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Exhibit 10.27    
    

September
10, 2004 

Mr. Marty
Glick 

Dear
Marty: 

        This
letter (the "Agreement") confirms the agreement between you and Theravance, Inc. (the "Company") regarding the continuation of your employment with the Company and the
benefits we would like to offer you upon your eventual cessation of employment. 

        1.     Continuing Employment.    Your employment with the Company will continue through December 31, 2005. You
agree to resign your employment with the Company effective January 1, 2006, provided that you may resign your employment on any earlier date for any reason or no reason. The Company may
terminate your employment prior to the Termination Date only for Cause. For purposes of this Agreement, the "Termination Date" shall mean the date that your employment ends. For purposes of this
Agreement, "Cause" means (a) a material failure to comply with the Company's written policies or rules, (b) conviction of, or plea of "guilty" or "no contest" to, a felony under the laws
of the United States or any state thereof, (c) gross misconduct, or (d) breach of this Agreement or your Proprietary Information and Inventions Agreement, a copy of which is attached
hereto as Exhibit A. You will have the title of Executive Vice President and Chief Financial Officer until we hire a new Chief Financial Officer, at which time your title will change to
Executive Vice President, Strategy. Our mutual understanding is that you will work closely with the Chief Executive Officer and the new Chief Financial Officer through your Termination Date to ensure
a seamless transition of the leadership of the Company's Finance and Administrative function to the new Chief Financial Officer. 

        2.     Salary, Bonus and Vacation Pay.    While you remain employed, you will continue to be provided all employee
benefits for which you are eligible through and until the Termination Date. While you remain employed, you will continue to be paid your current salary of $27,127.08 per month through June 30,
2005 or any earlier cessation of employment, and you will be eligible to receive your 2004 bonus (payable in early 2005). In addition, you will continue to accrue vacation time at your current rate
through but not after June 30, 2005. While you remain employed from June 30, 2005 through December 31, 2005 or any earlier cessation of employment, you will be paid a salary of
$3,750 per month. Your salary, bonus and all of your employee benefits will cease if the Company terminates your employment for Cause or you resign your employment prior to December 31, 2005.
However, if you remain employed through December 31, 2005, you will receive 50% of your targeted 2005 bonus (payable in early 2006). While you need not report to work on a full-time
basis after June 30, 2005, you agree that you will make yourself available upon specific request by the Company for not more than ten (10) hours per week for as long as you are employed
by the Company. On the Termination Date, you will cease being an employee of the Company and you will be paid any earned but unpaid salary and accrued vacation pay as of the Termination Date. 

        3.     Additional Option Vesting.    As of September 7, 2004, you own the following shares of the Company's
capital stock (all share numbers shown on a pre-reverse split basis). 

	Certificate

Number
	 	Common or

Preferred Stock
	 	Number of

Shares

	CS-69	 	Common	 	200,000
	CS-70	 	Common	 	200,000
	PA-47	 	Preferred	 	8,000
	PA-104	 	Preferred	 	4,000
	CS-955	 	Common	 	50,000

 

        Through
September 7, 2004, you were granted the following options to purchase shares of the Company's Common Stock (all numbers shown on a pre-reverse split basis) 

	Grant Date
	 	Number of

Shares
	 	Exercise

Price
	 	Vested

12/31/05
	 	Unvested

12/31/05

	9/20/98	 	200,000	 	$	0.50	 	200,000	 	0
	9/20/98	 	200,000	 	$	0.50	 	200,000	 	0
	3/16/00	 	43,750	 	$	5.25	 	43,750	 	0
	4/29/00	 	50,000	 	$	5.50	 	50,000	 	0
	2/24/02	 	18,181	 	$	5.50	 	18,181	 	0
	2/24/02	 	36,819	 	$	5.50	 	36,819	 	0
	1/24/03

1/24/03 (collectively, "Option 1")	 	50,000

2,250	 	$
$	2.00

2.00	 	36,458

1,641	 	13,542

609
	3/29/04 ("Option 2")	 	100,000	 	$	6.25	 	33,334	 	66,666
	3/29/04 ("Option 3")	 	40,000	 	$	6.25	 	0	 	40,000
	3/29/04 ("Option 4")	 	275,000	 	$	6.25	 	0	 	275,000

        You
have previously exercised 400,000 of your options granted in 1998 and 50,000 of your options granted in 2003. The options listed in the table granted in 2000 will remain exercisable
until 10 years after the grant date, regardless of when your employment ceases. The options listed in the table granted in 2002 and 2003 will remain exercisable for 3 months following
your cessation of service. In addition, if you remain employed through December 31, 2005, and sign this Agreement and the release attached hereto as  Exhibit B within 30 days following
your cessation of employment for any reason other than Cause, then the options granted to you in 2002
and 2003 (to the extent not then exercised) shall be modified effective as of the Termination Date to extend the period of time you have to exercise those options such that they will be exercisable
through December 31, 2007. Option 2 listed in the table will remain exercisable for 36 months after your cessation of employment, that is until December 31, 2008 if you
remain in compliance with the terms of this Agreement. Options 3 and 4 listed in the table
will remain exercisable until June 30, 2009 if you remain in compliance with the terms of this Agreement. All of your outstanding options will continue to vest pursuant to their terms until
your Termination Date. 

        In
addition, if you remain employed through December 31, 2005, and sign this Agreement and the release attached hereto as  Exhibit B within 30 days following your cessation of employment for
any reason other than Cause, then effective on the Termination Date: 

	(i)
	you
will continue to vest until fully vested in the shares under Option 1 as of the original vesting dates applicable to Option 1 (although you need not remain employed
after December 31, 2005 in order to continue to vest, you do need to serve as a consultant to the Company from January 1, 2006 through December 31, 2006 pursuant to the terms and
conditions of the Consulting Agreement attached hereto as Exhibit C ("the Consulting Agreement") in order to continue to vest);

	(ii)
	you
will continue to vest in the 100,000 shares under Option 2 as of the original vesting dates applicable to Option 2 (although you need not remain employed after
December 31, 2005 in order to continue to vest, you do need to serve as a consultant to the Company from January 1, 2006 through December 31, 2006 pursuant to the terms and
conditions of the Consulting Agreement in order to fully vest); and

	(iii)
	you
will continue to vest in all of the shares underlying Option 3 and 23,000 shares under Option 4 (for a total of 63,000 shares) (the "Reduced Shares") as follows
40% of the Reduced Shares vest on September 2, 2007; 30% of the Reduced Shares vest on March 29, 2008; and the final 30% of the Reduced Shares vest on March 29, 2009 (taken
equally from Option 3 and Option 4) (although you need not remain employed after December 31, 2005 in order to 

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continue
to vest, you do need to serve as a consultant to the Company from January 1, 2006 through December 31, 2006 pursuant to the terms and conditions of the Consulting Agreement in
order to continue to vest). 

        Under
no circumstance will any of the shares issued upon exercise of Options 2, 3 or 4, or 14,142 of the unvested shares under Option 1 as of your Termination Date be transferable by you
prior to September 2, 2007, nor will they be eligible for the "put" provisions contained in the Governance Agreement dated March 30, 2004, as amended, between the Company and Glaxo Group
Limited. In this regard, you agree to the imposition of appropriate stop transfer instructions, legends and an escrow of any shares issued upon exercise of Options 1, 2 or 3 to enforce the foregoing. 

        You
acknowledge that you have no other stock rights in the Company other than those rights enumerated in this paragraph. You further acknowledge that all the terms, conditions and
limitations applicable to each of the options identified in this paragraph as set forth in the applicable stock option agreements and the Company's 1997 Stock Plan and Long-Term Stock Plan
shall remain in full force and effect, except as otherwise set forth herein. 

        4.     Release of All Claims.    In consideration for agreeing to continue your employment through December 31,
2005 on the terms set forth herein and in consideration of your eligibility for continued stock option vesting described above, you waive, release and promise never to assert any claims or causes of
action, whether or not now known, against the Company or its predecessors, successors or past or present subsidiaries, stockholders, directors, officers, employees, consultants, attorneys, agents,
assigns and employee benefit plans with respect to any matter, including (without limitation) any matter related to your employment with the Company or the termination of that employment, including
(without limitation) claims to attorneys' fees or costs, claims of wrongful discharge, constructive discharge, emotional distress, defamation, invasion of privacy, fraud, breach of contract or breach
of the covenant of good faith and fair dealing and any claims of discrimination or harassment based on sex, age, race, national origin, disability or any other basis under Title VII of the Civil
Rights Act of 1964, the California Fair Employment and Housing Act, the Age Discrimination in Employment Act of 1967, the Americans with Disabilities Act and all other laws and regulations relating to
employment. However, this release covers only those claims that arose prior to the execution of this Agreement. Execution of this Agreement does not bar any claim that arises hereafter, including
(without limitation) a claim for breach of this Agreement. 

