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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
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 FEBRUARY 2, 1997
(NO FEE REQUIRED, EFFECTIVE OCTOBER 7, 1996)
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-9482
____________
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 thisForm 10-K. [ X ]
As of April 15, 1997, there were 21,101,769 shares of Hancock Fabrics, Inc.
$.01 par value common stock held by non- affiliates with an aggregate market
value of $232,119,459. As of April 15, 1997, there were 21,575,702 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 12, 1997, 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. 1996 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. 1996 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.
1996 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
PART I
Page
Number
------
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
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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 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 February 2, 1997,
Hancock operated 462 fabric stores in 33 states under the names "Hancock
Fabrics," "Minnesota Fabrics" and "Fabric Warehouse." 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 no stores (net) in 1994, and decreased its total stores by two
(2) in 1995 and by thirty-six (36) in 1996. During 1997, Hancock plans to open
approximately 30 stores and close approximately 40 stores.
As a wholesaler, Hancock sells to approximately 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 February 2, 1997.
MARKETING
Hancock principally serves the home sewing and home decorating markets, which
largely consist of value conscious women who make
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clothing for their families and decorations for their homes or who hire
professional home seamstresses to sew for them. Quilters, crafters and
hobbyists also comprise a portion of the base ofcustomers, 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 26 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 1997.
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 February 2, 1997. 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 competitors experiencing
financial difficulties and industry consolidation. Store closings and
associated inventory liquidations by competitors slowed during 1996 as the
piece goods retail capacity adjusted more closely to customer demand.
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
pre-Christmas and midsummer.
EMPLOYEES
At February 2, 1997, Hancock employed approximately 6,500 people on a full-time
and part-time basis, approximately 6,200 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, the upcoming increase in the Federal minimum wage will
affect Hancock's labor cost.
ITEM 2: PROPERTIES
Hancock's 462 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-two (62) "Fabric Warehouse" stores range in size
from 10,000 to 30,000 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 years and most leases
contain one or more renewal options, usually of five years in length. At
February 2, 1997, the remaining terms of the leases for stores in operation,
including renewal options, averaged approximately 12 years. During 1997, 51
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
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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. 1996
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 56 Chairman of the Board. Prior to June 1996, Chief Executive Officer and
President.
Larry G. Kirk 50 Chief Executive Officer from June 1996, President & CFO from June 1994, Chief
Financial Officer, prior thereto, Director from December 1990.
Jack W. Busby, Jr. 54 Executive Vice President and Chief Operating Officer from June 1996; Executive
Vice President and Director of Retail Operations, prior thereto.
Bruce D. Smith 38 Senior Vice President, Chief Financial Officer and Treasurer from March 13,
1997, Senior Vice President from November 4, 1996. Prior thereto, Executive
Vice President and Chief Financial Officer with Fred's, Inc. from October,
1991.
</TABLE>
The term of each of the officers expires June 12, 1997.
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>
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
April 28, 1996.................$11.63 $ 9.38 $.08
July 28, 1996.................. 11.63 8.75 .08
October 27, 1996............... 9.25 8.38 .08
February 2, 1997............... 12.88 8.13 .08
</TABLE>
As of April 15, 1997, there were 10,965 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 February 2, 1997, which
appears on page 8 of the Hancock Fabrics, Inc. 1996 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
Management's discussion and analysis of financial condition and results of
operations appearing on pages 9 to 11 of the Hancock Fabrics, Inc. 1996 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 7, 1997, appearing on pages 12 to 21 of the Hancock Fabrics,
Inc. 1996 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
12, 1997, 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
(a) The following documents are filed as part
of this report:
(1) Consolidated Financial Statements:
Page
Number *
--------
Report of Independent Accountants............. 21
Consolidated Statement of Earnings for the
three years ended February 2, 1997.......... 12
Consolidated Balance Sheet at February 2, 1997
and January 28, 1996........................ 13
Consolidated Statement of Cash Flows
for the three years ended February 2, 1997.. 14
Consolidated Statement of Shareholders' Equity
for the three years ended February 2, 1997.. 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............ 8
* Incorporated by reference from the indicated pages of
the Hancock Fabrics, Inc. 1996 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(d) Certificate of Incorporation of Registrant.
3.2(i) By-Laws of Registrant.
4.1(d) Certificate of Incorporation of Registrant.
4.2(i) By-Laws of Registrant.
4.3(c) 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.
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<TABLE>
<S> <C>
4.4(f) 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(f) Agreement between Registrant and Continental Stock Transfer & Trust
Company(as Rights Agent) dated as of July 16, 1992.
4.6(g) 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(g) Credit Agreement dated as of September 20,1993.
10.2(i) Amendment to Credit Agreement dated as of May 31, 1995.
10.3(i) 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.
10.4(i) Form of Indemnification Agreements dated June 8, 1995 between
Registrant and each of Dean W. Abraham, Bradley A. Berg, Jack W. Busby,
Jr., Larry D. Fair, James A. Gilmore, David A. Lancaster, Billy M.
Morgan, James A. Nolting, William D. Smothers, and Carl W. Zander.
10.5 Form of Indemnification Agreement dated June 13, 1996 between
the Registrant and each of Tom R. Collins, Jeffie L. Gatlin,
Ellen J. Kennedy, Bruce E. Rockstad and William A. Sheffield, Jr.
10.6 Indemnification Agreement between Registrant and Bruce D. Smith dated
as of December 10, 1996.
10.7(f)# Agreement between Registrant and Morris O. Jarvis dated as of May 3, 1987.
10.8(a)# Amendment to Severance Agreement and to Deferred Compensation Agreement between
Registrant and Morris O. Jarvis dated as of June 9, 1988.
10.9(a)# Agreement to Secure Certain Contingent Payments between Registrant and Morris O.
Jarvis dated as of June 9, 1988.
10.10(c)# Agreement between Registrant and Jack W. Busby, Jr. dated as of June 9, 1988.
10.11(c)# Agreement to Secure Certain Contingent Payments between Registrant and Jack
W. Busby, Jr. dated as of June 9, 1988.
10.12(b)# Agreement between Registrant and Larry G. Kirk dated as of June 9, 1988.
10.13(b)# Agreement to Secure Certain Contingent Payments between Registrant and Larry G.
Kirk dated as of June 9, 1988.
10.14(f) # Amendment, Extension and Restatement of Severance Agreement between Registrant and
</TABLE>
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<TABLE>
<S> <C>
Morris O. Jarvis dated as of March 10, 1993.
10.15(f)# Form of Amendment, Extension and Restatementof Severance Agreements dated as of
March 10, 1993 between Registrant and each of Jack W. Busby, Jr. and Larry G. Kirk.
10.16 i # Amendment and Renewal of Severance Agreement between Registrant and Morris O.
Jarvis dated as of March 14, 1996.
10.17 i # 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.
10.18 # Retirement Agreement between Registrant and Morris O. Jarvis dated as of April 2, 1996.
10.19 # Amendment to Deferred Compensation Agreement, Severance Agreement, and Agreement to
Secure Certain Contingent Payments between Registrant and Larry G. Kirk dated
as of June 13, 1996.
10.20 # Amendment to Deferred Compensation, and Agreement to Secure Certain Contingent
Payments between Registrant and Jack W. Busby, Jr., dated as of June 13, 1996.
10.21 # Agreement between Registrant and Larry D. Fair dated as of June 13, 1996.
10.22 # Severance Agreement between Registrant and Larry D. Fair dated as of June 13, 1996.
10.23 # Agreement to Secure Certain Contingent Payments under Severance Agreement between
Registrant and Larry D. Fair dated as of June 13, 1996.
10.24 # Agreement between Registrant and Bruce D. Smith dated as of December 10, 1996.
10.25 # Severance Agreement between Registrant and Bruce D. Smith dated as of December 10, 1996.
10.26 # Agreement to Secure Certain Contingent Payments between Registrant and Bruce D. Smith
dated as of December 10, 1996.
10.27(h)# Supplemental Retirement Plan, as amended.
10.28(e)# 1987 Stock Option Plan, as amended.
10.29 # 1996 Stock Option Plan.
10.30(d)# Extra Compensation Plan.
10.31(b)# 1989 Restricted Stock Plan.
10.32 # 1995 Restricted Stock Plan.
10.33(i)# 1991 Stock Compensation Plan for Nonemployee Directors, as amended.
11 Computation of Earnings Per Share.
13 Portions of the Hancock Fabrics, Inc. 1996 Annual Report to Shareholders (for the fiscal
year ended February 2, 1997) 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).
</TABLE>
____________
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(a) Incorporated by reference from Registrant's Form 10-K dated April 26,
1989 as filed with the Securities and Exchange Commission.
(b) Incorporated by reference from Registrant's Form 10-K dated April 26,
1990 as filed with the Securities and Exchange Commission.
(c) Incorporated by reference from Registrant's Form 10-K dated April 26,
1991 as filed with the Securities and Exchange Commission.
(d) Incorporated by reference from Registrant's Form 10-K dated April 27,
1992 as filed with the Securities and Exchange Commission.
(e) Incorporated by reference from Registrant's Form 10-Q dated June 12,
1992 as filed with the Securities and Exchange Commission.
(f) Incorporated by reference from Registrant's Form 10-K dated April 26,
1993 as filed with the Securities and Exchange Commission.
(g) Incorporated by reference from Registrant's Form 10-K dated April 27,
1994 as filed with the Securities and Exchange Commission.
(h) Incorporated by reference from Registrant's Form 10-K dated April 24,
1995 as filed with the Securities and Exchange Commission.
(i) Incorporated by reference from Registrant's Form 10-K dated April 22,
1996 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), 33-29138 (filed June 12, 1989)and
33-55419, (filed September 9, 1994):
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, 1997.
HANCOCK FABRICS, INC.
BY /s/ Larry G. Kirk
------------------------------
Larry G. Kirk
President and
Chief Executive Officer
BY /s/ Bruce D. Smith
------------------------------
Bruce D. Smith
Chief Financial Officer
(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, 1997.
SIGNATURE TITLE
/s/ Morris O. Jarvis Chairman of the Board,
- ------------------------- Director
(Morris O. Jarvis)
/s/ Larry G. Kirk President,
- ------------------------- Chief Executive Officer and
(Larry G. Kirk) Director
/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 10.5
INDEMNIFICATION AGREEMENT
This Agreement is made as of June 13, 1996, by and between Hancock
Fabrics, Inc., a Delaware corporation (the "Company"), and Tom R. Collins
("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 remuner- ation, 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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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 tothe
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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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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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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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
byoperation 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"
----------------------------------------
Tom R. Collins
"Officer"
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EXHIBIT 10.6
INDEMNIFICATION AGREEMENT
This Agreement is made as of December 10, 1996, by and between Hancock
Fabrics, Inc., a Delaware corporation (the "Company"), and Bruce D. Smith
("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.
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"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, 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
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<PAGE> 3
(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 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.
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<PAGE> 4
(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 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
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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 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.
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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 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.
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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.
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 10.18
RETIREMENT AGREEMENT
AGREEMENT between Hancock Fabrics, Inc., a Delaware corporation (the
"Corporation"), and Morris O. Jarvis (the "Executive"), dated as of April 2,
1996.
R E C I T A L S :
A. The Corporation and the Executive have entered into an
agreement evidenced by their letter of understanding dated March 27, 1996
("Letter").
B. The Letter provides that the Corporation and the Executive
will also enter into a more formal contractual document that will include the
terms of the Letter.
C. As so provided by the Letter, the Corporation and the
Executive desire to enter into this Retirement Agreement ("Agreement").
NOW, THEREFORE, IN CONSIDERATION OF THE MUTUAL COVENANTS HEREIN
CONTAINED, IT IS HEREBY AGREED:
1. The Executive shall resign from the office of Chief Executive
Officer of the Corporation ("CEO") and all offices the Executive holds in
Minnesota Fabrics, Inc., effective June 13, 1996 at the meeting of the Board of
Directors of the Corporation (the "Board") following the 1996 Annual Meeting of
Shareholders.
2. The transition of the management of the Corporation to the
Executive's successor as CEO shall begin effective with the Press Release
contemplated by paragraph 17 below.
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<PAGE> 2
3. At the request of the Board, the Executive shall remain as
Chairman of the Board until the Executive's Retirement Date (as defined in
paragraph 4 below). The Executive's responsibilities as Chairman of the Board
will be to preside over Board meetings and to perform such special assignments
as are requested by the Board or the successor CEO.
4. The Executive shall retire as Chairman of the Board and as an
employee of the Corporation effective at the adjournment of the Corporation's
1997 Annual Meeting of Shareholders ("the Retirement Date").
5. Throughout the period prior to the Retirement Date the
Executive shall make all reasonable and good faith efforts to assist the
Corporation and the successor CEO for the purpose of achieving an orderly and
positive transition and succession of management.
6. The Corporation shall pay to the Executive for his services an
annual base salary at the rate of $275,000 per year through the Retirement
Date.
7. Provided that bonuses are granted to officers under the
Hancock Fabrics, Inc. Extra Compensation Plan for the 1996 fiscal year, the
Executive shall be eligible to receive, in respect of the portion of fiscal
year 1996 during which the Executive serves as CEO, a pro rata bonus under that
Plan at the same percentage allocation as the Executive's 1995 fiscal year
allocation.
8. After the date of this Agreement, the Corporation shall not
make to the Executive any additional grants of stock options or awards of
restricted stock under the Hancock Fabrics, Inc. 1987 Stock Option Plan ("Stock
Option Plan"), the Hancock
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<PAGE> 3
Fabrics, Inc. 1989 Restricted Stock Plan ("Restricted Stock Plan"), the Hancock
Fabrics, Inc. 1995 Stock Option Plan, or the Hancock Fabrics, Inc. 1995
Restricted Stock Plan.
9. Until the Retirement Date, the Executive will continue to
accrue benefits under the Hancock Fabrics, Inc. Consolidated Retirement Plan
("Retirement Plan") and the Hancock Fabrics, Inc. Supplemental Retirement
Benefit Plan ("SERP") and shall be entitled to continue to make deferrals under
the Hancock Retirement Savings Plan ("401(k) Plan"), in accordance with the
rights of the Executive as a participant in those Plans and the manner in which
those Plans are regularly administered.
10. As soon as practicable after the 1996 Annual Meeting of
Shareholders and until the Retirement Date, the Corporation shall provide the
Executive with an office in the Tupelo area, the furnishings from the
Executive's present office, necessary office equipment, and a secretary or such
secretarial assistance as the Executive requires.
