UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

 

__________

 

FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

 

Date of report (Date of earliest event reported): July 21, 2014

 

__________

 

HANCOCK FABRICS, INC.

(Exact name of Registrant as Specified in its Charter)

 

Delaware

1-9482

64-0740905

(State or other jurisdiction

(Commission

(I.R.S. Employer

of incorporation)

File Number)

Identification No.)

 

One Fashion Way

Baldwyn, Mississippi 38824

(Address of Principal Executive Offices)

 

(662) 365-6000

(Registrant’s telephone number, including area code)

 

Not Applicable

(Former name or former address, if changed since last report)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

☐

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

☐

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

☐

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

☐

Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 
 
 

 

Item 5.02     Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.

 

On July 21, 2014, Hancock Fabrics, Inc. (the “Company”) announced that the Company has extended the employment agreement with Steven R. Morgan, the Company’s current President and Chief Executive Officer and a member of the Company’s Board of Directors (the “Board”). Mr. Morgan will continue to serve as a member of the Company’s Board. In connection with Mr. Morgan’s extension as President and Chief Executive Officer, Mr. Morgan’s employment agreement with the Company has been amended to reflect the following terms:

 

 

●

The term of Mr. Morgan’s employment agreement will be extended through October 17, 2018, and will automatically be extended for one year periods thereafter unless either party provides notice the term will not be extended.

 

 

●

Mr. Morgan will receive a grant of 320,000 restricted shares of the Company’s common stock, which will vest in four equal installments on October 17, 2015, October 17, 2016, October 17, 2017, and October 17, 2018, subject to his continued employment through the applicable vesting date and to possible acceleration in connection with a change in control of the Company or a termination of his employment that would trigger the right to receive severance benefits as described below.

 

 

●

If Mr. Morgan’s employment is terminated by the Company without “cause” or by him for “good reason” (as such terms are defined in the agreement), he will receive severance equal to three times the sum of his annual base salary and the prior two years’ average annual bonus. If such a termination occurs in connection with a change in control, the severance amount would be four times the sum of his annual base salary and the prior two years’ average annual bonus.

 

Mr. Morgan will also be entitled to participate in a long-term incentive plan to be established by the Company, such plan to be adopted as soon as reasonably practicable and in all events not later than December 31, 2014 and to include such performance criteria and other terms and conditions as mutually agreed to by the Company’s Executive and Compensation Committees.

 

Except as described above, the terms of Mr. Morgan’s employment agreement continue in effect.

 

The foregoing description of the employment agreement amendment is qualified in its entirety by the reference to the full text of the amendment which is filed as Exhibit 10.1 and incorporated by reference.

 

 

Item 9.01     Financial Statements and Exhibits.

 

Exhibit

 

 

Number

 

Description

 

 

 

10.1

  

Employment Agreement Amendment dated July 21, 2014.

     

99.1

 

Press release issued by Hancock Fabrics, Inc. dated July 21, 2014, extension of the employment agreement with the Company’s President and CEO.

 

 
 
 

 

SIGNATURE

 

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

 

HANCOCK FABRICS, INC.

 

 

 

 

 

 

 

 

 

Date: July 21, 2014

By:

/s/ James B. Brown

 

 

Name:

James B. Brown

 

 

Title:

Executive Vice President and Chief Financial Officer

 

 



 

Exhibit 10.1

 

AMENDMENT
to
EMPLOYMENT AGREEMENT

 

THIS AMENDMENT TO EMPLOYMENT AGREEMENT (this “Amendment”) is dated as of July 21, 2014, by and between Hancock Fabrics, Inc., a Delaware corporation (the “Company”), and Steven R. Morgan (the “Executive”).

 

WHEREAS, the Executive is currently employed by the Company as its President and Chief Executive Officer pursuant to that certain Employment Agreement, dated as of November 7, 2011 (the “Employment Agreement”); and

 

WHEREAS, the Company and the Executive desire to amend the Agreement to, among other things, extend the term of the Agreement and provide for the grant of a new equity award to the Executive, as provided herein.

