EXHIBIT 10.10
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

1

--------------------------------------------------------------------------------

 

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

2

--------------------------------------------------------------------------------

 

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

3

--------------------------------------------------------------------------------

 

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

4

--------------------------------------------------------------------------------

 

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.

5

--------------------------------------------------------------------------------

 

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;
          (iv) Executive’s improper disclosure of Company’s confidential or
proprietary information;
          (v) any breach by Executive of Company’s Insider Trading Policy (as it
may be amended from time to time);

6

--------------------------------------------------------------------------------

 

          (vi) any material breach by Executive of Company’s Code of Business
Conduct and Ethics (as it may be amended from time to time), which breach shall
be deemed “material” if it results from an intentional, reckless or grossly
negligent act or omission by Executive and has a detrimental effect on Company’s
reputation or business; or
          (vii) any material breach by Executive of this Agreement, which
breach, if curable, is not cured within thirty (30) days following written
notice of such breach from Company.
     (d) “Change in Control” shall mean the occurrence of any of the following
with respect to the Company at a time when the Company is the “relevant
corporation” referenced in Treasury Regulation 1.409A-3(i)(5)(ii):
          (i) Change in Ownership. The date subsequent to the Effective Date
that any one person, or more than one person acting as a group, acquires
ownership of stock of the Company that, together with stock held by such person
or group, constitutes more than fifty percent (50%) of the total fair market
value or total voting power of the stock of the Company.
          (ii) Change in Effective Control. The date on which a majority of
members of the Board is replaced during any 12-month period by directors whose
appointment or election is not endorsed by a majority of the members of the
Company’s Board of Directors before the date of the appointment or election.
          (iii) Change in the Ownership of a Substantial Portion of Company’s
Assets. The date that any one person, or more than one person acting as a group,
acquires (or has acquired during the 12-month period ending on the date of the
most recent acquisition by such person or persons) assets from the Company that
have a total gross fair market value equal to or more than fifty percent (50%)
of the total gross fair market value of all of the assets of the Company
immediately before such acquisition or acquisitions. For this purpose, gross
fair market value means the value of the assets of the Company, or the value of
the assets being disposed of, determined without regard to any liabilities
associated with such assets.
          (iv) Rules of Construction and Application. The provisions of this
definition shall be construed and applied by the Incumbent Directors, in a
manner consistent with the provisions and rules of application set forth in
Treasury Regulation 1.409A-3(i)(5), as amended or supplemented from time to time
by guidance issued by the U. S. Department of the Treasury, or any successor to
same. Any such determination by the Incumbent Directors shall be final, binding
and conclusive.

7

--------------------------------------------------------------------------------

 

     (e) “Change in Control Period” shall mean the period commencing on the
earlier of: (i) thirty (30) days prior to the date of consummation of the Change
in Control (provided the Change in Control occurs); (ii) the date of the first
public announcement of a definitive agreement that would result in a Change in
Control (even though still subject to approval by Company’s stockholders and
other conditions and contingencies); and (iii) the date of the public
announcement of a tender offer that is not approved by the Incumbent Directors
and ending on the day prior to the two (2) year anniversary date of the
consummation of the Change in Control.
     (f) “Confidential Information” shall mean all non-public information
respecting Company’s business, including, but not limited to, its services,
pricing, costs, scheduling, products, research and development, processes,
customer lists and contact information, marketing plans and strategies,
financing plans and personnel, financial information, projections, and
acquisition strategies and initiatives but excluding information (i) that was
known to Executive concerning the industry generally or the Company, based on
Executive’s extensive experience in the industry prior to Executive’s employment
by the Company, and (ii) that is, or becomes, available to the public through no
fault of Executive..
     (g) “Good Reason During a Change in Control Period” shall mean any of the
following conditions, first occurring during a Change in Control Period:
          (i) a decrease in Executive’s Base Salary and/or a decrease in
Executive’s potential performance Bonus (as a multiple of Executive’s Base
Salary) under the Bonus Plan or employee benefits other than (x) as part of any
across-the-board reduction applying to all senior executives and (y) not
resulting in those senior executives receiving lesser benefits than similarly
situated executives of an acquiror;
          (ii) a material, adverse change in Executive’s title, authority,
responsibilities or duties, as measured against those immediately prior to such
change. For purposes of this subsection, in addition to any other change in
title, authority, responsibilities or duties, the following changes shall not
constitute an event of “Good Reason During a Change in Control Period”: (i) an
individual who held a position in an independent, publicly held company prior to
the Change in Control holds a position in a subsidiary company following the
Change in Control; and (ii) an individual who reported directly to the
Non-Executive Chairman or board of directors of a publicly held company prior to
the Change in Control reports to an individual or entity that is not,
respectively, the Non-Executive Chairman or Board of Directors of a publicly
held company.
          (iii) the relocation of Executive’s principal workplace to a location
that is greater than fifty (50) miles from Executive’s original workplace or
from any workplace to which Executive has voluntarily relocated;
          (iv) any material breach by Company of any provision of this
Agreement, which breach is not cured within thirty (30) days following written
notice of such breach from Executive;

