THIS
AGREEMENT made as of August 1, 2008, by and between Hancock
Fabrics, Inc., a Delaware corporation with executive offices
located at One Fashion Way, Baldwyn, MS 38824
(“Company”) and ___, a Director or Officer of Company
(“Indemnitee”).
A.
Company is aware that competent and experienced persons are
increasingly reluctant to serve as directors or officers of
corporations unless they are protected by comprehensive liability
insurance and indemnification due to increased exposure to
litigation costs and risks resulting from their service to such
corporations, particularly after adoption by Congress of the
Sarbanes-Oxley Act of 2002, and due to the fact that the exposure
frequently bears no reasonable relationship to the compensation of
such directors and officers;
B.
The statutes and judicial decisions regarding the duties of
directors and officers are often difficult to apply, ambiguous, or
conflicting, and therefore fail to provide such directors and
officers with adequate, reliable knowledge of legal risks to which
they are exposed or information regarding the proper course of
action to take;
C.
Plaintiffs often seek damages in such large amounts and the costs
of litigation may be so substantial (whether or not the case is
meritorious), that the costs of defense and/or settlement of such
litigation is often beyond the personal resources of officers and
directors;
D.
Company believes that it is unfair for its directors and officers
and the directors and officers of its subsidiaries to assume the
risk of large judgments and other expense that may be incurred in
cases in which the director or officer received no personal profit
and in cases where the director or officer was not
culpable;
E.
Company recognizes that the issues in controversy in litigation
against a director or officer of a corporation such as Company or a
subsidiary of Company are often related to the knowledge, motives
and intent of such director or officer, that he or she is usually
the only witness with knowledge of the essential facts and
exculpating circumstances regarding such matters and that the long
period of time which usually elapses before the trial or other
disposition of which litigation often extends beyond the time that
the director or officer can reasonably recall such matters; and may
extend beyond the normal time for retirement or in the event of his
or her death, his or her spouse, heirs, executors or
administrators, may be faced with limited ability and undue
hardship in maintaining an adequate defense, which may discourage
such a director or officer from serving in that
position;
F.
Based upon their experience as business managers, the Board of
Company (the “Board”) has concluded that, to retain and
attract talented and experienced individuals to serve as
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officers and
directors of Company and its subsidiaries and to encourage such
individuals to take the business risks necessary for the success of
Company and its subsidiaries, it is necessary and in the bests
interests of Company’s stockholders for Company to
contractually indemnify its officers and directors and the officers
and directors of its subsidiaries, and to assume for itself maximum
liability for expenses and damages in connection with claims
against such officers and directors in connection with their
service to Company and its subsidiaries, and has further concluded
that the failure to provide such contractual indemnification could
result in great harm to Company and its subsidiaries and
Company’s stockholders;
G.
Section 145 of the General Corporation Law of Delaware, under
which Company is organized (“Section 145”),
empowers Company to indemnify by agreement its officers, directors,
employees and agents, and persons who serve, at the request of
Company, as directors, officers, employees or agents of other
corporations or enterprises, and expressly provides that the
indemnification provided by Section 145 is not
exclusive;
H.
The Board, after reasonable investigation prior to the date hereof,
has determined that the liability insurance coverage available to
Company and its subsidiaries as of the date hereof is inadequate
alone. The Board believes, therefore, that the interest of
Company’s stockholders would best be served by a combination
of such insurance as Company may obtain pursuant to Company’s
obligations hereunder, and the indemnification by Company of the
directors and officers of Company and its subsidiaries pursuant to
its Certificate of Incorporation and contractually
hereunder;
I.
Company desires and has requested Indemnitee to serve or continue
to serve as a director or officer of Company and/or the
subsidiaries of Company free from undue concern for claims for
damages arising out of or related to such services to Company
and/or a subsidiary of Company; and
J.
Indemnitee is willing to serve, or to continue to serve, Company
and/or the subsidiaries of Company, provided that he or she is
furnished the indemnity provided for herein.
NOW, THEREFORE , the parties hereto, intending to be legally
bound, hereby agree as follows:
(a) Agent.
