Unassociated Document


    EXHIBIT 10.4

    


    Transition
Agreement

    


    This
Agreement establishes the understanding between Hancock Fabrics, Inc. (the
“Company” as herein defined) and Linda Gail Moore (the “Executive”) as of this
date, July 20, 2009, regarding the provisions of her Transition.

    


    
      	
              1.

            	
              The
      Transition Period shall run for 26 weeks beginning Monday, July 20, 2009
      and ending Friday, January 22,
2010.

            


    

    


    
      	
              2.

            	
              During
      the course of the Transition Period, the Executive will remain an employee
      of the Company unless termination occurs earlier by Resignation or
      Discharge for Cause as described herein.  As an employee, the
      Executive will retain the title held at the time of this Agreement until a
      successor is hired, and continue to be eligible for benefits and be bound
      by the policies, procedures and rules of conduct as other similarly
      situated employees except as otherwise stated in this
      Agreement.

            


    

    


    
      	
              3.

            	
              The
      Executive will make herself available to the Company to perform such
      services as may be required.  During the term of the Transition
      Period, the Executive will be provided suitable office facilities, but
      need not present herself at the offices of the Company nor at any other
      specified location, unless otherwise requested by the
      Company.  The Executive also agrees to provide to the Company,
      upon request, (i) information concerning her employment with the
      Company, and (ii) reasonable assistance relating to her previous
      employment with the Company, including but not limited to providing
      truthful testimony in any legal action pursued or defended by the Company
      in which she has information or
knowledge.

            


    

    


    
      	
              4.

            	
              Throughout
      the end of the Transition Period, the Executive shall be paid her salary
      that was in effect at the time of this Agreement, at regular payroll
      dates, unless Discharged for Cause as described herein. It is understood
      and agreed that the salary payments, regardless of duration, encompass (i)
      earned vacation, holidays, sick pay and any other form of paid time off,
      and (ii) any monetary bonus, incentive or award that the Executive had or
      would earn or be entitled to either prior to or during the Transition
      Period.

            


    

    


    
      	
              5.

            	
              Through
      the earlier of the termination of employment or the end of the Transition
      Period, the Executive and her eligible dependents shall be able to
      actively participate in the Medical, Flexible Spending Account, Dental,
      Life Insurance, Short Term Disability, Long Term Disability and Hancock
      Fabrics Retirement Savings (401(k)) Plan in accordance with the respective
      plan rules.

            


    

    


    
      	
              6.

            	
              During
      the Transition Period, the Executive will not be eligible for merit or
      other forms of increases in base salary.  The Executive shall
      not be a participant in the MOG Group Short or Long Term Incentive Plans
      for 2009 or 2010.  The provisions of the Change in Control
      Agreement dated January 1, 2009 shall not be in effect unless the terms of
      this Agreement are not honored by the successor owners following a Change
      in Control.

            


    

     

    
      
         

      

      
        1

        
          

        

      

      
         

      

    

     

    
      	
              7.

            	
              In
      the event that the Executive begins other employment that is not
      restricted by this Agreement, prior to the end of the Transition Period,
      the Executive’s employment with the Company will terminate by
      Resignation.  However both the payments from the Company and the
      Executive’s obligations under this Agreement shall continue for the
      duration of the Transition Period.

            


    

    


    
      	
              8.

            	
              If,
      prior to the end of the Transition Period, the Executive is Discharged for
      Cause, no further payments will be paid by the Company to the Executive,
      however the Executive’s obligations under this Agreement shall
      continue.

            


    

     

    For
purposes of this Agreement, “Cause” shall mean any of the
following:

    
      	
               
      

            	
              ·

            	
              Theft,
      dishonesty, willful misconduct, breach of fiduciary duty, falsification of
      employment or Company records.

            


    

    
      	
               
      

            	
              ·

            	
              Willful
      violation of any rule, law or regulation (excluding traffic citations and
      similar offenses), or commission of an act involving moral
      turpitude.

            


    

    
      	
               
      

            	
              ·

            	
              Intentional
      failure to perform regular or assigned
duties.

            


    

    
      	
               
      

            	
              ·

            	
              Intentional
      disclosure of Company’s confidential or proprietary
      information.

            


    

    
      	
               
      

            	
              ·

            	
              Breach
      of the Company’s Insider Trading
Policy.

            


    

    
      	
               
      

            	
              ·

            	
              Any
      material breach of the Company’s Code of Business Conduct and
      Ethics.

            


    

    
      	
               
      

            	
              ·

            	
              Material
      violation of the obligations under this
  Agreement.

            


    

    


    
      	
              9.

            	
              By
      signing this Transition Agreement, the Executive agrees to release and
      forever discharge Hancock Fabrics, Inc. and its parent corporations,
      subsidiaries and affiliates, and their shareholders, officers, employees,
      agents, representatives, independent contractors, successors, assigns and
      benefit plans (the “Company”) from any and all claims, actions,
      liabilities and suits, whether known or unknown, whether existing now or
      arising, accruing, or maturing later, arising out of anything that has
      occurred up through the date this Transition Agreement is signed, or end
      of the Transition Period, whichever is later, including but not limited to
      any claims that arise from the Executive’s employment with the Company,
      but excluding any claim for vested benefits from a retirement plan in
      which she was a participant.

            


    

    


    
      	
              10.

