AMENDED AND RESTATED EMPLOYMENT
AGREEMENT
This AMENDED AND
RESTATED EMPLOYMENT AGREEMENT is made and entered into by and
between HANCOCK FABRICS, INC ., a Delaware corporation
(“Company”), and JANE F. AGGERS
(“Executive”) to be effective for all purposes as of
August 1, 2008 (the “Effective Date”).
WHEREAS, Company
wishes to employ Executive as Chief Executive Officer
(“CEO”) and upon the terms and conditions hereinafter
set forth, and Executive desires to serve in such capacities upon
the terms and conditions hereinafter set forth; Company and
Executive first entered into this Employment Agreement as of
December 15, 2004, and amended their agreement as of
December 7, 2005 and hereby again amend their agreement
pursuant to this Amended and Restated Employment
Agreement;
NOW, THEREFORE, in
consideration of the foregoing and of the mutual covenants herein,
and for other good and valuable consideration the receipt and
sufficiency of which are hereby acknowledged, the parties,
intending to be legally bound, hereby agree as follows:
Section 1.
Position and Duties . Commencing on the Effective Date,
Executive shall be employed by Company as President and CEO,
reporting to Company’s Board of Directors (the
“Board”). As its CEO, Executive agrees to devote her
full business time, energy and skill to her duties at the Company.
These duties shall include all those duties customarily performed
by a CEO as well as any duties as may be reasonably determined and
specified in the future by the Board. During the term of
Executive’s employment, Executive shall be permitted to serve
on boards of directors of for-profit or not-for-profit entities
provided that the Board has approved such service in writing, and
only so long as such service does not conflict with or adversely
affect the performance of Executive’s duties to Company under
this Agreement. If the Board requests Executive to resign from such
position at any time, Executive shall resign immediately. Executive
has been elected to the Board as of the Effective Date.
Section 2.
Term of Employment . This Agreement shall remain in effect
for a period of 30 months from the Effective Date, subject to
Executive’s continued employment with the Company (the
“Initial Term”). Unless notice is given by either party
as provided in this Section 2, the term of Executive’s
employment with Company will be extended automatically for
successive additional one -day periods after the expiration of the
Initial Term. Such automatic extension of the term of this
Agreement will become inapplicable at such time as either the
Executive provides at least 45 days’ prior written
notice or Company provides at least 15 days’ prior
written notice that it does not agree to such automatic extension .
After such notice has been given by either Executive or Company,
the term of this Agreement will remain in effect for 30 months
after the effective date of the notice is given as provided in
Section 10(c) (together with the Initial Term, such 30-month period
following notice is referred to in this Agreement as the
“Term”). Any other extension or modification of this
Agreement shall be subject to future
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agreement by
the parties. Upon the termination of Executive’s employment
for any reason, neither party shall have any further obligation or
liability under this Agreement to the other, except as explicitly
set forth herein.
Section 3.
Compensation . Executive shall be compensated by Company for
her services as follows:
(a) Base
Salary . As CEO, Executive shall be paid a monthly Base Salary
of $37,500 per month ($450,000 on an annualized basis), subject to
all applicable withholding, in accordance with Company’s
normal payroll procedures. Executive’s Base Salary shall be
in effect during the Term of this Agreement, and, in the sole
discretion of the Board, may be increased from time to time during
the Term of this Agreement.
(b)
Benefits . Executive shall have the right, on the same basis
as other employees of Company, to participate in and to receive
benefits under any of Company’s employee benefit plans, as
such plans may be modified from time to time. In addition,
Executive shall be entitled to the specific benefits set out on
Enclosure 1, which is attached hereto and incorporated herein by
reference.
(c)
Performance Bonuses . Executive shall have the opportunity
to earn a performance bonus in accordance with Company’s
Bonus Plan (the “Bonus Plan”), as such plan may be
modified or supplanted by the Board over time. Bonus criteria for
Executive shall be established by the Board in consultation with
Executive.
Section 4.