For the purposes of this Agreement, “agent” of Company
means any person who is or was a director, officer, employee or
other agent of Company or a subsidiary of Company; or is or was
serving at the request of, for the convenience of or to represent
the interest of Company or a subsidiary of Company as a director,
officer, employee or agent of another foreign or domestic
corporation, partnership, joint venture, trust or other
enterprise.
(b) Expenses.
For purposes of this Agreement, “expenses” includes all
direct and indirect costs of any type or nature whatsoever
(including, without limitation, all attorneys’ fees and
related disbursements, and other out-of-pocket costs) actually and
reasonably incurred by Indemnitee in connection with either the
investigation, defense or appeal of a proceeding or establishing or
enforcing a right to indemnification under this Agreement,
Section 145 or
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otherwise;
provided, however, that expenses shall not include any judgments,
fines, ERISA excise taxes or penalties or amounts paid in
settlement of a proceeding, unless otherwise provided
herein.
(c) Proceeding.
For the purposes of this Agreement, “proceeding” means
any threatened, pending, or completed action, suit or other
proceeding, whether civil, criminal, administrative, investigative
or any other type whatsoever, which may be subject to
indemnification covered by this Agreement.
(d) Subsidiary.
For purposes of this Agreement, “subsidiary” means any
corporation of which more than 50% of the outstanding voting
securities is owned directly or indirectly by Company, by Company
and one or more other subsidiaries, or by one or more other
subsidiaries.
Indemnitee
agrees to serve and/or continue to serve as an agent of Company, at
its will (or under separate agreement, if such agreement exists),
in the capacity Indemnitee currently serves as an agent of Company,
so long as he or she is duly appointed or elected and qualified in
accordance with the applicable provisions of the Bylaws of Company
or any subsidiary of Company or until such time as he or she
tenders a resignation in writing or he or she is removed from such
position; provided, however, that nothing contained in this
Agreement is intended to create any right to continued employment
by Indemnitee.
3.
Maintenance of Liability Insurance.
(a) Company
hereby covenants and agrees that, so long as Indemnitee shall
continue to serve as an agent of Company and thereafter so long as
Indemnitee shall be subject to any possible proceeding by reason of
the fact that Indemnitee was an agent of Company, Company, subject
to Section 3(b), shall use reasonable efforts to obtain and
maintain in full force and effect directors’ and
officers’ liability insurance (“D&O
Insurance”) in reasonable amounts from established and
reputable insurers, and to the extent that that Company maintains
any D&O Insurance, Indemnitee shall be covered by such policy
or policies, in accordance with the terms thereof, to the maximum
extent of the coverage available for any Company director or
officer under such policy or policies.
(b) Notwithstanding
the foregoing, Company shall have no obligation to obtain or
maintain D&O Insurance if Company determines in good faith that
such insurance is not reasonably available, the premium costs for
such insurance are disproportionate to the amount of coverage
provided, the coverage is so limited and/or reduced by exclusions
so as to provide an insufficient benefit, or Indemnitee is covered
by similar insurance maintained by a subsidiary of
Company.
4.
Mandatory Indemnification.
(a) If
Indemnitee is a person who was or is a party or is threatened to be
made a party to any proceeding by reason of the fact that he or she
is or was an agent of Company, or by reason of anything done or not
done by him or her in any such capacity, if he or she acted in good
faith
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and in a manner
he or she reasonably believed to be in or not opposed to the best
interests of Company, then Company shall indemnify Indemnitee
against any and all expenses and liabilities of any type whatsoever
(including, but not limited to, judgments, fines, ERISA excise
taxes or penalties, and amounts paid in settlement) actually and
reasonably incurred by him or her in connection with the
investigation, defense, settlement or appeal of such proceeding, as
follows:
(i)
Third Party Actions . In any proceeding other than an action
in the right of Company (but with respect to any criminal action or
proceeding, only if he or she also had no reasonable cause to
believe his or her conduct was unlawful); and
(ii)
Derivative Actions . In any proceeding by or in the right of
Company to procure a judgment in its favor; except that no
indemnification under this subsection shall be made in respect of
any claim, issue or matter as to which such person shall have been
finally adjudged to be liable to Company after the time for an
appeal has expired by a court of competent jurisdiction due to
willful misconduct of a culpable nature in the performance of his
or her duty to Company unless and only to the extent that the Court
of Chancery or the court in which such proceeding was brought shall
determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, such
person is fairly and reasonably entitled to indemnity for such
amounts which the Court of Chancery or such other court shall deem
proper; and
(iii)
Actions Where Indemnitee is Deceased . In any proceeding,
and prior to, during the pendency or after completion of such
proceeding Indemnitee is deceased, except as provided in Sections
3(b) and 12.
