<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
<TABLE>
<S> <C>
/ / Preliminary Proxy Statement / / Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
Hancock Fabrics, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
----------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
----------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
----------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
----------------------------------------------------------------------
(5) Total fee paid:
----------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
----------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
----------------------------------------------------------------------
(3) Filing Party:
----------------------------------------------------------------------
(4) Date Filed:
----------------------------------------------------------------------
<PAGE> 2
(HANCOCK FABRICS, INC. LOGO)
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
JUNE 8, 1995
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of Hancock
Fabrics, Inc. will be held at the Stennis Center, 3400 West Main Street, Tupelo,
Mississippi (adjacent to the Company's headquarters) on Thursday, June 8, 1995
at 10:00 a.m. (local time), or as soon thereafter as a quorum shall be present,
for the following purposes:
1. To elect one director; and
2. To consider and vote upon such other matters as may properly come before
the Meeting or any adjournment thereof.
Only shareholders of record on the books of the Company at the close of
business on April 13, 1995 will be entitled to vote at the Meeting.
Shareholders are cordially invited to attend the Meeting.
PLEASE COMPLETE, SIGN AND DATE THE ACCOMPANYING PROXY AND RETURN IT
PROMPTLY IN THE ENCLOSED ENVELOPE.
Dated: April 24, 1995
By order of the Board of Directors,
Larry D. Fair
Secretary
<PAGE> 3
PROXY STATEMENT
OF
HANCOCK FABRICS, INC.
This statement is furnished in connection with the solicitation of proxies
for use at the Annual Meeting of Shareholders of Hancock Fabrics, Inc. and at
any adjournment thereof. The Meeting will be held on June 8, 1995 at 10:00 a.m.
(local time) at the Stennis Center, 3400 West Main Street, Tupelo, Mississippi
(adjacent to the Company's headquarters) for the purposes set forth in the
preceding Notice of the Meeting dated April 24, 1995. This solicitation is made
by the Company.
A shareholder who executes a proxy may revoke it at any time before it is
voted. Proxies may be revoked by (i) filing with the Secretary of the Company,
at or before the Meeting, a written notice of revocation relating to the proxy,
(ii) duly executing a subsequent proxy bearing a later date relating to the same
shares and delivering it to the Secretary at or before the Meeting, or (iii)
voting in person at the Meeting. Any written notice revoking a proxy should be
sent to Hancock Fabrics, Inc., P.O. Box 2400, Tupelo, Mississippi 38803-2400,
Attention: Secretary.
A proxy, when executed and not so revoked, will be voted in accordance with
the specifications it contains. Unless the accompanying form of proxy contains
instructions to the contrary, it will be voted for the election of the nominee
shown, to serve until 1998 (see "ELECTION OF DIRECTOR").
The Company will bear the cost of soliciting these proxies. Brokers,
nominees, fiduciaries and other custodians will be reimbursed for their
reasonable expenses incurred in sending proxy material to principals and
obtaining their instructions. The Company has retained the services of Corporate
Communications, Inc. to assist the Company in its communications; a fee of
$2,500 plus out-of-pocket expenses, will be paid for those services. In
addition, directors, officers and employees may solicit proxies in person, by
telephone or in writing.
The mailing address of the principal executive offices of the Company is
P.O. Box 2400, Tupelo, Mississippi 38803-2400. The approximate date on which
this statement and the accompanying form of proxy, together with the 1994 Annual
Report, are first sent to the shareholders is April 24, 1995.
VOTING SECURITIES
Only shareholders of record at the close of business on April 13, 1995 will
be entitled to vote at the Meeting. On that date the outstanding stock of the
Company consisted of 21,518,535 shares of common stock. Each shareholder is
entitled to one vote per share respecting each Board seat to be filled and on
all other matters.
<PAGE> 4
The following table provides information about the persons known to the
Company to be the beneficial owners of more than 5% of any class of the
Company's securities:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
NAME AND ADDRESS OF NUMBER OF SHARES PERCENT OF
TITLE OF CLASS BENEFICIAL OWNER(1) BENEFICIALLY OWNED(1) CLASS(2)
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Stock FMR Corp. 2,563,200 11.912%
82 Devonshire Street
Boston, MA 02109
- ----------------------------------------------------------------------------------------------
Common Stock National Commerce 1,110,671 5.161%
Bancorporation
One Commerce Square
Memphis, TN 38150
- ----------------------------------------------------------------------------------------------
</TABLE>
(1) Information concerning beneficial ownership and the number
of shares beneficially owned is based on reports filed by
the shareholders with the Securities and Exchange
Commission.