8

--------------------------------------------------------------------------------

 

          (v) any failure of Company to obtain the assumption of this Agreement
by any successor or assign of Company; or
          (vi) any purported termination of Executive’s employment for “material
breach of contract” which is purportedly effected without providing the “cure”
period, if applicable, described in subsection (vii) of the definition of
“Cause.”
     (h) “Good Reason Not in a Change in Control Period” shall mean any of the
following conditions first occurring outside of a Change in Control Period and
occurring without Executive’s written consent:
          (i) a decrease in Executive’s total cash compensation opportunity
(adding Base Salary and Bonus) of greater than 20%;
          (ii) a material, adverse change in Executive’s title, authority,
responsibilities or duties, as measured against those immediately prior to such
change. For purposes of this subsection, a material, adverse change shall not
occur merely by a change in reporting relationship; or
          (iii) any material breach by Company of any provision of this
Agreement, which breach is not cured within thirty (30) days following written
notice of such breach from Executive;
     (i) “Incumbent Directors” shall mean members of the Board who either
(i) are members of the Board as of the Effective Date, or (ii) are elected, or
nominated for election, to the Board with the affirmative vote of at least a
majority of the Incumbent Directors at the time of such election or nomination
(but shall not include an individual whose election or nomination is in
connection with an actual or threatened proxy contest relating to the election
of members of the Board).
     (j) “Involuntary Termination During a Change in Control Period” shall mean
the occurrence of either of the following during a Change in Control Period:
          (i) initiation by Company of Executive’s Separation From Service with
Company for any reason other than Cause; or
          (ii) Executive’s Separation From Service by resignation for Good
Reason During a Change in Control Period within six (6) months following the
occurrence of the event constituting Good Reason During a Change in Control
Period that has not been cured.
For the purposes of any determination regarding the existence of Good Reason
During a Change in Control Period hereunder, any claim by Executive that Good
Reason During a Change in Control Period exists shall be presumed to be correct
if the Board, acting in good faith, affirms such determination by a vote of not
less than two-thirds of its entire membership. The effective date of any
Involuntary Termination During a Change in Control Period shall be the date of
notification to Executive of the Separation From

9

--------------------------------------------------------------------------------

 

