. Cardinal Health will promptly notify Client of any regulatory
inspections directly relating to the Project. Client accepts reasonable and
documented costs charged by a regulatory authority for inspections directly
related to the Project.

D.                       Price
Changes. Cardinal Health may revise the prices provided in this Quotation
if (i) Client’s requirements or any Client-provided Information is inaccurate
or incomplete, (ii) Client revises Cardinal Health’s responsibilities, the
Specifications, the Project instructions, procedures, assumptions, processes,
test protocols, test methods or analytical requirements, to the extent
applicable to the Project, or (iii) for such other reasons set forth in the
Quotation.

E.                         Payments.
Cardinal Health will invoice Client as set forth in the Quotation. Cardinal
Health charges a late payment fee of 1 1⁄2%  per
month for payments not received by the date specified in the Quotation. Failure
to bill for interest due shall not be a waiver of Cardinal Health’s right to
charge interest.

F.                         Taxes.
Client will pay any sales, use, gross receipts, compensating or other taxes,
licenses, or fees (excluding Cardinal Health’s net income and franchise taxes)
to be paid by Cardinal Health to any tax jurisdiction arising from the Project.

G.                        Hazardous
Materials. Client warrants to Cardinal Health that no specific safe
handling instructions are applicable to any substance or material provided by
Client to Cardinal Health, except as disclosed to Cardinal Health in writing by
the Client in sufficient time for review and training by Cardinal Health prior
to delivery. Where appropriate or required by law, Client will provide a
Material Safety Data Sheet for all Client-provided materials, finished Product,
and reference standards.

H.                       Shipment.
Unless otherwise specified in the Quotation, all product, raw materials and
components shipped by Cardinal Health are delivered F.O.B. Cardinal Health’s
facilities.

I.                            Limitations
of Liability. NOTWITHSTANDING ANY OTHER PROVISION IN THIS QUOTATION,
CARDINAL HEALTH’S LIABILITY UNDER THIS QUOTATION SHALL NOT EXCEED THE
TOTAL AMOUNT PAID BY CLIENT TO CARDINAL HEALTH HEREUNDER (BUT EXCLUDING FEES
FOR PROCURING COMPARATOR DRUG). NOTWITHSTANDING THE FOREGOING, CARDINAL HEALTH’S
LIABILITY FOR LOSSES TO API, BULK DRUG PRODUCT OR OTHER MATERIALS PROVIDED BY
CLIENT, WHETHER OR NOT INCORPORATED INTO FINISHED PRODUCT, SHALL NOT EXCEED
$5,000. IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER PARTY FOR ANY
SPECIAL, CONSEQUENTIAL, EXEMPLARY OR INCIDENTAL DAMAGES, WHETHER OR NOT
FORESEEABLE, ARISING FROM THE PROJECT OR THIS QUOTATION.

J.                           Confidentiality.
All information disclosed by a party in connection with this Quotation shall be
confidential information, unless such information is (1) already known to the
receiving party, as evidenced by written records; (2) independently developed
or discovered by the receiving party without the use of the disclosing party’s
confidential information, as evidenced by written records; (3) in the public
domain other than through the fault of the receiving party; (4) disclosed to
the receiving party by a third party not in breach of a duty of confidentiality
owed to the disclosing party; or (5) required to be disclosed by law, or court
or administrative order; provided, that the receiving party first gives
prompt notice thereof to the disclosing party. Neither party shall, without the
other party’s prior written consent, use the confidential information of the
other party or disclose such information to anyone other than employees of the
receiving party or its affiliated entities who require such information to
perform such party’s obligations under this Quotation. This undertaking shall
survive for 7 years following termination of this Quotation.