        5.     Waiver.    You expressly waive and release any and all rights and benefits under Section 1542 of the
California Civil Code (or any analogous law of any other state), which reads as follows: "A general release does not extend to claims which the creditor does not know or suspect to exist in his favor
at the time of executing the release, which if known by him must have materially affected his settlement with the debtor." 

        6.     Promise Not To Sue.    You agree that you will never, individually or with any other person, commence, aid in
any way (except as required by legal process) or prosecute, or cause or permit to be commenced or prosecuted, any action or other proceeding based on any claim that is the subject of this Agreement. 

        7.     No Competition.    While employed by the Company, you agree not to serve as an officer or an employee of any
business competing with, or similar to the business of, the Company and engaged in such competing or similar business of the Company anywhere within any state, possession, territory or jurisdiction of
the United States of America or any other country in which you have provided services for the Company. If any restriction set forth in this paragraph 10 is held to be unreasonable or
unenforceable by a court of competent jurisdiction, then you agree, and hereby submit, to the reduction and limitation of such prohibition to such area or period as shall be deemed reasonable. This
restriction will not apply to your service as a member of the Board of Directors of other companies, regardless of whether or not they are in a business that competes with the Company; provided that
you 

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continue
to adhere to your confidentiality obligations and other similar provisions contained in your Proprietary Information and Inventions Agreement. 

        8.     Effective Date and Rescission.    You have up to 21 days after you received this Agreement to review it.
You are advised to consult an attorney of your own choosing (at your own expense) before signing this Agreement. Furthermore, you have up to seven days after you signed this Agreement to revoke it. If
you wish to revoke this Agreement after signing it, you may do so by delivering a letter of revocation to me. If you do not revoke this Agreement, the eighth day after the date you signed it will be
the "Effective Date." Because of the seven-day revocation period, no part of this Agreement will become effective or enforceable until the Effective Date. 

        9.     No Admission.    Nothing contained in this Agreement will constitute or be treated as an admission by you or the
Company of liability, any wrongdoing or any violation of law. 

        10.   Company Trading Policy.    You agree that you will comply with the Company's insider trading policy while
employed, including not trading in the Company's securities during any period that other officers of the Company are precluded from trading. The Lock-Up Agreement with Merrill
Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Lehman Brothers, Credit Suisse First Boston Corporation, Perseus Group LLC and Thomas Weisel Partners LLC dated
July 1, 2004 and the Lock-Up Agreement entered into as of May 11, 2004, by and among the Company, SmithKline Beecham Corporation and you shall each remain in full force and
effect in accordance with their terms. 

        11.   Other Agreements.    At all times in the future, you will remain bound by your Proprietary Information and
Inventions Agreement with the Company, which you signed on July 1, 1998, and a copy of which is attached as Exhibit A. The indemnification agreement dated September 1, 2000
between you and the Company shall remain in full force and effect in accordance with its terms. You shall also remain bound by (a) the Co-Sale Agreement dated January 25,
1999 by and among the Company, you, and Roy Vagelos, James Tananbaum, George Whitesides and certain holders of Preferred Stock, (b) the Amended and Restated Investors' Rights Agreement by and
between the Company and the Investors dated May 11, 2004, (c) the Amended and Restated Voting Agreement by and among the Company, the Investors and the Key Common Stockholders dated
May 11, 2004, and (d) the Letter Agreement dated April 20, 2000 by and between you and the Company. Except as expressly provided in this Agreement, this Agreement renders null and
void all prior agreements between you and the Company and constitutes the entire agreement between you and the Company regarding the subject matter of this Agreement. This Agreement may be modified
only in a written document signed by you and a duly authorized officer of the Company. 

        12.   Company Property.    You agree that on or prior to the Termination Date you will return to the Company all
property that belongs to the Company, including (without limitation) copies of documents that belong to the Company and files stored on your computer(s) that contain information belonging to the
Company, except that you may keep your personal copies of (i) your compensation records and (ii) materials distributed to stockholders generally. 

        13.   Confidentiality of Agreement.    You agree that you will not disclose to others the existence or terms of this
Agreement, except that you may disclose such information to your spouse, attorney or tax adviser if such individuals agree that they will not disclose to others the existence or terms of this
Agreement. 

        14.   No Disparagement.    You agree that you will never make any negative or disparaging statements (orally or in
writing) about the Company or its stockholders, directors, officers, employees, products, services or business practices, except as required by law. 

        15.   Severability.    If any term of this Agreement is held to be invalid, void or unenforceable, the remainder of
this Agreement will remain in full force and effect and will in no way be affected, and the parties will use their best efforts to find an alternate way to achieve the same result. 

4

 

        16.   Choice of Law.    This Agreement will be construed and interpreted in accordance with the laws of the State of
California (other than their choice-of-law provisions). 

        17.   Execution.    This Agreement may be executed in counterparts, each of which will be considered an original, but
all of which together will constitute one agreement. Execution of a facsimile copy will have the same force and effect as execution of an original, and a facsimile signature will be deemed an original
and valid signature. 

        Please
indicate your agreement with the above terms by signing below. 

	 	Very truly yours,
	

 	

Theravance, Inc.
	

 	

By:	

/s/  RICK E WINNINGHAM    

Rick E Winningham

Chief Executive Officer

        I
agree to the terms of this Agreement, and I am voluntarily signing this release of all claims. I acknowledge that I have read and understand this Agreement, and I understand that I
cannot pursue any of the claims and rights that I have waived in this Agreement at any time in the future. 

	    	 	 	 
	By:	/s/  MARTY GLICK      
	 	
	 
	 	Marty Glick	 
	    	 	 	 
	Dated:	September 10, 2004

Attachments

Exhibit A:
Proprietary Information and Inventions Agreement

Exhibit B: Release

Exhibit C: Consulting Agreement 

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EXHIBIT A
  
  PROPRIETARY INFORMATION AND INVENTION AGREEMENT    
    

        The following confirms an agreement between me and Advanced Medicine, Inc. ("the Company"), which is a material part of the consideration for my employment
by the Company: 

        1.     I
understand that the Company possesses Proprietary Information which is important to its business. For purposes of this Agreement, "Proprietary Information" is
information that was developed, created, or discovered by the Company, or which became known by, or was conveyed to the Company, which has commercial value in the Company's business. "Proprietary
Information" includes, but is not limited to, software programs and subroutines, source and object code, trade secrets, ideas, techniques, inventions (whether patentable or not), business and product
development plans, the nature of the Company's business or products until such time as such information has become public, terms of compensation and performance levels of Company employees, and other
information concerning the Company's actual or anticipated business, research or development, which is received in confidence by or for the Company from any other person. I understand that my
employment creates a relationship of confidence and trust between me and the Company with respect to Proprietary Information. 

        2.     I
understand that the Company possesses "Company Documents" which are important to its business. For purposes of this Agreement, "Company Documents" are documents or
other media that contain Proprietary Information or any other information concerning the business, operations or plans of the Company, whether such documents have been prepared by me or by others.
"Company Documents" include, but are not limited to, blueprints, drawings, photographs, charts, graphs, notebooks, customer lists, computer disks, tapes or printouts, sound recordings and other
printed, typewritten or handwritten documents. 

