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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
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FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JANUARY 28, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-9482
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HANCOCK FABRICS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 64-0740905
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
3406 WEST MAIN ST., TUPELO, MS 38801
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code
(601) 842-2834
Securities Registered Pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE
---------------------
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- -------------------
Common Stock ($.01 par value) New York Stock Exchange
Rights New York Stock Exchange
Securities Registered Pursuant To Section 12(g) of the Act:
NONE
- ----
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
As of April 15, 1996, there were 21,232,052 shares of Hancock Fabrics, Inc.
$.01 par value common stock held by non-affiliates with an aggregate market
value of $220,282,540. As of April 15, 1996, there were 21,588,272 shares of
Hancock Fabrics, Inc. $.01 par value common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the Annual Meeting of Shareholders to be
held on June 13, 1996, to be filed with the Securities and Exchange Commission
within 120 days after the end of the fiscal year, are incorporated by reference
in Part III of this Annual Report on Form 10-K.
Portions of the Hancock Fabrics, Inc. 1995 Annual Report to Shareholders
(Exhibit 13 hereto) are incorporated by reference in Parts I and II of this
Annual Report on Form 10-K. With the exception of those portions that are
specifically incorporated by reference in this Annual Report on Form 10-K, the
Hancock Fabrics, Inc. 1995 Annual Report to Shareholders is not to be deemed
filed as part of this Annual Report on Form 10-K.
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HANCOCK FABRICS, INC.
1995 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
PART I
<TABLE>
<CAPTION>
Page
Number
------
<S> <C> <C>
Item 1. Business.......................................... 4
Item 2. Properties........................................ 6
Item 3. Legal Proceedings................................. 7
Item 4. Submission of Matters to a Vote
of Security Holders............................... 7
Executive Officers of Registrant........................... 8
PART II
Item 5. Market for the Registrant's Common Stock and
Related Stockholder Matters...................... 9
Item 6. Selected Financial Data........................... 9
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.............. 10
Item 8. Financial Statements and Supplementary Data....... 10
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure........... 10
PART III
Item 10. Directors and Executive Officers of Registrant.... 11
Item 11. Executive Compensation............................ 11
Item 12. Security Ownership of Certain Beneficial Owners
and Management................................... 11
Item 13. Certain Relationships and Related Transactions.... 11
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K.............................. 12
Undertaking in Connection with Registration Statements
on Form S-8............................................... 17
Signatures................................................. 18
</TABLE>
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PART I
ITEM 1: BUSINESS
Hancock Fabrics, Inc., a Delaware corporation ("Hancock"), was incorporated in
1987 and succeeded to the retail and wholesale fabric business of Hancock
Textile Co., Inc., a Mississippi corporation and a wholly owned subsidiary of
Lucky Stores, Inc., a Delaware corporation ("Lucky").
Founded in 1957, Hancock operated as a private Company until 1972 when it was
acquired by Lucky. Hancock became a publicly owned company as a result of the
distribution of the shares of its common stock to the shareholders of Lucky on
May 4, 1987.
Hancock and its subsidiary are engaged in the retail and wholesale fabric
business, selling fabrics, crafts and related accessories to the home sewing
and home decorating market and at wholesale to independent retailers. Hancock
is one of the largest fabric retailers in the United States. At January 28,
1996, Hancock operated 498 fabric stores in 33 states under the names "Hancock
Fabrics," "Minnesota Fabrics," "Fabric Warehouse" and "Fabric Market." As a
wholesaler of fabrics and related items, Hancock sells to independent retail
fabric stores through its wholesale distribution facility in Tupelo,
Mississippi.
OPERATIONS
Hancock offers a wide selection of apparel fabrics, notions (which include
sewing aids and accessories such as zippers, buttons, threads and
ornamentation), patterns, quilting materials and supplies, home decorating
products (which include drapery and upholstery fabrics), craft items and
related supplies. Each of Hancock's retail stores maintains an inventory that
includes cotton, woolen and synthetic staple fabrics such as broadcloth,
poplin, gaberdine, unbleached muslin and corduroy, as well as seasonal and
current fashion fabrics.
Hancock's stores are primarily located in neighborhood shopping centers.
Hancock added 18 net stores in 1993 and none in 1994, and decreased its total
stores by two in 1995. During 1996, Hancock plans to open approximately 20
stores and close or relocate 35 stores resulting in a net decrease of 15
stores.
As a wholesaler, Hancock sells to over 100 independent retailers in locations
in which Hancock has elected not to open its own stores. These wholesale
customers accounted for less than 5% of Hancock's total sales for the fiscal
year ended January 28, 1996.
MARKETING
Hancock principally serves the home sewing and home decorating markets, which
largely consists of value conscious women who make clothing for their families
and decorations for their homes or who
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hire professional home seamstresses to sew for them. Quilters,
crafters and hobbyists also comprise a growing base of customers, as do
consumers of bridal, party, prom and special occasion merchandise.
Hancock offers its customers a wide selection of products at prices that it
believes are generally lower than the prices charged by its competitors. In
addition to staple fabrics and notions for clothing and home decoration,
Hancock provides a variety of seasonal and current fashion apparel merchandise.
Hancock uses promotional advertising, primarily through newspapers, direct mail
and television, to reach its target customers. Hancock mails eight to ten
direct mail promotions each year to approximately two million households,
including the "Directions" magazine which contains discount coupons, sewing
instructions and fashion ideas as well as product advertisements.
During 1994, Hancock entered into an agreement with the Home and Garden
Television Network to sponsor a weekly sewing show called "Sew Perfect(TM)."
The program, which reaches almost 15 million U.S. households, is designed for
the beginning and intermediate skilled seamstress.
DISTRIBUTION AND SUPPLY
Hancock's retail stores and its wholesale customers are served by Hancock's
525,000 square foot warehouse, distribution and office facility in Tupelo,
Mississippi. Hancock believes this facility is adequate for the near term and
has no major expansion plans for 1996.
Contract trucking firms, common carriers and parcel delivery are used to
deliver merchandise to Hancock's retail stores and to its wholesale customers.
A substantial portion of the deliveries to Hancock's stores and wholesale
customers are made directly by vendors.
Bulk quantities of fabric are purchased from domestic and foreign mills, fabric
jobbers and importers. Hancock has no long-term contracts for the purchase of
merchandise and did not purchase more than 5% of its merchandise from any one
supplier during the fiscal year ended January 28, 1996. Hancock has
experienced no difficulty in maintaining satisfactory sources of supply.
COMPETITION
Hancock is among the largest fabric retailers in the United States. The retail
fabric business has become increasingly competitive due to excess capacity in
many geographical markets resulting from the entry and expansion of other major
fabric retailers. Hancock principally competes with other national and
regional fabric store
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chains on the basis of price, selection, quality, service and location.
Hancock's competition has changed significantly with a major competitor in
bankruptcy and a large competitor consolidating with another fabric chain.
Over the course of the past year, numerous stores have closed and inventories
liquidated.
SEASONALITY
Hancock's business is slightly seasonal. Peak sales periods occur during the
fall and pre-Easter weeks, while the lowest sales periods occur during
preChristmas and midsummer.
EMPLOYEES
At January 28, 1996, Hancock employed approximately 7,000 people on a full-time
and part-time basis, approximately 6,650 of whom work in the Company's retail
stores. The remainder work in the Tupelo warehouse, distribution and office
facility. Currently, thirty-five (35) of Hancock's employees are covered by a
collective bargaining agreement.
GOVERNMENT REGULATION
Hancock is subject to the Fair Labor Standards Act, which governs such matters
as minimum wages, overtime and other working conditions. A significant number
of Hancock's employees are paid at rates related to federal and state minimum
wages and, accordingly, increases in minimum wages affect Hancock's labor cost.
Legislation under the Americans With Disabilities Act requiring, among other
things, that "reasonable accommodation" to the Company's facilities be afforded
to employees and to the general public has resulted in additional costs to
Hancock under the revised guidelines. Additionally, legislation providing for
family leave to employees has resulted in higher costs to the Company in labor,
unemployment and health insurance, and reduced productivity due to replacement
hiring constraints while employees are on family leave.
ITEM 2: PROPERTIES
Hancock's 498 retail stores are located principally in neighborhood shopping
centers. Most of Hancock's retail stores range in size from 9,000 to 12,000
square feet. Hancock's sixty-three (63) "Fabric Warehouse" stores range in size
from 10,300 to 30,000 square feet. Hancock's six (6) "Fabric Market" stores
average 12,600 square feet.
With the exception of four (4) locations, Hancock's retail stores are leased.
The original lease terms generally range from 10 to 20
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years and most leases contain one or more renewal options, usually of
five years in length. At January 28, 1996, the remaining terms of the leases
for stores in operation, including renewal options, averaged approximately 12
years. During 1996, 52 store leases will expire. Hancock is currently
negotiating renewals on certain of these leases.
Hancock's 525,000 square foot warehouse, distribution and office facility in
Tupelo, Mississippi is owned by Hancock and is not subject to any mortgage or
similar encumbrance. Hancock also owns approximately 40 acres of land adjacent
to its Tupelo facility, providing room for future expansion.
Reference is made to the information contained in Note 6 to the Consolidated
Financial Statements included in the accompanying Hancock Fabrics, Inc. 1995
Annual Report to Shareholders (Exhibit 13 hereto) for information concerning
Hancock's long-term obligations under leases.
ITEM 3: LEGAL PROCEEDINGS
Hancock is not a party to, nor is any of its properties the subject of, any
material pending legal proceedings, other than ordinary and routine litigation
incidental to its business.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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Executive Officers of Registrant
<TABLE>
<CAPTION>
Office Presently Held and Business
Name Age Experience During Past Five Years
- ------------------ --- ----------------------------------
<S> <C> <C>
Morris O. Jarvis 55 Chairman of the Board and Chief
Executive Officer. President
prior to June 1994.
Larry G. Kirk 49 President from June 1994,
Director from December 1990 and Chief
Financial Officer from December 1989.
Formerly, Senior Vice President,
Treasurer and Secretary.
Jack W. Busby, Jr. 53 Executive Vice President and Chief
Operating Officer from June 1994;
Executive Vice President and Director
of Retail Operations, prior thereto.
</TABLE>
The term of each of the officers expires June 13, 1996.
There are no family relationships among the executive officers.
There are no arrangements or understandings pursuant to which any person was
selected as an officer.
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PART II
ITEM 5: MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
Hancock's common stock and the associated common stock purchase rights are
listed on the New York Stock Exchange and trade under the symbol HKF. The
following table sets forth the high and low sales price for Hancock's common
stock as reported in "New York Stock Exchange - Composite Transactions" and the
dividends paid per share for Hancock's common stock:
<TABLE>
<CAPTION>
Fiscal Quarter Ended High Low Dividend
-------------------- ---- --- --------
<S> <C> <C> <C>
May 1, 1994....................$10.00 $ 8.13 $.08
July 31, 1994.................. 8.75 7.00 .08
October 30, 1994............... 7.75 6.75 .08
January 29, 1995............... 10.00 7.13 .08
April 30, 1995.................$11.38 $ 9.75 $.08
July 30, 1995.................. 10.38 7.88 .08
October 29, 1995............... 10.75 8.63 .08
January 28, 1996............... 10.50 8.75 .08
</TABLE>
As of April 15, 1996, there were 11,522 holders of record of Hancock's common
stock. Holders of shares of common stock are entitled to dividends when, as
and if declared by the Board of Directors out of funds legally available
therefor (subject to the prior payment of cumulative dividends on any
outstanding shares of preferred stock, of which none are outstanding).
ITEM 6: SELECTED FINANCIAL DATA
The selected financial data for the five years ended January 28, 1996, which
appears on page 8 of the Hancock Fabrics, Inc. 1995 Annual Report to
Shareholders, is incorporated by reference in this Annual Report on Form 10-K.
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ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The management's discussion and analysis of financial condition and results of
operations appearing on pages 10 to 11 of the Hancock Fabrics, Inc. 1995 Annual
Report to Shareholders is incorporated by reference in this Annual Report on
Form 10-K.
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements, together with the report thereon of Price Waterhouse
LLP dated March 8, 1996, appearing on pages 12 to 21 of the Hancock Fabrics,
Inc. 1995 Annual Report to Shareholders are incorporated by reference in this
Annual Report on Form 10-K.
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
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PART III
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
ITEM 11: EXECUTIVE COMPENSATION
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Except as noted below, for information with respect to Items 10, 11, 12 and 13,
see the Proxy Statement for the Annual Meeting of Shareholders to be held June
13, 1996, to be filed with the Securities and Exchange Commission within 120
days after the end of the fiscal year, which is incorporated herein by
reference.
The information concerning "Executive Officers of the Registrant" is included
in Part I of this Form 10-K in accordance with Instruction 3 of paragraph (b)
of Item 401 of Regulation S-K.
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PART IV
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
<TABLE>
<CAPTION>
Page
----
Number #
------
<S> <C> <C>
(a) The following documents are filed as part
of this report:
(1) Consolidated Financial Statements:
Report of Independent Accountants............. 21
Consolidated Statement of Earnings for the
three years ended January 28, 1996.......... 12
Consolidated Balance Sheet at January 28, 1996
and January 29, 1995........................ 13
Consolidated Statement of Cash Flows
for the three years ended January 28, 1996.. 14
Consolidated Statement of Shareholders' Equity
for the three years ended January 28, 1996.. 15
Notes to Consolidated Financial Statements.... 16-21
(2) Consolidated Financial Statement Schedules:
All schedules are omitted because they are not applicable
or the required information is shown in the consolidated
financial statements or notes thereto.
Supplementary data:
Selected Quarterly Financial Data............ 9
# Incorporated by reference from the indicated pages of
the Hancock Fabrics, Inc. 1995 Annual Report to Shareholders.
(3) Those exhibits required to be filed as Exhibits to this
Annual Report on Form 10-K pursuant to Item 601 of
Regulation S-K are as follows:
Exhibit No.
3.1**** Certificate of Incorporation of Registrant.
3.2 By-Laws of Registrant.
4.1**** Certificate of Incorporation of Registrant.
4.2 By-Laws of Registrant.
4.3*** Rights Agreement between Registrant and
C & S/Sovran Trust Company (Georgia), N.A.,
as amended March 14, 1991 and restated as of
April 2, 1991.
</TABLE>
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<TABLE>
<S> <C>
4.4****** Amendment to Rights Agreement between
Registrant and NationsBank of Georgia, N.A.
(formerly C & S/Sovran Trust Company
(Georgia), N.A.) dated June 25, 1992.
4.5****** Agreement between Registrant and
Continental Stock Transfer & Trust
Company (as Rights Agent) dated as of July 16,
1992.
4.6**** Note Purchase Agreement between Registrant and
Nationwide Life Insurance Company, West Coast Life
Insurance Company, Financial Horizons Insurance Company,
Farmland Life Insurance Company and Wisconsin Health
Care Liability Insurance Plan ("Note Purchase Agreement")
dated as of January 15, 1992.
4.7****** Amendment to Note Purchase Agreement dated as of November
4, 1992.
4.8******* Credit Agreement among Registrant and NationsBank of
Georgia, National Association, as Agent and Lenders as
Signatories Hereto ("Credit Agreement") dated as of
September 20, 1993.
10.1**** Swap Transaction between Registrant and
Continental Bank N.A. dated November 1, 1991.
10.2**** Note Purchase Agreement dated as of January 15, 1992.
10.3****** Amendment to Note Purchase Agreement dated as of November
4, 1992.
10.4******* Credit Agreement dated as of September 20, 1993.
10.5 Amendment to Credit Agreement dated as of May 31, 1995.
10.6****** +Form of Indemnification Agreements dated March 23, 1987
between Registrant and each of Don L. Fruge, Morris O.
Jarvis, Ivan Owen and Donna L. Weaver.
10.7********+Indemnification Agreement between Registrant and R.
Randolph Devening dated as of March 9, 1995.
10.8 +Form of Indemnification Agreements dated June 8, 1995
between Registrant and each of R. Randolph Devening, Don L.
Fruge, Morris O. Jarvis, Larry G. Kirk and Donna L. Weaver.
10.9****** +Form of Indemnification Agreements dated March 23, 1987
between Registrant and each of Dean W. Abraham, Jack W.
Busby, Jr., David H. Jensen, Larry G. Kirk, Billy M.
Morgan, William D. Smothers, Charles R. Warren and Carl W.
Zander.
10.10** Indemnification Agreement between Registrant and James A.
Gilmore dated as of March 2, 1989.
</TABLE>
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<TABLE>
<S> <C>
10.11**** Indemnification Agreement between Registrant
and James A. Nolting dated as of December 12, 1991.
10.12****** Indemnification Agreement between Registrant
and David A. Lancaster dated as of March 10, 1993.
10.13******* Indemnification Agreement between Registrant and Bradley
A. Berg dated as of March 10, 1994.
10.14******** Indemnification Agreement between Registrant and Larry D.
Fair dated as of June 9, 1994.
10.15 +Form of Indemnification Agreements dated June 8, 1995
between Registrant and each of Dean W. Abraham, Bradley A.
Berg, Jack W. Busby, Larry D. Fair, James A. Gilmore,
David H. Jensen, David A. Lancaster, Billy M. Morgan,
James A. Nolting, William D. Smothers, Charles R. Warren
and Carl W.
10.16****** +Agreement between Registrant and Morris O. Jarvis dated as
of May 3, 1987.
10.17* +Amendment to Severance Agreement and to Deferred
Compensation Agreement between and Morris O. Jarvis dated
as of June 9, 1988.
10.18* Agreement to Secure Certain Contingent Pay-ments between
Registrant and Morris O. Jarvis dated as of June 9, 1988.
10.19*** +Agreement between Registrant and Jack W. Busby, Jr. dated
as of June 9, 1988.
10.20*** +Agreement to Secure Certain Contingent Payments between
Registrant and Jack W. Busby, Jr. dated as of June 9, 1988.
10.21** +Agreement between Registrant and Larry G. Kirk dated as of
June 9, 1988.
10.22** +Agreement to Secure Certain Contingent Payments between
Registrant and Larry G. Kirk dated as of June 9, 1988.
10.23****** +Amendment, Extension and Restatement of Severance
Agreement between Registrant and Morris O. Jarvis dated as
of March 10, 1993.
10.24****** +Form of Amendment, Extension and Restatement of Severance
Agreements dated as of March 10, 1993 between Registrant
and each of Jack W. Busby, Jr. and Larry G. Kirk.
10.25 +Amendment and Renewal of Severance Agreement between
Registrant and Morris O. Jarvis dated as of March 14, 1996.
10.26 +Form of Amendment, Extension and Restatement of Severance
Agreement between Registrant and each of Jack W. Busby, Jr.
and Larry G. Kirk dated as of March 14, 1996.
10.27******** +Supplemental Retirement Plan, as amended.
10.28***** +1987 Stock Option Plan, as amended.
10.29**** +Extra Compensation Plan.
</TABLE>
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10.30** +1989 Restricted Stock Plan.
10.31 +1991 Stock Compensation Plan for
Nonemployee Directors, as amended.
11 Computation of Earnings Per Share.
13 Portions of the Hancock Fabrics, Inc. 1995
Annual Report to Shareholders (for the fiscal
year ended January 28, 1996) incorporated by
reference in this filing.
21 Subsidiaries of the Registrant.
23 Consent of Price Waterhouse LLP.
27 Financial Data Schedule (for SEC use only)
____________
* Incorporated by reference from Registrant's Form 10-K
dated April 26, 1989 as filed with the Securities and
Exchange Commission.
** Incorporated by reference from Registrant's Form 10-K
dated April 26, 1990 as filed with the Securities and
Exchange Commission.
*** Incorporated by reference from Registrant's Form 10-K
dated April 26, 1991 as filed with the Securities
and Exchange Commission.
**** Incorporated by reference from Registrant's Form 10-K
dated April 27, 1992 as filed with the Securities and
Exchange Commission.
***** Incorporated by reference from Registrant's Form 10-Q
dated June 12, 1992 as filed with the Securities and
Exchange Commission.
****** Incorporated by reference from Registrant's Form 10-K dated
April 26, 1993 as filed with the Securities and Exchange
Commission.
******* Incorporated by reference from Registrant's Form 10-K dated April
27, 1994 as filed with the Securities and Exchange Commission.
******** Incorporated by reference from Registrant's Form 10-K dated April
24, 1995 as filed with the Securities and Exchange Commission.
+Denotes management contract or compensatory plan or
arrangement.
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(b) Reports on Form 8-K
No reports on Form 8-K were filed by the registrant during the last quarter of
the period covered by this report.
Shareholders may obtain copies of any of these exhibits by writing to the
Secretary at the executive offices of the Company. Please include payment in
the amount of $1.00 for each document, plus $.25 for each page ordered, to
cover copying, handling and mailing charges.
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UNDERTAKING IN CONNECTION WITH
REGISTRATION STATEMENTS ON FORM S-8
For purposes of complying with the amendments to the rules governing Form S-8
(effective July 13, 1990) under the Securities Act of 1933 (the "Act"), the
undersigned registrant hereby undertakes as follows, which undertaking shall be
incorporated by reference into registrant's Registration Statements on Form S-8
Nos. 33-17215 (filed September 15, 1987)and 33-29138 (filed June 12, 1989):
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the registrant
pursuant to the provisions described in Item 512(h) of Regulation S-K, or
otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer
or controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
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SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, ON THIS 22ND DAY OF
APRIL, 1996.