11. Until the Retirement Date, the Executive shall continue to
receive the other benefits and privileges available to officers of the
Corporation (except as any of those benefits or privileges may be modified by
the terms of this Agreement).
12. Upon the Retirement Date, the Executive will commence to
receive payments under the terms of his deferred compensation agreement
(entitled the "Agreement," dated May 3, 1987 and subsequently amended), as
provided in that deferred compensation agreement, as amended.
13. Pursuant to the terms of the Stock Option Plan, the Executive
will have the one-year period following the Retirement Date in which to
exercise any outstanding stock options the Executive holds under the Stock
Option Plan.
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<PAGE> 4
14. Upon the Retirement Date, the Executive will commence
receiving pension benefits as provided in the early retirement provisions of
the Retirement Plan and the SERP, and will be entitled to take distribution of
his accrued benefit under the 401(k) Plan in accordance with the provisions of
the 401(k) Plan regarding distributions.
15. In consideration of the Executive's cooperation with the
Corporation and the successor CEO throughout the period from the date of this
Agreement to the Retirement Date in achieving an orderly and positive
transition and succession of management, the Corporation shall provide to the
Executive the following additional renumeration and benefits:
a. The Corporation shall take all necessary and
appropriate action to implement the decision of the Management Review and
Compensation Committee of the Corporation ("MRCC") to remove, effective as of
the Retirement Date, the restrictions on all restricted stock heretofore
granted to the Executive under the Restricted Stock Plan.
b. For the period from the Retirement Date until
Executive reaches age 65, the Corporation shall reimburse the Executive for the
Executive's contribution to the Hancock Group Health Plan (as it may be amended
from time to time, the "Health Plan") required to be made in order to continue
in effect coverage under the Health Plan for the Executive and his spouse until
the Executive reaches age 65. Such reimbursements shall each be increased by
an amount which is a reasonable approximation of the amount required to make
the reimbursement tax neutral to the Executive.
c. Upon the Retirement Date, the Corporation shall
transfer to the Executive legal ownership of the company car presently being
used by the Executive and
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<PAGE> 5
the furnishings from the Executive's present office, and the Corporation shall
reimburse the Executive for any taxes that may be payable on the transfer of
the car and the furnishings to the Executive. Such reimbursement shall be
increased by an amount which is a reasonable approximation of the amount
required to make the reimbursement tax neutral to the Executive.
16. The provision by the Corporation to the Executive of the
compensation and benefits described in this Agreement are in full settlement
and release of any claims by the Executive that the Executive has or may have
against the Corporation, its officers, directors, shareholders, affiliates,
successors, agents, employees, or representatives arising out of the change in
the duties and compensation of the Executive and the termination of the
Executive's employment with the Corporation, including, but not limited to, any
claim for wrongful discharge or for age discrimination.
17. The Executive acknowledges that the Corporation has reviewed
with the Executive certain plans (a) for issuing on the date hereof a press
release announcing the changes in the management of the Corporation and in the
offices held by the Executive, as set forth in this Agreement ("Press
Release"), (b) for the making of the appropriate internal announcements to the
employees of the Corporation, and (c) for the disclosure of these matters in
the 1995 Annual Report and the proxy materials for the 1996 Annual Meeting.
The Executive approves of those plans and as part of the Executive's obligation
to make all reasonable and good faith efforts to assist the Corporation and the
successor CEO in achieving an orderly and positive transition and succession of
management, the Executive shall cooperate in all reasonable respects
Page 5 of 10
<PAGE> 6
regarding future additional communications and actions appropriate or necessary
to effect such a transition and succession.
18. The Executive acknowledges that the Executive's cooperation
with the Corporation and with the successor CEO and the Executive's making of
all reasonable and good faith efforts in that regard throughout the entire
period from the date of this Agreement to the Retirement Date are of
fundamental importance and value to the Corporation and are of the essence of
this Agreement, and that a failure by the Executive to perform those
obligations shall be a material breach of this Agreement.
19. This Agreement is personal to the Executive and without the
prior written consent of the Corporation, in the Corporation's sole and
absolute discretion, shall not be assignable by the Executive other 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. This Agreement shall inure to the benefit of
and be binding upon the Corporation and its successors.
20. If the Executive should die prior to the Retirement Date and
if the Executive is not in breach of this Agreement at the time of death, the
Executive shall be deemed to have performed his obligations under this
Agreement, and the Agreement shall remain in effect (the rights of the
Executive's heirs to be interpreted under applicable principles of contract
law) except as the following provisions in this paragraph may modify the terms
of the Agreement.
Page 6 of 10
<PAGE> 7
a. Regarding paragraph 6 of this Agreement, the base salary shall
continue to be paid to the present spouse of the Executive, if she survives the
Executive, through the Retirement Date or, if earlier, until her death.
b. Regarding paragraph 9 of this Agreement, the Executive will,
as of the date of death, cease accruing benefits under the Retirement Plan and
the SERP and shall cease being entitled to make deferrals under the 401(k)
Plan.
c. Regarding paragraph 10 of this Agreement, the office shall
remain available to the Executive's heirs for a reasonable period of time after
the death of the Executive to remove the Executive's personal records and
effects, and then will be closed.
d. Regarding paragraph 12 of this Agreement, payments under the
deferred compensation agreement will commence, according to the terms of that
agreement, upon the death of the Executive.
e. Regarding paragraph 13 of this Agreement, the rights of the
Executive's heirs to exercise outstanding stock options that the Executive
holds under the Stock Option Plan will be as provided in the Stock Option Plan
regarding the right to exercise stock options upon the death of the optionee.
f. Regarding paragraph 14 of this Agreement, the rights of the
surviving spouse of the Executive to receive a preretirement survivor annuity
under the Retirement Plan and the SERP will be as provided by the terms of
those Plans, and the Executive's accrued benefit under the 401(k) Plan will
become distributable in accordance with the provisions of the 401(k) Plan
governing distributions to beneficiaries upon the death of the participant.
Page 7 of 10
<PAGE> 8
g. Regarding paragraph 15(a) of this Agreement, the rights of the
Executive's heirs with respect to restricted stock held by the Executive at the
time of death will be as provided in the Restricted Stock Plan regarding the
rights of a participant upon the participant's death.
h. Regarding paragraph 15(b) of this Agreement, the surviving
spouse of the Executive will have such rights to continue coverage for herself
under the Health Plan until the Executive would have reached age 65, and
thereafter, as would have been provided to the spouse if the Executive had died
at a time when this Agreement were not in effect, and the Corporation shall
reimburse the Executive's surviving spouse for any contribution she is required
to make in order to continue such coverage until the Executive would have
reached age 65, in the same manner as is provided under paragraph 15(b) of the
Agreement.
21. All notices and other communications hereunder shall be in
writing and shall be given by (a) established express delivery service
(overnight or better service) which maintains delivery records, (b) hand
delivery, or (c) registered or certified mail, postage prepaid, return receipt
requested, to the parties at the following addresses, or at such other address
as the parties may designate by written notice in the above manner:
If to the Executive: If to the Corporation:
Hancock Fabrics, Inc.
--------------------------------
3406 West Main Street
--------------------------------
P.O. Box 2400
--------------------------------
Tupelo, Mississippi 38003-2400
--------------------------------
Fax No. Attn: Chief Executive Officer
-----------------------
Fax No.
-----------------------
Page 8 of 10
<PAGE> 9
Communications may also be given by fax, provided the communication is
concurrently given by one of the above methods. Communications are effective
upon receipt.
22. 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.
23. No waiver of any provision or consent to any action shall
constitute a waiver of any other provision or consent to any other action,
whether or not similar. No waiver or consent shall constitute a continuing
waiver or consent or commit a party to provide a waiver in the future except to
the extent specifically set forth in writing.
24. This Agreement constitutes the entire agreement between the
parties with regard to the subject matter hereof. This Agreement supersedes
all previous agreements between the parties. There are no agreements or
representations affecting the subject matter hereof between the parties other
than those set forth in this Agreement or the documents and agreements referred
to in this Agreement.
25. No amendment, modification, or supplement to this Agreement
shall be binding on any of the parties unless it is in writing and signed by
the parties in interest at the time of the modification.
26. This Agreement shall be governed and construed under the laws
of the State of Delaware, irrespective of such state's choice-of-law
principles.
Page 9 of 10
<PAGE> 10
27. The parties shall execute and deliver such further documents
and instruments and shall take such other actions as may be reasonably required
or appropriate to carry out the intent and purposes of this Agreement.
IN WITNESS WHEREOF, pursuant to the authorization of its Board of
Directors, the Corporation has caused these presents to be executed in its name
and on its behalf, and its corporate seal to be hereunto affixed, and the
Executive has hereunto set his hand, all as of the day and year first above
written.
HANCOCK FABRICS, INC.,
a Delaware corporation
By
-------------------------------------
Larry G. Kirk, President
"Corporation"
----------------------------------------
Morris O. Jarvis
"Executive"
Page 10 of 10
<PAGE> 1
EXHIBIT 10.19
AMENDMENT TO
DEFERRED COMPENSATION AGREEMENT, SEVERANCE AGREEMENT,
AND AGREEMENT TO SECURE CERTAIN CONTINGENT PAYMENTS
THIS AMENDMENT TO DEFERRED COMPENSATION AGREEMENT, SEVERANCE
AGREEMENT, AND AGREEMENT TO SECURE CERTAIN CONTINGENT PAYMENTS between Hancock
Fabrics, Inc., a Delaware corporation (the "Corporation"), and Larry G. Kirk
(the "Executive"), dated as of the 13th day of June, 1996 (the "Agreement").
W I T N E S S E T H :
WHEREAS, the Corporation has entered into a certain "Agreement" with
the Executive dated June 9, 1988 which has subsequently been amended (as so
amended, the "Deferred Compensation Agreement"); and
WHEREAS, the Corporation has entered into an Amendment, Extension and
Restatement of Severance Agreement dated March 14, 1996 ("Severance Agreement")
which is in some respects related to the Deferred Compensation Agreement; and
WHEREAS, the Corporation has entered into an Agreement to Secure
Certain Contingent Payments dated June 9, 1988 which has subsequently been
amended (as so amended, the "Agreement to Secure") which is in some respects
related to the Deferred Compensation Agreement; and
WHEREAS, for the reasons recited in the Deferred Compensation
Agreement and, further, to reflect the increased responsibilities of the
Executive and the increased importance to the Corporation of the continued
availability of the services of the Executive, the Corporation desires to amend
the Deferred Compensation Agreement and to make conforming amendments to the
Severance Agreement and to the Agreement to Secure;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained and contained in the Deferred Compensation Agreement, the
Severance Agreement and the Agreement to Secure, it is hereby agreed by and
between the Corporation and the Executive as follows:
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<PAGE> 2
1. Paragraph 1 of the Deferred Compensation Agreement is hereby
amended to provide that "said date" specified therein shall be October 31,
2001.
2. Paragraph 2 of the Deferred Compensation Agreement is hereby
amended to provide that the "monthly amount" specified therein shall be
$4,166.67.
3. Paragraph 3 of the Deferred Compensation Agreement is hereby
amended to provide that the "total amount" specified therein shall be
$750,000.00.
4. Paragraph 16(b)(ii)(B) of the Deferred Compensation Agreement
is hereby amended to delete the words and figures "Employee's 60th birthday"
and substitute in lieu thereof the words and figures "Employee's 55th
birthday."
5. Paragraph 5(a)(IV) of the Severance Agreement is hereby
amended to delete the words and figures "Executive's 60th birthday" and
substitute in lieu thereof the words and figures "Executive's 55th birthday."
6. The first RECITAL of the Agreement to Secure is hereby amended
to delete the parenthetical wording "("Deferred Compensation Agreement")" and
substitute in lieu thereof "(as subsequently amended, the Deferred Compensation
Agreement")."
7. Except as so amended, the Deferred Compensation Agreement, the
Severance Agreement, and the Agreement to Secure 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 year first above
written.
-----------------------------------
LARRY G. KIRK
"Executive"
HANCOCK FABRICS, INC.
By:
-------------------------------
[Seal] Its:
-------------------------------
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<PAGE> 1
EXHIBIT 10.20
AMENDMENT TO
DEFERRED COMPENSATION AGREEMENT
AND AGREEMENT TO SECURE CERTAIN CONTINGENT PAYMENTS
THIS AMENDMENT TO DEFERRED COMPENSATION AGREEMENT AND AGREEMENT TO
SECURE CERTAIN CONTINGENT PAYMENTS between Hancock Fabrics, Inc., a Delaware
corporation (the "Corporation"), and Jack W. Busby (the "Executive"), dated as
of the 13th day of June, 1996 (the "Agreement").
W I T N E S S E T H :
WHEREAS, the Corporation has entered into a certain "Agreement" with
the Executive dated June 9, 1988 which has subsequently been amended (as so
amended, the "Deferred Compensation Agreement"); and
WHEREAS, the Corporation has entered into an Agreement to Secure
Certain Contingent Payments dated June 9, 1988 which has subsequently been
amended (as so amended, the "Agreement to Secure") which is in some respects
related to the Deferred Compensation Agreement; and
WHEREAS, for the reasons recited in the Deferred Compensation
Agreement and, further, to reflect the increased responsibilities of the
Executive and the increased importance to the Corporation of the continued
availability of the services of the Executive, the Corporation desires to amend
the Deferred Compensation Agreement and to make conforming amendments to the
Agreement to Secure;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained and contained in the Deferred Compensation Agreement and the
Agreement to Secure, it is hereby agreed by and between the Corporation and the
Executive as follows:
1. Paragraph 2 of the Deferred Compensation Agreement is hereby
amended to provide that the "monthly amount" specified therein shall be
$3,333.34.
2. Paragraph 3 of the Deferred Compensation Agreement is hereby
amended to provide that the "total amount" specified therein shall be
$600,000.00.
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<PAGE> 2
3. The first RECITAL of the Agreement to Secure is hereby amended
to delete the parenthetical wording "("Deferred Compensation Agreement")" and
substitute in lieu thereof "(as subsequently amended, the Deferred Compensation
Agreement")."
4. Except as so amended, the Deferred Compensation Agreement and
the Agreement to Secure 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 year first above
written.
------------------------------------
JACK W. BUSBY
"Executive"
HANCOCK FABRICS, INC.