        3.     In
consideration of my employment by the Company and the compensation received by me from the Company from time to time, I hereby agree as follows: 

        a.     All
Proprietary Information and all patents, copyrights and other rights in connection therewith shall be the sole property of the Company. I hereby assign to the Company
any rights I may have or acquire in such Proprietary Information. At all times, both during my employment by the Company and after its termination, I will keep in confidence and trust and will not use
or disclose any Proprietary Information or anything relating to it without the prior written consent of an officer of the Company, except as may be necessary in the ordinary course of performing my
duties to the Company. 

        b.     I
agree to make and maintain adequate and current written records, in a form specified by the Company, of all inventions, trade secrets and works of authorship assigned
or to be assigned to the Company pursuant to this Agreement. All Company Documents shall be the sole property of the Company. I agree that during my employment by the Company, I will not remove any
Company Documents from the business premises of the Company or deliver any Company Documents to any person or entity outside the Company, except as I am required to do in connection with performing
the duties of my employment. I further agree that, immediately upon the termination of my employment by me or by the Company for any reason, or during my employment if so requested by the Company, I
will return all Company Documents, apparatus, equipment and other physical property, or any reproduction of such property, excepting only (i) copies of records relating to my employment that I
have signed; (ii) my personal copies of any materials previously distributed generally to stockholders of the Company; and (iii) my copy of this Agreement. 

        c.     I
will promptly disclose in writing to my immediate supervisor, with a copy to the President of the Company, or to any persons designated by the Company, all
"Inventions," which includes all software programs or subroutines, source or object code, improvements, inventions, 

A-1

 

formulas,
ideas, processes, techniques, know-how and data, whether or not patentable, made or conceived or reduced to practice or developed by me, either alone or jointly with others,
during the term of my employment. I will also disclose to the President of the Company all Inventions made, conceived, reduced to practice, or developed by me within six months of the termination of
my employment with the Company which resulted from my prior work with the Company. Such disclosures shall be received by the Company in confidence and do not extend to the assignment made in
Section (d) below. 

        d.     I
agree that all Inventions which I make, conceive, reduce to practice or develop (in whole or in part, either alone or jointly with others) during my employment shall be
the sole property of the Company to the maximum extent permitted by Section 2870 of the California Labor Code, a copy of which is attached as Exhibit A. This assignment shall not extend
to Inventions, the assignment of which is prohibited by Labor Code Section 2870. The Company shall be the sole owner of all patents, copyrights and other intellectual property or other rights
in connection therewith. I further acknowledge and agree that such Inventions, including any computer programs, programming documentation, and other works of authorship, are "works made for hire" for
purposes of the Company's rights under copyright laws. I hereby assign to the Company any rights I may have or acquire in such Inventions. 

        e.     I
agree to perform, during and after my employment, all acts deemed necessary or desirable by the Company to permit and assist it, at the Company's expense, in obtaining
and enforcing patents, copyrights or other rights on such Inventions and improvements in any, and all countries. Such acts may include, but are not limited to, execution of documents and assistance or
cooperation in legal proceedings. I hereby irrevocably designate and appoint the Company and its duly authorized officers and agents, as my agents and attorney in-fact to act for and on my
behalf and instead of me, to execute and file any applications or related findings and to do all other lawfully permitted acts
to further the prosecution and issuance of patents, copyrights or other rights thereon with the same legal force and effect as if executed by me. 

        f.      I
have attached as Exhibit B a complete list of all Inventions or improvements to which I claim ownership and that I desire to remove from the operation of this
Agreement, and I acknowledge and agree that such list is complete. If no such list is attached to this Agreement, I represent that I have no such Inventions and improvements at the time of signing
this Agreement. 

        g.     During
the term of my employment and for one (1) year thereafter, I will not encourage or solicit any employee of the Company to leave the Company for any reason.
However, this obligation shall not affect any responsibility I may have as an employee of the Company with respect to the bona fide hiring and firing of Company personnel. 

        h.     Prior
to my submitting or disclosing for possible publication or dissemination outside the Company any material prepared by me that incorporates information that concerns
the Company's business or anticipated research, I agree to deliver a copy of such material to an officer of the Company for his or her review. Within twenty (20) days of such submission, the
Company agrees to notify me whether the Company believes such material contains any Proprietary Information, and I agree to make such deletions and revisions as are reasonably requested by the Company
to protect its Proprietary Information. I further agree to obtain the consent of the Company prior to any review of such material by persons outside the Company. 

        i.      I
agree that, during my employment with the Company, I will not provide consulting services to or become an employee of, any other firm or person engaged in a business in
any way competitive with the Company, or involved in the design, development, or marketing of software products, without first informing the Company of the existence of such proposed relationship and
obtaining the prior written consent of my manager and the Human Resource Manager responsible for the organization in which I work. 

A-2

 

        j.      I
represent that my performance of all the terms of this Agreement and as an employee of the Company does not and will not breach any agreement to keep in confidence
proprietary information, knowledge or data acquired by me in confidence or in trust prior to my employment by the Company, and I will not disclose to the Company, or induce the Company to use, any
confidential or proprietary information or material belonging to any previous employers or others. I represent and warrant that I have returned all property and confidential information belonging to
all prior employers. I have not entered into, and I agree I will not enter into, any agreement either written or oral in conflict herewith or in conflict with my employment with the Company. I further
agree to conform to the rules and regulations of the Company. 

        4.     I
agree that I am employed on an "at-will" basis. This means that I have the right to resign and the Company has the right to terminate my employment at any
time for any reason, with or without cause. This is the complete agreement between the Company and me on this term of my employment. I further agree that this term can only be modified by the Company
President and he or she can only do so in a writing signed and dated by him or her and me. 

        5.     Subject
to the exceptions below, I agree that any and all disputes or claims that I have with the Company, or any of its employees, which arise out of my employment or
under the terms of my employment, shall be resolved through final and binding arbitration, as specified herein. This shall include, without limitation, disputes relating to this Agreement, my
employment by the Company or the termination thereof, claims for breach of contract or breach of the covenant of good faith and fair dealing, and any claims of discrimination or other claims under
Title VII of the Civil Rights Act of 1964, the Age Discrimination in Employment Act, the Americans with Disabilities Act, the California Fair Employment and Housing Act, the Employee Retirement Income
Securities Act, the Racketeer Influenced and Corrupt Organizations Act, or any other federal, state or local law or regulation now in existence or hereinafter enacted and as amended from time to time
concerning in any way the subject of my employment with the Company or its termination. The only claims or disputes not covered by this paragraph are claims or disputes related to or arising under
intellectual property rights pertaining to Proprietary Information or for benefits under the unemployment insurance or workers' compensation laws, which will be resolved pursuant to the applicable
laws. Binding arbitration will be conducted in San Mateo County, California in accordance with the rules and regulations of the American Arbitration Association (AAA). If, at the time the dispute in
question arose, I live and work more than one hundred (100) miles from San Mateo County, California, then I have the option of requesting that the arbitration take place in the county in which
the Company has an office that is nearest to my home. Each party will split the cost of the arbitration filing and hearing fees, and the cost of the arbitrator; each side will bear its own attorneys'
fees: that is, the arbitrator will not have authority to award attorneys' fees unless a statutory section at issue in the dispute authorizes the award
of attorneys' fees to the prevailing party, in which case the arbitrator has authority to make such award as permitted by the statute in question. I understand and agree that the arbitration shall be
instead of any jury trial and that the arbitrator's decision shall be final and binding to the fullest extent permitted by law and enforceable by any court having jurisdiction thereof. 

        6.     If
one or more provisions of this Agreement are held to be unenforceable under applicable law, such provisions shall be excluded from this Agreement and the balance of
the Agreement shall be interpreted as if such provision were so excluded and shall be enforceable in accordance with its terms. 

        7.     This
Agreement shall be effective as of the first day of my employment with the Company and shall be binding upon me, my heirs, executor, assigns, and administrators, and
shall inure to the benefit of the Company, its subsidiaries, successors and assigns. 

        8.     This
Agreement can only be modified by a subsequent written agreement executed by the President of the Company. 

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        9.     Although
I may work for Advanced Medicine, Inc. outside of California or the United States, I understand and agree that this Agreement shall be interpreted and
enforced in accordance with the laws of the State of California. 

        I
HAVE READ THIS AGREEMENT CAREFULLY AND I UNDERSTAND AND ACCEPT THE OBLIGATIONS WHICH IT IMPOSES UPON ME WITHOUT RESERVATION. NO PROMISES OR REPRESENTATIONS HAVE BEEN MADE TO ME TO
INDUCE ME TO SIGN THIS AGREEMENT. I SIGN THIS AGREEMENT VOLUNTARILY AND FREELY. 

	Marty Glick
 Employee Name (Please Print)	 	 
	

/s/  MARTY GLICK      
 Employee Signature	
 	

July 1, 1998
 Date

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EXHIBIT A    
    

        Section 2870.    Application of provision providing that employee shall assign or offer to assign
rights in inventions to employer.

        k.     Any
provision in an employment agreement which provides that an employee shall assign, or offer to assign, any of his or her rights in an invention to his or her employer
shall not apply to an invention that the employee developed entirely on his or her own time without using the employer's equipment, supplies, facilities, or trade secret information except for those
inventions that either: 

        (1)   Relate
at the time of conception or reduction to practice of the invention to the employer's business, or actual or demonstrably anticipated research or development of
the employer. 

        (2)   Result
from any work performed by the employee for his employer. 

        l.      To
the extent a provision in an employment agreement purports to require an employee to assign an invention otherwise excluded from being required to be assigned under
subdivision (a), the provision is against the public policy of this state and is unenforceable. 