(2) As of April 13, 1995.
The following table provides information, as of April 13, 1995, about the
beneficial ownership of the Company's common stock by each of the Company's
directors, named executive officers and all directors and executive officers as
a group:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
AMOUNT AND NATURE
OF BENEFICIAL PERCENT OF
NAME OF BENEFICIAL OWNER OWNERSHIP CLASS
- ---------------------------------------------------------------------
<S> <C> <C>
R. Randolph Devening 500 .002%
- ---------------------------------------------------------------------
Don L. Fruge 8,125 .038%
- ---------------------------------------------------------------------
Morris O. Jarvis 481,860(1) 2.209%
- ---------------------------------------------------------------------
Larry G. Kirk 134,793(1) .624%
- ---------------------------------------------------------------------
Ivan Owen 15,268 .071%
- ---------------------------------------------------------------------
Donna L. Weaver 9,639 .045%
- ---------------------------------------------------------------------
Jack W. Busby, Jr. 154,692(1) .716%
- ---------------------------------------------------------------------
All Directors and Executive
Officers as a Group 804,877(1) 3.662%
- ---------------------------------------------------------------------
</TABLE>
(1) Includes 297,700, 67,800 and 97,800
shares with respect to which Messrs.
Jarvis, Kirk and Busby, respectively,
have the right to acquire beneficial
ownership on or before June 12, 1995.
2
<PAGE> 5
ELECTION OF DIRECTOR
The By-Laws of the Company provide that the number of directors shall be
fixed from time to time exclusively by the Board of Directors pursuant to a
resolution adopted by a majority of the total number of directors the Company
would have if there were no vacancies (the "Whole Board"). The Whole Board has
fixed that number at five effective at the commencement of the Meeting. The
directors have been classified, effective with respect to the time for which
they severally hold office, into two classes of two each and one class of one
effective at the commencement of the Meeting. One nominee will be elected, to
hold office until the annual meeting of shareholders in 1998 or until election
and qualification of a successor. In accordance with the policy of the Board on
the length of service as a director, Ivan Owen will not stand for reelection at
the Meeting. It is intended that the shares represented by proxies in the
accompanying form be voted for the election of the nominee named below. If the
nominee should be unable to serve, it is intended that those shares be voted for
such replacement as the Board may designate, unless the number of directors has
been reduced so that no vacancy exists. The Company has no reason to expect that
the nominee will be unable to serve.
The following table provides information about the nominee and each
continuing director, including the business experience of each during at least
the past five years:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
NAME DIRECTOR
(AGE) PRINCIPAL OCCUPATION AND BUSINESS EXPERIENCE SINCE
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
NOMINEE TO SERVE UNTIL 1998
- ----------------------------------------------------------------------------------------------
R. Randolph Devening Chairman of the Board, Chief Executive 1995
(53) Officer and President, Doskocil Companies,
Inc., Oklahoma City, Oklahoma. Formerly Vice
Chairman, Executive Vice President and Chief
Financial Officer, Fleming Companies, Inc.,
Oklahoma City, Oklahoma
- ----------------------------------------------------------------------------------------------
DIRECTORS SERVING UNTIL 1996
- ----------------------------------------------------------------------------------------------
Morris O. Jarvis Chairman of the Board and Chief Executive 1987
(54) Officer. Formerly President
- ----------------------------------------------------------------------------------------------
Donna L. Weaver Chairman of Weaver, Field & London, Inc., 1987
(51) Investor Relations and Corporate
Communications, San Francisco, California.
