EXHIBIT 10.37
SEVERANCE AGREEMENT
for
Kathleen Kennedy
THIS AGREEMENT between Hancock
Fabrics, Inc., a Delaware corporation (the
“Corporation”), and Kathleen Kennedy whose address is
6554 NW 31st st Way, Boca
Raton, FL 33496 (the “Executive”), dated as of March
15, 2006
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, the Corporation, wishes to
enter into this Agreement until May 4, 2008 (“the
Expiration Date”), and to automatically renew the Severance
Agreement for an additional three year period on the Expiration
Date and each subsequent expiration, unless the Incumbent Board
elects to cancel the agreement as of the next Expiration Date;
and
WHEREAS, except as provided in
Section 5(b) of this Agreement, 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, except as provided in
Section 5(b) of this Agreement, 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:
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1. Operation of
Agreement . No benefits shall be payable hereunder unless a
Change of Control (as defined in Section 2) occurs during the
Change of Control Period (as defined in Section 3). For the
purposes of this Agreement, the date on which such a Change of
Control occurs is referred to herein as the “Effective
Date.”
2. Change of Control .
For the purposes of this Agreement, a “Change of
Control” shall mean a change of control of a nature that
would be required to be reported by the Corporation in response to
Item 1(a) of the Current Report on Form 8-K (or its successor Item
or Form, as the case may be), as in effect on the date hereof (or
from time to time thereafter), pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934 (the “Exchange
Act”); provided that, without limitation, such a
“Change of Control” shall be deemed to have occurred
if: (i) a third person, including an aggregation of persons
constituting a “person” 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-12(c)
of the Regulation 14A promulgated under the Exchange Act)
shall be, for purposes of this Agreement, considered as though such
person were a member of the Incumbent Board.
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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) the Expiration Date, 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 her employment. The Executive’s employment will
terminate for Disability effective on the 90th day after receipt of
such notice (the “Disability Effective Date”) if within
such 90-day period after such receipt the Executive shall fail to
return to full-time performance of her duties. 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
her 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.
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(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 her 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 requirements), authority or responsibilities;
(ii) any
failure by the Corporation to furnish the Executive and/or, where
applicable, her 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(s)(Extra Compensation Plan”) and
“Officers Incentive Compensation Plan” or any
subsequent plans) (including the right to defer the receipt of
payments thereunder), other than an insubstantial and inadvertent
failure remedied by the Corporation promptly after receipt of
notice thereof given by the Executive;
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(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 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.
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5. Obligations of the
Corporation Upon Termination .
(a)
Good Reason, Other Than For Cause, Death or Disability on or
After the Effective Date . Regardless of whether the Change of
Control Period has expired, if, within three years after 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 her
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 applicable cash incentive compensations plan(s)
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
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continue
to provide all benefits that the Executive and/or her 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 her 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.
(b)
Severance before the Effective Date . If the Corporation
terminates Executive’s employment other than for Cause, Death
or Disability before the earlier of the Effective Date or
January 1, 2008, the Corporation shall pay the Executive in a
lump sum in cash within 20 days after the Date of Termination
(or if later, as soon as practical after the expiration of any
revocation period related to the release described below),
severance pay equal to 12 months of the Executive’s
annual base salary at the rate in effect at the time the Notice of
Termination was given; provided the Corporation’s obligation
to make such payment shall be conditioned on the Executive
executing in favor of the Corporation an agreement, in such form
and with such terms as the Corporation in its sole discretion may
dictate,
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