A-A-1

  

 
 

EXHIBIT B    
    

	1.	 	The following is a complete list of all Inventions or improvements relevant to the subject matter of my employment by Advanced Medicine, Inc. ("the Company") that have been made or conceived or first reduced to
practice by me or jointly with others prior to my employment by the Company that I desire to remove from the operation of the Company's Proprietary Information and Inventions Agreement:
	

X
	
 	

No inventions or improvements.
	

	
 	

See below: Any and all inventions regarding:
	

	
 	

Additional sheets attached.
	

2.	
 	

I propose to bring to my employment the following materials and documents of a former employer:
	

X
	
 	

No materials or documents
	

	
 	

See below:
	

 	

 	

 

	/s/  MARTY GLICK      
 Employee Signature	 	July 1, 1998
 Date

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EXHIBIT B
  
  GENERAL RELEASE OF ALL CLAIMS    
    

        In consideration of the severance benefits to be provided to Marty Glick by Theravance, Inc. ("the Company"), pursuant to the terms of the Agreement you
entered into with the Company dated as of September 10, 2004 (the "Agreement"), you, on your own behalf and on behalf of your heirs, executors, administrators and assigns, hereby fully and
forever release and discharge the Company and its directors, officers, employees, agents, successors, predecessors, subsidiaries, parent, shareholders, employee benefit plans and assigns (together
called "the Releasees"), from all known and unknown claims and causes of action including, without limitation, any claims or causes of action arising out of or relating in any way to your employment
with the Company, including the termination of that employment. 

        1.     Eight
days after you sign (and do not revoke) this General Release of All Claims ("Release"), provided that it is not signed earlier than your cessation of employment,
you will be entitled to the severance benefits set forth in Sections 2 and 3 of the Agreement that are conditioned on this Release. 

        2.     You
understand and agree that this Release is a full and complete waiver of all claims, including (without limitation) claims to attorneys' fees or costs, claims of
wrongful discharge, constructive discharge, breach of contract, breach of the covenant of good faith and fair dealing, harassment, retaliation, discrimination, violation of public policy, defamation,
invasion of privacy, interference with a leave of absence, personal injury, fraud or emotional distress and any claims of discrimination or harassment based on sex, age, race, national origin,
disability or any other basis under Title VII of the Civil Rights Act of 1964, the Fair Labor Standards Act, the Equal Pay Act of 1963, the Americans With Disabilities Act, the Age Discrimination in
Employment Act of 1967 (ADEA), the California Labor Code, the California Fair Employment and Housing Act, the California Family Rights Act, the Family
Medical Leave Act or any other federal or state law or regulation relating to employment or employment discrimination. You further understand and agree that this waiver includes all claims, known and
unknown, to the greatest extent permitted by applicable law. 

        3.     You
also hereby agree that nothing contained in this Release shall constitute or be treated as an admission of liability or wrongdoing by the Releasees or you. 

        4.     In
addition, you hereby expressly waive any and all rights and benefits conferred upon you by the provisions of Section 1542 of the Civil
Code of the State of California, which states as follows: 

A
general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected
his settlement with the debtor. 

        5.     If
any provision of this Release is found to be unenforceable, it shall not affect the enforceability of the remaining provisions and the court shall enforce all
remaining provisions to the full extent permitted by law. 

        6.     You
agree to provide, at the Company's expense, including reimbursement of reasonable fees and expenses of counsel, reasonable cooperation and complete and accurate
information to the Company (voluntarily, without requiring a subpoena or other compulsion of law) in the event of litigation against the Company and/or its officers or directors. You also agree that
you will not assist any person in bringing or pursuing any claim or action of any kind against the Company, unless pursuant to subpoena or other compulsion of law. 

        7.     This
Release constitutes the entire agreement between you and Releasees with regard to the subject matter of this Release. It supersedes any other agreements,
representations or understandings, whether oral or written and whether express or implied, which relate to the subject matter of this Release except as otherwise set forth in the Agreement. However,
this Release covers only those claims 

B-1

 

that
arose prior to the execution of this Release. Execution of this Release does not bar any claim that arises hereafter, including (without limitation) a claim for breach of the Agreement. 

        8.     You
understand that you have the right to consult with an attorney before signing this Release. You have 21 days after receipt of this Release to review and
consider this Release, discuss it with an attorney of your own choosing, and decide to execute it or not execute it. You also understand that you may revoke this Release during a period of seven days
after you sign it and that this Release will not become effective for seven days after you sign it (and then only if you do not revoke it). In any event, this Release is not to be signed, and will not
become effective, prior to your cessation of employment. In order to revoke this Release, within seven days after you execute this Release you must deliver to Brad Shafer at the Company a letter
stating that you are revoking it. 

        9.     You
understand that if you choose to revoke this Release within seven days after you sign it, you will not receive the severance benefits set forth in Sections 2 and 3
that are conditioned on this Release and the Release will have no effect. 

        10.   You
agree not to disclose to others the terms of this Release, except that you may disclose such information to your spouse and to your attorney or accountant in order
for such attorney or accountant to render services to you related to this Release. 

        11.   You
state that before signing this Release, you: 

	•
	Have
read it,

	•
	Understand
it,

	•
	Know
that you are giving up important rights,

	•
	Are
aware of your right to consult an attorney before signing it, and

	•
	Have
signed it knowingly and voluntarily. 

	    	 	 	 	 	 
	Date:	    
	 	By:	 	    
 Marty Glick

TO
BE SIGNED UPON CESSATION OF EMPLOYMENT 

B-2

  

 
 

EXHIBIT C
  
  CONSULTING AGREEMENT    
    

Effective
January 1, 2006, Marty Glick, 511 Hampton Road, Piedmont, CA ("Consultant") and Theravance, Inc., 901 Gateway Boulevard, South San Francisco CA 94080 ("Theravance") agree as
follows: 

        1.    Services and Payment.    

        (a)   Consultant
agrees to consult with and advise Theravance from time to time, at Theravance's request and upon mutual agreement by Consultant ("Services"). Consultant shall
not be required to provide more than 5 hours of Services per month. Consultant shall be entitled to reimbursement for expenses for which Consultant has received prior approval from Theravance
upon submission of receipts therefor. 

        (b)   During
the term of this Agreement, and provided this Agreement is not terminated by the Theravance for Cause (defined below), Consultant shall continue to vest in his
stock options as set forth in the Letter Agreement between the Theravance and Consultant dated September 10, 2004. For Services provided, the Company shall pay Consultant a fee of $275 per hour
for each hour of authorized Services rendered under this Agreement. Such fees (if any) shall be invoiced and paid within 30 days following the receipt by the Company of an invoice. 

        2.    Ownership of Inventions.    Theravance shall own all right, title and interest (including patent rights,
copyrights, trade secret rights, trademark rights and all other rights of any sort throughout the world) relating to any and all inventions (whether or not patentable), including without limitation,
discoveries, compositions of matter, pharmaceutical formulations, methods of use, methods of making, techniques, processes, formulas, improvements, works of authorship, designations, designs,
know-how, ideas and information made or conceived or reduced to practice, in whole or in part, by Consultant (solely or jointly with others) during the term of this Agreement that arise
out of or relate to the Services or any Proprietary Information (as defined below) (collectively, "Inventions"). Consultant will promptly disclose, provide and assign all Inventions to Theravance.
Consultant shall further assist Theravance, at Theravance's expense, to further evidence, record and perfect such
assignments, and to perfect, obtain, maintain, enforce, and defend any rights assigned throughout the world. Such assistance may include, but is not limited to, execution of documents and assistance
or cooperation in legal proceedings. Consultant hereby irrevocably designates and appoints Theravance as his/her agent and attorney-in-fact to act for and on Consultant's
behalf to execute and file any document and to do all other lawfully permitted acts to further the foregoing with the same legal force and effect as if executed by Consultant. When requested by
Theravance, Consultant will make available to Theravance all notes, data and other information relating to any Invention. 

        3.    Proprietary Information.    Consultant agrees that all Inventions and other business, technical and financial
information concerning Theravance (including, without limitation, the identity of and information relating to Theravance's customers or employees) Consultant develops, learns or obtains during the
term of this Agreement or while he is providing Services constitute "Proprietary Information." Consultant will hold in confidence and not disclose or make available to third parties or make use of any
Proprietary Information except with the prior written consent of Theravance or to the extent necessary in performing Services for Theravance. However, Consultant shall not be obligated under this
paragraph with respect to information Consultant can document (i) is or becomes readily publicly available without restriction through no fault of Consultant, or (ii) that Consultant
knew without restriction prior to its disclosure by Theravance. Upon termination of this Agreement or as otherwise requested by Theravance, Consultant will promptly return to Theravance all documents,
materials and copies containing or embodying Proprietary Information, except that Consultant may keep a personal copy of (i) compensation records relating to the Services and (ii) this
Agreement. 