Director of Ross Stores, Inc., Newark,
California
- ----------------------------------------------------------------------------------------------
DIRECTORS TO SERVE UNTIL 1997
- ----------------------------------------------------------------------------------------------
Don L. Fruge Vice Chancellor for University Affairs and 1987
(49) Professor of Law, University of Mississippi,
and Executive Vice President, University of
Mississippi Foundation, University,
Mississippi
- ----------------------------------------------------------------------------------------------
Larry G. Kirk President and Chief Financial Officer. 1990
(48) Formerly Senior Vice President, Vice
President, Treasurer and Secretary. Director
of Bank of Mississippi, Tupelo, Mississippi
- ----------------------------------------------------------------------------------------------
</TABLE>
3
<PAGE> 6
The Audit Committee of the Board of Directors, which met twice during the
Company's latest fiscal year, is charged with recommending the engaging of the
Company's independent accountants, reviewing their reports, authorizing their
services and fees, reviewing their independence, reviewing the Company's
procedures for internal auditing and the adequacy of its system of internal
accounting controls, and reporting to the Board with respect thereto. The Audit
Committee is composed of Don L. Fruge (Chair), R. Randolph Devening, Ivan Owen
and Donna L. Weaver.
The Management Review and Compensation Committee of the Board of Directors,
which met three times during the Company's latest fiscal year, is charged with
reviewing the base salaries of all executive officers of the Company,
administering the Retirement Plans, Stock Option Plan, Restricted Stock Plan,
Extra Compensation Plan and Bonus Plan for Store Management, and making
recommendations to the Board respecting policies of the Board dealing with such
Plans. The Management Review and Compensation Committee is composed of Donna L.
Weaver (Chair), R. Randolph Devening, Don L. Fruge and Ivan Owen.
When the Board is not in session, the Executive Committee of the Board may
exercise the powers vested in the Board (except certain enumerated major powers
such as the power to declare dividends, amend the By-Laws and fill vacancies on
the Board and certain powers reserved to the Board under Delaware law). In
practice, the function of the Executive Committee is to act on matters arising
between Board meetings that have special time value but do not appear to warrant
a special Board meeting. The Executive Committee is composed of Morris O. Jarvis
(Chair), Don L. Fruge and Larry G. Kirk. The Executive Committee did not meet
during the Company's latest fiscal year.
The Board met four times during the Company's latest fiscal year. None of
the directors attended less than 75% of the meetings of the Board and of all
committees on which he or she served.
4
<PAGE> 7
COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table provides certain summary information concerning
compensation paid or accrued by the Company and its subsidiary, to or on behalf
of the Company's Chief Executive Officer and each of the two other executive
officers of the Company (determined as of the end of the latest fiscal year) for
the fiscal years ended January 29, 1995, January 30, 1994 and January 31, 1993.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
ANNUAL COMPENSATION LONG-TERM COMPENSATION
- --------------------------------------------------------------------------------------------------
RESTRICTED SECURITIES
STOCK UNDERLYING
SALARY BONUS AWARDS(1) OPTIONS/SARS(2)
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) (#)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Morris O. Jarvis 1994 $250,000 $ 82,776 $154,938 27,400
Chairman of the Board and 1993 250,000 72,927 177,125 27,400
Chief Executive Officer 1992 250,000 124,662 213,900 27,400
- --------------------------------------------------------------------------------------------------
Larry G. Kirk 1994 113,000 43,201 65,325 18,000
President and 1993 85,800 29,181 76,300 10,000
Chief Financial Officer 1992 85,800 49,882 94,550 8,600
- --------------------------------------------------------------------------------------------------
Jack W. Busby, Jr. 1994 126,923 43,201 80,400 18,000
Executive Vice President and 1993 125,000 38,062 92,650 18,000
Chief Operating Officer 1992 125,000 65,064 113,150 18,000
- --------------------------------------------------------------------------------------------------
</TABLE>
(1) Restricted stock awards generally vest five years and one day following the
date of award. Prior to vesting, restricted shares are not negotiable or
otherwise transferable and are subject to forfeiture if employment
terminates. Dividends are paid on shares subject to restrictions. See
"EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE OF CONTROL
ARRANGEMENTS" for a description of circumstances under which the vesting
schedule may be accelerated.
As of the end of the latest fiscal year (specifically, January 27, 1995, the
last trading day prior to fiscal year end), the executive officers held the
following number of shares subject to restrictions, with the following
market values: Mr. Jarvis, 67,900 shares, $679,000; Mr. Kirk, 27,700 shares,
$277,000; and Mr. Busby, 31,700 shares, $317,000.
(2) The Company does not grant stock appreciation rights ("SARs").