Equity Compensation Grants . All equity compensation grants,
including, but not limited to, stock options and restricted stock
(“Equity Grants”) shall be governed by the terms of an
agreement setting forth the terms and conditions of the Equity
Grant and the terms of the equity compensation plan of Company
pursuant to which such Equity Grants are made to Executive;
provided that . notwithstanding any other provision to the contrary
contained in any such equity compensation plan, each such agreement
shall be deemed to include each of the additional provisions set
forth below. The rights provided by this Section 4 shall be in
addition to any rights granted to Executive under any such
agreement and plan. In the event of an inconsistency or conflict
between the provisions of this Section 4 or Section 5 and
another agreement or plan of the Company, the provisions of this
Section 4 or Section 5, as applicable, shall apply and be
given priority.
(a)
Acceleration of Equity Compensation Vesting Upon
Non-Assumption . In the event of a Change in Control, each
Equity Grant held by Executive, to the extent then outstanding,
shall become fully vested and exercisable immediately prior to but
conditioned upon the consummation of the Change in Control, except
to the extent that the surviving, continuing, successor, or
purchasing entity or parent thereof, as the case may be (the
“Acquiror”), (i) assumes or continues in effect
Company’s rights and obligations under such Equity Grant,
(ii) substitutes for such Equity Grant a substantially
equivalent right for the Acquiror’s stock or
(iii) replaces such Equity Grant with a cash incentive program
pursuant to which Executive is to be paid for each share of
Company’s common stock that is subject to such option or
award immediately prior to the consummation of the Change in
Control and in accordance with the
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same vesting
schedule applicable to such Equity Grant (including any subsequent
acceleration of vesting determined under any other Section of this
Agreement) an amount equal to the excess of the fair market value
of the consideration paid by the Acquiror for each share of the
common stock of Company outstanding immediately prior to the
consummation of the Change in Control over the per share exercise
price of such option.
(b)
Acceleration of Equity Compensation Grant Vesting Upon an
Involuntary Termination During a Change in Control Period . If
Executive’s employment with Company terminates as a result of
an Involuntary Termination During a Change in Control Period, then
each Equity Grant held by Executive, to the extent then
outstanding, (i) shall become fully vested and exercisable
(and any forfeiture provision shall lapse; provided, however, that
the Equity Grant may expire in the interim in accordance with its
terms) in full as of the passing of both ( x ) the date
of termination of Executive’s employment and ( y
) the last day following Executive’s execution of the
Release on which Executive may revoke such Release under its terms,
and (ii) shall remain exercisable in full until the earlier of
( x ) the expiration of a period of three months
following the date on which Executive’s employment terminated
or ( y ) the expiration of the term of such Equity
Grant.
(c)
Acceleration of Equity Compensation Grant Vesting Upon Death
. If Executive’s employment with Company terminates due to
Executive’s death, then each Equity Grant held by Executive,
to the extent then outstanding, shall become fully vested and
exercisable (and any forfeiture provision shall lapse) in full as
of the date of Executive’s death. The Equity Grants shall be
exercisable by the estate of Executive in accordance with the time
periods and procedures set forth in the Equity Grant
agreement.
Section 5.
Effect of Termination of Employment .
(a)
Voluntary Termination, Death or Disability . (x) In
the event of Executive’s voluntary Separation from Service,
Executive shall be entitled to no compensation or benefits from
Company other than those earned under Section 3 through the
date of her Separation From Service. . In the event that
Executive’s Separation From Service is a result of her death
or disability, Executive shall be entitled to a pro-rata share of
the Bonus, if any, provided for in Section 3(c) (presuming
performance meeting target performance goals) in addition to all
compensation and benefits earned under Section 3 through the
date of Separation From Service.