C-1

 

        4.    Solicitation and Services for Competitors.    As additional protection for Proprietary Information, Consultant
agrees that during the term of this Agreement, Consultant will not encourage or solicit any employee of or consultant to Theravance to leave Theravance for any reason. During the term of this
Agreement, you agree not to serve as an officer or an employee of any business competing with, or similar to the business of, the Company and engaged in such competing or similar business of the
Company anywhere within any state, possession, territory or jurisdiction of the United States of America or any other country in which you have provided services for the Company. If any restriction
set forth in this paragraph 4 is held to be unreasonable or unenforceable by a court of competent jurisdiction, then you agree, and hereby submit, to the reduction and limitation of such
prohibition to such area or period as shall be deemed reasonable. This restriction will not apply to your service as a member of the Board of Directors of other companies, regardless of whether or not
they are in a business that competes with the Company; provided that you continue to adhere to all of your other obligations herein, including without limitation your confidentiality obligations. 

        5.    Term and Termination.    This Agreement shall become effective on the date hereof and remain in force until
December 31, 2006 unless terminated by either party. Consultant may terminate this Agreement at any time, for any reason, by giving Theravance 10 days' written notice. Theravance may
only terminate this Agreement for Cause, which for purposes of this Agreement shall mean (a) a material failure to comply with the Theravance's written policies or rules, (b) conviction
of, or plea of "guilty" or "no contest" to, a felony under the laws of the United States or any state thereof, (c) gross misconduct, or
(d) breach of this Agreement. All provisions of this Agreement and any remedies for breach of this Agreement shall survive any termination or expiration. 

        6.    Relationship of the Parties.    Notwithstanding any provision hereof, for all purposes of this Agreement each
party shall be and act as an independent contractor and not as a partner, joint venturer, or agent of the other and shall not bind nor attempt to bind the other to any contract. Consultant is an
independent contractor and is solely responsible for all taxes, withholdings, and other statutory or contractual obligations of any sort, including, but not limited to, Workers' Compensation
Insurance. Consultant recognizes and agrees that Consultant has no expectation of privacy with respect to Theravance's telecommunications, networking or information processing systems (including,
without limitation, computer files, email messages and attachments, and voice messages) and that Consultant's activity, and any files or messages, on or using any of those systems may be monitored at
any time without notice. 

        7.    Assignment.    This Agreement and the Services performed hereunder are personal to Consultant and Consultant
shall not have the right or ability to assign, transfer, or subcontract any obligations under this Agreement without the written consent of Theravance. Any attempt to do so shall be void. Theravance
shall be free to assign or transfer this Agreement to a third party. 

        8.    No Conflict.    Consultant represents and warrants that (i) his performance hereunder will not breach any
agreement or obligation to keep in confidence proprietary information acquired by Consultant in confidence or trust prior to or during Consultant's engagement with Theravance, and (ii) all work
under this Agreement will be Consultant's original work and none of the Services or Inventions or any development, use, production, distribution or exploitation thereof will infringe, misappropriate
or violate any intellectual property or other right of any person or entity. Consultant represents and warrants that he has not entered into, and agrees that he will not enter into, any agreement
whether written or oral in conflict with this Agreement or with his obligations as a consultant to Theravance. 

        9.    Remedies.    Any breach of Section 2, 3, 4 or 8 will cause irreparable harm to Theravance for which
damages would not be an adequate remedy, and, therefore, Theravance will be entitled to injunctive relief with respect thereto in addition to any other remedies. The failure of either party to 

C-2

 

enforce
its rights under this Agreement at any time for any period shall not be construed as a waiver of such rights. 

        10.    Entire Agreement.    This Agreement supersedes all prior agreements between the parties and constitutes the
entire agreement between the parties as to the subject matter hereof, except that if the Consultant has signed Theravance's Nondisclosure Agreement, it shall remain in full force and effect. 

        11.    Notices.    All notices, requests and other communications called for by this Agreement shall be deemed to have
been given if made in writing and mailed, postage prepaid, to the address of each party set forth above, or to such other addresses as either party shall specify to the other. 

        12.    Amendments.    No changes or modifications or waivers to this Agreement will be effective unless in writing and
signed by both parties. 

        13.    Severability.    In the event that any provision of this Agreement shall be determined to be illegal or
unenforceable, that provision will be limited or eliminated to the minimum extent necessary so that this Agreement shall otherwise remain in full force and effect and enforceable. 

        14.    Arbitration.    Subject to the exceptions set forth below, Consultant understands and agrees that any
disagreement regarding this Agreement will be determined by submission to arbitration as provided by Section 1280 et seq. of the California Code
of Civil Procedure, and not by a lawsuit or resort to court process proceedings. The only claims or disputes not covered by this paragraph are claims or disputes related to issues affecting the
validity, infringement or enforceability of any trade secret or patent rights held or sought by Theravance or which Theravance could otherwise seek; in which case such claims or disputes shall not be
subject to arbitration and will be resolved pursuant to applicable law. 

        15.    Governing Law.    This Agreement shall be governed by and construed in accordance with the laws of the State of
California without regard to conflicts of law provisions thereof. In any action or proceeding to enforce rights under this Agreement, the prevailing party shall be entitled to recover costs and
attorneys fees. 

	Consultant	 	 	Theravance, Inc.
	

    
	
 	

By:	

    

	Marty Glick	 	(signature)
	

 	

 	
 	

Name:	

    

	

Social Security No.:	

	
 	

Title:	

    

C-3

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Exhibit 10.27

EXHIBIT A PROPRIETARY INFORMATION AND INVENTION AGREEMENT

EXHIBIT A

EXHIBIT B

EXHIBIT B GENERAL RELEASE OF ALL CLAIMS

EXHIBIT C CONSULTING AGREEMENTQuickLinks
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EXHIBIT 10.1  

 
 

STOCK PURCHASE AGREEMENT    
    

        STOCK PURCHASE AGREEMENT (this "Agreement"), dated as of September 13, 2004, by and among CRAFTS RETAIL HOLDING
CORP., a Delaware corporation ("Parent"), CRAFTS RETAIL ACQUISITION CORP., a Delaware corporation and wholly-owned subsidiary of Parent
("Sub"), STANLEY BERENZWEIG, DORIS BERENZWEIG, STANLEY AND DORIS BERENZWEIG CHARITABLE FOUNDATION, INC., MONA ADELSON, GAIL LOIA, STEVEN BARNETT
and JUDITH LOMBARDO (each, a "Stockholder" and collectively, the "Stockholders") and RAG
SHOPS, INC., a Delaware corporation (the "Company"). Capitalized terms used but not defined herein have the meanings assigned to them in the
Agreement and Plan of Merger dated as of the date hereof (the "Merger Agreement") among Parent, Sub and the Company. 

        WHEREAS,
concurrently herewith, Parent, Sub, and the Company are entering into the Merger Agreement pursuant to which Sub will merge with and into the Company (the
"Merger"), upon the terms and subject to the conditions in the Merger Agreement; and 

        WHEREAS,
as of the date hereof, each Stockholder "beneficially owns" (as such term is defined in Rule 13d-3 promulgated under the Exchange Act) and is entitled to
dispose of (or to direct the disposition of) and to vote (or to direct the voting of) the number of shares of the Company's common stock, par value $0.01 per share (the "Common
Stock"), set forth opposite such Stockholder's name on Schedule I hereto ("Schedule I
Shares"); and 

        WHEREAS,
as a condition to the willingness of Parent and Sub to enter into the Merger Agreement and to effectuate the Merger, Parent has required that each Stockholder agree and, in
order to induce Parent and Sub to enter into the Merger Agreement, each Stockholder has agreed, to enter into this Agreement. 

        NOW,
THEREFORE, to induce Parent and Sub to enter into, and in consideration of their entering into, the Merger Agreement, and in consideration of the premises and the representations,
warranties, covenants and agreements set forth herein, the parties hereto agree as follows: 

 
 

ARTICLE I
  
    REPRESENTATIONS AND WARRANTIES OF EACH STOCKHOLDER    
    

        Each Stockholder hereby represents and warrants as to himself, herself or itself as applicable, severally and not jointly, to Parent, Sub and the Company as
follows: 

        1.1    Organization; Good Standing.    If such Stockholder is an entity, such Stockholder is duly organized and
validly existing and in good standing under the laws of its jurisdiction of organization. 