By:
--------------------------------
[Seal] Its:
-------------------------------
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<PAGE> 1
EXHIBIT 10.21
AGREEMENT
AGREEMENT, dated as of June 13, 1996, between HANCOCK FABRICS, INC.
("the Company"), a Delaware corporation, and Larry D. Fair ("the Employee").
A. The Employee has been employed by the Company (or one of its
subsidiaries) since October 21, 1985. During the period of such employment
the judgment, skill and efforts of the Employee have contributed greatly to the
growth and success of the Company, and the Company desires to provide for the
continued availability of the services of the Employee. The Company further
recognizes that it would not be to the best interest of the Company were the
Employee to engage in activities competitive with the business of the Company
or any of its subsidiaries.
B. The Employee is willing and able to render the services herein
provided for, and is willing to refrain from activities competitive with the
business of the Company and its subsidiaries, on the terms herein set forth.
IT IS AGREED AS FOLLOWS:
1. The payment obligation of the Company under this Agreement is
conditioned upon the occurrence of one of the following: (a) the Employee
remains in the employment of the Company or any of its subsidiaries on a
full-time basis until August 2, 2017 ("said date"); or, (b) the Employee
dies prior to said date while so employed by the Company or any of its
subsidiaries.
2. If such employment ceases (other than by reason of death) on
or after said date, the Company shall pay to the
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<PAGE> 2
Employee, if living, Two Thousand Eighty-Three and Thirty-Three One-Hundredths
Dollars ($2,083.33) (the "monthly amount") on the first day of the calendar
month following such cessation, and on the first day of each and every month
thereafter until a total of one hundred eighty (180) monthly payments shall
have been paid.
3. (a) If the Employee dies while still so employed by the
Company or any of its subsidiaries, the Company shall pay, as the Employee by
appointment shall have provided pursuant to paragraph 10 hereof, the monthly
amount on the first day of the month following his death, and on the first day
of each and every month thereafter until a total of one hundred eighty (180)
monthly payments shall have been paid.
(b) If the Employee dies after said date, and prior to
the time that the payments made to him pursuant to paragraph 2 hereof shall
have totaled Three Hundred Seventy-Five Thousand Dollars ($375,000.00) ("the
total amount"), the Company shall pay, as the Employee by appointment shall
have so provided, the monthly amount on the first day of the month following
his death, and on the first day of each and every month thereafter until the
sum of all payments made under paragraph 2 hereof and under this paragraph
shall equal the total amount.
4. So long as the Employee is receiving monthly payments
hereunder, he shall not, without the prior approval of the Board of Directors
of the Company, engage in or be or become interested (as an individual,
officer, principal, agent, employee, trustee, investor, stockholder or
creditor, or in any other relation whatsoever) in any business substantially
competitive with the
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<PAGE> 3
business of the Company, its successor or subsidiary; provided, that the
Employee shall not be precluded from holding securities of a corporation, which
securities are publicly held, so long as the Employee shall not hold in excess
of one percent (1%) of any class of said securities. The determination of the
Board of Directors of the Company shall be conclusive of the question whether
any such business is substantially competitive with the business of the
Company.
5. So long as the Employee is receiving monthly payments
hereunder, he shall, at the reasonable request of the Company, and to the
extent consistent with his then age and state of health, make available to the
Company at all reasonable times the benefit of his experience and advice. The
Company shall reimburse the Employee for his reasonable travel and other
expenses incurred in the performance of his obligations under this paragraph.
6. All obligations of the Company under this Agreement are
conditioned upon the performance by the Employee of his obligations under
paragraphs 4 and 5 hereof. Upon failure of any said condition, this Agreement
shall be of no further effect, and no person shall have any further right to
payments hereunder.
7. Nothing in this Agreement shall be construed to affect the
rights and obligations of the Employee, his heirs, successors or personal
representatives, under the Company's Retirement Plan, Extra Compensation Plan,
or employees' stock option plans, as from time to time amended, or under any
other agreement or plan. Payments pursuant to this Agreement are in the nature
of a fee,
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<PAGE> 4
and do not constitute "compensation" as defined in the Company's Retirement
Plan.
8. This Agreement is not a contract of employment, and shall not
be deemed to affect the right of either the Employee or the Company to
terminate the employment of the Employee by the Company at any time, with or
without cause.
9. The right to payments pursuant to this Agreement shall not be
sold, transferred, anticipated, assigned, hypothecated, or otherwise disposed
of, shall not at any time be subject to the claims of creditors, and shall not
be liable to attachment, execution, or other legal process. The Company shall
have no obligation to make any payment hereunder to any person other than the
Employee or his appointee designated pursuant to paragraph 10 hereof.
10. Subject to the provisions of paragraph 9 of this Agreement,
the Employee may appoint, by written instrument (other than a will) delivered
to the Secretary of the Company, the permitted appointee or appointees to whom,
the proportions in which, and any contingencies upon which the Company shall
make payments payable under paragraphs 2 and 3 of this Agreement, but not paid
prior to the death of the Employee. "Permitted appointee" includes only the
following persons: spouse, descendant (or spouse thereof), parent, brother or
sister of the Employee (or descendant of such brother or sister); parent,
descendant, brother or sister of the spouse of the Employee (or descendant of
such brother or sister); the trustee or trustees of a trust or trusts (created
by the Employee either during his
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<PAGE> 5
lifetime or by his will) the purpose of which is primarily to provide for any
of the foregoing persons; or any other natural person. The determination of
the Board of Directors of the Company shall be conclusive of the question
whether such purpose of any such trust is primarily to provide for such person
or persons. To any extent that amounts payable under paragraphs 2 and 3 of
this Agreement are not paid to the Employee prior to his death and are not the
subject of an effective appointment pursuant to this paragraph, no person shall
be entitled to payment thereof, and said amounts shall remain the property of
the Company.
11. For purposes of this Agreement, the Employee shall be deemed
to be in the employment of the Company on a full-time basis during any period
for which he is on Company-approved sick leave or disability leave.
12. Notwithstanding any of the provisions of this Agreement, no
payments shall be made hereunder following the death of the Employee in the
event that such death is the result of suicide occurring within three years of
the date of this Agreement.
13. This Agreement shall be binding upon the parties hereto, their
heirs, personal representatives and successors. Upon the sale of all or
substantially all of the assets, business and goodwill of the Company, or upon
the merger or consolidation of the Company with another corporation or
corporations, this Agreement shall inure to the benefit of and be binding upon
both the Employee and such purchaser or surviving corporation.
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<PAGE> 6
14. The purpose of this paragraph is solely to provide for greater
flexibility and convenience in the precise timing of the monthly payments
provided for above, and it shall not be deemed to affect the amount that shall
be payable or the conditions upon which it shall become payable. The Company
may make the payment for any given month upon such day or days and in such
manner as shall be applicable from time to time to executive payroll then being
administered by the disbursing office of the Company that then shall have the
responsibility for the making of payments under this Agreement.
15. (a) Neither Employee nor any other person shall have any
rights under this paragraph 15 until both:
(i) A "Change of Control" (as defined in
subparagraph (b) of this paragraph 15) has occurred; and
(ii) Either (A) Employee has satisfied
the conditions of paragraph 1 of this Agreement or (B) pursuant to the terms of
that certain Severance Agreement, dated as of this date, between the Company
and Employee, as hereafter amended, extended or renewed, Employee is deemed to
have satisfied those conditions. For the purposes of this paragraph 15, the
"Effective Date" shall be the earliest date upon which both of the conditions
described in subparagraph (a) of this paragraph 15 shall have been satisfied.
(b) For purposes of this paragraph 15, a "Change of
Control" shall mean a change of control of the Company of a nature that would
be required to be reported in response to
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<PAGE> 7
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 ("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 of Directors of the Company as of the date hereof ("Incumbent Board")
cease for any reason to constitute at least two-thirds thereof, provided that
any person becoming a director subsequent to the date hereof whose election, or
nomination for election by the Company's stockholders, 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 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
this paragraph 15, considered as though such person were a member of the
Incumbent Board.
(c) (i) Promptly, and in no event more than
seven (7) days, after the Effective Date, the Company shall establish an
irrevocable letter of credit (the "Letter of Credit"),
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<PAGE> 8
as provided in subparagraph (c)(iv) of this paragraph 15, in an amount equal to
the largest sum (calculated as of the Effective Date) of all payments provided
to be paid in the future under paragraphs 2 and 3 of this Agreement, as
security for such payments as may become due under this Agreement.
(ii) Until such time as all amounts
provided to be paid to or with respect to Employee under this Agreement have
been paid in full, the Company shall, no later than thirty (30) days before the
Letter of Credit would otherwise lapse or expire, renew the Letter of Credit or
establish a replacement letter of credit in an amount equal to the largest sum
(calculated as of the date of the renewal or replacement) of all payments
provided to be paid in the future under paragraphs 2 and 3 of this Agreement.
Hereinafter, the term "Letter of Credit" shall mean the original letter of
credit referred to in subparagraph (c)(i) of this paragraph 15 and the renewal
and replacement letters of credit referred to in this subparagraph (c)(ii).
(iii) If the Company fails, within the
times provided in subparagraph (c)(i) and (c)(ii) of this paragraph 15, to
establish, renew or replace the Letter of Credit before all amounts payable to
or with respect to Employee under this Agreement have been paid in full, --
(A) if any payments to or with respect
to Employee have been made under this Agreement, then the Company shall pay in
a cash lump sum, without discount, to Employee or to
-8-
<PAGE> 9
such appointee as may have been designated pursuant to paragraph 10 of this
Agreement (hereinafter Employee and such other person being collectively
referred to as "Entitled Payee") the balance of all payments under this
Agreement remaining unpaid, regardless of the fact that under this Agreement
such payments would not otherwise be payable until some future date or future
performance by Employee;
or
(B) if no payments to or with respect to
Employee have been made under this Agreement, then the Company shall pay in a
cash lump sum, without discount, to Entitled Payee the sum of all payments that
would have been paid to Entitled Payee had Employee ceased employment (x) on
the date by which the Company was required to renew or replace the last Letter
of Credit issued hereunder, or (y) if no Letter of Credit shall have been
issued, on the Effective Date, regardless of the fact that under this Agreement
such payments would not otherwise have been payable until some future date or
future performance by Employee. The cash lump sums required to be paid by
clauses (A) and (B) of this subparagraph (c)(iii) shall be paid within fifteen
(15) days after the date by which the Company was required to establish, renew
or replace the Letter of Credit.
(iv) The Letter of Credit is to be issued
by a commercial bank (the "Bank") that is a state or national banking
association and that has a stockholders' equity in excess of one (1) billion
dollars. The term of the Letter of Credit shall be the maximum term then
available for commercial letters
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<PAGE> 10
of credit. The Letter of Credit shall provide that the Bank shall pay to
Entitled Payee the amount of Entitled Payee's draft, at sight, on presentation
to the Bank of a statement, signed by Entitled Payee or Entitled Payee's
authorized representative, setting forth that Entitled Payee is entitled to
payments of not less than the amount of such draft pursuant to the Agreement
and that such payments are, under the Agreement, due and unpaid. The Letter of
Credit shall otherwise be in form and substance reasonably satisfactory to
Entitled Payee and the Company. The Letter of Credit shall further provide
that twenty-five (25) days prior to the expiration of the Letter of Credit the
Bank shall mail by registered mail a written notice to the Entitled Payee (but
only if the Entitled Payee has provided the Bank with written notice of the
Entitled Payee's mailing address), such notice to state whether or not the
Letter of Credit has been renewed or replaced.
(v) The payment by the Bank of the
amount of Entitled Payee's draft in accordance with the terms hereof and of the
Letter of Credit shall not constitute a waiver by the Company of, or in any way
preclude the Company from asserting, any claim the Company may have against
Entitled Payee that Entitled Payee is not entitled to some or all of such
payment. Drawing upon the Letter of Credit shall not constitute a waiver by
Entitled Payee of, or in any way preclude Entitled Payee from asserting, any
claim the Entitled Payee may have against the Company that Entitled Payee is
entitled to amounts under this Agreement that were not paid by amounts received
under the Letter of Credit.
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<PAGE> 11
(d) The Company's obligation to make the payments
provided for in this paragraph 15 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 Company may have against the Entitled Payee provided, however, that the
Company's failure to make any such setoff shall not constitute a waiver of any
claim of the Company against the Entitled Payee.
16. (a) If (1) an Employee has made an election pursuant to
the provisions of this paragraph 16 to have his benefits under this Agreement
paid in a cash lump sum pursuant to this paragraph 16 and (2) each of the
conditions described in clauses 15(a)(i) and 15(a)(ii) of this Agreement is
satisfied with respect to the Employee, the Company shall pay to the Entitled
Payee (as defined in paragraph 15 of this Agreement) the present value of --
(i) if any payments to or with respect
to Employee have been made under this Agreement, the balance of all payments
under this Agreement remaining unpaid, or
(ii) if no payments to or with respect to
Employee have been made under this Agreement, the sum of all payments that
would have been paid to Entitled Payee had Employee ceased employment on the
Effective Date (as defined in paragraph 15 of this Agreement).
Payment shall be made in a single cash lump sum within 20 days after
the Effective Date. If such payment shall not be made in full as provided
herein any unpaid balance shall draw interest
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<PAGE> 12
at the lesser of: (1) the highest rate of interest that may legally be
chargeable on such amount; and (2) two percent (2%) over the prime commercial
lending rate announced by the Morgan Guaranty Trust Company of New York in
effect from time to time during the period of such non-payment, compounded
monthly.
(b) For purposes of this paragraph 16, present value
shall be determined in accordance with the following:
(i) Present value shall be determined as
of the Effective Date.
(ii) The stream of monthly payments for
which the present value is being calculated shall be assumed to run for the
following period:
(A) if any payments have been made under
this Agreement, a period beginning one month after the date the most recent
payment made was required to have been made and continuing until the date on
which the last of the monthly payments to be made under this Agreement is
required to be made, and
(B) if no such payments have been made,
a period beginning on the later of the Effective Date or the date of the,
Employee's 60th birthday and continuing for 180 months.
(iii) The interest rate used to determine
present value shall be two percent (2%) below the average of the daily yield
(to maturity) quotations published in the Wall Street Journal on the 30
business days preceding the Effective Date regarding the obligations (bonds or
notes) of the U.S. Treasury maturing on the date closest to the 15th
anniversary of the
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<PAGE> 13
Effective Date. No discount factor other than this interest rate shall be used
to determine present value.