5
<PAGE> 8
STOCK OPTIONS
The following table contains information about the grant of stock options
under the Company's 1987 Stock Option Plan, during the Company's latest fiscal
year, to the named executive officers:
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
POTENTIAL REALIZABLE
VALUE AT ASSUMED ANNUAL
RATES OF STOCK
PRICE APPRECIATION
FOR OPTION TERM
INDIVIDUAL GRANTS (10 YEARS)(3)
- ---------------------------------------------------------------------------------------------------------------------------------
5% 10%
-------------------------------------------------------------
% OF
TOTAL
# OF OPTIONS
SECURITIES GRANTED
UNDERLYING TO
OPTIONS/SARS EMPLOYEES EXERCISE OR
GRANTED(1) IN FISCAL BASE PRICE EXPIRATION STOCK PRICE STOCK PRICE
NAME (#) YEAR (PER SHARE) DATE (PER SHARE)(2) GAIN(4) (PER SHARE)(2) GAIN(4)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Morris O.
Jarvis 27,400 9.99% $8.25 June 9, 2004 $13.44 $142,206 $21.40 $360,310
- ---------------------------------------------------------------------------------------------------------------------------------
Larry G.
Kirk 18,000 6.56% 8.25 June 9, 2004 13.44 93,420 21.40 236,700
- ---------------------------------------------------------------------------------------------------------------------------------
Jack W.
Busby,
Jr. 18,000 6.56% 8.25 June 9, 2004 13.44 93,420 21.40 236,700
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) All options disclosed here were granted on June 9, 1994 (the "Grant Date")
and become exercisable as to 50% of the shares subject to the options one
year and one day following the Grant Date and as to the remaining shares two
years and one day following the Grant Date. See "EMPLOYMENT CONTRACTS AND
TERMINATION OF EMPLOYMENT AND CHANGE OF CONTROL ARRANGEMENTS" for a
description of circumstances under which the vesting schedule may be
accelerated. The Company does not grant SARs.
(2) The stock price shown is computed based on 10 years of appreciation in the
option exercise price ($8.25) at a 5% ($13.44) and a 10% ($21.40) annual
rate.
(3) The potential realizable value at the assumed annual rates of stock price
appreciation for the option term for all shareholders would result in gains
on a pretax basis of the following: at 5%, $111,429,046; and at 10%,
$282,329,856. The gain shown is computed based on the difference between the
market price on the Grant Date ($8.25) and the assumed stock price,
multiplied by the number of shares outstanding on that date.
(4) All gains are shown on a pretax basis.
6
<PAGE> 9
OPTION EXERCISES AND HOLDINGS
The following table provides information, with respect to the named
executive officers, concerning the exercise of options during the latest fiscal
year and unexercised options held as of the end of the latest fiscal year:
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
NUMBER OF SECURITIES VALUE OF UNEXERCISED
VALUE REALIZED UNDERLYING UNEXERCISED IN-THE-MONEY
(MARKET PRICE AT OPTIONS AT FISCAL YEAR-END(1) OPTIONS AT FISCAL YEAR-END(1)
SHARES ACQUIRED EXERCISE LESS (#) ($)
ON EXERCISE EXERCISE PRICE) ---------------------------------------------------------------------
NAME (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Morris O.
Jarvis 0 $0 270,300 41,100 $ 778,908 $47,950
- ------------------------------------------------------------------------------------------------------------------------------
Larry G. Kirk 0 0 53,800 23,000 106,992 31,500
- ------------------------------------------------------------------------------------------------------------------------------
Jack W.
Busby, Jr. 0 0 79,800 27,000 121,116 31,500
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Figures shown have been adjusted to reflect the effect of the 100% stock
dividend declared on March 14, 1991, issued on April 15, 1991 to
shareholders of record on April 1, 1991.
PENSION PLANS
The Company maintains a noncontributory retirement program under which
retirement benefits are provided by a qualified defined benefit pension plan
supplemented by a nonqualified unfunded plan affording certain benefits that
cannot be provided by the qualified plan. In this description the qualified and
nonqualified plans are treated as one "Plan." Each of the named executive
officers participates in the Plan.
For each year of credited service a Plan participant accrues a retirement
benefit calculated under a formula based on covered compensation for that year.