HANCOCK FABRICS, INC.
BY /s/ Morris O. Jarvis
-----------------------------
Morris O. Jarvis
Chairman of the Board
and Chief Executive Officer
BY /s/ Larry G. Kirk
-----------------------------
Larry G. Kirk
President,
Chief Financial Officer
and Director
(Principal Financial and
Accounting Officer)
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND
IN THE CAPACITIES INDICATED ON THIS 22ND DAY OF APRIL, 1996.
SIGNATURE TITLE
--------- -----
/s/ Morris O. Jarvis Chairman of the Board,
- ------------------------- Chief Executive Officer and
(Morris O. Jarvis) Director
/s/ Larry G. Kirk President, Chief Financial Officer
- ------------------------- and Director
(Larry G. Kirk)
/s/ R. Randolph Devening Director
- -------------------------
(R. Randolph Devening)
/s/ Don L. Fruge Director
- -------------------------
(Don L. Fruge)
/s/ Donna L. Weaver Director
- -------------------------
Donna L. Weaver)
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EXHIBIT 3.2
and
EXHIBIT 4.2
BY-LAWS
OF
HANCOCK FABRICS, INC.
(A DELAWARE CORPORATION)
ARTICLE I
STOCKHOLDERS
SECTION 1. The provisions of Sections 2 through 10 of this Article shall
apply to all meetings of the stockholders.
SECTION 2. Subject to the rights of the holders of any class or series of
stock having a preference over the common stock of the corporation as to
dividends or upon liquidation (the "Preferred Stock"), any action required or
permitted to be taken by the stockholders of the corporation must be effected
at an annual or special meeting of stockholders of the corporation and may not
be effected by any consent in writing by the stockholder.
SECTION 3. The Chief Executive Officer, or in the absence or inability to
act of the Chief Executive Officer, such person as may have been designated for
the purpose by the Board of Directors, or if no designation shall have been
made, a chairman elected by the stockholders present, shall call any meeting of
the stockholders to order and act as the presiding officer thereof.
SECTION 4. (a) Notice of the time and place of every meeting of
stockholders shall be delivered personally or mailed at least ten days and
not more than 60 days prior thereto to each stockholder of record entitled to
vote at his address as it appears on the records of the corporation. Such
further notice shall be given as may be required by law.
(b) An affidavit of mailing of notice of a meeting of the stockholders,
executed by the Secretary, any Assistant Secretary or any transfer agent of the
corporation, shall be prima facie evidence of the giving of such notice.
SECTION 5. The Secretary of the corporation shall act as secretary at all
meetings of stockholders, and in his absence the presiding officer may appoint
any person to act as secretary.
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SECTION 6. Except as otherwise provided by law or by the Certificate of
Incorporation, the presence, in person or by proxy, of the holders of record of
shares of capital stock of the corporation entitling the holders thereof to
cast a majority of the votes entitled to be cast by the holders of shares of
capital stock of the corporation shallconstitute a quorum at all meetings of
the stockholders. The presiding officer of the meeting or the holders of
record of a majority of such shares so present or represented may adjourn the
meeting from time to time, whether or not there is such a quorum. No notice of
the time and place of adjourned meetings need be given except as required by
law.
SECTION 7. Only persons who are nominated in accordance with the
procedures set forth in this Section shall be eligible for election as
directors. Nominations of persons for election to the Board of Directors of the
corporation may be made at a meeting of stockholders at which directors are to
be elected only by or at the direction of the Board of Directors or by any
stockholder of the corporation entitled to vote for the election of directors
at the meeting who complies with the notice procedures set forth in this
Section. Such nominations, other than those made by or at the direction of the
Board of Directors, shall be made by timely notice in writing, to the Secretary
of the corporation. To be timely, a stockholder's notice must be delivered or
mailed to and received at the principal executive offices of the corporation
not less than 30 days prior to the date of the meeting; provided, however, that
in the event that less than 40 days' notice or prior public disclosure of the
date of the meeting is given or made to stockholders, to be timely, a
stockholder's notice must be so received not later than the close of business
on the tenth day following the day on which such notice of the date of the
meeting was mailed or such public disclosure was made. Such stockholder's
notice shall set forth (i) as to each person whom such stockholder proposes to
nominate for election or reelection as a director, all information relating to
such person that is required to be disclosed in solicitations of proxies for
election of directors, or is otherwise required, in each case pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended (including
each such person's written consent to being named in the proxy statement as a
nominee and to serving as a director if elected); and (ii) as to the
stockholder giving the notice (x) the name and address of such stockholder as
each appears on the corporation's books and (y) the class and number of shares
of the corporation's capital stock that are beneficially owned by such
stockholder. At the request of the Board of Directors, any person nominated by
the Board of Directors for election as a director shall furnish to the
Secretary of the corporation that information required to be set forth in a
stockholder's notice of nomination which pertains to the nominee. No person
shall be eligible for election as a director of the corporation unless
nominated in accordance with the provisions of this Section. The presiding
officer of the meeting shall, if the facts so warrant, determine and declare
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to the meeting that a nomination was not made in accordance with such provisions
and, if he should so determine, he shall so declare to the meeting and the
defective nomination shall be disregarded.
SECTION 8. At any meeting of the stockholders, each stockholder entitled
to vote may vote in person or by proxy authorized by an instrument filed with
the Secretary of the corporation at or before such meeting.
* SECTION 9. There shall be appointed not less than two inspectors of
election to act at any meeting of the stockholders and make a written report
thereof. Such inspectors shall first take and sign an oath faithfully to
execute the duties of inspector at such meeting with strict impartiality and
according to the best of their ability. Unless appointed in advance of any
such meeting by the Board of Directors, such inspectors shall be appointed for
the meeting by the presiding officer. No director or candidate for the office
of director shall be appointed as such inspector. Such inspectors shall
ascertain the number of shares outstanding and the voting power of each,
determine the shares represented at a meeting and the validity of proxies and
ballots, count all votes and ballots, determine and retain for a reasonable
period a record of the disposition of any challenges made to any determination
by the inspectors, and certify their determination of the number of shares
represented at the meeting, and their count of all votes and ballots.
SECTION 10. At all meetings of the stockholders at which directors are to
be elected, except as otherwise set forth in any Preferred Stock Designation (as
defined in Article Fourth of the Certificate of Incorporation) with respect to
the right of the holders of any class or series of Preferred Stock to elect
additional directors under specified circumstances, directors shall be elected
by a plurality of the votes cast at the meeting. The election shall not be by
ballot unless any stockholder so demands before the voting begins. Except as
otherwise provided by law, the Certificate of Incorporation, any Preferred
Stock Designation or these By-Laws, all matters other than the election of
directors submitted to the stockholders at any meeting shall be decided by a
majority of the votes cast with respect thereto.
SECTION 11. The provisions of Sections 12 and 13 of this Article shall
apply to each annual meeting of stockholders.
* Amended 3/14/91
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SECTION 12. The annual meeting of the stockholders of the corporation
shall be held on the second Thursday in June of each year (or if such day is
a legal holiday, then on the next succeeding day not a legal holiday) or on
such other date and at such time and at such place within or without the State
of Delaware as may be fixed by the Board of Directors, for the purposes of
electing directors and transacting such other business as may properly be
brought before the meeting.
SECTION 13. At any annual meeting of the stockholders, only such business
shall be conducted as shall have been brought before the meeting by or at the
direction of the Board of Directors or by any stockholder of the corporation
who is entitled to vote with respect thereto and who complies with the notice
procedures set forth in this Section. For business to be properly brought
before an annual meeting by a stockholder, the stockholder must have given
timely notice thereof in writing to the Secretary of the corporation. To be
timely, a stockholder's notice must be delivered or mailed to and received at
the principal executive offices of the corporation not less than 30 days prior
to the date of the annual meeting; provided, however, that in the event that
less than 40 days' notice or prior public disclosure of the date of the annual
meeting is given or made to stockholders, to be timely, a stockholder's notice
must be so received not later than the close of business on the tenth day
following the day on which such notice of the date of the annual meeting was
mailed or such public disclosure was made. A stockholder's notice to the
Secretary shall set forth as to each matter such stockholder proposes to bring
before the annual meeting (i) a brief description of the business desired to be
brought before the annual meeting and the reasons for conducting such business
at the annual meeting, (ii) the name and address, as each appears on the
corporation's books, of the stockholder proposing such business, (iii) the
class and number of shares of the corporation's capital stock that are
beneficially owned by such stockholder, and (iv) any material interest of such
stockholder in such business. Notwithstanding anything in these By-Laws to the
contrary, no business shall be brought before or conducted at an annual meeting
except in accordance with the provisions of this Section. The presiding
officer at the annual meeting shall, if the facts so warrant, determine and
declare to the annual meeting that business was not properly brought before the
annual meeting in accordance with such provisions and such business so
determined to be not properly brought before the annual meeting shall not be
transacted.
SECTION 14. The provisions of Sections 15 through 17 of this Article shall
apply to each special meeting of the stockholders.
SECTION 15. Special meetings of the stockholders may be held on such date
and at such time and at such place within or without the State of Delaware as
may be stated in the notice.
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SECTION 16. Subject to the rights of the holders of any class or series of
Preferred Stock, special meetings of stockholders of the corporation may be
called only by a majority of the total number of directors the corporation
would have if there were no vacancies (the "Whole Board") or by the Chief
Executive Officer.
SECTION 17. At any special meeting of the stockholders, only such business
shall be conducted as shall have been stated in the notice of such special
meeting.
ARTICLE II
DIRECTORS
SECTION 1. (a) Subject to the rights of the holders of any class or
series of Preferred Stock to elect directors under specified
circumstances, 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 Whole Board.
(b) The directors, other than those who may be elected by the holders of
any class or series of Preferred Stock, shall be divided, with respect to the
time for which they severally hold office, into three classes, as nearly equal
in number as possible, with the term of office of the first class to expire at
the first annual meeting of stockholders, the term of office of the second
class to expire at the second annual meeting of stockholders, and the term of
office of the third class to expire at the third annual meeting of
stockholders, with each director to hold office until such director's successor
shall have been duly elected and qualified. Directors elected at an annual
meeting of stockholders shall hold office for a term expiring at the third
succeeding annual meeting of stockholders after their election, with each
director to hold office until his or her successor shall have been duly elected
and qualified.
(c) Subject to the rights of the holders of any class or series of
Preferred Stock, and unless the Board of Directors otherwise determines,
newly created directorships resulting from any increase in the authorized
number of directors or any vacancies in the Board of Directors resulting from
death, resignation, retirement, disqualification, removal from office or other
cause may be filled only by a majority vote of the directors then in office,
though less than a quorum, and directors so chosen shall hold office for a term
expiring at the annual meeting of stockholders at which the term of office of
the class to which they have been elected expires and until such director's
successor shall have been duly elected and qualified. No decrease in the
number of authorized directors constituting the Whole Board shall shorten the
term of any incumbent director.
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(d) Any director may resign by giving written notice to the Chief
Executive Officer, the Secretary or the Board of Directors. The
resignation shall be effective upon giving such notice, unless such notice
specifies a later time of the effectiveness of such resignation. If the
resignation specifies effectiveness at a future time, a successor may be
elected pursuant to subsection (c) of this Section to take office on the date
the resignation becomes effective.
(e) Subject to the rights of the holders of any class or series of
Preferred Stock, any director or the entire Board of Directors, may be removed
from office at any time, but only for cause and only by the affirmative vote
of the holders of at least 80% of the voting power of all of the then
outstanding shares of capital stock of the corporation entitled to vote
generally in the election of directors (the "Voting Stock"), voting together as
a single class.
SECTION 2. (a) Regular meetings of the Board of Directors shall be held on
the second Thursday in March, June, September and December of each year at the
hour of 9:30 a.m., or on such other date and at such other hour as the Chief
Executive Officer shall designate in the notice of such meeting. The place of
the meeting shall also be designated in such notice. Four days' notice thereof
shall be mailed, telephoned, telegraphed or personally delivered to each
director.
(b) Special meetings of the Board of Directors shall be called at any
time on the order of the Chief Executive Officer or, in his absence, on the
order of a majority of the Whole Board. Notices of special meetings of the
Board of Directors, stating the time, the place and in general terms the
purpose or purposes thereof, shall be mailed not later than four days before
the time appointed for the meeting or shall be telephoned, telegraphed or
personally delivered not later than 24 hours before the time appointed for the
meeting.
(c) Each director shall register his address with the Secretary, and
notices of meetings mailed, telegraphed or personally delivered to such address
shall be valid notices thereof. An entry of the service of notice given in the
manner and at the time provided for in this Section shall be made in the
minutes of the proceedings of the Board of Directors, and such entry, if read
and approved at a subsequent meeting of the Board of Directors, shall be
conclusive on the question of service.
(d) If all the directors shall be present at any directors' meeting,
however called or noticed, and sign a written consent thereto which is entered
on the record of such meeting, or if the majority of the directors is present,
and those not present sign a written waiver of notice of such meeting (or a
consent to holding the meeting or an
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approval of the minutes thereat), whether prior to or after the holding of such
meeting, which waiver (or consent or approval) shall be filed with the
Secretary of the corporation and entered on the record of such meeting, any
business may be transacted at such meeting, and the transaction of such
business shall be as valid as if transacted at a meeting regularly called and
noticed.
(e) Except as provided in subsection 1(c) of this Article, a majority of
the Whole Board shall constitute a quorum for the transaction of business, and
every act or decision of a majority of the directors present at a meeting at
which a quorum is present shall be valid as the act of the Board of Directors.
A majority of the directors present at the time and place of any regular or
special meeting, although less than a quorum, may adjourn the same from time
to time, or from day to day, without further notice, until a quorum shall
attend, and when a quorum shall attend, any business may be transacted which
might have been transacted at the meeting had the same been held on the day on
which the same was originally appointed or called.
(f) Directors may participate in a meeting of the Board of Directors
through the use of conference telephones or similar communications equipment,
so long as all persons participating in such meeting can hear one another.
(g) Any action of the Board of Directors may be taken without a meeting
if all members of the Board of Directors shall individually or collectively
consent in writing to such action. Such written consent or consents shall be
filed with the minutes of the proceedings of the Board of Directors.
SECTION 3. The Board of Directors shall have full power and authority
generally to do and perform, or cause to be done and performed, any and every
act which a corporation may lawfully do and perform, including, without
limiting the generality of the foregoing, the power to borrow money on behalf
of the corporation and otherwise to incur indebtedness on behalf of the
corporation, and to authorize the execution of promissory notes or other
evidences of indebtedness of the corporation, and to agree to pay interest
thereon; to sell, convey, alienate, transfer, assign, exchange, lease and
otherwise dispose of, mortgage, pledge, hypothecate and otherwise encumber
property, real and personal, on behalf of the corporation; and to declare
dividends payable in cash or property in the manner provided by law.
SECTION 4. Without limiting the generality of the foregoing, the Board of
Directors shall have full power and authority to adopt, authorize, provide and
carry out employee stock purchase plans for the issue and sale, through the use
of options or otherwise, of the unissued shares of stock of the corporation, or
of issued shares of such
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stock acquired or to be acquired by the corporation, to employees of the
corporation, or to employees of a subsidiary corporation, or to a trustee on
their behalf, and for payment for such shares in installments or at one time,
and for such consideration as may be fixed by the Board of Directors, and may
provide for aiding any such employees in paying for such shares by compensation
for services or otherwise.
SECTION 5. The directors shall receive for their services as directors
such compensation as the Board of Directors by resolution shall from time to
time establish. Nothing herein contained shall be construed to preclude any
director from serving in any other capacity in the corporation or receiving
compensation for such service.
SECTION 6. (a) The Board of Directors, by resolution adopted by a
majority of the Whole Board, may appoint from its membership an Executive
Committee of not less than two members (one of whom shall be the Chairman of
the Executive Committee, if such officer shall have been elected pursuant to
Article III of these By-Laws). A majority of the members of the Executive
Committee as from time to time constituted shall constitute a quorum thereof.
The Board of Directors shall have the power at any time to dissolve the
Executive Committee, to change the membership thereof and to fill vacancies
thereon.
(b) When the Board of Directors is not in session, the Executive Committee
shall have and may exercise all of the powers vested in the Board of Directors,
except the following powers: to fill vacancies in the Board of Directors; to
appoint, change the membership of or fill vacancies in any committee of the
Board of Directors; to declare dividends or other distributions to
stockholders; to adopt, amend or repeal the Certificate of Incorporation or
these By-Laws; to approve any action that also requires stockholder approval;
to amend or repeal any resolution of the Board of Directors which by its
express terms is not so amendable or repealable; to fix the compensation of
directors for serving on the Board of Directors or on any committee; to adopt
an agreement of merger or consolidation under Sections 251 or 252 of the
General Corporation Law of Delaware; to recommend to the stockholders the sale,
lease or exchange of all or substantially all of the corporation's property and
assets; to recommend to the stockholders a dissolution of the corporation or a
revocation of a dissolution; to recommend to the stockholders an amendment of
the By-Laws; to authorize the issuance of stock (provided that the Executive
Committee may determine the number of shares of stock not in excess of the
number authorized to be issued by the Board of Directors and the amount of
consideration for which such shares shall be issued); and to adopt a
certificate of ownership and merger pursuant to Section 253 of the General
Corporation Law of Delaware.
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(c) The Executive Committee may make rules for the conduct of its
business and appoint such committees and assistants as it shall from time to
time deem necessary. If no chairman of the Executive Committee shall have been
elected pursuant to Article III of these By-Laws, the Committee shall elect one
of its members to serve as its chairman.
SECTION 7. The Board of Directors, by resolution adopted by a majority of
the Whole Board, may appoint such other committees as it may from time to time
deem proper and may determine the number of members, frequency of meetings and
duties thereof.
ARTICLE III
OFFICERS
SECTION 1. (a) The officers of the corporation shall be a Chairman of the
Board of Directors, a President, one or more Vice Presidents, a Chief Financial
Officer and a Secretary, and, at the discretion of the Board of Directors, one
or more of the following: a Vice Chairman of the Board of Directors; a
Chairman of the Executive Committee; one or more Executive Vice Presidents; one
or more Senior Vice Presidents; one or more Assistants to the President; and a
Treasurer.
(b) At the first meeting after the annual election of directors, the
Board of Directors shall elect from its membership a Chairman of the Board of
Directors and a President, to hold office for one year and until their
respective successors are elected. The Board of Directors may also elect from
its membership one or more of the following, to hold office for one year and
until a successor is elected and qualified: a Vice Chairman of the Board of
Directors and a Chairman of the Executive Committee.
(c) At the first meeting after the annual election of directors, the
Board of Directors shall also elect a Chief Financial Officer, one or more Vice
Presidents, and a Secretary, to hold office for one year and until their
respective successors are elected and qualified.
(d) The Board of Directors may at any time also elect one or more
Executive Vice Presidents, one or more Senior Vice Presidents, one or more
Assistants to the President, one or more Assistant Vice Presidents, a
Treasurer, a chief accounting officer, one or more Assistant Secretaries,
one or more Assistant Treasurers, and such other officers, agents and employees
of the corporation as it may deem proper, and fix the duties of the same.
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(e) Any number of offices may be held by the same person.
(f) The officers shall be subject to removal by the Board of Directors
with or without cause. The Board of Directors may at any time abolish any or
all of such offices other than those offices whose existence is required by this
Section.
(g) If an office becomes vacant by reason of death, resignation, removal
or otherwise, the Board of Directors may elect (and shall elect, in the case of
the Chairman of the Board of Directors, the President, the Chief Financial
Officer, and the Secretary) a successor who shall hold office for the unexpired
term and until a successor is elected and qualified.
(h) The compensation of the Chairman of the Board of Directors, the Vice
Chairman of the Board of Directors, the President, the Chairman of the
Executive Committee, each Executive Vice President and each Senior Vice
President shall be fixed by the Board of Directors.
(i) The Board of Directors may delegate to an officer of the corporation
the power of appointment and removal, and the power of fixing the compensation
and duties, of the officers, agents and employees other than the Chairman of the
Board of Directors, the Vice Chairman of the Board of Directors, the President,
the Chairman of the Executive Committee, each Executive Vice President and each
Senior Vice President.
* SECTION 2. The Chairman of the Board of Directors shall preside at all
meetings of the Board of Directors and shall have such other powers and duties
as may from time to time be delegated by the Board of Directors.
SECTION 3. The Vice Chairman of the Board of Directors shall exercise such
powers and perform such duties of the Chairman of the Board of Directors as may
be delegated from time to time by the Chairman of the Board of Directors and
shall have such other powers and duties as may from time to time be delegated
by the Board of Directors.