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(b)
Exception for Amounts Covered by Insurance. Notwithstanding
the foregoing, Company shall not be obligated to indemnify
Indemnitee for expenses or liabilities of any type whatsoever
(including, but not limited to, judgments, fees, ERISA excise taxes
or penalties, and amounts paid in settlement) which have been paid
directly to Indemnitee or to others on behalf of Indemnitee under
D&O Insurance.
(c)
Indemnification for Expenses of a Witness . Notwithstanding
any other provision of this Agreement, to the extent that
Indemnitee is, by reason of his or her corporate status as an agent
of Company, a witness in any proceeding to which Indemnitee is not
a party, he shall be indemnified against all expenses actually and
reasonably incurred by him or on his behalf in connection
therewith.
(d)
Change of Law . Subject to the further provisions of this
Agreement, if Section 145 of the Delaware General Corporation
Law, or any successor statute, is hereafter amended (the
“Amended Statute”) in a manner that expands the
authority of Company to indemnify or advance expenses to
Indemnitee, this Agreement shall thereupon be deemed modified to
provide for indemnification of and advance of expenses to
Indemnitee to the fullest extent not prohibited by the Amended
Statute.
5.
Partial Indemnification.
If Indemnitee
is entitled under any provision of this Agreement to
indemnification by Company for some or a portion of any expenses or
liabilities of any type whatsoever (including, but not limited to,
judgments, fines, ERISA excise taxes or penalties, and amounts paid
in settlement) incurred by him or her in the investigation,
defense, settlement or appeal of a proceeding, but is not entitled
to indemnification for all of the total amount thereof, then
Company shall nevertheless indemnify Indemnitee for such portion of
the total amount to which Indemnitee is entitled, but not as to the
portion thereof to which Indemnitee is not entitled.
6.
Mandatory Advancement of Expenses.
Except as
otherwise limited or prohibited by applicable law, Company shall
advance all reasonable expenses incurred by or on behalf of
Indemnitee in connection with any proceeding within 20 days
after the receipt by Company of a statement or statements from
Indemnitee requesting such advance or advances from time to time,
whether prior to or after final disposition of such proceeding.
Such statement or statements shall contain reasonable documentation
evidencing the expenses incurred by Indemnitee and may designate
that payment be made to another person on Indemnitee’s
behalf. In connection with any such payment, advance or
reimbursement, Indemnitee undertakes and agrees to repay any
amounts paid, advanced or reimbursed by Company in respect of
expenses relating to, arising out of or resulting from any
proceeding in respect of which it shall have been determined,
following the final disposition of such proceeding and in
accordance with Section 8, that the Indemnitee is not entitled
to indemnification hereunder; it being understood and agreed that
the foregoing shall satisfy any requirement that Indemnitee provide
Company with an undertaking to repay any advancement of expenses
prior to the payment, advancement or reimbursement thereof by
Company.
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7. Notice
and Other Indemnification Procedures.
(a) Indemnitee
shall, as a condition precedent to his right to be indemnified
under this Agreement, give Company notice in writing as soon as
practicable of any claim made against Indemnitee for which
indemnification will or could be sought under this agreement,
provided however, that a delay in giving such notice shall not
deprive Indemnitee of any right to be indemnified under this
Agreement unless, and then only to the extent that, such delay is
materially prejudicial to the defense of such claim. The omission
to notify Company will not relieve Company from any liability for
indemnification which it may have to Indemnitee otherwise than
under this Agreement. The Secretary of Company shall, promptly upon
receipt of such a request for indemnification, advise the Board in
writing that Indemnitee has requested indemnification.