Covered compensation is defined in the Plan documents. It includes, generally,
all wages, salary and bonus actually received, plus contributions that the
participant elects to be made on his or her behalf pursuant to a "cafeteria
plan" (under Internal Revenue Code section 125) or to a "qualified cash or
deferred arrangement" (under Internal Revenue Code section 401(k)).
Under the Plan formula applicable to the named executive officers, the
annual retirement benefit payable at normal retirement age (age 65) as a
straight life annuity is the sum of: (1) for years of credited service through
1992, 1% of average annual compensation during the five years ending December
31, 1992 multiplied by years of credited service through 1992, plus 0.33% of
such average annual compensation in excess of $50,640 multiplied by years of
credited service through 1992 up to a maximum of 30 years, and (2) for each year
of credited service following 1992, 1% of annual compensation for that year,
plus (for years of credited service up to a maximum of 30 years) 0.33% of such
annual compensation in excess of the Social Security maximum wage base for that
year.
7
<PAGE> 10
If Messrs. Jarvis, Kirk and Busby continue in their present positions the
estimated annual retirement benefit payable to them under the Plan upon the
normal retirement age of 65 in the form of a straight life annuity would be
$182,141, $60,120 and $75,034, respectively. These estimates are computed using,
for all future years of credited service, the compensation levels in effect for
calendar year 1994 (the most recent Plan year) and the Social Security maximum
wage base in effect for calendar year 1995.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE OF CONTROL
ARRANGEMENTS
The Company has entered into deferred compensation agreements (the
"Deferred Agreements") with each of the executive officers to ensure that their
services remain available to the Company and that they not be attracted by other
employers seeking their services. Under the Deferred Agreement with Mr. Jarvis
(the "Jarvis Deferred Agreement"), the right to payment is conditioned on Mr.
Jarvis' full-time employment until age 55 or his earlier death, his availability
as a consultant to the Company and his not engaging in activities competitive
with the business of the Company. Provided such conditions are satisfied,
payments of $50,000 a year for 15 years will begin upon cessation of his
employment. Upon his death, the payments may be made to a designated
beneficiary. If neither a change of control of the Company has occurred nor Mr.
Jarvis' right to payments under the Jarvis Deferred Agreement has vested, Mr.
Jarvis may elect that, upon such occurrence and vesting, he (or, in certain
cases, his designated beneficiary) will receive in a cash lump sum the present
value of all payments that would become payable, regardless of the fact that the
Jarvis Deferred Agreement provides for payment at some later date or requires
some future performance. If a change of control of the Company occurs and the
right to payments under the Jarvis Deferred Agreement either is or becomes
vested, as explained below (and if Mr. Jarvis has not elected to receive a lump
sum payment as described in the preceding sentence), the Company is required to
establish an irrevocable letter of credit in an amount equal to the largest sum
of all payments to be paid under the Jarvis Deferred Agreement, to serve as
security for those payments. Unless the letter of credit is established and
renewed on a timely basis, Mr. Jarvis (or, in certain cases, his designated
beneficiary) will then receive in a cash lump sum the total of those payments,
regardless of the fact that the Jarvis Deferred Agreement provides for payment
at some later date or requires some future performance. The Deferred Agreements
with Messrs. Kirk and Busby are substantially similar to the Jarvis Deferred
Agreement except that (i) employment is required until age 60 and (ii) the
annual payments for the 15-year period are $25,000.