* SECTION 4. The President shall be the Chief Executive Officer of the
corporation and shall be the general manager of the corporation and shall have
general supervision and control over the business and affairs of the
corporation, subject to the control of the Board of Directors. He shall be
responsible for the execution of all orders and resolutions of the Board of
Directors and shall have the powers and duties of
* Amended ff. 6/13/96
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management usually vested in the chief executive officer of a corporation and
such other powers and duties as may from time to time be delegated by the Board
of Directors.
SECTION 5. The Chairman of the Executive Committee shall be a member of
the Executive Committee, shall preside at all meetings of such committee, and
shall have such powers and duties as may from time to time be delegated by the
Board of Directors.
SECTION 6. (a) One or more Vice Presidents may be designated as Executive
Vice President. Each Executive Vice President shall be vested with all the
powers and shall perform all the duties of the President in case of the absence
or disability of the President and shall have such other powers and duties as
may from time to time be delegated by the Board of Directors.
(b) One or more Vice Presidents may be designated as Senior Vice
President. Each Senior Vice President shall be vested with all the powers and
shall perform all the duties of the President in case of the absence or
disability of the President and the Executive Vice President and shall have
such other powers and duties as may from time to time be delegated by the Board
of Directors.
(c) One or more officers may be designated as Vice President. Each Vice
President shall be vested with all the powers and shall perform all the duties
of the President in case of the absence or disability of the President, the
Executive Vice President and the Senior Vice President and shall have such
other powers and duties as may from time to time be delegated by the Board of
Directors.
(d) If there is more than one Executive Vice President or Senior Vice
President or Vice President, as the case may be, the Board of Directors may
determine the order of precedence thereof.
(e) The duties of a Vice President may be performed by an Assistant Vice
President, and each Assistant Vice President shall be vested with all the
powers of a Vice President.
(f) Each Assistant to the President shall be vested with all duties and
authority prescribed by the President, and in the absence or disability of the
President shall have such powers and duties as may from time to time be
delegated by the Board of Directors.
SECTION 7. (a) The Chief Financial Officer shall have complete charge of
all accounting records and procedures of the corporation and shall be
responsible for the compilation of all financial statements of the corporation
in accordance with good
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accounting practices. Such duties may be performed by a chief accounting
officer if there be such an officer.
(b) The Chief Financial Officer shall cause to be kept full and accurate
accounts of receipts and disbursements in books to be kept for that purpose.
He shall receive and deposit, or cause to be received and deposited, all moneys
and other valuables of the corporation, in the name and to the credit of the
corporation, in such depositories as may be designated by the Board of
Directors. He shall disburse, or cause to be disbursed, the funds of the
corporation as may be directed by the Board of Directors, taking proper
vouchers for such disbursements. He shall render to the Chief Executive
Officer and the Board of Directors, whenever they may require, accounts of all
his transactions as Chief Financial Officer and of the financial condition of
the corporation. He shall, in general, exercise such powers and perform such
duties as are usually vested in the office of chief financial officer of a
corporation, subject to the control of the Board of Directors.
(c) The duties of the Chief Financial Officer may be performed by the
Treasurer, and the Treasurer shall be vested with all the powers of the Chief
Financial Officer.
(d) The duties of the Treasurer may be performed by an Assistant
Treasurer, and each Assistant Treasurer shall be vested with all the powers of
the Treasurer.
SECTION 8. (a) The Secretary shall keep or cause to be kept the minutes
of all proceedings of the stockholders and of the Board of Directors and the
committees thereof in books provided for that purpose. He shall attend to the
giving and serving of notice of all meetings of the stockholders and of the
Board of Directors and the committees thereof. He shall be the custodian of
the corporate seal of the corporation, and when so ordered by the Board of
Directors shall affix the seal to deeds, bonds, contracts, certificates of
stock and other obligations and instruments. He shall keep and have charge of
the minutes of the meetings of the stockholders and of the Board of Directors
and the committees thereof, the stock transfer book and the book of stock
certificates (unless the corporation shall have a transfer agent), the By-Laws,
and such other books and papers as the Board of Directors may direct. He
shall, in general, exercise such powers and perform such duties as are usually
vested in the office of secretary of a corporation, subject to the control of
the Board of Directors. He may execute, with the Chairman of the Board of
Directors, the President or a Vice President, or such other officers as may be
duly authorized to exercise the duties ordinarily exercised by the President or
a Vice President, in the name of the corporation, all deeds, bonds,
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contracts, certificates of stock and other obligations and instruments
authorized by the Board of Directors to be executed.
(b) In the absence or disability of the Secretary, or his refusal or
neglect to act, any notice required to be given by the Secretary may be given
or served by the Chief Executive Officer, or by any person authorized by the
Chief Executive Officer or by the Board of Directors.
(c) The duties of the Secretary may be performed by an Assistant
Secretary, and each Assistant Secretary shall be vested with all the powers of
the Secretary.
ARTICLE IV
CERTIFICATES OF STOCK
SECTION 1. The Board of Directors may, subject to the provisions of law
and the Certificate of Incorporation, issue or dispose of shares of stock of the
corporation, in such amounts and at such times as shall be determined by the
Board of Directors, and accept in full or part payment therefor such property,
services or other consideration at such valuations as the Board of Directors
may determine.
SECTION 2. Certificates for shares of stock of the corporation shall be
issued when fully paid, and may be issued prior to full payment under such
restrictions as the Board of Directors may deem proper.
SECTION 3. Certificates for shares of stock of the corporation shall be in
such form as shall from time to time be approved by the Board of Directors.
Such certificates shall bear the signature (or facsimile) of the Chairman of
the Board of Directors, the President or a Vice President, and the Secretary or
an Assistant Secretary, and the seal of the corporation shall be affixed
thereto.
SECTION 4. No new certificate or warrant shall be issued upon a transfer
of stock or of a warrant until the former certificate or warrant shall have been
surrendered and canceled, except in the case of lost, stolen or destroyed
certificates or warrants and in that case only after the receipt of a bond by
the corporation, satisfactory to the Board of Directors, indemnifying the
corporation and all persons against loss in consequence of the issuance of such
new certificates or warrants.
SECTION 5. Shares of stock of the corporation may be transferred by
endorsement of the certificate representing such shares by the signature of the
owner,
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his agent, attorney or legal representative, and the delivery of such
certificate to the transferee; but such transfer shall not be valid, except as
between the parties thereto, until the same is so entered upon the stock
transfer books of the corporation, or of the transfer agent, if any, and until
the old certificate is surrendered and canceled. The transferee of shares
shall be deemed to have full notice of, and to consent to, these By-Laws to the
same extent as if he had signed a written assent thereto.
SECTION 6. The Board of Directors may make such rules and regulations as
it may deem expedient concerning the issue, transfer and registration of
certificates. The Board of Directors may appoint a transfer agent or registrar
of transfers, or both, and may require all certificates to bear the signature
(or facsimile) of either, or both.
SECTION 7. In order that the corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of
any other lawful action, the Board of Directors may fix, in advance, a record
date, which shall not be more than sixty nor less than ten days before the date
of such meeting, nor more than sixty days prior to any other action. Only
stockholders of record on the date so fixed shall be entitled to notice of and
to vote at such meeting, to receive such dividend, distribution or allotment of
rights, or to exercise such rights, as the case may be, notwithstanding any
transfer of any shares of stock on the books of the corporation after any
record date fixed as aforesaid. The Board of Directors may close the books of
the corporation against transfer of shares of stock during the whole or any
part of such period.
ARTICLE V
SEAL
SECTION 1. The corporation shall have such corporate seal as may from
time to time be adopted by the Board of Directors.
ARTICLE VI
AMENDMENTS
SECTION 1. Subject to the laws of the State of Delaware, the Certificate
of Incorporation, any Preferred Stock Designation and these By-Laws, By-Laws may
be
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adopted, amended or repealed at any meeting of the stockholders, provided
notice of the proposed change was given in the notice of the meeting.
SECTION 2. Subject to the laws of the State of Delaware, the Certificate
of Incorporation, any Preferred Stock Designation and these By-Laws, By-Laws may
be adopted, amended or repealed by the Board of Directors at any regular
meeting or any special meeting of the Board of Directors.
SECTION 3. Notwithstanding any other provision of these By-Laws or any
provision of law that might otherwise permit a lesser vote or no vote, but in
addition to any affirmative vote of the holders of any particular class or
series of the Voting Stock required by law, the Certificate of Incorporation,
any Preferred Stock Designation or these By-Laws, the affirmative vote of the
holders of at least 80% of the voting power of all the then outstanding shares
of the Voting Stock, voting together as a single class, shall be required to
amend or repeal, or to adopt any provision inconsistent with, Sections 2, 16
and 17 of Article I, Sections 1(a), (b), (c) and (e) of Article II, and Article
VI of these By-Laws.
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<PAGE> 1
EXHIBIT 10.5
AMENDMENT AGREEMENT NO. 1
THIS AMENDMENT AGREEMENT NO. 1 (the "Amendment Agreement") is made and
entered into as of this 31 day of May, 1995 by and among HANCOCK FABRICS, INC.,
a Delaware corporation (the "Borrower"), and NATIONSBANK OF GEORGIA, NATIONAL
ASSOCIATION, a national banking association, in its capacity as Agent for each
of the Lenders party to the Credit Agreement (as defined below) (the "Agent"),
and each of the undersigned Lenders. Unless the context otherwise requires,
all terms used herein without definition shall have the respective meanings
assigned thereto in the Credit Agreement.
W I T N E S S E T H:
WHEREAS, the Borrower, the Agent and the Lenders have entered into
that certain Credit Agreement dated as of September 20, 1993, whereby the
Lenders have made available to the Borrower a $60,000,000 revolving credit
facility (as at any time hereafter amended, restated, modified or supplemented,
the "Credit Agreement"); and
WHEREAS, the Borrower has requested that the Agent and the Lenders
make certain amendments to the Credit Agreement; and
WHEREAS, the Agent and the Lenders are willing to so amend the Credit
Agreement upon the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and conditions herein
set forth, it is hereby agreed as follows:
1. CREDIT AGREEMENT AMENDMENT. Subject to the conditions hereof,
the Credit Agreement is hereby amended, effective as of the date hereof, as
follows:
(a) Paragraph (2) of Section 7.8 thereof is hereby
amended and restated in its entirety to read as follows:
"(2) Debt to Cash Flow. The ratio of Debt to Cash Flow of
the Borrower and its Subsidiaries shall not be greater than the
ratios set forth for the respective time periods as set forth
below:
<TABLE>
<CAPTION>
Period Ratio
------ -----
<S> <C>
3rd Fiscal Quarter 1993 through 3.50 to 1.00
the end of 2nd Fiscal Quarter 1994
</TABLE>
1
<PAGE> 2
<TABLE>
<S> <C>
3rd Fiscal Quarter 1994 through 3.00 to 1.00
the end of the 4th Fiscal Quarter 1994
1st Fiscal Quarter 1995 3.50 to 1.00
2nd Fiscal Quarter 1995 3.75 to 1.00
3rd Fiscal Quarter 1995 3.50 to 1.00
4th Fiscal Quarter 1995 and 3.25 to 1.00"
all times thereafter
</TABLE>
(b) Paragraph (3) of Section 7.8 thereof is hereby
amended and restated in its entirety as follows:
"(3) Fixed Charge coverage Ratio. The ratio of Income
Available for Debt Service to the sum of Lease Payments and
Interest Expense of the Borrower and its Subsidiaries shall
not be less than the amounts as set forth for the respective
periods below:
<TABLE>
<CAPTION>
Period Ratio
------ -----
<S> <C>
3rd Fiscal Quarter 1993 through 1.25 to 1.00
end of 1st Fiscal Quarter 1994
Beginning through end of 1.00 to 1.00
2nd Fiscal Quarter 1994
Beginning of 3rd Fiscal Quarter 1.50 to 1.00
1994 through end of 4th Fiscal
Quarter 1994
Beginning through end of 1.35 to 1.00
1st Fiscal Quarter 1995
Beginning through end of 1.10 to 1.00
2nd Fiscal Quarter 1995
Beginning through end of 1.35 to 1.00
3rd Fiscal Quarter 1995
</TABLE>
2
<PAGE> 3
<TABLE>
<S> <C>
Thereafter during each of the 1.50 to 1.00
1st, 3rd and 4th Fiscal Quarters
Thereafter during the 1.25 to 1.00"
2nd Fiscal Quarter
</TABLE>
2. REPRESENTATIONS AND WARRANTIES. In order to induce the Agent
and the Lenders to enter into this Amendment Agreement, the Borrower hereby
represents and warrants that the Credit Agreement has been re-examined by the
Borrower and that except as disclosed by the Borrower in writing to the Agent
as of the date hereof:
(a) The representations and warranties made by the
Borrower in Article V thereof are true on and as of the date hereof:
(b) There has been no material adverse change in the
condition, financial or otherwise, of the Borrower and its
Subsidiaries since the date of the most recent consolidated financial
statements of the Borrower and its Subsidiaries delivered to the Agent
under Section 7.3 thereof;
(c) The business and properties of the Borrower and its
Subsidiaries are not, and since the date of the most recent
consolidated financial statements of the Borrower and its Subsidiaries
delivered to the Lender under Section 7.3 thereof, have not been,
adversely affected in any substantial way as the result of any fire,
explosion, earthquake, accident, strike, lockout, combination of
workers, flood, embargo, riot, activities of armed forces, war or acts
of God or the public enemy, or cancellation or loss of any major
contracts; and
(d) After giving effect to this Amendment Agreement, no
condition exists which, upon the effectiveness of the amendment
contemplated hereby, would constitute a Default or an Event of Default
on the part of the Borrower under the Credit Agreement or the other
Loan Documents, either immediately or with the lapse of time or the
giving of notice, or both.
3. CONDITIONS PRECEDENT. The effectiveness of this Amendment
Agreement is subject to the receipt by the Agent of the following:
(i) four counterparts of this Amendment Agreement duly
executed by all signatories hereto;
(ii) opinion of counsel for the Borrower as to the
authorization, execution and delivery of this Amendment Agreement and
the enforceability of the same against the Borrower in accordance with
its terms;
3
<PAGE> 4
(iii) resolutions of the Board of Directors or other
governing body of the Borrower approving this Amendment Agreement
certified by the Secretary of the Borrower; and
(iv) copies of all additional agreements, instruments and
documents which the Lender may reasonably request, such documents,
when appropriate, to be certified by appropriate governmental
authorities.
All proceedings of the Borrower relating to the matters provided for herein
shall be satisfactory to the Agent and its counsel.
4. ENTIRE AGREEMENT. This Amendment Agreement sets forth the
entire understanding and agreement of the parties hereto in relation to the
subject matter hereof and supersedes any prior negotiations and agreements
among the parties relative to such subject matter. No promise, condition,
representation or warranty, express or implied, not herein set forth shall bind
any party hereto, and no one of them has relied on any such promise, condition,
representation or warranty. Each of the parties hereto acknowledges that,
except as in this Amendment Agreement otherwise expressly stated, no
representations, warranties or commitments, express or implied, have been made
by any party to the other. None of the terms or conditions of this Amendment
Agreement may be changed, modified, waived or canceled orally or otherwise,
except by writing, signed by all the parties hereto, specifying such change,
modification, waiver or cancellation of such terms or conditions, or of any
proceeding or succeeding breach thereof.
5. FULL FORCE AND EFFECT OF AGREEMENT. Except as hereby
specifically amended, modified or supplemented, the Credit Agreement and all
other Loan Documents are hereby confirmed and ratified in all respects and
shall remain in full force and effect according to their respective terms.
6. COUNTERPARTS. This Amendment Agreement may be executed in
any number of counterparts, each of which shall be deemed an original as
against any party whose signature appears thereon, and all of which shall
together constitute one and the same instrument.
7. GOVERNING LAW. THIS AMENDMENT AGREEMENT SHALL IN ALL
RESPECTS BE GOVERNED BY THE LAW OF THE STATE OF GEORGIA, WITHOUT REGARD TO ANY
OTHERWISE APPLICABLE PRINCIPLES OF CONFLICT OF LAWS. THE BORROWER HEREBY (i)
SUBMITS TO THE JURISDICTION AND VENUE OF THE STATE AND FEDERAL COURTS OF
GEORGIA FOR THE PURPOSES OF RESOLVING DISPUTES HEREUNDER OR UNDER ANY OF THE
OTHER LOAN DOCUMENTS TO WHICH IT IS A PARTY OR FOR PURPOSES OF COLLECTION AND
(ii) WAIVES TRIAL BY JURY IN CONNECTION WITH ANY SUCH LITIGATION.
8. ENFORCEABILITY. Should any one or more of the provisions of
this Amendment Agreement be determined to be illegal or unenforceable as to one
or more of the
4
<PAGE> 5
parties hereto, all other provisions nevertheless shall remain effective and
binding on the parties hereto.
9. CREDIT AGREEMENT. All references in any of the Loan
Documents to the Credit Agreement shall mean and include the Credit Agreement
as amended hereby.
10. SUCCESSORS AND ASSIGNS. This Amendment Agreement shall be
binding upon and inure to the benefit of each of the Borrower, the Lenders, the
Agent and their respective successors, assigns and legal representatives;
provided, however, that the Borrower, without the prior consent of the Lenders,
may not assign any rights, powers, duties or obligations hereunder.
5
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment Agreement to be duly executed by their duly authorized officers, all
as of the day and year first above written.
BORROWER:
HANCOCK FABRICS, INC.
By:
-------------------------------------------------
Name: Larry G. Kirk
------------------------------------------
Title: President, Chief Financial Officer
------------------------------------------
NATIONSBANK OF GEORGIA, NATIONAL
ASSOCIATION, as Agent for the Lenders
By:
-------------------------------------------------
Name:
------------------------------------------
Title:
------------------------------------------
WACHOVIA BANK OF GEORGIA, N.A.
By:
-------------------------------------------------
Name:
------------------------------------------
Title:
------------------------------------------
TRUST COMPANY BANK
By:
-------------------------------------------------
Name:
------------------------------------------
Title:
------------------------------------------
BANK OF MISSISSIPPI
By:
-------------------------------------------------
Name:
------------------------------------------
Title:
------------------------------------------
6
<PAGE> 1
EXHIBIT 10.8
INDEMNIFICATION AGREEMENT
This Agreement is made as of __________________, by and between Hancock
Fabrics, Inc., a Delaware corporation (the "Company"), and R. Randolph Devening
("Director").
W I T N E S S E T H :
WHEREAS, the Company understands that there can be no assurance that
directors' and officers' liability insurance will continue to be available to
the Company and Director, and believes that it is possible that the cost of
such insurance, if obtainable, may not be acceptable to the Company or the
coverage of such insurance, if obtainable, may be reduced below what has
historically been afforded; and
WHEREAS, Director is unwilling to serve, or continue to serve, the Company
as a director without assurances that adequate liability insurance,
indemnification or a combination thereof will be provided; and
WHEREAS, the Company, in order to induce Director to continue to serve the
Company, has agreed to provide Director with the benefits contemplated by this
Agreement, which benefits are intended to supplement or, if necessary, replace
directors' and officers' liability insurance; and
WHEREAS, as a result of the provision of such benefits Director has agreed
to serve or to continue to serve as a director of the Company;
NOW, THEREFORE, in consideration of the promises, conditions,
representations and warranties set forth herein, including Director's service
to the Company, the Company and Director hereby agree as follows:
1. Definitions. The following terms, as used herein, shall have the
following respective meanings:
"Covered Amount" means Loss and Expenses which, in type or amount,
are not insured under directors' and officers' liability insurance maintained
by the Company from time to time.
"Covered Act" means any breach of duty, neglect, error, misstatement,
misleading statement, omission or other act done or wrongfully attempted by
Director or any of the foregoing alleged by any claimant or any claim against
Director by reason of Director's serving as or being a director, officer,
employee, or agent of the Company, or by reason of Director's serving at the
request of the Company as a director, officer, partner, member,
-1-
<PAGE> 2
trustee, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise.
"D&O Insurance" means a policy or policies of the directors' and
officers' liability insurance issued to the Company and its directors and
officers.
"Determination" means a determination, based on the facts known at
the time, made by:
(i) A majority of the directors who are not parties to the
action, suit or proceeding for which indemnification is considered or being
considered, even though less than a quorum; or
(ii) Independent legal counsel in a written opinion if there be
no such directors, or if such directors so direct; or
(iii) A majority of the shareholders of the Company; or
(iv) A final adjudication by a court of competent jurisdiction.
"Determined" shall have a correlative meaning.
"Excluded Claim" means any payment for Losses or Expenses in
connection with any claim:
(i) Based upon or attributable to Director gaining in fact any
personal profit or advantage to which Director is not entitled; or
(ii) For the return by Director of any remuneration, for which
prior approval of the shareholders of the Company was required but not
obtained; or
(iii) For an accounting of profits in fact made from the purchase
or sale by Director of securities of the Company within the meaning of Section
16 of the Securities Exchange Act of 1934 as amended, or similar provisions of
any state law; or
(iv) Resulting from Director's knowingly fraudulent, dishonest or
willful misconduct; or
(v) The payment of which by the Company under this Agreement is
not permitted by applicable law; or
(vi) Which are not within the Covered Amount.