            	
              Without
      limiting the generality of the foregoing, the Executive agrees that, by
      signing this Transition Agreement, she is releasing and waiving any and
      all claims that she ever had or may have as of the date this Transition
      Agreement is signed or the end of the Transition Period, whichever is
      later, for age discrimination under the Age Discrimination in Employment
      Act, 29 U.S.C. Sec.Sec. 621, et seq.  The
      Executive is advised to consult with an attorney before signing this
      Transition Agreement; that the consideration the Executive receives in
      exchange for signing this Transition Agreement is in addition to amounts
      to which the Executive was already entitled; and that the Executive may,
      before signing this Transition Agreement, consider this Transition
      Agreement for a period of 21 calendar days.  After such
      21-day period, the offer contained in this letter is
      withdrawn.  By signing this Agreement, the Executive indicates
      that she has used as much of the 21 calendar day period as needed or
      desired.  The Executive may revoke this Transition Agreement
      within 7 calendar days from the date of the signing of this Transition
      Agreement.  This Transition Agreement is not effective until 7
      calendar days following its
signing.

            


    

     

    
      
         

      

      
        2

        
          

        

      

      
         

      

    

    
 

    
      	
              11.

            	
              The
      Executive acknowledges that information, observations and data obtained by
      her while employed by the Company (“Confidential Information”) are the
      property of the Company.  By signing this Transition Agreement,
      the Executive agrees not to disclose to any unauthorized person, or use
      for her own purpose, any Confidential Information without the prior
      written consent of the Company, unless and to the extent that the
      aforementioned matters become generally known to and available for use by
      the public other than as a result of the Executive’s acts or
      omissions.

            


    

    


    
      	
              12.

            	
              The
      Executive acknowledges that all inventions, innovations, improvements,
      developments, methods, designs, analyses, drawings, reports and all
      similar or related information (whether patentable or not) which relate to
      the Company’s actual or anticipated business, research and development or
      existing or future products or services and which are conceived, developed
      or made by the Executive while employed by the Company (“Work Products”)
      belong to the Company.  The Executive shall promptly disclose
      such Work Products to the Company and perform all actions reasonably
      requested by the Company (whether during or after employment) to establish
      and confirm such ownership.

            


    

    


    
      	
              13.

            	
              Notwithstanding
      the obligations set forth in the above two paragraphs, after termination
      of employment with the Company, the Executive is free to use Residuals of
      the Company’s Confidential Information and Work Products for any purpose
      subject only to the obligations with respect to disclosure set forth
      herein and any copyrights of patents of the Company.  The term
      “Residuals” means information in non-tangible form that may be retained in
      the Executive’s unaided memory derived from the Company’s Confidential
      Information and Work Product to which the Executive had access during her
      employment with the Company.  The Executive may not retain or
      use the documents and any other tangible materials containing the
      Company’s Confidential Information or Work Product after the termination
      of employment with the Company.

            


    

    


    
      	
              14.

            	
              The
      Executive agrees that for the duration of the Transition Period, she will
      not directly or indirectly own any interest in, manage, control,
      participate in, work for, consult with or render any services for any
      Material Competitor of the Company.  “Material Competitor” is
      defined as a retailer of both fabrics and home décor items on a national
      or multi-state scale.  Examples of such competitors include, but
      are not limited to Jo-Ann Stores, Hobby Lobby and
      Michaels.  Nothing in this paragraph shall prohibit the
      Executive from being a passive owner of not more than 2% of the
      outstanding stock of any class of a corporation which is publicly traded
      so long as there is no active participation in the business of such
      corporation.  The Company reserves the right to enforce this
      provision in any state in which it is
  enforceable.

            


    

    


    
      	
              15.

            	
              The
      Executive agrees that for the duration of the Transition Period, she will
      not directly or indirectly through another entity 1) induce or attempt to
      induce any employee of the Company to leave the employ of the Company or
      in any way interfere with the relationship between the Company and any
      employee thereof, 2) hire any person who was an employee of the Company at
      any time of his/her employment history, or 3) induce or attempt to induce
      any customer, supplier, licensee, licenser, franchisee or other business
      relation of the Company to cease doing business with the Company or in any
      way interfere with the relationship between such supplier, licensee,
      licenser, franchisee or other business relation and the Company
      (including, without limitation, making negative statements or
      communications about the Company).

            


    

     

    
      
         

      

      
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              16.

            	
              To
      the extent that the Executive has a grant(s) of restricted stock under the
      Hancock Fabrics, Inc. Stock Incentive Plan, in which some or all of the
      shares are not vested as of the date of this Agreement, the Company will
      pay the Executive the cash equivalent of the fair market value of her
      unvested, outstanding, restricted stock grants that would have vested as
      of the end of the Transition Period.  The Company will pay this
      amount in a single lump-sum
payment.

            


    

    


    
      	
              17.

            	
              This
      Transition Agreement contains the entire understanding between the
      Executive and the Company concerning the Executive’s employment during the
      Transition Period and termination of employment and may only be amended by
      a written instrument signed by both
parties.

            


    

    


    For the
Company:

     

     

    
      
        
          
            
              
                
                  
                    
                      
                        	
                                /s/ Jane Aggers

                              	 	
                                July 20, 2009

                              	 
	
                                Jane
      Aggers, President & CEO

                              	 	
                                Date

                              	 
	 
      	 	 
      	 
	 
      	 	 
      	 
	
                                For
      the Executive:

                              	 	 
      	 
	 
      	 	 
      	 
	 
      	 	 
      	 
	
                                /s/ Linda G. Moore

                              	 	
                                July 22, 2009

                              	 
	
                                Linda
      Gail Moore, SVP Merchandising

                              	 	
                                Date

                              	 


                      

                    

                  

                

              

            

          

        

      

    

     

    
      
         

      

      
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