(b)
Termination for Cause . If Executive’s employment is
terminated by Company for Cause, Executive shall be entitled to no
compensation or benefits from Company other than those earned under
Section 3 through the date of her termination and, shall be
entitled to exercise or retain, as the case may be, shares of
Company stock subject to each stock option, restricted stock award
or other Company stock-based award granted to Executive, only to
the extent such awards have vested through the date of her
employment termination. In the event that Company terminates
Executive’s employment for Cause, Company shall provide
written notice to Executive of that fact prior to, or concurrently
with, the termination of employment. Failure to provide written
notice that Company contends that the termination is for Cause
shall constitute a waiver of any contention that the termination
was for Cause, and the termination shall be
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irrebuttably
presumed to be a termination without Cause. However, if, within
thirty (30) days following the termination, Company first
discovers facts that would have established Cause, and those facts
were not known by Company at the time of the termination, then
Company shall provide Executive with written notice, including the
facts establishing that the purported Cause was not known at the
time of the termination, and Company will pay no
severance.
(c)
Involuntary Termination Without Cause During Change in Control
Period . If Executive has a Separation From Service with
Company as a result of an Involuntary Termination During a Change
in Control Period, then, in addition to any other benefits
described in the Agreement, Executive shall receive the following
(collectively with the acceleration of equity provisions under
Section 4, the “Change in Control Severance
Benefits”):
(i) all
compensation and benefits earned under Section 3 through the
date of Executive’s Separation from Service;
(ii) a
pro-rata share of the Bonus provided for in Section 3(c) if, and
only to the extent that, Company has met its target performance
objectives for the year to date;
(iii) a
lump sum payment equivalent to two and one-half (2 1/2)
years’ Base Salary (as it was in effect immediately prior to
the Change in Control);
(iv) a
lump sum payment equivalent to two and one-half (2 1/2) times the
bonus paid under the Bonus Plan for the year immediately prior to
the year in which the Change in Control occurred;
(v) a
lump sum payment equal to thirty (30) times the monthly cost
of coverage for the Company sponsored medical, life and disability
insurance in effect for Executive immediately prior to
Executive’s Separation From Service; however,
(vi) if
any payments to the Executive in connection with a Change of
Control would be subject to the excise tax under Sections 280G
or 4999 of the Internal Revenue Code on excess parachute payments,
the Company will, in general, “gross up” the
Executive’s compensation to offset the excise tax, except
that (a) if the aggregate parachute payments that would
otherwise be made to the Executive do not exceed 110% of the
maximum amount of parachute payments that can be made without
triggering the excise tax, the parachute payments to the Executive
will be reduced to the extent necessary to avoid the imposition of
the excise tax and no “gross up” will be paid, and (b)
if the aggregate parachute payments that would otherwise be made to
the Executive do exceed 110% of the maximum amount of parachute
payments that can be made without triggering the excise tax, the
full amount of those parachute payments will be made, the Executive
will have to individually bear the excise tax allocable to 10% of
the aggregate total of parachute payments, and the Company will
“gross up” the Executive’s compensation to offset
the excise taxes other than that portion that is allocable to 10%
of the aggregate total of parachute payments. In the event that the
Change in Control Severance Benefits exceed the minimum amount
required to impose the excise tax penalty of Section 4999 of
the Code (the “Threshold 280G Amount”) by an amount
equal to or less than ten percent (10%) of the
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Threshold 280G
Amount, then the Change in Control Severance Benefits shall be
reduced so that they total $1.00 less than the Threshold 280G
Amount.
(d)
Involuntary Termination Without Cause Not in a Change in Control
Period . In the event that Executive’s Separation From
Service with Company occurs during the Term as a result of an
Involuntary Termination Not in a Change in Control Period, then
Executive shall receive the following benefits:
(i) all
compensation and benefits earned under Section 3 through the
date of Executive’s Separation From Service;
(ii) the
Base Salary due Executive through the remaining Term of this
Agreement, which amounts shall be payable monthly during the
remaining portion of such Term;
(iii) a
pro-rata share of the Bonus provided for in Section 3(c) if, and
only to the extent that, Company has met its target performance
objectives for the year to date;
(iv) reimbursement,
payable monthly, for the cost of medical, life and disability
insurance coverage at a level equivalent to that provided by
Company for a period of the earlier of: (i) the remaining Term
of this Agreement, or (ii) the time Executive begins
alternative employment. It shall be the obligation of Executive to
inform Company that new employment has been obtained;
(v) the
Equity Grants shall continue in force and shall vest for the
benefit of Executive during the remaining Term of this Agreement,
notwithstanding any language to the contrary in any Equity Grant or
any applicable plan of the Company.