"Expenses" means any reasonable expenses incurred by Director as a
result of a claim or claims made against Director for Covered Acts including,
without limitation, counsel fees and
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<PAGE> 3
costs of investigative, judicial or administrative proceedings or appeals,
but, where prohibited by law or public policy, shall not include fines.
"Loss" means any amount which Director is legally obligated to pay
as a result of a claim or claims made against Director for Covered Acts
including, without limitation, damages and judgments and sums paid in
settlement of a claim or claims, but, where prohibited by law or public policy,
shall not include fines.
2. Maintenance of D&O Insurance.
(a) The Company represents that it presently has in force and
effect policies of D&O Insurance. The Company hereby covenants that it will
use its best efforts to maintain a policy or policies no less beneficial to the
Company and Director than the policies in effect on the date hereof. The
Company shall not be required, however, to maintain such policy or policies if
such insurance is not reasonably available or if, in the reasonable business
judgment of the then directors of the Company, either (i) the premium cost for
such insurance is disproportionate to the amount of coverage, or (ii) the
coverage provided by such insurance is so limited by exclusions that there is
insufficient benefit from such insurance.
(b) In all policies of D&O Insurance, Director shall be named as
an insured in such a manner as to provide Director the same rights and
benefits, subject to the same limitations, as are accorded to the Company's
directors or officers most favorably insured by such policy.
3. Indemnification. The Company shall indemnify Director against, and
hold Director harmless from, the Covered Amount of any and all Losses and
Expenses subject, in each case, to the further provisions of this Agreement.
4. Excluded Coverage.
(a) The Company shall have no obligation to indemnify Director
against, and hold Director harmless from, any Loss or Expense which has been
Determined to constitute an Excluded Claim.
(b) The Company shall have no obligation to indemnify Director
against, and hold Director harmless from, any Loss or Expenses to the extent
that Director is indemnified by the Company pursuant to the provisions of the
Company's Certificate of Incorporation or is otherwise in fact indemnified.
5. Indemnification Procedures.
(a) Promptly after receipt by Director of notice of the
commencement or the threat of commencement of any action, suit or proceeding,
Director shall notify the Company of the com-
-3-
<PAGE> 4
mencement thereof if indemnification with respect thereto may be sought from
the Company under this Agreement; but the omission so to notify the Company
shall not relieve it from any liability that it may have to Director otherwise
than under this Agreement. Such notice may be given by mailing the same by
United States mail, registered or certified, return receipt requested, postage
prepaid, addressed to the Company at: P.O. Box 2400, Tupelo, Mississippi
38803-2400, Attention: Secretary (or to such other address as the Company may
from time to time designate by written notice to Director).
(b) If, at the time of the receipt of such notice, the Company
has D&O Insurance in effect, the Company shall give prompt notice of the
commencement of such action, suit or proceeding to the insurers in accordance
with the procedures set forth in the respective policies in favor of Director.
The Company shall thereafter take all necessary or desirable action to cause
such insurers to pay, on behalf of Director, all Losses and Expenses payable as
a result of such action, suit or proceeding in accordance with the terms of
such policies.
(c) To the extent the Company does not, at the time of the
commencement or the threat of commencement of such action, suit or proceeding,
have applicable D&O Insurance, or if a Determination is made that any Expenses
arising out of such action, suit or proceeding will not be payable under the
D&O Insurance then in effect, or if for any reason a D&O insurer does not
timely pay such Expenses, the Company shall be obligated to pay the Expenses of
any such action, suit or proceeding in advance of the final disposition thereof
and the Company, if appropriate, shall be entitled to assume the defense of
such action, suit or proceeding, with counsel satisfactory to Director, upon
the delivery to Director of written notice of its election so to do. After
delivery of such notice, the Company will not be liable to Director under this
Agreement for any legal or other Expenses subsequently incurred by Director in
connection with such defense other than reasonable Expenses incurred at the
request of the Company provided that Director shall have the right to employ
its counsel in any such action, suit or proceeding but the fees and expenses of
such counsel incurred after delivery of notice from the Company of its
assumption of such defense shall be at Director's expense, provided further
that if (i) the employment of counsel by Director has been previously
authorized by the Company, (ii) Director shall have reasonably concluded that
there may be a conflict of interest between the Company and Director in the
conduct of any such defense or (iii) the Company shall not, in fact, have
employed counsel to assume the defense of such action, the fees and expenses of
counsel shall be at the expense of the Company.
(d) All payments on account of the Company's indemnification
obligations under this Agreement shall be made within thirty (30) days of
Director's written request therefor unless a Determination is made that the
claims giving rise to Director's request are Excluded Claims or otherwise not
payable under this
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<PAGE> 5
Agreement, provided that all payments on account of the Company's obligations
under Paragraph 5(c) of this Agreement prior to the final disposition of any
action, suit or proceeding shall be made within twenty (20) days of Director's
written request therefor and such obligation shall not be subject to any such
Determination but shall be subject to Paragraph 5(e) of this Agreement.
(e) Director agrees to reimburse the Company for all Losses and
Expenses paid by the Company in connection with any action, suit or proceeding
against Director in the event and only to the extent that a Determination shall
have been made that Director is not entitled to be indemnified by the Company
because the claim is an Excluded Claim or because Director is otherwise not
entitled to payment under this Agreement.
6. Settlement. The Company shall have no obligation to indemnify
Director under this Agreement for any amounts paid in settlement of any action,
suit or proceeding effected without the Company's prior written consent. The
Company shall not settle any claim in any manner which would impose any fine or
any obligation on Director without Director's written consent. Neither the
Company nor Director shall unreasonably withhold consent to any proposed
settlement.
7. Subrogation. To the extent of any payment under this Agreement, the
Company shall be subrogated to all of the rights of recovery of Director.
Director shall execute all papers required and shall do everything that may be
necessary to secure such rights, including the execution of such documents as
are necessary to enable the Company effectively to bring suit to enforce such
rights.
8. Rights Not Exclusive. The rights provided hereunder shall not be
deemed exclusive of any other rights to which Director may be entitled under any
provision of the Delaware General Corporation Law or any other provisions of
law, the Company's Certificate of Incorporation, its by-laws, or any agreement,
vote of shareholders or of disinterested directors or otherwise, both as to
action in an official capacity and as to action in any other capacity by
holding such office, and shall continue after Director ceases to serve the
Company as a director.
9. Enforcement.
(a) An adverse Determination shall not foreclose an action to
enforce Director's rights under this Agreement to the extent allowed by law.
If a prior adverse Determination has been made, the burden of proving that
indemnification is required under this Agreement shall be on Director. The
Company shall have the burden of proving that indemnification is not required
under this Agreement if no prior adverse Determination shall have been made.
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<PAGE> 6
(b) In the event that any action is instituted by Director under
this Agreement, or to enforce or interpret any of the terms of this Agreement,
Director shall be entitled to be paid all court costs and expenses, including
reasonable counsel fees, incurred by Director with respect to such action,
unless the court determines that each of the material assertions made by
Director as a basis for such action was not made in good faith or was
frivolous.
10. Continuation of Agreement. All agreements and obligations of the
Company contained herein shall continue during the period Director is a
director, officer, employee or agent of the Company (or serving at the request
of the Company as a director, officer, partner, member, trustee, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise) and shall continue thereafter so long as Director shall be subject
to any possible demand, claim or threatened, pending or completed proceeding,
whether civil, criminal, administrative or investigative, by reason of the fact
that Director was a director of the Company or serving in any other capacity
referred to in this paragraph.
11. Severability. In the event that any provision of this Agreement is
determined by a court to require the Company to do or to fail to do an act
which is in violation of applicable law, such provision shall be limited or
modified in its application to the minimum extent necessary to avoid a
violation of law, and such provision, as so limited or modified, and the
balance of this Agreement shall be enforceable in accordance with their terms.
12. Choice of Law. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of Delaware.
13. Consent to Jurisdiction. The Company and Director each hereby
irrevocably consents to the jurisdiction of the courts of the State of Delaware
for all purposes in connection with any action or proceeding which arises out
of or relates to this Agreement and agrees that any action instituted under this
Agreement shall be brought only in the state courts of the State of Delaware.
14. Successor and Assigns. This Agreement shall be (i) binding upon all
successors and assigns of the Company (including any transferee of all or
substantially all of its assets and any successor by, merger or otherwise by
operation of law) and (ii) shall be binding on and inure to the benefit of the
heirs, personal representatives and estate of Director.
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<PAGE> 7
15. Amendment. No amendment, modification, termination or cancellation
of this Agreement shall be effective unless made in a writing signed by each of
the parties hereto.
IN WITNESS WHEREOF, the Company and Director have executed this agreement
as of the day and year first above written.
HANCOCK FABRICS, INC.,
a Delaware corporation
By:
---------------------------------------
Its:
--------------------------------------
"Company"
------------------------------------------
"Director"
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<PAGE> 1
EXHIBIT 10.15
INDEMNIFICATION AGREEMENT
This Agreement is made as of __________________, by and between Hancock
Fabrics, Inc., a Delaware corporation (the "Company"), and Dean W. Abraham
("Officer").
W I T N E S S E T H :
WHEREAS, the Company understands that there can be no assurance that
directors' and officers' liability insurance will continue to be available to
the Company and Officer, and believes that it is possible that the cost of such
insurance, if obtainable, may not be acceptable to the Company or the coverage
of such insurance, if obtainable, may be reduced below what has historically
been afforded; and
WHEREAS, Officer is unwilling to serve, or continue to serve, the Company
as a director without assurances that adequate liability insurance,
indemnification or a combination thereof will be provided; and
WHEREAS, the Company, in order to induce Officer to continue to serve the
Company, has agreed to provide Officer with the benefits contemplated by this
Agreement, which benefits are intended to supplement or, if necessary, replace
directors' and officers' liability insurance; and
WHEREAS, as a result of the provision of such benefits Officer has agreed
to serve or to continue to serve as a director of the Company;
NOW, THEREFORE, in consideration of the promises, conditions,
representations and warranties set forth herein, including Officer's service to
the Company, the Company and Officer hereby agree as follows:
1. Definitions. The following terms, as used herein, shall have the
following respective meanings:
"Covered Amount" means Loss and Expenses which, in type or amount,
are not insured under directors' and officers' liability insurance maintained
by the Company from time to time.
"Covered Act" means any breach of duty, neglect, error, misstatement,
misleading statement, omission or other act done or wrongfully attempted by
Officer or any of the foregoing alleged by any claimant or any claim against
Officer by reason of Officer's serving as or being a director, officer,
employee, or agent of the Company, or by reason of Officer's serving at the
request of the Company as a director, officer, partner, member,
-1-
<PAGE> 2
trustee, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise.
"D&O Insurance" means a policy or policies of the directors' and
officers' liability insurance issued to the Company and its directors and
officers.
"Determination" means a determination, based on the facts known at
the time, made by:
(i) A majority of the directors who are not parties to the
action, suit or proceeding for which indemnification is considered or being
considered, even though less than a quorum; or
(ii) Independent legal counsel in a written opinion if there be
no such directors, or if such directors so direct; or
(iii) A majority of the shareholders of the Company; or
(iv) A final adjudication by a court of competent jurisdiction.
"Determined" shall have a correlative meaning.
"Excluded Claim" means any payment for Losses or Expenses in
connection with any claim:
(i) Based upon or attributable to Officer gaining in fact any
personal profit or advantage to which Officer is not entitled; or
(ii) For the return by Officer of any remuneration, for which
prior approval of the shareholders of the Company was required but not
obtained; or
(iii) For an accounting of profits in fact made from the purchase
or sale by Officer of securities of the Company within the meaning of Section
16 of the Securities Exchange Act of 1934 as amended, or similar provisions of
any state law; or
(iv) Resulting from Officer's knowingly fraudulent, dishonest or
willful misconduct; or
(v) The payment of which by the Company under this Agreement is
not permitted by applicable law; or
(vi) Which are not within the Covered Amount.
"Expenses" means any reasonable expenses incurred by Officer as a
result of a claim or claims made against Officer for Covered Acts including,
without limitation, counsel fees and costs of investigative, judicial or
administrative proceedings or
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<PAGE> 3
appeals, but, where prohibited by law or public policy, shall not include fines.
"Loss" means any amount which Officer is legally obligated to pay as
a result of a claim or claims made against Officer for Covered Acts including,
without limitation, damages and judgments and sums paid in settlement of a
claim or claims, but, where prohibited by law or public policy, shall not
include fines.
2. Maintenance of D&O Insurance.
(a) The Company represents that it presently has in force and
effect policies of D&O Insurance. The Company hereby covenants that it will
use its best efforts to maintain a policy or policies no less beneficial to the
Company and Officer than the policies in effect on the date hereof. The
Company shall not be required, however, to maintain such policy or policies if
such insurance is not reasonably available or if, in the reasonable business
judgment of the then directors of the Company, either (i) the premium cost for
such insurance is disproportionate to the amount of coverage, or (ii) the
coverage provided by such insurance is so limited by exclusions that there is
insufficient benefit from such insurance.
(b) In all policies of D&O Insurance, Officer shall be named as
an insured in such a manner as to provide Officer the same rights and benefits,
subject to the same limitations, as are accorded to the Company's directors or
officers most favorably insured by such policy.
3. Indemnification. The Company shall indemnify Officer against, and
hold Officer harmless from, the Covered Amount of any and all Losses and
Expenses subject, in each case, to the further provisions of this Agreement.
4. Excluded Coverage.
(a) The Company shall have no obligation to indemnify Officer
against, and hold Officer harmless from, any Loss or Expense which has been
Determined to constitute an Excluded Claim.
(b) The Company shall have no obligation to indemnify Officer
against, and hold Officer harmless from, any Loss or Expenses to the extent
that Officer is indemnified by the Company pursuant to the provisions of the
Company's Certificate of Incorporation or is otherwise in fact indemnified.
5. Indemnification Procedures.
(a) Promptly after receipt by Officer of notice of the
commencement or the threat of commencement of any action, suit or proceeding,
Officer shall notify the Company of the commencement thereof if indemnification
with respect thereto may be sought
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<PAGE> 4
from the Company under this Agreement; but the omission so to notify the
Company shall not relieve it from any liability that it may have to Officer
otherwise than under this Agreement. Such notice may be given by mailing the
same by United States mail, registered or certified, return receipt requested,
postage prepaid, addressed to the Company at: P.O. Box 2400, Tupelo,
Mississippi 38803-2400, Attention: Secretary (or to such other address as the
Company may from time to time designate by written notice to Officer).
(b) If, at the time of the receipt of such notice, the Company
has D&O Insurance in effect, the Company shall give prompt notice of the
commencement of such action, suit or proceeding to the insurers in accordance
with the procedures set forth in the respective policies in favor of Officer.
The Company shall thereafter take all necessary or desirable action to cause
such insurers to pay, on behalf of Officer, all Losses and Expenses payable as
a result of such action, suit or proceeding in accordance with the terms of
such policies.
(c) To the extent the Company does not, at the time of the
commencement or the threat of commencement of such action, suit or proceeding,
have applicable D&O Insurance, or if a Determination is made that any Expenses
arising out of such action, suit or proceeding will not be payable under the
D&O Insurance then in effect, or if for any reason a D&O insurer does not
timely pay such Expenses, the Company shall be obligated to pay the Expenses of
any such action, suit or proceeding in advance of the final disposition thereof
and the Company, if appropriate, shall be entitled to assume the defense of
such action, suit or proceeding, with counsel satisfactory to Officer, upon the
delivery to Officer of written notice of its election so to do. After delivery
of such notice, the Company will not be liable to Officer under this Agreement
for any legal or other Expenses subsequently incurred by Officer in connection
with such defense other than reasonable Expenses incurred at the request of the
Company provided that Officer shall have the right to employ its counsel in any
such action, suit or proceeding but the fees and expenses of such counsel
incurred after delivery of notice from the Company of its assumption of such
defense shall be at Officer's expense, provided further that if (i) the
employment of counsel by Officer has been previously authorized by the Company,
(ii) Officer shall have reasonably concluded that there may be a conflict of
interest between the Company and Officer in the conduct of any such defense or
(iii) the Company shall not, in fact, have employed counsel to assume the
defense of such action, the fees and expenses of counsel shall be at the
expense of the Company.
(d) All payments on account of the Company's indemnification
obligations under this Agreement shall be made within thirty (30) days of
Officer's written request therefor unless a Determination is made that the
claims giving rise to Officer's request are Excluded Claims or otherwise not
payable under this Agreement, provided that all payments on account of the
Company's
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<PAGE> 5
obligations under Paragraph 5(c) of this Agreement prior to the final
disposition of any action, suit or proceeding shall be made within twenty (20)
days of Officer's written request therefor and such obligation shall not be
subject to any such Determination but shall be subject to Paragraph 5(e) of
this Agreement.
(e) Officer agrees to reimburse the Company for all Losses and
Expenses paid by the Company in connection with any action, suit or proceeding
against Officer in the event and only to the extent that a Determination shall
have been made that Officer is not entitled to be indemnified by the Company
because the claim is an Excluded Claim or because Officer is otherwise not
entitled to payment under this Agreement.
6. Settlement. The Company shall have no obligation to indemnify
Officer under this Agreement for any amounts paid in settlement of any action,
suit or proceeding effected without the Company's prior written consent. The
Company shall not settle any claim in any manner which would impose any fine or
any obligation on Officer without Officer's written consent. Neither the
Company nor Officer shall unreasonably withhold consent to any proposed
settlement.
7. Subrogation. To the extent of any payment under this Agreement, the
Company shall be subrogated to all of the rights of recovery of Officer.
Officer shall execute all papers required and shall do everything that may be
necessary to secure such rights, including the execution of such documents as
are necessary to enable the Company effectively to bring suit to enforce such
rights.
8. Rights Not Exclusive. The rights provided hereunder shall not be
deemed exclusive of any other rights to which Officer may be entitled under any
provision of the Delaware General Corporation Law or any other provisions of
law, the Company's Certificate of Incorporation, its by-laws, or any agreement,
vote of shareholders or of disinterested directors or otherwise, both as to
action in an official capacity and as to action in any other capacity by
holding such office, and shall continue after Officer ceases to serve the
Company as a director.
9. Enforcement.
(a) An adverse Determination shall not foreclose an action to
enforce Officer's rights under this Agreement to the extent allowed by law. If
a prior adverse Determination has been made, the burden of proving that
indemnification is required under this Agreement shall be on Officer. The
Company shall have the burden of proving that indemnification is not required
under this Agreement if no prior adverse Determination shall have been made.
(b) In the event that any action is instituted by Officer under
this Agreement, or to enforce or interpret any of the terms of this Agreement,
Officer shall be entitled to be paid
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<PAGE> 6
all court costs and expenses, including reasonable counsel fees, incurred by
Officer with respect to such action, unless the court determines that each of
the material assertions made by Officer as a basis for such action was not made
in good faith or was frivolous.
10. Continuation of Agreement. All agreements and obligations of the
Company contained herein shall continue during the period Officer is a director,
officer, employee or agent of the Company (or serving at the request of the
Company as a director, officer, partner, member, trustee, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise) and
shall continue thereafter so long as Officer shall be subject to any possible
demand, claim or threatened, pending or completed proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that Officer
was a director of the Company or serving in any other capacity referred to in
this paragraph.
11. Severability. In the event that any provision of this Agreement is
determined by a court to require the Company to do or to fail to do an act
which is in violation of applicable law, such provision shall be limited or
modified in its application to the minimum extent necessary to avoid a
violation of law, and such provision, as so limited or modified, and the
balance of this Agreement shall be enforceable in accordance with their terms.
12. Choice of Law. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of Delaware.
13. Consent to Jurisdiction. The Company and Officer each hereby
irrevocably consents to the jurisdiction of the courts of the State of Delaware
for all purposes in connection with any action or proceeding which arises out
of or relates to this Agreement and agrees that any action instituted under this
Agreement shall be brought only in the state courts of the State of Delaware.
14. Successor and Assigns. This Agreement shall be (i) binding upon all
successors and assigns of the Company (including any transferee of all or
substantially all of its assets and any successor by, merger or otherwise by
operation of law) and (ii) shall be binding on and inure to the benefit of the
heirs, personal representatives and estate of Officer.
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15. Amendment. No amendment, modification, termination or cancellation
of this Agreement shall be effective unless made in a writing signed by each of
the parties hereto.
IN WITNESS WHEREOF, the Company and Officer have executed this agreement
as of the day and year first above written.
HANCOCK FABRICS, INC.,
a Delaware corporation
By:
----------------------------------
Its:
---------------------------------
"Company"
-------------------------------------
"Officer"
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EXHIBIT 10.25
AMENDMENT AND RENEWAL OF SEVERANCE AGREEMENT
THIS AMENDMENT AND RENEWAL OF SEVERANCE AGREEMENT between Hancock Fabrics,
Inc., a Delaware corporation (the "Corporation"), and Morris O. Jarvis (the
"Executive"), dated as of the 14th day of March, 1996.