Service by Company or the date of notification to Company of the resignation by
Executive for Good Reason During a Change in Control Period.
     (k) “Involuntary Termination Not in a Change in Control Period” shall mean
the occurrence of either of the following occurring outside a Change in Control
Period:
          (i) initiation by Company of Executive’s Separation From Service with
Company for any reason other than Cause; or
          (ii) Executive’s Separation From Service by resignation for Good
Reason Not in a Change in Control Period within six (6) months following the
occurrence of the event constituting Good Reason Not in a Change in Control
Period that has not been cured.
For the purposes of any determination regarding the existence of Good Reason Not
in a Change in Control Period hereunder, Executive shall bear the burden of
demonstrating that an event of Good Reason Not in a Change in Control Period has
occurred. Only the Board, acting by simple majority, may determine that an event
of Good Reason Not in a Change in Control Period has occurred; the Board must
act within twenty (20) business days of such notification, or Executive’s claim
shall be deemed valid. The effective date of any Involuntary Termination Not in
a Change in Control Period shall be the date of notification to Executive of the
Separation From Service by Company or the date of notification to Company of the
resignation by Executive for Good Reason Not in a Change in Control Period.
     (l) “Release” shall mean a general release substantially in the form as
Enclosure 2 hereof.
     (m) “Specified Employee” means a service provider who, as of the date of
the service provider’s Separation from Service, is a key employee of a service
recipient any stock of which is publicly traded on an established securities
market or otherwise. A key employee is any individual who is described in Code
Section 416(i)(1)(A)(i), (ii), or (iii) (applied in accordance with the
Regulations thereunder and disregarding section 416(i)(5)) at any time during
the 12-month period ending on a Specified Employee identification date. 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.
     (n) “Separation From Service” means the time at which the parties
reasonably anticipate that no further services will be performed by Executive
after a certain date, or that the level of bona fide services Executive would
perform after such date (whether as an employee or as an independent contractor)
would permanently decrease to no more than 20 percent of the average level of
bona fide services performed (whether as an employee or an independent
contractor) by the individual over the immediately preceding 36-month period. If
Executive provides services both as an employee and as an independent
contractor, Executive must separate from service both as an employee and as an
independent contractor to be treated as having a Separated From Service. If
Executive ceases providing services as an employee and begins providing services
as an independent contractor, Executive will not be considered to have a
Separation From Service until Executive has ceased providing services in both
capacities. The

10

--------------------------------------------------------------------------------

 

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 7. Confidentiality; Non-Compete; Non-Solicitation;
Nondisparagement.
     (a) While employed by Company and through the appropriate Applicable
Termination Anniversary, Executive shall not disclose any Confidential
Information either directly or indirectly, to anyone (other than appropriate
Company employees and advisors), or use such information for her own account, or
for the account of any other person or entity, without the prior written consent
of Company or except as required by law. This confidentiality covenant has no
temporal or geographical restriction. Upon termination of this Agreement,
Executive shall promptly supply to Company all property and any other tangible
product or document that has been produced by, received by or otherwise
submitted to Executive during or prior to her term of employment, and shall not
retain any copies thereof.
     (b) Executive acknowledges that her services are of special, unique and
extraordinary value to Company. Accordingly, Executive shall not at any time
prior to the Applicable Termination Anniversary (i) become an employee,
consultant, officer, partner, director, guarantor or financier, directly or
indirectly, of any entity or organization engaged in the Business which
competes, directly or indirectly, with Company (or any of its affiliates) or
(ii) whether on Executive’s own behalf or on behalf of or in conjunction with
any person, company, business entity or other organization whatsoever, directly
or indirectly solicit, hire or encourage any employee of Company (or any of its
affiliates) to leave the employment of Company (or any of its affiliates). For
purposes of this Section 7(b) the parties agree that the following entities or
their affiliates or successors: A.C. Moore Arts & Crafts, Inc., Jo-Ann Stores,
Inc., Calico Corners, Inc. or Michaels Stores, Inc. shall be deemed to be
engaged in a Business which competes with the Company. Executive agrees that the
provisions of this Section 7(b) are reasonable. Company and Executive agree that
twenty percent (20%) (the “Non-Compete Payment”) of any payment to Executive
pursuant to Section 5(c) or 5(d) is specifically attributable to the provisions
contained in this Section 7(b). Should a court determine that any provision of
this Section 7(b) is unreasonable, either in period of time or otherwise, the
parties hereto agree that such covenant should be interpreted and enforced to
the maximum extent which such court deems reasonable. Company and Executive
acknowledge that, should a court determine that the entire covenant not to
compete contained in Section 7(b) is unenforceable, there will have been a
failure of consideration for the Non-Compete Payment. In such an event,
Executive agrees to repay immediately to Company the entire Non-Compete Payment.
     (c) During the Term of this Agreement and thereafter, Executive and the
Company each agree not to make any untruthful or disparaging statements, written
or oral, about the other party, its affiliates, their predecessors or successors
or any of their past and present officers, directors, stockholders, partners,
members, agents and employees or each party’s business practices, operations or
personnel policies and practices to any of Company’s customers, clients,
competitors, suppliers, investors, directors, consultants, employees, former
employees, or the press or other media in any country.

