Exhibit 10.27
EMPLOYMENT
AGREEMENT
This EMPLOYMENT AGREEMENT is made
and entered into by and between HANCOCK FABRICS, INC ., a
Delaware corporation (“Company”), and JANE F.
AGGERS (“Executive”) as of December 15,
2004.
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.
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 . From December 15, 2004 through January 30, 2005, the
Company agrees to employ Jane F. Aggers as a consultant, with
salary at the rate of $37,500 per month, and benefits as provided
for in Paragraphs 2 and 3 of Enclosure 1 to this Agreement.
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
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 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
. Executive's employment with Company pursuant to this Agreement
shall commence on the Effective Date, and this Agreement shall
remain in effect for a period of three (3) years from the Effective
Date and will on each anniversary date of the Effective Date be
automatically extended for additional one (1) year periods, unless
either party provides written notice prior to such anniversary date
that it does not agree to such automatic extension (the "Term").
Any other extension or modification of this Agreement shall be
subject to future 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:
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(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 Company 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 over time. For the fiscal year ending
January 2006, Executive shall be paid a guaranteed bonus of
$225,000, payable during the first calendar quarter of 2006,
concurrently with the payment of other management bonuses for such
fiscal year. Bonus criteria for Executive for years after the
fiscal year ending January 2006 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. The
initial Equity Grants for Executive are set out on Enclosure 2,
which is attached hereto and incorporated herein by reference.
Notwithstanding any other provision to the contrary contained in
any agreement evidencing any current or future Equity Grant, 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. 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”), (A) assumes or continues in effect
Company’s rights and obligations under such Equity Grant, (B)
substitutes for such Equity Grant a substantially equivalent right
for the Acquiror’s stock or (C) 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 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
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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) in full
as of the later of ( x ) the date of termination of
Executive’s employment or ( 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 (3) 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.
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Section 5. Effect of Termination of
Employment .
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(a)
Voluntary Termination, Death or
Disability . In the event
of Executive’s voluntary termination from employment with
Company, Executive shall be entitled to no compensation or benefits
from Company other than those earned under Section 3 through the
date of her termination, plus one year of Base Salary and one year
of the medical and health insurance benefits described in paragraph
3 of Enclosure 1, which amounts shall be payable monthly during
such twelve-month period, and, in the case of each stock option,
restricted stock award or other Company stock-based award granted
to Executive, the extent to which such awards are vested, or would
have continued to vest for the Benefit of Executive had Executive
not been terminated , through the date one (1) year after the date
of Executive's termination. In the event that Executive’s
employment terminates as a result of her death or disability,
Executive shall be entitled to a pro-rata share of the Bonus
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 termination.
(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, in the case of
each stock option, restricted stock award or other Company
stock-based award granted to Executive, the extent to which such
awards are vested through the date of her 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
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waiver of any contention that the termination
was for Cause, and the termination shall be 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’s employment with Company
terminates as a result of an Involuntary Termination During a
Change in Control Period, then, in addition to any other benefits
described in this Agreement, Executive shall receive the
following:
(i)
all compensation and benefits earned
under Section 3 through the date of Executive’s termination
of employment;
(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
three (3) years’ Base Salary (as it was in effect immediately
prior to the Change in Control);
(iv)
a lump sum payment equivalent to
three (3) times the bonus paid under the Bonus Plan for the year
immediately prior to the year in which the Change in Control
occurred;
(v)
reimbursement 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) three (3) years; or (ii) the time Executive begins
alternative employment. It shall be the obligation of Executive to
inform Company that new employment has been obtained;
and
(vi)
in addition to the benefits
described above (the “Change in Control Severance
Benefits”), a tax equalization payment, which shall be in an
amount which, when added to the other amounts payable, will place
Executive in the same after-tax position as if the excise tax
penalty of Section 4999 of the Internal Revenue Code of 1986, as
amended (the “Code”), or any successor statute of
similar import, did not apply to any of the Change in Control
Severance Benefits. The amount of this tax equalization payment
shall be determined by Company’s independent accountants and
shall be payable to Executive at the same time as the other
severance payments under this Section 5. The Compensation Committee
of the Board of Directors will review the appropriateness of any
such payment for each calendar year beginning after January 1, 2006
and will determine whether to maintain this provision by resolution
adopted on or before December 31 of the preceding year. In the
event no such resolution is adopted, this equalization payment
provision will remain in effect. However, 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 Threshold 280G Amount,
then the Change in
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Control Severance Benefits shall be reduced so
that they total $1.00 less than the Threshold 280G
Amount.
The amount payable to Executive under
subsections (ii) through (iv), above, shall be paid to Executive in
a lump sum on the later of thirty (30) days following the later of
Executive’s termination of employment or the last day
following Executive’s execution of the Release on which
Executive may revoke such Release under its terms. The amounts
payable under subsection (v) shall be paid monthly during the
reimbursement period, provided that Executive has executed the
Release and any revocation period has run.
(d)
Involuntary Termination Without
Cause in Not in a Change in Control Period . In the event that Executive’s employment
with Company terminates 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 termination
of employment;
(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’s employment with Company is terminated for
any reason, on the effective date of the termination 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.
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 three (3) years after
the
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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 customer