(iv) In making such determination, the
provisions of paragraphs 4, 5, and 6 of this Agreement shall be disregarded.
(c) In order to elect to have his benefits under this
Agreement paid in a cash lump sum pursuant to this paragraph 16 the Employee
must give written notice to the Company as provided in this paragraph (c).
(i) The notice must be in writing and be
substantially in the form set forth in Exhibit A to this Agreement.
The notice, to be valid, must be given before either of the two
conditions described in clauses 15(a)(i) and 15(a)(ii) of this Agreement has
occurred.
(ii) Service of such notice shall be
deemed complete when given by hand delivery to an officer of the Company, or,
if given by mail, on the day of deposit in the United States mail by certified
or registered mail, first-class postage prepaid, addressed as follows:
Hancock Fabrics, Inc.
3406 W. Main Street
P.O. Box 2400
Tupelo, Mississippi 38003-2400
Attn: Corporate Secretary
or to such other address as the Company shall have furnished to the Employee in
writing in accordance herewith.
(d) If Employee elects to receive his benefits pursuant
to the provisions of this paragraph 16, Employee shall
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have, as of the Effective Date, no further obligation to the Company under this
Agreement, and the Company shall have no further obligation to the Entitled
Payee under this Agreement as of the date that all payments required to be made
to Entitled Payee under this paragraph 16 have been made.
(e) If Entitled Payee incurs any legal fees or expenses
as a result of seeking to obtain or enforce any benefit under this paragraph
16, Company shall pay or reimburse Entitled Payee for all such reasonable fees
and expenses.
(f) The Company's obligation to make the payments
provided for in this paragraph 16 shall not be affected by any circumstances,
including, without limitation, any setoff, counterclaim, recoupment, defense or
other right that the Company may have against the Entitled Payee provided,
however, that the Company's failure to make any such setoff shall not
constitute a waiver of any claim of the Company against the Entitled Payee.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
personally or by officers thereunto duly authorized.
HANCOCK FABRICS, INC.
By /s/ Larry G. Kirk
-----------------------------------
Its Chief Executive Officer
--------------------------------
/s/ Larry D. Fair
--------------------------------------
Employee
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NOTICE OF ELECTION
To: Hancock Fabrics, Inc.
3406 W. Main Street
P.O. Box 2400
Tupelo, MS 38003-2400
Attention: Corporate Secretary
I, Larry D. Fair ("Employee"), pursuant to paragraph 16 of that
Agreement dated _________________ to which Hancock Fabrics, Inc. and I are
parties ( the Agreement"), hereby elect to have my benefits under the Agreement
paid in a cash lump sum pursuant to the provisions of said paragraph 16.
Dated: __________________________ _____________________________________
Employee
EXHIBIT A
<PAGE> 1
Exhibit 10.22
SEVERANCE AGREEMENT
June 13, 1996
THIS AGREEMENT between Hancock Fabrics, Inc., a Delaware corporation
(the "Corporation"), and Larry D. Fair whose address is 1007 Meadowcrest Cove,
New Albany, MS 38652 (the "Executive"), dated as of June 13, 1996.
W I T N E S S E T H :
WHEREAS, the Corporation wishes to attract and retain well-qualified
executive and key personnel and, in the event of any Change of Control (as
defined in Section 2) of the Corporation, to assure both itself and the
Executive of continuity of management; and
WHEREAS, no benefits shall be payable under this Agreement unless the
Effective Date shall occur and thereafter the Executive's employment is
terminated; and
WHEREAS, the employment of the Executive is "at will" and may be
terminated by the Corporation without payment of any benefits hereunder until
the occurrence of a Change of Control;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is hereby agreed by and between the Corporation and the
Executive 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
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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 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
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<PAGE> 3
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 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
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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.
(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
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<PAGE> 5
(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, 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.
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<PAGE> 6
(d) [Reserved].
(e) Notice of Termination. Any termination by the
Corporation for Cause or by the Executive for Good Reason 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 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 the 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.
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<PAGE> 7
(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 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) 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
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<PAGE> 8
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 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 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.
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<PAGE> 9
(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 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
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<PAGE> 10
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 Corporation on a full-time basis until the
Executive's 60th birthday.
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 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
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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 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
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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.
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.
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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 enforceability 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 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
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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), or 10 of this Agreement in the event
of a termination described in such Section 5(a), 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 therefor 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 occur-
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<PAGE> 15
red 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 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 or 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
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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 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
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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, 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
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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 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
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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 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
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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.
(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
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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.
(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
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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) of Section 5
of this Agreement shall be in accordance with the following:
(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
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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.
(d) The payment of benefits under Paragraph (a)(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.
/s/ Larry D. Fair
----------------------------------
Executive
HANCOCK FABRICS, INC.
By /s/ Larry S. Kirk
------------------------------
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EXHIBIT 10.23
AGREEMENT TO SECURE CERTAIN CONTINGENT PAYMENTS
THIS AGREEMENT TO SECURE CERTAIN CONTINGENT PAYMENTS between Hancock
Fabrics, Inc., a Delaware corporation (the "Company"), and Larry D. Fair
(the "Executive"), dated as of June 13, 1996.
R E C I T A L S :
WHEREAS, Executive and the Company have entered into that certain
Severance Agreement dated this date (in its present form or as it may hereafter
be amended, extended or renewed, the "Severance Agreement") and that certain
Agreement dated this date ("Deferred Compensation Agreement"); and
WHEREAS, under such Agreements, certain payments are to be made at
times which are contingent upon a change in control of the Company, and in
certain instances also contingent upon a termination of Executive's employment,
all of which contingencies are set forth in such Agreements; and
WHEREAS, the Company wishes to make additional provision for the
security of the payment of certain of the contingent amounts under such
Agreements in order to assure itself of continuity of management and to assure
the Executive of payment of the amounts in question,
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants contained herein, it is hereby agreed by and between the Company and
the Executive as follows:
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1. Letter of Credit Required.
The Company shall, no later than the date of a change in
control as defined in the Severance Agreement ("Change in Control"), provide
Executive with an irrevocable letter of credit ("Letter of Credit"), under
which Executive shall be the beneficiary, to pay the following amounts:
a. Severance benefits to be paid by the Company as
provided in Section (5)(a)(I) of the Severance Agreement.
b. "Penalty Taxes" (as defined in Section 10 of the
Severance Agreement) and all other amounts to be paid by the Company as
provided in Section 10 of the Severance Agreement.
c. Payments to be made by the Company under Section 16
of the Deferred Compensation Agreement.
2. Amount of Letter of Credit.
a. The Letter of Credit shall be in an amount equal to
the sum determined by the Accounting Firm identified in Section 9 (the
"Accounting Firm"), as follows (both initially and recalculated as provided in
Section 7) plus ten percent (10%) of said sum.
b. The Accounting Firm shall determine the sum of:
(i) The amount which would be payable to
the Executive under Section 5(a)(I) of the Severance Agreement assuming a
Change of Control has occurred and that the Executive terminates employment for
Good Reason (as defined in the Severance Agreement) at the time the
determination is made;
(ii) The amount of "Penalty Taxes" and
income taxes, if any, that the Accounting Firm has determined as the
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<PAGE> 3
total amount payable by the Company to the Executive under Section 10(a) of the
Severance Agreement; and
(iii) The amount which would be payable
to the Executive under Section 16 of the Deferred Compensation Agreement if he
had made the election to receive benefits under that Section and was in all
other respects eligible to receive benefits thereunder at the time the
determination is made.
c. The amount so determined shall be stated in a written
notice by the Accounting Firm to the Company; and such notice shall thereupon
be marked "Attachment A" and be attached to and become a part of this
Agreement.
3. Form of Letter of Credit.
The Letter of Credit shall be in a form agreed to by the
Company and the issuing bank (the "Bank") consistent with the terms of this
Agreement. The Executive shall be entitled to draw on the Letter of Credit by
presenting to the Bank a draft and a certificate in which the Executive
certifies in writing that the requisite events have occurred under the
Severance Agreement and/or the Deferred Compensation Agreement for payment to
the Executive of amounts specified in Section 1.
4. Issuer.
The Letter of Credit shall be issued by a commercial bank that
is a state or national banking association and which has a stockholders' equity
in excess of $1 billion.
5. Single Letter of Credit with Multiple Beneficiaries.
At the Company's discretion, the Letter of Credit may provide
for payment of similar compensation and benefits to other
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<PAGE> 4
executives of the Company who are parties to agreements similar to this
Agreement as long as the total amount of the Letter of Credit, for all such
other executives and for the Executive, is, at all times, no less than the sum
of the required amounts of the Letter of Credit and of the letters of credit
required under the agreements with such other executives (initially or after
recalculation pursuant to Section 7).
6. Term of Letter of Credit.
The Letter of Credit to be provided as required by Section 1
shall be issued for a term which shall be the maximum term then available for
commercial letters of credit. Until such time as all amounts described in
Sections 1(a), 1(b) and 1(c) have been paid in full, the Company shall, not
later than thirty (30) days before the Letter of Credit would otherwise lapse
or expire, renew the Letter of Credit or establish a replacement letter of
credit with terms at least as favorable as the initial Letter of Credit. The
term "Letter of Credit" shall mean both the original letter of credit and the
renewal and replacement letters of credit referred to in this Section 6. The
period of time during which a Letter of Credit is required to remain in effect
under this Agreement is herein called the "Secured Period." If the Company
does not establish or renew a Letter of Credit as required by Section 1 and
this Section 6, the payment of all amounts described in Section 1 shall be
accelerated in accordance with Section 8 hereof.
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<PAGE> 5
7. Calculation and Recalculation of Amounts Secured by Letter of
Credit and Increase in Amount of Letter of Credit.
During the Secured Period, the Accounting Firm shall, no later
than the end of each calendar quarter in the Secured Period, recalculate the
amounts listed on Attachment A and give prompt written notice of such
recalculations to the Executive, the Company and the Bank. Any such
recalculated amounts shall thereafter be deemed to be the amounts listed on
Attachment A. If such recalculated amounts plus ten percent (10%) thereof
exceed the amounts payable under the Letter of Credit then in effect, no later
than seven (7) days after receipt of such written notice of recalculation, the
Company shall cause the amounts payable under the Letter of Credit to be
increased to the recalculated amounts plus 10%.
8. Acceleration Under Letter of Credit.
If at least 30 days prior to the expiration of a Letter of
Credit established hereunder, which expiration would occur before the end of
the Secured Period, the Executive shall not have received written notice from
the Company that an extension or renewal of the expiring Letter of Credit has
occurred or a new Letter of Credit has been obtained with the terms and
conditions at least as favorable as the predecessor Letter of Credit, then,
notwithstanding any other provisions of the Severance Agreement, the Deferred
Compensation Agreement, or this Agreement, all amounts which are described in
Section 1 shall be due and payable immediately without regard to any
contingencies or future events and Executive, his beneficiaries or estate shall
be entitled to immediately draw on the Letter of Credit for all such amounts.
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<PAGE> 6
9. Accounting Firm.
The Accounting Firm shall mean the same Accounting Firm as
determined under the provisions of Section 10(h) of the Severance Agreement.
All calculations by the Accounting Firm shall be binding on the Company, the
Executive and the Bank in the absence of wilful misconduct or gross negligence
by the Accounting Firm.
10. Expenses.
The Company shall pay all expenses and fees of the Accounting
Firm.
11. Information.
The Company shall provide the Accounting Firm with such
information as the Company has in its possession that the Accounting Firm
believes necessary, in its discretion, to make its calculations and
recalculations under this Agreement.
12. Obligation of Executive.
Subject to the provisions of Section 8, if Executive receives
payments under the Letter of Credit for any amount in excess of that to which
he is entitled under the Severance Agreement, the Deferred Compensation
Agreement, or this Agreement, Executive shall immediately repay such amount to
Company.
13. Legal Fees, Etc.
If Executive incurs any legal fees and expenses as a result of
seeking to obtain or enforce any right or benefit provided by this Agreement,
Company shall pay or reimburse Executive for all such reasonable fees and
expenses.
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14. No Waivers.
The payment by a Bank on a Letter of Credit established in
accordance with the terms hereof shall not constitute a waiver by the Company
of, or in any way preclude the Company from asserting, any claim the Company
may have against Executive that Executive is not entitled to some or all of
such payment. Drawing upon the Letter of Credit shall not constitute a waiver
by Executive of, or in any way preclude Executive from asserting, any claim
Executive may have against the Company that Executive is entitled to amounts
under this Agreement or the Severance Agreement or the Deferred Compensation
Agreement (except to the extent that such amounts have been paid in full by the
Bank under the Letter of Credit).
15. Enforceability.
Subject to Section 19, this Agreement shall inure to the
benefit of and be enforceable by Executive's personal or legal representatives,
executors, administrators, successors, heirs, distributees, devisees and
legatees.
16. No Change to Agreements.
Except as expressly modified by this Agreement, Executive's
rights under the Severance Agreement and the Deferred Compensation Agreement
are unchanged by this Agreement.
17. Modification in Writing.
No provision of this Agreement may be modified or waived
unless in writing and signed by Executive and such officer of Company as may be
designated or authorized by its Board of Directors.
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18. Severability.
The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
19. Assignment.
Executive's rights under this Agreement and the Letter of
Credit are not assignable.
20. Notices.
Any notice, report, demand or waiver required or permitted
hereunder shall be in writing and shall be given personally or by prepaid
registered or certified mail, return receipt requested, addressed as follows:
If to the Company: Hancock Fabrics, Inc.
3406 West Main Street
P.O. Box 2400
Tupelo, Mississippi 38003-2400
Attention: Corporate Secretary
If to the Executive: Larry D. Fair
---------------------------------
1007 Meadowcrest Cove
---------------------------------
New Albany, Mississippi 38652
---------------------------------
---------------------------------
A notice shall be effective upon the receipt thereof. The above addresses can
be changed by notice in writing delivered as provided above.
21. Additional Benefits.
The security provided under this Agreement is in addition to
and not by way of limitation of any rights or
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benefits to which Executive is entitled under the Severance Agreement and the
Deferred Compensation Agreement.
IN WITNESS WHEREOF Executive and, pursuant to authorization from its
Board of Directors, Company have executed this Agreement to Secure Certain
Contingent Payments effective as of the date first above written.