11

--------------------------------------------------------------------------------

 

     (d) Company and Executive agrees that any breach of the terms of this
Section 7 would result in irreparable injury and damage for which there would be
no adequate remedy at law, and that, in the event of said breach or any threat
of breach, Executive and Company shall be entitled to an immediate injunction
and restraining order to prevent such breach or threatened breach, without
having to prove damages, in addition to any other remedies to which Company may
be entitled at law or in equity. If Executive violates any of the restrictive
covenants contained in Section 7 in connection with or following an Involuntary
Termination During a Change in Control Period or an Involuntary Termination Not
in a Change in Control Period, Executive shall be required to repay to Company
the greater of the Non-Compete Payment or a prorated portion of all payments
made to Executive pursuant to Section 5(c) or 5(d) (prorated in monthly
increments based on the number of whole and fractional months remaining until
the Applicable Termination Anniversary). The provisions of this Section 7 shall
survive any termination of this Agreement and Executive’s term of employment.
The existence of any claim or cause of action or otherwise, shall not constitute
a defense to the enforcement of the covenants and agreements of this Section 7.
     Section 8. Dispute Resolution. In the event of any dispute or claim
relating to or arising out of this Agreement (including, but not limited to, any
claims of breach of contract, wrongful termination or age, sex, race or other
discrimination), but excluding any claims or disputes relating to or arising out
of Section 7 of this Agreement, Executive and Company agree that all such
disputes shall be fully and finally resolved by binding arbitration conducted by
the American Arbitration Association in Lee County, Mississippi, in accordance
with its National Employment Dispute Resolution rules, but provided that the
Company agrees to pay in full the reasonable costs of such arbitration.
Executive acknowledges that by accepting this arbitration provision she is
waiving any right to a jury trial in the event of such dispute. Any claim or
dispute relating to or arising out of Section 7 of this Agreement may be
adjudicated in a state or federal court having jurisdiction of such claim or
dispute, and the parties agree, without limitation, that Lee County, Mississippi
is a proper place for any such suit.
     Section 9. Attorneys’ Fees. The prevailing party in any dispute or claim
relating to or arising out of this Agreement that is not resolved, for whatever
reason, through the dispute resolution process of Section 8 shall be entitled to
recover from the losing party its attorneys’ fees and costs incurred in any
arbitration, action or other proceeding brought to enforce any right arising out
of this Agreement.
     Section 10. General.
     (a) Successors and Assigns. The provisions of this Agreement shall inure to
the benefit of and be binding upon Company, Executive and each and all of their
respective heirs, legal representatives, successors and assigns. The duties,
responsibilities and obligations of Executive under this Agreement shall be
personal and not assignable or delegable by Executive in any manner whatsoever
to any person, corporation, partnership, firm, company, joint venture or other
entity. Executive may not assign, transfer, convey, mortgage, pledge or in any
other manner encumber the compensation or other benefits to be received by her
or any rights which she may have pursuant to the terms and provisions of this
Agreement.