(e)
Resignation from Positions . In the event that Executive has
a Separation From Service with Company for any reason, on the
effective date of the Separation From Service Executive shall
simultaneously resign from each position she holds on the Board
and/or the board of directors of any of Company’s affiliated
entities and any position Executive holds as an officer of Company
or any of Company’s affiliated entities.
(f)
Special Provisions re Payments to Executive . The amounts
payable to Executive under subsections (c)(ii), (iii), (iv), and
(v) shall be paid to Executive in a lump sum sixty (60) days
following the Executive’s Separation From Service, provided
Executive has executed the Release and the date by which Executive
may revoke such Release has expired within such sixty (60) day
period. If Executive has not executed such Release and the period
for revocation thereof has not expired within sixty (60) days
after the date on which the involuntary Separation From Service
occurs, then Company shall not be obligated to make such lump sum
payment. The amounts payable under subsection (d)(ii) and
(iv) shall be paid monthly during the remaining Term,
beginning sixty (60) days after Executive’s Separation
From Service (with any amount otherwise payable within such sixty
(60) day period payable at the expiration of the sixty
(60) day period), and the amount payable under (d)(iii)
normally shall be paid sixty (60) days after the Separation
From Service, provided Executive has in each case executed the
Release and the date by which Executive may revoke such Release has
expired within such sixty (60) day period.
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Notwithstanding
any other provision of this Agreement to the contrary, in the case
of welfare benefit coverage provided to Executive under this
paragraph, or in the case of any other compensation which is
subject to Code Section 409A, if Executive is a Specified
Employee at the time of a Separation From Service and the payment
or provision of such compensation is made as a result of the
Separation From Service, then no portion of such benefits or other
such compensation shall be made before the date that is six
(6) months after the date of the Separation from Service or,
if earlier, the date of death of the Specified Employee. Any
compensation which would otherwise be paid within such six
(6) month period after a Separation From Service shall be paid
on the date which is six (6) months and one day after the
Separation From Service, or the first business day thereafter. The
provisions and application of this paragraph will be construed and
applied in a manner consistent with Code Section 409A and
Treasury Regulations of other guidance issued
thereunder.
Section 6.
Certain Definitions . For the purposes of this Agreement,
the following capitalized terms shall have the meanings set forth
below:
(a) “Applicable
Termination Anniversary” shall mean (i) in the event of
an Involuntary Termination During a Change in Control Period, the
date thirty (30) months after the date of termination or
(ii) in the event of an Involuntary Termination Not in a
Change in Control Period, the remaining Term of this Agreement, or
(iii) in the event of voluntary termination by Executive, the
date two (2) years after the date of termination.
(b) “Business”
shall mean (i) the retail and wholesale fabric business,
(ii) the business of selling fabrics, yarn and related
accessories to sewing, knitting, quilting and home decorating
retail customers and at wholesale to independent retailers, and
(iii) any other commercial enterprise conducted by Company
during the term of this Agreement.
(c) “Cause”
shall mean any of the following:
(i) Executive’s
theft, dishonesty, willful misconduct, breach of fiduciary duty for
personal profit, or falsification of any employment or Company
records;
(ii) Executive’s
willful, reckless or grossly negligent violation of any law, rule,
or regulation (other than traffic violations or similar offenses)
or final cease-and-desist order or commission of an act that
involves moral turpitude;
(iii) Executive’s
intentional failure to perform stated duties or to comply with a
resolution of the Board;
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