/s/ Larry D. Fair
-------------------------------------
Executive
HANCOCK FABRICS, INC.
By /s/ Larry A. Kirk
----------------------------------
Its Chief Executive Officer
----------------------------------
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EXHIBIT 10.24
AGREEMENT
AGREEMENT, dated as of December 10, 1996, between HANCOCK FABRICS,
INC. ("the Company"), a Delaware corporation, and Bruce D. Smith ("the
Employee").
A. The Employee has been employed by the Company (or one of its
subsidiaries) since November 4, 1996. During the period of such employment the
judgment, skill and efforts of the Employee have contributed greatly to the
growth and success of the Company, and the Company desires to provide for the
continued availability of the services of the Employee. The Company further
recognizes that it would not be to the best interest of the Company were the
Employee to engage in activities competitive with the business of the Company
or any of its subsidiaries.
B. The Employee is willing and able to render the services herein
provided for, and is willing to refrain from activities competitive with the
business of the Company and its subsidiaries, on the terms herein set forth.
IT IS AGREED AS FOLLOWS:
1. The payment obligation of the Company under this Agreement is
conditioned upon the occurrence of one of the following: (a) the Employee
remains in the employment of the Company or any of its subsidiaries on a
full-time basis until December 8, 2018 ("said date"); or, (b) the Employee dies
prior to said date while so employed by the Company or any of its subsidiaries.
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2. If such employment ceases (other than by reason of death) on
or after said date, the Company shall pay to the Employee, if living, Two
Thousand Eighty-Three and Thirty-Three One-Hundredths Dollars ($2,083.33) (the
"monthly amount") on the first day of the calendar month following such
cessation, and on the first day of each and every month thereafter until a
total of one hundred eighty (180) monthly payments shall have been paid.
3. (a) If the Employee dies while still so employed by the
Company or any of its subsidiaries, the Company shall pay, as the Employee by
appointment shall have provided pursuant to paragraph 10 hereof, the monthly
amount on the first day of the month following his death, and on the first day
of each and every month thereafter until a total of one hundred eighty (180)
monthly payments shall have been paid.
(b) If the Employee dies after said date, and prior to
the time that the payments made to him pursuant to paragraph 2 hereof shall
have totaled Three Hundred Seventy-Five Thousand Dollars ($375,000.00) ("the
total amount"), the Company shall pay, as the Employee by appointment shall
have so provided, the monthly amount on the first day of the month following
his death, and on the first day of each and every month thereafter until the
sum of all payments made under paragraph 2 hereof and under this paragraph
shall equal the total amount.
4. So long as the Employee is receiving monthly payments
hereunder, he shall not, without the prior approval of the Board of Directors
of the Company, engage in or be or become interested (as an individual,
officer, principal, agent, employee, trustee, investor, stockholder or
creditor, or in any other relation whatsoever) in any
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<PAGE> 3
business substantially competitive with the business of the Company, its
successor or subsidiary; provided, that the Employee shall not be precluded
from holding securities of a corporation, which securities are publicly held,
so long as the Employee shall not hold in excess of one percent (1%) of any
class of said securities. The determination of the Board of Directors of the
Company shall be conclusive of the question whether any such business is
substantially competitive with the business of the Company.
5. So long as the Employee is receiving monthly payments
hereunder, he shall, at the reasonable request of the Company, and to the
extent consistent with his then age and state of health, make available to the
Company at all reasonable times the benefit of his experience and advice. The
Company shall reimburse the Employee for his reasonable travel and other
expenses incurred in the performance of his obligations under this paragraph.
6. All obligations of the Company under this Agreement are
conditioned upon the performance by the Employee of his obligations under
paragraphs 4 and 5 hereof. Upon failure of any said condition, this Agreement
shall be of no further effect, and no person shall have any further right to
payments hereunder.
7. Nothing in this Agreement shall be construed to affect the
rights and obligations of the Employee, his heirs, successors or personal
representatives, under the Company's Retirement Plan, Extra Compensation Plan,
or employees' stock option plans, as from time to time amended, or under any
other agreement or plan. Payments pursuant to this Agreement are in the nature
of a fee, and do not constitute "compensation" as defined in the Company's
Retirement Plan.
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<PAGE> 4
8. This Agreement is not a contract of employment, and shall not
be deemed to affect the right of either the Employee or the Company to
terminate the employment of the Employee by the Company at any time, with or
without cause.
9. The right to payments pursuant to this Agreement shall not be
sold, transferred, anticipated, assigned, hypothecated, or otherwise disposed
of, shall not at any time be subject to the claims of creditors, and shall not
be liable to attachment, execution, or other legal process. The Company shall
have no obligation to make any payment hereunder to any person other than the
Employee or his appointee designated pursuant to paragraph 10 hereof.
10. Subject to the provisions of paragraph 9 of this Agreement,
the Employee may appoint, by written instrument (other than a will) delivered
to the Secretary of the Company, the permitted appointee or appointees to whom,
the proportions in which, and any contingencies upon which the Company shall
make payments payable under paragraphs 2 and 3 of this Agreement, but not paid
prior to the death of the Employee. "Permitted appointee" includes only the
following persons: spouse, descendant (or spouse thereof), parent, brother or
sister of the Employee (or descendant of such brother or sister); parent,
descendant, brother or sister of the spouse of the Employee (or descendant of
such brother or sister); the trustee or trustees of a trust or trusts (created
by the Employee either during his lifetime or by his will) the purpose of which
is primarily to provide for any of the foregoing persons; or any other natural
person. The determination of the Board of Directors of the Company shall be
conclusive of the question whether such purpose of any such trust is primarily
to provide for such person
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<PAGE> 5
or persons. To any extent that amounts payable under paragraphs 2 and 3 of
this Agreement are not paid to the Employee prior to his death and are not the
subject of an effective appointment pursuant to this paragraph, no person shall
be entitled to payment thereof, and said amounts shall remain the property of
the Company.
11. For purposes of this Agreement, the Employee shall be deemed
to be in the employment of the Company on a full-time basis during any period
for which he is on Company-approved sick leave or disability leave.
12. Notwithstanding any of the provisions of this Agreement, no
payments shall be made hereunder following the death of the Employee in the
event that such death is the result of suicide occurring within three years of
the date of this Agreement.
13. This Agreement shall be binding upon the parties hereto, their
heirs, personal representatives and successors. Upon the sale of all or
substantially all of the assets, business and goodwill of the Company, or upon
the merger or consolidation of the Company with another corporation or
corporations, this Agreement shall inure to the benefit of and be binding
upon both the Employee and such purchaser or surviving corporation.
14. The purpose of this paragraph is solely to provide for greater
flexibility and convenience in the precise timing of the monthly payments
provided for above, and it shall not be deemed to affect the amount that shall
be payable or the conditions upon which it shall become payable. The Company
may make the payment for any given month upon such day or days and in such
manner as shall be applicable from time to time to executive payroll then being
administered by the disbursing office of the
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<PAGE> 6
Company that then shall have the responsibility for the making of payments
under this Agreement.
15. Neither Employee nor any other person shall have any rights
under this paragraph 15 until both:
(i) A "Change of Control" (as defined in
subparagraph (b) of this paragraph 15) has occurred; and
(ii) Either (A) Employee has satisfied
the conditions of paragraph 1 of this Agreement or (B) pursuant to the terms of
that certain Severance Agreement, dated as of this date, between the Company
and Employee, as hereafter amended, extended or renewed, Employee is deemed to
have satisfied those conditions. For the purposes of this paragraph 15, the
"Effective Date" shall be the earliest date upon which both of the conditions
described in subparagraph (a) of this paragraph 15 shall have been satisfied.
(b) For purposes of this paragraph 15, a "Change of
Control" shall mean 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 (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 ("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
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outstanding voting securities ordinarily having the right to vote for the
election of directors of the Company; or (ii) individuals who constitute the
Board of Directors of the Company as of the date hereof ("Incumbent Board")
cease for any reason to constitute at least two-thirds thereof, provided that
any person becoming a director subsequent to the date hereof whose election, or
nomination for election by the Company's stockholders, 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 election or nomination in
connection with an actual or threatened election contest relating to the
election of directors of the Com- pany, as such terms are used in Rule 14a-11
of Regulation 14A promulgated under the Exchange Act) shall be, for purposes of
this paragraph 15, considered as though such person were a member of the
Incumbent Board.
(c) (i) Promptly, and in no event more than
seven (7) days, after the Effective Date, the Company shall establish an
irrevocable letter of credit (the "Letter of Credit"), as provided in
subparagraph (c)(iv) of this paragraph 15, in an amount equal to the largest sum
(calculated as of the Effective Date) of all payments provided to be paid in
the future under paragraphs 2 and 3 of this Agreement, as security for such
payments as may become due under this Agreement.
(ii) Until such time as all amounts
provided to be paid to or with respect to Employee under this Agreement have
been paid in full, the Company shall, no later than thirty (30) days before the
Letter of Credit would otherwise lapse or expire, renew the Letter of Credit or
establish a replacement letter of credit in an
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amount equal to the largest sum (calculated as of the date of the renewal or
replacement) of all payments provided to be paid in the future under paragraphs
2 and 3 of this Agreement. Hereinafter, the term "Letter of Credit" shall mean
the original letter of credit referred to in subparagraph (c)(i) of this
paragraph 15 and the renewal and replacement letters of credit referred to in
this subparagraph (c)(ii).
(iii) If the Company fails, within the
times provided in subparagraph (c)(i) and (c)(ii) of this paragraph 15, to
establish, renew or replace the Letter of Credit before all amounts payable to
or with respect to Employee under this Agreement have been paid in full, --
(A) if any payments to or with respect
to Employee have been made under this Agreement, then the Company shall pay in
a cash lump sum, without discount, to Employee or to such appointee as may have
been designated pursuant to paragraph 10 of this Agreement (hereinafter
Employee and such other person being collectively referred to as "Entitled
Payee") the balance of all payments under this Agreement remaining unpaid,
regardless of the fact that under this Agreement such payments would not
otherwise be payable until some future date or future performance by Employee;
or
(B) if no payments to or with respect
to Employee have been made under this Agreement, then the Company shall pay in
a cash lump sum, without discount, to Entitled Payee the sum of all payments
that would have been paid to Entitled Payee had Employee ceased employment (x)
on the date by
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which the Company was required to renew or replace the last Letter of Credit
issued hereunder, or (y) if no Letter of Credit shall have been issued, on the
Effective Date, regardless of the fact that under this Agreement such payments
would not otherwise have been payable until some future date or future
performance by Employee. The cash lump sums required to be paid by clauses (A)
and (B) of this subparagraph (c)(iii) shall be paid within fifteen (15) days
after the date by which the Company was required to establish, renew or replace
the Letter of Credit.
(iv) The Letter of Credit is to be issued
by a commercial bank (the "Bank") that is a state or national banking
association and that has a stockholders' equity in excess of one (1) billion
dollars. The term of the Letter of Credit shall be the maximum term then
available for commercial letters of credit. The Letter of Credit shall provide
that the Bank shall pay to Entitled Payee the amount of Entitled Payee's draft,
at sight, on presentation to the Bank of a statement, signed by Entitled Payee
or Entitled Payee's authorized representative, setting forth that Entitled
Payee is entitled to payments of not less than the amount of such draft
pursuant to the Agreement and that such payments are, under the Agreement, due
and unpaid. The Letter of Credit shall otherwise be in form and substance
reasonably satisfactory to Entitled Payee and the Company. The Letter of
Credit shall further provide that twenty-five (25) days prior to the expiration
of the Letter of Credit the Bank shall mail by registered mail a written notice
to the Entitled Payee (but only if the Entitled Payee has provided the Bank
with written notice of the Entitled Payee's mailing address), such notice to
state whether or not the Letter of Credit has been renewed or replaced.
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(v) The payment by the Bank of the
amount of Entitled Payee's draft in accordance with the terms hereof and of the
Letter of Credit shall not constitute a waiver by the Company of, or in any way
preclude the Company from asserting, any claim the Company may have against
Entitled Payee that Entitled Payee is not entitled to some or all of such
payment. Drawing upon the Letter of Credit shall not constitute a waiver by
Entitled Payee of, or in any way preclude Entitled Payee from asserting, any
claim the Entitled Payee may have against the Company that Entitled Payee is
entitled to amounts under this Agreement that were not paid by amounts received
under the Letter of Credit.
(d) The Company's obligation to make the payments
provided for in this paragraph 15 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 Company may have against the Entitled Payee provided, however, that the
Company's failure to make any such setoff shall not constitute a waiver of any
claim of the Company against the Entitled Payee.
16. (a) If (1) an Employee has made an election pursuant to
the provisions of this paragraph 16 to have his benefits under this Agreement
paid in a cash lump sum pursuant to this paragraph 16 and (2) each of the
conditions described in clauses 15(a)(i) and 15(a)(ii) of this Agreement is
satisfied with respect to the Employee, the Company shall pay to the Entitled
Payee (as defined in paragraph 15 of this Agreement) the present value of --
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(i) if any payments to or with respect
to Employee have been made under this Agreement, the balance of all payments
under this Agreement remaining unpaid, or
(ii) if no payments to or with respect to
Employee have been made under this Agreement, the sum of all payments that
would have been paid to Entitled Payee had Employee ceased employment on the
Effective Date (as defined in paragraph 15 of this Agreement).
Payment shall be made in a single cash lump sum within 20 days after
the Effective Date. If such payment shall not be made in full as provided
herein any unpaid balance shall draw interest at the lesser of: (1) the highest
rate of interest that may legally be chargeable on such amount; and (2) two
percent (2%) over the prime commercial lending rate announced by the Morgan
Guaranty Trust Company of New York in effect from time to time during the
period of such non-payment, compounded monthly.
(b) For purposes of this paragraph 16, present value
shall be determined in accordance with the following:
(i) Present value shall be determined as
of the Effective Date.
(ii) The stream of monthly payments for
which the present value is being calculated shall be assumed to run for the
following period:
(A) if any payments have been made under
this Agreement, a period beginning one month after the date the most recent
payment made
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was required to have been made and continuing until the date on which the last
of the monthly payments to be made under this Agreement is required to be made,
and
(B) if no such payments have been made,
a period beginning on the later of the Effective Date or the date of the,
Employee's 60th birthday and continuing for 180 months.