8
<PAGE> 11
The Company has entered into contingent severance arrangements with each of
the executive officers (collectively the "Severance Agreements"). Each Severance
Agreement is effective until May 4, 1996 and provides that, if during the three
years following a change of control of the Company (as defined in the Severance
Agreement) the employment of the individual is terminated by the employer other
than for cause, disability or death or the individual terminates employment for
good reason (as defined in the Severance Agreement), the individual will receive
a lump sum payment equal to the sum of (i) the individual's annual base salary
through the termination date (to the extent not yet paid) and (ii) two times
(except that the Severance Agreements with Messrs. Kirk and Busby provide that
the multiplier is one rather than two) the sum of (a) the individual's annual
base salary at the rate in effect when employment was terminated or, if higher,
at the highest rate in effect within 90 days preceding the change of control and
(b) the highest bonus paid or payable to the individual within the five years
preceding the change of control. The individual is also entitled to a
continuation of health and insurance benefits for two years and to certain
supplemental retirement benefits in respect of that continuation period (except
that the Severance Agreements with Messrs. Kirk and Busby provide a continuation
period of one rather than two years). The Severance Agreements further provide,
in the event that the individuals are entitled to payment thereunder, that they
will be deemed to have satisfied the service requirement under their Deferred
Agreements. The Severance Agreement with Mr. Jarvis also provides that if he
remains in the employ of the Company for the 12-month period following the
change of control and voluntarily terminates employment for any reason (other
than for good reason, in which case the formula set out above will be
applicable) during the 30-day period following that 12-month period, he will
receive a lump sum payment equal to the sum of (i) his annual base salary
through the termination date (to the extent not yet paid) and (ii) the sum of
(a) his annual base salary at the rate in effect when employment was terminated,
or, if higher, at the highest rate in effect within 90 days preceding the change
of control and (b) the highest bonus paid or payable to him within the five
years preceding the change of control; and he will be entitled to a continuation
of health and insurance benefits for one year and to certain supplemental
retirement benefits in respect of that continuation period. The Severance
Agreements also provide that if any tax under Section 4999 of the Internal
Revenue Code of 1986, as amended, or any comparable provision is imposed on any
payment made or benefit provided to the individual, then the amount of such
payment or benefit will be increased to the extent necessary to compensate the
individual fully for the imposition of such tax.
The Company has entered into Agreements to Secure Certain Contingent
Payments with each of the executive officers (the "Contingent Agreements"). Upon
a change of control of the Company, the Contingent Agreements require the
Company to establish an irrevocable letter of credit in favor of such
individuals securing certain benefits payable under the Severance Agreements and
any lump sum payment elected under the Deferred Agreements. The amount of the
letters of credit will be calculated initially, and recalculated quarterly, by
an independent accounting firm. Failure to establish and renew the letters of
credit prior to expiration will cause the amounts intended to be secured by the
letters of credit to become immediately payable to the individuals.
With respect to the Company's 1987 Stock Option Plan, upon a change of
control of the Company (as defined in the plan), options become fully
exercisable and, with certain exceptions, remain exercisable by the optionee,
including each of the executive officers, for a period of 90 days following
termination of the optionee's employment if such termination occurs within one
year of the change of control. See footnotes to the SUMMARY COMPENSATION TABLE
and the table OPTION/SAR GRANTS IN LAST FISCAL YEAR.
9
<PAGE> 12
With respect to the Company's 1989 Restricted Stock Plan, restrictions on
stock awarded under the plan, including stock awarded to executive officers,
lapse upon the occurrence of certain events related to a change of control of
the Company (as defined in the plan) and the stock is not thereafter
forfeitable. See footnotes to the SUMMARY COMPENSATION TABLE.
With respect to the Company's noncontributory retirement program, under
certain circumstances related to a change of control of the Company (as defined
in the program documents), part of the benefit to a participant will be paid in
a lump sum. See "PENSION PLANS."
COMPENSATION OF DIRECTORS
Each director receives fees of $12,000 a year and $1,000 for each Board or
committee meeting attended (except that directors who are employees of the
Company receive no fees). The chair of a committee of the Board of Directors
receives an additional fee of $250 for each committee meeting attended.
Under the Company's 1991 Stock Compensation Plan for Nonemployee Directors,
each eligible director may elect annually to defer receipt of all or part of his
or her annual cash compensation for services rendered as a director, later
receiving it in the form of shares of common stock subject to certain
restrictions. In consideration for foregoing cash compensation and receiving
such shares subject to restrictions, the amount deferred is increased by 25% for
purposes of determining the number of shares to be credited. For the latest
fiscal year all of the eligible directors elected so to defer as to all or part
of such compensation.
10
<PAGE> 13
STOCK PRICE PERFORMANCE GRAPH
The following graph sets forth the Company's cumulative total shareholder
return (assuming reinvestment of dividends) as compared to the S&P 500 and a
peer group consisting of Fabri-Centers of America, Inc. and House of Fabrics,
Inc. over the five-year period commencing January 26, 1990 and ending January
27, 1995. The graph assumes $100 invested on January 26, 1990.