        1.2    Authority; Noncontravention.    If such Stockholder is an entity, such Stockholder has the requisite power
(corporate or other) and authority to execute and deliver this Agreement and to consummate the transactions contemplated by this Agreement. If such Stockholder is an individual, such Stockholder has
the requisite capacity to execute and deliver this Agreement and to consummate the transactions contemplated by this Agreement. If such Stockholder is an entity, the execution and delivery of this
Agreement by such Stockholder and the consummation by such Stockholder of the transactions contemplated by this Agreement have been duly authorized by all necessary action (corporate or other) on the
part of such Stockholder and no other proceedings (corporate or other) on the part of such Stockholder are necessary to approve this Agreement or to consummate the transactions contemplated by this
Agreement. This Agreement has been duly executed and delivered by such Stockholder and, assuming the due authorization, execution and delivery by the Company, Parent and Sub, constitutes a valid and
binding obligation of such Stockholder, enforceable against such Stockholder in accordance with its terms, subject to: (a) applicable bankruptcy, insolvency, fraudulent transfer and conveyance,
moratorium, reorganization, receivership and similar laws relating to or affecting the enforcement of the rights and remedies of creditors generally; (b) principles of equity 

 

which
may limit the availability of remedies (regardless of whether considered and applied in a proceeding in equity or at law); and (c) an implied covenant of good faith and fair dealing. The
execution and delivery of this Agreement by such Stockholder and the consummation of the transactions contemplated hereby and compliance by such Stockholder with the provisions hereof do not and will
not conflict with, or result in any violation or breach of, or default (with or without notice or lapse of time, or both) under, or give rise to a right of, or result in, termination, cancellation or
acceleration of any obligation under, or result in the creation of any Lien in or upon any of the properties or assets of such Stockholder under, any provision of: (a) if such Stockholder is an
entity, the certificate of incorporation or bylaws (or similar organizational documents) of such Stockholder; (b) any Contract to which such Stockholder is a party or any of their respective
properties or assets is subject; or (c) any (i) statute, law, ordinance, rule or regulation or (ii) judgment, order or decree, in each case, applicable to such Stockholder or any
of such Stockholder's properties or assets. Except for the filing of a Schedule 13D (or amendment thereto) or a Form 4 or 5 by such Stockholder, no consent, approval, order or
authorization of, or registration, declaration or filing with, any Governmental Entity or other individual, corporation, limited liability company, partnership, association, trust, unincorporated
organization, other entity or group (each a "person") is required by or with respect to such Stockholder in connection with the execution and delivery
of this Agreement by such Stockholder or the consummation by such Stockholder of the transactions contemplated hereby or compliance with the provisions hereof. 

        1.3    Ownership.    Column (a) on Schedule I sets
forth, opposite such Stockholder's name, the number of shares over which such Stockholder has sole record and beneficial ownership as of the date hereof. Without duplication of the shares of Common
Stock described in column (a) on Schedule I, column (b) on Schedule I sets
forth, opposite such Stockholder's name, the number of shares of Common Stock issuable upon exercise, exchange or conversion of securities that are exercisable or exchangeable for, or convertible
into, Common Stock, over which such Stockholder has sole record and beneficial ownership as of the date hereof. Except as set forth on  Schedule I, as of the date hereof, such Stockholder has the
sole power to vote (or cause to be voted) and the sole power to dispose of (or to
direct the disposition of) the shares of Common Stock referred to in the prior two sentences (as to the shares set forth in column (b), upon exercise, exchange or conversion thereof). Except as set
forth on such Schedule I, neither such Stockholder nor any affiliate (as hereafter defined) of such Stockholder owns or holds any right to
acquire or dispose of any additional shares of any class of capital stock of the Company or other securities of the Company or any interest therein or any voting rights with respect to any securities
of the Company. "affiliate" means, with respect to any specified person, any person that directly, or indirectly through one or more intermediaries,
controls, or is controlled by, or is under common control with, the person specified. For purposes of this Agreement, with respect to each Stockholder, the term  "affiliate" shall not include the Company
and the persons that directly, or indirectly through one or more intermediaries, are controlled by the
Company. 

        1.4    Decision to Sell.    Such Stockholder is capable of evaluating the merits and risks of such Stockholder's
decision to sell securities of the Company hereunder and make an informed decision with respect thereto by reason of: (a) such Stockholder's business and financial experience, and the business
and financial experience of those retained by such Stockholder to advise it with respect to its investment in the securities of the Company being sold hereunder; and (b) the access to such
information as such Stockholder or such advisors have requested. 

2

 

 
 

ARTICLE II
  
    REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB    
    

        Parent and Sub hereby represent and warrant, jointly and severally, to the Company and the Stockholders as follows: 

        2.1    Organization; Good Standing.    Parent and Sub are duly organized and validly existing and in good standing
under the laws of the State of Delaware. 

        2.2    Authority; Noncontravention.    Parent and Sub have the requisite corporate power and authority to execute and
deliver this Agreement and to consummate the transactions contemplated by this Agreement. The execution and delivery of this Agreement by Parent and Sub and the consummation by Parent and Sub of the
transactions contemplated by this Agreement have been duly authorized by all necessary corporate action on the part of Parent and Sub and no other corporate proceedings on the part of Parent or and
Sub are necessary to approve this Agreement or to consummate the transactions contemplated by this Agreement, subject. This Agreement has been duly executed and delivered by Parent and Sub and,
assuming the due authorization, execution and delivery by the Company and each Stockholder, constitutes a valid and binding obligation of Parent and Sub, enforceable against Parent and Sub in
accordance with its terms subject to: (a) applicable bankruptcy, insolvency, fraudulent transfer and conveyance, moratorium, reorganization, receivership and similar laws relating to or
affecting the enforcement of the rights and remedies of creditors generally; (b) principles of equity which may limit the availability of remedies (regardless of whether considered and applied
in a proceeding in equity or at law); and (c) an implied covenant of good faith and fair dealing. The execution and delivery of this Agreement by Parent and Sub and the consummation of the
transactions contemplated hereby and compliance by Parent and Sub with the provisions hereof do not and will not conflict with, or result in any violation or breach of, or default (with or without
notice or lapse of time, or both) under, or give rise to a right of, or result in, termination, cancellation or acceleration of any obligation or to loss of a material benefit under, or result in the
creation of any Lien in or upon any of the properties or assets of Parent or Sub under, or give rise to any increased, additional, accelerated or guaranteed rights or entitlements under, any provision
of: (a) the certificate of incorporation or bylaws of Parent or Sub; (b) any Contract to which Parent or Sub is a party or any of their respective properties or assets is subject; or
(c) any (i) statute, law, ordinance, rule or regulation or (ii) judgment,
order or decree, in each case, applicable to Parent or Sub or any of their respective properties or assets. Except for the filing of a Schedule 13D (or amendment thereto) or a Form 3 by
Parent and Sub, no consent, approval, order or authorization of, or registration, declaration or filing with, any Governmental Entity or other person is required by or with respect to Parent or Sub in
connection with the execution and delivery of this Agreement by Parent or Sub or the consummation by Parent or Sub of the transactions contemplated hereby or compliance with the provisions hereof. 

        2.3    Accredited Investor.    Sub is an "accredited investor," as defined in Rule 501 of Regulation D
under the Securities Act of 1933 and is capable of evaluating the merits and risks of an investment in the Company and making an informed investment decision with respect thereto. 

        2.4    Investment Intent.    Sub acknowledges that the Schedule I Shares it will receive hereunder have not
been registered under the Securities Act or any applicable state securities laws and, therefore, cannot be sold unless subsequently registered under such Securities Act and such applicable state
securities laws or an exemption from such registration is available. Sub is acquiring such stock for his own account and not with a view to their distribution within the meaning of
Section 2(11) of the Securities Act. 

3

 

 
 

ARTICLE III
  
    REPRESENTATIONS AND WARRANTIES OF THE COMPANY    
    

        The Company hereby represents and warrants to Parent, Sub and the Stockholders as follows: 

        3.1    Organization; Good Standing.    The Company is duly organized and validly existing and in good standing under
the laws of the State of Delaware. 