(iii) The interest rate used to determine
present value shall be two percent (2%) below the average of the daily yield
(to maturity) quotations published in the Wall Street Journal on the 30
business days preceding the Effective Date regarding the obligations (bonds or
notes) of the U.S. Treasury maturing on the date closest to the 15th
anniversary of the Effective Date. No discount factor other than this interest
rate shall be used to determine present value.
(iv) In making such determination, the
provisions of paragraphs 4, 5, and 6 of this Agreement shall be disregarded.
(c) In order to elect to have his benefits under this
Agreement paid in a cash lump sum pursuant to this paragraph 16 the Employee
must give written notice to the Company as provided in this paragraph (c).
(i) The notice must be in writing and be
substantially in the form set forth in Exhibit A to this Agreement.
The notice, to be valid, must be given before either of the two
conditions described in clauses 15(a)(i) and 15(a)(ii) of this Agreement has
occurred.
(ii) Service of such notice shall be
deemed complete when given by hand delivery to an officer of the Company, or,
if given by mail, on
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the day of deposit in the United States mail by certified or registered mail,
first-class postage prepaid, addressed as follows:
Hancock Fabrics, Inc.
3406 W. Main Street
P.O. Box 2400
Tupelo, Mississippi 38003-2400
Attn: Corporate Secretary
or to such other address as the Company shall have furnished to the Employee in
writing in accordance herewith.
(d) If Employee elects to receive his benefits pursuant
to the provisions of this paragraph 16, Employee shall have, as of the
Effective Date, no further obligation to the Company under this Agreement, and
the Company shall have no further obligation to the Entitled Payee under this
Agreement as of the date that all payments required to be made to Entitled
Payee under this paragraph 16 have been made.
(e) If Entitled Payee incurs any legal fees or expenses
as a result of seeking to obtain or enforce any benefit under this paragraph
16, Company shall pay or reimburse Entitled Payee for all such reasonable fees
and expenses.
(f) The Company's obligation to make the payments
provided for in this paragraph 16 shall not be affected by any circumstances,
including, without limitation, any setoff, counterclaim, recoupment, defense or
other right that the Company may have against the Entitled Payee provided,
however, that the Company's failure to make any such setoff shall not
constitute a waiver of any claim of the Company against the Entitled Payee.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement
personally or by officers thereunto duly authorized.
HANCOCK FABRICS, INC.
By
-------------------------------
Its
-----------------------------
---------------------------------
Bruce D. Smith, Employee
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NOTICE OF ELECTION
To: Hancock Fabrics, Inc.
3406 W. Main Street
P.O. Box 2400
Tupelo, MS 38003-2400
Attention: Corporate Secretary
I, Bruce D. Smith ("Employee"), pursuant to paragraph 16 of that
Agreement dated _________________ to which Hancock Fabrics, Inc. and I are
parties (the Agreement"), hereby elect to have my benefits under the Agreement
paid in a cash lump sum pursuant to the provisions of said paragraph 16.
Dated:
---------------------- -----------------------------------
Bruce D. Smith, Employee
EXHIBIT A
<PAGE> 1
EXHIBIT 10.25
SEVERANCE AGREEMENT
THIS AGREEMENT between Hancock Fabrics, Inc., a Delaware corporation
(the "Corporation"), and Bruce D. Smith whose address is 1612 Carr, Memphis,
Tennessee (the "Executive"), is dated as of December 10, 1996.
W I T N E S S E T H :
WHEREAS, the Corporation wishes to attract and retain well qualified
executive and key personnel and, in the event of any Change of Control (as
defined in Section 2) of the Corporation, to assure both itself and the
Executive of continuity of management; and
WHEREAS, no benefits shall be payable under this Agreement unless the
Effective Date shall occur and thereafter the Executive's employment is
terminated; and
WHEREAS, the employment of the Executive is "at will" and may be
terminated by the Corporation without payment of any benefits hereunder until
the occurrence of a Change of Control;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is hereby agreed by and between the Corporation and the
Executive 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
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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 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
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<PAGE> 3
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
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 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).
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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.
(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 requirement), authority or responsibilities;
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<PAGE> 5
(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, 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) [Reserved].
(e) Notice of Termination. Any termination by the Corporation for
Cause or by the Executive for Good Reason shall be communicated by Notice of
Termination to the other party hereto given in accordance with Section 9(b). Any
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<PAGE> 6
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
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.
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 for any reason other than for Cause, Death or Disability, or (ii) the
Executive shall terminate his employment for Good Reason:
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<PAGE> 7
1) 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 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 twelve
(12); and
2) 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
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<PAGE> 8
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.
3) 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 of the SERP been determined by 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
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<PAGE> 9
(including bonus under the Extra Compensation Plan) 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
4) 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 Corporation on a full-time basis until the Executive's 60th
birthday.
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 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
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<PAGE> 10
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 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.
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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.
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:
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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 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.
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(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), or 10 of this
Agreement in the event of a termination described in such Section 5(a), 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 the
Date of Termination 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
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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 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
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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 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
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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, 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
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<PAGE> 17
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
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
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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 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
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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.
(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, 6653
or 6661 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 mailed to such other party
by certified mail, postage prepaid.
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(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 laws, 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.
11. Determination of Present Values Under Section 5. The determination
of present values for purposes of Paragraph (a)(III) of Section 5 of this
Agreement shall be in accordance with the following:
(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").
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(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
Company 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.
(d) The payment of benefits under Paragraph (a)(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 Company and the Entitled Employee.
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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EXHIBIT 10.26
AGREEMENT TO SECURE CERTAIN CONTINGENT PAYMENTS
THIS AGREEMENT TO SECURE CERTAIN CONTINGENT PAYMENTS between Hancock
Fabrics, Inc., a Delaware corporation (the "Company"), and Bruce D. Smith (the
"Executive"), dated as of December 10, 1996.
R E C I T A L S :
WHEREAS, Executive and the Company have entered into that certain
Severance Agreement dated this date (in its present form or as it may hereafter
be amended, extended or renewed, the "Severance Agreement") and that certain
Agreement dated this date ("Deferred Compensation Agreement"); and
WHEREAS, under such Agreements, certain payments are to be made at
times which are contingent upon a change in control of the Company, and in
certain instances also contingent upon a termination of Executive's employment,
all of which contingencies are set forth in such Agreements; and
WHEREAS, the Company wishes to make additional provision for the
security of the payment of certain of the contingent amounts under such
Agreements in order to assure itself of continuity of management and to assure
the Executive of payment of the amounts in question,
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants contained herein, it is hereby agreed by and between the Company and
the Executive as follows:
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1. Letter of Credit Required.
The Company shall, no later than the date of a change in control as
defined in the Severance Agreement ("Change in Control"), provide Executive with
an irrevocable letter of credit ("Letter of Credit"), under which Executive
shall be the beneficiary, to pay the following amounts:
a. Severance benefits to be paid by the Company as provided in Section
(5)(a)(I) of the Severance Agreement.
b. "Penalty Taxes" (as defined in Section 10 of the Severance
Agreement) and all other amounts to be paid by the Company as provided in
Section 10 of the Severance Agreement.
c. Payments to be made by the Company under Section 16 of the Deferred
Compensation Agreement.
2. Amount of Letter of Credit.
a. The Letter of Credit shall be in an amount equal to the sum
determined by the Accounting Firm identified in Section 9 (the "Accounting
Firm"), as follows (both initially and recalculated as provided in Section 7)
plus ten percent (10%) of said sum.
b. The Accounting Firm shall determine the sum of:
(i) The amount which would be payable to the Executive
under Section 5(a)(I) of the Severance Agreement assuming a Change of Control
has occurred and that the Executive terminates employment for Good Reason (as
defined in the Severance Agreement) at the time the determination is made;
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<PAGE> 3
(ii) The amount of "Penalty Taxes" and income taxes, if any,
that the Accounting Firm has determined as the total amount payable by the
Company to the Executive under Section 10(a) of the Severance Agreement; and
(iii) The amount which would be payable to the Executive
under Section 16 of the Deferred Compensation Agreement if he had made the
election to receive benefits under that Section and was in all other respects
eligible to receive benefits thereunder at the time the determination is made.
c. The amount so determined shall be stated in a written notice by the
Accounting Firm to the Company; and such notice shall thereupon be marked
"Attachment A" and be attached to and become a part of this Agreement.
3. Form of Letter of Credit.
The Letter of Credit shall be in a form agreed to by the Company and
the issuing bank (the "Bank") consistent with the terms of this Agreement. The
Executive shall be entitled to draw on the Letter of Credit by presenting to the
Bank a draft and a certificate in which the Executive certifies in writing that
the requisite events have occurred under the Severance Agreement and/or the
Deferred Compensation Agreement for payment to the Executive of amounts
specified in Section 1.
4. Issuer.
The Letter of Credit shall be issued by a commercial bank that is a
state or national banking association and which has a stockholders' equity in
excess of $1 billion.
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<PAGE> 4
5. Single Letter of Credit with Multiple Beneficiaries.
At the Company's discretion, the Letter of Credit may provide for
payment of similar compensation and benefits to other executives of the Company
who are parties to agreements similar to this Agreement as long as the total
amount of the Letter of Credit, for all such other executives and for the
Executive, is, at all times, no less than the sum of the required amounts of the
Letter of Credit and of the letters of credit required under the agreements with
such other executives (initially or after recalculation pursuant to Section 7).
6. Term of Letter of Credit.
The Letter of Credit to be provided as required by Section 1 shall be
issued for a term which shall be the maximum term then available for commercial
letters of credit. Until such time as all amounts described in Sections 1(a),
1(b) and 1(c) have been paid in full, the Company shall, not later than thirty
(30) days before the Letter of Credit would otherwise lapse or expire, renew the
Letter of Credit or establish a replacement letter of credit with terms at least
as favorable as the initial Letter of Credit. The term "Letter of Credit" shall
mean both the original letter of credit and the renewal and replacement letters
of credit referred to in this Section 6. The period of time during which a
Letter of Credit is required to remain in effect under this Agreement is herein
called the "Secured Period." If the Company does not establish or renew a Letter
of Credit as required by Section 1 and this Section 6, the payment of all
amounts described in Section 1 shall be accelerated in accordance with Section 8
hereof.
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<PAGE> 5
7. Calculation and Recalculation of Amounts Secured by Letter of
Credit and Increase in Amount of Letter of Credit.
During the Secured Period, the Accounting Firm shall, no later than the
end of each calendar quarter in the Secured Period, recalculate the amounts
listed on Attachment A and give prompt written notice of such recalculations to
the Executive, the Company and the Bank. Any such recalculated amounts shall
thereafter be deemed to be the amounts listed on Attachment A. If such
recalculated amounts plus ten percent (10%) thereof exceed the amounts payable
under the Letter of Credit then in effect, no later than seven (7) days after
receipt of such written notice of recalculation, the Company shall cause the
amounts payable under the Letter of Credit to be increased to the recalculated
amounts plus 10%.
8. Acceleration Under Letter of Credit.
If at least 30 days prior to the expiration of a Letter of Credit
established hereunder, which expiration would occur before the end of the
Secured Period, the Executive shall not have received written notice from the
Company that an extension or renewal of the expiring Letter of Credit has
occurred or a new Letter of Credit has been obtained with the terms and
conditions at least as favorable as the predecessor Letter of Credit, then,
notwithstanding any other provisions of the Severance Agreement, the Deferred
Compensation Agreement, or this Agreement, all amounts which are described in
Section 1 shall be due and payable immediately without regard to any
contingencies or future events and Executive, his beneficiaries or estate shall
be entitled to immediately draw on the Letter of Credit for all such amounts.
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9. Accounting Firm.
The Accounting Firm shall mean the same Accounting Firm as determined
under the provisions of Section 10(h) of the Severance Agreement. All
calculations by the Accounting Firm shall be binding on the Company, the
Executive and the Bank in the absence of wilful misconduct or gross negligence
by the Accounting Firm.
10. Expenses.
The Company shall pay all expenses and fees of the Accounting Firm.
11. Information.
The Company shall provide the Accounting Firm with such information as
the Company has in its possession that the Accounting Firm believes necessary,
in its discretion, to make its calculations and recalculations under this
Agreement.
12. Obligation of Executive.
Subject to the provisions of Section 8, if Executive receives payments
under the Letter of Credit for any amount in excess of that to which he is
entitled under the Severance Agreement, the Deferred Compensation Agreement, or
this Agreement, Executive shall immediately repay such amount to Company.
13. Legal Fees, Etc.
If Executive incurs any legal fees and expenses as a result of seeking
to obtain or enforce any right or benefit provided by this Agreement, Company
shall pay or reimburse Executive for all such reasonable fees and expenses.
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14. No Waivers.
The payment by a Bank on a Letter of Credit established in accordance
with the terms hereof shall not constitute a waiver by the Company of, or in any
way preclude the Company from asserting, any claim the Company may have against
Exec utive that Executive is not entitled to some or all of such payment.
Drawing upon the Letter of Credit shall not constitute a waiver by Executive of,
or in any way preclude Executive from asserting, any claim Executive may have
against the Company that Executive is entitled to amounts under this Agreement
or the Severance Agreement or the Deferred Compensation Agreement (except to the
extent that such amounts have been paid in full by the Bank under the Letter of
Credit).
15. Enforceability.
Subject to Section 19, this Agreement shall inure to the benefit of and
be enforceable by Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees.
16. No Change to Agreements.
Except as expressly modified by this Agreement, Executive's rights
under the Severance Agreement and the Deferred Compensation Agreement are
unchanged by this Agreement.
17. Modification in Writing.
No provision of this Agreement may be modified or waived unless in
writing and signed by Executive and such officer of Company as may be designated
or authorized by its Board of Directors.
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18. Severability.
The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provision of this
Agreement, which shall remain in full force and effect.
19. Assignment.
Executive's rights under this Agreement and the Letter of Credit are
not assignable.
20. Notices.
Any notice, report, demand or waiver required or permitted hereunder
shall be in writing and shall be given personally or by prepaid registered or
certified mail, return receipt requested, addressed as follows:
If to the Company: Hancock Fabrics, Inc.
3406 West Main Street
P.O. Box 2400
Tupelo, Mississippi 38003-2400
Attention: Corporate Secretary
If to the Executive: Bruce D. Smith
1612 Carr
Memphis, Tennessee 38104
A notice shall be effective upon the receipt thereof. The above addresses can be
changed by notice in writing delivered as provided above.