K.                       Intellectual
Property. All Cardinal Health Materials, including without limitation, all
improvements, developments, derivatives or modifications to the Cardinal Health
Materials, shall be owned exclusively by Cardinal Health. All Client Materials,
including, without limitation, all improvements, developments, derivatives or
modifications to the Client Materials shall be owned exclusively by Client. All
improvements, developments, derivatives or modifications to a Generic Drug, if
any, shall be owned jointly by Cardinal Health and Client For purposes hereof, “Cardinal
Health Materials” means all Cardinal Health proprietary information,
intellectual property, and developments, including without limitation, all
patents, patent applications, know-how, inventions, designs, concepts,
improvements, technical information, manuals, instructions or specifications,
which are owned, licensed or used by Cardinal Health in developing,
formulating, manufacturing, filling, processing (sterile or non-sterile),
packaging, analysis or testing pharmaceutical products and the packaging
equipment, processes or methods of

	
  9240 Trade Place, Suite
  100  •  San Diego, CA 92126

  
	
  Direct: (858)
  547-7800  •  Facsimile: (858)
  693-5989  •  www.cardinal.com/pts

  
	
  CONFIDENTIAL

  

packaging, or any improvements to any of the foregoing. For purposes
hereof, “Client Materials” means all proprietary information, intellectual property,
and developments, including without limitation, all patents, patent
applications, know-how, inventions, designs, concepts, improvements, technical
information, manuals, instructions or specifications, which are owned, licensed
or used by Client relating to Client’s patented API (specifically excluding any
API that does not have any unexpired patents owned or licensed by Client; each
such API, a “Generic Drug”) or the formulation thereof.

L.                         Warranties.
Cardinal Health will perform the Project in accordance with the Specifications,
Project Instructions and United States current Good Manufacturing Practices or
current Good Laboratory Practices, as applicable. THE WARRANTIES SET FORTH IN
THE QUOTATION AND THESE STANDARD TERMS AND CONDITIONS ARE THE SOLE AND
EXCLUSIVE WARRANTIES MADE BY CARDINAL HEALTH TO CLIENT AND THERE ARE NO OTHER
WARRANTIES, REPRESENTATIONS OR GUARANTEES OF ANY KIND WHATSOEVER, EITHER
EXPRESS OR IMPLIED, REGARDING THE PRODUCTS OR PROJECT, INCLUDING WITHOUT
LIMITATION ANY EXPRESS OR IMPLIED WARRANTIES OF MERCHANTABILITY,
NONINFRINGEMENT OR FITNESS FOR A PARTICULAR PURPOSE.

M.                    Client
Obligations. Unless otherwise agreed to by the parties in writing, Client
is solely responsible to (i) provide complete and accurate scientific data regarding
the Project, (ii) if applicable, review and approve all in-process and finished
product test results to ensure conformity of such results with the product
Specifications, regardless of which party is responsible for finished product
release, (iii) prepare all submissions to regulatory authorities, and (iv)
perform such other obligations of Client set forth in the Quotation.

N.                       Indemnification.
Client will indemnify and hold harmless Cardinal Health, its affiliates and
their officers, directors, agents and employees against any third party claim
arising directly or indirectly from (a) the manufacture, promotion, marketing,
distribution or sale of the Product, (b) use or exposure to the Product, (c)
exposure to materials provided by Client, (d) negligence or willful misconduct
of Client, (e) breach of this Quotation by Client, or (f) use of any
intellectual property provided by Client to Cardinal Health. Cardinal Health
will indemnify Client for any third party claim arising from (i) any negligence
or willful misconduct by Cardinal Health, or (ii) Cardinal Health’s breach of
this Quotation.

O.                       Set-Off.
Without limiting Cardinal Health’s rights under law or in equity, Cardinal
Health and its affiliates, parent or related entities, collectively or
individually, may exercise a right of set-off against all amounts due to
Cardinal Health from Client. For purposes of this Section, Cardinal Health, its
affiliates, parent or related entitles shall be deemed to be a single creditor.

P.                         Force
Majeure. Neither party will be liable for any failure to perform or for
delay in performance resulting from any cause beyond its reasonable control,
including without limitation, acts of God, fires, floods, or weather; strikes
or lockouts, factory shutdowns, embargoes, wars, hostilities or riots,
shortages in transportation; provided, however, that if Cardinal Health cannot
complete an order within ninety (90) days due to any such cause, Client may
terminate this Quotation without liability to Cardinal Health.

Q.                       Use
and Disposal. Client represents and warrants to Cardinal Health that Client
will hold, use and/or dispose of Product and materials provided by Cardinal
Health in accordance with all applicable laws, rules and regulations.