        3.2    Authority; Noncontravention.    The Company has the requisite corporate power and authority to execute and
deliver this Agreement and to consummate the transactions contemplated by this Agreement. The execution and delivery of this Agreement by the Company and the consummation by the Company of the
transactions contemplated by this Agreement have been duly authorized by all necessary corporate action on the part of the Company and no other corporate proceedings on the part of the Company are
necessary to approve this Agreement or to consummate the transactions contemplated by this Agreement, subject. This Agreement has been duly executed and delivered by the Company and, assuming the due
authorization, execution and delivery by each Stockholder, Parent and Sub, constitutes a valid and binding obligation of the Company, enforceable against the Company in
accordance with its terms subject to: (a) applicable bankruptcy, insolvency, fraudulent transfer and conveyance, moratorium, reorganization, receivership and similar laws relating to or
affecting the enforcement of the rights and remedies of creditors generally; (b) principles of equity which may limit the availability of remedies (regardless of whether considered and applied
in a proceeding in equity or at law); and (c) an implied covenant of good faith and fair dealing. The execution and delivery of this Agreement by the Company and the consummation of the
transactions contemplated hereby and compliance by the Company with the provisions hereof do not and will not conflict with, or result in any violation or breach of, or default (with or without notice
or lapse of time, or both) under, or give rise to a right of, or result in, termination, cancellation or acceleration of any obligation or to loss of a material benefit under, or result in the
creation of any Lien in or upon any of the properties or assets of the Company under, or give rise to any increased, additional, accelerated or guaranteed rights or entitlements under, any provision
of: (a) the certificate of incorporation or bylaws of the Company; (b) any Contract to which the Company is a party or any of its properties or assets is subject; or (c) subject
to the consents and other matters referred to in the exception at the end of the following sentence, any (i) statute, law, ordinance, rule or regulation or (ii) judgment, order or
decree, in each case, applicable to Parent or Sub or any of their respective properties or assets, other than, in the case of clauses (b) and (c), any such conflicts, violations, breaches,
defaults, rights, results, losses, Liens or entitlements that individually or in the aggregate could not reasonably be expected to have a material adverse effect on the Company. No consent, approval,
order or authorization of, or registration, declaration or filing with, any Governmental Entity or other person is required by or with respect to the Company in connection with the execution and
delivery of this Agreement by the Company or the consummation by the Company of the transactions contemplated hereby or compliance with the provisions hereof, except for such consents, approvals,
orders, authorizations, registrations, declarations and filings the failure of which to be obtained or made individually or in the aggregate could not reasonably be expected to have a material adverse
effect on the Company. 

 
 

ARTICLE IV
  
    SALE OF SCHEDULE I SHARES    
    

        Concurrently herewith, each Stockholder is selling, assigning, transferring, setting aside and delivering to Sub, and Sub is purchasing and acquiring from such
Stockholder the number of shares of Common Stock set forth next to such Stockholder's name in column (a) of Schedule I hereto by
delivering to Sub one or more certificates representing such shares, together with one or more stock powers (with appropriate signature guarantees) duly endorsed in blank;  provided, however, that Gail Loia is delivering her shares by giving an irrevocable instruction to
transfer her share through DTC 

4

 

(delivery
of such shares to an account specified by Sub is being guaranteed by Merrill Lynch & Co. Inc.). The purchase price for such shares is $4.30 per share. Accordingly, concurrently
herewith, Sub is delivering to each Stockholder the total purchase price set forth next to such Stockholder's name on Schedule I hereto by wire
transfer to an account set forth in writing by such Stockholder not less than two business days prior to the date hereof. 

 
 

ARTICLE V
  
    STANDSTILL; AGREEMENT TO TENDER    
    

        5.1    Standstill.    Each Stockholder agrees that, during the period commencing on the date hereof and ending on the
earlier of (x) two years after the termination of the Merger Agreement in accordance with its terms and (y) consummation of the Merger, such Stockholder will not, and will not permit any
of its affiliates or agents to, directly or indirectly, in any manner, acquire, agree or offer to acquire, or assist, aid, abet or act in concert with any person to acquire any securities or assets of
the Company or any of its subsidiaries (except, if applicable, for shares acquired upon the exercise of options listed in column (b) of  Schedule I hereto, which such shares shall be subject to
Section 4.2). 

        5.2    Agreement to Tender.    With respect to any shares of Common Stock listed in column (b) of  Schedule I (or options
to purchase such shares) that are not cancelled pursuant to the terms of the Merger Agreement, each Stockholder hereby
agrees to validly tender or cause to be validly tendered, pursuant to and in accordance with the terms of the Offer, all such shares unless the Merger Agreement shall be validly terminated in
accordance with its terms. 

 
 

ARTICLE VI
  
    STOCKHOLDER CAPACITY    
    

        Anything in this Agreement to the contrary notwithstanding, no person executing this Agreement who is or becomes during the term hereof a director or officer of
the Company makes any agreement or understanding herein or is obligated hereunder in his or her capacity as such director or officer. Each Stockholder signs solely in his or her capacity as the record
holder and beneficial owner (as further set forth on Schedule I hereto) of such Stockholder's Schedule I Shares, and nothing herein shall
limit or affect any actions taken by any Stockholder in such Stockholder's capacity as an officer or director of the Company. Accordingly, and by way of non-exhaustive example, if a
Stockholder is a director of the Company, nothing in this Agreement shall prohibit or otherwise restrict such Stockholder in his or her capacity as a director to vote (a) for any Adverse
Recommendation Change in the Merger Agreement or (b) to terminate the Merger Agreement pursuant to Section [9].01(f) of the Merger Agreement and concurrently enter into
a binding Acquisition Agreement containing the terms of a Superior Proposal. 

 
 

ARTICLE VII
  
    INDEMNIFICATION BY THE COMPANY    
    

        7.1    Indemnification.    Prior to the Effective Time, the Company, and from and after the Effective Time, the
Surviving Corporation, shall (i) indemnify and hold harmless, as and to the full extent permitted by applicable law, each Stockholder against any losses, claims, damages, liabilities, costs,
expenses (including reasonable attorneys' fees and expenses), judgments, fines and amounts paid in settlement in connection with any threatened or actual claim, action, suit, demand, proceeding or
investigation in which a Stockholder is, or is threatened to be, made a party based in whole or in part on, or arising in whole or in part out of, or pertaining to, the negotiation, execution or
performance of this Agreement or any of the transactions contemplated hereby, and (ii) in the event of any such threatened or actual claim, action, suit, demand, proceeding or investigation,
promptly pay expenses in 

5

 

advance
of the final disposition of any claim, suit, proceeding or investigation to each Stockholder, to the fullest extent permitted by applicable law. 

        7.2    Certain Successors.    If the Company (or, after the Effective Time, the Surviving Corporation) or any of its
successors or assigns (i) consolidates with or merges into any other person and is not the continuing or surviving corporation or entity of such consolidation or merger or (ii) transfers
or conveys all or substantially all its properties and assets to any person who is an affiliate of the Company immediately prior to the time of such transfer or conveyance, then, and in each such
case, Parent shall cause proper provision to be made so that the successor and assign of the Company (or the Surviving Corporation) assumes the obligations set forth in Section 7.1, and in such
event all references to the Company (or the Surviving Corporation) in this Article VII shall be deemed a reference to such successor and assign. 

 
 

ARTICLE VIII
  
    GENERAL PROVISIONS    
    

        8.1    Fees and Expenses.    Each of the parties shall be responsible for its own fees and expenses (including,
without limitation, the fees and expenses of financial consultants, investment bankers, accountants and
counsel) in connection with the entering into of this Agreement and the consummation of the transactions contemplated hereby and by the Merger Agreement. 

        8.2    Notices.    All notices, requests, claims, demands and other communications hereunder shall be in writing and
shall be deemed given if delivered personally or sent by telecopier or overnight courier (providing proof of delivery) to the parties at the following addresses (or at such other address for a party
as shall be specified by like notice): 

	 	if to Parent or Sub, to:
	

 	

 	
 	

c/o Sun Capital Partners, Inc.

5200 Town Center Circle, Suite 470

Boca Raton, FL 33486

Attention: Marc J. Leder, Rodger R. Krouse and C. Deryl Couch

Telecopier No.: (561) 394-0540
	

 	

with copies to:
	

 	

 	
 	

Hughes Hubbard & Reed LLP

One Battery Park Plaza

New York, NY 10004

Attention: Michael Weinsier

Telecopier No.: (212) 422-4726
	

 	

if to any Stockholder, to the address set forth on Schedule I hereto for such Stockholder, with copies to:
	

 	

 	
 	

Wolff & Samson PC

One Boland Drive

West Orange, NJ 07052

Attention: Morris Bienenfeld

Telecopier No.: (973) 530-2213
	 	 	 	 

6

 

	

 	

if to the Company, to:
	

 	

 	
 	

Rag Shops, Inc.