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21. Additional Benefits.
The security provided under this Agreement is in addition to and not by
way of limitation of any rights or benefits to which Executive is entitled under
the Severance Agreement and the Deferred Compensation Agreement.
IN WITNESS WHEREOF Executive and, pursuant to authorization from its
Board of Directors, Company have executed this Agreement to Secure Certain
Contingent Payments effective as of the date first above written.
--------------------------------------------
Bruce D. Smith, Executive
HANCOCK FABRICS, INC.
By
------------------------------------------
Its
----------------------------------------
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EXHIBIT 10.29
HANCOCK FABRICS, INC.
1996 STOCK OPTION PLAN
1. PURPOSE OF THE PLAN. The Hancock Fabrics, Inc. 1996 Stock
Option Plan ("Plan") is intended to foster ownership of the Company's common
stock ("Shares") by eligible employees, to encourage their maximum efforts for
the success of the Company's business, and to provide an incentive for them to
remain in the employ of the Company or its subsidiaries. The provisions of this
Plan and all actions and transactions under and pursuant to this Plan are
intended to comply with all applicable conditions of Rule 16(b)-3 promulgated
under Section 16 of the Securities Exchange Act of 1934 ("Exchange Act"), as
amended, or its successors, with respect to persons subject to such Section
("Section 16 reporting persons"). To the extent any provision of, or action or
transaction pursuant to this Plan fails to so comply, it shall be deemed null
and void to the extent permitted by law and deemed advisable by the Plan
administrators.
2. SCOPE AND DURATION OF THE PLAN. Options to purchase Shares may
be granted from time to time during the life of the Plan. Unless sooner
terminated pursuant to Paragraph 16, the Plan shall terminate on September 30,
2001 and thereafter no options shall be granted under the Plan. Termination of
the Plan shall have no effect on options previously granted. Options granted
under the Plan are not intended to qualify as incentive stock options within the
meaning of Section 422A of the Internal Revenue Code of 1986, as amended
("Code"). The aggregate number
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<PAGE> 2
of Shares that may be issued or reserved for issuance pursuant to options
granted under the Plan (including grants to Sections 16 reporting persons) shall
not exceed 2,000,000 Shares (subject to adjustment as provided in the Plan).
Shares as to which options granted under the Plan have expired, been canceled or
otherwise terminated (other than by settlement) shall become available for
further option grants under the Plan.
3. ADMINISTRATION OF THE PLAN. The Board of Directors of the Company
("Board") shall appoint a Stock Option Committee ("Committee"), which shall
consist of two or more members of the Board who are not eligible to receive
grants under the Plan and who shall otherwise be "disinterested" as defined in
the regulations promulgated under Section 16 of the Exchange Act. The Committee
may be the Board's Management Review and Compensation Committee. The Committee
shall have full authority in its discretion, but subject to the express
provisions of the Plan: to determine the purchase price of the Shares covered by
each option; to determine the employees to whom, and the time or times at which,
options shall be granted; to determine the number of Shares to be covered by
each option; to determine the terms and provisions of the respective option
agreements (which need not be identical), including the terms and conditions
respecting the exercise of options (which may be in installments), of any legend
on any certificate representing Shares issued upon exercise of an option, and of
any other instrument or document relating to the Plan, except that each such
document respecting options granted to Section 16 reporting persons shall be
written
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<PAGE> 3
so as to comply with Section 16; to determine whether the purchase price
upon exercise of an option may be paid in cash, Shares or any combination
thereof; to determine whether and to what extent adjustments shall be made
pursuant to the provisions of Paragraph 13; to settle options 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. The Committee may delegate all or a portion of such authority to members
of the Board who are not "disinterested" persons as defined in the regulations
promulgated under Section 16 for the purpose of granting options to persons who
are not Section 16 reporting persons. All determinations, decisions,
interpretations and other actions of the Committee and the Board shall be
conclusive and binding upon all persons. No member of the Committee or of the
Board shall have any liability in respect of anything done or omitted to be done
by such member or any other member, except for a member's own willful misconduct
or as expressly provided by law.
4. ELIGIBILITY FACTORS TO BE CONSIDERED IN GRANTS. Options may be
granted only to full-time employees (including officers) of the Company or any
of its subsidiaries, who shall be considered by the Committee to be contributing
significantly to the success of the business of the Company. A director of the
Company who is not also an employee shall not be eligible to receive an option.
In determining the employees to whom options shall be granted and the number of
Shares to be covered by, and
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the term of, each option, the Committee may take into account the duties of the
respective employees, their present and potential contribution to the success of
the Company, the anticipated number of years of effective service remaining, and
any other factors it may deem relevant in connection with accomplishing the
purpose of the Plan. The granting of an option to an employee shall not
disqualify that employee for a further option grant or grants.
5. OPTION PRICES. The purchase price of the Shares covered by each
option shall be determined by the Committee at the time of grant. The purchase
price of any Shares as to which an option is exercised shall be paid in full
upon exercise. Payment may be in cash or Shares or any combination thereof, as
the Committee shall determine.
6. TERM OF OPTIONS. Except as provided in Paragraphs 11, 12 and 19,
each option granted hereunder shall expire at such time as the Committee shall
determine at the time of grant.
7. EXERCISE OF OPTIONS.
(a) Except as provided in Paragraph 19, an option may be exercised
at such times and in such manner as the Committee shall determine.
(b) Except as provided in Paragraphs 11, 12 and 19, options may be
exercised only by the optionee to whom granted and not at any time after
termination of his or her employment.
8. SETTLEMENT OF OPTIONS. The Committee shall have authority in its
sole discretion, subject to the provisions of this Paragraph, to settle the
whole or any part of any exercisa-
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ble installment of any option by offering payment in Shares, or in Shares and
cash, in exchange for surrender of that installment or partial installment by
the holder of the option. Offers to settle may be made at such times and may
remain open for acceptance by the holder during such periods as the Committee
shall determine. The amount offered shall not exceed the difference between the
option price of the Shares subject to the settlement and the fair market value
of those Shares on the date of the offer. Shares as to which options have been
settled shall not be available for further option grants under the Plan.
9. OPTIONEE'S SERVICE. Options granted under the Plan shall not be
affected by any change of duties or position so long as the optionee continues
to be an employee of the Company or any of its subsidiaries. The option
agreement may contain such provisions as the Committee shall approve with
reference to the effect of approved leaves of absence. Nothing in the Plan or
any agreement pursuant to the Plan (whether written or unwritten) shall confer
upon any employee any right to continue in the employment of the Company or any
of its subsidiaries, shall interfere in any way with the right of the Company or
any of its subsidiaries to terminate that employment at any time, or shall
affect in any way the terms or conditions of employment.
10. NONTRANSFERABILITY. An option granted under the Plan to a Section
16(b) reporting person shall be nontransferable to the extent required to comply
with Section 16(b)-3 of the Exchange Act other than by will or the laws of
descent and distribution. In no event shall a reporting person be entitled
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<PAGE> 6
to sell or otherwise dispose of Shares acquired under the Plan for a period of
six (6) months from the time of grant without the written consent of the
Committee.
11. TERMINATION OF EMPLOYMENT. Except as provided in Paragraphs 12 and
19, and unless an option agreement shall otherwise provide, an option granted to
an optionee shall terminate upon the termination of his or her employment, for
whatever reason.
12. RETIREMENT, DISABILITY OR DEATH OF OPTIONEE. In the event that
employment shall be terminated by the retirement or death of an optionee or
affected by the disability of an optionee, or that an optionee shall die during
the one-year period immediately following the date of retirement or disability,
the option rights of the optionee may be exercised as provided in this Paragraph
12.
(a) To the extent provided in subparagraph (d) of this Paragraph 12,
in the case of termination by retirement, any option may be exercised during the
one-year period immediately following the date of retirement but in no event
beyond the expiration of the stated term of such stock option, unless permitted
by the Company. Should any optionee die within that one-year period, having
unexercised any option exercisable (or to become exercisable pursuant to
subparagraph (d) of this Paragraph 12), the time for exercise of an option by
the legal representative of the optionee or by any person to whom the option has
been transferred by will or the laws of descent and distribution shall be
extended for an additional 180 days beyond
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the date that would have been the last permissible date for exercise by the
optionee, if living.
(b) To the extent provided in subparagraph (d) of this Paragraph 12, in
the case of disability, any option may be exercised during the one-year period
immediately following the date of disability but in no event beyond the
expiration of the stated term of such stock option, unless permitted by the
Company. Should any optionee die within that one-year period, having unexercised
any option exercisable (or to become exercisable pursuant to subparagraph (d) of
this Paragraph 12), the time for exercise of an option by the legal
representative of the optionee or by any person to whom the option has been
transferred by will or the laws of descent and distribution shall be extended
for an additional 180 days beyond the date that would have been the last
permissible date for exercise by the optionee, if living.
(c) To the extent provided in subparagraph (d) of this Paragraph 12, in
the case of termination by death, any option may be exercised during the
one-year period immediately following the date of death by the legal
representative of the optionee or by any person to whom the option has been
transferred by will or the laws of descent and distribution.
(d) An option may be exercised to the extent that the option was
exercisable at the date of termination of employment by retirement or death or
at the date of disability and to the extent of additional option installments
not then exercisable, if any, as the Committee may determine.
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<PAGE> 8
13. ADJUSTMENTS. The Committee may make such adjustment, as the
Committee determines to be appropriate, of the number and prices of the Shares
subject to outstanding options and of the number of Shares available for option,
in order to compensate for the effect of any change in the Company's
capitalization or structure or in the Shares or outstanding options (including
without limitation any change arising through the declaration of a stock
dividend or stock split or through a spin-off, spin-out or other distribution of
assets of the Company or any of its subsidiaries to shareholders, whether
payable in Shares or other 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 other shares of stock of the Company or
any of its subsidiaries) or of any stock purchase pursuant to a tender offer by
the Company or any other party.
14. APPROVAL OF SHAREHOLDERS. No options may be granted hereunder to
any Section 16 reporting person prior to the approval of the Plan by the
Company's shareholders in accordance with the Exchange Act.
15. EFFECTIVENESS OF OPTION GRANTS. Subject to Paragraph 14, the
Committee's approval of the granting of an option shall constitute the granting
of the option.
16. AMENDMENT AND TERMINATION OF THE PLAN. The Board may amend or
terminate the Plan at any time. No amendment adopted
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<PAGE> 9
without approval of the Company's shareholders shall, as to Section 16 reporting
persons, cause the Plan no longer to comply with Section 16 of the Exchange Act
or its successors. No amendment or termination of the Plan shall affect the
rights of the holder of any option theretofore granted under the Plan, except
with the holder's consent.
17. LISTING AND REGISTRATION OF SHARES. 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 options or the
Shares upon any securities exchange or under any state or federal law, or the
consent or approval of any governmental regulatory body, is necessary or
desirable as a condition of or in connection with the granting of options or the
issuance, sale or offering for sale of the Shares or issuance or delivery of a
related certificate pursuant to the Plan, no option may be exercised, in whole
or in part, no Shares may be issued and no certificate representing any shares
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.
18. FINANCING OF EXERCISE OF OPTIONS. At the time of exercise of any
option, the Committee may permit the extension of credit by the Company to
assist the holder of the option in the purchase and retention of the Shares then
issued. Such credit shall be secured by the Shares and shall be in an amount not
greater than the lesser of (x) the option price of the Shares and
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(y) the amount of credit permitted by applicable regulations of the Federal
Reserve Board. The terms of that credit and provisions for release of the
security interest in the Shares shall be as determined by the Committee, at the
time the credit is extended, in accordance with the regulations of the Federal
Reserve Board.
19. CHANGE OF CONTROL.
(a) Unless an option agreement provides or the Committee determines
otherwise, immediately upon the occurrence of a change of control (as defined
below), all outstanding options, whether or not theretofore exercisable, shall
become exercisable.
(b) If the Company shall terminate the optionee's employment for any
reason other than for Cause (as defined below), or the optionee shall terminate
his or her employment for Good Reason (as defined below), within one year of a
change of control, such optionee's options shall be exercisable during the
90-day period immediately following the date of termination but in no event
beyond the expiration of the stated term of such option, unless permitted by the
Company.
20. WITHHOLDING TAX. Where the holder of an option is entitled to
receive Shares pursuant to the exercise of an option, the Committee shall have
the right to require that the holder of the option pay to the Company the amount
of any taxes which the Company is required to withhold with respect to such
Shares, prior to the issuance or delivery of any Shares or any certificate
representing Shares, in such manner as the Committee
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shall determine, including without limitation by requiring the Company to retain
a sufficient number of such Shares to cover the amount or any portion thereof
required to be withheld.
21. GOVERNING LAW. The Plan shall be governed and construed in
accordance with the laws of the State of Delaware, regardless of the law that
might otherwise govern under applicable Delaware conflicts of laws principles.
22. DEFINITIONS. As used in the Plan, the following terms are defined
as follows:
(a) Company -- Hancock Fabrics, Inc., a Delaware corporation, and its
successors and assigns.
(b) Subsidiary -- A corporation of which the Company owns stock having
fifty percent (50%) or more of the total voting power.
(c) Employee -- A person employed by the Company or any of its
subsidiaries.
(d) Employment -- Employment by the Company or any of its subsidiaries.
(e) Optionee -- An employee to whom an option is granted pursuant to
the Plan.
(f) Retirement -- Termination of employment under circumstances
entitling the participant to elect immediate payment of retirement benefits
under the Hancock Fabrics, Inc. Consolidated Retirement Plan or any successor
plan thereto.
(g) Disability -- Failure to return to full-time performance of
employment duties immediately after the participant has exhausted the short term
disability benefits
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under the then applicable short term disability policy or procedures of the
Company.
(h) Fair market value of the Share on any given date --
(i) The closing price of the Shares or, if there is no closing
price, the average of the lowest and highest selling prices of the Shares
(A) as reported in "New York Stock Exchange -
Composite Transactions," or
(B) if the Shares are 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 Shares are listed or admitted to
trading, or
(ii) if the Shares are 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 Shares are 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 Shares selected by the
Committee,
-12-
<PAGE> 13
on such date, or if that date is not a "trading day," on the next preceding
trading day. "Trading day" shall mean a day on which the principal national
securities exchange on which the Shares are listed or admitted to trading is
open for the transaction of business or, if the Shares are 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
Shares are not publicly held or not so listed or traded, the fair market value
of the Shares on that date shall mean the fair value per share as determined in
good faith by the Committee, whose determination shall be final.