R.                        Record
Retention. Unless the parties otherwise agree in writing, Cardinal Health
will retain batch, laboratory and other technical records for the minimum
period required by applicable law.

S.                         Independent
Contractor. It is expressly agreed that Cardinal Health and Client shall be
independent contractors and that the relationship between the two parties shall
not constitute a partnership, joint venture or agency.

T.                        Publicity.
Neither party will make any press release or public disclosure regarding this
Quotation or the transactions contemplated hereby without the other party’s
express prior written consent, except as required by applicable law or by any
governmental agency, in which case the party required to make the press release
or public disclosure shall use commercially reasonable efforts to obtain the
approval of the other party as to the form, nature and extent of the press
release or public disclosure prior to making the public disclosure.

U.                       Authority.
Client grants Cardinal Health full authority to use any Client supplied
materials or substances. Client and Cardinal Health each represent and warrant
that it has taken all necessary action on its part to authorize the execution
and delivery of this Quotation and this Quotation has been duly executed and
delivered on behalf of such party, and constitutes a legal, valid, binding
obligation, enforceable against such party in accordance with its terms.

V.                        Amendment
& Precedence. This Quotation constitutes the entire agreement of the
parties related to the Project and may not be modified without the other party’s
prior written consent. These Standard Terms and Conditions supercede any
conflicting terms and conditions set forth in the Quotation. Any previous
written acknowledgement, statement or prior understanding between the parties
related to the Project is superceded by this Quotation.

W.                   Dispute
Resolution. If a dispute arises between the parties in connection with this
Quotation, the respective presidents or Senior Executives of Cardinal Health
and Client shall first, attempt to resolve the dispute. If such parties cannot
resolve the dispute, such Dispute shall be resolved in the jurisdiction of the
defendant party by binding arbitration in accordance with the then existing
commercial arbitration rules of The CPR institute for Dispute Resolution, 366
Madison Avenue, New York, NY 10017.

	
  9240 Trade Place, Suite
  100  •  San Diego, CA 92126

  
	
  Direct: (858)
  547-7800  •  Facsimile: (858)
  693-5989  •  www.cardinal.com/pts

  
	
  CONFIDENTIAL

  

 

 

X. Survival. These
Standard Terms and Conditions shall survive termination or expiration of this
Quotation.

Section
9. Project Approval and Authorization

By signing below, Urigen
agrees to the project details as set forth in this Quotation,

 

	
  Urigen, Inc.

  	
   

  	
  Cardinal Health PTS, LLC

  
	
   

  	
   

  	
   

  
	
   /s/ William
  J. Garner

  	
   

  	
  /s/ Richard Bunnell, Ph.D.

  
	
  Signature

  	
   

  	
  Signature

  
	
   

  	
   

  	
   

  
	
  William J. Garner

  	
   

  	
  Richard Bunnell, Ph.D.

  
	
  Printed Name

  	
   

  	
  Printed Name

  
	
   

  	
   

  	
   

  
	
  CEO

  	
   

  	
  Director, Dosage Form Design

  
	
  Title

  	
   

  	
  Title

  
	
   

  	
   

  	
   

  
	
  7-25-05

  	
   

  	
  7-22-05

  
	
  Date

  	
   

  	
  Date

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  PO Number

  	
   

  	
   

  

Please sign and
return a copy of the Quotation Approval Page via fax to Nick Sanna at 

858-693-5989 or email at nick.sanna@cardinal.com.

All invoicing is to be
sent directly to (please fill out, unless
provided previously):

	
  

  	
   

  	
  Company: Urigen, Inc.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
  William J. Garner

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Department:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Telephone Number:

  	
  917-653-0470

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Address:

  	
  1701 Jackson Street, 102

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  San Francisco, CA 94109

  	
   

  
								

 

	
  9240 Trade Place, Suite
  100  •  San Diego, CA 92126

  
	
  Direct: (858)
  547-7800  •  Facsimile: (858)
  693-5989  •  www.cardinal.com/pts

  
	
  CONFIDENTIALExhibit 10.1

Jeff Boyer

President and Chief Financial Officer

Michaels
Stores, Inc.