W I T N E S S E T H :
WHEREAS, the Corporation has entered into a Severance Agreement with the
Executive dated May 4, 1987 which has subsequently been amended (as so amended,
the "Severance Agreement"); and
WHEREAS, the Severance Agreement will expire on May 4, 1996; and
WHEREAS, the Corporation, for the reasons recited in the Severance
Agreement, wishes to renew the Severance Agreement; and
WHEREAS, the Corporation and the Executive desire to amend the Severance
Agreement;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained and contained in the Severance Agreement, it is hereby agreed
by and between the Corporation and the Executive as follows:
1. Section 3 of the Severance Agreement is hereby amended to read as
follows:
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<PAGE> 2
3. Change of Control Period. The "Change
of Control Period" is the period
commencing on the date of this Agreement
and ending on the earlier to occur of (i)
May 4, 1999, or (ii) the first day of the
month coinciding with or next following
the Executive's 65th birthday. The
expiration of the Change of Control Period
shall not limit the Corporation's
obligation to provide, or the Executive's
right to collect, payments and benefits
pursuant to Section 5 and Section 10
hereof.
2. Sections 5(a)(III) and 5(b)(III) of the Severance Agreement are hereby
amended by deleting the words "Section 4.1 of the SERP" and substituting
therefor the words "Section 4.1(i) of the SERP."
3. Except as so amended, the Severance Agreement shall remain in full
force and effect.
IN WITNESS WHEREOF, the Executive has hereunto set his hand and, pursuant
to the authorization from its Board of Directors, the Corporation has caused
these presents to be executed in its name on its behalf, and its corporate seal
to be hereunto affixed, all as of the day and the year first above written.
-----------------------------
"Executive"
HANCOCK FABRICS, INC.
By:
--------------------------
Its
-----------------------
(Seal)
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<PAGE> 1
EXHIBIT 10.26
AMENDMENT, EXTENSION AND RESTATEMENT OF
SEVERANCE AGREEMENT
March 14, 1996
THIS AGREEMENT between Hancock Fabrics, Inc., a Delaware corporation
(the "Corporation"), and __________________ whose address is ____________ (the
"Executive"), dated as of March 14, 1996.
W I T N E S S E T H :
WHEREAS, the Corporation has entered into a Severance Agreement with
the Executive dated May 3, 1987 which has subsequently been amended (as so
amended, the "Severance Agreement"); and
WHEREAS, the Severance Agreement will expire on May 4, 1996; and
WHEREAS, the Corporation, for the reasons recited in the Severance
Agreement, wishes to extend the Severance Agreement; and
WHEREAS, the Corporation deems it to be in its best interests to
recognize the substantial increase in the duties and responsibilities of the
Executive since the Severance Agreement was first entered into; and
WHEREAS, the Corporation and the Executive desire to amend the
Severance Agreement and to restate the Severance Agreement as so extended and
amended;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained and contained in the Severance Agree-
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<PAGE> 2
ment, it is hereby agreed by and between the Corporation and the Executive that
the Severance Agreement shall be extended, amended and restated to read as
follows:
1. Operation of Agreement. No benefits shall be payable
hereunder unless a Change of Control (as defined in Section 2) occurs during
the Change of Control Period (as defined in Section 3). For the purposes of
this Agreement the date on which such a Change of Control occurs is referred to
herein as the "Effective Date."
2. Change of Control. For the purposes of this Agreement, a
"Change of Control" shall mean a change of control of a nature that would be
required to be reported by the Corporation in response to Item 1(a) of the
Current Report on Form 8-K (or its successor Item or Form, as the case may be),
as in effect on the date hereof (or from time to time thereafter), pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934 (the "Exchange
Act"); provided that, without limitation, such a "Change of Control" shall be
deemed to have occurred if: (i) a third person, including a "group" as defined
in Section 13(d)(3) of the Exchange Act, becomes the beneficial owner, directly
or indirectly, of 20% or more of the combined voting power of the Corporation's
outstanding voting securities ordinarily having the right to vote for the
election of directors of the Corporation or (ii) individuals who constitute the
Board of Directors of the Corporation as of the date hereof (the "Incumbent
Board") cease for any reason to constitute at least two-thirds thereof,
provided that any person becoming a director subsequent to the
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<PAGE> 3
date hereof whose election, or nomination for election by the Corporation's
stockholders, was approved by a vote of at least three-quarters of (or if less,
all but one of) the directors comprising the Incumbent Board (other than an
election or nomination in connection with an actual or threatened election
contest relating to the election of directors of the Corporation, as such terms
are used in Rule 14a-11 of the Regulation 14A promulgated under the Exchange
Act) shall be, for purposes of this Agreement, considered as though such person
were a member of the Incumbent Board.
3. Change of Control Period. The "Change of Control Period" is
the period commencing on the date of this Agreement and ending on the earlier
to occur of (i) May 4, 1999 or (ii) the first day of the month coinciding with
or next following the Executive's 65th birthday. The expiration of the Change
of Control Period shall not limit the Corporation's obligation to provide, or
the Executive's right to collect, payments and benefits pursuant to Section 5
and Section 10 hereof.
4. Certain Definitions.
(a) Death or Disability. The Executive's employment
shall terminate automatically upon the Executive's death ("Death"). The
Corporation will be considered to have terminated the Executive's employment
for Disability, if after having established the Executive's Disability (as
defined below), the Executive receives written notice given in accordance with
Section 9(b) of the Corporation's intention to terminate his employment. The
Executive's employment will terminate for
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<PAGE> 4
Disability effective on the 90th day after receipt of such notice if within
such 90-day period after such receipt the Executive shall fail to return to
full-time performance of his duties (the "Disability Effective Date"). For
purposes of this Agreement, "Disability" means a disability that, after the
expiration of more than 180 days after its commencement, is determined to be
total and permanent by a physician selected by the Corporation or its insurers
and acceptable to the Executive or his legal representative (such agreement as
to acceptability not to be withheld unreasonably).
Consistent with, and not in limitation of, the provisions of Section 6
of this Agreement, neither a termination for, nor a determination of,
Disability pursuant to this Section 4(a) shall be deemed in and of itself a
termination for or determination of disability with respect to the Executive's
eligibility to receive long-term disability benefits, continued medical,
dental, or life insurance coverage, retirement benefits, or benefits under any
other plan or program provided by the Corporation or one of its affiliated
companies and for which the Executive may qualify.
(b) Cause. The Executive's employment will be terminated
for Cause if the majority of the Incumbent Board determines that Cause (as
defined in this Agreement) exists. For purposes of this Agreement, "Cause"
means (i) an act or acts of fraud or misappropriation on the Executive's part
that result in or are intended to result in his personal enrichment at the
expense of the Corporation or one of its affiliated companies or (ii)
conviction of a felony.
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<PAGE> 5
(c) Good Reason. For purposes of this Agreement, "Good Reason" means
(i) without the express written consent
of the Executive, (A) the assignment to the Executive of any duties
inconsistent in any substantial respect with the Executive's position,
authority or responsibilities as in effect during the 90-day period immediately
preceding the Effective Date, or (B) any other substantial adverse change in
such position (including titles and reporting requirements), authority or
responsibilities;
(ii) any failure by the Corporation to
furnish the Executive and/or, where applicable, his family with compensation
(including annual bonus) and benefits at a level equal to or exceeding those
received (on an annual basis) by the Executive from the Corporation during the
90-day period preceding the Effective Date, including a failure by the
Corporation to maintain the Corporation's extra compensation plan ("Extra
Compensation Plan") (including the right to defer the receipt of payments
thereunder) and the Corporation's supplemental retirement benefit plan
("SERP"), other than an insubstantial and inadvertent failure remedied by the
Corporation promptly after receipt of notice thereof given by the Executive;
(iii) the Corporation's requiring the
Executive to be based or to perform services at any office or location other
than that at which the Executive is primarily based during the 90-day period
preceding the Effective Date,
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<PAGE> 6
except for travel reasonably required in the performance of the Executive's
responsibilities; or
(iv) any failure by the Corporation to obtain the
assumption and agreement to perform this Agreement by a successor as
contemplated by Section 8(b).
For the purposes of this Section 4(c), any good faith determination of
"Good Reason" made by the Executive shall be conclusive.
(d) Window Period. If Executive remains in the employ of
Date (the "Initial Period"), and the Executive voluntarily terminates his
employment for any reason (other than Good Reason) during the 30-day period
immediately following the expiration of the Initial Period, the Executive will
be considered, for purposes of this Agreement, to have terminated his
employment during the "Window Period."
(e) Notice of Termination. Any termination by the
Corporation for Cause or by the Executive for Good Reason or pursuant to
Section 4(d) shall be communicated by Notice of Termination to the other party
hereto given in accordance with Section 9(b). Any notice of termination by the
Corporation for Disability shall be given in accordance with Section 4(a). For
purposes of this Agreement, a "Notice of Termination" means a written notice
that (i) indicates the specific termination provision in this Agreement relied
upon, (ii) sets forth in reasonable detail the facts and circumstances claimed
to provide a basis for termination of the
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<PAGE> 7
Executive's employment under the provision so indicated and (iii) if
the termination date is other than the date of receipt of such notice,
specifies the termination date (which date shall not be more than 15 days after
the giving of such notice).
(f) Date of Termination. Date of Termination
means the date of receipt of the Notice of Termination or any later date
specified therein as the termination date, as the case may be, or if the
Executive's employment is terminated by the Corporation for any reason other
than Cause, Death or Disability, the date on which the Corporation notifies the
Executive of such termination. Notwithstanding any contrary provision in this
Section 4(f), if that Executive's employment terminates due to Disability, the
Date of Termination shall be the Disability Effective Date.
(g) The term "Hancock Textile" shall mean Hancock Textile
Co., Inc., a Mississippi corporation.
(h) When the terms "the 90-day period preceding the Effective
Date," "within five fiscal years prior to the Effective Date," or "the Plan
Year prior to the Effective Date" are used herein they shall include the
Executive's period of employment with Hancock Textile immediately prior to his
employment with the Corporation.
5. Obligations of the Corporation Upon Termination.
(a) Good Reason Other Than For Cause, Death or Disability.
Regardless of whether the Change of Control Period has expired, if, within
three years of the Effective Date, (i) the Corporation shall terminate the
Executive's employment
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<PAGE> 8
for any reason other than for Cause, Death or Disability, or (ii) the Executive
shall terminate his employment for Good Reason:
(I) the Corporation shall pay to the Executive in
a lump sum in cash within 20 days after the Date of Termination the aggregate
of the amounts determined pursuant to the following clauses (A) and (B):
(A) if not theretofore paid, the
Executive's base salary through the Date of Termination at the rate in effect
at the time the Notice of Termination was given; and
(B) two times the sum of (x) the
Executive's annual base salary at the rate in effect at the time the Notice of
Termination was given, or if higher, at the highest rate in effect at any time
within the 90-day period preceding the Effective Date and (y) an amount equal
to the highest bonus paid or payable to the Executive pursuant to the Extra
Compensation Plan or any successor plan thereto (or any predecessor plan
maintained by Hancock Textile) within five fiscal years prior to the Effective
Date, provided, however, that in no event shall the Executive be entitled to
receive under this clause (B) more than the product obtained by multiplying the
amount determined as hereinabove provided in this clause (B) by a fraction
whose numerator shall be the number of months (including fractions of a month)
that at the Date of Termination remain until the first day of the month
coinciding with or next following the Executive's 65th birthday and whose
denominator shall equal twenty-four (24); and
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<PAGE> 9
(II) until the earlier to occur of (i) the date
two years following the Date of Termination, or (ii) the first day of the first
month coinciding with or next following the Executive's 65th birthday (the
period of time from the Date of Termination until the earlier of (i) or (ii) is
hereinafter referred to as the "Unexpired Period"), the Corporation shall
continue to provide all benefits that the Executive and/or his family is or
would have been entitled to receive under all medical, dental, vision,
disability, executive life, group life, accidental death and travel accident
insurance plans and programs of the Corporation and its affiliated companies,
in each case on a basis providing the Executive and/or his family with the
opportunity to receive benefits at least equal to those provided by the
Corporation and its affiliated companies for the Executive under such plans and
programs if and as in effect at any time during the 90-day period preceding the
Effective Date.
(III) Within 20 days after the Date of Termination
the Corporation shall pay to the Executive and/or his beneficiary, as the case
may be, a lump sum in cash in the amount of the present value of periodic
payments equal to the excess, if any, of the "Enhanced SERP Benefits" over the
amount of benefits, if any, the Executive and/or his beneficiary, as the case
may be, has actually received (or is then currently entitled to receive) from
the SERP. For purposes of this Section 5(a), the "Enhanced SERP Benefits"
shall equal the amount of benefits under the SERP the Executive and/or his
beneficiary would have received had the benefits under Section 4.1(i) of the
SERP been determined by
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<PAGE> 10
considering the Executive (a) to have been employed for an additional period of
time equal to the Unexpired Period; (b) to have been a member of the SERP for
an additional period of time equal to the Unexpired Period; (c) to have retired
at the age he would have attained at the end of the Unexpired Period; (d) to
have had compensation for such additional Plan Years (as such term is defined
for purposes of the SERP) equal to the Executive's earnings (including bonus
under the Extra Compensation Plan or any predecessor plan maintained by Hancock
Textile) for the Plan Year prior to the Effective Date; and (e) to be vested in
a fraction (not to exceed 1) of his benefit under the Hancock Fabrics, Inc.
Consolidated Retirement Plan (the "Retirement Plan") and the SERP equal to the
quotient obtained by dividing (i) the years of service for vesting purposes the
Executive would have had under the Retirement Plan if he had been employed for
an additional period of time equal to the Unexpired Period by (ii) the number
of years of service for vesting purposes that (as of the Date of Termination)
are required before a participant in the Retirement Plan is considered to be
fully vested under the Retirement Plan (the determination and payment of the
amount payable under this paragraph (III) to be pursuant to Section 11); and
(IV) for purposes of any written agreement between
the Executive and the Corporation relating to the payment of compensation to
the Executive on a deferred basis, the Executive shall be deemed to have
remained in the employment of the
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<PAGE> 11
Corporation on a full-time basis until the Executive's 60th birthday.
(b) Regardless of whether the Change of Control Period
has expired, if the Executive shall terminate his employment during the Window
Period for any reason other than for Good Reason:
(I) the Corporation shall pay to the Executive in
a lump sum in cash within 20 days after the Date of Termination the aggregate
of the amounts determined pursuant to the following clauses (A) and (B):
(A) if not theretofore paid, the
Executive's base salary through the Date of Termination at the rate in effect
at the time the Notice of Termination was given; and
(B) the sum of (x) the Executive's
annual base salary at the rate in effect at the time the Notice of Termination
was given, or if higher, at the highest rate in effect at any time within the
90-day period preceding the Effective Date and (y) an amount equal to the
highest bonus paid or payable to the Executive pursuant to the Extra
Compensation Plan or any successor plan thereto (or any predecessor plan
maintained by Hancock Textile) within five fiscal years prior to the Effective
Date, provided, however, that in no event shall the Executive be entitled to
receive under this clause (B) more than the product obtained by multiplying the
amount determined as hereinabove provided in this clause (B) by a fraction
whose numerator shall be the number of months (including fractions of a month)
that at the Date of Termination remain until the first day
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<PAGE> 12
of the month coinciding with or next following the Executive's 65th birthday
and whose denominator shall equal twelve (12); and
(II) until the earlier to occur of (i) the date
one year following the Date of Termination, or (ii) the first day of the first
month coinciding with or next following the Executive's 65th birthday (the
period of time from the Date of Termination until the earlier of (i) or (ii) is
hereinafter referred to as the "Unexpired Term"), the Corporation shall
continue to provide all benefits that the Executive and/or his family is or
would have been entitled to receive under all medical, dental, vision,
disability, executive life, group life, accidental death and travel accident
insurance plans and programs of the Corporation and its affiliated companies,
in each case on a basis providing the Executive and/or his family with the
opportunity to receive benefits at least equal to those provided by the
Corporation and its affiliated companies for the Executive under such plans and
programs if and as in effect at any time during the 90-day period preceding the
Effective Date.
(III) Within 20 days after the Date of Termination
the Corporation shall pay to the Executive and/or his beneficiary, as the case
may be, a lump sum in cash in the amount of the present value of periodic
payments equal to the excess, if any, of the "Enhanced SERP Benefits" over the
amount of benefits, if any, the Executive and/or his beneficiary, as the case
may be, has actually received (or is then currently entitled to receive) from
the SERP. For purposes of this Section 5(b), the "Enhanced SERP Benefits"
shall equal the amount of benefits under the SERP
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<PAGE> 13
the Executive and/or his beneficiary would have received had the benefits under
Section 4.1(i) of the SERP been determined by considering the Executive (a) to
have been employed for an additional period of time equal to the Unexpired
Term; (b) to have been a member of the SERP for an additional period of time
equal to the Unexpired Term; (c) to have retired at the age he would have
attained at the end of the Unexpired Term; (d) to have had compensation for
such additional Plan Years (as such term is defined for purposes of the SERP)
equal to the Executive's earnings (including bonus under the Extra Compensation
Plan or any predecessor plan maintained by Hancock Textile) for the Plan Year
prior to the Effective Date; and (e) to be vested in a fraction (not to exceed
1) of his benefit under the Hancock Fabrics, Inc. Consolidated Retirement Plan
(the "Retirement Plan") and the SERP equal to the quotient obtained by dividing
(i) the years of service for vesting purposes the Executive would have had
under the Retirement Plan if he had been employed for an additional period of
time equal to the Unexpired Term by (ii) the number of years of service for
vesting purposes that (as of the Date of Termination) are required before a
participant in the Retirement Plan is considered to be fully vested under the
Retirement Plan (the determination and payment of the amount payable under this
paragraph (III) to be pursuant to Section 11).
6. Non-exclusivity of Rights. Nothing in this Agreement shall
prevent or limit the Executive's continuing or future participation in any
benefit, bonus, incentive or other plan or program provided by the Corporation
or any of its affiliated
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<PAGE> 14
companies and for which the Executive may qualify, nor shall anything herein
limit or otherwise affect such rights as the Executive may have under any
employment, stock option or other agreements with the Corporation or any of its
affiliated companies. Amounts that are vested benefits or that the Executive
is otherwise entitled to receive under any plan or program of the Corporation
or any of its affiliated companies at or subsequent to the Date of Termination
shall be payable in accordance with such plan or program.
7. Full Settlement. The payments provided for in this Agreement
are in full settlement of any claims the Executive may have against the
Corporation arising out of his termination, including, but not limited to, any
claims for wrongful discharge. The Corporation's obligation to make the
payments provided for in this Agreement and otherwise to perform its
obligations hereunder shall not be affected by any circumstances, including,
without limitation, any setoff, counterclaim, recoupment, defense or other
right that the Corporation may have against the Executive or others; provided,
however, that the Corporation's failure to make any such setoff shall not
constitute a waiver of any claim of the Corporation against the Executive. In
no event shall the Executive be obligated to seek other employment by way of
mitigation of the amounts payable to the Executive under any of the provisions
of this Agreement. The Corporation agrees to pay, to the full extent permitted
by law, all legal fees and expenses the Executive may reasonably incur as a
result of any contest (regardless of the outcome thereof) by the Corporation or
others
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<PAGE> 15
of the validity or enforceability of, or liability under, any provision of this
Agreement or any guarantee of performance thereof, in each case plus interest,
compounded monthly, on the total unpaid amount determined to be payable under
this Agreement, such interest to be calculated on the basis of the prime
commercial lending rate announced by Morgan Guaranty Trust Company of New York,
in effect from time to time during the period of such non-payment.
8. Successors.
(a) This Agreement is personal to the Executive and
without the prior written consent of the Corporation shall not be assignable by
the Executive otherwise than by will or the laws of descent and distribution.
This Agreement shall inure to the benefit of and be enforceable by the
Executive's legal representatives, executors, heirs and legatees.
(b) This Agreement shall inure to the benefit of and be
binding upon the Corporation and its successors. The Corporation shall require
any successor to all or substantially all of the business and/or assets of the
Corporation, whether directly or indirectly, by purchase, merger,
consolidation, acquisition of stock, or otherwise, by an agreement in form and
substance satisfactory to the Executive, expressly to assume and agree to
perform this Agreement in the same manner and to the same extent as the
Corporation would be required to perform if no such succession had taken place.
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9. Miscellaneous.
(a) The captions of this Agreement are not part of the
provisions hereof and shall have no force or effect. This Agreement may not be
amended or modified otherwise than by a written agreement executed by the
parties hereto or their respective successors and legal representatives.
(b) All notices and other communications hereunder shall
be in writing and shall be given by hand delivery to the other party or by
registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
If to the Executive:
At the address first hereinabove written.
If to the Corporation:
Hancock Fabrics, Inc.
3406 W. Main Street
P.O. Box 2400
Tupelo, Mississippi 38003-2400
Attn: Corporate Secretary
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision
of this Agreement shall not affect the validity or unenforceability of any
other provision of this Agreement.
(d) The Corporation may withhold from any amounts payable
under this Agreement such federal, state or local taxes as shall be required to
be withheld pursuant to any applicable law or regulation, provided, however,
that such withholding shall be
-16-
<PAGE> 17
consistent with the calculations made by Accounting Firm under Section 10 of
the Agreement.