12

--------------------------------------------------------------------------------

 

     (b) Amendments; Waiver. No provision of this Agreement shall be modified,
waived or discharged unless the modification, waiver or discharge is agreed to
in writing and signed by Executive and by an authorized officer of Company. No
waiver by either party of any breach of, or of compliance with, any condition or
provision of this Agreement by the other party shall be considered a waiver of
any other condition or provision or of the same condition or provision at
another time.
     (c) Notices. Any notices to be given pursuant to this Agreement by either
party to the other party may be effected by personal delivery or by overnight
delivery with receipt requested and if given in either such manner shall be
deemed effective on the date of personal delivery or the day after notice has
been sent by overnight delivery . Mailed notices shall be addressed to the
parties at the addresses stated below, but each party may change its or her
address by written notice to the other in accordance with this Paragraph.
Mailed notices to Executive shall be addressed as follows:
Ms. Jane F. Aggers
Hancock Fabrics, Inc.
One Fashion Way
Baldwyn, MS 38824
Mailed notices to Company shall be addressed as follows:
Hancock Fabrics, Inc.
One Fashion Way
Baldwyn, MS 38824
Attention: Chairman of the Board
with a copy to:
Baker, Donelson, Bearman, Caldwell & Berkowitz, PC
165 Madison Avenue, Suite 2000
Memphis, TN 38103
Attention: Samuel D. Chafetz, Esq.
     (d) Entire Agreement. This Agreement constitutes the entire employment
agreement between Executive and Company regarding the terms and conditions of
her employment, with the exception of any stock option, restricted stock or
other Company stock-based award agreements between Executive and Company to the
extent not modified by this Agreement. This Agreement (including the stock-based
award agreements described in the preceding sentence) supersedes all prior
negotiations, representations or agreements between Executive and Company,
whether written or oral, concerning Executive’s employment by Company.
     (e) Withholding Taxes. All payments made under this Agreement shall be
subject to reduction to reflect taxes required to be withheld by law.

13

--------------------------------------------------------------------------------

 

     (f) Counterparts. This Agreement may be executed by Company and Executive
in counterparts, each of which shall be deemed an original and which together
shall constitute one instrument.
     (g) Headings. Each and all of the headings contained in this Agreement are
for reference purposes only and shall not in any manner whatsoever affect the
construction or interpretation of this Agreement or be deemed a part of this
Agreement for any purpose whatsoever.
     (h) Savings Provision. To the extent that any provision of this Agreement
or any paragraph, term, provision, sentence, phrase, clause or word of this
Agreement shall be found to be illegal or unenforceable for any reason, such
paragraph, term, provision, sentence, phrase, clause or word shall be modified
or deleted in such a manner as to make this Agreement, as so modified, legal and
enforceable under applicable laws. The remainder of this Agreement shall
continue in full force and effect.
     (i) Construction. The language of this Agreement and of each and every
paragraph, term and provision of this Agreement shall, in all cases, for any and
all purposes, and in any and all circumstances whatsoever be construed as a
whole, according to its fair meaning, not strictly for or against Executive or
Company, and with no regard whatsoever to the identity or status of any person
or persons who drafted all or any portion of this Agreement.
     (j) Further Assurances. From time to time, at Company’s request and without
further consideration, Executive shall execute and deliver such additional
documents and take all such further action as reasonably requested by Company to
be necessary or desirable to make effective, in the most expeditious manner
possible, the terms of this Agreement and to provide adequate assurance of
Executive’s due performance hereunder.
     (k) Governing Law. Executive and Company agree that this Agreement shall be
interpreted in accordance with and governed by the laws of the State of
Mississippi.
     (l) Miscellanous Moving Cost: Notwithstanding any other provisions of this
Agreement, Executive shall be entitled to the balance of relocation
re-imbursement (primarily realtor fees) that are still due on her home in Ohio.
[remainder of page intentionally left blank]

14

--------------------------------------------------------------------------------

 

     IN WITNESS WHEREOF, the parties have executed this Employment Agreement as
of the date first written above.

                  HANCOCK FABRICS, INC.    
 