Fiscal
Year 2007

Bonus Plan

Introduction

Your
Fiscal Year 2007 Bonus Plan provides you financial incentives for your
important contributions to our success.  
In your position as President and Chief Financial Officer, you have the
potential to earn up to a maximum bonus payout of 140%
of your eligible base salary.

Bonus
Measures

Your bonus plan is
based on the overall company performance, your personal performance, and your
business unit performance (where applicable):

Fiscal Year 2007 Bonus Plan Measures, Definitions
and Targets

	
  Plan Measure

  	
   

  	
  Measure Definition

  	
   

  	
  Weight

  	
   

  	
  Threshold Performance

  	
   

  	
  Target

  Performance

  (PLAN)

  	
   

  	
  Maximum Performance

  
	
  Corporate Financial
  Performance: Michaels Stores Inc. EBITDA minus Inventory Charge *

  	
   

  	
  Total Company Sales, Less
  Cost of Goods Sold, Less Selling,
  General and Administrative Expenses, Plus
  Depreciation and Amortization, Less Average
  Monthly Inventory times    %

  	
   

  	
  75%

  	
   

  	
  $                   

  	
   

  	
  $                  

  	
   

  	
  $                 

  
	
  Your Performance

  	
   

  	
  Your FY 2007

  Performance Appraisal Rating

  	
   

  	
  25%

  	
   

  	
  Mixed

  Performance

  	
   

  	
  Solid

  Performance

  	
   

  	
  Exceeds

  Expectations

  

*                    May
exclude additional charges as approved by the Compensation Committee of the
Board of Directors

EBITDA

EBITDA (“ee-bid-dah”) is short for “Earnings
Before Interest,
Taxes, Depreciation
and Amortization”.   It is a measure that indicates the Company’s
operating profitability before non-operating expenses and non-cash charges,
calculated by taking operating income and adding back depreciation and
amortization expenses.  Amortization
refers to spreading an intangible asset’s value over that asset’s
useful life.  An example of an
intangible asset would be leasehold improvements (changes we make to a store
location to make the building setup consistent with a Michaels store layout).
Depreciation, on the other hand, refers to the spreading of a tangible
asset’s cost over that asset’s life, such as store fixtures or computer
equipment.

EBITDA is intended
to be a measure that is much more closely linked to the cash flow that the
business generates from its operations — a measure of the profit and loss
statement (P&L) based on the cash we take in each day (sales), less the
ongoing cash we are spending (cost of sales and expenses).

EBITDA
minus Inventory Charge

The inventory
charge is much like an “interest charge” to cover the cost of buying
and holding inventory, and is subtracted from the EBITDA number.

Minimum Company Performance Threshold

Before any
Business Unit or Individual Performance portion can be earned, the actual
results of the Corporate Financial Performance measure (Michaels Stores Inc.
EBITDA minus inventory charge) must meet or exceed a minimum level of
performance (“Threshold”).  For Fiscal
Year 2007, the Threshold level is $            .

Performance
Levels and Bonus Payouts

For all company,
business unit, and individual performance bonus plan measures, there are four
major performance levels:  Below
Threshold, Threshold, Target and Maximum. 
Bonus payout percentages will be based upon the achieved level of
performance for each of your bonus plan measures.  To determine the actual payout percent, each
bonus measure’s performance must be calculated (percent achieved between
Threshold and Target, or Target and Maximum), weighted, multiplied by the
eligible base salary as of February 2, 2008, and adjusted for any applicable
proration.  If you change positions
during the year, resulting in a change in bonus plan, your base salary prior to
your transfer will be used as the eligible base salary for your former
position.

The performance of
each bonus measure is evaluated independently, and the achieved bonus
percentage for each measure is added together to arrive at the percentage of
total bonus achieved.