(e) This Agreement contains the entire understanding with
the Executive with respect to the subject matter hereof.
(f) Whenever used in this Agreement, the masculine gender
shall include the feminine or neuter wherever necessary or appropriate and vice
versa and the singular shall include the plural and vice versa.
(g) The Executive and the Corporation acknowledge that
the employment of the Executive by the Corporation is "at will" and may be
terminated by either the Executive or the Corporation at any time and for any
reason. Nothing contained in the Agreement shall affect such rights to
terminate, it being agreed, however, that nothing in this Section 9(g) shall
prevent the Executive from receiving any amounts payable pursuant to Section
5(a), 5(b), or 10 of this Agreement in the event of a termination described in
such Section 5(a), 5(b), or 10 on or after the Effective Date.
10. Penalty Taxes.
(a) Payment. In the event that the Accounting Firm
determines that any payment or other compensation or benefits made or provided
to or for the benefit of the Executive in any way connected with employment of
the Executive by the Corporation will be subject to tax pursuant to section
4999 of the Code or any successor provision or any counterpart provision of
state tax law (the "Penalty Taxes"), the Corporation shall pay to the Executive
within 20 days after receipt of a written demand there-
-17-
<PAGE> 18
for from the Executive an amount which, after deduction of all additional
Federal, state and local taxes (including, without limitation, income taxes and
additional Penalty Taxes) required to be paid by the Executive in respect of
receipt of such amount, shall be equal to the Penalty Taxes. In calculating
the income taxes required to be paid by the Executive, the Accounting Firm
shall assume that the Executive will pay tax at the maximum marginal Federal,
state and local rates and that the Executive will have no deductions or credits
available to reduce such taxes. In consideration of the payment of such
amounts, the Executive shall report and pay such taxes and promptly provide the
Corporation with a written statement that such filing and payment have occurred
executed by the person or firm that signed as income tax return preparer of the
Executive's federal income tax return, or if prepared by the Executive,
executed by the Executive.
(b) Indemnity. If the Executive shall be required to pay
Penalty Taxes in addition to those reimbursed pursuant to paragraph (a) above,
or if based upon failure to receive the opinion of Tax Counsel referred to in
paragraph (d) below the Executive reports and pays greater amounts of Penalty
Taxes than are reimbursed pursuant to paragraph (a) above (any such event
hereafter being referred to as a "Loss"), the Executive shall notify the
Corporation and the Corporation shall pay to the Executive as an indemnity an
amount which, after deduction of all income taxes and additional Federal, state
and local taxes (including, without limitation, income taxes and additional
Penalty Taxes) required to be paid by the Executive in respect of
-18-
<PAGE> 19
receipt of such amount (assuming, for this purpose, that the Executive is
subject to the maximum marginal rates of taxation applicable to individuals at
such time as such amount becomes due and that the Executive will have no
deductions or credits available to reduce such taxes), shall be equal to the
sum of (x) the Penalty Taxes resulting in the Loss and (y) the net amount of
any interest, penalties or additions to tax payable to the United States
Government or any state of local government (after allowing for the deduction
of such amounts, to the extent properly deductible, for Federal, state or local
income tax purposes) as a result of such Loss. Each payment by the Corporation
hereunder shall be made within 30 days after receipt of a written demand
therefor from the Executive accompanied by a written statement describing in
reasonable detail the Loss in question, the amount of additional tax, interest,
penalties or additions to tax and the calculation of the payment due in respect
thereof; provided that, if a contest of the Loss is being conducted pursuant to
paragraph (c) below, payment shall not be required by the Corporation until 30
days after the completion or termination of such contest.
(c) Contest.
(1) The Executive shall notify the Corporation
within 30 days of receipt from the Internal Revenue Service of a revenue
agent's report, a 30-day letter or a notice of deficiency (as described in
Section 6212 of the Code or any successor provision) or of a similar written
claim from a state taxing authority, in which an adjustment is proposed to the
federal or
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<PAGE> 20
state taxes of the Executive for which the Corporation would be required to
indemnify the Executive hereunder. If the Corporation (i) requests the
Executive to do so within 30 days after such notice, and (ii) furnishes the
Executive an opinion of recognized tax counsel selected by the Corporation and
approved by the Executive, which approval shall not unreasonably be withheld,
(hereinafter "Tax Counsel") to the effect that a reasonable basis exists for
contesting such proposed adjustment, the Executive shall contest the proposed
adjustment in good faith, shall keep the Corporation reasonably informed as to
the progress of such contest, and shall consider in good faith any suggestion
made by the Corporation as to the method of pursuing such contest; provided,
however, that the Executive shall not be obligated to contest such adjustment
unless (i) the Corporation acknowledges in writing its liability under
paragraph (b) above to indemnify the Executive in the event that the Internal
Revenue Service or a state taxing authority prevails in its position regarding
the proposed adjustment; (ii) the Corporation shall have fully performed its
prior obligations under this Agreement; and (iii) the subject matter thereof
shall not have been previously decided pursuant to the contest provisions of
this paragraph (c) with respect to any other executive of the Corporation,
unless the Corporation shall have furnished an opinion of Tax Counsel to the
Executive that more likely than not the Executive will prevail in the contest;
provided, further, that the Executive shall determine, in his sole discretion,
the nature of all action to be taken to contest such proposed adjustment,
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<PAGE> 21
including (x) whether any action to contest such proposed adjustment initially
shall be by way of judicial or administrative proceedings, or both, (y) whether
any such proposed adjustment shall be contested by resisting payment thereof
or by paying the same and seeking a refund thereof, and (z) if the Executive
shall undertake judicial action with respect to such proposed adjustment, the
court or other judicial body before which such action shall be commenced. The
Executive shall, if requested by the Corporation within 30 days of an adverse
determination by any court, and if Tax Counsel is of the opinion that there is
a reasonable basis for a successful appeal of the matter in question, be
obligated to appeal such adverse determination.
(2) The Executive shall not be required to take
any action pursuant to this paragraph (c) unless and until the Corporation
shall have agreed in writing to indemnify the Executive in a manner reasonably
satisfactory to the Executive for any fees, expenses, statutory or regulatory
penalties, interest, additions to tax, or other similar liabilities or losses
which the Executive may incur as a result of contesting the validity of any
proposed adjustment and shall have agreed to pay (or in the Executive's sole
discretion to prepay) to the Executive on demand all costs and expenses which
the Executive may incur in connection with contesting such proposed adjustment
(including without limitation fees and disbursements of counsel). If the
Executive determines to contest any adjustment by paying the additional tax and
suing for a refund, the Corporation shall
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<PAGE> 22
timely advance to the Executive on an interest free basis an amount
equal to the sum of any tax, interest, penalties and additions to tax which are
required to be paid; provided, however, that, if the Executive is required to
include in income any amount with respect to such loan or the imputation of
interest thereon in any taxable year of the Executive prior to final
determination of the contest, then the Corporation, within 30 days of written
notice thereof by the Executive, shall pay to the Executive an amount which,
after deduction of all additional Federal, state and local taxes required to be
paid by the Executive in respect of the receipt of such amount (assuming, for
this purpose, that the Executive is subject to the maximum marginal rate of
taxation applicable to individuals at such times as such amount becomes due),
shall be equal to the aggregate additional federal and state income taxes
payable by the Executive with respect to such taxable year as a result of such
inclusion. Upon receipt by the Executive of a refund of any amounts paid by
the Executive based on any adjustment in respect of which amounts the Executive
shall have been paid or advanced an equivalent amount by the Corporation, the
Executive shall pay to the Corporation the amount of such refund (which, in the
case of any contest in which a loan has been advanced pursuant to this
paragraph, shall be deemed to be in repayment of the loan advanced by the
Corporation to the extent fairly attributable thereto), but not in excess of
the amount paid or advanced by the Corporation, together with any interest
received by the Executive on such refund plus any net additional Federal, state
or local
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<PAGE> 23
tax benefits actually realized by the Executive as the result of such payment,
and reduced by the amount of any Federal, state or local tax actually payable
with respect to receipt of such refund; provided, however, that the Executive
may offset the amount of such refund and benefits against any amount due and
owing by the Corporation to the Executive pursuant to this Agreement. Upon
disallowance of any such refund, the Corporation shall forgive the amount of
the advance fairly attributable thereto and shall pay to the Executive the
amount of its indemnity obligation hereunder, including such amount as, after
deduction of all taxes required to be paid by the Executive in respect of the
receipt of such amount under the laws of any Federal, state or local government
or taxing authority of the United States, shall be equal to the sum on an
after-tax basis, of any tax, interest, penalties or additions to tax payable
with respect to the forgiveness of such advance.
(3) If any adjustment referred to in this
paragraph (c) shall be proposed and the Corporation shall have requested the
Executive to contest such adjustment as above provided and shall have duly
complied with the terms of this paragraph (c), the Corporation's liability with
respect to such adjustment shall become fixed upon final determination of such
adjustment; provided, however, that if the Corporation shall not deliver the
opinion of Tax Counsel provided in this paragraph (c) to the effect that there
is a reasonable basis for a contest or appeal, then the Corporation's
obligation to pay such indemnity shall become immediately fixed.
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<PAGE> 24
(d) No Inconsistent Action. The Executive agrees that he
will not take any action, directly or indirectly, or file any returns or other
documents inconsistent with the assumption that the payments to which the
indemnification of paragraph (b) applies do not result in imposition of the tax
under section 4999, and the Executive shall file such returns, take such
actions, maintain such records and execute such documents as may be reasonably
requested by the Corporation; provided, however, that the Executive's
obligations hereunder to file returns or other documents shall apply only if
the Executive receives an opinion of Tax Counsel at least 10 days prior to the
due date of the return (without regard to extensions) required to be made with
respect to the payments to which the indemnification of paragraph (b) applies
that the Executive will not be subject to the penalties described in sections
6651, 6662 or 6663 of the Code, or successor provisions then in effect, as a
result of taking such position.
(e) Disbursements. Any payments required to be made by
the Corporation pursuant to this Section 10 shall be made directly by the
Corporation to the Executive. Payments made by the Corporation or the
Executive pursuant to this Agreement shall be made by wire transfer of
immediately available funds to such bank and/or account in the continental
United States as specified by the other party in written directions to such
payor party, and if no such direction shall have been given, by check payable
to the order of such other party and mailed to such other party by certified
mail, postage prepaid.
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<PAGE> 25
(f) No Setoff. No payment required to be made by the
Corporation pursuant to this Section 10 shall be subject to any right of
setoff, counterclaim, defense, abatement, suspension, deferment or reduction,
and, except in accordance with the express terms hereof, the Corporation shall
have no right to terminate the Agreement or to be released, relieved or
discharged from any obligation or liability thereunder for any reason
whatsoever.
(g) Late Payment, Interest. Any late payment by any
party hereto of any of its obligations under this Agreement shall bear interest
to the extent permitted by applicable law, at a fluctuating rate per annum
equal to the Prime Rate as announced publicly by Citibank, N.A., in New York,
New York from time to time plus two percentage points, for the period such
interest is payable.
(h) Accounting Firm. The Accounting Firm shall mean the
Memphis, Tennessee Main Office of Price Waterhouse & Co., or, at the election
of the Executive, the Memphis, Tennessee Main Office of such other national or
regional accounting firm as the Executive shall select subject to the approval
of the Corporation, which approval shall not unreasonably be withheld.
Compensation of the Accounting Firm with respect to its services hereunder
shall be the responsibility of the Executive.
11. Determination of Present Values Under Section 5. The
determination of present values for purposes of Paragraph (a)(III) and (b)(III)
of Section 5 of this Agreement shall be in accordance with the following:
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<PAGE> 26
(a) Present values shall be determined as of the last day
of the calendar quarter ending most recently prior to the Termination Date
("Valuation Date").
(b) The interest rate and other actuarial assumptions
used to determine present values shall be the same as those which would be
required to be used as of the Valuation Date to determine the amount of a lump
sum distribution under the Retirement Plan.
(c) The determination of present values shall be made by
Hewitt Associates, or such other actuarial firm as shall, at the time of the
determination, be the actuary for the Retirement Plan ("Actuary Firm"). The
Corporation shall provide to the Actuary Firm all information in its possession
reasonably requested by the Actuary Firm for the purpose of making such present
value determination.
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<PAGE> 27
(d) The payment of benefits under Paragraph (a)(III) and
(b)(III) of Section 5 shall be made within the time limits set forth in such
Paragraph based upon the present value determinations made by the Actuarial
Firm, and such determinations shall be binding upon the Corporation and the
Executive.
IN WITNESS WHEREOF, the Executive has hereunto set his hand and,
pursuant to the authorization of its Board of Directors, the Corporation has
caused these presents to be executed in its name on its behalf, and its
corporate seal to be hereunto affixed, all as of the day and year first above
written.
---------------------------------
Executive
HANCOCK FABRICS, INC.
By
-------------------------------
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<PAGE> 1
EXHIBIT 10.31
HANCOCK FABRICS, INC.
1991 STOCK COMPENSATION PLAN
FOR NONEMPLOYEE DIRECTORS
1. PURPOSE OF THE PLAN. The Hancock Fabrics, Inc. 1991 Stock Compensation
Plan for Nonemployee Directors ("Plan") is intended to provide an incentive for
ownership of the Company's common stock ("common stock") by nonemployee
directors by providing opportunities for them to elect to defer all or a
portion of their annual cash compensation for services rendered as a director
into common stock subject to certain conditions.
2. SCOPE AND DURATION OF THE PLAN. Elections may be made from time to
time during the life of the Plan. Unless sooner terminated pursuant to
Paragraph 9, the Plan shall terminate on December 11, 2001 and thereafter no
elections may be made under the Plan. Termination of the Plan shall have no
effect on elections theretofore made. The aggregate number of shares of common
stock as to which elections may be made under the Plan shall not exceed 50,000
shares (subject to adjustment as provided in the Plan). Such shares may consist,
in whole or in part, of authorized but unissued shares or shares reacquired by
the Company and not reserved for any other purpose.
3. ADMINISTRATION OF THE PLAN. The Plan shall be administered by the
Chief Executive Officer, the Executive Vice President and the Chief Financial
Officer of the Company (collectively, "Committee"), none of whom is eligible to
participate in the Plan and who shall otherwise be "disinterested persons" as
defined in the regulations promulgated under Section 16 of the Securities
Exchange Act of 1934, as amended
1
<PAGE> 2
("Exchange Act"). The acts of a majority of members of the Committee present at
any meeting at which a quorum is present and acts unanimously approved in
writing by the Committee shall be deemed the acts of the Committee. The
Committee shall have full authority in its discretion, but subject to the
express provisions of the Plan: to determine the time or times at which
elections may be made; to determine the number of shares to be covered by each
election; to determine the terms and provisions of any instrument relating to
elections and receipt of common stock under the Plan, including any legend on
any certificate representing common stock received pursuant to the Plan; to
determine whether and to what extent adjustments shall be made pursuant to the
provisions of Paragraph 8; to interpret the Plan; to prescribe, amend and
rescind rules and regulations relating to the Plan; and to make any other
determinations deemed necessary to or advisable for the administration of the
Plan. All determinations of the Committee shall be conclusive upon all persons,
and no member of the Committee or of the Board of Directors ("Board") shall have
any liability in respect thereof.
4. ELIGIBILITY FACTORS FOR PARTICIPATION. Only directors of the Company
who are not also employees shall be eligible to participate under the Plan. An
election by a director to receive common stock shall not disqualify that
director for a further election or elections under the Plan.
*5. PARTICIPATION. Each eligible director may elect, as to each Plan year
commencing during the term of the Plan, to receive common stock in lieu of all
or part of his or her cash compensation payable for services rendered as a
director for such year. Such amount shall be the election amount divided by the
average of the fair market values
2
<PAGE> 3
of the common stock on each of the closing dates of the four fiscal quarters
immediately preceding the date of such determination.
6. STOCK CERTIFICATES. The stock certificate or certificates registered
in the name of the participant and representing common stock as to which an
election has been made pursuant to Paragraph 5 shall be issued, and the
participant shall be entitled to the delivery thereof, upon the earliest of:
(a) The end of the Plan year to which a prior election relates;
(b) The date on which the participant ceases to be a director; and
(c) The occurrence of a change of control.
Notwithstanding any other provisions of the Plan, no certificate for common
stock shall be issued prior to six months from the date of an election to
receive common stock pursuant to the Plan. No rights of a shareholder in respect
of such common stock shall inure to any person prior to the issuance of the
certificate or certificates representing such stock.
7. NONTRANSFERABILITY. Common stock to be received under the Plan shall
not be transferable, other than in the event of a participant's death to a
designated beneficiary as provided in the Plan or, in the absence of such
designation, by will or the laws of descent and distribution.
8. ADJUSTMENTS. The Committee may make such adjustment, as the Committee
determines to be appropriate, in the number of shares of common stock subject to
elections and in the number of shares as to which elections may be made in order
to compensate for the effect of any change in the Company's capitalization or
structure or in the common stock (including, without limitation, any change
arising through the
3
<PAGE> 4
declaration of stock dividends, whether payable in shares of stock of the
Company or any of its subsidiaries, or through reorganization, recapitalization,
partial liquidation, merger, consolidation or similar event, or through the sale
or exchange of all or substantially all of the Company's assets, or through
stock splitups or combinations or exchanges of shares) or of any stock
purchased pursuant to a tender offer by the Company or any other party.
9. EFFECTIVENESS OF THE PLAN. The Plan shall become effective on December
12, 1991, subject to the approval of the Plan by the Company's shareholders.
10. AMENDMENT AND TERMINATION OF THE PLAN. The Board may amend or
terminate the Plan at any time. No amendment adopted without approval of the
Company's shareholders shall materially increase the number of shares of common
stock as to which elections may be made under the Plan, materially modify the
requirements as to eligibility for participation in the Plan or materially
increase the benefits accruing under the Plan. No amendment or termination of
the Plan shall affect the rights of a participant pursuant to the Plan, except
with the participant's consent.
11. LISTING AND REGISTRATION OF COMMON STOCK. The Company shall be under
no obligation to register under the Securities Act of 1933, as amended ("Act"),
any of the shares of common stock paid under the Plan. The Plan shall be subject
to the requirement that if at any time the Committee shall determine in its
discretion that the listing, registration or qualification of the common stock
contemplated by the Plan upon any securities exchange of any governmental
regulatory body, is necessary or desirable as a condition of or in connection
with the issuance of the common stock or delivery of the related certificate
pursuant to the Plan, no common stock may be issued and no certificate
4
<PAGE> 5
representing any common stock may be delivered unless and until the listing,
registration, qualification, consent or approval shall have been effected or
obtained, and maintained, free of any conditions not acceptable to the
Committee. If the common stock to be issued under the Plan may in certain
circumstances be exempt from registration under the Act, the Company may
restrict the transfer of such shares in such manner as it deems advisable to
ensure the availability of any such exemption.
12. TAXES. The Committee shall have the right to require, prior to the
issuance of, or delivery of any certificates representing, any common stock
issued under the Plan, that the participant pay to the Company the amount of any
taxes which the Company is required to collect with respect to such stock. If
permitted so to do by the Committee, such participant may satisfy any
withholding tax obligation with respect to such stock by allowing the Company to
retain a sufficient number of shares of such stock to cover the amount required
to be collected.
13. DEFINITIONS. As used in the Plan, the following terms are defined as
follows:
(a) Company - Hancock Fabrics, Inc., a Delaware corporation, its
subsidiaries and their successors and assigns.
(b) Subsidiary - A corporation of which the Company owns stock having
fifty percent (50%) or more of the total vesting power.
(c) Participant - A director who has made an election to receive
common stock pursuant to the Plan.
5
<PAGE> 6
(d) Plan year - That period of approximately twelve (12) months
(commencing the day following an annual meeting of shareholders of the Company
and ending on the day of the next annual meeting of shareholders of the Company)
during which a participant's compensation for services rendered as a director is
earned.
(e) Fair market value of the common stock on any given date -
(i) The closing price of the common stock or if there is no
closing price, the average of the lowest and highest selling prices of the
common stock
(A) as reported in the "New York Stock Exchange -
Composite Transactions," or
(B) if the common stock is not listed or admitted to
trading on the New York Stock Exchange, as reported in the principal
consolidated transaction reporting system with respect to securities listed on
the principal national securities exchange on which the common stock is listed
or admitted to trading, or
(ii) if the common stock is not listed or admitted to trading on
any national securities exchange, the last quoted price or, if not so quoted,
the average of the high bid and low asked prices in the over-the-counter market,
as reported by the National Association of Securities Dealers, Inc. Automated
Quotations System or such other system then in use, or
(iii) if on any such date the common stock is not quoted by any
such organization, the average of the closing bid and asked prices as furnished
by a professional market maker making a market in the common stock selected by
the Committee, on such date, or if that date is not a "trading day," on the next
preceding
6
<PAGE> 7
trading day. "Trading day" shall mean a day on which the principal national
securities exchange on which the common stock is listed or admitted to trading
is open for the transaction of business or, if the common stock is not listed or
admitted to trading on any national securities exchange, a Monday, Tuesday,
Wednesday, Thursday or Friday on which banking institutions in the State of New
York are not authorized or obligated by law or executive order to close. If the
common stock is not publicly held or not so listed or traded, the fair market
value of the common stock on that date shall mean the fair value per share as
determined in good faith by the Committee, whose determination shall be final.