111 Wagaraw Road

Hawthorne, NJ 07506-2711

Attention: Alan C. Mintz and Jeffrey C. Gerstel

Telecopier: (973) 423-6568
	

 	

with a copy to:
	

 	

 	
 	

Sills Cummis Epstein & Gross P.C.

One Riverfront Plaza

Newark, NJ 07102

Attention: Steven R. Kamen, Esq.

Telecopier No.: (973) 643-6500

        8.3    Interpretation.    When a reference is made in this Agreement to a Section or Schedule,
such reference shall be to a Section or Schedule to, this Agreement unless otherwise indicated. The headings contained in this Agreement are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement. Whenever the words "include", "includes" or "including" are used in this Agreement, they shall be deemed to be followed by the words "without
limitation." The words "hereof", "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this
Agreement. The words "date hereof" shall refer to the date of this Agreement. The term "or" is not exclusive. The word "extent" in the phrase "to the extent" shall mean the degree to which a subject
or other thing extends, and such phrase shall not mean simply "if." The definitions contained in this Agreement are applicable to the singular as well as the plural forms of such terms. Any agreement
or instrument defined or referred to herein or in any agreement or instrument that is referred to herein means such agreement or instrument as from time to time amended, modified or supplemented.
References to a person are also to its permitted successors and assigns. 

        8.4    Counterparts.    This Agreement may be executed in one or more counterparts (including telecopy), all of which
shall be considered one and the same agreement and shall become effective when one or more counterparts have been signed by each of the parties and delivered to the other parties. 

        8.5    Entire Agreement; No Third Party Beneficiaries.    This Agreement and the Merger Agreement
(a) constitute the entire agreement, and supersedes all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter of this Agreement and
the Merger Agreement and (b) are not intended to confer upon any person other than the parties hereto (and their respective successors and assigns) any rights or remedies. 

        8.6    Governing Law.    This Agreement shall be governed by, and construed in accordance with, the laws of the State
of Delaware, regardless of the laws that might otherwise govern under applicable principles of conflicts of laws thereof. 

        8.7    Assignment.    Neither this Agreement nor any of the rights, interests or obligations hereunder shall be
assigned, in whole or in part (except by operation of law), by any of the parties hereto without the prior written consent of the other parties hereto, except that Sub may assign, in its sole
discretion, any of or all its rights, interests and obligations under this Agreement to Parent or to any direct wholly-owned subsidiary of Parent, but no such assignment shall relieve Sub of any of
its obligations hereunder. Subject to the preceding sentence, this Agreement shall be binding upon, inure to the benefit of and be enforceable by, the parties hereto and their respective successors
and assigns. 

7

 

        8.8    Consent to Jurisdiction.    Each of the parties hereto hereby irrevocably and unconditionally submits, for
itself and its property, to the exclusive jurisdiction of the Delaware Court of Chancery or any federal court of the United States of America sitting in the State of Delaware or in the Southern
District of New York, and any appellate court from any thereof, in any suit, action or other proceeding arising out of or relating to this Agreement or the agreements delivered in connection herewith
or the transactions contemplated hereby or thereby or for recognition or enforcement of any judgment relating thereto, and each of the parties hereby irrevocably and unconditionally: (a) agrees
not to commence any such action or proceeding except in such courts; (b) agrees that any claim in respect of any such action or proceeding may be heard and determined in the Delaware Court of
Chancery or, to the extent permitted by law, in such federal court; (c) waives, to the fullest extent it may legally and effectively do so, any objection which it may now or hereafter have to
the laying of venue of any such action or proceeding in the Delaware Court of Chancery or any such federal court; and (d) waives, to the fullest extent permitted by law, the defense of an
inconvenient forum to the maintenance of such action or proceeding in the Delaware Court of Chancery or any such federal court. Each of the parties hereto agrees that a final judgment in any such
action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Each party to this Agreement irrevocably consents to
service of process in the manner provided for notices in Section 8.2. Nothing in this Agreement shall affect the right of any party to this Agreement to serve process in any other manner
permitted by law. 

        8.9    Waiver of Jury Trial.    Each party hereto hereby waives, to the fullest extent permitted by Applicable Laws,
any right it may have to a trial by jury in respect of any suit, action or other proceeding directly or indirectly arising out of, under or in connection with this Agreement. Each party hereto
(a) certifies that no representative, agent or attorney of any other party has represented, expressly or otherwise, that such party would not, in the event of any action, suit or proceeding,
seek to enforce the foregoing waiver and (b) acknowledges that it and the other parties hereto have been induced to enter into this Agreement, by, among other things, the mutual waiver and
certifications in this Section 8.9. 

        8.10    Enforcement.    The parties agree that irreparable damage would occur if any of the provisions of this
Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the parties shall be entitled to an injunction or injunctions to prevent
breaches of this Agreement and to enforce specifically the terms and provisions of this Agreement in any Delaware Court of Chancery or any federal court of the United States of America sitting in the
State of Delaware or in the Southern District of New York, this being in addition to any other remedy to which they are entitled at law or in equity. 

        8.11    Severability.    If any term or other provision of this Agreement is invalid, illegal or incapable of being
enforced by any rule of law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the
transactions contemplated hereby is not affected in any manner materially adverse to any party. Upon such determination that any term or other provision is invalid, illegal or incapable of being
enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner to the end that
transactions contemplated hereby are fulfilled to the extent possible. 

        8.12    Amendments; Waivers.    Any provision of this Agreement may be amended or waived, but only if such amendment
or waiver is in writing and is signed, in the case of an amendment, by each party to this Agreement or, in the case of a waiver, by each party against whom the waiver is to be effective. 

        8.13    Further Assurances.    Promptly upon request by Parent or Sub, each Stockholder shall execute, acknowledge,
deliver, file, re-file, register and re-register, any and all such further acts, 

8

 

certificates,
assurances and other instruments as Parent or Sub may require from time to time in order to: (a) carry out more effectively the purposes and intent of this Agreement;
(b) enable Parent and Sub to exercise and enforce their respective rights and remedies hereunder; and (c) to better transfer, preserve, protect and confirm to Parent and Sub the rights
granted or now or hereafter intended to be granted to them hereunder or under each other instrument executed in connection with or pursuant to this Agreement. 

9

   
        IN WITNESS WHEREOF, Parent, Sub, the Company and each Stockholder have caused this Stock Purchase Agreement to be duly executed as of the day and year first above written. 

	 	 	CRAFTS RETAIL HOLDING CORP.
	

 	
 	

By:	

/s/  MICHAEL FIELDSTONE      
 Name: Michael Fieldstone

Title: Vice President
	

 	
 	

CRAFTS RETAIL ACQUISITION CORP.
	

 	
 	

By:	

/s/  MICHAEL FIELDSTONE      
 Name: Michael Fieldstone

Title: Vice President
	

 	
 	

RAG SHOPS, INC.
	

 	
 	

By:	

/s/  JEFFREY C. GERSTEL      
 Name: Jeffrey C. Gerstel

Title: President

[Stockholder
signatures on next page] 

S-1

 

	

 	
 	

STOCKHOLDERS:
	

 	
 	

 	

/s/  STANLEY BERENZWEIG      
 Stanley Berenzweig
	

 	
 	

 	

/s/  DORIS BERENZWEIG      
 Doris Berenzweig
	

 	
 	

THE DORIS & STANLEY BERENZWEIG

CHARITABLE FOUNDATION, INC.
	

 	
 	

By:	

/s/  STANLEY BERENZWEIG      
 Name: Stanley Berenzweig

Title: President
	

 	
 	

 	

/s/  MONA ADELSON      
 Mona Adelson
	

 	
 	

 	

/s/  GAIL LOIA      
 Gail Loia
	

 	
 	

 	

/s/  STEVEN BARNETT      
 Steven Barnett
	

 	
 	

 	

/s/  JUDITH LOMBARDO      
 Judith Lombardo

S-2

  

 
 

Schedule I
  [Omitted]    
    

I-1

QuickLinks

STOCK PURCHASE AGREEMENT

ARTICLE I REPRESENTATIONS AND WARRANTIES OF EACH STOCKHOLDER

ARTICLE II REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB

ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY

ARTICLE IV SALE OF SCHEDULE I SHARES

ARTICLE V STANDSTILL; AGREEMENT TO TENDER

ARTICLE VI STOCKHOLDER CAPACITY

ARTICLE VII INDEMNIFICATION BY THE COMPANY

ARTICLE VIII GENERAL PROVISIONS

Schedule I [Omitted]

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