 

NOW, THEREFORE, the parties agree as follows:

 

1.            Section 2 of the Agreement is hereby amended and restated to read in its entirety as follows:

 

“2.     Term.    The term of Executive’s employment pursuant to this Agreement commenced on October 17, 2011 (the “Commencement Date”) and, unless terminated as set forth in Section 9, shall continue through October 17, 2018 (the “Initial Term”). Following the Initial Term, this Agreement shall be extended automatically for successive one (1) year periods (the Initial Term and any extensions being collectively referred to as the “Employment Term”). Notwithstanding the foregoing, Executive shall at all times be considered an “at will” employee (subject to the obligations set forth in this Agreement). Either party may terminate this Agreement as of the end of the then-current period by giving written notice at least sixty (60) days prior to the end of that period. Notwithstanding any termination of this Agreement or Executive’s employment, Sections 9 and 10 shall remain in effect until all obligations and benefits that accrued prior to termination are satisfied.”

 

2.            Section 4(e) of the Agreement is hereby amended and restated to read in its entirety as follows:

 

 

“(e)

participation in a long-term incentive plan to be established by the Company, such plan to be adopted as soon as reasonably practicable and in all events not later than December 31, 2014 and to include such performance criteria and other terms and conditions as mutually agreed to by Executive and the Compensation Committee.”

 

3.            Section 5 of the Agreement is hereby renumbered Section 5(a), and a new Section 5(b) is hereby added to the Agreement to read in its entirety as follows:

 

 
 
 

 

 

“(b)

2014 Equity Incentive Grant.    Executive shall be granted 320,000 shares of restricted common stock, par value $0.01 per share, of the Company (the “2014 Restricted Stock Grant”), pursuant to the Stock Plan. The 2014 Restricted Stock Grant shall vest in four (4) equal installments, vesting on each of October 17, 2015, October 17, 2016, October 17, 2017 and October 17, 2018, subject to Executive’s continued employment with the Company through the applicable vesting date. Notwithstanding the foregoing, the 2014 Restricted Stock Grant shall become immediately vested upon a Change in Control Event (defined herein). The specific terms and conditions of the 2014 Restricted Stock Grant shall be subject to the terms of the Stock Plan, and shall be evidenced by an award agreement between Executive and the Company.”

 

4.            Section 10(a)(ii) of the Agreement is hereby amended and restated to read in its entirety as follows:

 

 

“(ii)

the Company shall pay Executive an amount equal to the sum of (x) three (3) times Executive’s Annual Base Salary in effect immediately prior to the Date of Termination (disregarding any reduction in Annual Base Salary to which Executive did not expressly consent in writing), and (y) three (3) times the average of the Annual Bonus paid or payable to Executive for the two (2) years ended immediately prior to the Date of Termination, annualized if prorated for any partial year (if the Annual Bonus was prorated) (such sum, the “Severance Amount”), as follows: (A) commencing within the period starting sixty (60) days following the Date of Termination and ending on February 28 of the year following the year in which the Date of Termination occurs, the Company shall pay in equal monthly installments 1/36th of the Severance Amount each month in such period, and (B) in a lump-sum payment on or before March 15 following the end of such period, the remaining unpaid balance of the Severance Amount;”

 

5.            Clause (A) of Section 10(a)(iv) of the Agreement and the second sentence of Section 10(c) of the Agreement are each hereby amended to include the 2014 Restricted Stock Grant.

 

6.            The first sentence of Section 11(a) of the Agreement is hereby amended to change the references to “two and one-half (2.5) times” in each of clauses (i) and (ii) of such sentence to “four (4) times.”

 

7.            Except as expressly modified herein, the Agreement shall remain in full force and effect in accordance with its original terms.

 

8.            Capitalized terms that are not defined herein shall have the meanings ascribed to them in the Agreement.

 

9.            This Amendment may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

 

[Remainder of page intentionally left blank]

 

 
2
 

 

IN WITNESS WHEREOF, the parties have caused this Amendment to be duly executed and delivered on the day and year first above written.

 

 

HANCOCK FABRICS, INC.

 

 

 

 

 

 

 

 

 

 

By:

/s/ Sam Cortez

 

 

 

Sam Cortez

 

    Chairman Compensation Committee  
       
  EXECUTIVE  

 

 

 

 

  /s/ Steven R. Morgan  
  Steven R. Morgan  
       

 

 

 

3



 

Exhibit 99.1

 

 

HANCOCK FABRICS ANNOUNCES EXTENSION OF CEO AND PRESIDENT EMPLOYMENT AGREEMENT INTO 2018

 

 

 

BALDWYN, MS, July 21, 2014 – Hancock Fabrics, Inc. (OTC symbol: HKFI) today announced that the Company has extended the employment agreement with Steve Morgan, the Company’s current President and Chief Executive Officer and a member of the Company’s Board of Directors. Additionally, Morgan will continue to serve as a member of the Company’s Board of Directors.