 2
 

Personal Bonus Calculation
Worksheet - Jeff Boyer

	
  Threshold Bonus: 21%

  	
   

  	
  Target
  Bonus: 70%

  	
   

  	
  Maximum
  Bonus: 140%

  

 

	
  Measure

  	
   

  	
  Weight

  	
   

  	
  Threshold Bonus%

  	
   

  	
  Target Bonus%

  	
   

  	
  Maximum Bonus%

  	
   

  
	
  MSI EBITDA minus inventory
  charge

  	
   

  	
  75%

  	
   

  	
  15.75%

  	
   

  	
  52.50%

  	
   

  	
  105.00%

  	
   

  
	
  Your Performance

  (FY 07 Performance Rating)

  	
   

  	
  25%

  	
   

  	
  8.75%

  	
   

  	
  17.50%

  	
   

  	
  35.00%

  	
   

  

 

Scaling
of Payout Percentage

When performance
falls at any point between the threshold and maximum goals, your bonus payout
will be scaled according to the performance above or below the target
goal.  The amount of bonus is scaled to
the nearest hundredth of a percent when comparing plan to actual results.  All calculations will be rounded to the
nearest hundredth.  The Individual Performance portion of the
bonus has four bonus payout levels based upon the Annual FY 2007 Performance
Appraisal Rating, and no scaling will be applied.   (Needs Development Performance Rating equals
zero bonus for the performance component).

Bonus
Scaling Formulas

The following
formulas illustrate how bonus scaling is applied in calculating the Actual
Bonus percentages achieved for the corporate financial measure and any business
unit measure:

Scenario 1: Actual
performance is above
target goal:

Scenario 2: Actual
performance is below target
goal:

Note: Wtd = Weighted; PLAN = Target

Eligibility

To be eligible for
a bonus under the Fiscal Year 2007 Bonus Plan, the associate must meet all of
the eligibility factors:

1.               Must be in a bonus
eligible position during Fiscal Year 2007. 
The Fiscal Year begins on February 4, 2007, and concludes on February 2,
2008.  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.  Individuals who change positions during the
fiscal year will receive credit for bonus calculation purposes based upon the
bonus level of the position he/she is in on the 15th of
the month, in accordance with the bonus plan for the credited position (see
#5).

2.               An associate must
be hired in a bonus eligible position on or before November 15, 2007.

3.               An associate must
have worked for at least three months in a bonus eligible position in Fiscal
Year 2007.

4.               An
associate must be employed in a bonus eligible position at the end of the
fiscal year, February 2, 2008, in order to be eligible to receive a bonus.  All bonus payments payable under this Bonus
Plan will normally occur between April 1st and April 30th, following the end of the
fiscal year, provided that all eligibility criteria as set forth in this bonus
plan document are met.  Bonus eligible
positions are defined as any regular full-time or regular part-time associates
in one of the following store or corporate positions:

	
  Store Positions

  	
   

  	
  Corporate Positions

  
	
  Store Manager and

  Assistant Manager

  	
   

  	
  Corporate Manager through Executive Committee Member
  (Includes Artistree and Specialty Businesses)

  
	
   

  	
   

  	
  Distribution Center Coach, Manager, Assistant
  General Manager and General Manager

  

Note: Temporary employees and independent contractors
are not bonus eligible positions.

 3
 

5.               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 #1)
in each position, the respective base salaries, and the applicable target bonus
amount(s).

6.               An associate is not
eligible for a bonus under this Bonus Plan if the associate received a
Performance Improvement Plan during Fiscal Year 2007 and the associate remains
on the Performance Improvement Plan at the time of bonus payout (check date).

How a Bonus is Earned

In
order to earn a bonus under this Fiscal Year 2007 Bonus Plan, the associate
must first satisfy all of the requirements in the Eligibility section of the
Bonus Plan.  In addition, and to the
extent allowed by applicable law, the associate will not earn, and no bonus
will be paid, unless the associate is employed in a bonus eligible position at
the end of the fiscal year, February 2, 2008.

To
the extent allowed by law, Michaels Stores, Inc. reserves
the right to change or cancel any portion(s) of this Bonus Plan for any reason.
This Bonus Plan does not constitute a contract or other agreement concerning
the duration of any associate’s employment. To the extent allowed by law, the
employment relationship remains “at will” and may be terminated at any time,
with or without cause.  This Bonus Plan
shall be administered by the Compensation Committee of the Board of Directors,
in its sole discretion.

 

 4

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00120-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00120-of-00352.parquet"}]]