(i) 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
-13-
<PAGE> 14
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 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.
(j) Cause -- An act or acts of fraud or misappropriation on the
optionee's part that result in or are intended to result in his or her personal
enrichment at the expense of the Company or any of its subsidiaries or
conviction of a felony. The determination of a majority of the incumbent Board
that cause exists shall be conclusive upon all persons.
(k) Good Reason --
(i) Without the express written consent of the optionee,
(A) the assignment to the optionee of any duties
inconsistent in any substantial respect with the optionee's position,
authority or responsibilities as in effect during the 90-day period immediately
preceding a change of control, or
(B) any other substantial adverse change in such position
(including titles and reporting requirements), authority or responsibilities;
-14-
<PAGE> 15
(ii) any failure by the Company to furnish the optionee (or,
where applicable, his or her family) with compensation (including annual bonus)
and benefits at a level equal to or exceeding those received (on an annual
basis) by the optionee from the Company during the 90-day period preceding the
change of control, including a failure by the Company to maintain the Company's
Extra Compensation Plan (including the right to defer the receipt of payments
thereunder) and Supplemental Retirement Benefit Plan, other than an
insubstantial and inadvertent failure remedied by the Company promptly after
receipt of notice thereof given by the optionee; or
(iii) the Company's requiring the optionee to be based or to
perform services at any office or location other than that at which the optionee
is primarily based during the 90-day period preceding the change of control,
except for travel reasonably required in the performance of the optionee's
responsibilities.
Any good faith determination of good reason made by the optionee shall
be conclusive upon all persons.
-15-
<PAGE> 1
EXHIBIT 10.32
HANCOCK FABRICS, INC.
1995 RESTRICTED STOCK PLAN
1. PURPOSE OF THE PLAN. The Hancock Fabrics, Inc. 1995 Restricted Stock
Plan ("Plan") is intended to provide an incentive for key employees to
contribute to the growth of the Company's business by providing opportunities
for their ownership of shares of the Company's common stock ("Shares") and to
retain them in the employ of the Company or its subsidiaries. The provisions of
this Plan and all actions and transactions under and pursuant to this Plan are
intended to comply with all applicable conditions of Rule 16(b)-3 promulgated
under Section 16 of the Securities Exchange Act of 1934 ("Exchange Act"), or its
successors, with respect to persons subject to such Section ("Section 16
reporting persons"). To the extent any provision of, or action or transaction
pursuant to, this Plan fails to so comply, it shall be deemed null and void to
the extent permitted by law and deemed advisable by the Plan administrators.
2. SCOPE AND DURATION OF THE PLAN. Shares may be awarded from time to
time during the life of the Plan. Unless sooner terminated pursuant to Paragraph
15, the Plan shall terminate on December 5, 2005 and thereafter no Shares
shall be awarded under the Plan. Termination of the Plan shall have no effect on
awards then outstanding. The aggregate number of Shares that may be issued or
reserved for issuance pursuant to awards under the Plan (including awards to
Section 16 reporting persons) shall not exceed 1,000,000 Shares (subject to
adjustment as provided in the
-1-
<PAGE> 2
Plan). Awards 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 and Shares subject to any previous awards under the Plan that are
forfeited.
3. ADMINISTRATION OF THE PLAN. The Board of Directors of the Company
("Board") shall appoint a Restricted Stock Committee ("Committee"), which shall
consist of two or more members of the Board who are not eligible to receive
awards under the Plan and who shall otherwise be "disinterested" as defined in
the regulations promulgated under Section 16 of the Exchange Act. The Committee
may be the Board's Management Review and Compensation Committee. The Committee
shall have full authority in its discretion, but subject to the express
provisions of the Plan: to determine the key employees to whom, and the time or
times at which, Shares shall be awarded; to determine the number of Shares to be
covered by each award; to determine the terms, conditions and restrictions of
the respective award agreements (which need not be identical), of any legend on
any certificate representing Shares awarded pursuant to the Plan, and of any
other instrument or document relating to the Plan, except that each such
document respecting awards to Section 16 reporting persons shall be written so
as to comply with Section 16 of the Exchange Act; to determine whether and to
what extent adjustments shall be made pursuant to the provisions of Paragraph
12; 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
-2-
<PAGE> 3
administration of the Plan. The Committee may delegate all
or any part of such authority to members of the Board who are not
"disinterested" as defined in the regulations promulgated under Section 16 of
the Exchange Act in the case of awards to persons who are not Section 16
reporting persons. All determinations, decisions, interpretations and other
actions of the Committee and the Board shall be conclusive and binding upon all
persons. No member of the Committee or of the Board shall have any liability in
respect of anything done or omitted to be done by such member or any other
member, except for a member's own willful misconduct or as expressly provided
for by law.
4. ELIGIBILITY FACTORS TO BE CONSIDERED IN AWARDS. Shares may be
awarded only to full-time key employees (including officers) of the Company or
any of its subsidiaries, who are responsible for, and shall be considered by the
Committee to be contributing significantly to, the growth of the Company's
business. A director of the Company who is not also an employee shall not be
eligible to receive an award. In determining the employees to whom Shares shall
be awarded, the number of Shares to be covered by each award, and the terms,
conditions and restrictions of each award, the Committee may take into account
any factors it may deem relevant in connection with accomplishing the purpose of
the Plan. An award of Shares under the Plan to an employee shall not disqualify
that employee for a further award or awards.
5. RESTRICTIONS. The Committee may impose such restrictions on any
award or any Shares awarded pursuant to the
-3-
<PAGE> 4
Plan as it deems advisable (including restrictions on transferability).
6. REMOVAL OF RESTRICTIONS. Except as provided in Paragraphs 11 and 17,
the restrictions imposed by the Committee on any award or any Shares awarded
pursuant to the Plan shall lapse as the Committee shall determine at the time of
the award. Shares as to which restrictions have lapsed shall not thereafter be
forfeitable under any circumstances.
7. PARTICIPANT'S SERVICE. Awards under the Plan shall not be affected
by any change of duties or position so long as the participant continues to be a
key employee of the Company or any of its subsidiaries. The agreement respecting
each award may contain such provisions as the Committee shall approve with
reference to the effect of approved leaves of absence. Nothing in the Plan or
any agreement pursuant to the Plan (whether written or unwritten) shall confer
upon any employee any right to continue in the employment of the Company or any
of its subsidiaries, shall interfere in any way with the right of the Company or
any of its subsidiaries to terminate that employment at any time, or shall
affect in any way the terms or conditions of employment.
8. NONTRANSFERABILITY. Shares subject to restrictions shall not be
transferable other than by will or the laws of descent and distribution. In no
event shall a Section 16 reporting person be entitled to sell or otherwise
dispose of Shares awarded under the Plan for period of six (6) months from the
time of award without the written consent of the Committee.
-4-
<PAGE> 5
9. STOCK CERTIFICATES. The Committee may at any time require the
placement of appropriate legends on any certificate or certificates representing
the Shares subject to restrictions. The Committee may also require the retention
by the Company or the placement in escrow of any such certificate or
certificates until such certificate or certificates shall become deliverable
following the lapse of the restrictions. The Committee may require, as a
condition of any award, that the participant deliver to the Company a stock
power relating to Shares subject to an award, endorsed in blank and in all other
ways satisfactory to the Company (including, without limitation, as to a valid
and appropriate signature guaranty ensuring transferability of the Shares).
10. TERMINATION OF EMPLOYMENT. Except as provided in Paragraphs 11 and
17, effective as of the date of termination of a participant's employment, for
whatever reason, all or any portion of an award for Shares still subject to
restrictions (including restrictions on transferability) shall automatically be
forfeited. A participant shall have no rights or privileges as a shareholder or
otherwise with respect to Shares that have been forfeited.
11. RETIREMENT OR DEATH OF PARTICIPANT.
(a) In the event that employment shall be terminated by the normal
retirement or death of a participant, the restrictions imposed by the Committee
on any Shares awarded pursuant to the Plan shall lapse upon such termination.
-5-
<PAGE> 6
(b) In the event that employment shall be terminated by the early
retirement of a participant, the Committee may, but shall not be obligated to,
determine that the restrictions imposed by the Committee on any Shares awarded
pursuant to the Plan shall lapse upon such termination.
12. ADJUSTMENTS. The Committee may make such adjustment, as the Committee
determines to be appropriate, in the number of Shares subject to outstanding
awards and in the number of Shares available for awards in order to compensate
for the effect of any change in the Company's capitalization or structure or in
the Shares or outstanding awards (including without limitation any change
arising through the declaration of a stock dividend or stock split or through a
spin-off, spin-out or other distribution of assets of the Company or any of its
subsidiaries to shareholders, whether payable in Shares or other 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
other shares of stock of the Company or any of its subsidiaries) or of any stock
purchase pursuant to a tender offer by the Company or any other party.
13. APPROVAL OF SHAREHOLDERS. No award may be made hereunder to any
Section 16 reporting person prior to the approval of the Plan by the Company's
shareholders in accordance with the Exchange Act.
-6-
<PAGE> 7
14. EFFECTIVENESS OF AWARDS. Subject to Paragraph 13, the date of the
Committee's approval of the awarding of Shares shall constitute the date of the
award; provided that the effectiveness of any award hereunder shall also be
subject to the execution of a restricted stock agreement and such other
documentation as the Committee may require.
15. 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, as to Section 16 reporting persons, cause the Plan
no longer to comply with Section 16 of the Exchange Act or its successors. No
amendment or termination of the Plan shall affect the rights of a holder of an
award, except with the holder's consent.
16. LISTING AND REGISTRATION OF SHARES. 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 Shares upon
any securities exchange or under any state or federal law, or the consent or
approval of any governmental regulatory body, is necessary or desirable as a
condition of or in connection with the issuance or delivery of the Shares or
related certificate pursuant to the Plan, no Shares may be issued and no
certificate representing any Shares 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.
-7-
<PAGE> 8
17. CHANGE OF CONTROL. Immediately upon the occurrence of a change of
control, the restrictions imposed by the Committee on any Shares previously
awarded pursuant to the Plan shall lapse.
18. WITHHOLDING TAX. The Committee shall have the right to require,
prior to the issuance or delivery of any Shares or any certificates representing
any Shares awarded pursuant to the Plan, that the participant pay to the Company
the amount of any taxes which the Company is required to withhold with respect
to such Shares in such manner as the Committee shall determine, including
without limitation by requiring the Company to retain a sufficient number of
Shares to cover the amount or any portion thereof required to be withheld.
19. GOVERNING LAW. This Plan shall be governed and construed in
accordance with the laws of the State of Delaware, regardless of the law which
might otherwise govern under applicable Delaware conflicts of laws principles.
20. DEFINITIONS. As used in the Plan, the following terms are defined
as follows:
(a) Company -- Hancock Fabrics, Inc., a Delaware corporation, and
its successors and assigns.
(b) Subsidiary -- A corporation of which the Company owns stock
having fifty percent (50%) or more of the total voting power.
(c) Employee -- A person employed by the Company or any of its
subsidiaries.
(d) Employment -- Employment by the Company or any of its
subsidiaries.
-8-
<PAGE> 9
(e) Participant -- An employee to whom Shares have been awarded
pursuant to the Plan.
(f) Normal Retirement -- Termination of employment after having
attained age 65 and under circumstances entitling the participant to elect
immediate payment of retirement benefits under the Hancock Fabrics, Inc.
Consolidated Retirement Plan or any successor plan thereto ("Hancock Retirement
Plan").
(g) Early Retirement -- Termination of employment after having attained
age 55 and under circumstances entitling the participant to elect immediate
payment of retirement benefits under the Hancock Fabrics, Inc. Consolidated
Retirement Plan or any successor plan thereto ("Hancock Retirement Plan").
(h) 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
-9-
<PAGE> 10
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 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.
-10-
<PAGE> 1
HANCOCK FABRICS, INC. EXHIBIT 11
COMPUTATION OF EARNINGS PER SHARE
(unaudited)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
(dollars in thousands, except for
per share amounts) Year Ended
---------------------------------
February 2, January 28,
1997 1996
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Primary earnings per share
Net earnings $ 12,481 $ 8,951
============ ============
Weighted average number of common shares
outstanding during period 21,580,015 21,052,327
Additional shares attributable to common
stock equivalents 230,553 227,980
Shares attributable to tax effect of restricted stock
and related deferred compensation (269,171) 14,092
------------ ------------
21,541,397 21,294,399
============ ============
Earnings per share $ 0.58 $ 0.42
============ ============
- ---------------------------------------------------------------------------- ------------
Fully diluted earnings per share
Net earnings $ 12,481 $ 8,951
============ ============
Weighted average number of common shares
outstanding during period 21,580,015 21,052,327
Additional shares attributable to common
stock equivalents 482,746 234,133
Shares attributable to tax effect of restricted stock
and related deferred compensation (205,187) 14,223
------------ ------------
21,857,574 21,300,683
============ ============
Earnings per share $ 0.57 $ 0.42
============ ============
</TABLE>
<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
</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 7, 1997 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, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
BALANCE SHEET P.13 1996 HANCOCK ANNUAL REPORT, CONSOLIDATED STATEMENT OF
EARNINGS P.12 1996 HANCOCK ANNUAL REPORT - EXHIBIT 13 FORM 10K AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10K.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-02-1997
<PERIOD-START> JAN-28-1996
<PERIOD-END> FEB-02-1997
<CASH> 6,870
<SECURITIES> 0
<RECEIVABLES> 1,102
<ALLOWANCES> 0
<INVENTORY> 147,973
<CURRENT-ASSETS> 160,786
<PP&E> 17,845
<DEPRECIATION> 0
<TOTAL-ASSETS> 187,843
<CURRENT-LIABILITIES> 57,828
<BONDS> 0
0
0
<COMMON> 273
<OTHER-SE> 105,000
<TOTAL-LIABILITY-AND-EQUITY> 187,843
<SALES> 378,218
<TOTAL-REVENUES> 378,218
<CGS> 194,893
<TOTAL-COSTS> 173,411
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,200
<INCOME-PRETAX> 20,282
<INCOME-TAX> 7,801
<INCOME-CONTINUING> 12,481
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,481
<EPS-PRIMARY> .58
<EPS-DILUTED> .57
</TABLE>