 

Morgan was appointed President and Chief Executive Officer in October 2011 after having served in that role on an interim basis since January 2011. The extension is for a four year period until October 17, 2018, on terms that are similar to the current contract, except with additional equity grants and different severance terms. Per Morgan’s request, there are no changes to salary or bonus structure.

 

Steven D. Scheiwe Chairman of the Board commented, “The last three years have seen a lot of positive changes at Hancock and we as the Board look forward to the next four years as the Company continues to drive the operating results. Steve has devoted a lot of time to building the management team and having consistency at the top will help us to expand upon the improvements made thus far. I am confident in the direction the Company is heading and am excited for the future as Steve helps the Company forge ahead.”

 

Hancock Fabrics, Inc. is committed to being the inspirational authority in fabric and sewing, serving creative enthusiasts with a complete selection of fashion and home decorating textiles, sewing accessories, needlecraft supplies and sewing machines. The Company currently operates 261 retail stores in 37 states and an Internet store at www.hancockfabrics.com.

 

Contact:

 

James B. Brown

Executive Vice President and

Chief Financial Officer

662.365.6112

 

 
 
 

 

Statements in this news release that are not historical facts are forward-looking statements that involve risks and uncertainties which could cause actual results to differ materially from those contained in the forward looking statements. These risks and uncertainties include, but are not limited to the following: our business and operating results may be adversely affected by the general economic conditions and the ongoing slow economic recovery; intense competition and adverse discounting actions taken by competitors, which could have a material effect on our operations; our merchandising initiatives and marketing emphasis may not provide expected results; changes in customer demands and failure to manage inventory effectively could adversely affect our operating results; our inability to effectively implement our growth strategy and access funds for future growth may have an adverse effect on sales growth; our ability to attract and retain skilled people is important to our success; we have significant indebtedness and interest rate increases could negatively impact profitability; our business is dependent on the ability to successfully access funds through capital markets and financial institutions and any inability to access funds may limit our ability to execute our business plan and restrict operations we rely on for future growth; significant changes in discount rates, mortality rates, actual investment return on pension assets, changes in consumer demand or purchase patterns and other factors could affect our earnings, equity, and pension contributions in future periods; business matters encountered by our suppliers may adversely impact our ability to meet our customers’ needs; tightening of purchase terms by suppliers and their factories may have a negative impact on our business; we are vulnerable to risks associated with obtaining merchandise from foreign suppliers; transportation industry challenges and rising fuel costs may negatively impact our operating results; delays or interruptions in the flow of merchandise between our suppliers and/or our distribution center and our stores could adversely impact our operating results; changes in the labor market and in federal, state, or local regulations could have a negative impact on our business; taxing authorities could disagree with our tax treatment of certain deductions or transactions, resulting in unexpected tax assessments; our current cash resources might not be sufficient to meet our expected near-term cash needs; a disruption in our information systems would negatively impact our business; a failure to adequately maintain the security of confidential information could have an adverse effect on our business; failure to comply with various laws and regulations as well as litigation developments could adversely affect our business operations and financial performance; we may not be able to maintain or negotiate favorable lease terms for our retail stores; changes in accounting principles may have a negative impact on our reported results; our results may be adversely affected by serious disruptions or catastrophic events, including geo-political events and weather; changes in newspaper subscription rates may result in reduced exposure to our circular advertisement; the proposed going private transaction may not necessarily result in the anticipated cost savings and benefits; unexpected or unfavorable consumer responses to our promotional or merchandising programs could materially adversely affect our sales, results of operations, cash flow and financial condition; new regulations related to “conflict minerals” may force us to incur additional expenses, may make our supply chain more complex and may result in damage to our reputation with customers; there are risks associated with our common stock trading on the OTC Markets, formerly known as the “Pink Sheets”; our stock price has been volatile and could decrease in value; future sales of our common stock could adversely affect the market price and our future capital-raising activities could involve the issuance of equity securities, which could result in a decline in the trading price of shares of our common stock; we are currently contemplating a potential reverse stock split and deregistration under the Exchange Act which could affect the trading and liquidity of our common stock and the availability of information about the Company if consummated; we do not expect to pay cash dividends on shares of our common stock for the foreseeable future and other risks and uncertainties discussed in the Company’s Securities and Exchange Commission (“SEC”) filings, including the risk factors set forth in Item 1A of the Company's Annual Report on Form 10-K for the year ended January 25, 2014 and the Company’s other reports with the SEC. The Company undertakes no obligation to revise these forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unforeseen events.