           
 
  By:   /s/ Carl E. Berg    
 
                Name: Carl E. Berg         Title: Chairman of the Board of
Directors    
 
                EXECUTIVE    
 
                /s/ Jane F. Aggers                   Name: Jane F. Aggers    

15

--------------------------------------------------------------------------------

 

ENCLOSURE 1
Benefits of Executive
1.. An automobile allowance of Seven Hundred Fifty ($750) Dollars per month
during the Term of the Agreement.
2.. Major medical, hospitalization, and life insurance coverage as generally
provided by the Company to its employees from time to time during the Term of
this Agreement.
3.. Indemnification by the Company of the Executive for any claims, or
liabilities incurred by Executive serving as a director or executive officer of
the Company or its subsidiaries during the Term of this Agreement, which
obligation shall be in the form of indemnity agreement generally provided by the
Company to its directors and executive officers.

16

--------------------------------------------------------------------------------

 

ENCLOSURE 2
GENERAL RELEASE
This Release is made and entered into by Jane F. Aggers (the “Executive”) and
Hancock Fabrics, Inc. (the “Company”).
In consideration of the payments, benefit continuation and acceleration provided
for in Section 5 of her Employment Agreement with the Company, Executive, on
behalf of herself and for any person or entity who may claim by or through her,
irrevocably and unconditionally releases, waives, and forever discharges
Company, its past, present, and future subsidiaries, divisions, affiliates,
successors, and their respective officers, directors, attorneys, agents, and
present and past employees from any and all claims or causes of action that
Executive had, has, or may have, whether known or unknown, relating to
Executive’s employment with Company and/or termination therefrom up to and
including the date of this Agreement, including but not limited to any claims
under the Mississippi Employment Protection Act, Title VII of the Civil Rights
Act of 1964, the Age Discrimination in Employment Act (“ADEA”), the Americans
with Disabilities Act, each as amended, and claims under any other federal,
state, or local statute, regulation, or ordinance, including wrongful or
retaliatory discharge.
This Release shall not be construed as an admission by Company of any liability,
wrongdoing, or violation of any law, statute, regulation, agreement or policy,
and Company denies any such liability or wrongdoing.
Executive acknowledges and agrees that this Release includes a release and
waiver as to claims under the ADEA. Executive acknowledges and confirms that she
understands and agrees to the terms and conditions of this Release; that these
terms are written in layperson terms, and that she has been fully advised of her
rights to seek the advice and assistance of consultants, including an attorney,
to review this Release. Executive further acknowledges that she does not waive
any rights or claims under the ADEA that arise after the date this Release is
signed by her, and specifically, Executive understands that she is receiving
money and benefits beyond anything of value to which she is already entitled
from Company. Executive acknowledges that she has had up to 21 days to consider
whether to accept and sign this Release, and has had adequate time and
opportunity to review the Release and consult with any legal counsel or other
advisors of her choosing. Executive understands that if she signs this Release
before the expiration of the 21-day period, her signature will evidence her
voluntary election to forego waiting the full 21 days to sign this Release. If
Executive chooses not to accept, or the 21-day period expires without her
acceptance, then the offer in this Release is null and void. Executive further
acknowledges that in compliance with the Older Workers’ Benefit Protection Act
of 1990, she has been fully advised by Company of her right to revoke and
nullify this Release, and that this revocation must be exercised, if at all,
within seven days of the date she signs this Release. Executive may revoke her
acceptance at any time within the seven days following her signing of this
Release by notifying Company of her decision to revoke the acceptance by writing
directed and delivered to Hancock Fabrics, Inc., One Fashion Way, Baldwyn, MS
38824, Attention: Chairman of the Board.

17

--------------------------------------------------------------------------------

 

Acceptance of this offer is strictly voluntary. This Release shall become
effective and enforceable only after the seven-day revocation period has
expired. Should Executive decline to accept the benefits of this Release, or if
is revoked by her, Executive will not receive the proposed additional
compensation and benefits.
     By her signature below, Executive accepts the terms of this Release.

              HANCOCK FABRICS, INC.   EXECUTIVE    
 
           
By:
Name:
  /s/ Jane F. Aggers
 
Jane F. Aggers   /s/ Carl E. Berg
 
Name: Carl E. Berg    
Title:
  President, Director and Chief Executive Officer (Principal Executive Officer)
  Title: Director and Chairman of the Board    
 
            Date: August 1, 2008   Date: August 1, 2008    

18