(f) Change of Control - A change of control of the Company of a
nature that would be required to be reported in response to Item 1(a) of the
Current Report on Form 8-K, as in effect on the effective date of the Plan,
pursuant to Section 13 or 15(d) of the Exchange Act; provided that, without
limitation, a change of control shall be deemed to have occurred if: (i) a third
person, including a "group" as defined in Section 13(d)(3) of the Exchange Act,
becomes the beneficial owner, directly or indirectly, of 20% or more of the
combined voting power of the Company's outstanding voting securities ordinarily
having the right to vote for the election of directors of the Company; or (ii)
individuals who constitute the Board as of the effective date of the Plan
("incumbent Board") cease for any reason to constitute at least two-thirds
thereof, provided that any person becoming a director subsequent to the
effective date of the Plan whose election, or nomination for election by the
Company's shareholders, was approved by a vote of at least three-quarters of (or
if less, all but one of) the directors constituting the incumbent Board (other
than an
7
<PAGE> 8
election or nomination in connection with an actual or threatened election
contest relating to the election of directors of the Company, as such terms are
used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) shall
be, for purposes of the Plan, considered as though such person were a member of
the incumbent Board.
*As amended June 8, 1995
8
<PAGE> 1
<TABLE>
<CAPTION>
HANCOCK FABRICS, INC. EXHIBIT 11
COMPUTATION OF EARNINGS PER SHARE
(unaudited)
- --------------------------------------------------------------------------
(dollars in thousands, except for
per share amounts) Year Ended
--------------------------
January 28, January 29,
1996 1996
- --------------------------------------------------------------------------
<S> <C> <C>
Primary earnings per share
Net earnings $8,951 $10,139
=========================
Weighted average number of common shares
outstanding during period 21,052,327 21,433,771
Additional shares attributable to common
stock equivalents 227,980 81,009
Shares attributable to tax effect
of restricted stock and 14,092 (396,499)
related deferred compensation -------------------------
21,294,399 21,118,281
=========================
Earnings per share $0.42 $0.48
=========================
- --------------------------------------------------------------------------
Fully diluted earnings per share
Net earnings $8,951 $10,139
=========================
Weighted average number of common shares
outstanding during period 21,052,327 21,433,771
Additional shares attributable to common
stock equivalents 234,133 125,066
Shares attributable to tax effect
of restricted stock and 14,223 (396,499)
related deferred compensation -------------------------
21,300,683 21,162,338
=========================
Earnings per share $0.42 $0.48
=========================
</TABLE>
<PAGE> 1
EXHIBIT 13
FIVE-YEAR SUMMARY OF SIGNIFICANT FINANCIAL INFORMATION
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT PER
SHARE AND STORE AMOUNTS) 1995 1994 1993 1992 1991
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales $364,192 $366,816 $367,745 $380,375 $388,001
Earnings before income taxes and
cumulative effect of changes in
accounting methods (1) 14,721 16,826 8,665 19,105 36,590
Earnings before cumulative effect
of changes in accounting methods 8,951 10,139 5,438 12,118 22,964
Net earnings 8,951 10,139 5,438 12,118 17,307
Earnings per common share
Before cumulative effect of changes
in accounting methods 0.42 0.48 0.26 0.57 1.03
Net earnings 0.42 0.48 0.26 0.57 0.78
Total assets 201,835 208,622 208,548 214,227 215,225
Capital expenditures 1,890 4,043 2,786 4,240 6,260
Long- and short-term indebtedness 30,000 37,000 45,000 58,000 50,000
Common shareholders' equity 100,421 97,089 93,542 94,501 97,229
- ----------------------------------------------------------------------------------------------------------------------------------
Common shares outstanding, net 21,508 21,380 21,397 21,306 22,038
Stores in operation 498 500 500 482 459
</TABLE>
(1) Including decrease from effect of LIFO as follows (in thousands): 1995,
$(3,016); 1994, $(500); 1993, $(6,600); 1992, $(6,998); and 1991, $(4,280).
8
<PAGE> 2
QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
YEARS ENDED JANUARY 28, 1996 AND JANUARY 29, 1995
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) PER COMMON SHARE
-------------------------------
GROSS NET NET CASH
SALES MARGIN EARNINGS EARNINGS(1) DIVIDEND
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1995
First Quarter $ 90,067 $ 40,958 $ 1,298 $0.06 $0.08
Second Quarter 81,549 39,259 843 0.04 0.08
Third Quarter 95,891 46,061 3,352 0.16 0.08
Fourth Quarter 96,685 45,891 3,458 0.16 0.08
- ---------------------------------------------------------------------------------------------------------------------------------
$364,192 $172,169 $ 8,951 $0.42 $0.32
=================================================================================================================================
1994
First Quarter $ 92,894 $ 40,165 $ 1,024 $0.05 $0.08
Second Quarter 81,813 39,167 868 0.04 0.08
Third Quarter 96,505 46,041 3,913 0.18 0.08
Fourth Quarter 95,604 46,014 4,334 0.21 0.08
- ---------------------------------------------------------------------------------------------------------------------------------
$366,816 $171,387 $ 10,139 $0.48 $0.32
=================================================================================================================================
</TABLE>
(1) Per share amounts are based on average shares outstanding during each
quarter and may not add to the total for the year.
9
<PAGE> 3
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table presents the percentage of sales for the periods indicated
and percentage changes from period to period of certain items included in the
Consolidated Statement of Earnings:
<TABLE>
<CAPTION>
PERCENT CHANGE
PERCENT OF NET SALES FROM PRIOR YEAR
--------------------------- --------------------------
1995 1994 1993 1995 1994 1993
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Sales 100.0% 100.0% 100.0% (0.7%) (0.3%) (3.3%)
Comparable store sales 0.3% (0.7%) (5.6%)
Gross Margin 47.3% 46.7% 43.9%
Selling, general and
administrative expenses 41.6% 40.4% 39.8% 2.3% 1.1% (0.6%)
Pretax earnings 4.0% 4.6% 2.4% (12.5%) 94.2% (54.6%)
Net earnings 2.5% 2.8% 1.5% (11.7%) 86.4% (55.1%)
</TABLE>
1995 VERSUS 1994
Sales for 1995 decreased by $2.6 million from 1994, despite an increase in
comparable store sales of 0.3%. This comparable store sales gain partially
offset a $3.6 million net loss of sales from store opening and closing
activity, and wholesale sales declines. Hancock reduced its store base by a net
of 2 stores in 1995.
Several factors adversely affected sales results in 1995. Excess store capacity
in the retail fabric industry continues to have an impact on Hancock's sales
results. Hancock's sales and gross margins continue to be adversely affected by
the industry's aggressive promotional activity, which escalated in 1993. The
struggle for market share put significant pressure on sales and gross margins
as the piece goods industry reduced excess capacity. During 1995, Hancock's
sales were further hindered by inventory liquidations as competitors changed
their merchandise mix to include items unrelated to the fabric industry and as
large numbers of stores closed due to consolidations or worsening financial
conditions. A continuing weakness in demand for apparel fabrics also
contributed to the pressure on same store sales although a more productive
merchandise mix was sufficient to offset the decline in the apparel category.
This more productive mix did not result in significant changes in Hancock's
broad product categories but reflected more subtle changes in its product
offerings designed to keep pace with consumer desires. Management believes that
competitors' inventory liquidations could continue to place pressure on sales
results in the near term.
Hancock's gross margin in 1995, before the effect of LIFO, continued to improve
despite the difficult sales environment. This improvement resulted primarily
from changes in the product mix to less promotional lines of merchandise.
Reported gross margins were reduced by LIFO charges of $3.0 million in 1995 as
compared to $500 thousand in 1994, due to higher indexes utilized in the LIFO
calculations.
Selling, general and administrative expenses increased as a percentage of sales
in 1995 due to an increase of about 2% (or $3.4 million) in actual expenses and
a 0.7% decrease in sales. Occupancy and compensation costs contributed
primarily to the increased selling, general and administrative expense dollars.
Interest expense decreased $142 thousand in 1995 due to a lower level of
average outstanding borrowings which offset higher interest rates.
Hancock plans to open approximately 20 retail fabric stores in 1996 and close
or relocate approximately 35 stores resulting in a net decrease of 15 retail
fabric stores. Hancock's management believes that redeploying inventories and
other assets from underperforming stores to new openings or existing stores is
a more effective utilization of assets during this period of industry
consolidation. Hancock is closely tracking and assessing the contribution of
each store and the effect on total company returns on sales and assets. The
extent of store closings and the related costs will be determined by the
assessment of current and anticipated productivity, current lease terms of the
respective stores and the rent commissions or sublease prospects for such
properties.
Income tax expense decreased by $917 thousand due primarily to the reductions
in pretax income. The effective tax rate was 39.2% in 1995 versus 39.7% in
1994.
1994 VERSUS 1993
Several factors adversely affected sales results in 1994, which decreased $900
thousand from 1993. Beginning in 1993, the excess capacity in fabric retailing
began to take its toll on the sales of industry participants. In an effort to
retain market share, some of the players adopted more promotional pricing, deep
discounting and the like. Certainly, the more intense discounting by
competitors influenced Hancock's pricing to some extent. In addition, Hancock
made a concerted effort to shift its merchandise mix toward less exposure in
the weak apparel category in favor of better performing groups such as home
decorating, quilting and occasional wear. As a result, gross margins in 1993
were somewhat lower than normal due to the reduction of the apparel goods
category. The struggle for market share put pressure on sales and margins
forcing the piece goods industry to begin the process of reducing excess
capacity. During 1994, inventory liquidations of competitors contributed to
Hancock's same store sales decline.
10
<PAGE> 4
Hancock's gross margin in 1994, before the effect of LIFO, improved from 1993
levels despite the promotional environment and the liquidation of competitors'
inventories. The improvement resulted primarily from changes in the product mix
to less promotional lines of merchandise. Reported gross margins were reduced
by LIFO charges of $500 thousand for 1994 compared to $6.6 million for 1993.
Selling, general and administrative expenses increased as a percentage of sales
in 1994 due to an increase of about 1% (or $1.6 million) in actual expenses and
a 0.3% decrease in sales. Occupancy and compensation costs contributed
primarily to the increased selling, general and administrative expense dollars.
Income tax expense increased by $3.5 million due primarily to the increase in
pretax income combined with an increase in the surtax rate that applies to this
level of taxable income in 1994.
FINANCIAL POSITION
Hancock traditionally maintains a strong financial position as evidenced by the
following information as of the end of fiscal years 1995, 1994 and 1993
(dollars in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
--------- ---------- ----------
<S> <C> <C> <C>
Cash and cash equivalents $ 5,026 $ 3,855 $ 4,327
Net cash flows provided:
Operating activities $ 17,068 $ 19,211 $ 18,275
Investing activities $ (1,737) $ (3,944) $ (2,516)
Financing activities $ (14,160) $ (15,739) $ (20,403)
Working Capital $ 122,904 $ 123,795 $ 127,054
Long-term indebtedness to total capitalization 23.0% 27.6% 32.5%
</TABLE>
During 1995, cash provided by operations was negatively impacted by decreased
earnings partially offset by the reduction of inventory. These funds were used
to purchase property and equipment, retire debt and pay dividends.
Historically, Hancock has financed the expansion of its operations with
internally generated cash flow. During 1994, cash provided by operations was
favorably impacted by increased earnings and the reduction of inventory, which
was partially offset by the decrease in accounts payable.
Hancock purchased treasury stock of $431 thousand, $1.0 million and $800
thousand in 1995, 1994 and 1993, respectively. Hancock plans to use future
cash in excess of expansion needs for the retirement of debt and the purchase
of treasury stock as market and financial conditions dictate.
Current assets decreased primarily due to a reduction in inventories which
offset the increases in deferred taxes and cash. In 1995, inventories were
reduced at the retail stores and distribution facility in addition to the
reduction associated with the $3.0 million increase in the LIFO reserve.
Current liabilities were lower due to the decrease in accounts payable, accrued
liabilities and income taxes payable.
CAPITAL REQUIREMENTS
Hancock's primary capital requirements are for the financing of inventories
and, to a lesser extent, for capital expenditures relating to store locations
and its distribution facility. Funds for such purposes are generated from
Hancock's operations and, if necessary, supplemented by borrowings from
commercial lenders.
Capital expenditures amounted to $1.9 million in 1995, $4.0 million in 1994 and
$2.8 million in 1993. New stores and maintenance on existing retail stores and
the distribution center accounted for the majority of these capital
expenditures. These expenditures reflect, in part, the capital required for the
acquisition of certain properties in 1994, and a net increase of 18 retail
fabric stores in 1993.
Hancock estimates that the capital expenditures for 1996 will approximate $4.0
million. Expenditures include the costs for 20 planned new stores and
maintenance on the existing retail stores and distribution center. Internally
generated funds will be sufficient to finance these capital requirements.
In addition to operating cash flows, Hancock has credit arrangements of which
$50 million was available as of January 28, 1996. Hancock's $60 million
revolving credit facility provides for a maturity date of September 20, 1998
and is believed to be adequate for Hancock's needs in the near term. Hancock
also has arrangements with various other lending institutions for $20 million
of uncommitted credit.
EFFECT OF INFLATION
The impact of inflation on labor and occupancy costs can significantly affect
Hancock's operations. Many of Hancock's employees are paid hourly rates related
to the Federal minimum wage; accordingly, any increases will affect Hancock.
Proposed Federal minimum wage hikes would have an adverse effect on earnings
although the impact cannot be readily quantified. In addition, payroll taxes,
employee benefits and other employee related costs continue to increase. Costs
of leases for new store locations remained stable, but the renewal costs of
older leases continue to increase. Taxes, maintenance and insurance costs have
also risen. Hancock believes the practice of maintaining adequate operating
margins through a combination of price adjustments and cost controls, careful
evaluation of occupancy needs and efficient purchasing practices are the most
effective tools for coping with increased costs and expenses.
SEASONALITY
Hancock's business is slightly seasonal. Peak sales periods occur during the
fall and pre-Easter weeks, while the lowest sales periods occur during
preChristmas and midsummer.
11
<PAGE> 5
CONSOLIDATED STATEMENT OF EARNINGS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
YEARS ENDED JANUARY 28, 1996, JANUARY 29, 1995 AND JANUARY 30, 1994
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales $364,192 $366,816 $367,745
Cost of goods sold 192,023 195,429 206,254
- ------------------------------------------------------------------------------------------------------------------------------------
Gross margin 172,169 171,387 161,491
- ------------------------------------------------------------------------------------------------------------------------------------
Expenses (income)
Selling, general and administrative 151,563 148,149 146,509
Depreciation and amortization 3,948 4,182 4,241
Interest expense 2,300 2,442 2,314
Interest income (363) (212) (238)
- ------------------------------------------------------------------------------------------------------------------------------------
Total operating and interest expenses 157,448 154,561 152,826
- ------------------------------------------------------------------------------------------------------------------------------------
Earnings before taxes 14,721 16,826 8,665
Income taxes 5,770 6,687 3,227
- ------------------------------------------------------------------------------------------------------------------------------------
Net earnings $ 8,951 $ 10,139 $ 5,438
====================================================================================================================================
Earnings per share $ 0.42 $ 0.48 $ 0.26
====================================================================================================================================
Weighted average number of common shares and
common equivalent shares outstanding 21,294 21,118 21,161
====================================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
12
<PAGE> 6
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
JANUARY 28, 1996 AND JANUARY 29, 1995
(IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE AMOUNTS) 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 5,026 $ 3,855
Receivables, less allowance for doubtful
accounts of $126 and $145, respectively 1,025 1,842
Inventories 162,915 169,128
Deferred tax asset 3,114 2,629
Prepaid expenses 2,306 2,382
- ------------------------------------------------------------------------------------------------------------------------------------
Total current assets 174,386 179,836
Property and equipment, at depreciated cost 19,462 21,673
Deferred tax asset 7,393 6,753
Other assets 594 360
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets $201,835 $208,622
====================================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 32,573 $ 35,305
Accrued liabilities 14,717 15,935
Income taxes 4,192 4,801
- ------------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 51,482 56,041
Long-term debt obligations 30,000 37,000
Postretirement benefit liability other than pensions 17,784 16,572
Other liabilities 2,148 1,920
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities 101,414 111,533
- ------------------------------------------------------------------------------------------------------------------------------------
Commitments and contingencies (Notes 6 and 11)
- ------------------------------------------------------------------------------------------------------------------------------------
Shareholders' equity:
Common stock, $.01 par value; 80,000,000 shares authorized;
26,962,115 and 26,794,064 issued and outstanding, respectively 270 268
Paid-in capital 18,238 16,425
Retained earnings 165,404 163,339
Less - Treasury stock, at cost, 5,454,097 and 5,413,941
shares held, respectively (79,314) (78,883)
Less - Deferred compensation on restricted
stock incentive plan (4,177) (4,060)
- ------------------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 100,421 97,089
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $201,835 $208,622
====================================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
13
<PAGE> 7
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
YEARS ENDED JANUARY 28, 1996, JANUARY 29, 1995 AND JANUARY 30, 1994
(IN THOUSANDS) 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 8,951 $ 10,139 $ 5,438
Adjustments to reconcile net earnings to
cash provided by operating activities
Depreciation and amortization 3,948 4,182 4,241
LIFO charge 3,016 500 6,600
Deferred income taxes (1,125) (2,862) (1,833)
Amortization of deferred compensation on
restricted stock incentive plan 1,516 1,154 876
(Increase) decrease in assets
Receivables and prepaid expenses 893 (1,847) 1,279
Inventory reduction (growth) at current cost 3,197 3,669 (7,595)
Other noncurrent assets (234) (244) 146
Increase (decrease) in liabilities
Accounts payable (2,732) (1,727) 6,952
Accrued liabilities (1,218) 1,835 (851)
Current income tax obligations (584) 2,649 610
Postretirement benefit liability
other than pensions 1,212 1,305 1,939
Other liabilities 228 458 473
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 17,068 19,211 18,275
- -----------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Additions to property and equipment (1,890) (4,043) (2,786)
Disposition of property and equipment 153 99 270
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (1,737) (3,944) (2,516)
- -----------------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Long-term borrowings (repayments) (7,000) (8,000) (13,000)
Purchase of treasury stock (431) (953) (841)
Proceeds from exercise of stock options 85 4 209
Issuance of shares under directors' stock plan 72 73 75
Cash dividends paid (6,886) (6,863) (6,846)
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (14,160) (15,739) (20,403)
- -----------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents 1,171 (472) (4,644)
Beginning of year cash and cash equivalents 3,855 4,327 8,971
- -----------------------------------------------------------------------------------------------------------------------------------
End of year cash and cash equivalents $ 5,026 $ 3,855 $ 4,327
===================================================================================================================================
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 3,117 $ 2,980 $ 2,283
Income taxes $ 7,479 $ 6,901 $ 4,419
===================================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
14
<PAGE> 8
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
YEARS ENDED JANUARY 28, 1996, JANUARY 29, 1995 AND JANUARY 30, 1994
(IN THOUSANDS, EXCEPT NUMBER OF SHARES)
- -----------------------------------------------------------------------------------------------------------------------------------
ADDITIONAL TOTAL
PAID-IN RETAINED DEFERRED SHAREHOLDERS'
COMMON STOCK CAPITAL EARNINGS TREASURY STOCK COMPENSATION EQUITY
- -----------------------------------------------------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance January 31, 1993 26,507,087 $265 $13,586 $161,471 (5,201,151) $(77,089) $(3,732) $ 94,501
Net earnings 5,438 5,438
Cash dividends ($0.32 per share) (6,846) (6,846)
Exercise of stock options 32,275 249 249
Issuance of restricted stock 146,100 2 1,620 (1,622)
Cancellation of restricted stock (7,800) (96) 96
Amortization and vesting of
deferred compensation on
restricted stock incentive plan 90 876 966
Issuance of shares under
directors' stock plan 6,748 75 75
Purchase of treasury stock (85,875) (841) (841)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance January 30, 1994 26,684,410 267 15,524 160,063 (5,287,026) (77,930) (4,382) 93,542
Net earnings 10,139 10,139
Cash dividends ($0.32 per share) (6,863) (6,863)
Exercise of stock options 600 5 5
Issuance of restricted stock 107,300 1 884 (885)
Cancellation of restricted stock (6,400) (53) 53
Amortization and vesting of
deferred compensation on
restricted stock incentive plan (8) 1,154 1,146
Issuance of shares under
directors' stock plan 8,154 73 73
Purchase of treasury stock (126,915) (953) (953)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance January 29, 1995 26,794,064 268 16,425 163,339 (5,413,941) (78,883) (4,060) 97,089
Net earnings 8,951 8,951
Cash dividends ($0.32 per share) (6,886) (6,886)
Exercise of stock options 13,200 103 103
Issuance of restricted stock 148,800 2 1,654
Cancellation of restricted stock (2,200) (23) 23
Amortization and vesting of
deferred compensation on
restricted stock incentive plan 7 1,516 1,523
Issuance of shares under
directors' stock plan 8,251 72 72
Purchase of treasury stock (40,156) (431) (431)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance January 28, 1996 26,962,115 $270 $18,238 $165,404 (5,454,097) $(79,314) $(4,177) $100,421
====================================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
15
<PAGE> 9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - DESCRIPTION OF BUSINESS
Hancock Fabrics, Inc. ("Hancock") is a retail and wholesale merchant of
fabrics, crafts and related home sewing accessories. Hancock operates 498
stores in 33 states under the following trade names: "Hancock Fabrics,"
"Minnesota Fabrics," "Fabric Warehouse" and "Fabric Market" and supplies over
100 independent wholesale customers.