(b) If,
at the time of the receipt of a notice of the commencement of a
proceeding pursuant to Section 7(a) hereof, Company has D&O
Insurance in effect, Company shall give prompt notice of the
commencement of such proceeding to the insurers and/or their
agent(s) in accordance with the various procedures set forth in the
respective policies. Company shall thereafter take all necessary or
desirable action to cause such insurers to pay, on behalf of
Indemnitee, all amounts payable as a result of such proceeding in
accordance with the terms of such policies.
(c) If
Company shall be obligated to advance the expenses for any
proceeding against Indemnitee, then Company, as appropriate, shall
be entitled to assume the defense of such proceeding, with counsel
approved by Indemnitee, upon the delivery to Indemnitee of written
notice of its election so to do. After delivery of such notice,
approval of such counsel by Indemnitee and the retention of such
counsel by Company, Company will not be liable to Indemnitee under
this Agreement for any fees of counsel subsequently incurred by
Indemnitee with respect to the same proceeding, provided that
(i) Indemnitee shall have the right to employ his or her
counsel in any such proceeding at Indemnitee’s expense; and
(ii) if (A) the employment of counsel by Indemnitee has
been previously authorized by Company, (B) Indemnitee shall
have reasonably concluded that there may be a conflict of interest
between Company and Indemnitee in the conduct of any such defense
or (C) Company shall not, in fact, have employed counsel to
assume the defense of such proceeding, then (after written notice
to Company by Indemnitee) the fees and expense of
Indemnitee’s counsel shall be at the expense of
Company.
8.
Determination of Right to Indemnification.
(a) To
the extent that Indemnitee shall have been successful on the merits
or otherwise in defense of any proceeding or any portion thereof or
in defense of any issue or matter therein, including, without
limitation, dismissal with or without prejudice,
(i) Indemnitee shall be indemnified against all expenses
(including, but not limited to, judgments, fines, ERISA excise
taxes or penalties, and amounts paid in settlement) relating to,
arising out of or resulting from such proceeding or portion thereof
or issue or matter therein in accordance with Section 4, and
(ii) no Standard of Conduct Determination (as defined below in
Section 8(b)) shall be required.
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(b) To
the extent that the provisions of Section 8(a) are inapplicable to
a proceeding that shall have been finally disposed of and there has
been no Change of Control pursuant to Section 8(f), any
determination of whether Indemnitee has satisfied any applicable
standard of conduct under Delaware law that is a legally required
condition precedent to indemnification of Indemnitee hereunder
against expenses (including, but not limited to, judgments, fines,
ERISA excise taxes or penalties, and amounts paid in settlement)
relating to, arising out of or resulting from such proceeding (a
“Standard of Conduct Determination”) shall be made, at
the election of Indemnitee, either (i) by a majority vote of
directors of Company who are not and were not a party to the
proceeding in respect of which indemnification is sought by
Indemnitee (“Disinterested Directors”), even if less
than a quorum of the Board or, if such Disinterested Directors so
direct, by a majority vote of a committee of Disinterested
Directors designated by a majority vote of all Disinterested
Directors, (ii) by Independent Counsel (as defined below in
Section 8(f)) in a written opinion addressed to the Board, a
copy of which shall be delivered to Indemnitee, or (iii) by a panel
of three arbitrators, one of whom is selected by Indemnitee,
another of whom is selected by Company and the last of whom is
selected by the first two arbitrators so selected. Indemnitee will
cooperate with the person or persons making such Standard of
Conduct Determination, including providing to such person or
persons, upon reasonable advance request, any documentation or
information which is not privileged or otherwise protected from
disclosure and which is reasonably available to Indemnitee and
reasonably necessary to such determination. Company shall indemnify
and hold harmless Indemnitee against and, if requested by
Indemnitee, shall reimburse Indemnitee for, or advance to
Indemnitee, within 20 business days of such request, any and all
reasonable costs, expenses and other amounts (including
attorneys’ and experts’ fees and expenses) paid or
payable by Indemnitee in so cooperating with the person or persons
making such Standard of Conduct Determination.
(c) Company
shall use its reasonable best efforts to cause any Standard of
Conduct Determination required under Section 8(b) to be made as
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