Note: The stock price performance shown on the graph below is not necessarily
indicative of future price performance.
(GRAPH)
<TABLE>
<CAPTION>
Measurement Period Hancock
(Fiscal Years Ended January 29) Fabrics S&P 500 Peer Group
<S> <C> <C> <C>
1990 100.00 100.00 100.00
1991 130.08 109.18 190.80
1992 110.78 134.25 332.17
1993 87.16 148.43 165.43
1994 64.21 166.44 131.00
1995 72.25 168.37 78.79
</TABLE>
11
<PAGE> 14
BOARD COMPENSATION COMMITTEE REPORT
The Management Review and Compensation Committee of the Board of Directors
(the "Committee") is composed of nonemployee directors. The Committee reviews
the salaries of executive officers, administers the Extra Compensation Plan and
is responsible for granting stock options and awarding restricted stock.
COMPENSATION PHILOSOPHY
The compensation programs of the Company are designed to align compensation
with business performance and with shareholder return, and to enable the Company
to attract, retain and reward executives who contribute to the Company's
long-term success. The Committee believes that executive compensation should be
linked to business performance. Therefore, the Company provides an executive
compensation program which includes base pay, annual cash bonus (the Extra
Compensation Plan) and long-term incentives in the form of stock options and
restricted stock. The Chief Executive Officer's compensation is determined in
the same manner as that of other members of corporate management.
The Omnibus Budget Reconciliation Act of 1993 imposes a limit, with certain
exceptions, on the amount that a publicly held corporation may deduct for
federal income tax purposes in any year for the compensation paid or accrued
with respect to its named executive officers. While the Committee cannot
determine with certainty how the Company's compensation might be affected, the
Committee intends to try to preserve the tax deductibility of all executive
compensation while maintaining the Company's compensation programs as described
in this report.
BASE SALARY
The Committee has established base pay at a midpoint level in light of
executive pay levels at other public companies of comparable size, operating and
financial characteristics, and geographic location. Such public companies are
not necessarily the same as those shown in the stock price performance graph
comparison (see the STOCK PRICE PERFORMANCE GRAPH). The Committee annually
reviews the named executive officers' base salaries. When reviewing base salary
and possible adjustments to base salary, the Committee subjectively considers
individual performance, Company performance (which is not clearly defined as any
particular financial measure or measures), changes in level of responsibility
and economic conditions in the retail fabric industry. There are no specific
weights attributed to each of these criteria. While no adjustments of any kind
were made from 1991 through 1993, the Committee made certain adjustments in 1994
to approximate cost of living increases and for promotions. Based upon these
standards, the Committee did not increase or adjust the base salary of the Chief
Executive Officer during the 1991 through 1994 fiscal years.
PERFORMANCE PAY
In order to link annual cash compensation to Company performance, Hancock
awards bonuses under the Extra Compensation Plan to the named executive officers
and other eligible employees based on corporate earnings before taxes. The
approach used in calculating the bonuses is the same for all eligible employees.
The aggregate bonus payments to executive officers for fiscal year 1994
increased from fiscal year 1993 based on the improvement in pretax profits over
the prior year. The Chief Executive Officer's bonus for fiscal year 1994,
similarly based on the increase in corporate earnings before taxes for that
period, was $82,776.
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<PAGE> 15
LONG-TERM INCENTIVES
To more closely link the interest of the Company's shareholders and the
named executive officers, the Committee granted stock options and awarded
restricted stock during 1994. The exercise price for the stock options granted
was equal to the fair market value of the underlying stock on the date of grant.
All grants and awards contained vesting provisions of one to five years to
encourage continued employment with the Company. The ultimate value of these
equity incentives is directly related to the common stock price and dividend
yield.
The Committee has established a policy which generally grants stock options
annually to the executive officers in amounts based on the recipient's level of
responsibility. The amount of the restricted stock awarded to the executive
officers is principally related to the recipient's total cash compensation and
level of responsibility. Based on these guidelines, the named executive officers
received stock option grants and restricted stock awards as detailed in the
summary compensation table (see the SUMMARY COMPENSATION TABLE). The Committee
did not consider the outstanding options or restricted stock holdings of the
named executive officers when making grants and awards. In fiscal year 1994, the
Chief Executive Officer was granted stock options for 27,400 shares and was
awarded 18,500 shares of restricted stock.