Note 2 - Summary of Accounting Policies
Consolidated financial statements include the accounts of Hancock and its
wholly owned subsidiary. All significant intercompany accounts and transactions
are eliminated. Hancock maintains its financial records on a 52-53 week fiscal
year ending on the Sunday closest to January 31. Fiscal years 1995, 1994 and
1993, as used herein, refer to the years ended January 28, 1996, January 29,
1995 and January 30, 1994, respectively.
USE OF ESTIMATES AND ASSUMPTIONS that affect the reported amount of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amount of revenues and expenses
during the reporting period is required by management in the preparation of the
financial statements in accordance with generally accepted accounting
principles. Actual results could differ from those estimates.
Cash and cash equivalents include cash on hand, amounts due from banks and
repurchase agreements having original maturities of three months or less and
are reflected as such for purposes of reporting cash flows.
Inventories consist of fabrics, sewing notions and crafts held for resale and
are valued at the lower of cost or market; cost is determined by the last-in,
first-out (LIFO) method. The current cost of inventories exceeded the LIFO cost
by $42.1 million and $39.1 million at January 28, 1996 and January 29, 1995,
respectively.
Depreciation is computed by use of the straight-line method over the estimated
useful lives of buildings, fixtures and equipment. Leasehold costs and
improvements are amortized over the lesser of their estimated useful lives or
the remaining lease term. Average depreciable lives are as follows: building
and improvements 15-20 years; fixtures and equipment 3-10 years; and
transportation equipment 3-5 years.
Maintenance and repairs are charged to expense as incurred and major
improvements are capitalized.
Advertising, including production costs, is charged to expense the first day of
the advertising period. Advertising expense for 1995, 1994 and 1993 was $15.3
million, $14.8 million and $15.3 million, respectively.
Preopening costs of new stores are charged to expense in the year that the
store opens. These costs primarily include labor to stock the store, store
supplies and other expendable items.
Earnings per share are based on the weighted average number of common shares
and common equivalent shares outstanding. Common equivalent shares represent
dilutive stock options and restricted stock shares, reduced by the number of
shares which could be repurchased at the average fair market value during the
year with the proceeds of the options and the income tax savings available from
recognizing compensation expense as a tax deduction.
NOTE 3 - PROPERTY AND EQUIPMENT (IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1994
------- --------
<S> <C> <C>
Buildings and improvements $10,949 $11,041
Leasehold improvements 8,660 8,822
Fixtures and equipment 36,284 35,457
Transportation equipment 1,478 1,376
Assets under capital leases 168 218
------- -------
57,539 56,914
Less accumulated depreciation and amortization 40,416 37,624
------- -------
17,123 19,290
Land 2,339 2,383
------- -------
$19,462 $21,673
======= =======
NOTE 4 - ACCRUED LIABILITIES (IN THOUSANDS)
1995 1994
------- -------
Payroll and benefits $ 5,902 $ 6,557
Property taxes 3,152 3,194
Sales taxes 1,622 1,685
Other 4,041 4,499
------- -------
$14,717 $15,935
======= =======
</TABLE>
16
<PAGE> 10
NOTE 5 - LONG-TERM DEBT OBLIGATIONS (IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Revolving credit agreement $20,000 $10,000
Notes payable to banks 10,000 2,000
Note payable to insurance company 25,000
------- -------
$30,000 $37,000
======= =======
</TABLE>
In 1993, Hancock entered into a $60 million revolving credit agreement with
NationsBank of Georgia as agent. This agreement provides for a maturity date of
September 20, 1998 on any outstanding borrowings and an annual facility fee of
1/8 of 1%. Borrowings under the revolving credit agreement bear interest at a
negotiated rate, a floating rate (the higher of federal funds rate plus 1/2% or
the prime rate), a rate derived from the Certificate of Deposit Rate or a rate
derived from the London Interbank Offered Rate.
Additionally, Hancock has other credit arrangements with various lending
institutions aggregating $20 million. At January 28, 1996, $10 million was
outstanding under certain of these arrangements. These notes payable are
classified as long-term obligations due to Hancock's ability and intent to
re-finance these arrangements under the revolving credit agreement. A total of
$25 million with an insurance company was outstanding at January 29, 1995 which
was repaid on November 5, 1995.
During 1992, a lending institution repurchased an interest rate swap agreement
with Hancock for $1.6 million. This gain was deferred and amortized over the
three-year life of the related debt that matured on November 5, 1995.
At January 28, 1996, the effective interest rates on all outstanding borrowings
ranged from 5.77% to 5.85% with a weighted average of 5.81%. Under the most
restrictive covenants of these agreements, Hancock is required to maintain a
specified consolidated tangible net worth, a debt to cash flow ratio and an
interest coverage ratio.
NOTE 6 - LONG-TERM LEASES
Hancock leases its retail fabric store locations under noncancelable operating
leases expiring at various dates through 2014. Certain of the leases for store
locations provide for additional rent based on sales volume.
Rent expense consists of the following (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Minimum rent under operating leases $28,204 $27,789 $27,070
Additional rent based on sales under all leases 125 163 164
------- ------- -------
$28,329 $27,952 $27,234
======= ======= =======
</TABLE>
Minimum rental payments under all operating leases as of January 28, 1996 are
as follows (in thousands):
<TABLE>
<CAPTION>
Fiscal Year
<S> <C>
1996 $ 24,537
1997 21,571
1998 19,444
1999 17,474
2000 14,825
Thereafter 52,826
--------
Total minimum lease payments $150,677
========
</TABLE>
NOTE 7 - INCOME TAXES
The components of income tax expense are as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Currently payable
Federal $ 5,804 $ 7,967 $ 4,475
State 1,091 1,582 585
------- ------- -------
6,895 9,549 5,060
------- ------- -------
Deferred
Current (485) (2,299) (1,043)
Noncurrent (640) (563) (790)
------- ------- -------
(1,125) (2,862) (1,833)
------- ------- -------
$ 5,770 $ 6,687 $ 3,227
======= ======= =======
</TABLE>
Deferred income taxes are provided in recognition of temporary differences in
reporting certain revenues and expenses for financial statement and income tax
purposes.
17
<PAGE> 11
The net current deferred tax asset is comprised of the following (in
thousands):
<TABLE>
<CAPTION>
1995 1994
------ -------
<S> <C> <C>
Current deferred tax assets
Inventory valuation methods $1,867 $1,570
Accrual for medical insurance 639 593
Accrual for workers' compensation 295 233
Other items 313 289
------ ------
Gross current deferred tax assets 3,114 2,685
------ ------
Current deferred tax liabilities - other
(56)
------ ------
$3,114 $2,629
====== ======
The net noncurrent deferred tax asset is comprised of the following (in
thousands):
<CAPTION>
1995 1994
------ ------
<S> <C> <C>
Noncurrent deferred tax assets
Postretirement benefits other than pensions $ 6,424 $ 5,963
Accrual for pension liability 865 943
Deferred gain on swap repurchase 154
Difference in recognition of restricted stock expense 376 356
Deferred compensation liability 499 431
Other deferred deduction items 601 593
------- -------
Gross deferred tax assets 8,765 8,440
Noncurrent deferred tax liabilities - depreciation (1,372) (1,687)
------- -------
$ 7,393 $ 6,753
======= =======
</TABLE>
The ultimate realization of a significant portion of this asset is dependent
upon the generation of future taxable income sufficient to offset the related
deductions on future tax periods in which they reverse.
A reconciliation of the statutory Federal income tax rate to the effective
tax rate is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
----- ----- -----
<S> <C> <C> <C>
Statutory Federal income tax rate 35.0% 35.0% 35.0%
State income taxes, net of Federal income tax effect 3.9 3.9 2.9
Other .3 .8 (.7)
---- ---- ----
Effective tax rate 39.2% 39.7% 37.2%
==== ==== ====
</TABLE>
NOTE 8 - SHAREHOLDERS' INTEREST
AUTHORIZED CAPITAL
Hancock's authorized capital includes five million shares of $.01 par value
preferred stock, none of which have been issued.
COMMON STOCK PURCHASE RIGHTS
Hancock has entered into a Common Stock Purchase Rights Agreement, as amended,
(the "Rights Agreement"), with Continental Stock Transfer & Trust Company, as
Rights Agent. The Rights Agreement, in certain circumstances, would permit
shareholders to purchase common stock at prices which would be substantially
below market value. These circumstances include the earlier of (i) the tenth
day after an announcement that a person or group has acquired beneficial
ownership of 20% or more of the Hancock shares, with certain exceptions such as
a tender offer that is approved by a majority of Hancock's Board of Directors,
or (ii) the tenth day, or such later date as set by Hancock's Board of
Directors, after a person or group commences, or announces its intention to
commence, a tender or exchange offer, the consummation of which would result in
beneficial ownership of 30% or more of the Hancock shares.
STOCK REPURCHASE PLAN
On March 2, 1989, Hancock's Board of Directors approved the repurchase from
time to time of up to two million shares of common stock through open market
purchases or privately negotiated transactions. Through February 3, 1991,
Hancock had repurchased 1,971,630 shares (before restatement for the effect of
the two-for-one stock split on April 1, 1991) of the authorized amount.
On December 6, 1990 and on June 11, 1992, Hancock's Board of Directors approved
additional repurchases aggregating in total up to two million shares of common
stock. During 1995, 1994 and 1993, 40,156, 126,915 and 85,875 shares,
respectively, have been repurchased under these authorizations which were not
adjusted by the Board for the stock split.
18
<PAGE> 12
NOTE 9 - EMPLOYEE BENEFIT PLANS
STOCK OPTIONS
In 1987, Hancock adopted a stock option plan which, as amended, authorized the
granting of options to employees for up to two million shares of common stock,
at an exercise price of no less than 50% of fair market value on the date the
options are granted. With the exception of the initial options granted, the
exercise price has equaled the fair market value on the date all options are
granted. On March 19, 1992, Hancock's Board of Directors increased the
authorized option shares by one million. The plan provides that shares as to
which options granted under the plan are canceled become available for further
option grant.
At January 28, 1996, options for a total of 4,603,675 shares of common stock
had been granted under the plan, including 462,970 shares for which options
have been subsequently exercised and 2,050,733 shares for which options have
terminated unexercised. Options outstanding at January 28, 1996 expire in 1997
through 2005.
On June 7, 1995, Hancock's Board of Directors approved a plan to cancel those
outstanding options with option prices higher than the fair market value of
Hancock's common stock price on June 6, 1995 ($8.13) and grant options
(designated collectively as "substitute options") for shares equal to the
number of shares as to which options were canceled. The aggregate number of
substitute options granted was 1,523,075, and they become exercisable on June
8, 1996.
A summary of activity in the plan for the years ended January 28, 1996, January
29, 1995 and January 30, 1994 follows:
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Outstanding at beginning of year 1,858,270 1,707,670 1,264,245
Options granted
$ 8.13 share 1,867,275
$ 8.25 share 274,400
$10.00 share 567,800
---------- --------- ---------
Total granted 1,867,275 274,400 567,800
Options exercised
$8.13 share (1,600)
$8.44 share (3,200)
$6.25 share (1,600) (600) (6,075)
$5.00 share (10,000) (23,000)
---------- --------- ---------
Total exercised (13,200) (600) (32,275)
---------- --------- ---------
Options canceled (1,622,375) (123,200) (92,100)
---------- --------- ---------
Outstanding at end of year 2,089,970 1,858,270 1,707,670
========== ========= =========
Exercisable at end of year 290,195 1,359,470 1,059,670
========== ========= =========
</TABLE>
The options exercisable at January 28, 1996 are exercisable at prices ranging
from $3.13 to $8.13 per share.
RESTRICTED STOCK
Hancock adopted the 1989 Restricted Stock Plan under which as many as one
million shares of common stock, as adjusted, may be issued to key employees at
no cost to the employees. During 1995, 1994 and 1993, 148,800, 107,300 and
146,100 restricted shares, respectively, were issued under the plan to officers
and key employees. Compensation expense related to the shares issued is
recognized over the period for which restrictions apply.
RETIREMENT PLANS
Substantially all full-time employees are covered by a trusteed,
noncontributory retirement plan maintained by Hancock. The retirement benefits
provided by this plan are primarily based on years of service and employee
compensation. Pension costs are funded by quarterly contributions to the trust.
Net periodic pension costs for the years ended January 28, 1996, January 29,
1995 and January 30, 1994, included the following benefit and cost components
based on an actuarial valuation for the years ended December 31, 1995, 1994 and
1993, respectively (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Service costs $ 1,496 $ 1,575 $ 1,375
Interest costs 1,911 1,735 1,540
Return of plan assets (5,280) 508 (2,422)
Amortization of unrecognized net transition asset (254) (254) (254)
Deferral of investment gains (losses) in
excess of (less than) expected returns 3,303 (2,558) 588
Amortization of unrecognized prior service costs 115 115 56
------- ------- -------
Net periodic pension costs $ 1,291 $ 1,121 $ 882
======= ======= =======
</TABLE>
19
<PAGE> 13
The funded status and the amounts recognized in Hancock's consolidated balance
sheet for defined benefit plans based on an actuarial valuation as of the
measurement dates of December 31, 1995 and 1994 are as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994
------- --------
<S> <C> <C>
Accumulated benefit obligation
Vested $25,660 $21,289
Nonvested 2,102 1,957
------- -------
$27,762 $23,246
======= =======
Plan assets at market value $27,996 $22,127
Actuarial present value of projected benefit obligation (29,072) (24,573)
------- -------
Funded status (1,076) (2,446)
Unrecognized net transition asset (1,271) (1,526)
Unrecognized net (gain) (1,565) (501)
Unrecognized prior service costs 1,082 1,197
------- -------
Accrued pension costs $(2,830) $(3,276)
======= =======
</TABLE>
Plan assets include fixed income and equity funds, comprising of corporate and
government debt securities and common stock, and real estate. The unrecognized
net transition asset is being amortized over 15 years beginning in 1986.
Actuarial assumptions used in the period-end valuations were as follows:
<TABLE>
<CAPTION>
1995 1994 1993
----- ----- -----
<S> <C> <C> <C>
Discount rate 7.25% 8.00% 7.50%
Rate of increase in compensation levels 4.00% 5.00% 4.50%
Expected long-term rate of return on assets 9.00% 9.00% 9.00%
</TABLE>
INCENTIVE COMPENSATION PLANS
Hancock's store management and key management personnel participate in
incentive compensation plans. Approximately 600 employees are covered under the
plans. Provision for payments to be made under the plans is based primarily on
pretax earnings in excess of a specified return on capital employed in the
operations. The amounts expensed under the plans were $2.2 million, $2.6
million and $2.0 million in 1995, 1994 and 1993, respectively.
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
Certain health care benefits are provided by Hancock to substantially all
retired employees with more than 15 years of credited service. At December 31,
1995 and 1994, Hancock's accumulated postretirement benefit obligation is as
follows (in thousands):
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Retiree benefit obligation $ 2,695 $ 2,516
Fully eligible active benefit obligation 526 432
Other active benefit obligation 9,735 8,815
------- -------
12,956 11,763
Unrecognized net gain 4,828 4,809
------- -------
$17,784 $16,572
======= =======
</TABLE>
The medical care cost trend rates used in determining this obligation for
employees before age 65 is 10.50% decreasing by .75% annually before leveling
at 4.75%. For individuals 65 and over, the rate is 8.00% decreasing by .75%
annually before leveling at 4.25%. This trend rate assumption has a significant
effect on the amounts reported. To illustrate, increasing the combined health
care cost trend by 1% would increase the accumulated postretirement benefit
obligation by $2.5 million.
The discount and the salary scale rates used in calculating the obligations
were 7.25% and 4.0%, respectively at December 31, 1995 and 8.0% and 5.0%,
respectively at December 31, 1994.
Net periodic postretirement benefit costs included the following (in
thousands):
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Service cost (benefit attributable to current year service) $ 885 $1,002 $1,148
Interest cost 893 840 975
Amortization of unrecognized gain (299) (174) (11)
------ ------ ------
$1,479 $1,668 $2,112
====== ====== ======
</TABLE>
Hancock's policy is to fund claims as incurred. Claims paid in 1995, 1994 and
1993 totaled $267,000, $364,000 and $173,000, respectively.
20
<PAGE> 14
NOTE 10 - FAIR VALUE OF FINANCIAL INSTRUMENTS
At January 28, 1996, Hancock did not have any outstanding financial derivative
instruments. The following table presents the carrying amounts and estimated
fair values of Hancock's financial instruments at January 28, 1996 and January
29, 1995 pursuant to Financial Accounting Standards Board Statement No. 107,
"Disclosures about Fair Value of Financial Instruments" (in thousands).
<TABLE>
<CAPTION>
1995 1994
--------------------------------- -------------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Financial Assets
Cash and cash equivalents $ 5,026 $ 5,026 $ 3,855 $ 3,855
Receivables 1,025 1,025 1,842 1,842
Financial Liabilities
Long-term debt 30,000 30,000 37,000 36,500
</TABLE>
The following methods and assumptions were used to estimate the fair value of
each class of financial instrument:
Cash and receivables: The carrying amounts approximate fair value because of
the short maturity of those instruments.
Long-term debt: The fair value of Hancock's long-term debt is estimated based
on the current borrowing rates available to Hancock for bank loans with similar
terms and average maturities.
NOTE 11 - COMMITMENTS AND CONTINGENCIES
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject Hancock to concentrations of
risk are primarily cash and cash equivalents. Hancock places its cash and cash
equivalents in insured depository institutions and limits the amount of credit
exposure to any one institution.
LITIGATION
Hancock is a party to several pending legal proceedings and claims. Although
the outcome of such proceedings and claims cannot be determined with certainty,
Hancock's management is of the opinion that it is unlikely that these
proceedings and claims will have a material effect on the financial condition
or operating results of Hancock.
REPORT OF INDEPENDENT ACCOUNTANTS [LOGO]
To the Board of Directors and
Shareholders of Hancock Fabrics, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of earnings, of shareholders' equity and of cash flows
present fairly, in all material respects, the financial position of Hancock
Fabrics, Inc. and its subsidiary at January 28, 1996 and January 29, 1995, and
the results of their operations and their cash flows for each of the three
years in the period ended January 28, 1996, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/s/ Price Waterhouse LLP
Memphis, Tennessee
March 8, 1996
<PAGE> 1
EXHIBIT 21
Subsidiaries of Hancock Fabrics, Inc.
<TABLE>
<CAPTION>
Names Under Which
State of Subsidiary
Name Incorporation Does Business
- ----------------------- ------------- -----------------
<S> <C> <C>
Minnesota Fabrics, Inc. Minnesota Minnesota Fabrics
Fabric Market
</TABLE>
<PAGE> 1
EXHIBIT 23
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Nos. 33-17215, 33-29138 and 33-55419) of Hancock
Fabrics, Inc. of our report dated March 8, 1996 appearing on Page 21 of The
Annual Report to Shareholders which is incorporated in this Annual Report on
Form 10-K.
PRICE WATERHOUSE LLP
Memphis, Tennessee
April 22, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A)
CONSOLIDATED BALANCE SHEET P. 13 HANCOCK ANNUAL REPORT, CONSOLIDATED STATEMENT
OF EARNINGS P. 12 HANCOCK ANNUAL REPORT - EXHIBIT 13 FORM 10K AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH (B) FORM 10K
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-28-1996
<PERIOD-START> JAN-29-1995
<PERIOD-END> JAN-28-1996
<CASH> 5,026
<SECURITIES> 0
<RECEIVABLES> 1,025
<ALLOWANCES> 0
<INVENTORY> 162,915
<CURRENT-ASSETS> 174,386
<PP&E> 19,462
<DEPRECIATION> 0
<TOTAL-ASSETS> 201,835
<CURRENT-LIABILITIES> 51,482
<BONDS> 0
0
0
<COMMON> 270
<OTHER-SE> 100,151
<TOTAL-LIABILITY-AND-EQUITY> 201,835
<SALES> 364,192
<TOTAL-REVENUES> 364,192
<CGS> 192,023
<TOTAL-COSTS> 155,148
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,300
<INCOME-PRETAX> 14,721
<INCOME-TAX> 5,770
<INCOME-CONTINUING> 8,951
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,951
<EPS-PRIMARY> .42
<EPS-DILUTED> .42
</TABLE>