Management Review and
Compensation Committee
Donna L. Weaver, Chair
R. Randolph Devening
Don L. Fruge
Ivan Owen
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<PAGE> 16
FUTURE SHAREHOLDER PROPOSALS
If a shareholder desires to present a proposal at next year's annual
meeting of shareholders and to have that proposal included in the proxy
statement and proxy for that meeting, that proposal must be received by the
Company at its principal executive offices by December 26, 1995.
VOTING PROCEDURES
The required quorum for the transaction of business at the Annual Meeting
is a majority of the shares of common stock issued and outstanding on the Record
Date. Abstentions and broker non-votes are counted for purposes of determining
the presence or absence of a quorum for the transaction of business. Abstentions
are counted in tabulations of the votes cast on proposals presented to
shareholders, whereas broker non-votes are not counted for purposes of
determining whether a proposal has been approved.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Based solely upon review of Forms 3, 4 and 5 and any amendments thereto
furnished to the Company with respect to its most recent fiscal year, and
written representations from reporting persons, the Company believes that,
during the fiscal year ended January 29, 1995, all filing requirements
applicable to its executive officers and directors were met.
OTHER MATTERS
The Board of Directors has selected Price Waterhouse LLP as the independent
accountants of the Company for the current fiscal year. At the Annual Meeting of
Shareholders, representatives of Price Waterhouse LLP will be present, may make
statements if they desire to do so, and will be available to respond to
appropriate questions.
The Board is not aware that any matters not specified above will be
presented at the Meeting. If other business should properly come before the
Meeting, the persons named in the proxy will vote thereon in their discretion to
the extent that authority to do so is granted in the proxy.
PLEASE COMPLETE, SIGN AND DATE THE ACCOMPANYING PROXY AND RETURN IT
PROMPTLY IN THE ENCLOSED ENVELOPE.
By order of the Board of Directors,
Larry D. Fair
Secretary
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<PAGE> 17
APPENDIX A
HANCOCK FABRICS, INC.
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS -- JUNE 8, 1995
The undersigned acknowledges receipt of the Notice and Proxy Statement dated
April 24, 1995 and hereby appoints Morris O. Jarvis and Larry G. Kirk, with full
power of substitution, the proxies of the undersigned to represent and vote the
shares of the undersigned as indicated on this card at the Annual Meeting of
Shareholders of Hancock Fabrics, Inc. to be held on Thursday, June 8, 1995 at
10:00 a.m. and at any adjournment thereof.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS. IT WILL BE VOTED IN
ACCORDANCE WITH THE SPECIFICATIONS INDICATED.
UNLESS OTHERWISE INDICATED, THIS PROXY WILL BE VOTED FOR THE ELECTION OF THE
NOMINEE LISTED AND DISCRETIONARY AUTHORITY UNDER ITEM 2 WILL BE DEEMED TO HAVE
BEEN GRANTED.
1. Election of director to serve until 1998. A VOTE FOR THE NOMINEE LISTED IS
RECOMMENDED BY THE BOARD OF DIRECTORS.
R. RANDOLPH DEVENING
/ / FOR NOMINEE / / WITHHOLD VOTE
- --------------------------------------------------------------------------------
Continued and to be signed on reverse side.
2. The proxies are authorized to vote, in their discretion, upon such other
matters as may properly come before the Meeting and any adjournment thereof.
A VOTE TO GRANT AUTHORITY IS RECOMMENDED BY THE BOARD OF DIRECTORS.
/ / AUTHORITY GRANTED / / AUTHORITY WITHHELD
UNLESS OTHERWISE INDICATED, THIS PROXY WILL BE VOTED FOR THE ELECTION OF THE
NOMINEE LISTED AND DISCRETIONARY AUTHORITY UNDER ITEM 2 WILL BE DEEMED TO HAVE
BEEN GRANTED.
Signature(s) should correspond
exactly with the name(s) in
which your certificate is
issued. Executors,
conservators, trustees, etc.,
should so indicate when
signing.
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------------------------------
Date , 1995
------------------
PLEASE DATE AND SIGN YOUR
PROXY AND RETURN PROMPTLY IN
THE ACCOMPANYING ENVELOPE.
